SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2003 Commission file number 0 - 13818
POPULAR, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Puerto Rico 66-041-6582
(State of incorporation) (I.R.S. Employer
Identification No.)
Popular Center Building
209 Munoz Rivera Avenue, Hato Rey
San Juan, Puerto Rico 00918
----------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (787) 765-9800
Not Applicable
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock $6.00 Par value 132,650,737
---------------------------- ---------------------------------------
(Title of Class) (Shares Outstanding as of May 14, 2003)
Explanatory Note
The Registrant hereby amends Item 1 of Part I of its Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 2003 solely to correct certain
sub-totals in the Consolidated Statements of Cash Flows and the Condensed
Consolidating Statement of Cash Flows included in Note 15 to the Corporation's
Consolidated Financial Statements for the quarter ended March 31, 2003. These
changes do not affect any other items within the financial statements and
related notes included in the Quarterly Report on Form 10-Q filed on May 15,
2003.
In order to preserve the nature and character of the disclosures set forth in
such items as originally filed, this Amendment No. 1 does not reflect events
occurring after the filing of the original Quarterly Report on Form 10-Q on May
15, 2003, or modify or update the disclosures presented in the original
Quarterly Report on Form 10-Q, except to reflect the revisions as described
above.
POPULAR, INC.
INDEX
Part I - Financial Information Page
------------------------------ ----
Item 1. Financial Statements
Unaudited Consolidated Statements of Condition as of March 31, 2003,
December 31, 2002 and March 31, 2002 3
Unaudited Consolidated Statements of Income for the quarters ended
March 31, 2003 and 2002 4
Unaudited Consolidated Statements of Comprehensive Income for
the quarters ended March 31, 2003 and 2002 5
Unaudited Consolidated Statements of Cash Flows for the quarters ended
March 31, 2003 and 2002 6
Notes to Unaudited Consolidated Financial Statements 7-25
Part II - Other Information
Item 6. Exhibits 26
--- Signatures 27
Certifications 28-29
FORWARD-LOOKING INFORMATION. This Amended Quarterly Report on Form
10-Q/A contains certain forward-looking statements with respect to the adequacy
of the allowance for loan losses, the Corporation's market and liquidity risks
and the effect of legal proceedings on Popular, Inc.'s financial condition and
results of operations, among others. These forward-looking statements involve
certain risks, uncertainties, estimates and assumptions by management. Various
factors could cause actual results to differ from those contemplated by such
forward-looking statements.
With respect to the adequacy of the allowance for loan losses and
market risk, these factors include, among others, the rate of growth in the
economy, the relative strength and weakness in the consumer and commercial
credit sectors and in the real estate markets, the performance of the stock and
bond market and the magnitude of interest rate and foreign currency exchange
rate changes.
2
ITEM 1. FINANCIAL STATEMENTS
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
(In thousands, except share information) MARCH 31, December 31, March 31,
2003 2002 2002
------------- ------------- -------------
ASSETS
Cash and due from banks $ 689,090 $ 652,556 $ 383,927
------------- ------------- -------------
Money market investments:
Federal funds sold and securities purchased under agreements to resell 1,004,353 1,091,435 716,123
Time deposits with other banks 4,056 3,057 3,056
Bankers' acceptances 51 154 409
------------- ------------- -------------
1,008,460 1,094,646 719,588
------------- ------------- -------------
Investment securities available-for-sale, at market value:
Pledged securities with creditors' right to repledge 4,366,111 4,397,974 3,339,022
Other investment securities available-for-sale 5,766,363 6,133,929 6,062,136
Investment securities held-to-maturity, at amortized cost 179,737 180,751 202,022
Trading account securities, at market value:
Pledged securities with creditors' right to repledge 464,278 416,979 225,978
Other trading securities 116,723 93,367 73,437
Loans held-for-sale, at lower of cost or market 317,041 1,092,927 900,461
------------- ------------- -------------
Loans:
Loans pledged with creditors' right to repledge 373,034 420,724 233,442
Other loans 19,446,487 18,355,123 17,442,558
Less - Unearned income 274,680 286,655 319,537
Allowance for loan losses 383,517 372,797 341,744
------------- ------------- -------------
19,161,324 18,116,395 17,014,719
------------- ------------- -------------
Premises and equipment 471,777 461,177 404,842
Other real estate 45,759 39,399 34,550
Accrued income receivable 202,491 184,549 191,118
Other assets 689,449 578,091 549,324
Goodwill 184,068 182,965 178,501
Other intangible assets 32,620 34,647 37,741
------------- ------------- -------------
$ 33,695,291 $ 33,660,352 $ 30,317,366
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 3,453,971 $ 3,367,385 $ 3,100,625
Interest bearing 14,183,876 14,247,355 13,423,529
------------- ------------- -------------
17,637,847 17,614,740 16,524,154
Federal funds purchased and securities sold under agreements to repurchase 6,642,379 6,684,551 4,564,815
Other short-term borrowings 1,296,394 1,703,562 2,252,679
Notes payable 4,566,492 4,298,853 3,996,616
Other liabilities 609,343 677,605 524,350
------------- ------------- -------------
30,752,455 30,979,311 27,862,614
------------- ------------- -------------
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 144,000 144,000 144,000
------------- ------------- -------------
Commitments and contingencies (See Note 8)
------------- ------------- -------------
Minority interest in consolidated subsidiaries 1,240 1,162 925
------------- ------------- -------------
Stockholders' equity:
Preferred stock, $25 liquidation value; 10,000,000 shares
authorized (7,475,000 issued and outstanding at March 31, 2003) 186,875 -- --
Common stock, $6 par value; 180,000,000 shares authorized;
139,254,639 shares issued (December 31, 2002 - 139,133,156;
March 31, 2002 - 138,853,580) and 132,552,289 shares outstanding
(December 31, 2002 - 132,439,047; March 31, 2002 - 136,459,471) 835,528 834,799 833,121
Surplus 277,649 278,366 270,766
Retained earnings 1,372,061 1,300,437 1,116,963
Treasury stock - at cost, 6,702,350 shares (December 31, 2002 - 6,694,109;
March 31, 2002 - 2,394,109) (205,527) (205,210) (66,363)
Accumulated other comprehensive income, net of tax of $53,785
(December 31, 2002 - $53,070; March 31, 2002 - $17,197) 206,010 202,487 30,340
------------- ------------- -------------
2,672,596 2,410,879 2,184,827
------------- ------------- -------------
$ 33,695,291 $ 33,660,352 $ 30,317,366
============= ============= =============
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
3
POPULAR, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Quarters ended
March 31,
(Dollars in thousands, except per share information) ----------------------
2003 2002
--------- ---------
INTEREST INCOME:
Loans $ 377,933 $ 372,221
Money market investments 7,363 7,785
Investment securities 109,801 112,311
Trading account securities 8,185 3,502
--------- ---------
503,282 495,819
--------- ---------
INTEREST EXPENSE:
Deposits 94,195 112,931
Short-term borrowings 40,789 44,443
Long-term debt 58,537 53,030
--------- ---------
193,521 210,404
--------- ---------
Net interest income 309,761 285,415
Provision for loan losses 48,209 54,454
--------- ---------
Net interest income after provision for loan losses 261,552 230,961
Service charges on deposit accounts 39,839 38,973
Other service fees 66,426 61,687
Gain (loss) on sale of securities 1,414 (4,010)
Trading account loss (937) (1,030)
Derivatives (losses) gains (10,655) 511
Gain on sales of loans 19,516 17,943
Other operating income 16,557 16,334
--------- ---------
393,712 361,369
--------- ---------
OPERATING EXPENSES:
Personnel costs:
Salaries 96,036 88,561
Profit sharing 6,245 4,940
Pension and other benefits 30,068 26,801
--------- ---------
132,349 120,302
Net occupancy expenses 20,460 19,030
Equipment expenses 26,350 24,765
Other taxes 9,552 9,549
Professional fees 18,776 17,507
Communications 14,697 13,273
Business promotion 15,970 13,367
Printing and supplies 4,743 4,509
Other operating expenses 18,718 17,321
Amortization of intangibles 2,027 2,543
--------- ---------
263,642 242,166
--------- ---------
Income before income tax and minority interest 130,070 119,203
Income tax 30,903 30,148
Net gain of minority interest (78) (11)
--------- ---------
NET INCOME $ 99,089 $ 89,044
========= =========
NET INCOME APPLICABLE TO COMMON STOCK $ 98,140 $ 86,534
========= =========
EARNINGS PER COMMON SHARE (BASIC AND DILUTED) $ 0.74 $ 0.63
========= =========
DIVIDENDS DECLARED PER COMMON SHARE $ 0.20 $ 0.20
========= =========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
4
POPULAR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Quarters ended
March 31,
(In thousands) ----------------------
2003 2002
--------- ---------
Net Income $ 99,089 $ 89,044
--------- ---------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment (7,789) (137)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the
period, net of tax of $1,678 (2002 - ($11,663)) 12,811 (51,124)
Less: reclassification adjustment for gains (losses)
included in net income, net of tax of $539
(2002 - ($1,562)) 875 (2,447)
Net loss on cash flow hedges (2,302) (1,128)
Less: reclassification adjustment for losses included
in net income, net of tax of ($1,059) (2002 - ($63)) (1,678) (100)
Cumulative effect of accounting change -- --
Less: reclassification adjustment for gains included
in net income -- 6
--------- ---------
Total other comprehensive income (loss), net of tax $ 3,523 ($ 49,848)
--------- ---------
Comprehensive income $ 102,612 $ 39,196
========= =========
DISCLOSURE OF ACCUMULATED OTHER COMPREHENSIVE INCOME:
(In thousands) MARCH 31, December 31, March 31,
2003 2002 2002
--------- ------------ ---------
Foreign currency translation adjustment ($ 10,025) ($ 2,236) ($ 1,593)
Unrealized gains on securities 219,561 207,625 32,499
Unrealized losses on derivatives (3,910) (3,286) (950)
Cumulative effect of accounting change 384 384 384
--------- --------- ---------
Accumulated other comprehensive income $ 206,010 $ 202,487 $ 30,340
========= ========= =========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
5
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the quarters ended
March 31,
(In thousands) --------------------------
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 99,089 $ 89,044
----------- -----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of premises and equipment 18,726 19,208
Provision for loan losses 48,209 54,454
Amortization of intangibles 2,027 2,543
Net (gain) loss on sales of investment securities (1,414) 4,010
Net loss (gain) on derivatives 10,655 (511)
Net loss (gain) on disposition of premises and equipment 397 (11)
Net gain on sales of loans, excluding loans held-for-sale (8,566) (2,826)
Net amortization of premiums and accretion of discounts 5,071 4,309
on investments
Net amortization of deferred loan fees and costs 9,402 4,556
Stock options expense 727 --
Net decrease in loans held-for-sale 138,281 39,027
Net increase in trading securities (119,365) (29,229)
Net increase in accrued income receivable (17,942) (4,975)
Net increase in other assets 183 (29,473)
Net decrease in interest payable (12,945) (9,834)
Net increase in deferred and current taxes 9,440 11,936
Net increase in postretirement benefit obligation 2,477 1,494
Net (decrease) increase in other liabilities (48,643) 9,166
----------- -----------
Total adjustments 36,720 73,844
----------- -----------
Net cash provided by operating activities 135,809 162,888
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in money market investments 86,186 104,202
Purchases of investment securities held-to-maturity (140,522) (132,401)
Maturities of investment securities held-to-maturity 141,628 524,322
Purchases of investment securities available-for-sale (1,433,982) (2,113,882)
Maturities of investment securities available-for-sale 1,720,429 1,111,094
Proceeds from sales of investment securities available-for-sale 38,083 809,302
Net disbursements on loans (266,668) (209,788)
Proceeds from sales of loans 279,750 221,705
Acquisition of loan portfolios (495,712) (210,395)
Acquisition of premises and equipment (29,943) (19,837)
Proceeds from sales of premises and equipment 220 1,504
----------- -----------
Net cash (used in) provided by investing activities (100,531) 85,826
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 24,554 161,347
Net decrease in federal funds purchased and securities
sold under agreements to repurchase (42,172) (1,186,952)
Net (decrease) increase in other short-term borrowings (407,168) 425,437
Net proceeds from notes payable and capital securities 267,639 256,405
Dividends paid (27,440) (27,785)
Proceeds from issuance of common stock 3,916 2,846
Proceeds from issuance of preferred stock 182,244 --
Redemption of preferred stock -- (102,000)
Treasury stock acquired (317) (227)
----------- -----------
Net cash provided by (used in) financing activities 1,256 (470,929)
----------- -----------
Net increase (decrease) in cash and due from banks 36,534 (222,215)
Cash and due from banks at beginning of period 652,556 606,142
----------- -----------
Cash and due from banks at end of period $ 689,090 $ 383,927
=========== ===========
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share information)
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Popular, Inc. (the Corporation) is a financial holding company offering a full
range of financial products and services to consumer and corporate customers
through its offices in Puerto Rico, the United States, the Caribbean, including
the U.S. and British Virgin Islands, and Central America. The Corporation's
subsidiaries are engaged in the following businesses: commercial banking, auto
loans and lease financing, mortgage and consumer lending, broker/dealer
activities, retail financial services, insurance agency services and information
technology, ATM and data processing services through its subsidiaries in Puerto
Rico, the United States, the Caribbean and Central America. Note 14 to the
unaudited consolidated financial statements presents further information about
the Corporation's business segments.
The unaudited consolidated financial statements include the accounts of Popular,
Inc. and its subsidiaries. Intercompany accounts and transactions have been
eliminated in consolidation. These statements are, in the opinion of management,
a fair statement of the results for the periods presented. These results are
unaudited, but include all necessary adjustments, of a normal recurring nature,
for a fair statement of such results. Certain minor reclassifications have been
made to the prior period consolidated financial statements to conform with the
2003 presentation.
NOTE 2 - ACCOUNTING CHANGES
FIN No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others"
FASB's Interpretation No. 45 (FIN No. 45) requires a guarantor to recognize, at
the inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The provisions for initial recognition are
effective for guarantees that are issued or modified after December 31, 2002.
The adoption of FIN No. 45 did not have a material impact on the Corporation's
financial position and results of operations for the quarter ended March 31,
2003. Refer to Note 8 to the unaudited consolidated financial statements for
further information.
FIN No. 46 "Consolidation of Variable Interest Entities"
FASB's Interpretation No. 46 (FIN No. 46) expands upon and strengthens existing
accounting guidance that addresses when a company should include in its
financial statements the assets, liabilities and activities of another entity. A
variable interest entity is a corporation, partnership, trust, or any other
legal structure used for business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities. FIN No.
46 requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entity's activities or is entitled to receive a majority of the entity's
residual returns or both. The consolidation requirements of FIN No. 46 apply to
variable interest entities created after January 31, 2003. The consolidation
requirements apply to older entities in the first fiscal year or interim period
beginning after June 15, 2003. The adoption of this Interpretation did not have
a significant impact on the Corporation's financial position or results of
operations.
SFAS No. 149 "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities"
SFAS No. 149 amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 149 (1) clarifies under what circumstances a
contract with an initial net investment meets the characteristic of a derivative
discussed in paragraph 6(b) of SFAS No. 133, (2) clarifies when a derivative
contains a financing component, (3) amends the definition of an underlying to
conform it to language used in FIN No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others", and (4) amends certain
7
other existing pronouncements. Those changes will result in more consistent
reporting of contracts as either derivatives or hybrid instruments. SFAS No. 149
is effective for contracts entered into or modified after June 30, 2003, with
certain exceptions, and for hedging relationships designated after June 30,
2003. In addition, except for certain situations, all provisions of this
Statement should be applied prospectively. Also, the provisions related to
forward purchases or sales of when-issued securities or other securities that do
not yet exist, should be applied to both existing contracts and new contracts
entered into after June 30, 2003. Management is currently evaluating the impact
that SFAS No. 149 may have on the Corporation's financial condition or results
of operations.
NOTE 3 - 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), and contractual maturities of investment securities
available-for-sale as of March 31, 2003, December 31, 2002 and March 31, 2002
were as follows:
AS OF MARCH 31, 2003
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
----------- ----------- ----------- -----------
U.S. Treasury securities (average maturity of 3 months) $ 354,931 $ 1,783 -- $ 356,714
Obligations of other U.S. Government agencies and
corporations (average maturity of 5 years and
9 months) 6,070,056 121,168 $ 244 6,190,980
Obligations of Puerto Rico, States and political
subdivisions (average maturity of 7 years and
10 months) 82,541 5,081 2 87,620
Collateralized mortgage obligations (average maturity of
21 years and 1 month) 2,008,239 9,340 1,534 2,016,045
Mortgage-backed securities (average maturity of 21
years and 7 months) 992,061 37,850 49 1,029,862
Equity securities (without contractual maturity) 247,162 101,371 22 348,511
Others (average maturity of 14 years and 11 months) 101,415 1,330 3 102,742
----------- ----------- ----------- -----------
$ 9,856,405 $ 277,923 $ 1,854 $10,132,474
=========== =========== =========== ===========
AS OF DECEMBER 31, 2002
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
----------- ----------- ----------- -----------
U.S. Treasury securities (average maturity of 6 months) $ 354,957 $ 5,262 -- $ 360,219
Obligations of other U.S. Government agencies and
corporations (average maturity of 5 years and
4 months) 6,192,871 125,675 $ 388 6,318,158
Obligations of Puerto Rico, States and political
subdivisions (average maturity of 7 years and
10 months) 79,004 4,915 14 83,905
Collateralized mortgage obligations (average maturity of
20 years and 6 months) 2,172,117 11,964 272 2,183,809
Mortgage-backed securities (average maturity of
23 years and 5 months) 1,094,276 36,556 156 1,130,676
Equity securities (without contractual maturity) 263,342 77,677 22 340,997
Others (average maturity of 16 years and 8 months) 112,342 1,800 3 114,139
----------- ----------- ----------- -----------
$10,268,909 $ 263,849 $ 855 $10,531,903
=========== =========== =========== ===========
8
AS OF MARCH 31, 2002
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
----------- ----------- ----------- -----------
U.S. Treasury securities (average maturity of 9 months) $ 560,091 $ 11,706 $ 13 $ 571,784
Obligations of other U.S. Government agencies and
corporations (average maturity of 4 years and
8 months) 5,070,786 28,385 66,048 5,033,123
Obligations of Puerto Rico, States and political
subdivisions (average maturity of 8 years and
8 months) 96,806 3,477 188 100,095
Collateralized mortgage obligations (average maturity
of 20 years and 5 months) 2,449,183 12,097 7,392 2,453,888
Mortgage-backed securities (average maturity of 22
years and 5 months) 826,041 9,167 6,706 828,502
Equity securities (without contractual maturity) 258,313 55,705 14 314,004
Others (average maturity of 17 years and 9 months) 97,591 2,175 4 99,762
---------- ---------- ---------- ----------
$9,358,811 $ 122,712 $ 80,365 $9,401,158
========== ========== ========== ==========
Securities not due on a single contractual maturity date, such as
mortgage-backed securities and collateralized mortgage obligations, are
classified in the period of final maturity.
The expected maturities of collateralized mortgage obligations, mortgage-backed
securities and certain other securities may differ from their contractual
maturities because they may be subject to prepayments or callable features.
Stock that is owned by the Corporation to comply with regulatory requirements,
such as Federal Reserve Bank and Federal Home Loan Bank stock, is included as
equity securities available-for-sale, at cost.
NOTE 4 - 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), and contractual maturities of investment securities held-to-maturity
as of March 31, 2003, December 31, 2002 and March 31, 2002 were as follows:
AS OF MARCH 31, 2003
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
----------- ----------- ----------- -----------
Obligations of other U.S. Government agencies and
corporations (average maturity of 1 month) $ 37,996 -- -- $ 37,996
Obligations of Puerto Rico, States and political
subdivisions (average maturity of 11 years and 2
months) 69,809 $ 344 $ 836 69,317
Collateralized mortgage obligations (average maturity of 21
years and 5 months) 1,073 -- 107 966
Others (average maturity of 3 years and 11 months) 70,859 351 45 71,165
-------- -------- -------- --------
$179,737 $ 695 $ 988 $179,444
======== ======== ======== ========
9
AS OF DECEMBER 31, 2002
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
----------- ----------- ----------- -----------
Obligations of other U.S. Government agencies and
corporations (average maturity of 1 month) $ 28,618 $ 4 -- $ 28,622
Obligations of Puerto Rico, States and political
subdivisions (average maturity of 10 years and 1 month) 80,174 933 $ 186 80,921
Collateralized mortgage obligations (average maturity
of 21 years and 7 months) 1,126 -- 112 1,014
Others (average maturity of 2 years and 9 months) 70,833 793 -- 71,626
-------- -------- -------- --------
$180,751 $ 1,730 $ 298 $182,183
======== ======== ======== ========
AS OF MARCH 31, 2002
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
----------- ----------- ----------- -----------
Obligations of other U.S. Government agencies and
corporations (average maturity of 1 month) $ 19,902 -- $ 4 $ 19,898
Obligations of Puerto Rico, States and political
subdivisions (average maturity of 9 years and
10 months) 99,144 $ 2,049 34 101,159
Collateralized mortgage obligations (average maturity of
22 years and 5 months) 1,354 -- 82 1,272
Others (average maturity of 3 years) 81,622 639 291 81,970
-------- -------- -------- --------
$202,022 $ 2,688 $ 411 $204,299
======== ======== ======== ========
Securities not due on a single contractual maturity date, such as
mortgage-backed securities and collateralized mortgage obligations, are
classified in the period of final maturity.
The expected maturities of collateralized mortgage obligations, mortgage-backed
securities and certain other securities may differ from their contractual
maturities because they may be subject to prepayments or callable features.
NOTE 5 - PLEDGED ASSETS
Securities and loans were pledged to secure public and trust deposits,
securities sold under agreements to repurchase, other borrowings and credit
facilities available. The classification and carrying amount of the
Corporation's pledged assets, which the secured parties are not permitted to
sell or repledge the collateral, were as follows:
MARCH 31, December 31, March 31,
(In thousands) 2003 2002 2002
---------- ---------- ----------
Investment securities available-for-sale $2,264,548 $2,046,100 $1,939,364
Investment securities held-to-maturity 2,309 3,278 4,215
Loans 3,829,097 3,402,042 2,347,455
---------- ---------- ----------
$6,095,954 $5,451,420 $4,291,034
========== ========== ==========
Pledged securities and loans that the creditor has the right by custom or
contract to repledge are presented separately in the consolidated statements of
condition.
10
NOTE 6 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In managing its market risk the Corporation enters, to a limited extent, into
certain derivatives primarily interest rate swaps, interest rate forwards and
future contracts, interest rate caps, swaptions, foreign exchange contracts and
interest-rate caps, floors and options embedded in financial contracts.
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 Corporation's use of these
contracts qualifies for cash flow hedge accounting in accordance with SFAS No.
133, as amended, and therefore changes in the fair value of the derivative are
recorded in other comprehensive income. As of March 31, 2003 the total amount
(net of tax) included in accumulated other comprehensive income pertaining to
forward contracts was an unrealized loss of $367. These contracts have a maximum
maturity of 49 days. As of March 31, 2002, the total amount (net of tax)
included in accumulated other comprehensive income pertaining to forward
contracts was an unrealized loss of $379.
The Corporation purchased interest rate caps as part of securitization
transactions in order to limit the interest rate payable to the security
holders. The Corporation's use of these contracts qualifies for cash flow hedge
accounting in accordance with SFAS No. 133, as amended. As of March 31, 2003,
the fair market value of these interest rate caps was $2,140 included in other
assets and the amount included in accumulated other comprehensive income was a
loss of $3,362. These contracts have a maximum maturity of 6.8 years. As part of
these contracts, during the first quarter of 2003 the Corporation reclassified a
loss of $414 from other comprehensive income into earnings related to the
ineffective portion of changes in fair value of the cash flow hedge and $440
pertaining to the caplets expiration, as referred to in DIG G20, both amounts
are included as an increase to interest expense. Assuming no change in interest
rates, $1,920 net of tax, of accumulated other comprehensive loss is expected to
be reclassified to earnings over the next twelve months as contractual payments
are made. As of March 31, 2002, the fair market value of these interest rate
caps included in other assets was $3,370, and the amount included in accumulated
other comprehensive income was a loss of $571.
During the last quarter of 2002, the Corporation entered into a $25,000 notional
amount interest rate swap to convert floating rate debt to fixed rate debt in
order to fix the cost of short-term borrowings. This contract qualified for cash
flow hedge accounting in accordance with SFAS No. 133, as amended. As of March
31, 2003, the fair market value of the interest rate swap included in other
liabilities was a loss of $390, and the amount included in accumulated other
comprehensive income was a loss of $181. This contract matures on October 17,
2005.
For cash flow hedges, gains and losses on derivative contracts that are
reclassified from accumulated other comprehensive income to current-period
earnings are included in the line item in which the hedged item is recorded and
in the same period in which the forecasted transaction affects earnings.
The Corporation enters into options on swaps ("swaption") derivative securities,
which combine the characteristics of interest rate swaps and options. These
swaptions are related to certificates of deposit with returns linked to the
Standard & Poor's 500 index through an embedded option, which has been
bifurcated from the host contract, and in accordance with SFAS No. 133, as
amended, does not qualify for hedge accounting. As of March 31, 2003, the
Corporation had a derivative liability of $15,812 representing the fair value of
the swaptions, which is included in other liabilities. Also, a derivative
liability of $968 which is the fair value of the embedded option and a discount
on the certificates of deposit of $13,920 are included in deposits and the
changes in the value of these derivatives are recorded in the Statement of
Income. As of March 31, 2002, the Corporation had recognized a derivative asset
of $5,901 based on the fair value of the swaptions and a derivative liability of
$7,586 based on the fair value of the bifurcated option; these amounts are
included in other assets and deposits, respectively.
The Corporation uses interest rate swaps to convert floating rate debt to fixed
rate debt in order to fix the future cost of the portfolio of short-term
borrowings. The specific term and notional amounts of the swaps are determined
based on management's assessment of future interest rates, as well as other
factors. These swaps do not qualify as hedges in accordance with SFAS No. 133,
as amended, and therefore changes in fair value of the derivatives are recorded
in the statement of income. For the quarters ended March 31, 2003 and March 31,
2002, the Corporation recognized a loss of $10,655 and a gain of $511,
respectively, as a result of the changes in fair value of the non-hedging
derivatives.
11
The interest-rate caps and floors embedded in the interest bearing contracts are
clearly and closely related to the economic characteristics of the contracts and
therefore, as stated in SFAS No. 133, are not bifurcated from the host
contracts.
NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS
SFAS No. 142 requires that goodwill and other indefinite-life intangible assets
be tested for impairment at least annually using a two-step process at each
reporting unit level. The Corporation's management has defined the reporting
units based on legal entity, which is the way that operating decisions are made
and performance is measured. For presentation purposes, these reporting units
have been aggregated by reportable segments based on the provisions of SFAS No.
131 "Segment Reporting." These segments have been defined as follows: Commercial
Banking, Mortgage and Consumer Lending, Auto and Lease Financing and Other. All
the operating segments and components that constitute reporting units were
determined evaluating the nature of the products and services offered, types of
customers, methods used to distribute their products and provide their services,
and the nature of their regulatory environment, as well as other similar
economic characteristics. Goodwill is assigned to each reporting unit at the
time of acquisition.
The changes in the carrying amount of goodwill for the three months ended March
31, 2003, are as follows:
Mortgage Auto and
Commercial and Consumer Lease
(In thousands) Banking Lending Financing Other Total
---------- ------------ --------- -------- --------
Balance as of January 1, 2003 $110,482 $ 11,247 $ 6,727 $ 54,509 $182,965
Goodwill acquired during the period -- 990 -- 113 1,103
Goodwill written-off during the period -- -- -- -- --
-------- -------- -------- -------- --------
Balance as of March 31, 2003 $110,482 $ 12,237 $ 6,727 $ 54,622 $184,068
======== ======== ======== ======== ========
As of March 31, 2003, December 31, 2002 and March 31, 2002, goodwill totaled
$184,068, $182,965 and $178,501, respectively. The Corporation has no other
intangible assets not subject to amortization.
The following table reflects the components of other intangible assets subject
to amortization as of March 31, 2003, December 31, 2002 and March 31, 2002:
MARCH 31, 2003 December 31, 2002 March 31, 2002
----------------------- ------------------------ -----------------------
GROSS ACCUMULATED Gross Accumulated Gross Accumulated
(In thousands) AMOUNT AMORTIZATION Amount Amortization Amount Amortization
------- ------------ ------- ------------ ------- ------------
Core Deposits $87,739 $58,197 $87,739 $56,263 $87,739 $50,361
Credit-based customer
relationships -- -- -- -- 7,946 7,704
Other customer
relationships 2,886 192 2,886 120 -- --
Other intangibles 509 125 509 104 202 81
------- ------- ------- ------- ------- -------
Total $91,134 $58,514 $91,134 $56,487 $95,887 $58,146
======= ======= ======= ======= ======= =======
During the quarter ended March 31, 2003, the Corporation recognized $2,027 in
amortization expense related to other intangible assets with definite lives
(March 31, 2002 - $2,543).
Certain credit-based customer relationships were fully amortized during the
quarter ended June 30, 2002, and as such, their gross amount and accumulated
amortization were excluded in that quarter from the accounting records and the
tabular disclosure presented above.
The following table presents the estimated aggregate amortization expense of the
intangible assets with definite lives that the Corporation has as of March 31,
2003, for each of the following fiscal years:
12
(In thousands)
2003 $7,836
2004 7,145
2005 5,543
2006 5,394
2007 3,693
No significant events or circumstances have occurred that would reduce the fair
value of any reporting unit below its carrying amount.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
In the normal course of business there are commercial letters of credit and
stand-by letters of credit outstanding, which contract amounts at March 31, 2003
were $28,536 and $139,551, respectively (March 31, 2002 - $13,651 and $78,087;
December 31, 2002 - $19,564 and $126,383). There are also other commitments
outstanding and contingent liabilities, such as commitments to extend credit,
which are not reflected in the accompanying financial statements.
In accordance with the recognition provisions of FIN No. 45, during the first
quarter of 2003, the Corporation recorded a liability of $300, which represents
the fair value of the obligations undertaken in issuing the guarantees under the
stand-by letters of credit issued or modified after December 31, 2002. This
liability was included as part of "other liabilities" in the Statement of
Condition. The stand-by letters of credit were issued to guarantee the
performance of various customers to third parties. The contract amounts in
stand-by letters of credit outstanding as of March 31, 2003 and 2002, and
December 31, 2002 represent the maximum potential amount of future payments the
Corporation could be required to make under the guarantees in the event of
nonperformance by the customers. These stand-by letters of credit are used by
the customer as a credit enhancement and typically expire without being drawn
upon, normally within a year. The Corporation's stand-by letters of credit are
secured and in the event of nonperformance by the customers, the Corporation has
rights to the underlying collateral provided, which normally includes cash and
marketable securities, real estate, receivables and others.
As of March 31, 2003, the Corporation has two outstanding commitments to
purchase mortgage loans from other institutions. In 2002, the Corporation
entered into a commitment to purchase $100,000 of mortgage loans with the option
of purchasing $75,000 in additional loans. The commitment expires on June 30,
2004. As of March 31, 2003, $25,000 in loans had been purchased under this
agreement. The other commitment, entered into by the Corporation during the
first quarter of 2003, provides for the purchase of $150,000 of mortgage loans
with the option of purchasing $50,000 in additional loans. This commitment
expires on September 30, 2004. As of March 31, 2003, $50,000 in loans had been
purchased under this agreement.
The Corporation fully and unconditionally guarantees certain borrowing
obligations issued by certain of the Corporation's wholly-owned subsidiaries
approximating $3,491,505 at March 31, 2003 (December 31, 2002 - $3,382,800).
The Corporation is a defendant in a number of legal proceedings arising in the
normal course of business. Based on the opinion of legal counsel, management
believes that the final disposition of these matters will not have a material
adverse effect on the Corporation's financial position or results of operations.
Refer to Item 1- Legal Proceedings in Part II - Other Information in this Form
10-Q for further information.
NOTE 9 - STOCK OPTION PLAN
In September 2002, the Corporation opted to use the fair value method for
recording stock options as described in SFAS No. 123 "Accounting for Stock-Based
Compensation." During the quarter ended March 31, 2003, the Corporation
recognized $727 in stock option expense.
13
The following table summarizes information about stock options outstanding at
March 31, 2003:
(Not in thousands)
Weighted Average Weighted- Average Weighted Average
Exercise Price Options Exercise Price of Remaining Life of Options Exercise Price of
Range per Share Outstanding Options Outstanding Options Outstanding Exercisable Options Exercisable
--------------- ----------- ------------------- ------------------- ----------- -------------------
$28.78 - $35.65 892,049 $31.38 9.42 years 149,955 $29.97
The following table summarizes the stock option activity and related
information:
Options Weighted Average
(Not in thousands) Outstanding Exercise Price
------------------ ----------- ----------------
Outstanding at January 1, 2002 26,416 $ 31.39
Granted 423,647 29.11
Exercised (199) 32.60
Forfeited (4,789) 28.84
------- ---------
Outstanding at December 31, 2002 445,075 29.25
Granted 451,029 33.46
Exercised -- --
Forfeited (4,055) 28.84
------- ---------
Outstanding at March 31, 2003 892,049 $ 31.38
======= =========
The fair value of these options was estimated on the date of the grants using
the Black-Scholes Option Pricing Model. The weighted average assumptions used
for the grants issued during 2003 were the following: an expected dividend yield
of 2.42% (2002 - 2.16%), an average expected life of options of 10 years (2002 -
10 years), an expected volatility of 24.02% (2002- 26.48%) and a risk-free
interest rate of 3.76% (2002 - 4.91%). The weighted average fair value of
options granted during 2003 was $9.01 per option (2002 - $9.80).
NOTE 10 - SUBORDINATED NOTES AND PREFERRED BENEFICIAL INTEREST IN POPULAR NORTH
AMERICA'S JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
GUARANTEED BY THE CORPORATION
Subordinated notes of $125,000 consist of notes issued by the Corporation on
December 12, 1995, maturing on December 15, 2005, with interest payable
semi-annually at 6.75%.
On February 5, 1997, BanPonce Trust I, a statutory business trust created under
the laws of the State of Delaware that is wholly-owned by Popular North America,
Inc. (PNA) and indirectly wholly-owned by the Corporation, sold to institutional
investors $150,000 of BanPonce Trust I's 8.327% Capital Securities Series A
(liquidation amount one thousand dollars per Capital Security) through certain
underwriters. The proceeds of the issuance, together with the proceeds of the
purchase by PNA of $4,640 of BanPonce Trust I's 8.327% common securities
(liquidation amount one thousand dollars per common security) were used to
purchase $154,640 aggregate principal amount of PNA 8.327% Junior Subordinated
Deferrable Interest Debentures, Series A (the "Junior Subordinated Debentures").
As of March 31, 2003, the Corporation had reacquired $6,000 of the capital
securities. BanPonce Trust I is a 100% owned finance subsidiary of the
Corporation. The capital securities qualify as Tier 1 capital, are fully and
unconditionally guaranteed by the Corporation, and are presented in the
Consolidated Statements of Condition as "Preferred Beneficial Interests in
Popular North America's Junior Subordinated Deferrable Interest Debentures
Guaranteed by the Corporation." The obligations of PNA under the Junior
Subordinated Debentures and its guarantees of the obligations of BanPonce Trust
I are fully and unconditionally guaranteed by the Corporation. The assets of
BanPonce Trust I consisted of $148,640 of Junior Subordinated Debentures at
March 31, 2003 (March 31, 2002 - $154,640; December 31, 2002 - $148,640) and a
related accrued interest receivable of $1,031 (March 31, 2002 - $1,073; December
31, 2002 - $4,126). The Junior Subordinated Debentures mature on February 1,
2027; however, under certain circumstances, the maturity of the Junior
Subordinated Debentures may be shortened (which shortening would result in a
mandatory redemption of the Capital Securities).
14
NOTE 11- STOCKHOLDERS' EQUITY
During the quarter ended March 31, 2003, the Corporation issued 7,475,000 shares
of its 6.375% noncumulative monthly income preferred stock, Series A, at a price
of $25 per share. The net proceeds to the Corporation, after the underwriting
discounts and expenses, amounted to $182,244. Dividends declared during the
quarter on the preferred stock amounted to $949.
For the quarter ended March 31, 2003, the Corporation declared cash dividends on
common stock amounting to $26,515 (March 31, 2002 - $27,295).
NOTE 12 - EARNINGS PER COMMON SHARE
A computation of earnings per common share follows:
Quarter ended
March 31,
-------------------------------
(Dollars in thousands, except share information) 2003 2002
------------ ------------
Net income $ 99,089 $ 89,044
Less: Preferred stock dividends (and redemption
premium in 2002) 949 2,510
------------ ------------
Net income applicable to common stock $ 98,140 $ 86,534
============ ============
Average common shares outstanding 132,576,589 136,475,530
Average potential common shares - stock options 16,499 --
------------ ------------
Average common shares outstanding - assuming dilution 132,593,088 136,475,530
============ ============
Basic earnings per common share $ 0.74 $ 0.63
============ ============
Diluted earnings per common share $ 0.74 $ 0.63
============ ============
Potential common shares consist of common stock issuable under the assumed
exercise of stock options granted under the Corporation's stock option plan,
using the treasury stock method. This method assumes that the potential common
shares are issued and the proceeds from exercise in addition to the amount of
compensation cost attributed to future services are used to purchase common
stock at the exercise date. The difference between the number of potential
shares issued and the shares purchased will be added as incremental shares to
the actual number of shares outstanding to compute diluted earnings per share.
Options with an exercise price greater than the average market price of the
Corporation's common stock are antidilutive and, therefore, are not included in
the computation of diluted earnings per common share. As of March 31, 2003,
there were 415,738 weighted average antidilutive stock options outstanding
(2002 - 228,107). No dilutive potential common shares were outstanding during
the quarter ended March 31, 2002.
NOTE 13 - SUPPLEMENTAL DISCLOSURE ON THE CONSOLIDATED STATEMENTS OF CASH FLOWS
During the quarter ended March 31, 2003, the Corporation paid interest and
income taxes amounting to $206,466 and $19,815, respectively (2002 - $220,238
and $11,737). In addition, the loans receivable transferred to other real estate
and other property for the quarter ended March 31, 2003 amounted to $19,882 and
$6,918, respectively (2002 - $10,740 and $9,267).
During the quarter ended March 31, 2003, the Corporation transferred $637,605 of
loans held-for-sale to the loan portfolio (held-for investment) based on
management intent and ability.
In addition, $83,345 in mortgage backed securities were sold with a settlement
date on April 2003. On the other hand, there were $48,710 in trading securities
purchased in March 2003, with a settlement date on April 2003.
15
NOTE 14 - SEGMENT REPORTING
Popular, Inc. operates three major reportable segments: commercial banking,
mortgage and consumer lending, and auto and lease financing. Management has
determined its reporting units based on legal entity, which is the way that
operating decisions are made and performance is measured. These reporting units
have then been aggregated into segments 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 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, Popular Finance, Equity One and Levitt
Mortgage.
The Corporation's auto and lease financing segment provides financing for
vehicles and equipment through Popular Auto, Inc. in Puerto Rico and Popular
Leasing, USA in the U.S. mainland. The "Other" category includes all holding
companies and non-banking subsidiaries which provide insurance agency services,
retail financial services, 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.
The accounting policies of the segments are the same as those followed by the
Corporation in the ordinary course of business and conform with generally
accepted accounting principles and with general practices within the financial
industry. Following are the results of operations and selected financial
information by operating segments for the quarters ended March 31, 2003 and
2002.
MARCH 31, 2003
-------------------------------------------------------------------------------
Mortgage and Auto and
Commercial Consumer Lease
(In thousands) Banking Lending Financing Other Eliminations Total
---------- ------------ --------- ---------- ------------ -----------
Net interest income $228,232 $61,546 $18,682 $427 $874 $309,761
Provision for loan losses 31,023 12,211 4,975 48,209
Other income 69,690 22,114 5,172 41,929 (6,745) 132,160
Amortization of intangibles 1,937 90 2,027
Depreciation expense 12,768 1,184 2,898 1,876 18,726
Other operating expenses 163,603 34,361 7,821 37,395 (291) 242,889
Net gain of minority interest (78) (78)
Income tax 16,517 12,916 3,209 (39) (1,700) 30,903
----------- ---------- ---------- ---------- ----------- -----------
Net income $72,074 $22,910 $4,951 $3,034 ($3,880) $99,089
----------- ---------- ---------- ---------- ----------- -----------
Segment Assets $26,212,292 $6,192,431 $1,294,593 $7,292,138 $(7,296,163) $33,695,291
----------- ---------- ---------- ---------- ----------- -----------
MARCH 31, 2002
-------------------------------------------------------------------------------
Mortgage and Auto and
Commercial Consumer Lease
(In thousands) Banking Lending Financing Other Eliminations Total
---------- ------------ ----------- ---------- ------------ -----------
Net interest income (loss) $223,018 $48,034 $15,254 ($950) $59 $285,415
Provision for loan losses 37,441 10,268 6,745 54,454
Other income 66,675 17,096 4,737 45,451 (3,551) 130,408
Amortization of intangibles 2,541 2 2,543
Depreciation expense 13,792 1,026 2,878 1,512 19,208
Other operating expenses 152,091 29,718 7,152 31,673 (219) 220,415
Net gain of minority interest (11) (11)
Income tax 18,121 8,331 1,157 3,440 (901) 30,148
----------- ---------- ---------- ---------- ----------- -----------
Net income $65,707 $15,776 $2,059 $7,874 $(2,372) $89,044
----------- ---------- ---------- ---------- ----------- -----------
Segment Assets $24,705,291 $4,595,582 $1,089,577 $6,815,654 $(6,888,738) $30,317,366
----------- ---------- ---------- ---------- ----------- -----------
16
INTERSEGMENT REVENUES *
Three months ended March 31,
----------------------------
(In thousands) 2003 2002
--------- ---------
Commercial Banking $ 16,184 $ 17,027
Mortgage and Consumer Lending (38,247) (42,621)
Auto and Lease Financing (13,071) (13,153)
Other 41,005 42,239
-------- --------
Total Intersegment Revenues $ 5,871 $ 3,492
======== ========
* For purposes of the intersegment revenues disclosure, revenues include
interest income (expense) related to internal funding and other income
derived from intercompany transactions, mainly related to gain on sales of
loans.
GEOGRAPHIC INFORMATION
Three months ended
------------------------
MARCH 31, March 31,
(In thousands) 2003 2002
-------- --------
Revenues*
Puerto Rico $302,945 $282,936
Mainland United States 126,283 117,140
Other 12,693 15,747
-------- --------
Total consolidated revenues $441,921 $415,823
-------- --------
* Total revenues include net interest income, service charges on deposit
accounts, other service fees, gain (loss) on sale of securities,
derivatives (losses) gains, trading account loss, gain on sales of
loans and other operating income.
MARCH 31, December 31, March 31,
(In thousands) 2003 2002 2002
----------- ----------- -----------
Selected Balance Sheet Information:
Puerto Rico
Total assets $21,946,636 $22,307,784 $20,095,919
Loans 10,008,443 10,065,646 9,870,630
Deposits 11,978,409 12,036,491 10,970,858
Mainland United States
Total assets $11,034,161 $10,637,293 $9,460,601
Loans 9,473,139 9,140,382 8,034,586
Deposits 4,839,951 4,778,234 4,736,838
Other
Total assets $714,494 $715,275 $760,846
Loans 380,300 376,091 351,708
Deposits 819,487 800,015 816,458
NOTE 15 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF GUARANTOR AND ISSUERS
OF REGISTERED GUARANTEED SECURITIES:
The following condensed consolidating financial information presents the
financial position of Popular, Inc. Holding Company (PIHC), (parent only)
Popular International Bank, Inc. (PIBI), Popular North America, Inc. (PNA) and
all other subsidiaries of the Corporation as of March 31, 2003, December 31,
2002 and March 31, 2002, and the results of their operations and cash flows for
periods ended March 31, 2003 and 2002. PIBI, PNA, and their wholly-owned
subsidiaries, except Banco Popular North America (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
February 28, 2003, November 30, 2002 and February 28, 2002, corresponds to their
financial information included in the consolidated financial statements of
Popular, Inc. as of March 31, 2003, December 31, 2002 and March 31, 2002,
respectively.
17
PIHC, PIBI and PNA are authorized issuers of debt securities and preferred stock
under various shelf registrations filed with the SEC.
PIBI is an operating subsidiary of PIHC and is the holding company of its
wholly-owned subsidiaries, ATH Costa Rica, CreST, S.A., Popular Insurance, V.I.,
Inc. and PNA.
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,
including its wholly-owned subsidiaries Popular Leasing, U.S.A. and Popular
Insurance, U.S.A.; 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. The principal source of cash flows for
PIHC consists of dividends from Banco Popular de Puerto Rico.
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 in any calendar year would exceed the total of net
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
may also be affected by other regulatory requirements and policies, such as the
maintenance of certain minimum capital levels. At March 31, 2003, BPPR could
have declared a dividend of approximately $68,885 without the approval of the
Federal Reserve Board.
18
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CONDITION
MARCH 31, 2003
(UNAUDITED)
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 $423 $11 $379 $727,524 ($39,247) $689,090
Money market investments 34,707 300 46,643 1,097,231 (170,421) 1,008,460
Investment securities available-for-sale, at market
value 245,047 30,611 7,067 9,852,849 (3,100) 10,132,474
Investment securities held-to-maturity, at
amortized cost 328,377 (148,640) 179,737
Trading account securities, at market value 581,001 581,001
Investment in subsidiaries 2,560,556 793,749 869,816 213,593 (4,437,714)
Loans held-for-sale, at lower of cost or market 332,080 (15,039) 317,041
---------- -------- --------- ----------- ---------- ----------
Loans 86,380 2,618,106 21,429,272 (4,314,237) 19,819,521
Less - Unearned income 274,680 274,680
Allowance for loan losses 383,517 383,517
---------- -------- --------- ----------- ---------- ----------
86,380 2,618,106 20,771,075 (4,314,237) 19,161,324
---------- --------- ----------- ---------- ----------
Premises and equipment 10,988 460,789 471,777
Other real estate 45,759 45,759
Accrued income receivable 312 1 11,891 208,656 (18,369) 202,491
Other assets 25,744 30,349 19,084 609,059 5,213 689,449
Goodwill 184,068 184,068
Other intangible assets 32,620 32,620
---------- -------- --------- ----------- ---------- ----------
$2,964,157 $855,021 $3,572,986 $35,444,681 ($9,141,554) $33,695,291
========== ======== ========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $3,493,156 ($39,185) $3,453,971
Interest bearing 14,207,144 (23,268) 14,183,876
----------- ---------- ----------
17,700,300 (62,453) 17,637,847
Federal funds purchased and securities sold
under agreements to repurchase $365,733 6,434,798 (158,152) 6,642,379
Other short-term borrowings $7,496 $115 497,944 1,847,857 (1,057,018) 1,296,394
Notes payable 119,157 8,788 1,850,153 5,987,679 (3,399,285) 4,566,492
Other liabilities 39,908 155 73,599 518,506 (22,825) 609,343
---------- -------- --------- ----------- ---------- ----------
166,561 9,058 2,787,429 32,489,140 (4,699,733) 30,752,455
---------- -------- --------- ----------- ---------- ----------
Subordinated notes 125,000 125,000
---------- ----------
Preferred beneficial interest in Popular
North America's junior subordinated deferrable
interest debentures guaranteed by the
Corporation 144,000 144,000
----------- ----------- ----------
Minority interest in consolidated subsidiary 110 1,130 1,240
----------- ---------- ----------
Stockholders' equity:
Preferred stock 186,875 186,875
Common stock 835,528 3,962 2 72,577 (76,541) 835,528
Surplus 276,056 649,543 596,964 1,335,998 (2,580,912) 277,649
Retained earnings 1,373,654 186,266 184,622 1,272,421 (1,644,902) 1,372,061
Treasury stock, at cost (205,527) (780) 780 (205,527)
Accumulated other comprehensive income, net of tax 206,010 6,192 3,969 131,215 (141,376) 206,010
---------- -------- --------- ----------- ---------- ----------
2,672,596 845,963 785,557 2,811,431 (4,442,951) 2,672,596
---------- -------- --------- ----------- ---------- ----------
$2,964,157 $855,021 $3,572,986 $35,444,681 ($9,141,554) $33,695,291
========== ======== ========== =========== =========== ===========
19
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CONDITION
DECEMBER 31, 2002
(UNAUDITED)
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 $324 $70 $1,161 $694,114 ($43,113) $652,556
Money market investments 2,937 300 9,708 1,250,994 (169,293) 1,094,646
Investment securities available-for-sale,
at market value 223,661 28,290 6,720 10,278,232 (5,000) 10,531,903
Investment securities held-to-maturity,
at amortized cost 329,391 (148,640) 180,751
Trading account securities, at market value 510,346 510,346
Investment in subsidiaries, at equity 2,322,470 624,306 850,071 199,869 (3,996,716)
Loans held-for-sale, at lower of cost or
market value 1,109,161 (16,234) 1,092,927
---------- -------- ---------- ------------ ------------- -------------
Loans 167,523 2,573,222 20,341,601 (4,306,499) 18,775,847
Less - Unearned income 286,655 286,655
Allowance for loan losses 372,797 372,797
---------- -------- ---------- ------------ ------------- -------------
167,523 2,573,222 19,682,149 (4,306,499) 18,116,395
---------- -------- ---------- ------------ ------------- -------------
Premises and equipment 11,192 449,985 461,177
Other real estate 39,399 39,399
Accrued income receivable 294 2 11,891 194,372 (22,010) 184,549
Other assets 21,781 36,409 15,068 503,268 1,565 578,091
Goodwill 182,965 182,965
Other intangible assets 34,647 34,647
---------- -------- ---------- ------------ ------------- -------------
$2,750,182 $689,377 $3,467,841 $35,458,892 ($8,705,940) $33,660,352
========== ======== ========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $3,410,409 ($43,024) $3,367,385
Interest bearing 14,270,528 (23,173) 14,247,355
------------ ------------- -------------
17,680,937 (66,197) 17,614,740
Federal funds purchased and securities
sold under agreements to repurchase $10,300 $498,883 6,307,488 (132,120) 6,684,551
Other short-term borrowings 29,191 $90 439,052 2,477,471 (1,242,242) 1,703,562
Notes payable 137,777 8,788 1,849,017 5,517,986 (3,214,715) 4,298,853
Other liabilities 37,035 166 64,705 604,830 (29,131) 677,605
---------- -------- ---------- ------------ ------------- -------------
214,303 9,044 2,851,657 32,588,712 (4,684,405) 30,979,311
---------- -------- ---------- ------------ ------------- -------------
Subordinated notes 125,000 125,000
---------- -------------
Preferred beneficial interests in Popular
North America's junior subordinated
deferrable interest debentures guaranteed
by the Corporation 144,000 144,000
------------ ------------- -------------
Minority interest in consolidated subsidiaries 110 1,052 1,162
------------ ------------- -------------
Stockholders' equity:
Common stock 834,799 3,962 2 72,577 (76,541) 834,799
Surplus 278,366 492,543 439,964 1,335,498 (2,268,005) 278,366
Retained earnings 1,300,437 170,874 170,956 1,178,321 (1,520,151) 1,300,437
Treasury stock, at cost (205,210) (463) 463 (205,210)
Accumulated other comprehensive income,
net of tax 202,487 12,954 5,262 140,137 (158,353) 202,487
---------- -------- ---------- ------------ ------------- -------------
2,410,879 680,333 616,184 2,726,070 (4,022,587) 2,410,879
---------- -------- ---------- ------------ ------------- -------------
$2,750,182 $689,377 $3,467,841 $35,458,892 ($8,705,940) $33,660,352
========== ======== ========== =========== =========== ===========
20
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CONDITION
MARCH 31, 2002
(UNAUDITED)
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 $ 319 $ 27 $ 673 $ 429,586 ($46,678) $ 383,927
Money market investments 5,436 301 47 973,980 (260,176) 719,588
Investment securities available-for-sale,
at market value 206,696 22,233 6,580 9,173,949 (8,300) 9,401,158
Investment securities held-to-maturity, at
amortized cost 356,662 (154,640) 202,022
Trading account securities, at market value 305,415 (6,000) 299,415
Investment in subsidiaries 2,137,166 571,625 784,124 171,229 (3,664,144)
Loans held-for-sale, at lower of cost or
market value 872,949 27,512 900,461
----------- ----------- ----------- ----------- ----------- -----------
Loans 261,591 2,603,774 18,978,571 (4,167,936) 17,676,000
Less - Unearned income 319,537 319,537
Allowance for loan losses 341,744 341,744
----------- ----------- ----------- ----------- ----------- -----------
261,591 2,603,774 18,317,290 (4,167,936) 17,014,719
----------- ----------- ----------- ----------- ----------- -----------
Premises and equipment 11,802 393,040 404,842
Other real estate 34,550 34,550
Accrued income receivable 451 1 12,142 197,871 (19,347) 191,118
Other assets 22,489 33,511 9,054 482,751 1,519 549,324
Goodwill 178,501 178,501
Other intangible assets 37,741 37,741
----------- ----------- ----------- ----------- ----------- -----------
$ 2,645,950 $ 627,698 $ 3,416,394 $31,925,514 ($8,298,190) $30,317,366
=========== =========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 3,147,244 ($46,619) $ 3,100,625
Interest bearing 13,454,116 (30,587) 13,423,529
----------- ----------- ----------- ----------- ----------- -----------
16,601,360 (77,206) 16,524,154
Federal funds purchased and securities sold
under agreements to repurchase $ 40,300 $ 399,038 4,339,067 (213,590) 4,564,815
Other short-term borrowings 59,975 $ 4,297 426,568 2,812,312 (1,050,473) 2,252,679
Notes payable 191,733 1,980,974 5,065,598 (3,241,689) 3,996,616
Other liabilities 44,115 81 46,582 458,479 (24,907) 524,350
----------- ----------- ----------- ----------- ----------- -----------
336,123 4,378 2,853,162 29,276,816 (4,607,865) 27,862,614
----------- ----------- ----------- ----------- ----------- -----------
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 (6,000) 144,000
----------- ----------- ----------- ----------- ----------- -----------
Minority interest in consolidated subsidiary 110 815 925
----------- ----------- ----------- ----------- ----------- -----------
Stockholders' equity:
Common stock 833,121 3,962 2 72,575 (76,539) 833,121
Surplus 270,766 492,494 439,964 1,335,418 (2,267,876) 270,766
Retained earnings 1,116,963 122,542 125,942 1,101,995 (1,350,479) 1,116,963
Treasury stock, at cost (66,363) (463) 463 (66,363)
Accumulated other comprehensive income (loss),
net of tax 30,340 4,322 (2,676) (10,937) 9,291 30,340
----------- ----------- ----------- ----------- ----------- -----------
2,184,827 623,320 563,232 2,498,588 (3,685,140) 2,184,827
----------- ----------- ----------- ----------- ----------- -----------
$ 2,645,950 $ 627,698 $ 3,416,394 $31,925,514 ($8,298,190) $30,317,366
=========== =========== =========== =========== =========== ===========
21
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE QUARTER ENDED MARCH 31, 2003
(UNAUDITED)
Popular,Inc. PIBI PNA All other Elimination Popular, Inc.
(In thousands) Holding Co. Holding Co. Holding Co. Subsidiaries Entries Consolidated
-------------- ------------ ----------- ----------- ------------ ------- ------------
INTEREST INCOME:
Loans $1,538 $ 36,450 $394,242 ($54,297) $377,933
Money market investments 47 $ 2 39 18,525 (11,250) 7,363
Investment securities 444 198 112,096 (2,937) 109,801
Trading account securities 8,185 8,185
------- ------- -------- -------- --------- -------
2,029 2 36,687 533,048 (68,484) 503,282
------- ------- -------- -------- --------- -------
INTEREST EXPENSE:
Deposits 94,350 (155) 94,195
Short-term borrowings 203 5,094 54,810 (19,318) 40,789
Long-term debt 4,582 57 32,091 71,693 (49,886) 58,537
------- ------- -------- -------- --------- -------
4,785 57 37,185 220,853 (69,359) 193,521
------- ------- -------- -------- --------- -------
Net interest (loss) income (2,756) (55) (498) 312,195 875 309,761
Provision for loan losses 48,209 48,209
------- ------- -------- -------- --------- -------
Net interest (loss) income after provision for
loan losses (2,756) (55) (498) 263,986 875 261,552
Service charges on deposit accounts 39,851 (12) 39,839
Other service fees 67,588 (1,162) 66,426
(Loss) gain on sale of securities (27) 1,441 1,414
Trading account loss (937) (937)
Derivatives (losses) gains (10,813) 158 (10,655)
Gain on sales of loans 23,706 (4,190) 19,516
Other operating income 4,320 1,633 11,984 (1,380) 16,557
------- ------- -------- -------- --------- -------
1,564 1,578 (11,338) 407,777 (5,869) 393,712
------- ------- -------- -------- --------- -------
OPERATING EXPENSES:
Personnel costs:
Salaries 78 95,957 1 96,036
Profit sharing 6,245 6,245
Pension and other benefits 17 30,051 30,068
------- ------- -------- -------- --------- -------
95 132,253 1 132,349
Net occupancy expenses 3 20,457 20,460
Equipment expenses 26,350 26,350
Other taxes 291 9,261 9,552
Professional fees 209 5 71 18,567 (76) 18,776
Communications 8 14,689 14,697
Business promotion 15,970 15,970
Printing and supplies 4,743 4,743
Other operating expenses 66 23 131 18,715 (217) 18,718
Amortization of intangibles 2,027 2,027
------- ------- -------- -------- --------- -------
574 126 202 263,032 (292) 263,642
------- ------- -------- -------- --------- -------
Income (loss) before income tax, minority interest
and equity in earnings of subsidiaries 990 1,452 (11,540) 144,745 (5,577) 130,070
Income tax (4,051) 36,654 (1,700) 30,903
Net gain of minority interest (78) (78)
------- ------- -------- -------- --------- -------
Income (loss) before equity in earnings of 990 1,452 (7,489) 108,013 (3,877) 99,089
subsidiaries
Equity in earnings of subsidiaries 98,099 13,940 21,154 12,105 (145,298)
------- ------- -------- -------- --------- -------
NET INCOME $99,089 $15,392 $ 13,665 $120,118 ($149,175) $99,089
======= ======= ======== ======== ========= =======
22
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE QUARTER ENDED MARCH 31, 2002
(UNAUDITED)
Popular, Inc. PIBI PNA Other Elimination Popular, Inc.
(In thousands) Holding Co. Holding Co. Holding Co. Subsidiaries entries Consolidated
------------ ----------- ----------- ------------ ----------- --------------
INTEREST INCOME:
Loans $ 3,444 $38,186 $388,811 ($58,220) $372,221
Money market investments 121 $ 3 6 18,598 (10,943) 7,785
Investment securities 192 189 115,203 (3,273) 112,311
Trading account securities 3,545 (43) 3,502
------- ------- ------- -------- --------- -------
3,757 3 38,381 526,157 (72,479) 495,819
------- ------- ------- -------- --------- -------
INTEREST EXPENSE:
Deposits 113,186 (255) 112,931
Short-term borrowings 317 22 5,776 57,244 (18,916) 44,443
Long-term debt 5,248 33,014 68,135 (53,367) 53,030
------- ------- ------- -------- --------- -------
5,565 22 38,790 238,565 (72,538) 210,404
------- ------- ------- -------- --------- -------
Net interest (loss) income (1,808) (19) (409) 287,592 59 285,415
Provision for loan losses 54,454 54,454
------- ------- ------- -------- --------- -------
Net interest (loss) income after provision
for loan losses (1,808) (19) (409) 233,138 59 230,961
Service charges on deposit accounts 38,973 38,973
Other service fees 61,750 (63) 61,687
Loss on sale of securities (4,010) (4,010)
Trading account loss (1,030) (1,030)
Derivatives gains (losses) 645 (134) 511
Gain on sales of loans 20,603 (2,660) 17,943
Other operating income 2,135 1,614 13,414 (829) 16,334
------- ------- ------- -------- --------- -------
327 1,595 236 362,704 (3,493) 361,369
------- ------- ------- -------- --------- -------
OPERATING EXPENSES:
Personnel costs:
Salaries 78 88,483 88,561
Profit sharing 4,940 4,940
Pension and other benefits 16 26,785 26,801
------- ------- ------- -------- --------- -------
94 120,208 120,302
Net occupancy expenses 3 19,027 19,030
Equipment expenses 24,765 24,765
Other taxes 245 9,304 9,549
Professional fees 146 4 46 17,391 (80) 17,507
Communications 8 13,265 13,273
Business promotion 13,367 13,367
Printing and supplies 4,509 4,509
Other operating expenses 53 20 107 17,281 (140) 17,321
Amortization of intangibles 2,543 2,543
------- ------- ------- -------- --------- -------
452 121 153 241,660 (220) 242,166
------- ------- ------- -------- --------- -------
(Loss) income before income tax, minority
interest and equity in earnings of subsidiaries (125) 1,474 83 121,044 (3,273) 119,203
Income tax (13) 17 31,045 (901) 30,148
Net gain of minority interest (11) (11)
------- ------- ------- -------- --------- -------
(Loss) income before equity in earnings
of subsidiaries (112) 1,474 66 89,988 (2,372) 89,044
Equity in earnings of subsidiaries 89,156 15,320 15,189 6,954 (126,619)
------- ------- ------- -------- --------- -------
NET INCOME $89,044 $16,794 $15,255 $ 96,942 ($128,991) $89,044
======= ======= ======= ======== ========= =======
23
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED MARCH 31, 2003
(UNAUDITED)
Popular, Inc. PIBI PNA All other Elimination Consolidated
(In thousands) Holding Co. Holding Co. Holding Co. Subsidiaries Entries Popular, Inc.
-------------- ----------- ----------- ------------ ------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 99,089 $ 15,392 $ 13,665 $ 120,118 ($149,175) $ 99,089
---------- --------- -------- ---------- --------- ----------
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Equity in undistributed earnings of
subsidiaries (98,099) (13,940) (21,154) (12,105) 145,298
Depreciation and amortization of premises
and equipment 203 18,523 18,726
Provision for loan losses 48,209 48,209
Amortization of intangibles 2,027 2,027
Net loss (gain) on sales of investment
securities 27 (1,441) (1,414)
Net loss (gain) on derivatives 10,813 (158) 10,655
Net loss on disposition of premises and equipment 397 397
Net gain on sales of loans, excluding loans
held-for-sale (8,566) (8,566)
Net amortization of premiums and accretion of
discounts on investments 5,071 5,071
Net amortization of deferred loan fees and costs 9,402 9,402
Stock options expense 33 694 727
Net decrease in loans held-for-sale 139,476 (1,195) 138,281
Net increase in trading securities (119,365) (119,365)
Net (increase) decrease in accrued income
receivable (18) 1 (14,284) (3,641) (17,942)
Net increase in other assets (6,635) (1,525) (28) 9,331 (960) 183
Net increase (decrease) in interest payable 135 57 (1,152) (15,688) 3,703 (12,945)
Net increase (decrease) in deferred and
current taxes 2,672 (1,076) 10,532 (2,688) 9,440
Net increase in postretirement benefit obligation 2,477 2,477
Net increase (decrease) in other liabilities 734 (69) (3,740) (48,168) 2,600 (48,643)
---------- --------- -------- ---------- --------- ----------
Total adjustments (100,975) (15,476) (16,310) 26,364 143,117 36,720
---------- --------- -------- ---------- --------- ----------
Net cash (used in) provided by operating
activities (1,886) (84) (2,645) 146,482 (6,058) 135,809
---------- --------- -------- ---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in money market
investments (31,770) (36,935) 153,763 1,128 86,186
Purchases of investment securities
held-to-maturity (140,522) (140,522)
Maturities of investment securities
held-to-maturity 141,628 141,628
Purchases of investment securities
available-for-sale (13,779) (1,420,203) (1,433,982)
Maturities of investment securities
available-for-sale 1,722,329 (1,900) 1,720,429
Proceeds from sales of investment securities
available-for-sale 13,583 24,500 38,083
Net collections (disbursements) on loans 81,143 (44,884) (310,665) 7,738 (266,668)
Proceeds from sales of loans 279,750 279,750
Acquisition of loan portfolios (495,712) (495,712)
Capital contribution to subsidiary (180,000) (157,000) 337,000
Acquisition of premises and equipment (29,943) (29,943)
Proceeds from sale of premises and equipment 220 220
Dividends received from subsidiary 26,100 (26,100)
---------- --------- -------- ---------- --------- ----------
Net cash (provided by) used in investing
activities (104,527) (157,000) (82,015) (74,855) 317,866 (100,531)
---------- --------- -------- ---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 20,811 3,743 24,554
Net (decrease) increase in federal funds
purchased and securities sold under
agreements to repurchase (10,300) (133,150) 127,310 (26,032) (42,172)
Net (decrease) increase in other short-term
borrowings (21,695) 25 58,892 (629,614) 185,224 (407,168)
Net (payments of) proceeds from notes
payable and capital securities (18,620) 1,136 469,693 (184,570) 267,639
Dividends paid to parent company (26,100) 26,100
Dividends paid (27,440) (27,440)
Proceeds from issuance of common stock 3,916 3,916
Net proceeds from issuance of
preferred stock 180,651 1,593 182,244
Treasury stock acquired (317) (317)
Capital contribution from parent 157,000 157,000 (314,000)
---------- --------- -------- ---------- --------- ----------
Net cash provided by (used in) financing
activities 106,512 157,025 83,878 (38,217) (307,942) 1,256
---------- --------- -------- ---------- --------- ----------
Net increase (decrease) in cash and due
from banks 99 (59) (782) 33,410 3,866 36,534
Cash and due from banks at beginning
of period 324 70 1,161 694,114 (43,113) 652,556
---------- --------- -------- ---------- --------- ----------
Cash and due from banks at end of period $ 423 $ 11 $ 379 $ 727,524 ($39,247) $ 689,090
========== ========= ======== ========== ========= ==========
24
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED MARCH 31, 2002
(UNAUDITED)
Popular, Inc. PIBI PNA All other Elimination Consolidated
(In thousands) Holding Co. Holding Co. Holding Co. Subsidiaries Entries Popular, Inc.
------------ ----------- ----------- ------------ ----------- -------------
Cash flows from operating activities:
Net income $ 89,044 $ 16,794 $ 15,255 $ 96,942 ($128,991) $ 89,044
--------- -------- --------- ---------- --------- -----------
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Equity in undistributed earnings of
subsidiaries (89,156) (15,320) (15,189) (6,954) 126,619
Depreciation and amortization of premises
and equipment 203 19,005 19,208
Provision for loan losses 54,454 54,454
Amortization of intangibles 2,543 2,543
Net loss on sale of investment securities 4,010 4,010
Net (gain) loss on derivatives (645) 134 (511)
Net gain on disposition of premises and equipment (11) (11)
Net gain on sale of loans, excluding loans
held-for-sale (2,826) (2,826)
Net amortization of premiums and accretion of
discounts on investments 4,309 4,309
Net decrease in loans held-for-sale 84,453 (45,426) 39,027
Net amortization of deferred loan fees and costs 4,556 4,556
Net increase in trading securities (34,309) 5,080 (29,229)
Net (increase) decrease in accrued income
receivable (127) 1 121 (1,573) (3,397) (4,975)
Net (increase) decrease in other assets (1,663) (1,501) 261 (25,361) (1,209) (29,473)
Net increase (decrease) in interest payable 754 14 (1,709) (8,893) (9,834)
Net increase (decrease) in deferred and
current taxes (45) (54) 11,826 209 11,936
Net increase in postretirement benefit obligation 1,494 1,494
Net increase (decrease) in other liabilities 1,271 (5) 709 (554) 7,745 9,166
--------- -------- --------- ---------- --------- -----------
Total adjustments (88,763) (16,811) (16,506) 106,303 89,621 73,844
--------- -------- --------- ---------- --------- -----------
Net cash provided by (used in) operating activities 281 (17) (1,251) 203,245 (39,370) 162,888
--------- -------- --------- ---------- --------- -----------
Cash flows from investing activities:
Net decrease in money market
investments 107,500 1 395 101,322 (105,016) 104,202
Purchases of investment securities
held-to-maturity (132,401) (132,401)
Maturities of investment securities
held-to-maturity 524,322 524,322
Purchases of investment securities
available-for-sale (36,197) (38) (2,076,987) (660) (2,113,882)
Maturities of investment securities
available-for-sale 1,113,794 (2,700) 1,111,094
Proceeds from sales of investment securities
available-for-sale 809,302 809,302
Net disbursements on loans (65,180) (66,753) (196,196) 118,341 (209,788)
Proceeds from sale of loans 221,705 221,705
Acquisition of loan portfolios (210,395) (210,395)
Acquisition of premises and equipment (19,837) (19,837)
Proceeds from sale of premises and equipment 1,504 1,504
Dividends received from subsidiary 27,500 (27,500)
--------- -------- --------- ---------- --------- -----------
Net cash provided by (used in) investing
activities 33,623 1 (66,396) 136,133 (17,535) 85,826
--------- -------- --------- ---------- --------- -----------
Cash flows from financing activities:
Net increase in deposits 177,783 (16,436) 161,347
Net increase (decrease) in federal funds
purchased and securities sold under
agreements to repurchase 40,300 (22,580) (1,222,816) 18,144 (1,186,952)
Net increase (decrease) in other short-term
borrowings 59,975 25 (109,874) 147,536 327,775 425,437
Net (payments) proceeds from issuance
of notes payable and capital securities (7,184) 200,522 356,338 (293,271) 256,405
Dividends paid (27,785) (27,500) 27,500 (27,785)
Proceeds from issuance of common stock 2,846 2,846
Redemption of preferred stock (102,000) (102,000)
Treasury stock acquired (227) (227)
--------- -------- --------- ---------- --------- -----------
Net cash (used in) provided by financing
activities (33,848) 25 68,068 (568,886) 63,712 (470,929)
--------- -------- --------- ---------- --------- -----------
Net increase (decrease) in cash and due from
banks 56 9 421 (229,508) 6,807 (222,215)
Cash and due from banks at beginning of year 263 18 252 659,094 (53,485) 606,142
--------- -------- --------- ---------- --------- -----------
Cash and due from banks at end of year $ 319 $ 27 $ 673 $ 429,586 ($46,678) $ 383,927
========= ======== ========= ========== ========= ===========
25
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS
a) Exhibit No. Exhibit Description Reference
-------------- ------------------- ---------------
99.1 Certifications pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes -Oxley Act of 2002. Exhibit A and B
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POPULAR, INC.
(Registrant)
Date: May 20, 2003 By: /s/ Jorge A. Junquera
-----------------------------------
Jorge A. Junquera
Senior Executive Vice President
Date: May 20, 2003 By: /s/ Amilcar L. Jordan
-----------------------------------
Amilcar L. Jordan, Esq.
Senior Vice President & Comptroller
27
CERTIFICATION
I, Richard L. Carrion, certify that:
1. I have reviewed this amended quarterly report on Form 10-Q/A of Popular,
Inc.;
2. Based on my knowledge, this amended quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this amended quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 20, 2003
By: /s/ Richard L. Carrion
-----------------------------------
Richard L. Carrion
Chief Executive Officer
28
CERTIFICATION
I, Jorge A. Junquera, certify that:
1. I have reviewed this amended quarterly report on Form 10-Q/A of
Popular, Inc.;
2. Based on my knowledge, this amended quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this amended quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 20, 2003
By: /s/ Jorge A. Junquera
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Jorge A. Junquera
Chief Financial Officer
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