EX-19 3 g78861exv19.txt QUARTERLY REPORT EXHIBIT 19 LETTER TO SHAREHOLDERS Popular, Inc.'s performance for the quarter ended September 30, 2002, resulted in a net income of $85.8 million, an increase of $8.6 million, or 11%, compared with $77.2 million in the third quarter of 2001. Earnings per common share, basic and diluted, reached $0.65 for the third quarter of 2002, an increase of 18%, compared with $0.55 in the same period of 2001. In addition to the growth in earnings, the increase in earnings per share for the quarter reflects the impact of the redemption of $100 million of preferred stock in January 2002 and the repurchase of 4.3 million shares of its common stock in May 2002. The Corporation reported a year-to-date net income of $271.1 million as of September 30, 2002, up $42.1 million, or 18%, from $229.0 million for the same period a year ago. Earnings per common share, basic and diluted, for the first nine months of 2002 were $2.00, compared with $1.63 for the same period in 2001, representing an increase of 23%. Earnings performance for the third quarter of 2002 resulted in a return on average assets (ROA) and return on average common equity (ROE) of 1.07% and 16.03%, respectively, compared with 1.10% and 14.71%, respectively, for the third quarter of 2001. For the first nine months of 2002, ROA and ROE were 1.16% and 16.92%, respectively, compared with 1.11% and 15.10%, respectively, for the same period in 2001. Net interest income for the quarter ended September 30, 2002, increased to $297.0 million, a 9% improvement over the $273.4 million reported in the third quarter of 2001. Net interest margin for the quarter, on a taxable equivalent basis, was 4.26%, compared with 4.47% a year earlier. The provision for loan losses totaled $51.0 million, compared with $55.3 million for the third quarter in 2001. Operating income, excluding derivatives, securities and trading transactions, reached $136.8 million for the third quarter of 2002, 9% higher than the $125.0 million reported in the same quarter last year. This rise resulted mostly from higher deposit account charges, insurance commissions, debit card fees and gain on sale of loans, among other factors. Derivative losses for the quarter ended September 30, 2002, totaled $21.8 million, compared with losses of $8.1 million for the same period in 2001. These losses resulted from adjustments to the market value of the interest rate swaps entered into by the Corporation, negatively impacted by the declining interest rate scenario. Operating expenses for the third quarter of 2002 were $253.9 million, rising $22.0 million, or 9%, compared with $231.9 million for the same period in 2001. Personnel costs increased by $15.9 million, compared with the third quarter of 2001, resulting mostly from higher salaries, incentives, profit sharing and pension plan expenses. Other operating expenses, excluding personnel costs, increased $6.0 million, or 5%, mostly in professional fees, business promotions, communications and net occupancy expenses. Moreover, the Corporation opted to adopt the fair value recognition principles for stock options following the provisions of SFAS No. 123 "Accounting for Stock-Based Compensation." These rises were partially offset by a decrease in the amortization of intangibles, namely goodwill, which approximated $4.3 million in the third quarter of 2001. Assets as of September 30, 2002, totaled $32.8 billion, an increase of $4.3 billion over the $28.5 billion reported as of September 30, 2001. Total loans reached $19.3 billion at September 30, 2002, an increase of $1.7 billion, from $17.6 billion at September 30, 2001. Investment securities totaled $10.3 billion at the end of the third quarter of 2002, compared with $8.0 billion in the same period of 2001. Deposits rose to $17.1 billion at September 30, 2002, increasing $1.1 billion, or 7%, from $16.0 billion at the same date a year earlier, principally due to higher savings deposits. Stockholders' equity totaled $2.3 billion as of September 30, 2002 and 2001. Subsequent to December 31, 2001, the Corporation redeemed $100 million of its preferred stock and repurchased 4.3 million shares of its common stock from Banco Popular Retirement Plan. Earnings retention and a favorable change in the value of securities available-for-sale offset these capital reductions. The Corporation's stock market value was $31.60 per share at September 30, 2002, compared with $31.20 at September 30, 2001. As of the end of the third quarter of 2002 and 2001, the Corporation had a market capitalization of $4.2 billion and $4.3 billion, respectively. Book value per share of common stock increased 9% to $17.52, compared with $16.14 as of September 30, 2001. During this quarter, Banco Popular North America (BPNA) announced its recent strategic initiative under the theme "A New Day." The principal objective was to communicate to its employees, BPNA's vision, new organizational structure and strategies necessary to become the premier community bank in the markets the subsidiary serves. "A New Day" emphasizes BPNA's growth opportunities into the future, with the ideology of making dreams come true. As part of the reorganization efforts, BPNA reduced 291 employee positions during the nine months ended September 30, 2002. This resulted in part due to the centralization of many operational and other support areas, which were previously scattered among several of the geographical regions in which the subsidiary operates. Also, as part of these efforts, BPNA, which celebrates more than 40 years of community banking service in the United States, launched an institutional advertising campaign, "Popularity", developed to expand the Bank's brand. BPNA will strive to serve and expand its customerbase, not only into the Hispanic community, but also to other commercial and individual clients with diverse cultural backgrounds, while maintaining its personalized attention, professional guidance and corporate traditions. The campaign's theme "Make Dreams Happen" reflects BPNA's aim to know its customers and help them achieve their dreams. Popular, Inc. cherishes its Corporate and institutional values that have distinguished us throughout 109 years of existence. Our efforts toward excellence in all aspects of our business, together with our vision of continued expansion of products and services, and the implementation of new technologies, have strengthened our leadership, allowing us to capitalize on diversification and growing opportunities. Richard L. Carrion Chairman President Chief Executive Officer Popular, Inc. FINANCIAL HIGHLIGHTS
At September 30, Average for the nine months BALANCE SHEET HIGHLIGHTS 2002 2001 Change 2002 2001 Change -------------------------------------------------------------------------------------------------------------------------------- (In thousands) Money market investments $ 1,153,079 $ 993,015 $ 160,064 $ 876,401 $ 940,107 $ (63,706) Investment and trading securities 10,771,435 8,316,660 2,454,775 10,243,457 8,310,532 1,932,925 Loans 19,263,508 17,632,274 1,631,234 18,517,164 16,800,193 1,716,971 Total assets 32,843,126 28,530,422 4,312,704 31,234,800 27,594,246 3,640,554 Deposits 17,057,856 16,000,236 1,057,620 16,859,835 15,316,240 1,543,595 Borrowings 12,832,702 9,747,704 3,084,998 11,768,240 9,732,654 2,035,586 Stockholders' equity 2,319,012 2,299,457 19,555 2,135,096 2,072,049 63,047 --------------------------------------------------------------------------------------------------------------------------------
Third quarter Nine months OPERATING HIGHLIGHTS 2002 2001 Change 2002 2001 Change --------------------------------------------------------------------------------------------------------------------------------- (In thousands, except per share information) Net interest income $296,955 $273,420 $ 23,535 $877,048 $794,655 $ 82,393 Provision for loan losses 50,992 55,259 (4,267) 155,521 154,755 766 Fees and other income 117,494 118,910 (1,416) 382,890 357,173 25,717 Other expenses, net of minority interest 277,703 259,855 17,848 833,314 768,775 64,539 Cumulative effect of accounting change -- -- -- -- 686 (686) Net income $ 85,754 $ 77,216 $ 8,538 $271,103 $228,984 $ 42,119 Net income applicable to common stock $ 85,754 $ 75,129 $ 10,625 $268,593 $222,722 $ 45,871 Earnings per common share $ 0.65 $ 0.55 $ 0.10 $ 2.00 $ 1.63 $ 0.37 ---------------------------------------------------------------------------------------------------------------------------------
Third quarter Nine months Selected Statistical Information 2002 2001 2002 2001 -------------------------------------------------------------------------------------------------------------------- COMMON STOCK DATA Market price High $35.85 $36.26 $35.85 $36.26 Low 30.11 27.42 27.50 25.25 End 31.60 31.20 31.60 31.20 Book value at period end 17.52 16.14 17.52 16.14 Dividends declared 0.20 0.20 0.60 0.56 Dividend payout ratio 30.85% 36.26% 30.10% 31.78% Price/earnings ratio 12.44x 14.38x 12.44x 14.38x -------------------------------------------------------------------------------------------------------------------- PROFITABILITY RATIOS Return on assets 1.07% 1.10% 1.16% 1.11% Return on common equity 16.03 14.71 16.92 15.10 Net interest spread (taxable equivalent) 3.81 3.79 3.81 3.63 Net interest yield (taxable equivalent) 4.26 4.47 4.29 4.37 Effective tax rate 21.65 26.58 24.17 26.53 Overhead ratio 45.92 41.33 41.48 41.42 Efficiency ratio 58.60 58.20 58.30 59.20 -------------------------------------------------------------------------------------------------------------------- CAPITALIZATION RATIOS Equity to assets 6.66% 7.63% 6.84% 7.51% Tangible equity to assets 6.03 6.87 6.19 6.72 Equity to loans 11.14 12.22 11.53 12.33 Internal capital generation 11.18 9.01 11.80 9.42 Tier I capital to risk-adjusted assets 9.93 10.70 9.93 10.70 Total capital to risk-adjusted assets 11.70 12.68 11.70 12.68 Leverage ratio 6.36 6.91 6.36 6.91 -------------------------------------------------------------------------------------------------------------------- CREDIT QUALITY RATIOS Allowance for losses to loans 1.84% 1.85% 1.84% 1.85% Allowance to non-performing assets 67.24 74.88 67.24 74.88 Allowance to non-performing loans 71.84 80.27 71.84 80.27 Non-performing assets to loans 2.74 2.47 2.74 2.47 Non-performing assets to total assets 1.60 1.53 1.60 1.53 Net charge-offs to average loans 0.93 0.97 1.01 0.95 Provision to net charge-offs 1.15x 1.31x 1.11x 1.29x Net charge-offs earnings coverage 3.62 3.80 3.67 3.88
Additional Information Board Directors Richard L. Carrion, Chairman Antonio Luis Ferre, Vice Chairman ** Juan A. Albors Hernandez * Jose A. Bechara Bravo * Juan J. Bermudez Francisco J. Carreras * Jose B. Carrion Jr. David H. Chafey Jr. Maria Luisa Ferre * Hector R. Gonzalez Jorge A. Junquera Guillermo L. Martinez * Manuel Morales Jr. Alberto M. Paracchini * Francisco M. Rexach Jr. Felix J. Serralles Jr. Jon E. Slater * Julio E. Vizcarrondo Jr. Samuel T. Cespedes, Secretary * Director of Banco Popular de Puerto Rico only ** Director of Popular, Inc. only Executive Officers Richard L. Carrion, Chairman of the Board, President and Chief Executive Officer David H. Chafey Jr., Senior Executive Vice President Jorge A. Junquera, Senior Executive Vice President Maria Isabel P. de Burckhart, Executive Vice President Carlos Colino, Executive Vice President Roberto R. Herencia, Executive Vice President Larry B. Kesler, Executive Vice President Tere Loubriel, Executive Vice President Emilio E. Pinero, Executive Vice President Brunilda Santos de Alvarez, Executive Vice President Carlos J. Vazquez, Executive Vice President Felix M. Villamil, Executive Vice President Shareholders' Information Shareholders' Assistance: Shareholders requiring a change of address, records or information about lost certificates, dividend checks or dividend reinvestment should contact: Banco Popular de Puerto Rico Popular Center Building - 11th Floor, Office 1111 Trust Division (724) 209 Munoz Rivera Ave. Hato Rey, Puerto Rico 00918 Publications: For printed material (annual and quarterly reports, 10-K and 10-Q reports), contact Mr. Amilcar L. Jordan at the Comptroller's Division at (787) 765-9800 ext. 6101, or visit our web site at http://www.popularinc.com. Dividend Reinvestment Plan: The Corporation has a dividend reinvestment plan that provides the shareholder a simple, convenient and cost-effective way to acquire Popular, Inc. common stock. - Dividends can be automatically reinvested in additional shares at 95% of the Average Market Price. - Participants may make optional cash payments of at least $25 and not more than $10,000 per calendar month for investment in additional shares. - No brokerage commissions are charged on purchases under this plan. - Participant's funds will be fully invested, because the plan permits fractions of shares to be credited to a participant's account. If you would like more information on this plan, please contact our Trust Division at (787) 764-1893 or (787) 765-9800 exts. 5637, 5525, 6108 and 6112. Popular, Inc CONSOLIDATED STATEMENTS OF CONDITION
September 30, In thousands 2002 2001 ---------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 574,282 $ 617,012 ---------------------------------------------------------------------------------------------------------------------------- Money market investments: Federal funds sold and securities purchased under agreements to resell 1,149,346 988,262 Time deposits with other banks 3,056 4,343 Bankers' acceptances 677 410 ---------------------------------------------------------------------------------------------------------------------------- 1,153,079 993,015 ---------------------------------------------------------------------------------------------------------------------------- Investment securities available-for-sale, at market value 9,653,348 7,798,028 Investment securities held-to-maturity, at amortized cost 644,685 240,763 Trading account securities, at market value 473,402 277,869 Loans held-for-sale, at lower of cost or market 870,607 910,615 ---------------------------------------------------------------------------------------------------------------------------- Loans 18,693,021 17,042,433 Less: Unearned income 300,120 320,774 Allowance for loan losses 354,282 326,630 ---------------------------------------------------------------------------------------------------------------------------- 18,038,619 16,395,029 ---------------------------------------------------------------------------------------------------------------------------- Premises and equipment 446,161 390,324 Other real estate 33,713 29,257 Accrued income receivable 194,500 189,859 Other assets 546,388 467,296 Goodwill 180,337 180,943 Other intangible assets 34,005 40,412 ---------------------------------------------------------------------------------------------------------------------------- $ 32,843,126 $ 28,530,422 ============================================================================================================================ LIABILITIES AND STOCKHOLDERS EQUITY LIABILITIES: Deposits: Non-interest bearing $ 3,274,152 $ 3,045,604 Interest bearing 13,783,704 12,954,632 ---------------------------------------------------------------------------------------------------------------------------- 17,057,856 16,000,236 Federal funds purchased and securities sold under agreements to repurchase 5,887,739 3,978,199 Other short-term borrowings 2,046,679 3,164,520 Notes payable 4,629,284 2,329,985 Other liabilities 632,476 482,117 ---------------------------------------------------------------------------------------------------------------------------- 30,254,034 25,955,057 ---------------------------------------------------------------------------------------------------------------------------- Subordinated notes 125,000 125,000 ---------------------------------------------------------------------------------------------------------------------------- Preferred beneficial interest in Popular North America's junior subordinated deferrable interest debentures guaranteed by the Corporation 144,000 150,000 ---------------------------------------------------------------------------------------------------------------------------- Minority interest in consolidated subsidiaries 1,080 908 ---------------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY: Preferred stock -- 100,000 Common stock 834,170 831,932 Surplus 275,443 266,525 Retained earnings 1,246,098 1,011,473 Treasury stock, at cost (205,210) (66,136) Accumulated other comprehensive income, net of tax 168,511 155,663 ---------------------------------------------------------------------------------------------------------------------------- 2,319,012 2,299,457 ---------------------------------------------------------------------------------------------------------------------------- $ 32,843,126 $ 28,530,422 ============================================================================================================================
Popular, Inc. CONSOLIDATED STATEMENTS OF INCOME
Quarter ended Nine months ended September 30, September 30, Dollars in thousands, except per share information 2002 2001 2002 2001 --------------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME: Loans $ 391,499 $ 392,801 $ 1,143,887 $ 1,178,207 Money market investments 7,716 10,350 22,871 38,682 Investment securities 105,125 110,095 332,813 362,397 Trading account securities 3,770 3,736 10,357 11,554 --------------------------------------------------------------------------------------------------------------------------------- 508,110 516,982 1,509,928 1,590,840 --------------------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE: Deposits 106,063 130,254 329,349 394,053 Short-term borrowings 46,185 72,664 135,902 276,275 Long-term debt 58,907 40,644 167,629 125,857 --------------------------------------------------------------------------------------------------------------------------------- 211,155 243,562 632,880 796,185 --------------------------------------------------------------------------------------------------------------------------------- Net interest income 296,955 273,420 877,048 794,655 Provision for loan losses 50,992 55,259 155,521 154,755 --------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 245,963 218,161 721,527 639,900 Service charges on deposit accounts 39,484 37,537 117,964 108,505 Other service fees 63,941 61,194 191,666 180,237 Gain (loss) on sale of securities 1,251 1,249 (2,674) (613) Trading account gain (loss) 1,247 777 (142) 149 Derivatives losses (21,759) (8,140) (22,103) (7,119) Gain on sale of loans 14,960 11,068 44,502 31,925 Other operating income 18,370 15,225 53,677 44,089 --------------------------------------------------------------------------------------------------------------------------------- 363,457 337,071 1,104,417 997,073 --------------------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSES: Personnel costs: Salaries 92,704 82,080 272,011 238,742 Profit sharing 5,646 3,986 15,954 13,101 Pension and other benefits 25,163 21,542 78,433 67,402 --------------------------------------------------------------------------------------------------------------------------------- 123,513 107,608 366,398 319,245 Net occupancy expenses 19,581 17,974 58,659 52,895 Equipment expenses 24,469 24,148 73,610 72,850 Other taxes 9,115 9,135 27,948 27,755 Professional fees 22,503 18,798 59,734 53,021 Communications 13,907 12,181 40,292 36,153 Business promotion 15,588 13,414 45,786 37,118 Printing and supplies 4,754 4,269 14,341 13,078 Other operating expenses 18,489 17,525 52,871 53,645 Amortization of intangibles 1,938 6,858 7,037 20,594 253,857 231,910 746,676 686,354 Income before income tax, minority interest and cumulative effect of accounting change 109,600 105,161 357,741 310,719 Income tax 23,730 27,952 86,472 82,440 Net (gain) loss of minority interest (116) 7 (166) 19 --------------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of accounting change 85,754 77,216 271,103 228,298 Cumulative effect of accounting change, net of tax -- -- -- 686 --------------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 85,754 $ 77,216 $ 271,103 $ 228,984 ================================================================================================================================= NET INCOME APPLICABLE TO COMMON STOCK $ 85,754 $ 75,129 $ 268,593 $ 222,722 ================================================================================================================================= EARNINGS PER COMMON SHARE (BASIC AND DILUTED) (BEFORE AND AFTER CUMULATIVE EFFECT OF ACCOUNTING CHANGE) $ 0.65 $ 0.55 $ 2.00 $ 1.63
SUBSIDIARIES Central Office Popular Center 209 Munoz Rivera Avenue San Juan, Puerto Rico 00918 Telephone: (787) 765-9800 Banco Popular de Puerto Rico Puerto Rico Office Popular Center 209 Munoz Rivera Avenue San Juan, Puerto Rico 00918 Telephone: (787) 765-9800 Virgin Islands Office 193 Estate Altona & Welgunst St. Thomas, Virgin Islands 00802 Telephone: (340) 693-2777 Banco Popular North America 4000 West North Avenue Chicago, Illinois 60639 Telephone: (773) 772-8600 Banco Popular, National Association 8523 Commodity Circle Suite 100 Orlando, Florida 32819 Telephone: (407) 370-7800 ATH Costa Rica / CreST, S.A. Tournon Neighborhood, across to newspaper La Republica, ATH Building San Jose, Costa Rica Telephone: (011) 506-257-9011 GM Group, Inc. 1590 Ponce de Leon Avenue San Juan, Puerto Rico 00926 Telephone: (787) 751-4343 Equity One, Inc. Marlton Crossing Office Park 400 Lippincott Drive Marlton, New Jersey 08053 Telephone: (856) 396-2600 Popular Mortgage, Inc. 268 Ponce de Leon Avenue San Juan, Puerto Rico 00918 Telephone: (787) 753-0245 Levitt Mortgage Corporation Galeria San Patricio B-5 Tabonuco Street Suite 207 Guaynabo, Puerto Rico 00968 Telephone: (787) 749-8787 Popular Auto, Inc. M -1046 Federico Costa Street Tres Monjitas Industrial Development San Juan, Puerto Rico 00903 Telephone: (787) 751-4848 Popular Leasing, USA 16296 Westwood Business Parkdrive Ellisville, Missouri 63021 Telephone: (609) 273-1119 Popular Finance, Inc. 1326 Salud Street El Senorial Condominium Suite 613 Ponce, Puerto Rico 00716-1687 Telephone: (787) 844-2860 Popular Cash Express, Inc. 6200 North Hiawatha Suite 200 Chicago, Illinois 60646 Telephone: (773) 205-8300 Popular Securities, Inc. Popular Center 209 Munoz Rivera Avenue Suite 1020 San Juan, Puerto Rico 00918 Telephone: (787) 766-4200 Popular Insurance, Inc. 9 Pedro Marquez Street Culebra, Puerto Rico 00735 Telephone: (787) 742-0255 Popular Insurance Agency, USA 1010 W Lake Street Suite 509 Oak Park, Illinois 60301 Telephone: (773) 394-7680 Popular Insurance, V.I., Inc. 193 Estate Altona & Welgunst St. Thomas, Virgin Islands 00802 Telephone: (340) 693-2781