SECURITIES AND EXCHANGE COMMISSION
FORM 10 - Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2004
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Commission file number 0 13818 |
POPULAR, INC.
Puerto Rico | 66-0416582 | |
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(State of incorporation) | (I.R.S. Employer | |
Identification No.) |
Popular Center Building
209 Muñoz Rivera Avenue, Hato Rey
San Juan, Puerto Rico 00918
Registrants telephone number, including area code (787) 765-9800
Not Applicable
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 issuers classes of
common stock, as of the latest practicable date:
Common Stock $6.00 Par value
266,608,220
(Title of Class)
(Shares Outstanding as of November 3, 2004)
POPULAR, INC.
INDEX
Forward-Looking Information . The information included in this Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the adequacy of the allowance for loan losses, the Corporations market and liquidity risks and the effect of legal proceedings on Popular, Inc.s financial condition and results of operations, among others. Forward-looking statements are typically identified by words or phrases such as believe, expect, anticipate, intend, estimate, may increase, may fluctuate, and similar expressions or future or conditional verbs such as will, should, would, and could. These forward-looking statements involve certain risks, uncertainties, estimates and assumptions by management. Various factors such as regional and national economic conditions, competitive and regulatory factors, and legislative changes, 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. Moreover, the outcome of litigation, as discussed in Part II, Item I. Legal Proceedings, is inherently uncertain and depends on judicial interpretations of law and the findings of judges and juries. The Corporation assumes no obligation to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.
ITEM 1. FINANCIAL STATEMENTS
POPULAR, INC.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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POPULAR, INC.
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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POPULAR, INC.
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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POPULAR, INC.
Disclosure of accumulated other comprehensive income:
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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POPULAR, INC.
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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Notes to Unaudited Consolidated Financial Statements
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 and the
Caribbean, including the U.S. and British Virgin Islands, and Central
America. The Corporations subsidiaries are engaged in the following
businesses: commercial banking, auto loans and lease financing, mortgage and
consumer lending, broker/dealer and investment banking services, retail
financial services, insurance agency and reinsurance services , information
technology and ATM and data processing services. Note 15 to the unaudited
consolidated financial statements presents information about the Corporations
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 unaudited statements are, in the
opinion of management, a fair statement of the results for the periods
presented and include all necessary adjustments, of a normal recurring nature,
for a fair statement of such results. Certain reclassifications have been made
to the prior period unaudited consolidated financial statements to conform to
the 2004 presentation.
As further described in Note 12 to the unaudited consolidated financial
statements, during the second quarter of 2004, the Corporations Board of
Directors authorized a two-for-one stock split in the form of a stock
dividend. All references to the numbers of common shares and per share amounts
in the financial statements and notes to the financial statements, except for
the number of shares authorized in 2003 and the number of shares issued,
outstanding and held in treasury as of September 30, 2003 and December 31,
2003 presented in the consolidated statements of condition, have been restated
to reflect the stock split.
Certain information and note disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting
principles in the United States of America have been condensed or omitted from
these statements pursuant to the rules and regulations of the Securities and
Exchange Commission and, accordingly, these financial statements should be
read in conjunction with the audited Consolidated Financial Statements of the
Corporation for the year ended December 31, 2003, included in the
Corporations Annual Report on Form 10-K.
Recent Acquisitions
On August 31, 2004, the Corporation completed its acquisition of Quaker City
Bancorp, Inc. (Quaker City), the holding company of Quaker City Bank, based
in Whittier, California. As of that date, excluding the effect of purchase
accounting entries, Quaker City had assets of approximately $2,100,000, a loan
portfolio of approximately $1,500,000 and deposits of approximately $1,200,000.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated to
U.S. dollars using prevailing rates of exchange at the end of the period.
Revenues, expenses, gains and losses are translated using weighted average
rates for the period. The resulting foreign currency translation adjustment
from operations for which the functional currency is other than the U.S.
dollar is reported in accumulated other comprehensive income, except for
highly inflationary environments in which the effects are included in other
operating income.
The Corporation conducts business in certain Latin American markets through
several of its processing and information technology services and products
subsidiaries. Also, it holds interests in Consorcio de Tarjetas Dominicanas,
S.A. and Centro Financiero BHD, S.A. in the Dominican Republic. Although not
significant, some of these businesses are conducted in the countrys particular
foreign currency. At September 30, 2004, the Corporation had $35,329 in an
unfavorable foreign currency translation adjustment as part of accumulated
other comprehensive income. The Corporation had been monitoring the inflation
levels in the Dominican Republic to evaluate whether it
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met the highly inflationary economy test prescribed by SFAS No. 52 Foreign
Currency Translation. Such statement defines a highly inflationary economy as
a cumulative inflation of approximately 100 percent or more over a 3-year
period. The cumulative inflation in the Dominican Republic for the 36 months
ended September 30, 2004 and June 30, 2004 exceeded the 100 percent threshold.
In accordance with the provisions of SFAS No. 52, the financial statements of a
foreign entity in a highly inflationary economy shall be remeasured as if the
functional currency were the reporting currency. Accordingly, the Corporations
interests in the Dominican Republic were remeasured into the U.S. dollar.
During the third quarter of 2004, approximately $229 in remeasurement gains on
the investments held by the Corporation in the Dominican Republic were
reflected in other operating income instead of accumulated other comprehensive
income. These remeasurement gains / losses will continue to be reflected in
earnings until the economy is no longer highly inflationary. The unfavorable
cumulative translation adjustment associated with these interests at the
reporting date in which the economy became highly inflationary approximated
$32,000.
Note 2 Recent Accounting Developments
FIN No. 46 Consolidation of Variable Interest Entities
In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities. The FASBs stated intent in issuing FIN No. 46 was to
clarify the application of Accounting Research Bulletin No. 51, Consolidated
Financial Statements, to certain entities in which equity investors do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN No. 46
requires an enterprise to consolidate a variable interest entity (as defined in
FIN No. 46) if that enterprise has a variable interest (or combination of
variable interests) that will absorb a majority of the entitys expected losses
if they occur, receive a majority of the entitys expected returns if they
occur, or both.
In December 2003, the FASB issued a revised FIN No. 46 (FIN No. 46R), which
attempts to clarify the guidance in the original interpretation. FIN No. 46
applies to variable interest entities created after January 31, 2003. FIN No.
46 also applies to all variable interest entities created prior to February 1,
2003 that are considered to be special-purpose entities (as defined in FIN No.
46R) as of December 31, 2003. FIN No. 46R must be applied to all variable
interest entities no later than the end of the first reporting period that ends
after March 15, 2004. Certain variable interest entities that are qualifying
special purpose entities subject to the reporting requirements of SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities, are not required to be consolidated under the provisions of
FIN No. 46.
At December 31, 2003, the Corporation had two wholly-owned issuer trusts that
issued trust preferred securities (also referred to as Capital Securities).
Prior to FIN No. 46R, the issuer trusts were consolidated subsidiaries of the
Corporation. In relation to these issuer trusts, the Corporation adopted the
provisions of FIN No. 46R at December 31, 2003, requiring the deconsolidation
of these trusts. Refer to Note 11 to the unaudited consolidated financial
statements for further information on the issuer trusts and the impact in the
Corporations consolidated financial statements. Except for the impact
described above, there was no other material impact on the Corporations
financial condition or results of operations as a result of the adoption of FIN
No. 46R.
SAB 105 Application of Accounting Principles to Loan Commitments
On March 9, 2004, the SEC issued Staff Accounting Bulletin 105, Application of
Accounting Principles to Loan Commitments, (SAB 105) to inform registrants of
the Staffs view that the fair value of the recorded loan commitments should
not consider the expected future cash flows related to the associated servicing
of the future loan. The provisions of SAB 105 must be applied to loan
commitments accounted for as derivatives that are entered into after March 31,
2004. The staff will not object to the application of existing accounting
practices to loan commitments accounted for as derivatives that are entered
into on or before March 31, 2004, with appropriate disclosures. The adoption of
SAB 105 did not have a material impact on the Corporations financial condition
or results of operations.
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Issue 03-1, Meaning of Other Than Temporary Impairment
In March 2004, the Emerging Issues Task Force reached a consensus on EITF Issue
03-1, Meaning of Other Than Temporary Impairment (Issue 03-1). The Task Force
reached a consensus on an other-than-temporary impairment model for debt and
equity securities accounted for under Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities and cost method investments. The basic model developed by the Task
Force in evaluating whether an investment within the scope of Issue 03-1 is
other-than-temporarily impaired is as follows: Step 1: Determine whether the
investment is impaired. An investment is impaired if its fair value is less
than its cost. Step 2: Evaluate whether the impairment is other-than-temporary.
Step 3: If the impairment is other-than-temporary, recognize an impairment loss
equal to the difference between the investments cost and its fair value. The
three-step model used to determine other-than-temporary impairments was
required to be applied prospectively to all current and future investments in
interim or annual reporting periods beginning after June 15, 2004.
On September 15, 2004, the FASB issued proposed FSP EITF Issue 03-1-a,
Implementation Guidance for the Application of Paragraph 16 of EITF Issue No.
03-1 (Issue 03-1-a) to address the application of Issue 03-1 to debt
securities that are impaired solely because of interest-rates and / or
sector-spread increases and that are analyzed for impairment under paragraph 16
of Issue 03-1. On September 30, 2004, the FASB issued FSP EITF Issue 03-1-1,
Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, (Issue 03-1-1)
which delayed the effective date of paragraphs 10-20 of Issue 03-1. Paragraphs
10-20 of Issue 03-1 give guidance on how to evaluate and recognize an
impairment loss that is other than temporary (i.e., steps 2 and 3 of the
impairment model). Issue 03-1-1 expands the scope of the deferral to include
all securities covered by Issue 03-1. The delay of the effective date for
paragraphs 10-20 of Issue 03-1 will be superseded concurrent with the final
issuance of Issue 03-1-a.
The Corporation is currently evaluating the effects that this proposed
statement may have on its financial condition and results of operations.
FASB Staff Position No. FAS 106-2 Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003
On December 8, 2003, The Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act) was signed into law, authorizing Medicare
to provide prescription drug benefits to retirees. To encourage employers to
retain or provide postretirement drug benefits for their Medicare-eligible
retirees, the federal government will begin in 2006 to make subsidy payments to
employers that sponsor postretirement benefit plans under which retirees
receive prescription drug benefits that are actuarially equivalent to the
prescription drug benefits provided under Medicare. FASB Staff Position No. FAS
106-2, Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (the FSP 106-2),
was issued on May 19, 2004. The FSP 106-2 provides guidance on accounting for
the effects of the new Medicare prescription drug legislation by employers
whose prescription drug benefits are actuarially equivalent to the drug benefit
under Medicare Part D. It also contains basic guidance on related income tax
accounting, and complex rules for transition that permit various alternative
prospective and retroactive transition approaches.
Popular, Inc. elected to adopt the provisions of FSP 106-2 on a prospective
basis in the third quarter of 2004 with remeasurement as of July 1, 2004. Refer
to Note 10, Pension and Other Benefits, for disclosures on effects of the
subsidy in the measurement of the net periodic postretirement benefit costs and
the accumulated postretirement benefit obligation.
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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 September 30, 2004, December 31, 2003 and September
30, 2003 were as follows:
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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 contractual 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 may be called by the
issuer.
During the quarter ended June 30, 2004, the Corporation reassessed the
appropriateness of the classification of certain mortgage-backed securities and
transferred $351,000 from trading to available-for-sale securities based on
managements intention and business purpose. The securities were transferred
into the available-for-sale category at fair value.
The following table shows the Corporations gross unrealized losses and fair
value of investment securities available-for-sale, aggregated by investment
category and length of time that individual securities have been in a
continuous unrealized loss position, at September 30, 2004:
12
The unrealized loss positions of available-for-sale securities at September 30,
2004 are primarily associated with U.S. Agency and Treasury obligations, and to
a lesser extent, U.S. Agency-issued collateralized mortgage obligations, and
mortgage-backed securities. The vast majority of these securities are rated the
equivalent of AAA by the major rating agencies. The investment portfolio is
structured primarily with highly liquid securities which possess a large and
efficient secondary market. Valuations are performed at least on a quarterly
basis using third party providers and dealer quotes. Management believes that
the unrealized losses in the available-for-sale portfolio at September 30, 2004
are substantially related to market interest rate fluctuations and not to a
deterioration in the creditworthiness of the issuers. Also, management has the
intent and ability to hold these investments for a reasonable period of time
for a forecasted recovery of fair value up to (or beyond) the cost of these
investments.
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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 September 30, 2004, December 31, 2003 and September 30,
2003 were as follows:
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 contractual maturity.
The expected maturities of collateralized mortgage obligations, mortgage-backed
securities and certain other securities
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may differ from their contractual maturities because they may be subject to
prepayments or may be called by the issuer.
The following table shows the Corporations gross unrealized losses and fair
value of investment securities held-to-maturity, aggregated by investment
category and length of time that individual securities have been in a
continuous unrealized loss position, at September 30, 2004:
Management believes that the unrealized losses in the held-to-maturity
portfolio at September 30, 2004 are substantially related to market interest
rate fluctuations and not to a deterioration in the creditworthiness of the
issuers. Also, management has the intent and ability to hold these investments
until maturity.
Note 5 Pledged assets
Certain securities and loans were pledged to secure public and trust deposits,
assets sold under agreements to repurchase, other borrowings and credit
facilities available. The classification and carrying amount of the
Corporations pledged assets, in which the secured parties are not permitted
to sell or repledge the collateral, were as follows:
Pledged securities and loans in which the creditor has the right by custom or
contract to repledge are presented separately in the consolidated statements
of condition.
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Note 6 Derivative Instruments and Hedging Activities
In managing its market risk the Corporation enters, to a limited extent, into
certain derivative transactions, primarily interest rate swaps, interest rate
forwards and future contracts, interest rate caps, index options, foreign
exchange contracts, floors and options embedded in financial contracts. There
were no significant changes in derivative instruments and hedging activities
from December 31, 2003 to September 30, 2004.
For the quarter and nine months ended September 30, 2004, the Corporation
recognized net losses of $10 and $124, respectively, as a result of the changes
in fair value of the non-hedging derivatives included as part of interest
expense (September 30, 2003 net gains of $282 and net losses of $7,825,
respectively).
Note 7 Goodwill and Other Intangible Assets
The Corporations management has defined its 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 Disclosures
about Segments of an Enterprise and Related Information. 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 Corporation performed the annual impairment test required by SFAS No. 142
Goodwill and Other Intangible Assets during the third quarter of 2004. The
results of this test did not reveal impairment in the Corporations recorded
goodwill.
The changes in the carrying amount of goodwill for the nine months ended
September 30, 2004 are as follows:
Except for goodwill, the Corporation has no other intangible assets not subject
to amortization as of September 30, 2004, December 31, 2003 and September 30,
2003.
The following table reflects the components of other intangible assets subject
to amortization as of September 30, 2004, December 31, 2003 and September 30,
2003:
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The increase in goodwill and other intangible assets from December 31, 2003 to
September 30, 2004 was mostly the result of the acquisition of Quaker City.
Partially offsetting these increases were certain core deposits intangibles
that became fully amortized during 2004 and 2003 and, as such, their gross
amount and accumulated amortization were eliminated from the accounting records
and the tabular disclosure presented above.
During the quarter and nine months ended September 30, 2004, the Corporation
recognized $1,984 and $5,586, respectively, in amortization expense related to
other intangible assets with definite lives (September 30, 2003 - $1,978 and
$6,033, respectively).
The following table presents the estimated aggregate annual amortization
expense of the intangible assets with definite lives for each of the following
fiscal years:
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 September 30,
2004 were $16,926 and $150,899, respectively (December 31, 2003 - $13,833 and
$137,290; September 30, 2003 - $18,202 and $137,827 ). There are also other
commitments outstanding and contingent liabilities, such as commitments to
extend credit and commitments to originate mortgage loans, which are not
reflected in the accompanying financial statements.
At September 30, 2004, the Corporation recorded a liability of $277 , which
represents the fair value of the obligations undertaken in issuing the
guarantees under the standby letters of credit issued or modified after
December 31, 2002 (December 31, 2003 - $334; September 30, 2003 - $276). This
liability was included as part of other liabilities in the consolidated
statements of condition. The standby letters of credit were issued to guarantee
the performance of various customers to third parties. The contract amounts in
standby letters of credit outstanding 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 standby letters of
credit are used by the customer as a credit enhancement and typically expire
without being drawn upon. The Corporations standby letters of credit are
generally 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.
At September 30, 2004, the Corporation had an outstanding commitment to
purchase mortgage loans at market value. In 2003, the Corporation entered into
this loan commitment to purchase an aggregate amount of $125,000 of mortgage
loans with the option of purchasing $75,000 in additional loans. This
commitment expires completely by June 30, 2005. As of September 30, 2004,
$100,000 in loans had been purchased under this agreement.
The Corporation fully and unconditionally guarantees certain borrowing
obligations issued by certain of its wholly-owned subsidiaries approximating
$3,886,343 at September 30, 2004 (December 31, 2003 - $3,623,787; September
30, 2003 - $3,766,643). In addition, at September 30, 2004, the Corporation
fully and unconditionally guaranteed on a subordinated basis $444,000 of
Capital Securities issued by two wholly-owned issuing trust entities that have
been deconsolidated based on FIN No. 46R (December 31, 2003 - $444,000;
September 30, 2003 - $144,000). Also, at September 30, 2004, Popular North
America, Inc. fully and unconditionally guaranteed $494,512 of certain
borrowing obligations issued by one of its non-banking subsidiaries (December
31, 2003 - $403,131).
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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 Corporations financial position or results of
operations.
Note 9 Stock Option and Other Incentive Plans
During the quarter and nine months ended September 30, 2004, the Corporation
recognized $605 and $2,617, in stock option expense
(September 30, 2003 - $342
and $1,408), respectively.
The following table presents information on stock options at September 30,
2004:
(Not in thousands)
The following table summarizes the stock option activity and related
information:
The stock options exercisable at September 30, 2004 totaled 642,545 (September
30, 2003 - 304,281).
The fair value of the 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 2004 and 2003 were:
The stock option information included above relates to options granted under
the Popular, Inc. 2001 Stock Option Plan, which was intended to provide
equity-based compensation incentives through the grant of stock options. In
April 2004, the Corporations shareholders adopted the Popular, Inc. 2004
Omnibus Incentive Plan (the Plan), which replaces and supersedes the 2001
Stock Option Plan. All outstanding award grants under the 2001 Stock Option
Plan continue to remain outstanding under the original terms of the 2001 Stock
Option Plan. The Plan permits the granting of incentive awards in the form of
an Annual Incentive Award, a Long-term Performance Unit Award, an Option, a
Stock Appreciation Right, Restricted Stock, Restricted Unit or Performance
Share. Participants in the Plan
will be designated by the Compensation Committee of the Board of Directors (or
its delegate as determined by
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the Board). Employees and directors of the
Corporation or any of its subsidiaries are eligible to participate in the Plan.
The aggregate number of shares of common stock which may be issued under the
Plan is limited to 10,000,000 shares, subject to adjustments for stock splits,
recapitalizations and similar events. The shares may be made available from
common stock purchased by the Corporation for such purpose, authorized but
unissued shares of common stock or treasury stock. For more information on the
Plan, refer to the Annex G 2004 Omnibus Incentive Plan included in the
Corporations definitive proxy statement dated March 17, 2004 filed with the
Securities and Exchange Commission.
During the quarter ended June 30, 2004, the Compensation Committee approved
incentive awards for certain corporate executive officers, based on the 2004
performance payable in the form of restricted stock. Shares of restricted stock
will be granted at the beginning of 2005 subject to the attainment of the
established performance goals for 2004. During the quarter and nine months
ended September 30, 2004 the Corporation recognized $365 and $669,
respectively, of restricted stock expense related to the executive officers
incentive awards, which represents a form of deferred compensation. The
compensation cost was estimated based upon a vesting period which extends up to
each participant attaining 55 years of age.
In addition, during the third quarter of 2004, shares of restricted stock were
granted to members of the Board of Directors of Popular, Inc. and BPPR. During
this quarter, the Corporation recognized $106 of restricted stock expense
related to such grants.
Note 10 Pension and Other Benefits
The Corporation has noncontributory defined benefit pension plans and
supplementary pension plans for regular employees of certain of its
subsidiaries.
The components of net periodic pension cost for the quarters and nine months
ended September 30, 2004 and 2003 were as follows:
As of September 30, 2004, contributions made to the pension and restoration
plans approximated $1,416. The Corporation expects to contribute $1,527 to the
pension plans and $374 to the benefit restoration plans during 2004.
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The Corporation also provides certain health care benefits for retired
employees of certain subsidiaries. The components of net periodic
postretirement benefit cost for the quarters and nine months ended September
30, 2004 and 2003 were as follows:
As stated in Note 2 to these unaudited consolidated financial statements, the
Corporation adopted the provisions of FSP 106-2 on a prospective basis in the
third quarter of 2004. The subsidy-related reduction in the accumulated
postretirement benefit obligation was $9,176. This reduction is treated as an
actuarial gain and will decrease the net periodic cost over the average
remaining service period of active plan participants. The effect of the subsidy
on the measurement of the net periodic postretirement benefit cost for the
quarter ended September 30, 2004 was a decrease of $292.
As of September 30, 2004, contributions made to the postretirement benefit plan
approximated $4,932. The Corporation presently expects to contribute $6,179 to
the postretirement benefit plan during 2004.
During March 2004, the Corporation received authorization from the Federal
Reserve Bank of New York for the proposed reorganization to consolidate the
information processing and technology functions of both Banco Popular de Puerto
Rico (BPPR) and GM Group, Inc. into GM Group, Inc., renamed EVERTEC, INC. The
effective date for the transaction was April 1, 2004. As part of this
reorganization, the Corporation incurred certain curtailment gains / losses on
the pension and postretirement plans related with the employees that were
transferred to the new company and whose benefits were frozen. Also, the
Corporation incurred certain costs related to employees of BPPR who elected
early retirement effective March 31, 2004, as part of this reorganization.
Note 11 Subordinated Notes and Junior Subordinated Deferrable Interest
Debentures Held by Trusts that Issued Trust Preferred Securities
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 October 31, 2003, Popular Capital Trust I, a statutory business trust
created under the laws of the State of Delaware that is wholly-owned by the
Corporation, sold $300,000 of its 6.70% Cumulative Monthly Income Trust
Preferred Securities (liquidation amount twenty-five dollars per Capital
Security) (6.70% Capital Securities) pursuant to a public underwritten
offering. The proceeds of the issuance, together with the proceeds of the
purchase by the Corporation of $9,279 of Popular Capital Trust Is 6.70% common
securities (liquidation amount twenty-five dollars per common security) were
used to purchase $309,279 aggregate principal amount of the Corporations 6.70%
Junior Subordinated Deferrable Interest Debentures (the 6.70% Junior
Subordinated Debentures). The 6.70% Capital Securities are fully and
unconditionally guaranteed on a subordinated basis by the Corporation. The
assets of Popular Capital Trust I consisted of $309,279 of 6.70% Junior
Subordinated Debentures at September 30, 2004, and the related accrued interest
receivable. The 6.70% Junior Subordinated Debentures mature on November 1,
2033; however, under certain circumstances, the maturity of the Junior
Subordinated Debentures may be shortened (which shortening would result in a
mandatory redemption of the 6.70% Capital Securities). The 6.70% Capital
Securities are traded on the NASDAQ under the symbol BPOPN.
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
(PNA) and indirectly wholly-owned by the Corporation, sold to
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institutional
investors $150,000 of its 8.327% Capital Securities Series A (liquidation
amount one thousand dollars per Capital Security) (8.327% Capital Securities)
through certain underwriters. The proceeds of the issuance, together with the
proceeds of the purchase by PNA of $4,640 of BanPonce Trust Is 8.327% common
securities (liquidation amount one thousand dollars per common security) were
used to purchase $154,640 aggregate principal amount of PNAs 8.327% Junior
Subordinated Deferrable Interest Debentures, Series A (the 8.327% Junior
Subordinated Debentures). As of September 30, 2004, the Corporation had
reacquired $6,000 of the 8.327% Capital Securities. The obligations of PNA
under the 8.327% Junior Subordinated Debentures and its guarantees of the
obligations of BanPonce Trust I are fully and unconditionally guaranteed on a
subordinated basis by the Corporation. The assets of BanPonce Trust I consisted
of $148,640 of 8.327% Junior Subordinated Debentures at September 30, 2004,
(December 31, 2003 - $148,640; September 30, 2003 - $148,640) and the related
accrued interest receivable. The 8.327% Junior Subordinated Debentures mature
on February 1, 2027; however, under certain circumstances, the maturity of the
8.327% Junior Subordinated Debentures may be shortened (which shortening would
result in a mandatory redemption of the 8.327% Capital Securities).
Prior to FIN No. 46R, the issuer trusts described above were consolidated
subsidiaries of the Corporation. The 8.327% Capital Securities were included in
the consolidated statement of condition at September 30, 2003 under the caption
Preferred beneficial interest in Popular North Americas junior subordinated
deferrable interest debentures guaranteed by the Corporation, and the retained
common capital securities of the issuer trusts were eliminated against the
Corporations investment in the issuer trust. Distributions on the Capital
Securities were recorded as interest expense on the consolidated statements of
income.
As a result of the adoption of FIN No. 46R, the Corporation deconsolidated
these issuer trusts effective December 31, 2003. The Junior Subordinated
Debentures issued by Popular, Inc. and PNA to the issuer trusts, totaling
$457,919 are reflected in the Corporations consolidated statements of
condition at September 30, 2004 and December 31, 2003, under the caption of
notes payable. The Corporation recognizes interest expense on the corresponding
junior subordinated debentures in the consolidated statements of income. The
Corporation also recorded in the caption of other investment securities in the
consolidated statements of condition at September 30, 2004 and December 31,
2003, the common securities issued by the issuer trusts.
Note 12 - Stockholders Equity
On May 12, 2004, the Corporations Board of Directors authorized a two-for-one
stock split in the form of a stock dividend of one additional share of common
stock for each common stock share held as of the record date of June 18, 2004.
As a result of the split, 139,877,770 shares were issued and $839,266 was
transferred from retained earnings to common stock. All references to the
numbers of common shares and per share amounts in the financial statements and
notes to the financial statements, except for the number of shares authorized
in 2003 and the number of shares issued, outstanding and held in treasury as
of September 30, 2003 and December 31, 2003 presented in the consolidated
statements of condition, have been restated to reflect the stock split. The
new shares were distributed on July 8, 2004.
Effective April 30, 2004, the Corporations Restated Certificate of
Incorporation was amended to increase the number of authorized shares of common
stock from 180,000,000 to 470,000,000 and the number of authorized shares of
preferred stock from 10,000,000 to 30,000,000 shares.
The Corporations only outstanding class of preferred stock is its 6.375%
noncumulative monthly income preferred stock, 2003 Series A. These shares of
preferred stock are nonconvertible and are redeemable solely at the option of
the Corporation beginning on March 31, 2008. The redemption price per share is
$25.50 from March 31, 2008 through March 30, 2009, $25.25 from March 31, 2009
through March 30, 2010 and $25.00 from March 31, 2010 and thereafter. Dividends
on the 2003 Series A preferred stock are noncumulative and are payable monthly
at an annual rate of 6.375% of the liquidation preference value of $25.00 per
share.
21
Note 13 - Earnings per Common Share
A computation of earnings per common share and diluted earnings per common
share follows:
Potential common shares consist of common stock issuable under the assumed
exercise of stock options and restricted stock granted under the Corporations
compensation plans, 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.
Stock options that result in lower potential shares issued than shares
purchased under the treasury stock method are not included in the computation
of dilutive earnings per share since their inclusion would have an antidilutive
effect in earnings per share. For the quarter and nine-month period ended
September 30, 2004, there were 943,347 and 929,350 weighted average
antidilutive stock options outstanding, respectively (September 30, 2003
1,005,456 and 954,074, respectively).
Note 14 - Supplemental Disclosure on the Consolidated Statements of Cash Flows
During the nine months ended September 30, 2004, the Corporation paid interest
and income taxes amounting to $561,770 and $94,605 respectively (September 30,
2003 $564,396 and $112,565, respectively). Loans receivable transferred to
other real estate and other property for the nine months ended September 30,
2004, amounted to $85,246 and $20,011, respectively (September 30, 2003 -
$61,914 and $19,978, respectively). In addition, during the quarter ended June
30, 2004, the Corporation transferred certain trading account securities to
the available-for-sale portfolio as described in Note 3 to these financial
statements. The unaudited consolidated statement of cash flows for the nine
months ended September 30, 2004 was impacted by the Quaker City acquisition,
which net assets acquired are included in a separate line item in such
financial statement under the caption Assets acquired, net of cash.
Note 15 - Segment Reporting
Popular, Inc. operates the following reportable segments: commercial banking,
mortgage and consumer lending, auto and lease financing, and other.
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 Corporations 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
mainland United States.
22
The Corporations mortgage and consumer lending segment includes those
non-banking subsidiaries whose principal activity is associated with mortgage
and consumer loans such as Popular Mortgage, Popular Finance, Equity One and
Popular FS, LLC. Effective July 30, 2004 Levitt Mortgage Corporation was
merged with and into Popular Mortgage.
The Corporations auto and lease financing segment provides financing for
vehicles and equipment through Popular Auto 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
and reinsurance, retail financial services, broker/dealer and investment
banking services, as well as those providing information technology and ATM
and data processing services.
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 segment for the quarters and nine-month periods ended
September 30, 2004 and 2003.
23
During the quarter ended September 30, 2003, the parent holding company
realized gains on sale of marketable equity securities of approximately
$38,600. No such gains were reported for the quarter ended September 30, 2004.
For the nine months ended September 30, 2003 and 2004 these gains totaled
$67,900 and $10,500, respectively. These gains are included in other income
within the other reportable segment category.
The increase in the eliminations in the other income and other operating
expenses categories for the quarter and nine months ended September 30, 2004,
compared with the corresponding periods in the previous year, is mostly related
to information technology and data processing services provided by EVERTEC,
INC. to other subsidiaries of the Corporation. Also, as a result of the
reorganization to consolidate the information processing and technology
functions into EVERTEC, INC., certain internal services previously provided by
BPPR or internally serviced by other subsidiaries, are now provided by EVERTEC,
INC. Intercompany billings are eliminated in the consolidated financial
statements.
24
Intersegment Revenues *
Geographic Information
* Represents deposits from BPPR U.S. and British Virgin Islands
Note 16 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 September 30, 2004, December
31, 2003 and September 30, 2003, and the results of their operations and cash
flows for the periods ended September 30, 2004 and 2003. 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 August 31, 2004, November 30, 2003 and August 31, 2003, corresponds
to their financial information included in the consolidated financial statements of Popular, Inc. as of
September 30, 2004, December 31, 2003 and
25
September 30, 2003, respectively.
PIHC, PIBI and PNA are authorized issuers of debt securities and preferred
stock under 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.; Popular Financial
Holdings, Inc., including its wholly-owned subsidiary Equity One, Inc.; BPNA,
including its wholly-owned subsidiaries Popular Leasing, U.S.A., Popular
Insurance Agency, U.S.A. and Popular FS, LLC; 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 BPPR.
As a member subject to the regulations of the Federal Reserve Board, BPPR must
obtain the approval of the Federal Reserve Board for any dividend if the total
of all dividends declared by it during the calendar year would exceed the total
of its net income for that year, as defined by the Federal Reserve Board,
combined with its retained net income for the preceding two years, less any
required transfers to surplus or to a fund for the retirement of any preferred
stock. The payment of dividends by BPPR may also be affected by other
regulatory requirements and policies, such as the maintenance of certain
minimum capital levels. At September 30, 2004, BPPR could have declared a
dividend of approximately $272,165 without the approval of the Federal Reserve
Board.
26
POPULAR, INC.
27
POPULAR, INC.
28
POPULAR, INC.
29
POPULAR, INC.
30
POPULAR, INC.
31
POPULAR, INC.
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POPULAR, INC.
33
POPULAR, INC.
34
POPULAR, INC.
35
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This financial review contains an analysis of the consolidated financial
position and financial performance of Popular, Inc. and its subsidiaries (the
Corporation). All accompanying tables, financial statements and notes
included elsewhere in this report should be considered an integral part of this
analysis. The Corporation is a financial holding company, which offers a wide
range of products and services to retail and corporate customers in Puerto
Rico, the United States, the Caribbean and Central America. The Corporations
subsidiaries are engaged in the following businesses:
Recent Acquisitions
The Corporation continues to expand its retail banking franchise in the United
States. On August 31, 2004, the Corporation completed its acquisition of Quaker
City Bancorp, Inc. (Quaker City), the holding company of Quaker City Bank,
based in Whittier, California. As of that date, excluding the effect of
purchase accounting entries, Quaker City had assets of approximately $2.1
billion, a loan portfolio of approximately $1.5 billion and deposits of
approximately $1.2 billion. The 27 retail locations will begin operating under
the BPNA name in 2005. Proforma results for this acquisition are not significant
based on thresholds established by federal regulations and, accordingly, are
not provided.
2004 THIRD QUARTER HIGHLIGHTS
36
TABLE A
37
38
CRITICAL ACCOUNTING POLICIES
The accounting policies followed by the Corporation and its subsidiaries, and
the methods of applying these policies, conform with generally accepted
accounting principles in the United States and to general practices within the
financial services industry. The preparation of consolidated financial
statements requires management to make judgments in the application of certain
of its accounting policies that involve significant estimates and assumptions
about the effect of matters that are inherently uncertain and that involve a
high degree of subjectivity. These estimates and assumptions are made under
facts and circumstances at a point in time and changes in those facts and
circumstances could produce actual results that differ from those estimates.
The Corporation has identified as critical accounting policies those related to
securities classification and related values, loans and allowance for loan
losses, income taxes, goodwill and other intangible assets, and pension and
postretirement benefit obligations. For a summary of the Corporations critical
accounting policies, refer to that particular section in the Managements
Discussion and Analysis included in Popular, Inc.s 2003 Financial Review and
Supplementary Information to Stockholders, incorporated by reference in
Popular, Inc.s Annual Report on Form 10-K for the year ended December 31, 2003
(the 2003 Annual Report). Also, refer to Note 1 to the consolidated financial
statements included in the 2003 Annual Report for a summary of the
Corporations significant accounting policies, as well as to the accompanying
notes to the unaudited consolidated financial statements included in this Form
10-Q. No significant changes in critical accounting policies have occurred
since year-end 2003, except as described in the next paragraph. The summary of
the Corporations critical accounting policies referred to above states that
closed-end consumer loans are charged-off when payments are delinquent 120
days. In the case of the Corporations non-bank consumer and mortgage lending
subsidiaries, however, closed-end consumer loans are charged-off when payments
are 180 days delinquent.
Effective for the quarter ended March 31, 2004, the Corporation adopted the
standard industry practice of placing commercial and construction loans on
non-accrual status when payments of principal or interest are delinquent 90
days rather than 60 days, its prior practice. Had the Corporation continued
reporting commercial and construction loans in non-performing status when
delinquent 60 days, non-performing assets would have been $40 million higher
than reported in this Form 10-Q for the quarter ended September 30, 2004. Refer
to the Credit Risk Management and Loan Quality section for a more detailed
analysis of the impact of the change in the non-accruing policy for commercial
and construction loans.
NET INTEREST INCOME
Tables B and C present the different components of the Corporations net
interest income, on a taxable equivalent basis, for the quarter and nine months
ended September 30, 2004, respectively, as compared with the same periods in
2003, segregated by major categories of earning assets and interest bearing
liabilities. Some of the assets, mostly investments in obligations of the U.S.
Government and Agencies and the Puerto Rico Commonwealth and its agencies,
generate interest which is exempt for income tax purposes, principally in
Puerto Rico. Therefore, to facilitate the comparison of all interest data
related to these assets, the interest income has been converted to a taxable
equivalent basis, using the applicable statutory income tax rates (in Puerto
Rico the statutory tax rate is 39%).
39
As shown in Table B, the increase in net interest income on a taxable
equivalent basis was mainly due to a considerable growth in average earning
assets, mainly loans, partially offset by a decrease in the net interest
margin.
TABLE B
Note: The changes that are not due solely to volume or rate are allocated to
volume and rate based on the proportion of the change in each category.
The increase in average earning assets for the quarter ended September 30,
2004, compared with the third quarter of 2003, was principally due to the 22%
increase in the average loan portfolio, mainly mortgage loans. The Corporation
continues diversifying its asset base. All loan categories increased in average
for the quarter ended September 30, 2004, compared with the same quarter in
2003. Mortgage loans contributed with 58% of the total increase in average
loans, while commercial and consumer loans contributed with 26% and 13%,
respectively. Contributing to the increase in average earning assets were also
investment securities, mainly in the form of mortgage-backed securities
and obligations of the U.S. Government and Agencies. The increase in
the volume of earning assets was funded through a combination of borrowings,
interest bearing deposits, and non-interest bearing sources of funds,
40
including demand deposits and other funds. The most significant increase was in
long-term debt, which is debt with an original maturity of more than one year,
principally due to the issuance of asset-backed securities supported by
residential mortgage loans and to the issuance of fixed-rate five-year notes
and junior subordinated debentures. The average balance of interest-bearing
deposits also rose in part due to successful marketing campaigns and sales
efforts directed to money market accounts and certificates of deposit,
principally in the U.S. mainland.
The decrease in the net interest margin and net interest spread for the quarter
ended September 30, 2004, compared with the same quarter in the previous year,
is partly attributed to the reduction in the yield on investment securities due
to the maturities of higher rate securities replaced by lower-yielding
securities, and prepayments of higher rate mortgage related products along with
higher levels of premium amortization. The decline in the net interest margin
was also due to the composition of the loan portfolio, which includes a higher
proportion of mortgage loans that represent lower yielding assets. Other
contributors to the decline in the net interest margin included lower rates
targeted at consumer loans as a result of promotional campaigns and the
purchase of certain home equity loans, which had a lower average yield
than that of most of the Corporations remaining consumer loan portfolio.
The average cost of interest-bearing liabilities for the quarter ended
September 30, 2004 increased compared with the same quarter of 2003,
principally impacted by the repricing of short-term financing, mainly federal
funds purchased and securities sold under agreements to repurchase, in a rising
rate scenario. In June 2004, the Federal Reserve (FED) raised the federal funds
interest rate by 25 basis points, the first time in four years. Similar
increases followed in August and September 2004. The increase in the cost of
short-term funds was partly compensated by certain initiatives taken in 2003 to
reduce the cost of certain interest-bearing liabilities, including revisions
made to interest rates on interest-bearing deposits. Also, as part of its asset
/ liability management strategies, the Corporation evaluated its financing
sources to support earning assets growth with long-term funding. This long-term
funding, although at a higher cost than short-term financing, benefited from
the still historically low interest rates.
The decrease in the taxable equivalent adjustment for the quarter ended
September 30, 2004, compared with the same quarter in the previous year, was
mostly related to lower tax-exempt interest income, partially offset by a
decrease in the interest expense disallowance.
As shown in Table C, for the nine-month period ended September 30, 2004, net
interest income, on a taxable equivalent basis, increased by 5%, compared with
the same period of 2003. This improvement was also the result of higher average
volume of earning assets, partially offset by the impact of a lower net
interest margin.
Average earning assets for the nine-month period ended September 30, 2004
increased by 13%, compared with the same period of 2003, primarily associated
with higher average volume of loans, mainly mortgage and commercial loans. The
increase was principally funded through long-term debt and interest bearing
deposits.
The compression in the net interest margin for the nine months ended September
30, 2004 shown in Table C was also attributed to the factors previously
described in the quarterly results, and the unfavorable impact of adjustable and floating
rate commercial loans in the portfolio. Also, the nine-month period ended September
30, 2003 was impacted by higher losses related to derivative transactions.
Following the guidance in EITF Issue No. 03-11, Reporting Realized Gains and
Losses on Derivative Instruments that are Subject to FASB Statement No. 133 and
Not Held for Trading Purposes, the Corporation included as part of interest
expense, $0.1 million and $7.8 million in derivative losses, for the nine
months ended September 30, 2004 and 2003, respectively. The derivative losses
for 2003 related mostly to the interest-rate swaps with notional value of $500
million which were cancelled by the Corporation during the second quarter of
2003.
41
TABLE C
Note: The changes that are not due solely to volume or rate are allocated to
volume and rate based on the proportion of the change in each category.
PROVISION FOR LOAN LOSSES
The Corporations provision for loan losses for the quarter ended September 30,
2004 declined $2.1 million, or 4%, compared with the quarter ended September 30,
2003. For the nine-month period ended September 30, 2004, the provision for
loan losses decreased $13.6 million, or 9%, compared with the same period in
the previous year. The decline in the provision is mainly attributed to a
change in the mix of non-performing assets and to lower net charge-offs as a
result of growth into secured lending areas such as residential mortgage loans
and commercial loans secured by real estate. Refer to the Credit Risk
Management and Loan Quality section, including Tables G, H and I, for a more
detailed analysis of the allowance for loan losses, net charge-offs,
non-performing assets and credit quality
42
statistics.
NON-INTEREST INCOME
The Corporations non-interest income totaled $144.6 million for the third
quarter of 2004, compared with $171.6 million for the third quarter of 2003.
Non-interest income for the third quarter of 2003 included $39.1 million in
gain on sale of securities, mainly marketable equity securities. No such gains
were realized during the third quarter of 2004. Partially offsetting this
decrease were higher other operating income and trading profits in 2004,
compared with trading losses in the prior year. Other service fees and service
charges on deposit accounts for the quarter ended September 30, 2004 reflected
small variances compared with the same period in 2003.
Refer to Table D for a breakdown of other service fees by major categories. The
increase in debit and credit card fees and discounts was driven mostly by
higher transactional volume, while the rise in insurance fees was partly
attributed to business initiatives and expanded services which intend to
capitalize on the Corporations broad delivery channels and client base. These
increases were partially offset by lower check cashing fees due to the sale of
Popular Cash Express mobile units in 2003 and various stores during 2004, and
lower other fees, including fees for services provided to mortgage brokers and
other loan fees being accounted since 2004 in the interest and fees category.
The quarter ended September 30, 2004 included trading gains of $0.8 million,
compared with trading losses of $4.6 million in the same quarter in the
previous year. Results for the quarter ended September 30, 2003 were negatively
impacted by trading account losses related to mortgage-backed securities, whose
market value was negatively impacted by sudden changes in long-term interest
rates experienced in that quarter.
Other operating income increased by $6.1 million, or 46%, in the third quarter
of 2004, compared with the same period of 2003, mostly associated with higher
dividends derived from the Corporations ownership participation in
Telecomunicaciones de Puerto Rico, Inc. and lower write-downs on interest-only
strips related with declines in their fair value considered other than
temporary, partially offset by a decrease in placement and underwriting fees
derived by the Corporations broker / dealer subsidiary.
TABLE D
For the nine-month period ended September 30, 2004, non-interest income
decreased $35.2 million, or 7%, compared with the nine-month period ended
September 30, 2003. The decrease in non-interest income is mostly associated
with lower gains on the sale of investment securities by $57.0 million, or 81%,
mainly marketable equity securities. Also, there were lower gains on the sale
of loans by $10.0 million, or 25%, mainly due to lower sales volume. These
decreases were partially offset by higher service charges on deposit accounts
by $2.4 million, or 2%, mostly attributed to higher commercial account analysis
fees. Trading losses decreased $9.0 million, or 92%, mainly due to the factor
described above for the quarterly results. Other operating income increased
$14.5 million, or 29%, mainly due to capital gains of $10.9 million in the
second quarter of 2004 derived from the sale of a real estate property in
Puerto
43
Rico and lower write-downs of interest only strips, partially offset by lower
management fees and dividends received from the Corporations ownership
participation in Telecomunicaciones de Puerto Rico, Inc. Also, as shown in
Table D, there were higher other service fees, mostly impacted by the same
factors described for the quarterly results.
OPERATING EXPENSES
Refer to the unaudited consolidated statements of income included in this Form
10-Q for a breakdown of operating expenses by major categories.
For the third quarter of 2004, the Corporations operating expenses increased
4% compared with the same period in the previous year. Personnel costs was the
major contributor to this rise in operating expenses, increasing $10.4 million,
or 8%. Such increase was primarily attributable to increases in headcount,
normal merit increases and related employee benefits, higher incentives,
performance bonuses, and other compensation, among other factors. Full-time
equivalent employees were 12,002 at September 30, 2004, an increase of 609
employees from September 30, 2003, including employees assumed in connection
with the Quaker City acquisition. Other categories that reflected increases
were net occupancy and equipment expenses resulting from continuing investments
in systems technology and costs to support business initiatives and expansion.
Also, professional fees rose in part due to higher computer service fees
associated with system applications, consulting fees for business initiatives
and collection expenses. Business promotions also increased mainly in the U.S.
banking operations, in part due to sales efforts directed to deposit gathering
campaigns. Offsetting these increases was a decline in other operating expenses
mostly associated with the prepayment penalty incurred in the third quarter of
2003 on the early cancellation of certain long-term borrowings.
For the nine-month period ended September 30, 2004, operating expenses
increased $39.1 million, or 5%, compared with the same period in 2003.
Categories with the major variances included personnel costs, professional
fees, net occupancy, equipment and business promotion, partially offset by
lower other operating expenses. Most of the variances were associated with the
same factors previously described for the quarterly results. Personnel costs
for the nine months ended September 30, 2004 included $2.4 million in
early-retirement window costs and net curtailment gains recorded in the first
quarter, which were associated with the realignment of the Corporations
processing and technology operations. This realignment resulted in certain plan
amendments and the transfer of employees from BPPR to EVERTEC. Results for the
nine-month period ended September 30, 2003 in the category of other operating
expenses included higher sundry losses by approximately $15 million when
compared with the same period of 2004, mostly related to the losses that
resulted in 2003 from unauthorized credit card transactions conducted on credit
cards issued by BPPR. The favorable variance in other operating expenses
attributed to the prepayment penalty and the credit card losses incurred in
2003 that were previously mentioned were partially offset by higher other real
estate expenses and insurance costs incurred in 2004.
INCOME TAX
The reduction in income tax expense for the quarter ended September 30, 2004,
compared with the same quarter in 2003 was primarily due to lower pretax
earnings for the current period, partially offset by a decrease in tax-exempt
interest income net of the disallowance of expenses attributed to such
tax-exempt income and lower income subject to a preferential tax rate. The
effective tax rate for the quarter ended September 30, 2004 was 22.18%,
compared with 20.50% in the same quarter of the previous year.
The increase in income tax expense for the nine-month period ended September
30, 2004, compared with the same period in 2003, was primarily due to a
reduction in income subject to a lower preferential tax rate and a decrease in
tax-exempt interest income net of the disallowance of expenses attributed to
such tax-exempt income for the current period, partially offset by lower pretax
earnings. The effective tax rate for the first nine months of 2004 was 22.46%,
compared with 21.62% for the same period in 2003.
BALANCE SHEET COMMENTS
Refer to the unaudited consolidated financial statements included in this Form
10-Q for the Corporations consolidated statements of condition as of September
30, 2004, December 31, 2003 and September 30, 2003. Total
assets at September 30, 2004 increased $6.4 billion, or 18%, compared with
December 31, 2003, and $7.1 billion, or
44
20%, compared with September 30, 2003.
Earning assets totaled $40.3 billion at September 30, 2004, compared with $34.5
billion at December 31, 2003 and $33.7 billion at September 30, 2003. As
previously mentioned, the acquisition of Quaker City contributed with
approximately $2.1 billion in assets at acquisition date.
Investment and trading securities reached $12.0 billion at September 30, 2004,
compared with $11.1 billion at December 31, 2003 and $11.2 billion at September
30, 2003. Notes 3 and 4 to the consolidated financial statements presents the
breakdown of the Corporations available-for-sale and held-to-maturity
investment portfolios.
Refer to Table E for a breakdown of the Corporations loan portfolio at
September 30, 2004, December 31, 2003 and at September 30, 2003. The Quaker
City branches contributed approximately $1.6 billion in loans at September 30,
2004, mainly commercial and mortgage loans. Mortgage loans accounted for 46% of
the rise in the loan portfolio from December 31, 2003 and 49% from September
30, 2003. The mortgage loan portfolio grew 23% from the end of 2003 and 31%
from September 30, 2003, with increases in both Puerto Rico and the U.S.
mainland operations. As further described below, the manner in which Equity
Ones securitization transactions have been structured in recent years has
contributed to the growth in the Corporations mortgage loan portfolio.
Commercial and construction loans increased 22% compared with December 31, 2003
and 26% from the end of the third quarter in 2003. The increase since December
31, 2003 was mostly associated with the acquisition of Quaker Citys commercial
portfolio, mainly real estate secured loans, strengthened sales efforts and
business initiatives. Consumer loans increased 21% as compared with December
31, 2003 and 23% as compared with September 30, 2003, partly as a result of
favorable customer response to aggressive marketing efforts, targeted mostly to
auto loans and personal loans, Quaker Citys portfolio and other acquisitions
of home equity loans in the U.S. mainland during 2004.
TABLE E
* Includes loans
held-for-sale
Other assets increased $177 million from December 31, 2003 to September 30,
2004. This increase was mostly attributed to securitization advances and other
related assets, assets associated with the bank-owned life insurance program,
trade date receivables and increased participation in investments accounted
under the equity method. Goodwill and other intangible assets increased $219
million from December 31, 2003 to September 30, 2004, mainly due to the
acquisition of Quaker City. The increases in other assets, goodwill and other
intangibles from September 30, 2003 to the same date in 2004 were mostly
related to similar factors described above.
Total deposits increased $2.4 billion, or 13%, from December 31, 2003 to
September 30, 2004, mostly associated with time deposits which rose by $1.2
billion, or 19%, and savings deposits that rose $821 million, or 10%. Demand
deposits rose $350 million, or 9%, from December 31, 2003, mainly in commercial
accounts. Quaker City contributed approximately $1.2 billion in total deposits
at September 30, 2004. Also, the increases were partly due to deposit campaigns
by the Corporations banking subsidiary in the United States. When compared
with September 30, 2003, total deposits rose $2.8 billion, or 16%. This
increase was mainly in time and savings deposits, which increased by $1.2
billion, or 19%, and $1.1 billion, or 14%, respectively.
Borrowed funds, including subordinated notes and capital securities, increased
$3.8 billion, or 25%, since December 31, 2003, and $3.9 billion, or 26%, since
September 30, 2003. The increase in borrowed funds was mainly in the form of
secured borrowings collateralized by residential mortgage loans, federal funds
purchased, assets sold under
agreements to repurchase and medium-term notes. Since September 30, 2003,
Equity One has issued approximately
45
$3.2 billion of asset-backed securities.
These transactions have been accounted for by the Corporation as secured
borrowings since they did not qualify as sales under SFAS No. 140 Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities.
The Corporations present business and financing strategy with respect to
Equity One, the Corporations mortgage and consumer lending subsidiary in the
U.S. mainland, has been to securitize almost all of its mortgage loan
production in transactions structured as secured financing transactions, as
such the loans remain in the Corporations statement of condition and the
securitization indebtedness replaces the warehouse debt associated with the
securitized mortgage loans. The Corporation records interest income on the
loans and interest expense on the borrowings issued in the securitization, and
does not recognize a gain or loss upon completion of the securitization since
the transactions do not meet the requirements for sale accounting under the
provisions of SFAS No. 140. This has been the practice followed by Equity One
since 2001; as such this has been the principal contributor to the
Corporations growth in mortgage loans in recent years. Prior to 2000, the
securitization transactions were structured as sales. Equity Ones loan
production derives mostly from loan originations directly performed through its
retail branch network and from loans purchased from correspondent lenders.
Equity One finances loans initially under one of several different secured and
committed warehouse financing facilities. When the loans are later securitized,
proceeds are received from the borrowings issued by the securitization trust,
and those proceeds are used, among other uses, to pay off the related
warehousing financing. The asset-backed securities issued by the securitization
trust receive interest out of the interest collected on the securitized loans
and generally pay down as the securitized loans pay off. From time to time the
Corporation may choose to structure such securitization to achieve sale
accounting treatment if market conditions present an opportunity to achieve a
better return through such sales. The Corporations intent to continue
accessing the asset-backed securitization market, through sale or financing
transactions, to provide long-term financing for Equity Ones mortgage loans
will be subject to market
conditions, general demand for securities backed by non-conforming mortgages,
and risk management strategies. At September 30, 2004, securitization financing in the Corporations
statement of condition was $4.6 billion.
At September 30, 2004, the Corporations stockholders equity was $3.0 billion,
compared with $2.8 billion at December 31, 2003 and September 30, 2003. The
consolidated statements of changes in stockholders equity included in the
unaudited consolidated financial statements of this Form 10-Q present further
information on the composition and changes in the Corporations equity
position. Also, the disclosures of accumulated other comprehensive income
(loss), an integral component of stockholders equity, are included in the
consolidated statements of comprehensive income. Those disclosures include the
Corporations unrealized gain (loss) position, net of tax, on securities
available-for-sale at the end of the different reporting periods.
The Corporation continues to exceed the well-capitalized guidelines under
applicable federal banking regulations. Ratios and amounts of total risk-based
capital, Tier 1 risk-based capital and Tier 1 leverage as of September 30, 2004
and 2003, and December 31, 2003 are presented on Table F. Also, at September
30, 2004, December 31, 2003 and September 30, 2003, BPPR, BPNA and BP, N.A.
were all well-capitalized.
As shown in Table F, all capital ratios at September 30, 2004 reflected
declines from December 31, 2003. These reductions were associated with the
assets acquired and the goodwill and other intangible assets recorded as a
result of the Quaker City acquisition. Subsequent to quarter end, the
Corporation completed a public offering of $250 million of trust preferred
securities through Popular North America Capital Trust I (the Trust). The
transaction was completed on September 16, 2004, but since the Trust has a
fiscal year ending on November 30
th
, the related transactions will not be
reflected in the Corporations consolidated financial statements until the
fourth quarter of 2004. In addition, the Corporation invested approximately $8
million in common securities of the Trust. The Trust used the proceeds of the
offering and the Corporations investment to purchase from the Corporation
approximately $258 million of its junior subordinated debentures with payment
terms that mirror the distribution terms of the trust preferred securities. The
trust preferred securities, subject to certain limitations and guidance by the
Federal Reserve Board, count as Tier 1 regulatory capital.
46
The shares of Corporations common and preferred stocks are traded on the
National Association of Securities Dealers Automated Quotation National Market
System (NASDAQ) under the symbols BPOP and BPOPO, respectively. Table A
presents limited data on the Corporations common stock for the quarters and
nine-month periods ended September 30, 2003 and 2004.
TABLE F
CREDIT RISK MANAGEMENT AND LOAN QUALITY
NON-PERFORMING ASSETS
Non-performing assets consist of past-due loans that are no longer accruing
interest, renegotiated loans and real estate property acquired through
foreclosure.
A summary of non-performing assets by loan categories and related ratios is
presented in Table G.
TABLE G
47
Commencing in the quarter ended March 31, 2004, the Corporation adopted the
standard industry practice of placing commercial and construction loans on
non-accrual status if payments of principal or interest are delinquent 90 days
rather than 60 days, its previous practice. Had the Corporation continued
reporting commercial and construction loans in non-performing status when
delinquent 60 days or more, non-performing assets would have amounted to $663
million at September 30, 2004, or 2.41% of total loans and 1.55% of total
assets. The allowance as a percentage of non-performing loans would have
amounted to 73.82%.
Non-performing mortgage loans represented 62% of total non-performing assets
and 3% of total mortgage loans at September 30, 2004, compared with 51% of
total non-performing assets and 3% of total mortgage loans at September 30,
2003. As of December 31, 2003, non-performing mortgage loans represented 56% of
total non-performing assets and 4% of total mortgage loans. This increase in
non-performing mortgage loans was mostly reflected in Equity One. Results for
the third quarter of 2004 showed improved credit quality trends at this
subsidiary. Non-performing mortgage loans at this subsidiary represented 3.82%
of its total mortgage loans at September 30, 2004, down from 3.98% of its total
mortgage loans at September 30, 2003, and 4.07% at December 31, 2003. This
decrease at Equity One was related in part to more dynamic foreclosure
procedures and improved credit quality supported in part by improved credit
scoring. Historically, the Corporation has experienced a low level of losses in
its mortgage portfolio, both in Puerto Rico and the U.S. mainland. Mortgage
loans net charge-offs for the Corporation as a percentage of the average
mortgage loan portfolio was 0.30% for the third quarter of 2004, compared with
0.47% for the third quarter 2003.
Non-performing consumer loans were 0.96% of consumer loans at September 30,
2004, compared with 1.10% at September 30, 2003 and 1.11% at December 31, 2003.
The decline in the non-performing consumer loans to consumer loans ratio
reflects a better credit quality mix, coupled with improved delinquency levels
and a growing portfolio with more rigorous underwriting procedures.
Non-performing commercial and construction loans represented 1.28% of that loan
portfolio at September 30, 2004, compared with 2.57% at September 30, 2003, and
1.96% at December 31, 2003. Had the Corporation continued reporting commercial
and construction loans in non-performing status when delinquent 60 days, the
Corporations non-performing commercial and construction loans at September 30,
2004 would have been $173 million or 1.66% of that loan portfolio. The decrease
in non-performing commercial and construction loans since September 30, 2003
was mostly due to the change in the Corporations policy for non-accrual
commercial and construction loans and intensified credit management efforts.
When compared with December 31, 2003, the increase in non-performing assets was
in part due to growth in the portfolio, partially offset by the impact of the
change in the 60 days policy.
Non-performing financing leases represented 0.55% of the lease financing
portfolio at September 30, 2004, compared with 0.67% at September 30, 2003, and
0.71% at December 31, 2003. The decline in non-performing leases was
principally in the Corporations leasing portfolio in Puerto Rico due to lower
delinquency levels, partially offset by higher non-performing leases in the
Corporations U.S. operations in part due to higher delinquency levels in the
small ticket equipment leasing segment of the portfolio which has required
increased collection and litigation activity on leases related to one
vendor who filed bankruptcy during the third quarter. Non-performing
leases related to this vendor at September 30, 2004 amounted to
$3.3 million out of a total portfolio of $22 million.
Non-performing loans within this portfolio may increase due to the
present litigation.
Other real estate assets, which are recorded at the lower of cost or fair value
less estimated costs to sell, increased from the end of 2003 to September 30,
2004, mostly attributed to the growth in the non-performing mortgage loan
portfolio, coupled with strengthened and more dynamic foreclosure procedures.
Assuming the standard industry practice of placing commercial loans on
non-accrual status when payments of principal and interest are past due 90 days
or more and excluding the closed-end consumer loans from non-accruing, at
September 30, 2003 and December 31, 2003, adjusted non-performing assets would
have been $551 million or 2.54% of loans and $547 million or 2.42% of loans,
respectively. The allowance to non-performing loans ratio would have been
80.17% and 82.91% at September 30, 2003 and December 31, 2003, respectively.
Excluding the closed-end consumer loans from non-accruing at September 30,
2004, adjusted non-performing assets would have been $585 million or 2.13% of
loans and the allowance to non-performing loans ratio would have been 84.68%.
Under the standard industry practice, closed-end consumer loans are not
customarily placed on non-accrual status prior to being charged-off.
48
In addition to the non-performing loans discussed earlier, there were $31
million of loans at September 30, 2004, which in managements opinion are
currently subject to potential future classification as non-performing, and
therefore are considered impaired under SFAS No. 114. At December 31, 2003 and
September 30, 2003, these potential problem loans approximated $34 million and
$38 million, respectively.
ALLOWANCE FOR LOAN LOSSES
The methodology used to establish the allowance for loan losses is based on
SFAS No. 114 Accounting by Creditors for Impairment of a Loan, and SFAS No. 5
Accounting for Contingencies. Under SFAS No. 114, certain commercial loans
are identified for evaluation on an individual basis, and specific reserves are
calculated based on impairment. SFAS No. 5 provides for the recognition of a
loss allowance for a group of homogeneous loans when it is probable that a loss
will be incurred and the amount can be reasonably estimated. As of September
30, 2004, there have been no significant changes in evaluation methods or
assumptions from December 31, 2003 that have an effect on the Corporations
methodology for assessing the adequacy of the allowance for loan losses.
The reduction in the ratio of allowance for loan losses to loans continued to
reflect improvement in credit quality trends and a shift in the loan portfolio
mix to include a greater proportion of real estate secured loans. The
Corporations management considers the allowance for loan losses to be at a
level sufficient to provide for estimated losses based on current economic
conditions, the expected level of net loan losses and the methodology
established to evaluate the adequacy of the allowance for loan losses.
The Corporation considers a loan to be impaired when interest and/or principal
are past due 90 days or more, or, when based on current information and events,
it is probable that the debtor will be unable to pay all amounts due according
to the contractual terms of the loan agreement. An allowance for loan
impairment is recognized to the extent that the carrying value of an impaired
loan exceeds the present value of the expected future cash flows discounted at
the loans effective rate, the observable market price of the loan, or the fair
value of the collateral if the loan is collateral dependent. The allowance for
impaired loans is part of the Corporations overall allowance for loan losses.
Large groups of smaller balance homogeneous loans are collectively evaluated
for impairment based on past experience adjusted for current conditions. Larger
balance commercial loans are evaluated on a loan-by-loan basis. Once a specific
measurement methodology is chosen, it is consistently applied unless there is a
significant change in the financial position of the borrower. For more
information regarding the Corporations allowance for loan losses methodology
refer to the Credit Risk and Loan Quality section in the Managements
Discussion and Analysis included in Popular, Inc.s 2003 Financial Review and
Supplementary Information to Stockholders, incorporated by reference in
Popular, Inc.s Annual Report on Form 10-K for the year ended December 31,
2003.
The following table shows the Corporations recorded investment in impaired
loans and the related valuation allowance calculated under SFAS No. 114 at
September 30, 2004, December 31, 2003 and September 30, 2003.
Average impaired loans during the third quarter of 2004 and 2003 were $120
million and $170 million, respectively. The Corporation recognized interest
income on impaired loans of $0.5 million and $1.0 million for the quarters
ended September 30, 2004 and September 30, 2003, respectively.
49
Table H summarizes the movement in the allowance for loan losses and presents
several loan loss statistics for the quarters and nine-month periods ended
September 30, 2004 and 2003.
TABLE H
* (Income before income tax and minority interest plus provision for loan
losses) divided by net charge-offs.
50
Also, Table I presents annualized net charge-offs to average loans by loan
category for the quarters and nine months ended September 30, 2004 and 2003.
TABLE I
As can be seen in Table H, the decline in net charge-offs as compared with the
third quarter of 2003 was mainly due to lower commercial net charge-offs,
mostly due to a partial charge-off during the quarter ended September 30, 2003
of one large commercial relationship, the remaining outstanding balance of
which was subsequently sold later that year. Also, the decrease was partly
associated with better portfolio credit quality, coupled with collection
efforts. The decrease in the net charge-offs to average loan ratio was also
influenced by the continuing identification and monitoring of potential problem
loans.
The decrease in mortgage loans net charge-offs was in part due to approximately
$3.8 million in charge-offs recorded on the disposition of approximately $32
million in non-performing and other historically delinquent mortgage loans
during the third quarter of 2003.
For the nine-months ended September 30, 2004, total net charge-offs declined
influenced by lower commercial loans net charge-offs related to the factors
described above, and lower lease financing net charge-offs primarily as a
result of lower delinquencies and collection strategies. Although consumer
loans net charge-offs showed an increase, they declined as a percentage of the
average consumer loan portfolio.
OFF-BALANCE SHEET ACTIVITIES
The Corporation conducted asset securitizations that involved the transfer of
mortgage loans to qualifying special purpose entities (QSPEs), which in turn
transferred these assets and their titles, to different trusts, thus isolating
those loans from the Corporations assets. These transactions, which were
conducted prior to 2001, qualified for sale accounting based on the provisions
of SFAS No. 140 Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities, and as such, these trusts are not consolidated
in the Corporations financial statements. The investors and the securitization
trusts have no recourse to the Corporations assets. At September 30, 2004,
these trusts held approximately $108 million in assets in the form of mortgage
loans. Their liabilities in the form of debt principal due to investors
approximated $101 million at the end of the third quarter of 2004. The
Corporation retained servicing responsibilities and certain subordinated
interests in these securitizations in the form of interest-only securities. The
servicing rights and interest-only securities retained by the Corporation are
recorded in the statement of condition at the lower of cost or market, and fair
value, respectively.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
MARKET RISK
Market risk refers to the impact of changes in interest rates on the
Corporations net interest income, market value of equity and trading
operations. It also arises from fluctuations in the value of some foreign
currencies against the U.S. dollar. Despite the varied nature of market risks,
the primary source of this risk at the Corporation is the impact of changes in
interest rates on net interest income. Depending on the duration and repricing
characteristics of the Corporations assets, liabilities and off-balance sheet
items, changes in interest rates could either increase or decrease the level of
net interest income. The Corporation maintains a formal asset and liability
management process to quantify, monitor and control interest rate risk (IRR)
and to assist management in maintaining stability in the net interest margin
under varying interest rate environments.
51
An interest rate sensitivity analysis
performed at the Corporation level is the
primary tool used in expressing the potential loss in future earnings resulting
from selected hypothetical changes in interest rates. Sensitivity analysis is
calculated on a monthly basis using a simulation model, which incorporates
actual balance sheet figures detailed by maturity and interest yields or costs,
the expected balance sheet dynamics, reinvestments, and other non-interest
related data. Simulations are processed using various interest rate scenarios
to determine potential changes to the future earnings of the Corporation.
Computations of the prospective
effects of hypothetical interest rate changes
are based on many assumptions, including relative levels of market interest
rates, interest rate spreads, loan prepayments and deposit decay. Thus, they
should not be relied upon as indicative of actual results. Further, the
computations do not contemplate actions that management could take to respond
to changes in interest rates. By their nature, these forward-looking
computations are only estimates and may be different from what actually may
occur in the future.
Based on the results of the sensitivity
analyses as of September 30, 2004, the
Corporations net interest income for the next twelve months, on a hypothetical
200 basis points rising rate scenario, is estimated to decrease by
$3.7
million, and the change for the same period, utilizing a hypothetical 100 basis
points declining rate scenario, is an estimated increase of $2.6 million. The
100 basis point downward interest rate scenario is used in place of a 200 basis
points declining rate scenario due to the current low interest rate
environment. Some short-term rates are below 2% at September 30, 2004. In the
scenario of interest rates decreasing 100 basis points, rates were not
permitted to fall below 0.1%, which is presumed to be highly unlikely. Both
hypothetical rate scenarios consider the gradual change to be achieved during a
twelve-month period from the prevailing rates at September 30, 2004. These
estimated changes are within the policy guidelines established by the Board of
Directors.
The Corporation maintains an overall interest rate risk management strategy
that incorporates the use of derivative instruments to minimize significant
unplanned fluctuations in net interest income that are caused by interest rate
volatility. The Corporation has not experienced a significant change in its
involvement in derivative activities since December 31, 2003.
The Corporation conducts business in certain Latin American markets through
several of its processing and information technology services and products
subsidiaries. Also, it holds interests in Consorcio de Tarjetas Dominicanas,
S.A. and Centro Financiero BHD, S.A. in the Dominican Republic. Although not
significant, some of these businesses are conducted in the countrys particular
foreign currency. At September 30, 2004, the Corporation had $35 million in an
unfavorable foreign currency translation adjustment as part of accumulated
other comprehensive income. The Corporation had been monitoring the inflation
levels in the Dominican Republic to evaluate whether it met the highly
inflationary economy test prescribed by SFAS No. 52 Foreign Currency
Translation. Such statement defines a highly inflationary economy as a
cumulative inflation of approximately 100 percent or more over a 3-year
period. The cumulative inflation in the Dominican Republic for the 36 months
ended September 30, 2004 and June 30, 2004 exceeded the 100 percent threshold.
In accordance with the provisions of SFAS No. 52, the financial statements of a
foreign entity in a highly inflationary economy shall be remeasured as if the
functional currency were the reporting currency. Accordingly, the Corporations
interests in the Dominican Republic were remeasured into the U.S. dollar.
During the third quarter of 2004, approximately $0.2 million in remeasurement
gains on the investments held by the Corporation in the Dominican Republic were
reflected in other operating income instead of accumulated other comprehensive
income. These remeasurement gains / losses will continue to be reflected in
earnings until the economy is no longer highly inflationary. The unfavorable
cumulative translation adjustment associated with these interests at the
reporting date in which the economy became highly inflationary approximated $32
million.
The Corporation believes that there have been no significant changes in market
risk compared with the disclosures in Popular, Inc.s Annual Report on Form
10-K for the year ended December 31, 2003.
LIQUIDITY
Liquidity refers to the ability to fund current operations, including the cash
flow requirements of depositors and borrowers as well as future growth.
Liquidity management involves maintaining ample and diverse funding capacity,
liquid assets and other sources of cash to accommodate fluctuations in asset
and liability levels due to customer
52
behavior, capital market conditions or unanticipated events. Liquidity risk may
arise whenever the Corporations ability to raise cash and the runoff of its
assets are substantially less than the runoff of its liabilities.
The Corporation has contingency plans for raising financing under stress
scenarios, where important sources of funds that are usually fully available
are temporarily not willing to lend to the Corporation. These plans call for
using alternate funding mechanisms such as the pledging or securitization of
certain asset classes, committed credit lines, and loan facilities implemented
with the Federal Reserve Bank of New York. The Corporation has a substantial
amount of assets available for raising funds through non-traditional channels
and is confident that it has adequate alternatives to rely on, under a scenario
during which some primary funding sources are temporarily unavailable.
The Corporations liquidity position is closely monitored on an ongoing basis.
Management believes that available sources of liquidity are adequate to meet
the funding needs in the normal course of business.
The composition of the Corporations financing to total assets at September 30,
2004 and December 31, 2003 were as follows:
The Corporations core deposits, which consist of demand, savings, money
markets, and time deposits under $100 thousand, constituted 82% of total
deposits at September 30, 2004. Certificates of deposit with denominations of
$100 thousand and over at September 30, 2004 represented 18% of total
deposits. Their distribution by maturity was as follows:
The Corporation diversifies the sources and the maturities of borrowings in
order to avoid undue reliance on any single source and maintain an orderly
volume of borrowings maturing in the future. The Corporation has established
borrowing relationships with the Federal Home Loan Bank (FHLB), the Federal
Reserve Bank of New York and other correspondent banks, which further support
and enhance liquidity.
The Corporation has a shelf registration with the Securities and Exchange
Commission, which is intended to permit the Corporation to raise funds through
sales of preferred stock, senior debt or other debt securities with a
relatively short lead-time. At September 30, 2004, the Corporation had
available approximately $2.1 billion under this shelf registration.
There have been no significant changes in the Corporations funding activities
and strategy disclosed in the
53
Management Discussion and Analysis included in Popular, Inc.s Annual Report on
Form 10-K for the year ended December 31, 2003. Also, there have been no
significant changes in the Corporations off-balance sheet arrangements and
aggregate contractual obligations since the end of 2003. Refer to note 8 to the
unaudited consolidated financial statements for the Corporations involvement
in certain commitments at September 30, 2004.
Risks to Liquidity
The Corporations ability to compete successfully in the marketplace for
deposits depends on various factors, including service, convenience and
financial stability as reflected by operating results and credit ratings (by
nationally recognized credit rating agencies). Although a downgrade in the
credit ratings of the Corporation may impact its ability to raise deposits,
management does not believe that the impact should be material. Deposits at all
of the Corporations banking subsidiaries are federally insured and this is
expected to mitigate the effect of a downgrade in credit ratings.
Institutional lenders tend to be sensitive to the perceived credit risk of the
entities to which they lend, and this exposes the Corporation to the
possibility of having its access to funding affected by how the market
perceives its credit quality; this in part, may be due to factors beyond its
control.
Changes in the credit rating of the Corporation or any of its subsidiaries to a
level below investment grade may affect the Corporations access to the
capital markets. The Corporations counterparties are sensitive to the risk of
a rating downgrade. In the event of a downgrade, it may be expected that the
cost of borrowing funds in the institutional market would increase. In
addition, the ability of the Corporation to raise new funds or renew maturing
debt may be more difficult.
The Corporation and BPPRs debt ratings at September 30, 2004 were as follows:
The ratings above are subject to revisions or withdrawal at any time by the
assigning rating agency. Each rating should be evaluated independently of any
other rating.
Some of the Corporations borrowings and deposits are subject to rating
triggers, contractual provisions that accelerate the maturity of the
underlying obligations in the case of a change in rating. Therefore, the need
for the Corporation to raise funding in the marketplace could increase more
than usual in the case of a rating downgrade. The amount of obligations
subject to rating triggers that could accelerate the maturity of the
underlying borrowings was $232 million at September 30, 2004.
In the course of borrowing from institutional lenders, the Corporation has
entered into contractual agreements to maintain certain levels of debt,
capital and asset quality, among other financial covenants. If the Corporation
were to fail to comply with those agreements, it may result in an event of
default. Such failure may accelerate the repayment of the related borrowings.
An event of default could also affect the ability of the Corporation to raise
new funds or renew maturing borrowings. The Corporation is currently in full
compliance with all financial covenants in effect and expects to remain so in
the future. At September 30, 2004, the Corporation had outstanding $1.3
billion in obligations subject to covenants, including those which are subject
to rating triggers and those outstanding under the commercial paper program.
The Corporation believes that there have been no significant changes in
liquidity risk compared with the disclosures in Popular, Inc.s Annual Report
on Form 10-K for the year ended December 31, 2003.
54
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Corporations management, with the participation of the Corporations Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Corporations disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end
of the period covered by this report. Based on such evaluation, the
Corporations Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, the Corporations disclosure
controls and procedures are effective in recording, processing, summarizing and
reporting, on a timely basis, information required to be disclosed by the
Corporation in the reports that it files or submits under the Exchange Act.
Internal Control Over Financial Reporting
There have been no changes in the Corporations internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that occurred during the nine-month period ended on September 30,
2004 that have materially affected, or are reasonably likely to materially
affect, the Corporations internal control over financial reporting.
Part II Other Information
Item 1. Legal Proceedings
The Corporation and its subsidiaries are defendants in various lawsuits arising
in the ordinary course of business. Management believes, based on the opinion
of legal counsel, that the aggregate liabilities, if any, arising from such
actions would not have a material adverse effect on the financial position and
results of operations of the Corporation.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
The following table sets forth the details of purchases of Common Stock during
the quarter ended September 30, 2004 under the 2004 Omnibus Incentive Plan.
Issuer Purchases of Equity Securities
Not in thousands
Item 5. Other Events
On September 3, 2004, the
Corporation filed a Form 8-K notifying the completion of the
acquisition of Quaker City Bancorp on August 31, 2004. Although this
Form 8-K was filed under Item 2.01 (Completion of Acquisition or
Disposition of Assets), the acquisition did not involve a
significant amount of assets, as that phrase is used
in the instructions to Item 2.01 of Form 8-K. This acquisition should
have been reported under Item 8.01 (Other Events) of Form 8-K. As a
result, the requirements to file financial statements pursuant to
Rule 3-05 of Regulation S-X or pro forma financial information
pursuant to Article 11 of Regulation S-X are not applicable to the
acquisition of Quaker City Bancorp.
Item 6. Exhibits
55
56
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.
57
(UNAUDITED)
September 30,
December 31,
September 30,
(In thousands, except share information)
2004
2003
2003
$
758,057
$
688,090
$
762,912
845,280
764,780
764,019
319
8,046
9,157
69
67
162
845,668
772,893
773,338
4,864,037
3,523,505
4,202,427
6,375,582
6,528,074
6,028,824
137,317
186,821
192,757
276,521
233,144
206,422
235,884
490,536
452,306
85,479
114,583
115,866
265,753
271,592
366,723
801,744
403,131
489,277
26,722,900
22,210,748
21,125,291
273,099
283,279
273,536
445,845
408,542
398,578
26,805,700
21,922,058
20,942,454
535,388
485,452
477,318
58,814
53,898
54,201
227,259
176,152
209,273
946,208
769,037
773,095
394,316
191,490
190,655
43,611
27,390
28,616
$
42,855,594
$
36,434,715
$
35,777,187
$
4,076,535
$
3,726,707
$
3,556,269
16,406,683
14,371,121
14,099,723
20,483,218
18,097,828
17,655,992
7,306,235
5,778,987
6,796,169
2,454,872
1,996,624
2,178,756
8,774,868
6,992,025
5,528,277
125,000
125,000
125,000
144,000
700,802
689,729
596,405
39,844,995
33,680,193
33,024,599
104
105
1,582
186,875
186,875
186,875
1,678,675
837,566
836,872
327,366
314,638
285,591
994,206
1,601,851
1,559,925
(206,437
)
(205,527
)
(205,527
)
29,810
19,014
87,270
3,010,495
2,754,417
2,751,006
$
42,855,594
$
36,434,715
$
35,777,187
Table of Contents
(UNAUDITED)
Quarter ended
Nine months ended
September 30,
September 30,
(In thousands, except per share information)
2004
2003
2004
2003
$
445,204
$
389,028
$
1,271,541
$
1,152,508
6,512
6,119
18,674
19,936
106,322
104,717
303,798
325,208
5,729
9,535
20,766
26,688
563,767
509,399
1,614,779
1,524,340
83,467
82,865
240,852
262,678
44,830
36,201
112,440
114,794
87,278
61,034
241,878
188,768
215,575
180,100
595,170
566,240
348,192
329,299
1,019,609
958,100
46,614
48,668
132,641
146,202
301,578
280,631
886,968
811,898
41,455
41,162
123,077
120,670
71,063
71,708
218,476
212,699
39,109
13,435
70,398
803
(4,599
)
(748
)
(9,779
)
11,855
10,858
30,170
40,192
19,380
13,315
64,351
49,812
446,134
452,184
1,335,729
1,295,890
108,807
98,732
315,785
289,101
5,083
3,834
16,404
14,997
28,762
29,647
92,587
90,232
142,652
132,213
424,776
394,330
23,572
21,428
67,437
62,630
28,601
26,892
83,899
79,298
9,269
9,493
28,490
28,347
26,121
21,002
68,755
59,891
15,706
14,922
46,589
43,931
20,492
18,087
54,418
51,067
4,069
4,474
13,458
14,221
25,407
36,767
75,863
90,428
1,984
1,978
5,586
6,033
297,873
287,256
869,271
830,176
148,261
164,928
466,458
465,714
32,880
33,818
104,774
100,667
(184
)
(425
)
$
115,381
$
130,926
$
361,684
$
364,622
$
112,402
$
127,947
$
352,749
$
357,681
$
0.42
$
0.48
$
1.32
$
1.35
$
0.16
$
0.13
$
0.46
$
0.37
Table of Contents
(UNAUDITED)
Nine months ended
September 30,
(In thousands)
2004
2003
$
186,875
$
186,875
186,875
186,875
837,566
834,799
1,618
2,042
839,266
225
31
1,678,675
836,872
314,638
278,366
9,507
9,414
(3,716
)
2,371
1,361
850
166
327,366
285,591
1,601,851
1,300,437
361,684
364,622
(121,128
)
(98,193
)
(8,935
)
(6,941
)
(839,266
)
994,206
1,559,925
19,014
202,487
10,796
(115,217
)
29,810
87,270
(205,527
)
(205,210
)
(1,259
)
(581
)
349
264
(206,437
)
(205,527
)
$
3,010,495
$
2,751,006
Table of Contents
(UNAUDITED)
Quarter ended
Nine months ended
September 30,
September 30,
(In thousands)
2004
2003
2004
2003
$
115,381
$
130,926
$
361,684
$
364,622
424
(7,696
)
(10,832
)
(20,852
)
153,470
(119,499
)
33,453
(33,858
)
34,077
10,946
60,908
(5,574
)
1,646
(4,710
)
(2,696
)
(3,824
)
134
(3,831
)
(3,115
)
18
$
152,144
($
159,760
)
$
10,796
($
115,217
)
$
267,525
($
28,834
)
$
372,480
$
249,405
Table of Contents
(UNAUDITED)
Nine months ended
September 30,
(In thousands)
2004
2003
$
361,684
$
364,622
55,086
54,904
132,641
146,202
5,586
6,033
(13,435
)
(70,398
)
(13,977
)
(2,682
)
(11,268
)
(4,421
)
30,226
19,713
88,974
51,086
(5,191
)
(4,161
)
2,617
1,408
(34,643
)
(8,422
)
(105,050
)
(113,209
)
(43,930
)
(24,724
)
(46,535
)
(109,899
)
33,400
1,844
5,012
(11,534
)
3,000
4,839
(11,740
)
(45,482
)
70,773
(108,903
)
432,457
255,719
(72,576
)
321,308
(4,256,151
)
(5,084,495
)
(597,447
)
(496,858
)
(44,907
)
(29,498
)
3,351,629
4,440,342
538,427
485,137
1,530
43,353
374,627
755,503
(1,222,463
)
(583,783
)
274,928
170,671
(2,633,723
)
(2,046,909
)
(166,740
)
(109,410
)
(79,549
)
25,433
11,186
(4,536,843
)
(2,093,592
)
1,226,373
38,193
1,503,593
111,618
418,748
475,194
1,138,266
1,223,816
(123,322
)
(94,776
)
11,954
11,606
183,159
(1,259
)
(581
)
4,174,353
1,948,229
69,967
110,356
688,090
652,556
$
758,057
$
762,912
Table of Contents
(Dollars in thousands, except per share information)
Table of Contents
Table of Contents
Table of Contents
AS OF SEPTEMBER 30, 2004
Gross
Gross
Amortized
Unrealized
Unrealized
Market
(In thousands)
Cost
Gains
Losses
Value
$
549,696
$
22,919
$
526,777
6,942,634
$
33,279
30,520
6,945,393
132,317
5,078
1,514
135,881
1,645,654
5,264
6,124
1,644,794
1,799,413
28,784
4,556
1,823,641
23,035
72,427
299
95,163
67,451
1,179
660
67,970
$
11,160,200
$
146,011
$
66,592
$
11,239,619
Table of Contents
Table of Contents
Table of Contents
AS OF SEPTEMBER 30, 2004
Gross
Gross
Amortized
Unrealized
Unrealized
Market
(In thousands)
Cost
Gains
Losses
Value
$
8,053
$
8,053
82,100
$
2,745
$
125
84,720
684
88
596
46,480
1,431
3
47,908
$
137,317
$
4,176
$
216
$
141,277
Table of Contents
September 30,
December 31,
September 30,
(In thousands)
2004
2003
2003
$
2,842,033
$
2,431,198
$
2,562,228
1,380
1,597
1,599
10,674,119
7,982,661
7,381,624
$
13,517,532
$
10,415,456
$
9,945,451
Table of Contents
Table of Contents
(In thousands)
$
7,936
7,800
7,632
5,873
4,215
Table of Contents
2004
2003
2.00
%
2.41
%
10 years
10 years
16.50
%
23.87
%
4.06
%
3.78
%
$5.74 per option
$4.56 per option
Table of Contents
Pension Plans
Restoration Plans
Third quarter
Nine months
Third quarter
Nine months
(In thousands)
2004
2003
2004
2003
2004
2003
2004
2003
$
3,465
$
3,387
$
10,864
$
9,866
$
163
$
143
$
489
$
418
6,956
6,755
20,939
19,632
233
202
699
586
(9,340
)
(7,769
)
(28,002
)
(22,575
)
(172
)
(133
)
(516
)
(386
)
(615
)
(622
)
(1,845
)
(1,807
)
100
122
320
354
(26
)
(27
)
(78
)
(78
)
15
541
40
1,572
75
74
225
214
581
2,414
2,316
7,042
273
259
819
754
849
2,219
$
581
$
2,414
$
5,384
$
7,042
$
273
$
259
$
819
$
754
Table of Contents
Table of Contents
Table of Contents
Quarter ended
Nine months ended
September 30,
September 30,
(In thousands, except share information)
2004
2003
2004
2003
$
115,381
$
130,926
$
361,684
$
364,622
2,979
2,979
8,935
6,941
$
112,402
$
127,947
$
352,749
$
357,681
266,414,016
265,599,470
266,197,350
265,369,490
404,362
92,241
310,586
64,013
266,818,378
265,691,711
266,507,936
265,433,503
$
0.42
$
0.48
$
1.32
$
1.35
$
0.42
$
0.48
$
1.32
$
1.35
Table of Contents
Table of Contents
Table of Contents
Quarter ended
Nine months ended
September 30,
September 30,
September 30,
September 30,
(In thousands)
2004
2003
2004
2003
$
14,464
$
14,888
$
41,710
$
46,108
(31,204
)
(35,628
)
(96,055
)
(111,685
)
(12,744
)
(12,528
)
(35,906
)
(38,107
)
64,255
38,019
151,976
118,448
$
34,771
$
4,751
$
61,725
$
14,764
*
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 and information technology services.
Quarter ended
Nine months ended
September 30,
September 30,
September 30,
September 30,
(In thousands)
2004
2003
2004
2003
$
314,913
$
341,769
$
956,783
$
988,248
164,337
146,320
469,968
415,451
13,498
12,763
41,619
38,393
$
492,748
$
500,852
$
1,468,370
$
1,442,092
**
Total revenues include net interest income, service charges on deposit accounts, other service fees, gain on sale of
investment securities, trading account profit (loss), gain on sale of loans and other operating income.
September 30,
December 31,
September 30,
(In thousands)
2004
2003
2003
$
23,633,160
$
22,530,059
$
22,604,297
12,008,580
10,792,902
10,447,561
12,635,000
12,377,181
11,931,233
$
18,429,063
$
13,221,947
$
12,422,850
15,061,145
11,421,958
10,810,358
6,850,482
4,798,841
4,900,887
$
793,371
$
682,709
$
750,040
447,573
387,332
449,836
997,736
921,806
823,872
Table of Contents
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF CONDITION
SEPTEMBER 30, 2004
(UNAUDITED)
Popular, Inc.
PIBI
PNA
All other
Elimination
Popular, Inc.
(In thousands)
Holding Co.
Holding Co.
Holding Co.
Subsidiaries
Entries
Consolidated
$
282
$
20
$
618
$
817,199
($
60,062
)
$
758,057
72,400
300
242
1,185,216
(412,490
)
845,668
57,904
36,070
7,091
11,170,902
(32,348
)
11,239,619
137,317
137,317
441,813
5,001
4,640
125,067
(300,000
)
276,521
321,974
(611
)
321,363
2,948,181
1,010,400
1,395,115
367,695
(5,721,391
)
265,753
265,753
41,537
2,690,267
29,833,774
(5,040,934
)
27,524,644
273,099
273,099
47
445,798
445,845
41,490
2,690,267
29,114,877
(5,040,934
)
26,805,700
24,849
510,870
(331
)
535,388
827
57,987
58,814
209
10,839
233,935
(17,724
)
227,259
30,839
34,646
2,427
874,938
3,358
946,208
394,316
394,316
43,611
43,611
$
3,618,794
$
1,086,437
$
4,111,239
$
45,621,657
($
11,582,533
)
$
42,855,594
$
4,136,521
($
59,986
)
$
4,076,535
16,630,218
(223,535
)
16,406,683
20,766,739
(283,521
)
20,483,218
$
112,000
7,394,309
(200,074
)
7,306,235
$
35,000
$
4,761
359,670
3,019,932
(964,491
)
2,454,872
393,929
2,596,028
9,838,918
(4,054,007
)
8,774,868
125,000
125,000
54,370
86
41,853
636,335
(31,842
)
700,802
608,299
4,847
3,109,551
41,656,233
(5,533,935
)
39,844,995
104
104
186,875
300,000
(300,000
)
186,875
1,678,675
3,962
2
69,393
(73,357
)
1,678,675
324,755
740,193
659,964
1,850,745
(3,248,291
)
327,366
996,817
350,070
339,695
1,748,323
(2,440,699
)
994,206
(206,437
)
(1,690
)
1,690
(206,437
)
29,810
(12,635
)
2,027
(1,451
)
12,059
29,810
3,010,495
1,081,590
1,001,688
3,965,320
(6,048,598
)
3,010,495
$
3,618,794
$
1,086,437
$
4,111,239
$
45,621,657
($
11,582,533
)
$
42,855,594
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF CONDITION
DECEMBER 31, 2003
(UNAUDITED)
Popular, Inc.
PIBI
PNA
All other
Elimination
Popular, Inc.
(In thousands)
Holding Co.
Holding Co.
Holding Co.
Subsidiaries
Entries
Consolidated
$
995
$
47
$
2,444
$
722,181
($
37,577
)
$
688,090
114,297
300
56,890
1,139,713
(538,307
)
772,893
56,680
35,536
6,879
9,957,584
(5,100
)
10,051,579
186,821
186,821
441,686
5,002
4,640
81,816
(300,000
)
233,144
605,119
605,119
2,652,128
887,671
935,084
219,378
(4,694,261
)
283,571
(11,979
)
271,592
79,468
2,511,262
24,634,365
(4,611,216
)
22,613,879
283,279
283,279
408,542
408,542
79,468
2,511,262
23,942,544
(4,611,216
)
21,922,058
10,378
475,074
485,452
53,898
53,898
205
1
11,180
181,939
(17,173
)
176,152
29,080
20,705
2,435
707,310
9,507
769,037
191,490
191,490
27,390
27,390
$
3,384,917
$
949,262
$
3,530,814
$
38,775,828
($
10,206,106
)
$
36,434,715
$
3,764,226
($
37,519
)
$
3,726,707
14,675,297
(304,176
)
14,371,121
18,439,523
(341,695
)
18,097,828
6,038,714
(259,727
)
5,778,987
$
35,675
$
205
$
175,761
2,732,405
(947,422
)
1,996,624
424,635
8,573
2,445,336
7,737,952
(3,624,471
)
6,992,025
125,000
125,000
45,190
133
30,450
636,376
(22,420
)
689,729
630,500
8,911
2,651,547
35,584,970
(5,195,735
)
33,680,193
105
105
186,875
300,000
(300,000
)
186,875
837,566
3,962
2
69,537
(73,501
)
837,566
312,027
678,038
619,964
1,363,998
(2,659,389
)
314,638
1,604,462
263,840
259,360
1,471,535
(1,997,346
)
1,601,851
(205,527
)
(780
)
780
(205,527
)
19,014
(5,489
)
(59
)
(13,537
)
19,085
19,014
2,754,417
940,351
879,267
3,190,753
(5,010,371
)
2,754,417
$
3,384,917
$
949,262
$
3,530,814
$
38,775,828
($
10,206,106
)
$
36,434,715
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF CONDITION
SEPTEMBER 30, 2003
(UNAUDITED)
Popular, Inc.
PIBI
PNA
All other
Elimination
Popular, Inc.
(In thousands)
Holding Co.
Holding Co.
Holding Co.
Subsidiaries
Entries
Consolidated
$
1,460
$
476
$
2,822
$
798,642
($
40,488
)
$
762,912
85,167
301
1,165
1,126,831
(440,126
)
773,338
55,018
40,018
10,857
10,132,563
(7,205
)
10,231,251
341,397
(148,640
)
192,757
132,397
74,025
206,422
568,172
568,172
2,618,228
860,874
912,460
205,801
(4,597,363
)
379,706
(12,983
)
366,723
71,009
3,050,357
23,503,150
(5,009,948
)
21,614,568
273,536
273,536
398,578
398,578
71,009
3,050,357
22,831,036
(5,009,948
)
20,942,454
10,581
466,737
477,318
54,201
54,201
246
1
12,163
215,878
(19,015
)
209,273
27,304
21,040
1,988
713,684
9,079
773,095
190,655
190,655
28,616
28,616
$
3,001,410
$
922,710
$
3,991,812
$
38,127,944
($
10,266,689
)
$
35,777,187
$
3,596,694
($
40,425
)
$
3,556,269
14,158,160
(58,437
)
14,099,723
17,754,854
(98,862
)
17,655,992
$
522,891
6,447,468
(174,190
)
6,796,169
$
1,907
248,545
3,503,496
(1,575,192
)
2,178,756
74,232
$
8,788
2,332,732
6,879,079
(3,766,554
)
5,528,277
125,000
125,000
144,000
144,000
49,265
302
35,137
533,898
(22,197
)
596,405
250,404
9,090
3,139,305
35,262,795
(5,636,995
)
33,024,599
105
1,477
1,582
186,875
186,875
836,872
3,962
2
72,577
(76,541
)
836,872
282,980
678,038
619,964
1,335,998
(2,631,389
)
285,591
1,562,536
235,350
231,732
1,403,429
(1,873,122
)
1,559,925
(205,527
)
(780
)
780
(205,527
)
87,270
(3,730
)
809
53,820
(50,899
)
87,270
2,751,006
913,620
852,507
2,865,044
(4,631,171
)
2,751,006
$
3,001,410
$
922,710
$
3,991,812
$
38,127,944
($
10,266,689
)
$
35,777,187
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE QUARTER ENDED SEPTEMBER 30, 2004
(UNAUDITED)
Popular, Inc.
PIBI
PNA
All other
Elimination
Popular, Inc.
(In thousands)
Holding Co.
Holding Co.
Holding Co.
Subsidiaries
Entries
Consolidated
$
514
$
31,693
$
461,903
($
48,906
)
$
445,204
359
$
1
116
8,543
(2,507
)
6,512
676
189
105,312
145
106,322
5,729
5,729
1,549
1
31,998
581,487
(51,268
)
563,767
84,300
(833
)
83,467
163
17
1,537
50,079
(6,966
)
44,830
8,917
32,950
90,652
(45,241
)
87,278
9,080
17
34,487
225,031
(53,040
)
215,575
(7,531
)
(16
)
(2,489
)
356,456
1,772
348,192
46,614
46,614
(7,531
)
(16
)
(2,489
)
309,842
1,772
301,578
41,455
41,455
95,536
(24,473
)
71,063
1,024
(221
)
803
16,970
(5,115
)
11,855
4,112
987
21,015
(6,734
)
19,380
(3,419
)
971
(2,489
)
485,842
(34,771
)
446,134
82
109,118
(393
)
108,807
5,083
5,083
12
28,845
(95
)
28,762
94
143,046
(488
)
142,652
3
23,569
23,572
2
28,614
(15
)
28,601
273
8,996
9,269
392
57
55,749
(30,077
)
26,121
34
15,690
(18
)
15,706
20,492
20,492
4,069
4,069
477
20
134
25,203
(427
)
25,407
1,984
1,984
1,178
117
191
327,412
(31,025
)
297,873
(4,597
)
854
(2,680
)
158,430
(3,746
)
148,261
(1,037
)
(840
)
35,784
(1,027
)
32,880
(3,560
)
854
(1,840
)
122,646
(2,719
)
115,381
118,941
28,075
29,735
13,770
(190,521
)
$
115,381
$
28,929
$
27,895
$
136,416
($
193,240
)
$
115,381
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE QUARTER ENDED SEPTEMBER 30, 2003
(UNAUDITED)
Popular, Inc.
PIBI
PNA
All other
Elimination
Popular, Inc.
(In thousands)
Holding Co.
Holding Co.
Holding Co.
Subsidiaries
Entries
Consolidated
$
544
$
36,217
$
404,346
($
52,079
)
$
389,028
196
$
1
381
16,189
(10,648
)
6,119
164
210
107,294
(2,951
)
104,717
9,535
9,535
904
1
36,808
537,364
(65,678
)
509,399
83,135
(270
)
82,865
49
3,236
49,131
(16,215
)
36,201
3,851
58
32,110
75,968
(50,953
)
61,034
3,900
58
35,346
208,234
(67,438
)
180,100
(2,996
)
(57
)
1,462
329,130
1,760
329,299
48,668
48,668
(2,996
)
(57
)
1,462
280,462
1,760
280,631
41,162
41,162
71,799
(91
)
71,708
38,582
4
523
39,109
(4,599
)
(4,599
)
16,858
(6,000
)
10,858
379
987
12,369
(420
)
13,315
35,965
930
1,466
418,574
(4,751
)
452,184
83
98,649
98,732
3,834
3,834
14
29,633
29,647
97
132,116
132,213
4
21,424
21,428
26,892
26,892
358
9,135
9,493
411
5
153
20,552
(119
)
21,002
13
14,909
14,922
18,087
18,087
4,474
4,474
117
25
132
36,608
(115
)
36,767
1,978
1,978
899
131
285
286,175
(234
)
287,256
35,066
799
1,181
132,399
(4,517
)
164,928
4,823
400
29,757
(1,162
)
33,818
(184
)
(184
)
30,243
799
781
102,458
(3,355
)
130,926
100,683
24,115
23,022
13,687
(161,507
)
$
130,926
$
24,914
$
23,803
$
116,145
($
164,862
)
$
130,926
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
(UNAUDITED)
Popular, Inc.
PIBI
PNA
All other
Elimination
Popular, Inc.
(In thousands)
Holding Co.
Holding Co.
Holding Co.
Subsidiaries
Entries
Consolidated
$
1,790
$
95,618
$
1,319,001
($
144,868
)
$
1,271,541
799
$
3
254
24,519
(6,901
)
18,674
1,096
573
301,536
593
303,798
20,766
20,766
3,685
3
96,445
1,665,822
(151,176
)
1,614,779
243,570
(2,718
)
240,852
488
38
4,424
126,156
(18,666
)
112,440
25,818
63
94,445
256,974
(135,422
)
241,878
26,306
101
98,869
626,700
(156,806
)
595,170
(22,621
)
(98
)
(2,424
)
1,039,122
5,630
1,019,609
132,641
132,641
(22,621
)
(98
)
(2,424
)
906,481
5,630
886,968
123,077
123,077
260,267
(41,791
)
218,476
10,535
2,206
14
680
13,435
(527
)
(221
)
(748
)
43,539
(13,369
)
30,170
7,651
3,282
81
65,309
(11,972
)
64,351
(4,435
)
5,390
(2,329
)
1,398,826
(61,723
)
1,335,729
244
312,942
2,599
315,785
16,149
255
16,404
42
91,999
546
92,587
286
421,090
3,400
424,776
9
66,882
546
67,437
2
81,207
2,690
83,899
990
27,318
182
28,490
1,386
2
217
128,578
(61,428
)
68,755
61
46,208
320
46,589
54,406
12
54,418
13,280
178
13,458
886
64
408
74,737
(232
)
75,863
5,586
5,586
3,325
361
625
919,292
(54,332
)
869,271
(7,760
)
5,029
(2,954
)
479,534
(7,391
)
466,458
280
(472
)
106,740
(1,774
)
104,774
(8,040
)
5,029
(2,482
)
372,794
(5,617
)
361,684
369,724
81,202
82,818
44,476
(578,220
)
$
361,684
$
86,231
$
80,336
$
417,270
($
583,837
)
$
361,684
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(UNAUDITED)
Popular, Inc.
PIBI
PNA
All other
Elimination
Popular, Inc.
(In thousands)
Holding Co.
Holding Co.
Holding Co.
Subsidiaries
Entries
Consolidated
$
2,686
$
109,955
$
1,199,693
($
159,826
)
$
1,152,508
353
$
5
969
51,428
(32,819
)
19,936
921
616
332,490
(8,819
)
325,208
26,688
26,688
3,960
5
111,540
1,610,299
(201,464
)
1,524,340
263,322
(644
)
262,678
299
1
11,977
154,985
(52,468
)
114,794
12,646
174
105,490
222,835
(152,377
)
188,768
12,945
175
117,467
641,142
(205,489
)
566,240
(8,985
)
(170
)
(5,927
)
969,157
4,025
958,100
146,202
146,202
(8,985
)
(170
)
(5,927
)
822,955
4,025
811,898
120,683
(13
)
120,670
214,198
(1,499
)
212,699
67,779
(26
)
2,645
70,398
(9,779
)
(9,779
)
55,345
(15,153
)
40,192
13,541
3,424
34,970
(2,123
)
49,812
72,335
3,254
(5,953
)
1,241,017
(14,763
)
1,295,890
243
288,857
1
289,101
14,997
14,997
45
90,187
90,232
288
394,041
1
394,330
10
62,620
62,630
79,298
79,298
939
27,408
28,347
828
14
303
59,063
(317
)
59,891
33
43,898
43,931
51,067
51,067
14,221
14,221
282
73
707
89,836
(470
)
90,428
6,033
6,033
2,082
385
1,010
827,485
(786
)
830,176
70,253
2,869
(6,963
)
413,532
(13,977
)
465,714
8,490
(958
)
96,990
(3,855
)
100,667
(425
)
(425
)
61,763
2,869
(6,005
)
316,117
(10,122
)
364,622
302,859
61,606
66,781
38,665
(469,911
)
$
364,622
$
64,475
$
60,776
$
354,782
($
480,033
)
$
364,622
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
(UNAUDITED)
Popular, Inc.
PIBI
PNA
All other
Elimination
Consolidated
(In thousands)
Holding Co.
Holding Co.
Holding Co.
Subsidiaries
Entries
Popular, Inc.
$
361,684
$
86,231
$
80,336
$
417,270
($
583,837
)
$
361,684
(369,724
)
(81,202
)
(82,818
)
(44,476
)
578,220
668
53,475
943
55,086
132,641
132,641
5,586
5,586
(10,535
)
(2,206
)
(14
)
(680
)
(13,435
)
(13,977
)
(13,977
)
(11,268
)
(11,268
)
30,927
(701
)
30,226
(15
)
88,989
88,974
(1,761
)
(2,967
)
(463
)
(5,191
)
398
2,197
22
2,617
(34,643
)
(34,643
)
(105,660
)
610
(105,050
)
(4
)
1
341
(44,818
)
550
(43,930
)
(2,133
)
(21,248
)
182
(35,531
)
12,195
(46,535
)
2,788
(27
)
12,299
18,639
(299
)
33,400
1,395
(1,367
)
6,759
(1,775
)
5,012
3,000
3,000
2,020
(19
)
223
(547
)
(13,417
)
(11,740
)
(376,903
)
(107,668
)
(71,154
)
50,150
576,348
70,773
(15,219
)
(21,437
)
9,182
467,420
(7,489
)
432,457
41,897
56,647
(45,304
)
(125,816
)
(72,576
)
(1,500
)
(4,651,077
)
396,426
(4,256,151
)
(597,447
)
(597,447
)
(126
)
(44,781
)
(44,907
)
3,720,105
(368,476
)
3,351,629
538,427
538,427
1,530
1,530
12,444
3,272
1,514
357,397
374,627
41,949
(179,005
)
(1,503,145
)
417,738
(1,222,463
)
279,438
(4,510
)
274,928
(4,509
)
(2,633,724
)
4,510
(2,633,723
)
(55,559
)
(40,000
)
(375,265
)
470,824
(166,740
)
(166,740
)
(15,139
)
(93,659
)
(612
)
(109,410
)
25,433
25,433
136,375
(136,375
)
157,332
(36,728
)
(497,609
)
(4,813,547
)
653,709
(4,536,843
)
1,168,199
58,174
1,226,373
112,000
1,331,941
59,652
1,503,593
(675
)
4,556
183,909
248,027
(17,069
)
418,748
(30,783
)
(8,573
)
150,692
1,456,466
(429,536
)
1,138,266
(136,375
)
136,375
(123,322
)
(123,322
)
11,954
11,954
(1,259
)
(1,259
)
62,155
40,000
374,146
(476,301
)
(142,826
)
58,138
486,601
4,441,145
(668,705
)
4,174,353
(713
)
(27
)
(1,826
)
95,018
(22,485
)
69,967
995
47
2,444
722,181
(37,577
)
688,090
$
282
$
20
$
618
$
817,199
($
60,062
)
$
758,057
Table of Contents
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(UNAUDITED)
Popular, Inc.
PIBI
PNA
All other
Elimination
Consolidated
(In thousands)
Holding Co.
Holding Co.
Holding Co.
Subsidiaries
Entries
Popular, Inc.
$
364,622
$
64,475
$
60,776
$
354,782
($
480,033
)
$
364,622
(302,859
)
(61,606
)
(66,781
)
(38,665
)
469,911
610
54,294
54,904
146,202
146,202
6,033
6,033
(67,779
)
26
(2,645
)
(70,398
)
(2,682
)
(2,682
)
(4,421
)
(4,421
)
20,259
(546
)
19,713
51,086
51,086
(1,051
)
(3,110
)
(4,161
)
119
1,289
1,408
(5,172
)
(3,250
)
(8,422
)
(113,209
)
(113,209
)
48
1
(272
)
(21,506
)
(2,995
)
(24,724
)
2,292
(1,788
)
(332
)
(110,277
)
206
(109,899
)
(159
)
174
14,365
(15,359
)
2,823
1,844
3,369
18,912
(29,959
)
(3,856
)
(11,534
)
4,839
4,839
1,426
(35
)
(49,400
)
2,281
246
(45,482
)
(363,984
)
(66,364
)
(83,482
)
(57,612
)
462,539
(108,903
)
638
(1,889
)
(22,706
)
297,170
(17,494
)
255,719
(82,230
)
(1
)
8,543
124,163
270,833
321,308
(3,108
)
(22,400
)
(5,414,720
)
355,733
(5,084,495
)
(496,858
)
(496,858
)
(38
)
(29,460
)
(29,498
)
4,793,325
(352,983
)
4,440,342
485,137
485,137
43,353
43,353
83,004
18,143
654,356
755,503
96,515
(477,135
)
(906,612
)
703,449
(583,783
)
170,671
170,671
(2,046,909
)
(2,046,909
)
(185,494
)
(180,000
)
365,494
(79,549
)
(79,549
)
11,186
11,186
98,100
32,000
(130,100
)
9,857
(183,109
)
(472,849
)
(2,659,917
)
1,212,426
(2,093,592
)
70,858
(32,665
)
38,193
(10,300
)
24,008
139,980
(42,070
)
111,618
(27,285
)
(90
)
(190,507
)
1,026,025
(332,949
)
475,194
(69,152
)
483,715
1,361,093
(551,840
)
1,223,816
(98,100
)
98,100
(94,776
)
(32,000
)
32,000
(94,776
)
11,606
11,606
180,548
2,611
183,159
(581
)
(581
)
185,494
180,000
(365,494
)
(9,359
)
185,404
497,216
2,467,275
(1,192,307
)
1,948,229
1,136
406
1,661
104,528
2,625
110,356
324
70
1,161
694,114
(43,113
)
652,556
$
1,460
$
476
$
2,822
$
798,642
($
40,488
)
$
762,912
Table of Contents
-
Commercial Banking Banco Popular de Puerto Rico (BPPR), Banco
Popular North America (BPNA) and Banco Popular, National Association
(BP, N.A.)
-
Auto Loans and Lease Financing Popular Auto, Inc. and Popular
Leasing, U.S.A.
-
Mortgage and Consumer Lending Popular Mortgage, Inc., Equity One,
Inc., Popular Finance, Inc., and Popular FS, LLC
-
Broker / Dealer and Investment Banking Popular Securities, Inc.
-
Processing and Information Technology Services and Products -
EVERTEC, INC., ATH Costa Rica and CreST, S.A.
-
Retail Financial Services Popular Cash Express, Inc.
-
Insurance Popular Insurance, Inc., Popular Insurance Agency U.S.A.,
Inc., Popular Insurance V.I., Inc. and Popular RE, Inc.
Ø
Table A Financial Highlights presents a summary of key financial
information for the quarters and nine months ended September 30, 2004
and 2003.
Ø
Net income for the quarter ended September 30, 2004 totaled $115.4
million, compared with $130.9 million for the third quarter of 2003. The
results for the third quarter of 2003 included $39.1 million in gain on
sale of investment securities, mainly marketable equity securities.
Also, included in 2003 results was a $12.1 million prepayment penalty
paid by the Corporation in connection with the early cancellation of
certain long-term borrowings.
Table of Contents
Financial Highlights
At September 30,
Average for the nine months
Balance Sheet Highlights
2004
2003
Change
2004
2003
Change
(In thousands)
$
845,668
$
773,338
$
72,330
$
830,235
$
858,873
($
28,638
)
11,974,820
11,198,602
776,218
11,573,324
11,307,404
265,920
27,517,298
21,707,755
5,809,543
24,222,902
20,264,238
3,958,664
42,855,594
35,777,187
7,078,407
38,793,708
34,290,003
4,503,705
20,483,218
17,655,992
2,827,226
18,960,531
17,724,580
1,235,951
18,660,975
14,772,202
3,888,773
16,348,650
13,546,829
2,801,821
3,010,495
2,751,006
259,489
2,860,175
2,492,582
367,593
Third Quarter
Nine months ended September 30,
Operating Highlights
2004
2003
Change
2004
2003
Change
(In thousands, except per share information)
$
348,192
$
329,299
$
18,893
$
1,019,609
$
958,100
$
61,509
46,614
48,668
(2,054
)
132,641
146,202
(13,561
)
144,556
171,553
(26,997
)
448,761
483,992
(35,231
)
330,753
321,258
9,495
974,045
931,268
42,777
$
115,381
$
130,926
($
15,545
)
$
361,684
$
364,622
($
2,938
)
$
112,402
$
127,947
($
15,545
)
$
352,749
$
357,681
($
4,932
)
$
0.42
$
0.48
($
0.06
)
$
1.32
$
1.35
($
0.03
)
Third Quarter
Nine months ended September 30,
Selected Statistical Information
2004
2003
2004
2003
$
26.30
$
20.59
$
26.30
$
20.59
21.47
18.33
20.04
15.98
26.30
19.90
26.30
19.90
10.60
9.66
10.60
9.66
0.16
0.13
0.46
0.37
37.89
%
27.89
%
32.43
%
24.87
%
15.38
x
12.06
x
15.38
x
12.06
x
1.13
%
1.47
%
1.25
%
1.42
%
16.22
20.85
17.63
20.35
3.54
3.95
3.65
3.92
3.89
4.31
4.01
4.31
22.18
20.50
22.46
21.62
44.03
35.14
41.24
36.13
60.55
61.60
60.16
60.09
7.22
%
7.43
%
7.37
%
7.27
%
6.56
6.86
6.79
6.68
11.43
12.46
11.81
12.30
9.48
14.08
10.80
13.85
10.62
11.14
10.62
11.14
12.09
12.76
12.09
12.76
7.12
7.02
7.12
7.02
*
Non-interest expense less non-interest income divided by net interest
income.
**
Non-interest expense divided by net interest income plus recurring
non-interest income.
Note: All per share data has been adjusted to reflect the two-for-one stock
split effected in the form of a stock dividend effective July 8, 2004.
Table of Contents
Ø
Explanations for the main variances in the quarterly results as of
September 30, 2004, compared with the same quarter last year follow:
higher net interest income, principally as a result of the
growth in average earning assets, mainly loans, partially offset by a
reduction in the net interest margin.
lower provision for loan losses as a result of improved credit
quality trends. Lower net charge-offs, a change in the composition of
non-performing assets and a continued shift in the loan portfolio mix
to include a greater proportion of real estate secured loans,
contributed to the lowering of the provision for loan losses for the
third quarter of 2004, compared with the same period in 2003.
lower non-interest income mainly due to the gain on the sale of
investment securities during the quarter ended September 30, 2003
which were not realized during the third quarter of 2004, partially
offset by higher other operating income and trading profits.
Higher operating expenses, principally in the categories of
personnel costs, professional fees, business promotion, net occupancy
and equipment expenses partly compensated by lower other operating
expenses.
Ø
Total loans at September 30, 2004 reflected a growth of 27% from
September 30, 2003 and 22% from December 31, 2003. The increase in loans
was driven primarily by good results in mortgage, commercial and
consumer lending, and by the acquisition of Quaker City which
contributed approximately $1.6 billion in loans at September 30, 2004,
mainly commercial and mortgage loans.
Ø
Deposits increased by 16% from September 30, 2003, mostly reflected
in savings and time deposits. The Quaker City acquisition contributed
approximately $1.2 billion in deposits at September 30, 2004.
Ø
The increase in borrowings was mainly used to fund loan growth and
the Quaker City acquisition. During the third quarter of 2004, the
Corporation sold in a public offering approximately $637 million in
asset-backed securities supported by mortgage loans, through Equity One
ABS, Inc. Also, during this quarter, the Corporation sold $400 million
in fixed-rate five-year medium-term notes to repay outstanding
short-term borrowings and partially fund the acquisition of Quaker City.
Ø
The increase in stockholders equity was principally due to earnings
since September 30, 2003. Although not having an impact on total
stockholders equity, a total of $839 million were transferred from
retained earnings to common stock as a result of a two-for-one common
stock split during the quarter ended June 30, 2004.
Ø
The Corporations market capitalization at September 30, 2004 was
$7.0 billion, compared with $5.3 billion at September 30, 2003.
Ø
On August 17, 2004, Popular, Inc. and Kislak Financial Corporation
announced that they reached a definitive agreement where Popular, Inc.
will acquire the operations of Kislak National Bank, a Miami,
Florida-based commercial bank. The acquisition is expected to close
during the first quarter of 2005. Kislak operates eight full services
bank facilities in the metropolitan Miami-Dade, Broward and Palm Beach
counties and had approximately $1.0 billion in total assets as of June
30, 2004. Kislak National Bank is one of the nations leading lenders to
homeowners associations.
Ø
Subsequent to the end of the third quarter of 2004, a public offering
of approximately $705 million in asset-backed securities supported by
mortgage loans was completed through Popular ABS, Inc., which
prospectively will be the name used by Popular, Inc. for sales of
asset-backed securities supported by mortgage loans held by Equity One.
Also, as an additional funding source for the acquisition of Quaker
City,
Table of Contents
the Corporation issued junior subordinated debentures as part of an
offering of $250 million of trust preferred securities. The trust
preferred securities qualify as Tier 1 risk-based capital.
Ø
On October 22, 2004, President George W. Bush signed into law the
American Jobs Creation Act of 2004
, which lowers the withholding tax
rate imposed on distributions of U.S. sourced dividends to a corporation
organized under the laws of the Commonwealth of Puerto Rico from 30% to
10%. As described in the Managements Discussion and Analysis
included in the Corporations 2003 Annual Report, under the
section of Critical Accounting Policies, particularly
income taxes, the Corporations foreign subsidiaries have never
remitted retained earnings since these are necessary to carry out the
Corporations expansion plans in the respective markets of those
subsidiaries, thus are considered permanently invested. Accordingly,
the new law which lowers the withholding tax rate to 10% is not
expected to have an impact in the Corporations earnings in the
foreseeable future.
Ø
Further discussion of operating results, financial condition and
market / liquidity risks is presented in the narrative and tables
included herein.
Table of Contents
ANALYSIS OF LEVELS & YIELDS ON A TAXABLE EQUIVALENT BASIS
Quarter ended September 30, 2004
Variance
Average Volume
Average Yields / Costs
Interest
Attributable to
2004
2003
Variance
2004
2003
Variance
2004
2003
Variance
Rate
Volume
($ in millions)
(In thousands)
$
845
$
790
$
55
3.07
%
3.07
%
$
6,512
$
6,119
$
393
$
191
$
202
11,576
10,899
677
4.46
4.85
(0.39
%)
128,983
132,205
(3,222
)
(15,710
)
12,488
378
682
(304
)
6.42
5.87
0.55
6,092
10,084
(3,992
)
845
(4,837
)
12,799
12,371
428
4.42
4.79
(0.37
)
141,587
148,408
(6,821
)
(14,674
)
7,853
9,519
8,296
1,223
5.94
5.95
(0.01
)
142,020
124,428
17,592
(666
)
18,258
1,153
1,039
114
8.39
9.51
(1.12
)
24,194
24,716
(522
)
(3,066
)
2,544
11,276
8,577
2,699
6.55
7.03
(0.48
)
184,626
150,759
33,867
(10,911
)
44,778
3,804
3,202
602
10.32
11.46
(1.14
)
98,452
92,149
6,303
(8,016
)
14,319
25,752
21,114
4,638
6.96
7.40
(0.44
)
449,292
392,052
57,240
(22,659
)
79,899
$
38,551
$
33,485
$
5,066
6.12
%
6.44
%
(0.32
%)
$
590,879
$
540,460
$
50,419
($
37,333
)
$
87,752
$
3,071
$
2,538
$
533
1.20
%
1.23
%
(0.03
%)
$
9,290
$
7,876
$
1,414
($
322
)
$
1,736
5,396
5,185
211
1.07
1.22
(0.15
)
14,491
15,901
(1,410
)
(2,115
)
705
7,179
6,536
643
3.31
3.59
(0.28
)
59,686
59,088
598
(4,731
)
5,329
15,646
14,259
1,387
2.12
2.31
(0.19
)
83,467
82,865
602
(7,168
)
7,770
9,343
8,841
502
1.91
1.62
0.29
44,830
36,201
8,629
7,354
1,275
8,292
5,595
2,697
4.19
4.33
(0.14
)
87,278
61,034
26,244
(3,664
)
29,908
33,281
28,695
4,586
2.58
2.49
0.09
liabilities
215,575
180,100
35,475
(3,478
)
38,953
3,942
3,565
377
1,328
1,225
103
$
38,551
$
33,485
$
5,066
2.23
%
2.13
%
0.10
%
3.89
%
4.31
%
(0.42
%)
taxable equivalent basis
375,304
360,360
14,944
($
33,855
)
$
48,799
3.54
%
3.95
%
(0.41
%)
27,112
31,061
(3,949
)
$
348,192
$
329,299
$
18,893
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Table of Contents
ANALYSIS OF LEVELS & YIELDS ON A TAXABLE EQUIVALENT BASIS
Nine months ended September 30, 2004
Variance
Average Volume
Average Yields / Costs
Interest
Attributable to
2004
2003
Variance
2004
2003
Variance
2004
2003
Variance
Rate
Volume
($ in millions)
(In thousands)
$
830
$
859
($
29
)
3.00
%
3.10
%
(0.10
%)
$
18,674
$
19,936
($
1,262
)
($
444
)
($
818
)
11,051
10,676
375
4.53
5.07
(0.54
)
375,016
406,005
(30,989
)
(55,378
)
24,389
522
632
(110
)
5.67
5.95
(0.28
)
22,166
28,116
(5,950
)
(1,243
)
(4,707
)
12,403
12,167
236
4.47
4.98
(0.51
)
415,856
454,057
(38,201
)
(57,065
)
18,864
8,957
8,141
816
5.77
6.10
(0.33
)
386,746
371,454
15,292
(20,654
)
35,946
1,117
943
174
8.74
10.14
(1.40
)
73,221
71,712
1,509
(10,666
)
12,175
10,613
8,018
2,595
6.75
7.34
(0.59
)
537,554
441,594
95,960
(37,737
)
133,697
3,536
3,162
374
10.74
11.63
(0.89
)
284,531
275,472
9,059
(16,873
)
25,932
24,223
20,264
3,959
7.06
7.64
(0.58
)
1,282,052
1,160,232
121,820
(85,930
)
207,750
$
36,626
$
32,431
$
4,195
6.18
%
6.64
%
(0.46
%)
$
1,697,908
$
1,614,289
$
83,619
($
142,995
)
$
226,614
$
2,836
$
2,539
$
297
1.12
%
1.42
%
(0.30
%)
$
23,873
$
26,946
($
3,073
)
($
6,009
)
$
2,936
5,358
5,170
188
1.05
1.39
(0.34
)
42,067
53,569
(11,502
)
(13,542
)
2,040
6,928
6,562
366
3.37
3.71
(0.34
)
174,912
182,163
(7,251
)
(16,988
)
9,737
15,122
14,271
851
2.13
2.46
(0.33
)
240,852
262,678
(21,826
)
(36,539
)
14,713
8,653
8,451
202
1.74
1.82
(0.08
)
112,440
114,794
(2,354
)
388
(2,742
)
7,695
5,096
2,599
4.20
4.95
(0.75
)
241,878
188,768
53,110
(36,262
)
89,372
31,470
27,818
3,652
2.53
2.72
(0.19
)
liabilities
595,170
566,240
28,930
(72,413
)
101,343
3,839
3,454
385
1,317
1,159
158
$
36,626
$
32,431
$
4,195
2.17
%
2.33
%
(0.16
%)
4.01
%
4.31
%
(0.30
%)
taxable equivalent basis
1,102,738
1,048,049
54,689
($
70,582
)
$
125,271
3.65
%
3.92
%
(0.27
%)
83,129
89,949
(6,820
)
$
1,019,609
$
958,100
$
61,509
Table of Contents
Other Service Fees
Quarter ended September 30,
Nine months ended September 30,
(In thousands)
2004
2003
Change
2004
2003
Change
$
17,011
$
15,289
$
1,722
$
51,656
$
45,507
$
6,149
12,365
11,445
920
38,020
34,343
3,677
10,705
8,282
2,423
28,589
22,059
6,530
9,550
9,173
377
30,521
28,758
1,763
7,852
12,301
(4,449
)
23,273
36,525
(13,252
)
5,204
5,704
(500
)
17,613
15,945
1,668
4,636
5,778
(1,142
)
16,770
18,811
(2,041
)
2,268
2,077
191
6,816
5,958
858
1,472
1,659
(187
)
5,218
4,793
425
$
71,063
$
71,708
($
645
)
$
218,476
$
212,699
$
5,777
Table of Contents
Table of Contents
Loans Ending Balances
Change
Change
September 30,
December 31,
September 30, 2004 vs.
September 30,
September 30, 2004 vs.
(In thousands)
2004
2003
December 31, 2003
2003
September 30, 2003
$
10,020,953
$
8,235,683
$
1,785,270
$
8,029,875
$
1,991,078
421,059
335,482
85,577
281,976
139,083
1,152,749
1,053,821
98,928
1,031,551
121,198
11,970,585
9,708,536
2,262,049
9,149,373
2,821,212
3,951,952
3,268,670
683,282
3,214,980
736,972
$
27,517,298
$
22,602,192
$
4,915,106
$
21,707,755
$
5,809,543
Table of Contents
Table of Contents
Capital Adequacy Data
September 30,
December 31,
September 30,
(Dollars in thousands)
2004
2003
2003
$
2,860,783
$
2,834,599
$
2,460,858
395,474
341,840
356,980
$
3,256,257
$
3,176,439
$
2,817,838
$
25,467,134
$
21,384,288
$
20,703,540
1,458,589
1,411,402
1,385,184
$
26,925,723
$
22,795,690
$
22,088,724
$
40,206,377
$
35,444,739
$
35,044,842
10.62
%
12.43
%
11.14
%
12.09
%
13.93
%
12.76
%
7.12
%
8.00
%
7.02
%
*
All banks are required to have a minimum Tier I leverage ratio of 3% or 4%
of adjusted quarterly average assets, depending on the banks
classification.
Non-Performing Assets
Change
Change
September 30, 2004
September 30, 2004
September 30,
December 31,
vs.
September 30,
vs.
(Dollars in thousands)
2004
2003
December 31, 2003
2003
September 30, 2003
$
133,612
$
168,266
($
34,654
)
$
213,386
($
79,774
)
6,377
7,494
(1,117
)
6,908
(531
)
386,520
344,916
41,604
318,317
68,203
37,762
36,350
1,412
35,489
2,273
564,271
557,026
7,245
574,100
(9,829
)
58,814
53,898
4,916
54,201
4,613
$
623,085
$
610,924
$
12,161
$
628,301
($
5,216
)
$
26,047
$
26,364
($
317
)
$
26,692
($
645
)
2.26
%
2.70
%
2.89
%
1.45
1.68
1.76
Table of Contents
Table of Contents
Table of Contents
Allowance for Loan Losses and Selected Loan Losses Statistics
Quarter ended September 30,
Nine months ended September 30,
(Dollars in thousands)
2004
2003
Change
2004
2003
Change
$
425,949
$
397,503
$
28,446
$
408,542
$
372,797
$
35,745
15,764
1,897
13,867
22,741
5,587
17,154
46,614
48,668
(2,054
)
132,641
146,202
(13,561
)
488,327
448,068
40,259
563,924
524,586
39,338
16,149
24,472
(8,323
)
47,811
57,079
(9,268
)
994
994
994
135
859
5,992
5,072
920
15,901
17,717
(1,816
)
8,544
10,139
(1,595
)
23,367
22,522
845
25,206
24,640
566
75,981
72,016
3,965
56,885
64,323
(7,438
)
164,054
169,469
(5,415
)
5,152
5,425
(273
)
15,343
14,553
790
27
(27
)
2,327
2,693
(366
)
8,836
8,544
292
219
146
73
1,050
294
756
6,705
6,569
136
20,746
20,043
703
14,403
14,833
(430
)
45,975
43,461
2,514
10,997
19,047
(8,050
)
32,468
42,526
(10,058
)
994
994
994
108
886
3,665
2,379
1,286
7,065
9,173
(2,108
)
8,325
9,993
(1,668
)
22,317
22,228
89
18,501
18,071
430
55,235
51,973
3,262
42,482
49,490
(7,008
)
118,079
126,008
(7,929
)
$
445,845
$
398,578
$
47,267
$
445,845
$
398,578
$
47,267
1.62
%
1.84
%
1.62
%
1.84
%
71.55
63.44
71.55
63.44
79.01
69.43
79.01
69.43
2.26
2.89
2.26
2.89
1.45
1.76
1.45
1.76
0.66
0.94
0.65
0.83
1.10
x
0.98
x
1.12
x
1.16
x
4.59
4.32
5.07
4.86
Table of Contents
Annualized Net Charge-offs to Average Loans
Quarter ended September 30,
Nine months ended September 30,
2004
2003
2004
2003
0.50
%
0.92
%
0.50
%
0.70
%
1.27
0.92
0.84
1.30
0.30
0.47
0.28
0.37
1.95
2.26
2.08
2.19
0.66
%
0.94
%
0.65
%
0.83
%
Table of Contents
Table of Contents
% increase from
% of total assets
September 30,
December 31,
December 31, 2003 to
September 30,
December 31,
2004
2003
September 30, 2004
2004
2003
$
4,077
$
3,727
9.4
%
9.5
%
10.2
%
12,633
11,117
13.6
%
29.5
%
30.5
%
3,773
3,254
15.9
%
8.8
%
8.9
%
7,306
5,779
26.4
%
17.0
%
15.9
%
2,455
1,997
22.9
%
5.7
%
5.5
%
8,900
7,117
25.1
%
20.8
%
19.5
%
701
690
1.6
%
1.6
%
1.9
%
3,010
2,754
9.3
%
7.0
%
7.6
%
(In
thousands)
$
1,437,265
522,745
575,398
1,237,873
$
3,773,281
Table of Contents
Popular, Inc.
BPPR
Short-term
Long-term
Short-term
Long-term
debt
debt
debt
debt
F-1
A
F-1
A
P-2
A-3
P-1
A-2
A-2
BBB+
A-2
A-
Table of Contents
Total Number of Shares
Maximum Number of Shares
Total Number of Shares
Average Price Paid
Purchased as Part of Publicly
that May Yet be Purchased
Period
Purchased
per Share
Announced Plans or Programs
Under the Plans or Programs
18,843
$
23.28
18,843
9,981,157
18,843
$
23.28
18,843
9,981,157
Exhibit No.
Exhibit Description
10.1
10.2
10.3
Table of Contents
Exhibit No.
Exhibit Description
10.4
12.1
31.1
31.2
32.1
32.2
Table of Contents
POPULAR, INC.
(Registrant)
By:
/s/ Jorge A. Junquera
Jorge A. Junquera
Senior Executive Vice President &
Chief Financial Officer
By:
/s/ Ileana González Quevedo
Ileana González Quevedo
Senior Vice President & Comptroller
[POPULAR INC.LOGO] EXHIBIT 10.1
July 16, 2004
PERSONAL AND CONFIDENTIAL
Dear ______
We are very pleased to have you on the Board of Directors (the "Board") of Popular, Inc. ("Popular") and Banco Popular the Puerto Rico ("BPPR") and are writing to set forth the general terms of your compensation as a Director, pursuant to resolutions adopted by Popular's and BPPR's Boards (without your participation) on July 14, 2004 and July 15, 2004, respectively. These terms are, of course, subject to future modification by Popular's and BPPR's Boards.
Your current term as a Director of Popular commenced on _____ and will run through the _____ annual meeting of shareholders of the Corporation. Your term as a Director of BPPR commenced on _____ and will end on ______. As compensation for your services, you will receive:
- An annual retainer fee (the "Annual Retainer") of $18,750 for the period ending on the day the 2005 annual meeting of shareholders of Popular is held and $20,000 for each subsequent twelve month period that you are a Director of Popular or $25,000 if you are elected Chairman of any of Popular's Board committees;
- $1,000 for each of Popular's or BPPR's Board or Board committee meeting that you attend (the "Meeting Fee"); and
- A grant of $26,250 payable in Restricted Stock of Popular, Inc. (the "Restricted Stock") under the Popular, Inc. 2004 Omnibus Incentive Plan (the "Omnibus Plan") for the period ending on the day the 2005 annual meeting of shareholders of Popular is held, and an annual grant of $35,000 payable in Restricted Stock under the Omnibus Plan for each subsequent twelve month period that you are a Director of Popular and/or BPPR.
The Annual Retainer will be paid annually in advance, within the 30 days following Popular's annual shareholder meeting, in cash unless you elect to receive payment in Restricted Stock. The Annual Retainer for the period ending on the day the 2005 annual meeting of shareholders of Popular is held will be paid on August 16, 2004. The Meeting
July 16, 2004
Fee may be paid in cash on a per meeting basis or quarterly in arrears in Restricted Stock. The number of shares of Restricted Stock to be delivered in payment of an Annual Retainer and/or Meeting Fee shall be determined based on the per share closing price of Popular's common stock on the date payment is made and the amount of the Annual Retainer and/or Meeting Fee owed you.
If you elect to receive payment in the form of Restricted Stock, such shares shall be subject to the terms of the Annual Retainer and/or Meeting Fee Restricted Stock Agreement (attached hereto). If you elect to receive Restricted Stock you must return to us the attached Director Compensation Election Form and the executed Annual Retainer and/or Meeting Fee Restricted Stock Agreement. If you do not provide us with a completed election form, the Annual Retainer will be paid to you annually in advance in cash and the Meeting Fee will be paid in cash on a per meeting basis. Once you have made an election to receive Restricted Stock, the election will be applicable to all future payments of the Annual Retainer and/or Meeting Fee, unless you notify us in writing of your desire to no longer receive Restricted Stock. In such case, your notice will apply to compensation payable for the year following receipt of the notice.
If you do not currently elect to receive the Annual Retainer and/or the Meeting Fee in the form of Restricted Stock, you may make such an election for future payments of either compensation element, by sending us a written notice with respect to the Annual Retainer, at least 30 days prior to the date of Popular's annual meeting of shareholders for which the election would be in effect and, with respect to the Meeting Fees, at least 30 days prior to Popular's or BPPR's Board or committee meeting for which you want to commence receiving the Meeting Fee in the form of Restricted Stock.
An election to receive the Annual Retainer and/or Meeting Fee in the form of Restricted Stock will result in deferral of taxation of those amounts until such later year as the restrictions lapse.
Dividends paid on your Restricted Stock will be reinvested in your name in the Popular, Inc. Dividend Reinvestment Plan. The dividend will be subject to Puerto Rico income taxes in the year paid by Popular and/or BPPR at a special 10% rate.
Your grant of Restricted Stock is covered by a separate agreement attached hereto. We have enclosed the following documents in connection with the foregoing:
1. Director Compensation Election Form,
2. Annual Grant Restricted Stock Agreement,
3. Annual Retainer and/or Meeting Fee Restricted Stock Agreement, and
4. Omnibus Plan
July 16, 2004
Please complete and sign the Director Compensation Election Form and sign the Annual Grant Restricted Stock Agreement where indicated. If you elect to receive payment of the Annual Retainer and/or the Meeting Fee in Restricted Stock, please sign the Annual Retainer and/or Meeting Fee Restricted Stock Agreement. Return all of the executed documents to Marie Reyes Rodriguez at the Corporate Secretary's Office. Please retain a copy of these documents for your records.
Once more, thank you for joining the Board of Directors of Popular, Inc. and Banco Popular de Puerto Rico. We look forward to working with you.
Cordially,
Brunilda Santos de Alvarez
Executive Vice President
Chief Legal Officer &
Assistant Secretary of the Board
[POPULAR INC. LOGO]
DIRECTOR COMPENSATION ELECTION FORM
I have received Popular, Inc.'s letter dated July 16, 2004 informing me of my compensation as a member of the Board of Directors of Popular, Inc. and Banco Popular de Puerto Rico. I am in agreement with the terms set forth therein.
In connection therewith, I hereby make the following elections with respect to my future compensation as a member of the Board of Directors of Popular, Inc. and Banco Popular de Puerto Rico:
ANNUAL RETAINER ANNUALLY IN ADVANCE RESTRICTED CASH STOCK MEETING FEE QUARTERLY MONTHLY RESTRICTED (CASH ONLY) STOCK |
I understand that an election to defer receipt of any amounts due me will not change the nature of the compensation to be received. Amounts received will be taxed as ordinary income when received.
Name: __________________________
Date: __________________________
[POPULAR INC. LOGO]
ANNUAL GRANT
RESTRICTED STOCK AGREEMENT
This Annual Grant Restricted Stock Agreement ("Agreement") by and between Popular, Inc. (the "Corporation") and _______ ("Director") is entered pursuant to the meeting of the Board of Directors of the Corporation held the 14th day of July of 2004, whereby the Corporation in consideration of Director's services as a member of the Board of Directors of the Corporation and/or its wholly owned subsidiary, Banco Popular de Puerto Rico ("BPPR"), granted to the Director a number of restricted shares of the Corporation's Common Stock (the "Restricted Stock") subject to the terms and conditions hereinafter set forth and the terms and conditions of the Popular, Inc. 2004 Omnibus Incentive Plan (the "Plan"), a copy of which is attached hereto as Exhibit A. Capitalized terms not otherwise defined herein shall having the meaning ascribed them in the Plan.
1. NUMBER OF SHARES. Pursuant to the terms of the Director's Compensation letter dated July 16, 2004, the Corporation has agreed to grant to the Director TWENTY-SIX THOUSAND TWO HUNDRED FIFTY DOLLARS ($26,250) worth of Restricted Stock for the period ending on the day the 2005 annual meeting of the Corporation's shareholders is held and an annual grant of THIRTY FIVE THOUSAND DOLLARS ($35,000) for each subsequent year the Director is such of the Corporation and/or BPPR, based on the per share closing price of the Corporation's Common Stock on the Grant Date. The Grant Date shall be the day the Restricted Stock is purchased for the Director which date shall be August 16, 2004 with respect to the period ending the day of the 2005 annual meeting of shareholders of the Corporation and with respect to subsequent annual grants, within the 30 days following the annual meeting of the Corporation's shareholders. For all purposes the Grant Price shall be zero ($0).
The Restricted Stock shall be subject to all the terms, conditions, and restrictions set forth in this Agreement and the Plan. In the event any stock dividend, stock split, recapitalization or other change affecting the outstanding common stock of the Corporation as a class is effected without consideration, then any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) that is by reason of any such transaction distributed with respect to shares of Restricted Stock will be immediately subject to the provisions of this Agreement in the same manner and to the same extent as the Restricted Stock with respect to which such change was effected. Cash dividends paid on Restricted Stock shall be reinvested in Common Stock through the Corporation's Dividend Reinvestment Plan.
2. FORFEITURE AND TRANSFER RESTRICTIONS. All Restricted Stock granted to Director shall be issued and delivered on the Grant Date. In the event Director's relationship with the Corporation or BPPR, as applicable, is terminated for Cause (as defined in the Plan), or if Director, Director's legal representative, or other holder of the Restricted Stock attempts to sell, exchange, transfer, pledge, or otherwise dispose of any Restricted Stock, all Restricted Stock will be immediately forfeited without any further action by the Corporation.
Restricted Stock may not be assigned, transferred, pledged or otherwise disposed of in any way other than by the Last Will and Testament of the Director or the laws of descent and distribution,
subject to the bylaws of the Corporation. Any Restricted Stock held by a beneficiary shall be subject to the restrictions imposed on such Restricted Stock. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect.
3. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, no shares under this Agreement may be granted unless the shares of Restricted Stock issuable upon such grant are then registered under the Securities Act of 1933, as amended (the "Securities Act") or, if such shares of Restricted Stock are not then so registered, the Corporation has determined that such grant and issuance would be exempt from the registration requirements of the Securities Act. The grant of shares must also comply with other applicable laws and regulations governing the grant, and no grant of shares will be permitted if the Corporation determines that such purchase would not be in material compliance with such laws and regulations.
4. STOCK LEGEND. The Corporation and Director agree that all certificates representing all shares of Restricted Stock that at any time are subject to the provisions of this Agreement and the Plan will have endorsed upon them in bold-faced type a legend substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF AN ANNUAL GRANT RESTRICTED STOCK AGREEMENT BETWEEN THE CORPORATION AND THE INITIAL HOLDER OF THE SHARES. THE ANNUAL GRANT RESTRICTED STOCK AGREEMENT MAY GRANT CERTAIN PURCHASE OPTIONS TO THE CORPORATION, PROVIDES FOR FORFEITURE OF THE STOCK IN CERTAIN CIRCUMSTANCES, AND IMPOSES RESTRICTIONS ON THE TRANSFER OF THESE SHARES. A COPY OF THE ANNUAL GRANT RESTRICTED STOCK AGREEMENT IS ON DEPOSIT AT THE PRINCIPAL OFFICE OF THE CORPORATION AND WILL BE FURNISHED BY THE CORPORATION TO THE REGISTERED HOLDER HEREOF UPON WRITTEN REQUEST.
5. AGREEMENT NOT A SERVICE CONTRACT. This Agreement is not an employment or service contract, and nothing in this Agreement nor the Plan shall be deemed to create in any way whatsoever any obligation for the Director to continue his relationship with the Corporation or BPPR, as applicable, or of the Corporation or BPPR, as applicable, to continue the relationship with the Director.
6. NOTICES. Any notices provided for in this Agreement or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by mail by the Corporation to the Director, five
(5) days after deposit in the United States mail, postage prepaid, addressed to
the Director at the last address the Director provided to the Corporation and/or
BPPR. Notice to the Corporation and/or BPPR shall be given in writing and shall
be deemed effectively given upon receipt or, in the case of notices delivered by
mail to the Corporation and/or BPPR by the Director, five (5) days after deposit
in the United States mail, postage prepaid, addressed to Chief Legal Officer,
Popular, Inc./Banco Popular de Puerto Rico, Board of Directors (751), PO Box
362708, San Juan, Puerto Rico 00936-2708.
7. RIGHTS AS A SHAREHOLDER. Except for the restrictions set forth in this Agreement and the Plan and unless otherwise determined by the Corporation, the Director shall be entitled to all of
the rights of a shareholder with respect to the shares of Restricted Stock awarded pursuant to this Agreement including the right to vote such shares of Restricted Stock and to receive dividends and other distributions (if any) payable with respect to such shares. Provided, however, that cash dividends paid on Restricted Stock shall be reinvested in Common Stock through the Corporation's Dividend Reinvestment Plan.
8. TAX WITHHOLDING. The Corporation may withhold or cause to be withheld from any Restricted Stock grant (or Director's compensation) any Federal, Puerto Rico, state or local taxes required by law to be withheld with respect to such Restricted Stock grant. By acceptance of this Agreement, Director agrees to such deductions.
9. GOVERNING LAW. All questions arising with respect to this Agreement and the provisions of the Plan shall be determined by application of the laws of the Commonwealth of Puerto Rico except to the extent such governing law is preempted by Federal law. The obligation of the Corporation to grant and deliver Restricted Stock under this Agreement is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Restricted Stock.
10. SEVERABILITY. If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the Agreement, but such provision shall be fully severable and the Agreement shall be construed and enforced as if the illegal or invalid provision had never been included in the Agreement.
11. SUCCESSORS. This Agreement shall be binding upon the Director, his legal representatives, heirs, legatees, distributes, and shall be binding upon the Corporation and its successors and assigns.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement this 16th day of July 2004.
POPULAR, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
DIRECTOR: _________________________
Name: _____________________________
[POPULAR INC. LOGO]
ANNUAL RETAINER AND/OR MEETING FEE
RESTRICTED STOCK AGREEMENT
This Annual Retainer and/or Meeting Fee Restricted Stock Agreement ("Agreement") by and between Popular, Inc. (the "Corporation") and ________ ("Director") is entered pursuant to the meeting of the Board of Directors of the Corporation held the 14th day of July of 2004, whereby the Corporation in consideration of Director's services as a member of the Board of Directors of the Corporation and/or its wholly owned subsidiary, Banco Popular de Puerto Rico ("BPPR"), granted to the Director certain compensation for his services as such and Director elected to receive some or all of such compensation in a number of restricted shares of the Corporation's Common Stock (the "Restricted Stock"), subject to the terms and conditions hereinafter set forth and the terms and conditions of the Popular, Inc. 2004 Omnibus Incentive Plan (the "Plan"), a copy of which is attached hereto as Exhibit A. Capitalized terms not otherwise defined herein shall having the meaning ascribed them in the Plan.
1. NUMBER OF SHARES. Pursuant to the terms of the Director's Compensation letter dated July 16, 2004 (the "Compensation Letter"), the Corporation and/or BPPR has agreed to pay the Director certain compensation and the Director has elected to receive such compensation in the form of Restricted Stock. The number of shares of Restricted Stock shall be based on the per share closing price of the Corporation's Common Stock on the Grant Date and the total amount of compensation owed to the Director on the Grant Date. The Grant Date shall be the day the Restricted Stock is purchased for the Director which date shall be within the 30 days following the date the compensation is payable to the Director pursuant to the Compensation Letter. For all purposes the Grant Price shall be zero ($0).
The Restricted Stock shall be subject to all the terms, conditions, and restrictions set forth in this Agreement and the Plan. In the event any stock dividend, stock split, recapitalization or other change affecting the outstanding common stock of the Corporation as a class is effected without consideration, then any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) that is by reason of any such transaction distributed with respect to shares of Restricted Stock will be immediately subject to the provisions of this Agreement in the same manner and to the same extent as the Restricted Stock with respect to which such change was effected. Cash dividends paid on Restricted Stock shall be reinvested in Common Stock through the Corporation's Dividend Reinvestment Plan.
2. FORFEITURE AND TRANSFER RESTRICTIONS. All Restricted Stock granted to Director shall be issued and delivered on the Grant Date. In the event Director's relationship with the Corporation or BPPR, as applicable, is terminated for Cause (as defined in the Plan), or if Director, Director's legal representative, or other holder of the Restricted Stock attempts to sell, exchange, transfer, pledge, or otherwise dispose of any Restricted Stock, all Restricted Stock will be immediately forfeited without any further action by the Corporation.
Restricted Stock may not be assigned, transferred, pledged or otherwise disposed of in any way other than by the Last Will and Testament of the Director or the laws of descent and distribution, subject to the bylaws of the Corporation. Any Restricted Stock held by a beneficiary shall be subject
to the restrictions imposed on such Restricted Stock. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect.
3. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, no shares under this Agreement may be granted unless the shares of Restricted Stock issuable upon such grant are then registered under the Securities Act of 1933, as amended (the "Securities Act") or, if such shares of Restricted Stock are not then so registered, the Corporation has determined that such grant and issuance would be exempt from the registration requirements of the Securities Act. The grant of shares must also comply with other applicable laws and regulations governing the grant, and no grant of shares will be permitted if the Corporation determines that such purchase would not be in material compliance with such laws and regulations.
4. STOCK LEGEND. The Corporation and Director agree that all certificates representing all shares of Restricted Stock that at any time are subject to the provisions of this Agreement and the Plan will have endorsed upon them in bold-faced type a legend substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF AN ANNUAL RETAINER AND/OR MEETING FEE RESTRICTED STOCK AGREEMENT BETWEEN THE CORPORATION AND THE INITIAL HOLDER OF THE SHARES. THE ANNUAL RETAINER AND/OR MEETING FEE RESTRICTED STOCK AGREEMENT MAY GRANT CERTAIN PURCHASE OPTIONS TO THE CORPORATION, PROVIDES FOR FORFEITURE OF THE STOCK IN CERTAIN CIRCUMSTANCES, AND IMPOSES RESTRICTIONS ON THE TRANSFER OF THESE SHARES. A COPY OF THE ANNUAL RETAINER AND/OR MEETING FEE RESTRICTED STOCK AGREEMENT IS ON DEPOSIT AT THE PRINCIPAL OFFICE OF THE CORPORATION AND WILL BE FURNISHED BY THE CORPORATION TO THE REGISTERED HOLDER HEREOF UPON WRITTEN REQUEST.
5. AGREEMENT NOT A SERVICE CONTRACT. This Agreement is not an employment or service contract, and nothing in this Agreement nor the Plan shall be deemed to create in any way whatsoever any obligation for the Director to continue his relationship with the Corporation or BPPR, as applicable, or of the Corporation or BPPR, as applicable, to continue the relationship with the Director.
6. NOTICES. Any notices provided for in this Agreement or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by mail by the Corporation to the Director, five
(5) days after deposit in the United States mail, postage prepaid, addressed to
the Director at the last address the Director provided to the Corporation and/or
BPPR. Notice to the Corporation and/or BPPR shall be given in writing and shall
be deemed effectively given upon receipt or, in the case of notices delivered by
mail to the Corporation and/or BPPR by the Director, five (5) days after deposit
in the United States mail, postage prepaid, addressed to Chief Legal Officer,
Popular, Inc./Banco Popular de Puerto Rico, Board of Directors (751), PO Box
362708, San Juan, Puerto Rico 00936-2708.
7. RIGHTS AS A SHAREHOLDER. Except for the restrictions set forth in this Agreement and the Plan and unless otherwise determined by the Corporation, the Director shall be entitled to all of the
rights of a shareholder with respect to the shares of Restricted Stock awarded pursuant to this Agreement including the right to vote such shares of Restricted Stock and to receive dividends and other distributions (if any) payable with respect to such shares. Provided, however, that cash dividends paid on Restricted Stock shall be reinvested in Common Stock through the Corporation's Dividend Reinvestment Plan.
8. TAX WITHHOLDING. The Corporation may withhold or cause to be withheld from any Restricted Stock grant (or Director's compensation) any Federal, Puerto Rico, state or local taxes required by law to be withheld with respect to such Restricted Stock grant. By acceptance of this Agreement, Director agrees to such deductions.
9. GOVERNING LAW. All questions arising with respect to this Agreement and the provisions of the Plan shall be determined by application of the laws of the Commonwealth of Puerto Rico except to the extent such governing law is preempted by Federal law. The obligation of the Corporation to grant and deliver Restricted Stock under this Agreement is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Restricted Stock.
10. SEVERABILITY. If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the Agreement, but such provision shall be fully severable and the Agreement shall be construed and enforced as if the illegal or invalid provision had never been included in the Agreement.
11. SUCCESSORS. This Agreement shall be binding upon the Director, his legal representatives, heirs, legatees, distributees, and shall be binding upon the Corporation and its successors and assigns.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement this 16th day of July 2004.
POPULAR, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
DIRECTOR: _________________________
Name: _____________________________
[POPULAR INC.LOGO] EXHIBIT 10.2
July 16, 2004
PERSONAL AND CONFIDENTIAL
Dear_______:
We are very pleased to have you on the Board of Directors (the "Board") of Popular, Inc. ("Popular") and Banco Popular the Puerto Rico ("BPPR") and are writing to set forth the general terms of your compensation as a Director, pursuant to resolutions adopted by Popular's and BPPR's Boards (without your participation) on July 14, 2004 and July 15, 2004, respectively. These terms are, of course, subject to future modification by Popular's and BPPR's Boards.
Your current term as a Director of Popular commenced on ____ and will run through the ___ annual meeting of shareholders of the Corporation. Your term as a Director of BPPR commenced on _____ and will end on ________. As compensation for your services, you will receive:
- An annual retainer fee (the "Annual Retainer") of $15,000 for the period ending on the day the 2005 annual meeting of shareholders of Popular is held and $20,000 for each subsequent twelve month period that you are a Director of Popular or $25,000 if you are elected Chairman of any of Popular's Board committees;
- $1,000 for each of Popular's or BPPR's Board or Board committee meeting that you attend (the "Meeting Fee"); and
- A grant of $26,250 payable in Restricted Stock of Popular, Inc. (the "Restricted Stock") under the Popular, Inc. 2004 Omnibus Incentive Plan (the "Omnibus Plan") for the period ending on the day the 2005 annual meeting of shareholders of Popular is held, and an annual grant of $35,000 payable in Restricted Stock under the Omnibus Plan for each subsequent twelve month period that you are a Director of Popular and/or BPPR.
The Annual Retainer will be paid annually in advance, within the 30 days following Popular's annual shareholder meeting, in cash unless you elect to receive payment in Restricted Stock. The Annual Retainer for the period ending on the day the 2005 annual meeting of shareholders of Popular is held will be paid on August 16, 2004. The Meeting
July 16, 2004
Fee may be paid in cash on a per meeting basis or quarterly in arrears in Restricted Stock. The number of shares of Restricted Stock to be delivered in payment of an Annual Retainer and/or Meeting Fee shall be determined based on the per share closing price of Popular's common stock on the date payment is made and the amount of the Annual Retainer and/or Meeting Fee owed you.
If you elect to receive payment in the form of Restricted Stock, such shares shall be subject to the terms of the Annual Retainer and/or Meeting Fee Restricted Stock Agreement (attached hereto). If you elect to receive Restricted Stock you must return to us the attached Director Compensation Election Form and the executed Annual Retainer and/or Meeting Fee Restricted Stock Agreement. If you do not provide us with a completed election form, the Annual Retainer will be paid to you annually in advance in cash and the Meeting Fee will be paid in cash on a per meeting basis. Once you have made an election to receive Restricted Stock, the election will be applicable to all future payments of the Annual Retainer and/or Meeting Fee, unless you notify us in writing of your desire to no longer receive Restricted Stock. In such case, your notice will apply to compensation payable for the year following receipt of the notice.
If you do not currently elect to receive the Annual Retainer and/or the Meeting Fee in the form of Restricted Stock, you may make such an election for future payments of either compensation element, by sending us a written notice with respect to the Annual Retainer, at least 30 days prior to the date of Popular's annual meeting of shareholders for which the election would be in effect and, with respect to the Meeting Fees, at least 30 days prior to Popular's or BPPR's Board or committee meeting for which you want to commence receiving the Meeting Fee in the form of Restricted Stock.
An election to receive the Annual Retainer and/or Meeting Fee in the form of Restricted Stock will result in deferral of taxation of those amounts until such later year as the restrictions lapse.
Dividends paid on your Restricted Stock will be reinvested in your name in the Popular, Inc. Dividend Reinvestment Plan. The dividend will be subject to Puerto Rico income taxes in the year paid by Popular and/or BPPR at a special 10% rate.
Your grant of Restricted Stock is covered by a separate agreement attached hereto. We have enclosed the following documents in connection with the foregoing:
1. Director Compensation Election Form,
2. Annual Grant Restricted Stock Agreement,
3. Annual Retainer and/or Meeting Fee Restricted Stock Agreement, and
4. Omnibus Plan
July 16, 2004
Please complete and sign the Director Compensation Election Form and sign the Annual Grant Restricted Stock Agreement where indicated. If you elect to receive payment of the Annual Retainer and/or the Meeting Fee in Restricted Stock, please sign the Annual Retainer and/or Meeting Fee Restricted Stock Agreement. Return all of the executed documents to Marie Reyes Rodriguez at the Corporate Secretary's Office. Please retain a copy of these documents for your records.
Once more, thank you for joining the Board of Directors of Popular, Inc and Banco Popular de Puerto Rico. We look forward to working with you.
Cordially,
Brunilda Santos de Alvarez
Executive Vice President
Chief Legal Officer &
Assistant Secretary of the Board
[POPULAR INC.LOGO]
DIRECTOR COMPENSATION ELECTION FORM
I have received Popular, Inc.'s letter dated July 16, 2004 informing me of my compensation as a member of the Board of Directors of Popular, Inc. and Banco Popular de Puerto Rico. I am in agreement with the terms set forth therein.
In connection therewith, I hereby make the following elections with respect to my future compensation as a member of the Board of Directors of Popular, Inc. and Banco Popular de Puerto Rico:
ANNUAL RETAINER ANNUALLY IN ADVANCE CASH RESTRICTED STOCK MEETING FEE QUARTERLY MONTHLY RESTRICTED (CASH ONLY) STOCK |
I understand that an election to defer receipt of any amounts due me will not change the nature of the compensation to be received. Amounts received will be taxed as ordinary income when received.
Name: ____________________________
Date: ____________________________
[ POPULAR INC.LOGO]
ANNUAL GRANT
RESTRICTED STOCK AGREEMENT
This Annual Grant Restricted Stock Agreement ("Agreement") by and between Popular, Inc. (the "Corporation") and __________ ("Director") is entered pursuant to the meeting of the Board of Directors of the Corporation held the 14th day of July of 2004, whereby the Corporation in consideration of Director's services as a member of the Board of Directors of the Corporation and/or its wholly owned subsidiary, Banco Popular de Puerto Rico ("BPPR"), granted to the Director a number of restricted shares of the Corporation's Common Stock (the "Restricted Stock") subject to the terms and conditions hereinafter set forth and the terms and conditions of the Popular, Inc. 2004 Omnibus Incentive Plan (the "Plan"), a copy of which is attached hereto as Exhibit A. Capitalized terms not otherwise defined herein shall having the meaning ascribed them in the Plan.
1. NUMBER OF SHARES. Pursuant to the terms of the Director's Compensation letter dated July 16, 2004, the Corporation has agreed to grant to the Director TWENTY-SIX THOUSAND TWO HUNDRED FIFTY DOLLARS ($26,250) worth of Restricted Stock for the period ending on the day the 2005 annual meeting of the Corporation's shareholders is held and an annual grant of THIRTY FIVE THOUSAND DOLLARS ($35,000) for each subsequent year the Director is such of the Corporation and/or BPPR, based on the per share closing price of the Corporation's Common Stock on the Grant Date. The Grant Date shall be the day the Restricted Stock is purchased for the Director which date shall be August 16, 2004 with respect to the period ending the day of the 2005 annual meeting of shareholders of the Corporation and with respect to subsequent annual grants, within the 30 days following the annual meeting of the Corporation's shareholders. For all purposes the Grant Price shall be zero ($0).
The Restricted Stock shall be subject to all the terms, conditions, and restrictions set forth in this Agreement and the Plan. In the event any stock dividend, stock split, recapitalization or other change affecting the outstanding common stock of the Corporation as a class is effected without consideration, then any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) that is by reason of any such transaction distributed with respect to shares of Restricted Stock will be immediately subject to the provisions of this Agreement in the same manner and to the same extent as the Restricted Stock with respect to which such change was effected. Cash dividends paid on Restricted Stock shall be reinvested in Common Stock through the Corporation's Dividend Reinvestment Plan.
2. FORFEITURE AND TRANSFER RESTRICTIONS. All Restricted Stock granted to Director shall be issued and delivered on the Grant Date. In the event Director's relationship with the Corporation or BPPR, as applicable, is terminated for Cause (as defined in the Plan), or if Director, Director's legal representative, or other holder of the Restricted Stock attempts to sell, exchange, transfer, pledge, or otherwise dispose of any Restricted Stock, all Restricted Stock will be immediately forfeited without any further action by the Corporation.
Restricted Stock may not be assigned, transferred, pledged or otherwise disposed of in any way other than by the Last Will and Testament of the Director or the laws of descent and distribution,
subject to the bylaws of the Corporation. Any Restricted Stock held by a beneficiary shall be subject to the restrictions imposed on such Restricted Stock. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect.
3. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, no shares under this Agreement may be granted unless the shares of Restricted Stock issuable upon such grant are then registered under the Securities Act of 1933, as amended (the "Securities Act") or, if such shares of Restricted Stock are not then so registered, the Corporation has determined that such grant and issuance would be exempt from the registration requirements of the Securities Act. The grant of shares must also comply with other applicable laws and regulations governing the grant, and no grant of shares will be permitted if the Corporation determines that such purchase would not be in material compliance with such laws and regulations.
4. STOCK LEGEND. The Corporation and Director agree that all certificates representing all shares of Restricted Stock that at any time are subject to the provisions of this Agreement and the Plan will have endorsed upon them in bold-faced type a legend substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF AN ANNUAL GRANT RESTRICTED STOCK AGREEMENT BETWEEN THE CORPORATION AND THE INITIAL HOLDER OF THE SHARES. THE ANNUAL GRANT RESTRICTED STOCK AGREEMENT MAY GRANT CERTAIN PURCHASE OPTIONS TO THE CORPORATION, PROVIDES FOR FORFEITURE OF THE STOCK IN CERTAIN CIRCUMSTANCES, AND IMPOSES RESTRICTIONS ON THE TRANSFER OF THESE SHARES. A COPY OF THE ANNUAL GRANT RESTRICTED STOCK AGREEMENT IS ON DEPOSIT AT THE PRINCIPAL OFFICE OF THE CORPORATION AND WILL BE FURNISHED BY THE CORPORATION TO THE REGISTERED HOLDER HEREOF UPON WRITTEN REQUEST.
5. AGREEMENT NOT A SERVICE CONTRACT. This Agreement is not an employment or service contract, and nothing in this Agreement nor the Plan shall be deemed to create in any way whatsoever any obligation for the Director to continue his relationship with the Corporation or BPPR, as applicable, or of the Corporation or BPPR, as applicable, to continue the relationship with the Director.
6. NOTICES. Any notices provided for in this Agreement or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by mail by the Corporation to the Director, five
(5) days after deposit in the United States mail, postage prepaid, addressed to
the Director at the last address the Director provided to the Corporation and/or
BPPR. Notice to the Corporation and/or BPPR shall be given in writing and shall
be deemed effectively given upon receipt or, in the case of notices delivered by
mail to the Corporation and/or BPPR by the Director, five (5) days after deposit
in the United States mail, postage prepaid, addressed to Chief Legal Officer,
Popular, Inc./Banco Popular de Puerto Rico, Board of Directors (751), PO Box
362708, San Juan, Puerto Rico 00936-2708.
7. RIGHTS AS A SHAREHOLDER. Except for the restrictions set forth in this Agreement and the Plan and unless otherwise determined by the Corporation, the Director shall be entitled to all of
the rights of a shareholder with respect to the shares of Restricted Stock awarded pursuant to this Agreement including the right to vote such shares of Restricted Stock and to receive dividends and other distributions (if any) payable with respect to such shares. Provided, however, that cash dividends paid on Restricted Stock shall be reinvested in Common Stock through the Corporation's Dividend Reinvestment Plan.
8. TAX WITHHOLDING. The Corporation may withhold or cause to be withheld from any Restricted Stock grant (or Director's compensation) any Federal, Puerto Rico, state or local taxes required by law to be withheld with respect to such Restricted Stock grant. By acceptance of this Agreement, Director agrees to such deductions.
9. GOVERNING LAW. All questions arising with respect to this Agreement and the provisions of the Plan shall be determined by application of the laws of the Commonwealth of Puerto Rico except to the extent such governing law is preempted by Federal law. The obligation of the Corporation to grant and deliver Restricted Stock under this Agreement is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Restricted Stock.
10. SEVERABILITY. If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the Agreement, but such provision shall be fully severable and the Agreement shall be construed and enforced as if the illegal or invalid provision had never been included in the Agreement.
11. SUCCESSORS. This Agreement shall be binding upon the Director, his legal representatives, heirs, legatees, distributes, and shall be binding upon the Corporation and its successors and assigns.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement this 16th day of July 2004.
POPULAR, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
DIRECTOR: _________________________
Name: _____________________________
[POPULAR INC.LOGO]
ANNUAL RETAINER AND/OR MEETING FEE
RESTRICTED STOCK AGREEMENT
This Annual Retainer and/or Meeting Fee Restricted Stock Agreement ("Agreement") by and between Popular, Inc. (the "Corporation") and ________ ("Director") is entered pursuant to the meeting of the Board of Directors of the Corporation held the 14th day of July of 2004, whereby the Corporation in consideration of Director's services as a member of the Board of Directors of the Corporation and/or its wholly owned subsidiary, Banco Popular de Puerto Rico ("BPPR"), granted to the Director certain compensation for his services as such and Director elected to receive some or all of such compensation in a number of restricted shares of the Corporation's Common Stock (the "Restricted Stock"), subject to the terms and conditions hereinafter set forth and the terms and conditions of the Popular, Inc. 2004 Omnibus Incentive Plan (the "Plan"), a copy of which is attached hereto as Exhibit A. Capitalized terms not otherwise defined herein shall having the meaning ascribed them in the Plan.
1. NUMBER OF SHARES. Pursuant to the terms of the Director's Compensation letter dated July 16, 2004 (the "Compensation Letter"), the Corporation and/or BPPR has agreed to pay the Director certain compensation and the Director has elected to receive such compensation in the form of Restricted Stock. The number of shares of Restricted Stock shall be based on the per share closing price of the Corporation's Common Stock on the Grant Date and the total amount of compensation owed to the Director on the Grant Date. The Grant Date shall be the day the Restricted Stock is purchased for the Director which date shall be within the 30 days following the date the compensation is payable to the Director pursuant to the Compensation Letter. For all purposes the Grant Price shall be zero ($0).
The Restricted Stock shall be subject to all the terms, conditions, and restrictions set forth in this Agreement and the Plan. In the event any stock dividend, stock split, recapitalization or other change affecting the outstanding common stock of the Corporation as a class is effected without consideration, then any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) that is by reason of any such transaction distributed with respect to shares of Restricted Stock will be immediately subject to the provisions of this Agreement in the same manner and to the same extent as the Restricted Stock with respect to which such change was effected. Cash dividends paid on Restricted Stock shall be reinvested in Common Stock through the Corporation's Dividend Reinvestment Plan.
2. FORFEITURE AND TRANSFER RESTRICTIONS. All Restricted Stock granted to Director shall be issued and delivered on the Grant Date. In the event Director's relationship with the Corporation or BPPR, as applicable, is terminated for Cause (as defined in the Plan), or if Director, Director's legal representative, or other holder of the Restricted Stock attempts to sell, exchange, transfer, pledge, or otherwise dispose of any Restricted Stock, all Restricted Stock will be immediately forfeited without any further action by the Corporation.
Restricted Stock may not be assigned, transferred, pledged or otherwise disposed of in any way other than by the Last Will and Testament of the Director or the laws of descent and distribution, subject to the bylaws of the Corporation. Any Restricted Stock held by a beneficiary shall be subject
to the restrictions imposed on such Restricted Stock. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect.
3. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, no shares under this Agreement may be granted unless the shares of Restricted Stock issuable upon such grant are then registered under the Securities Act of 1933, as amended (the "Securities Act") or, if such shares of Restricted Stock are not then so registered, the Corporation has determined that such grant and issuance would be exempt from the registration requirements of the Securities Act. The grant of shares must also comply with other applicable laws and regulations governing the grant, and no grant of shares will be permitted if the Corporation determines that such purchase would not be in material compliance with such laws and regulations.
4. STOCK LEGEND. The Corporation and Director agree that all certificates representing all shares of Restricted Stock that at any time are subject to the provisions of this Agreement and the Plan will have endorsed upon them in bold-faced type a legend substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF AN ANNUAL RETAINER AND/OR MEETING FEE RESTRICTED STOCK AGREEMENT BETWEEN THE CORPORATION AND THE INITIAL HOLDER OF THE SHARES. THE ANNUAL RETAINER AND/OR MEETING FEE RESTRICTED STOCK AGREEMENT MAY GRANT CERTAIN PURCHASE OPTIONS TO THE CORPORATION, PROVIDES FOR FORFEITURE OF THE STOCK IN CERTAIN CIRCUMSTANCES, AND IMPOSES RESTRICTIONS ON THE TRANSFER OF THESE SHARES. A COPY OF THE ANNUAL RETAINER AND/OR MEETING FEE RESTRICTED STOCK AGREEMENT IS ON DEPOSIT AT THE PRINCIPAL OFFICE OF THE CORPORATION AND WILL BE FURNISHED BY THE CORPORATION TO THE REGISTERED HOLDER HEREOF UPON WRITTEN REQUEST.
5. AGREEMENT NOT A SERVICE CONTRACT. This Agreement is not an employment or service contract, and nothing in this Agreement nor the Plan shall be deemed to create in any way whatsoever any obligation for the Director to continue his relationship with the Corporation or BPPR, as applicable, or of the Corporation or BPPR, as applicable, to continue the relationship with the Director.
6. NOTICES. Any notices provided for in this Agreement or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by mail by the Corporation to the Director, five
(5) days after deposit in the United States mail, postage prepaid, addressed to
the Director at the last address the Director provided to the Corporation and/or
BPPR. Notice to the Corporation and/or BPPR shall be given in writing and shall
be deemed effectively given upon receipt or, in the case of notices delivered by
mail to the Corporation and/or BPPR by the Director, five (5) days after deposit
in the United States mail, postage prepaid, addressed to Chief Legal Officer,
Popular, Inc./Banco Popular de Puerto Rico, Board of Directors (751), PO Box
362708, San Juan, Puerto Rico 00936-2708.
7. RIGHTS AS A SHAREHOLDER. Except for the restrictions set forth in this Agreement and the Plan and unless otherwise determined by the Corporation, the Director shall be entitled to all of the
rights of a shareholder with respect to the shares of Restricted Stock awarded pursuant to this Agreement including the right to vote such shares of Restricted Stock and to receive dividends and other distributions (if any) payable with respect to such shares. Provided, however, that cash dividends paid on Restricted Stock shall be reinvested in Common Stock through the Corporation's Dividend Reinvestment Plan.
8. TAX WITHHOLDING. The Corporation may withhold or cause to be withheld from any Restricted Stock grant (or Director's compensation) any Federal, Puerto Rico, state or local taxes required by law to be withheld with respect to such Restricted Stock grant. By acceptance of this Agreement, Director agrees to such deductions.
9. GOVERNING LAW. All questions arising with respect to this Agreement and the provisions of the Plan shall be determined by application of the laws of the Commonwealth of Puerto Rico except to the extent such governing law is preempted by Federal law. The obligation of the Corporation to grant and deliver Restricted Stock under this Agreement is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Restricted Stock.
10. SEVERABILITY. If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the Agreement, but such provision shall be fully severable and the Agreement shall be construed and enforced as if the illegal or invalid provision had never been included in the Agreement.
11. SUCCESSORS. This Agreement shall be binding upon the Director, his legal representatives, heirs, legatees, distributees, and shall be binding upon the Corporation and its successors and assigns.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement this 16th day of July 2004.
POPULAR, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
DIRECTOR: _________________________
Name: _____________________________
[POPULAR INC. LOGO] EXHIBIT 10.3
July 16, 2004
PERSONAL AND CONFIDENTIAL
Mr. Frederic V. Salerno
Verizon Communications
400 Westchester Avenue
White Plains, NY 10604
Dear Mr. Salerno:
We are very pleased to have you on the Board of Directors (the "Board") of Popular, Inc. (the "Corporation"), and are writing to set forth the general terms of your compensation as a Director, pursuant to resolutions adopted by the Board (without your participation) on July 14, 2004. These terms are, of course, subject to future modification by the Board.
Your current term as a Director commenced on April 2004 and will run through the 2005 annual meeting of shareholders of the Corporation. As compensation for your services, you will receive:
- An annual retainer fee (the "Annual Retainer") of $18,750 for the period ending on the day the 2005 annual meeting of shareholders of the Corporation is held and $20,000 for each subsequent twelve month period that you are a Director or $25,000 if you are elected Chairman of any Board committee;
- $1,000 for each meeting of the Board or of a Board committee that you attend (the "Meeting Fee"); and
- A grant of $26,250 payable in Restricted Stock of Popular, Inc. (the "Restricted Stock") under the Popular, Inc. 2004 Omnibus Incentive Plan (the "Omnibus Plan") for the period ending on the day the 2005 annual meeting of shareholders of the Corporation is held and an annual grant of $35,000 payable in Restricted Stock under the Omnibus Plan for each subsequent twelve month period that you are a Director.
The Annual Retainer will be paid annually in advance, within the 30 days following the annual Corporation's shareholder meeting, in cash unless you elect to receive payment in Restricted Stock. The Annual Retainer for the period ending on the day the 2005 annual meeting of shareholders of Popular is held will be paid on August 16, 2004. The Meeting
Fee may be paid in cash on a per meeting basis or quarterly in arrears in Restricted Stock. The number of shares of Restricted Stock to be delivered in payment of an Annual Retainer and/or Meeting Fee shall be determined based on the per share closing price of the Corporation's common stock on the date payment is made and the amount of the Annual Retainer and/or Meeting Fee owed you.
If you elect to receive payment in the form of Restricted Stock, such shares shall be subject to the terms of the Annual Retainer and/or Meeting Fee Restricted Stock Agreement (attached hereto). If you elect to receive Restricted Stock you must return to us the attached Director Compensation Election Form and the executed Annual Retainer and/or Meeting Fee Restricted Stock Agreement. If you do not provide us with a completed election form prior to such date, the Annual Retainer will be paid to you annually in advance in cash and the Meeting Fee will be paid in cash on a per meeting basis. Once you have made an election to receive Restricted Stock, the election will be applicable to all future payments of the Annual Retainer and/or Meeting Fee, unless you notify us in writing of your desire to no longer receive Restricted Stock. In such case, your notice will apply to compensation payable for the year following receipt of the notice.
If you do not currently elect to receive the Annual Retainer and/or the Meeting Fee in the form of Restricted Stock, you may make such an election for future payments of either compensation element, by sending us a written notice with respect to the Annual Retainer, at least 30 days prior to the date of such year's annual meeting of the Corporation's shareholders for which the election would be in effect and, with respect to the Meeting Fees, at least 30 days prior to Board of Director's meeting for which you want to commence receiving the Meeting Fee in the form of Restricted Stock.
An election to receive the Annual Retainer and/or Meeting Fee in the form of Restricted Stock will result in deferral of taxation of those amounts until such later year as the restrictions lapse.
Dividends paid on your Restricted Stock will be reinvested in your name in the Popular, Inc. Dividend Reinvestment Plan. The dividend will be subject to Puerto Rico income taxes in the year paid by the Corporation at a special 10% rate.
Your grant of Restricted Stock is covered by a separate agreement attached hereto. We have enclosed the following documents in connection with the foregoing:
1. Director Compensation Election Form,
2. Annual Grant Restricted Stock Agreement,
3. Annual Retainer and/or Meeting Fee Restricted Stock Agreement, and
4. Omnibus Plan
Please complete and sign the Director Compensation Election Form and sign the Annual Grant Restricted Stock Agreement where indicated. If you elect to receive payment of the Annual Retainer and/or the Meeting Fee in Restricted Stock, please sign the Annual Retainer and/or Meeting Fee Restricted Stock Agreement. Return all of the executed documents to Marie Reyes Rodriguez at the Corporate Secretary's Office. Please retain a copy of these documents for your records.
Once more, thank you for joining the Board of Directors of Popular, Inc. We look forward to working with you.
Cordially,
Brunilda Santos de Alvarez
Executive Vice President
Chief Legal Officer &
Assistant Secretary of the Board
[POPULAR INC. LOGO]
DIRECTOR COMPENSATION ELECTION FORM
I have received Popular, Inc.'s letter dated July 16, 2004 informing me of my compensation as a member of the Board of Directors of Popular, Inc. I am in agreement with the terms set forth therein.
In connection therewith, I hereby make the following elections with respect to my future compensation as a member of the Board of Directors of Popular, Inc.:
ANNUAL RETAINER ANNUALLY IN ADVANCE RESTRICTED CASH STOCK MEETING FEE QUARTERLY MONTHLY RESTRICTED (CASH ONLY) STOCK |
I understand that an election to defer receipt of any amounts due me will not change the nature of the compensation to be received. Amounts received will be taxed as ordinary income when received.
Name: __________________________
Date: __________________________
[POPULAR INC. LOGO]
ANNUAL GRANT
RESTRICTED STOCK AGREEMENT
This Annual Grant Restricted Stock Agreement ("Agreement") by and between Popular, Inc. (the "Corporation") and Frederic V. Salerno ("Director") is entered pursuant to the meeting of the Board of Directors of the Corporation held on the 14th day of July 2004, whereby the Corporation in consideration of Director's services as a member of the Board of Directors of the Corporation and/or its wholly owned subsidiary, Banco Popular de Puerto Rico ("BPPR"), granted to the Director a number of restricted shares of the Corporation's Common Stock (the "Restricted Stock") subject to the terms and conditions hereinafter set forth and the terms and conditions of the Popular, Inc. 2004 Omnibus Incentive Plan (the "Plan"), a copy of which is attached hereto as Exhibit A. Capitalized terms not otherwise defined herein shall having the meaning ascribed them in the Plan.
1. NUMBER OF SHARES. Pursuant to the terms of the Director's Compensation letter dated July 16, 2004, the Corporation has agreed to grant to the Director TWENTY-SIX THOUSAND TWO HUNDRED FIFTY DOLLARS ($26,250) worth of Restricted Stock for the period ending on the day the 2005 annual meeting of the Corporation's shareholders is held and an annual grant of THIRTY FIVE THOUSAND DOLLARS ($35,000) for each subsequent year the Director is such of the Corporation and/or BPPR, based on the per share closing price of the Corporation's Common Stock on the Grant Date. The Grant Date shall be the day the Restricted Stock is purchased for the Director which date shall be August 16, 2004 with respect to the period ending the day of the 2005 annual meeting of shareholders of the Corporation and with respect to subsequent annual grants, within the 30 days following the annual meeting of the Corporation's shareholders. For all purposes the Grant Price shall be zero ($0).
The Restricted Stock shall be subject to all the terms, conditions, and restrictions set forth in this Agreement and the Plan. In the event any stock dividend, stock split, recapitalization or other change affecting the outstanding common stock of the Corporation as a class is effected without consideration, then any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) that is by reason of any such transaction distributed with respect to shares of Restricted Stock will be immediately subject to the provisions of this Agreement in the same manner and to the same extent as the Restricted Stock with respect to which such change was effected. Cash dividends paid on Restricted Stock shall be reinvested in Common Stock through the Corporation's Dividend Reinvestment Plan.
2. FORFEITURE AND TRANSFER RESTRICTIONS. All Restricted Stock granted to Director shall be issued and delivered on the Grant Date. In the event Director's relationship with the Corporation or BPPR, as applicable, is terminated for Cause (as defined in the Plan), or if Director, Director's legal representative, or other holder of the Restricted Stock attempts to sell, exchange, transfer, pledge, or otherwise dispose of any Restricted Stock, all Restricted Stock will be immediately forfeited without any further action by the Corporation.
Restricted Stock may not be assigned, transferred, pledged or otherwise disposed of in any way other than by the Last Will and Testament of the Director or the laws of descent and distribution, subject to the bylaws of the Corporation. Any Restricted Stock held by a beneficiary shall be subject to the restrictions imposed on such Restricted Stock. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect.
3. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, no shares under this Agreement may be granted unless the shares of Restricted Stock issuable upon such grant are then registered under the Securities Act of 1933, as amended (the "Securities Act") or, if such shares of Restricted Stock are not then so registered, the Corporation has determined that such grant and issuance would be exempt from the registration requirements of the Securities Act. The grant of shares must also comply with other applicable laws and regulations governing the grant, and no grant of shares will be permitted if the Corporation determines that such purchase would not be in material compliance with such laws and regulations.
4. STOCK LEGEND. The Corporation and Director agree that all certificates representing all shares of Restricted Stock that at any time are subject to the provisions of this Agreement and the Plan will have endorsed upon them in bold-faced type a legend substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF AN ANNUAL GRANT RESTRICTED STOCK AGREEMENT BETWEEN THE CORPORATION AND THE INITIAL HOLDER OF THE SHARES. THE ANNUAL GRANT RESTRICTED STOCK AGREEMENT MAY GRANT CERTAIN PURCHASE OPTIONS TO THE CORPORATION, PROVIDES FOR FORFEITURE OF THE STOCK IN CERTAIN CIRCUMSTANCES, AND IMPOSES RESTRICTIONS ON THE TRANSFER OF THESE SHARES. A COPY OF THE ANNUAL GRANT RESTRICTED STOCK AGREEMENT IS ON DEPOSIT AT THE PRINCIPAL OFFICE OF THE CORPORATION AND WILL BE FURNISHED BY THE CORPORATION TO THE REGISTERED HOLDER HEREOF UPON WRITTEN REQUEST.
5. AGREEMENT NOT A SERVICE CONTRACT. This Agreement is not an employment or service contract, and nothing in this Agreement nor the Plan shall be deemed to create in any way whatsoever any obligation for the Director to continue his relationship with the Corporation or BPPR, as applicable, or of the Corporation or BPPR, as applicable, to continue the relationship with the Director.
6. SECTION 83(b) ELECTION. Director acknowledges that if he is subject to taxation under the United States Internal Revenue Code of 1986, as amended (the "Code"), under Section 83(b) of the Code, the difference between the Grant Price and its fair market value at the time any forfeiture restrictions applicable to such Restricted Stock lapse is reportable as ordinary income at that time. For this purpose, the term "forfeiture restrictions" includes the forfeiture provisions, and restrictions described in Section 2 of this Agreement.
Notwithstanding the preceding, Director understands that he or she may elect to be taxed at the time the Restricted Stock is acquired hereunder, rather than when and as such Restricted Stock ceases to be subject to such forfeiture restrictions, by filing an election under Section 83(b) of the Code with the Internal Revenue Service within 30 days after the Grant Date. If the Grant Price equals the fair market value of the Restricted Stock on such date, or if it is likely that the fair market value of the Restricted Stock at the time any forfeiture restrictions lapse will exceed the Grant Price, the election may avoid adverse tax consequences in the future. A form for making this election is attached as Exhibit B. Director understands that the failure to make this filing within said 30 day period will result in the recognition of ordinary income by Director (in the event the fair market value of the Restricted Stock increases after Grant Date) as the forfeiture restrictions lapse. Director acknowledges that it is his or her sole responsibility, and not the Corporation's, to file a timely election under Section 83(b). Director further acknowledges that the election under Section 83(b) is an election that must be made with respect to each separate grant of Restricted Stock that is subject to this Agreement.
7. NOTICES. Any notices provided for in this Agreement or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by mail by the Corporation to the Director, five
(5) days after deposit in the United States mail, postage prepaid, addressed to
the Director at the last address the Director provided to the Corporation and/or
BPPR. Notice to the Corporation and/or BPPR shall be given in writing and shall
be deemed effectively given upon receipt or, in the case of notices delivered by
mail to the Corporation and/or BPPR by the Director, five (5) days after deposit
in the United States mail, postage prepaid, addressed to Chief Legal Officer,
Popular, Inc./Banco Popular de Puerto Rico, Board of Directors (751), PO Box
362708, San Juan, Puerto Rico 00936-2708.
8. RIGHTS AS A SHAREHOLDER. Except for the restrictions set forth in this Agreement and the Plan and unless otherwise determined by the Corporation, the Director shall be entitled to all of the rights of a shareholder with respect to the shares of Restricted Stock awarded pursuant to this Agreement including the right to vote such shares of Restricted Stock and to receive dividends and other distributions (if any) payable with respect to such shares. Provided, however, that cash dividends paid on Restricted Stock shall be reinvested in Common Stock through the Corporation's Dividend Reinvestment Plan.
9. TAX WITHHOLDING. The Corporation may withhold or cause to be withheld from any Restricted Stock grant (or Director's compensation) any Federal, Puerto Rico, state or local taxes required by law to be withheld with respect to such Restricted Stock grant. By acceptance of this Agreement, Director agrees to such deductions.
10. GOVERNING LAW. All questions arising with respect to this Agreement and the provisions of the Plan shall be determined by application of the laws of the Commonwealth of Puerto Rico except to the extent such governing law is preempted by Federal law. The obligation of the Corporation to grant and deliver Restricted Stock under this Agreement is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Restricted Stock.
11. SEVERABILITY. If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the
Agreement, but such provision shall be fully severable and the Agreement shall be construed and enforced as if the illegal or invalid provision had never been included in the Agreement.
12. SUCCESSORS. This Agreement shall be binding upon the Director, his legal representatives, heirs, legatees, distributees, and shall be binding upon the Corporation and its successors and assigns.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement this 16th day of July 2004.
POPULAR, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
DIRECTOR:
Name: _____________________________
EXHIBIT B
SECTION 83(b) STATEMENT
This statement is being made under Section 83(b) of the Internal Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
The person who performed the services is:
Taxpayer Identification No.: ______________
Taxable Year: Calendar Year
The property with respect to which the election is being made is shares of Common Stock of Popular, Inc. (the "Restricted Stock").
The property was issued on __________, 2004.
The property is subject to forfeiture if for any reason stockholder's relationship with the issuer is terminated prior to vesting of the property. The forfeiture provision lapses according to Section 2 of the Agreement.
The fair market value at the time of transfer (determined without regard to any restriction other than a restriction that by its terms will never lapse) is $________ per share.
The value of such property was $ per share on the Grant Date.
A copy of this statement is being furnished to Popular, Inc., for whom Director rendered the service underlying the transfer of property.
This statement is executed as of ___________________, 2004.
[POPULAR INC. LOGO]
ANNUAL RETAINER AND/OR MEETING FEE
RESTRICTED STOCK AGREEMENT
This Annual Retainer and/or Meeting Fee Restricted Stock Agreement ("Agreement") by and between Popular, Inc. (the "Corporation") and Frederic V. Salerno ("Director") is entered pursuant to the meeting of the Board of Directors of the Corporation held the 14th day of July 2004, whereby the Corporation in consideration of Director's services as a member of the Board of Directors of the Corporation and/or its wholly owned subsidiary, Banco Popular de Puerto Rico ("BPPR"), granted to the Director certain compensation for his services as such and Director elected to receive some or all of such compensation in a number of restricted shares of the Corporation's Common Stock (the "Restricted Stock"), subject to the terms and conditions hereinafter set forth and the terms and conditions of the Popular, Inc. 2004 Omnibus Incentive Plan (the "Plan"), a copy of which is attached hereto as Exhibit A. Capitalized terms not otherwise defined herein shall having the meaning ascribed them in the Plan.
8. NUMBER OF SHARES. Pursuant to the terms of the Director's Compensation letter dated July 16, 2004 (the "Compensation Letter"), the Corporation and/or BPPR has agreed to pay the Director certain compensation and the Director has elected to receive such compensation in the form of Restricted Stock. The number of shares of Restricted Stock shall be based on the per share closing price of the Corporation's Common Stock on the Grant Date and the total amount of compensation owed to the Director on the Grant Date. The Grant Date shall be the day the Restricted Stock is purchased for the Director which date shall be within the 30 days following the date the compensation is payable to the Director pursuant to the Compensation Letter. For all purposes the Grant Price shall be zero ($0).
The Restricted Stock shall be subject to all the terms, conditions, and restrictions set forth in this Agreement and the Plan. In the event any stock dividend, stock split, recapitalization or other change affecting the outstanding common stock of the Corporation as a class is effected without consideration, then any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) that is by reason of any such transaction distributed with respect to shares of Restricted Stock will be immediately subject to the provisions of this Agreement in the same manner and to the same extent as the Restricted Stock with respect to which such change was effected. Cash dividends paid on Restricted Stock shall be reinvested in Common Stock through the Corporation's Dividend Reinvestment Plan.
9. FORFEITURE AND TRANSFER RESTRICTIONS. All Restricted Stock granted to Director shall be issued and delivered on the Grant Date. In the event Director's relationship with the Corporation or BPPR, as applicable, is terminated for Cause (as defined in the Plan), or if Director, Director's legal representative, or other holder of the Restricted Stock attempts to sell, exchange, transfer, pledge, or otherwise dispose of any Restricted Stock, all Restricted Stock will be immediately forfeited without any further action by the Corporation.
Restricted Stock may not be assigned, transferred, pledged or otherwise disposed of in any way other than by the Last Will and Testament of the Director or the laws of descent and distribution, subject to the bylaws of the Corporation. Any Restricted Stock held by a beneficiary shall be subject to the restrictions imposed on such Restricted Stock. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect.
10. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, no shares under this Agreement may be granted unless the shares of Restricted Stock issuable upon such grant are then registered under the Securities Act of 1933, as amended (the "Securities Act") or, if such shares of Restricted Stock are not then so registered, the Corporation has determined that such grant and issuance would be exempt from the registration requirements of the Securities Act. The grant of shares must also comply with other applicable laws and regulations governing the grant, and no grant of shares will be permitted if the Corporation determines that such purchase would not be in material compliance with such laws and regulations.
11. STOCK LEGEND. The Corporation and Director agree that all certificates representing all shares of Restricted Stock that at any time are subject to the provisions of this Agreement and the Plan will have endorsed upon them in bold-faced type a legend substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF AN ANNUAL RETAINER AND/OR MEETING FEE RESTRICTED STOCK AGREEMENT BETWEEN THE CORPORATION AND THE INITIAL HOLDER OF THE SHARES. THE ANNUAL RETAINER AND/OR MEETING FEE RESTRICTED STOCK AGREEMENT MAY GRANT CERTAIN PURCHASE OPTIONS TO THE CORPORATION, PROVIDES FOR FORFEITURE OF THE STOCK IN CERTAIN CIRCUMSTANCES, AND IMPOSES RESTRICTIONS ON THE TRANSFER OF THESE SHARES. A COPY OF THE ANNUAL RETAINER AND/OR MEETING FEE RESTRICTED STOCK AGREEMENT IS ON DEPOSIT AT THE PRINCIPAL OFFICE OF THE CORPORATION AND WILL BE FURNISHED BY THE CORPORATION TO THE REGISTERED HOLDER HEREOF UPON WRITTEN REQUEST.
12. AGREEMENT NOT A SERVICE CONTRACT. This Agreement is not an employment or service contract, and nothing in this Agreement nor the Plan shall be deemed to create in any way whatsoever any obligation for the Director to continue his relationship with the Corporation or BPPR, as applicable, or of the Corporation or BPPR, as applicable, to continue the relationship with the Director.
13. SECTION 83(b) ELECTION. Director acknowledges that if he is subject to taxation under the United States Internal Revenue Code of 1986, as amended (the "Code"), under Section 83(b) of the Code, the difference between the Grant Price and its fair market value at the time any forfeiture restrictions applicable to such Restricted Stock lapse is reportable as ordinary
income at that time. For this purpose, the term "forfeiture restrictions" includes the forfeiture provisions, and restrictions described in Section 2 of this Agreement.
Notwithstanding the preceding, Director understands that he or she may elect to be taxed at the time the Restricted Stock is acquired hereunder, rather than when and as such Restricted Stock ceases to be subject to such forfeiture restrictions, by filing an election under Section 83(b) of the Code with the Internal Revenue Service within 30 days after the Grant Date. If the Grant Price equals the fair market value of the Restricted Stock on such date, or if it is likely that the fair market value of the Restricted Stock at the time any forfeiture restrictions lapse will exceed the Grant Price, the election may avoid adverse tax consequences in the future. A form for making this election is attached as Exhibit B. Director understands that the failure to make this filing within said 30 day period will result in the recognition of ordinary income by Director (in the event the fair market value of the Restricted Stock increases after Grant Date) as the forfeiture restrictions lapse. Director acknowledges that it is his or her sole responsibility, and not the Corporation's, to file a timely election under Section 83(b). Director further acknowledges that the election under Section 83(b) is an election that must be made with respect to each separate grant of Restricted Stock that is subject to this Agreement.
14. NOTICES. Any notices provided for in this Agreement or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by mail by the Corporation to the Director, five
(5) days after deposit in the United States mail, postage prepaid, addressed to
the Director at the last address the Director provided to the Corporation and/or
BPPR. Notice to the Corporation and/or BPPR shall be given in writing and shall
be deemed effectively given upon receipt or, in the case of notices delivered by
mail to the Corporation and/or BPPR by the Director, five (5) days after deposit
in the United States mail, postage prepaid, addressed to Chief Legal Officer,
Popular, Inc./Banco Popular de Puerto Rico, Board of Directors (751), PO Box
362708, San Juan, Puerto Rico 00936-2708.
8. RIGHTS AS A SHAREHOLDER. Except for the restrictions set forth in this Agreement and the Plan and unless otherwise determined by the Corporation, the Director shall be entitled to all of the rights of a shareholder with respect to the shares of Restricted Stock awarded pursuant to this Agreement including the right to vote such shares of Restricted Stock and to receive dividends and other distributions (if any) payable with respect to such shares. Provided, however, that cash dividends paid on Restricted Stock shall be reinvested in Common Stock through the Corporation's Dividend Reinvestment Plan.
9. TAX WITHHOLDING. The Corporation may withhold or cause to be withheld from any Restricted Stock grant (or Director's compensation) any Federal, Puerto Rico, state or local taxes required by law to be withheld with respect to such Restricted Stock grant. By acceptance of this Agreement, Director agrees to such deductions.
10. GOVERNING LAW. All questions arising with respect to this Agreement and the provisions of the Plan shall be determined by application of the laws of the Commonwealth of Puerto Rico except to the extent such governing law is preempted by Federal law. The obligation of the Corporation to grant and deliver Restricted Stock under this Agreement is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Restricted Stock.
11. SEVERABILITY. If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the Agreement, but such provision shall be fully severable and the Agreement shall be construed and enforced as if the illegal or invalid provision had never been included in the Agreement.
12. SUCCESSORS. This Agreement shall be binding upon the Director, his legal representatives, heirs, legatees, distributees, and shall be binding upon the Corporation and its successors and assigns.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement this 16th day of July 2004.
POPULAR, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
DIRECTOR: _________________________
Name: _____________________________
EXHIBIT B
SECTION 83(b) STATEMENT
This statement is being made under Section 83(b) of the Internal Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
The person who performed the services is:
Taxpayer Identification No.: ______________
Taxable Year: Calendar Year
The property with respect to which the election is being made is shares of Common Stock of Popular, Inc. (the "Restricted Stock").
The property was issued on __________, 2004.
The property is subject to forfeiture if for any reason stockholder's relationship with the issuer is terminated prior to vesting of the property. The forfeiture provision lapses according to Section 2 of the Agreement.
The fair market value at the time of transfer (determined without regard to any restriction other than a restriction that by its terms will never lapse) is $________ per share.
The value of such property was $ per share on the Grant Date.
A copy of this statement is being furnished to Popular, Inc., for whom Director rendered the service underlying the transfer of property.
This statement is executed as of ___________________, 2004.
EXHIBIT 10.4
[POPULAR, INC. LOGO]
November 1, 2004
PERSONAL AND CONFIDENTIAL
Mr. William J. Teuber
EMC Corporation
176 South Street
Hopkinton, MA 01748
Dear Mr. Teuber:
We are very pleased to have you on the Board of Directors of Popular, Inc. (the "Corporation").
I make reference to the letter dated July 16, 2004 which sets forth the general terms of your compensation as director of the Corporation. This is to clarify that such terms have been adjusted to reflect that your term as director of the Corporation commenced on the date hereof. Consequently, the Annual Retainer Fee for the period ending on the day the 2005 annual meeting of shareholders of the Corporation is held will be adjusted to $10,000 and the grant payable in Restricted Stock of the Corporation will be in the amount of $17,500.
Please do not hesitate to contact me or Ms. Marta Kury-Latorre, Esq. at 787-758-7208 or 787-753-1017, respectively, if you have any comments or questions.
Cordially,
Brunilda Santos de Alvarez
Executive Vice President
Chief Legal Officer &
Assistant Secretary of the Board
[POPULAR, INC. LOGO]
July 16, 2004
PERSONAL AND CONFIDENTIAL
Mr. William J. Teuber
EMC Corporation
176 South Street
Hopkinton, MA 01748
Dear Mr. Teuber:
We are very pleased to have you on the Board of Directors (the "Board") of Popular, Inc. (the "Corporation"), and are writing to set forth the general terms of your compensation as a Director, pursuant to resolutions adopted by the Board (without your participation) on July 14, 2004. These terms are, of course, subject to future modification by the Board.
As compensation for your services, you will receive:
- An annual retainer fee (the "Annual Retainer") of $15,000 for the period ending on the day the 2005 annual meeting of shareholders of the Corporation is held and $20,000 for each subsequent twelve month period that you are a Director or $25,000 if you are elected Chairman of any Board committee;
- $1,000 for each meeting of the Board or of a Board committee that you attend (the "Meeting Fee"); and
- A grant of $26,250 payable in Restricted Stock of Popular, Inc. (the "Restricted Stock") under the Popular, Inc. 2004 Omnibus Incentive Plan (the "Omnibus Plan") for the period ending on the day the 2005 annual meeting of shareholders of the Corporation is held and an annual grant of $35,000 payable in Restricted Stock under the Omnibus Plan for each subsequent twelve month period that you are a Director.
The Annual Retainer will be paid annually in advance, within the 30 days following the annual Corporation's shareholder meeting, in cash unless you elect to receive payment in Restricted Stock. The Annual Retainer for the period ending on the day the 2005 annual meeting of shareholders of Popular is held will be paid on August 16, 2004. The Meeting Fee may be paid in cash on a per meeting basis or quarterly in arrears in Restricted Stock. The number of shares of Restricted Stock to be delivered in payment of an Annual
Retainer and/or Meeting Fee shall be determined based on the per share closing price of the Corporation's common stock on the date payment is made and the amount of the Annual Retainer and/or Meeting Fee owed you.
If you elect to receive payment in the form of Restricted Stock, such shares shall be subject to the terms of the Annual Retainer and/or Meeting Fee Restricted Stock Agreement (attached hereto). If you elect to receive Restricted Stock you must return to us the attached Director Compensation Election Form and the executed Annual Retainer and/or Meeting Fee Restricted Stock Agreement. If you do not provide us with a completed election form prior to such date, the Annual Retainer will be paid to you annually in advance in cash and the Meeting Fee will be paid in cash on a per meeting basis. Once you have made an election to receive Restricted Stock, the election will be applicable to all future payments of the Annual Retainer and/or Meeting Fee, unless you notify us in writing of your desire to no longer receive Restricted Stock. In such case, your notice will apply to compensation payable for the year following receipt of the notice.
If you do not currently elect to receive the Annual Retainer and/or the Meeting Fee in the form of Restricted Stock, you may make such an election for future payments of either compensation element, by sending us a written notice with respect to the Annual Retainer, at least 30 days prior to the date of such year's annual meeting of the Corporation's shareholders for which the election would be in effect and, with respect to the Meeting Fees, at least 30 days prior to Board of Director's meeting for which you want to commence receiving the Meeting Fee in the form of Restricted Stock.
An election to receive the Annual Retainer and/or Meeting Fee in the form of Restricted Stock will result in deferral of taxation of those amounts until such later year as the restrictions lapse.
Dividends paid on your Restricted Stock will be reinvested in your name in the Popular, Inc. Dividend Reinvestment Plan. The dividend will be subject to Puerto Rico income taxes in the year paid by the Corporation at a special 10% rate.
Your grant of Restricted Stock is covered by a separate agreement attached hereto. We have enclosed the following documents in connection with the foregoing:
1. Director Compensation Election Form,
2. Annual Grant Restricted Stock Agreement,
3. Annual Retainer and/or Meeting Fee Restricted Stock Agreement, and
4. Omnibus Plan
Please complete and sign the Director Compensation Election Form and sign the Annual Grant Restricted Stock Agreement where indicated. If you elect to receive payment of the
Annual Retainer and/or the Meeting Fee in Restricted Stock, please sign the Annual Retainer and/or Meeting Fee Restricted Stock Agreement. Return all of the executed documents to Marie Reyes Rodriguez at the Corporate Secretary's Office. Please retain a copy of these documents for your records.
Once more, thank you for joining the Board of Directors of Popular, Inc. We look forward to working with you.
Cordially,
Brunilda Santos de Alvarez
Executive Vice President
Chief Legal Officer &
Assistant Secretary of the Board
[POPULAR, INC. LOGO]
DIRECTOR COMPENSATION ELECTION FORM
I have received Popular, Inc.'s letter dated July 16, 2004 informing me of my compensation as a member of the Board of Directors of Popular, Inc. I am in agreement with the terms set forth therein.
In connection therewith, I hereby make the following elections with respect to my future compensation as a member of the Board of Directors of Popular, Inc.:
ANNUAL RETAINER ANNUALLY IN ADVANCE RESTRICTED CASH STOCK MEETING FEE QUARTERLY MONTHLY RESTRICTED (CASH ONLY) STOCK |
I understand that an election to defer receipt of any amounts due me will not change the nature of the compensation to be received. Amounts received will be taxed as ordinary income when received.
Name: __________________________
Date: __________________________
[POPULAR, INC. LOGO]
ANNUAL GRANT
RESTRICTED STOCK AGREEMENT
This Annual Grant Restricted Stock Agreement ("Agreement") by and between Popular, Inc. (the "Corporation") and William J. Teuber ("Director") is entered pursuant to the meeting of the Board of Directors of the Corporation held on the 14th day of July 2004, whereby the Corporation in consideration of Director's services as a member of the Board of Directors of the Corporation and/or its wholly owned subsidiary, Banco Popular de Puerto Rico ("BPPR"), granted to the Director a number of restricted shares of the Corporation's Common Stock (the "Restricted Stock") subject to the terms and conditions hereinafter set forth and the terms and conditions of the Popular, Inc. 2004 Omnibus Incentive Plan (the "Plan"), a copy of which is attached hereto as Exhibit A. Capitalized terms not otherwise defined herein shall having the meaning ascribed them in the Plan.
1. NUMBER OF SHARES. Pursuant to the terms of the Director's Compensation letter dated July 16, 2004, the Corporation has agreed to grant to the Director TWENTY-SIX THOUSAND TWO HUNDRED FIFTY DOLLARS ($26,250) worth of Restricted Stock for the period ending on the day the 2005 annual meeting of the Corporation's shareholders is held and an annual grant of THIRTY FIVE THOUSAND DOLLARS ($35,000) for each subsequent year the Director is such of the Corporation and/or BPPR, based on the per share closing price of the Corporation's Common Stock on the Grant Date. The Grant Date shall be the day the Restricted Stock is purchased for the Director which date shall be August 16, 2004 with respect to the period ending the day of the 2005 annual meeting of shareholders of the Corporation and with respect to subsequent annual grants, within the 30 days following the annual meeting of the Corporation's shareholders. For all purposes the Grant Price shall be zero ($0).
The Restricted Stock shall be subject to all the terms, conditions, and restrictions set forth in this Agreement and the Plan. In the event any stock dividend, stock split, recapitalization or other change affecting the outstanding common stock of the Corporation as a class is effected without consideration, then any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) that is by reason of any such transaction distributed with respect to shares of Restricted Stock will be immediately subject to the provisions of this Agreement in the same manner and to the same extent as the Restricted Stock with respect to which such change was effected. Cash dividends paid on Restricted Stock shall be reinvested in Common Stock through the Corporation's Dividend Reinvestment Plan.
2. FORFEITURE AND TRANSFER RESTRICTIONS. All Restricted Stock granted to Director shall be issued and delivered on the Grant Date. In the event Director's relationship with the Corporation or BPPR, as applicable, is terminated for Cause (as defined in the Plan), or if Director, Director's legal representative, or other holder of the Restricted Stock attempts to sell, exchange, transfer, pledge, or otherwise dispose of any Restricted Stock, all Restricted Stock will be immediately forfeited without any further action by the Corporation.
Restricted Stock may not be assigned, transferred, pledged or otherwise disposed of in any way other than by the Last Will and Testament of the Director or the laws of descent and distribution, subject to the bylaws of the Corporation. Any Restricted Stock held by a beneficiary shall be subject to the restrictions imposed on such Restricted Stock. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect.
3. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, no shares under this Agreement may be granted unless the shares of Restricted Stock issuable upon such grant are then registered under the Securities Act of 1933, as amended (the "Securities Act") or, if such shares of Restricted Stock are not then so registered, the Corporation has determined that such grant and issuance would be exempt from the registration requirements of the Securities Act. The grant of shares must also comply with other applicable laws and regulations governing the grant, and no grant of shares will be permitted if the Corporation determines that such purchase would not be in material compliance with such laws and regulations.
4. STOCK LEGEND. The Corporation and Director agree that all certificates representing all shares of Restricted Stock that at any time are subject to the provisions of this Agreement and the Plan will have endorsed upon them in bold-faced type a legend substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF AN ANNUAL GRANT RESTRICTED STOCK AGREEMENT BETWEEN THE CORPORATION AND THE INITIAL HOLDER OF THE SHARES. THE ANNUAL GRANT RESTRICTED STOCK AGREEMENT MAY GRANT CERTAIN PURCHASE OPTIONS TO THE CORPORATION, PROVIDES FOR FORFEITURE OF THE STOCK IN CERTAIN CIRCUMSTANCES, AND IMPOSES RESTRICTIONS ON THE TRANSFER OF THESE SHARES. A COPY OF THE ANNUAL GRANT RESTRICTED STOCK AGREEMENT IS ON DEPOSIT AT THE PRINCIPAL OFFICE OF THE CORPORATION AND WILL BE FURNISHED BY THE CORPORATION TO THE REGISTERED HOLDER HEREOF UPON WRITTEN REQUEST.
5. AGREEMENT NOT A SERVICE CONTRACT. This Agreement is not an employment or service contract, and nothing in this Agreement nor the Plan shall be deemed to create in any way whatsoever any obligation for the Director to continue his relationship with the Corporation or BPPR, as applicable, or of the Corporation or BPPR, as applicable, to continue the relationship with the Director.
6. SECTION 83(b) ELECTION. Director acknowledges that if he is subject to taxation under the United States Internal Revenue Code of 1986, as amended (the "Code"), under Section 83(b) of the Code, the difference between the Grant Price and its fair market value at the time any forfeiture restrictions applicable to such Restricted Stock lapse is reportable as ordinary income at that time. For this purpose, the term "forfeiture restrictions" includes the forfeiture provisions, and restrictions described in Section 2 of this Agreement.
Notwithstanding the preceding, Director understands that he or she may elect to be taxed at the time the Restricted Stock is acquired hereunder, rather than when and as such Restricted Stock ceases to be subject to such forfeiture restrictions, by filing an election under Section 83(b) of the Code with the Internal Revenue Service within 30 days after the Grant Date. If the Grant Price equals the fair market value of the Restricted Stock on such date, or if it is likely that the fair market value of the Restricted Stock at the time any forfeiture restrictions lapse will exceed the Grant Price, the election may avoid adverse tax consequences in the future. A form for making this election is attached as Exhibit B. Director understands that the failure to make this filing within said 30 day period will result in the recognition of ordinary income by Director (in the event the fair market value of the Restricted Stock increases after Grant Date) as the forfeiture restrictions lapse. Director acknowledges that it is his or her sole responsibility, and not the Corporation's, to file a timely election under Section 83(b). Director further acknowledges that the election under Section 83(b) is an election that must be made with respect to each separate grant of Restricted Stock that is subject to this Agreement.
7. NOTICES. Any notices provided for in this Agreement or the Plan
shall be given in writing and shall be deemed effectively given upon receipt or,
in the case of notices delivered by mail by the Corporation to the Director,
five (5) days after deposit in the United States mail, postage prepaid,
addressed to the Director at the last address the Director provided to the
Corporation and/or BPPR. Notice to the Corporation and/or BPPR shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by mail to the Corporation and/or BPPR by the Director, five
(5) days after deposit in the United States mail, postage prepaid, addressed to
Chief Legal Officer, Popular, Inc./Banco Popular de Puerto Rico, Board of
Directors (751), PO Box 362708, San Juan, Puerto Rico 00936-2708.
8. RIGHTS AS A SHAREHOLDER. Except for the restrictions set forth in this Agreement and the Plan and unless otherwise determined by the Corporation, the Director shall be entitled to all of the rights of a shareholder with respect to the shares of Restricted Stock awarded pursuant to this Agreement including the right to vote such shares of Restricted Stock and to receive dividends and other distributions (if any) payable with respect to such shares. Provided, however, that cash dividends paid on Restricted Stock shall be reinvested in Common Stock through the Corporation's Dividend Reinvestment Plan.
9. TAX WITHHOLDING. The Corporation may withhold or cause to be withheld from any Restricted Stock grant (or Director's compensation) any Federal, Puerto Rico, state or local taxes required by law to be withheld with respect to such Restricted Stock grant. By acceptance of this Agreement, Director agrees to such deductions.
10. GOVERNING LAW. All questions arising with respect to this Agreement and the provisions of the Plan shall be determined by application of the laws of the Commonwealth of Puerto Rico except to the extent such governing law is preempted by Federal law. The obligation of the Corporation to grant and deliver Restricted Stock under this Agreement is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Restricted Stock.
11. SEVERABILITY. If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the
Agreement, but such provision shall be fully severable and the Agreement shall be construed and enforced as if the illegal or invalid provision had never been included in the Agreement.
12. SUCCESSORS. This Agreement shall be binding upon the Director, his legal representatives, heirs, legatees, distributees, and shall be binding upon the Corporation and its successors and assigns.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement this 16th day of July 2004.
POPULAR, INC.
By: _____________________________
Name: _____________________________
Title: ___________________________
DIRECTOR:
Name: ____________________________
EXHIBIT B
SECTION 83(b) STATEMENT
This statement is being made under Section 83(b) of the Internal Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
The person who performed the services is:
Name: ___________________________________ Address: ___________________________________ ___________________________________ |
Taxpayer Identification No.: ______________
Taxable Year: Calendar Year
The property with respect to which the election is being made is _______ shares of Common Stock of Popular, Inc. (the "Restricted Stock").
The property was issued on __________, 2004.
The property is subject to forfeiture if for any reason stockholder's relationship with the issuer is terminated prior to vesting of the property. The forfeiture provision lapses according to Section 2 of the Agreement.
The fair market value at the time of transfer (determined without regard to any restriction other than a restriction that by its terms will never lapse) is $________ per share.
The value of such property was $________ per share on the Grant Date.
A copy of this statement is being furnished to Popular, Inc., for whom Director rendered the service underlying the transfer of property.
This statement is executed as of ___________________, 2004.
[POPULAR, INC. LOGO]
ANNUAL RETAINER AND/OR MEETING FEE
RESTRICTED STOCK AGREEMENT
This Annual Retainer and/or Meeting Fee Restricted Stock Agreement ("Agreement") by and between Popular, Inc. (the "Corporation") and William J. Teuber ("Director") is entered pursuant to the meeting of the Board of Directors of the Corporation held the 14th day of July 2004, whereby the Corporation in consideration of Director's services as a member of the Board of Directors of the Corporation and/or its wholly owned subsidiary, Banco Popular de Puerto Rico ("BPPR"), granted to the Director certain compensation for his services as such and Director elected to receive some or all of such compensation in a number of restricted shares of the Corporation's Common Stock (the "Restricted Stock"), subject to the terms and conditions hereinafter set forth and the terms and conditions of the Popular, Inc. 2004 Omnibus Incentive Plan (the "Plan"), a copy of which is attached hereto as Exhibit A. Capitalized terms not otherwise defined herein shall having the meaning ascribed them in the Plan.
8. NUMBER OF SHARES. Pursuant to the terms of the Director's Compensation letter dated July 16, 2004 (the "Compensation Letter"), the Corporation and/or BPPR has agreed to pay the Director certain compensation and the Director has elected to receive such compensation in the form of Restricted Stock. The number of shares of Restricted Stock shall be based on the per share closing price of the Corporation's Common Stock on the Grant Date and the total amount of compensation owed to the Director on the Grant Date. The Grant Date shall be the day the Restricted Stock is purchased for the Director which date shall be within the 30 days following the date the compensation is payable to the Director pursuant to the Compensation Letter. For all purposes the Grant Price shall be zero ($0).
The Restricted Stock shall be subject to all the terms, conditions, and restrictions set forth in this Agreement and the Plan. In the event any stock dividend, stock split, recapitalization or other change affecting the outstanding common stock of the Corporation as a class is effected without consideration, then any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) that is by reason of any such transaction distributed with respect to shares of Restricted Stock will be immediately subject to the provisions of this Agreement in the same manner and to the same extent as the Restricted Stock with respect to which such change was effected. Cash dividends paid on Restricted Stock shall be reinvested in Common Stock through the Corporation's Dividend Reinvestment Plan.
9. FORFEITURE AND TRANSFER RESTRICTIONS. All Restricted Stock granted to Director shall be issued and delivered on the Grant Date. In the event Director's relationship with the Corporation or BPPR, as applicable, is terminated for Cause (as defined in the Plan), or if Director, Director's legal representative, or other holder of the Restricted Stock attempts to sell, exchange, transfer, pledge, or otherwise dispose of any Restricted Stock, all Restricted Stock will be immediately forfeited without any further action by the Corporation.
Restricted Stock may not be assigned, transferred, pledged or otherwise disposed of in any way other than by the Last Will and Testament of the Director or the laws of descent and distribution, subject to the bylaws of the Corporation. Any Restricted Stock held by a beneficiary shall be subject to the restrictions imposed on such Restricted Stock. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect.
10. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, no shares under this Agreement may be granted unless the shares of Restricted Stock issuable upon such grant are then registered under the Securities Act of 1933, as amended (the "Securities Act") or, if such shares of Restricted Stock are not then so registered, the Corporation has determined that such grant and issuance would be exempt from the registration requirements of the Securities Act. The grant of shares must also comply with other applicable laws and regulations governing the grant, and no grant of shares will be permitted if the Corporation determines that such purchase would not be in material compliance with such laws and regulations.
11. STOCK LEGEND. The Corporation and Director agree that all certificates representing all shares of Restricted Stock that at any time are subject to the provisions of this Agreement and the Plan will have endorsed upon them in bold-faced type a legend substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF AN ANNUAL RETAINER AND/OR MEETING FEE RESTRICTED STOCK AGREEMENT BETWEEN THE CORPORATION AND THE INITIAL HOLDER OF THE SHARES. THE ANNUAL RETAINER AND/OR MEETING FEE RESTRICTED STOCK AGREEMENT MAY GRANT CERTAIN PURCHASE OPTIONS TO THE CORPORATION, PROVIDES FOR FORFEITURE OF THE STOCK IN CERTAIN CIRCUMSTANCES, AND IMPOSES RESTRICTIONS ON THE TRANSFER OF THESE SHARES. A COPY OF THE ANNUAL RETAINER AND/OR MEETING FEE RESTRICTED STOCK AGREEMENT IS ON DEPOSIT AT THE PRINCIPAL OFFICE OF THE CORPORATION AND WILL BE FURNISHED BY THE CORPORATION TO THE REGISTERED HOLDER HEREOF UPON WRITTEN REQUEST.
12. AGREEMENT NOT A SERVICE CONTRACT. This Agreement is not an employment or service contract, and nothing in this Agreement nor the Plan shall be deemed to create in any way whatsoever any obligation for the Director to continue his relationship with the Corporation or BPPR, as applicable, or of the Corporation or BPPR, as applicable, to continue the relationship with the Director.
13. SECTION 83(b) ELECTION. Director acknowledges that if he is subject to taxation under the United States Internal Revenue Code of 1986, as amended (the "Code"), under Section 83(b) of the Code, the difference between the Grant Price and its fair market value at the time any forfeiture restrictions applicable to such Restricted Stock lapse is reportable as ordinary
income at that time. For this purpose, the term "forfeiture restrictions" includes the forfeiture provisions, and restrictions described in Section 2 of this Agreement.
Notwithstanding the preceding, Director understands that he or she may elect to be taxed at the time the Restricted Stock is acquired hereunder, rather than when and as such Restricted Stock ceases to be subject to such forfeiture restrictions, by filing an election under Section 83(b) of the Code with the Internal Revenue Service within 30 days after the Grant Date. If the Grant Price equals the fair market value of the Restricted Stock on such date, or if it is likely that the fair market value of the Restricted Stock at the time any forfeiture restrictions lapse will exceed the Grant Price, the election may avoid adverse tax consequences in the future. A form for making this election is attached as Exhibit B. Director understands that the failure to make this filing within said 30 day period will result in the recognition of ordinary income by Director (in the event the fair market value of the Restricted Stock increases after Grant Date) as the forfeiture restrictions lapse. Director acknowledges that it is his or her sole responsibility, and not the Corporation's, to file a timely election under Section 83(b). Director further acknowledges that the election under Section 83(b) is an election that must be made with respect to each separate grant of Restricted Stock that is subject to this Agreement.
14. NOTICES. Any notices provided for in this Agreement or the Plan
shall be given in writing and shall be deemed effectively given upon receipt or,
in the case of notices delivered by mail by the Corporation to the Director,
five (5) days after deposit in the United States mail, postage prepaid,
addressed to the Director at the last address the Director provided to the
Corporation and/or BPPR. Notice to the Corporation and/or BPPR shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by mail to the Corporation and/or BPPR by the Director, five
(5) days after deposit in the United States mail, postage prepaid, addressed to
Chief Legal Officer, Popular, Inc./Banco Popular de Puerto Rico, Board of
Directors (751), PO Box 362708, San Juan, Puerto Rico 00936-2708.
8. RIGHTS AS A SHAREHOLDER. Except for the restrictions set forth in this Agreement and the Plan and unless otherwise determined by the Corporation, the Director shall be entitled to all of the rights of a shareholder with respect to the shares of Restricted Stock awarded pursuant to this Agreement including the right to vote such shares of Restricted Stock and to receive dividends and other distributions (if any) payable with respect to such shares. Provided, however, that cash dividends paid on Restricted Stock shall be reinvested in Common Stock through the Corporation's Dividend Reinvestment Plan.
9. TAX WITHHOLDING. The Corporation may withhold or cause to be withheld from any Restricted Stock grant (or Director's compensation) any Federal, Puerto Rico, state or local taxes required by law to be withheld with respect to such Restricted Stock grant. By acceptance of this Agreement, Director agrees to such deductions.
10. GOVERNING LAW. All questions arising with respect to this Agreement and the provisions of the Plan shall be determined by application of the laws of the Commonwealth of Puerto Rico except to the extent such governing law is preempted by Federal law. The obligation of the Corporation to grant and deliver Restricted Stock under this Agreement is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Restricted Stock.
11. SEVERABILITY. If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the Agreement, but such provision shall be fully severable and the Agreement shall be construed and enforced as if the illegal or invalid provision had never been included in the Agreement.
12. SUCCESSORS. This Agreement shall be binding upon the Director, his legal representatives, heirs, legatees, distributees, and shall be binding upon the Corporation and its successors and assigns.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement this 16th day of July 2004.
POPULAR, INC.
By: _______________________________
Name: _______________________________
Title: _____________________________
DIRECTOR:
Name: ______________________________
EXHIBIT B
SECTION 83(b) STATEMENT
This statement is being made under Section 83(b) of the Internal Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
The person who performed the services is:
Name: ___________________________________ Address: ___________________________________ ___________________________________ |
Taxpayer Identification No.: ______________
Taxable Year: Calendar Year
The property with respect to which the election is being made is _______ shares of Common Stock of Popular, Inc. (the "Restricted Stock").
The property was issued on __________, 2004.
The property is subject to forfeiture if for any reason stockholder's relationship with the issuer is terminated prior to vesting of the property. The forfeiture provision lapses according to Section 2 of the Agreement.
The fair market value at the time of transfer (determined without regard to any restriction other than a restriction that by its terms will never lapse) is $________ per share.
The value of such property was $______ per share on the Grant Date.
A copy of this statement is being furnished to Popular, Inc., for whom Director rendered the service underlying the transfer of property.
This statement is executed as of ___________________, 2004.
Exhibit 12.1
POPULAR, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Dollars in thousands)
For the nine months ended -------------------------- Year Ended December 31, September 30 September 30 ------------------------------------------------------ 2004 2003 2003 2002 2001 2000 1999 ------------ ------------ ---------- ---------- ---------- ---------- ---------- Income before income taxes $ 462,457 $ 462,590 $ 597,410 $ 463,606 $ 408,404 $ 375,458 $ 340,036 Fixed charges : Interest expense 595,170 566,240 749,550 863,553 1,039,105 1,167,396 897,932 Estimated interest component of net rental payments 13,835 8,338 17,379 15,123 14,176 13,110 10,970 Total fixed charges including interest on deposits 609,005 574,578 766,929 878,676 1,053,281 1,180,506 908,902 Less: Interest on deposits 240,852 262,678 342,891 432,415 517,881 529,373 452,215 Total fixed charges excluding interest on deposits 368,153 311,900 424,038 446,261 535,400 651,133 456,687 Income before income taxes and fixed charges(including interest on deposits) $1,071,462 $1,037,168 $1,364,339 $1,342,282 $1,461,685 $1,555,964 $1,248,938 Income before income taxes and fixed charges(excluding interest on deposits) $ 830,610 $ 774,490 $1,021,448 $ 909,867 $ 943,804 $1,026,591 $ 796,723 Preferred stock dividends 8,935 6,941 9,919 2,510 8,350 8,350 8,350 Ratio of earnings to fixed charges Including Interest on Deposits 1.8 1.8 1.8 1.5 1.4 1.3 1.4 Excluding Interest on Deposits 2.3 2.5 2.4 2.0 1.8 1.6 1.7 Ratio of earnings to fixed charges & Preferred Stock Dividends Including Interest on Deposits 1.7 1.8 1.8 1.5 1.4 1.3 1.4 Excluding Interest on Deposits 2.2 2.4 2.3 2.0 1.7 1.5 1.7 |
EXHIBIT 31.1
CERTIFICATION
I, Richard L. Carrion, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Popular, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; 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 over financial reporting.
Dated: November 9, 2004 By: /S/ Richard L. Carrion --------------------------- Richard L. Carrion Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, Jorge A. Junquera, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Popular, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; 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 over financial reporting.
Dated: November 9, 2004 By: /S/ Jorge A. Junquera ------------------------- Jorge A. Junquera Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Popular, Inc. (the "Company"), hereby certifies that the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: November 9, 2004 /S/ Richard L. Carrion ----------------------- Name: Richard L. Carrion Title: Chief Executive Officer |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Popular, Inc. (the "Company"), hereby certifies that the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: November 9, 2004 /S/ Jorge A. Junquera ---------------------- Name: Jorge A. Junquera Title: Chief Financial Officer |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.