UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 11-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-13818
POPULAR, INC, U.S.A. PROFIT SHARING/401(k) PLAN
(Full title of the Plan and address of the Plan, if
different from that of the issuer named below)
POPULAR, INC.
209 MUNOZ RIVERA AVENUE
HATO REY, PUERTO RICO 00918
(Name of issuer of the securities held pursuant to the
plan and the address of principal executive office)
POPULAR, INC. U.S.A. PROFIT SHARING/401(k) PLAN
FINANCIAL STATEMENTS AND
SUPPLEMENTAL SCHEDULE
DECEMBER 31, 2002 AND 2001
POPULAR, INC. U.S.A. PROFIT SHARING/401(k) PLAN
TABLE OF CONTENTS
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PAGE(S)
Report of Independent Auditors 1
Financial Statements
Statements of Net Assets Available for Benefits 2
Statement of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4-9
Supplemental Schedule:*
Exhibit I: Schedule of Assets Held for Investment Purposes 11
* Other supplementary schedules required by Section 2520.103-10 of the
Department of Labor Rules and Regulations for Reporting and Disclosure
under ERISA have been omitted because they are not applicable.
REPORT OF INDEPENDENT AUDITORS
To the Participants and Administrator of
Popular, Inc. U.S.A. Profit Sharing/401(k) Plan
In our opinion, the accompanying statements of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, information regarding the net assets
available for benefits of Popular, Inc. U.S.A. Profit Sharing/401(k) Plan (the
"Plan") at December 31, 2002 and 2001 and the changes in net assets available
for benefits for the year ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Plan's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
for investment purposes is presented for the purpose of additional analysis and
is not a required part of the basic financial statements but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. This supplemental schedule is the responsibility of the Plan's management.
The supplemental schedule has been subjected to the auditing procedures applied
in the audits of the financial statements and, in our opinion, is fairly stated
in all material respects in relation to the basic financial statements taken as
a whole.
/s/ PricewaterhouseCoopers, LLP
----------------------------
PricewaterhouseCoopers, LLP
New York, New York
June 30, 2003
POPULAR, INC. U.S.A. PROFIT SHARING/401(k) PLAN 2
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
-------------------------------------------------------------------------------
DECEMBER 31,
2002 2001
----------- -----------
ASSETS
Investments at fair value (see Note 4) $35,201,894 $31,130,282
Cash 13,132 100
Receivables:
Employer's contribution 620,004 828,900
Participants' contributions 118,902 15,965
Interest and other receivables 12,279 10,026
Due from broker for securities sold 798 --
----------- -----------
TOTAL RECEIVABLES 751,983 854,891
----------- -----------
TOTAL ASSETS 35,967,009 31,985,273
----------- -----------
LIABILITIES
Refundable contributions $ 182,454 $ 276,511
Due to broker for securities purchased 184,176 --
Distributions payable -- 31,186
----------- -----------
TOTAL LIABILITIES 366,630 307,697
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $35,600,379 $31,677,576
=========== ===========
See accompanying notes to the financial statements.
POPULAR, INC. U.S.A. PROFIT SHARING/401(k) PLAN 3
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 2002
--------------------------------------------------------------------------------
Additions to net assets attributed to:
Investment income:
Net appreciation in fair value of investments (See Note 4) $ 1,588,838
Dividends 197,382
Interest income, participants' loans 78,761
Interest income, investments 77,636
---------------
1,942,617
---------------
Contributions:
Participants 3,824,765
Rollovers from external sources 450,374
Employer 2,065,361
Transfers in - other plans 1,014,942
---------------
7,355,442
---------------
TOTAL ADDITIONS 9,298,059
---------------
Deductions from net assets attributed to:
Benefits paid to participants 5,186,102
Refunded contributions 182,454
Administrative expenses 6,700
---------------
TOTAL DEDUCTIONS 5,375,256
---------------
INCREASE IN NET ASSETS 3,922,803
Net assets available for benefits:
Beginning of year 31,677,576
---------------
End of year $ 35,600,379
===============
See accompanying notes to the financial statements.
POPULAR, INC. U.S.A. PROFIT SHARING/401(k) PLAN 4
NOTES TO FINANCIAL STATEMENTS
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1. DESCRIPTION OF THE PLAN
The following brief description of the Popular, Inc. U.S.A. Profit
Sharing/401(k) Plan (the "Plan") provides only general information.
Popular, Inc. is the sponsor of the Plan. Participants should refer to the
Plan document for a more complete description of the Plan's provisions.
GENERAL
Pioneer Bank & Trust Company Profit Sharing Plan (the "Pioneer Plan") was
established on January 1, 1972, as a qualified defined contribution plan.
The Pioneer Plan was amended and restated, effective January 1, 1976 and
again restated, effective July 1, 1982, to comply with the requirements of
the Employee Retirement Income Security Act of 1974 (ERISA). On July 1,
1989, the Pioneer Plan was amended to include a cash or deferred
arrangement under Section 401(k) of the Internal Revenue Code ("401(k)").
The Pioneer Plan sponsor was Banco Popular, Illinois, a wholly-owned
subsidiary of Popular, Inc.
On March 1, 1997, the Pioneer Plan was restated and converted into a
defined contribution participant-directed plan under the name of BanPonce
U.S.A. Profit Sharing/401(k) Plan. On October 14, 1998, certain provisions
related to rollover contributions and distributions of the Plan were
amended.
During 1998 the employees of Banco Popular, Illinois, Banco Popular,
California, N.A., Banco Popular, Florida, N.A., Banco Popular, Texas N.A.,
Popular Leasing U.S.A., Inc. and Banco Popular, FSB participated in the
Plan.
Effective January 1, 2000, the entities participating in the Plan merged to
form a single banking entity under the name of Banco Popular North America
(the "Bank").
On January 1, 2000 employees from the Bank, Banco Popular, N.A. (Texas),
First State Bank of Southern California and Gore Bronson Bancorp became
eligible to participate in the Plan. The Plan was also amended to allow for
additional discretionary contributions to be made to the Plan on behalf of
participants who were employees of the New York branch of Banco Popular de
Puerto Rico on December 31, 1998.
On April 30, 2000, the BanPonce U.S.A. Profit Sharing/401(k) Plan adopted
the name of Popular, Inc. U.S.A. Profit Sharing/401(k) Plan.
During 2000, the Plan was amended to allow for a merger of assets from
Citizens National Bank Profit Sharing Savings Plan with total assets of
$607,998, Banco Popular de Puerto Rico Employee Stock Plan with total
assets of $5,445,596 and the Gore Bronson Bancorp Profit Sharing Plan and
Trust with total assets of $509,895.
Effective January 1, 2001, the Plan was amended to allow participation by
employees of Banco Popular de Puerto Rico (BPPR) that are employed in the
Virgin Islands (VI) or British Virgin Islands (BVI). These employees can
contribute from 1% to 10% of eligible pre-tax annual compensation (post tax
for BVI employees) up to IRS limits. The Bank contributes 50 cents for each
dollar the employee contributes up to 2% of their eligible compensation
that has been invested in Popular Inc. Common Stock subject to compliance
with certain requirements as outlined in the Plan. Assets from the prior
plan were transferred in 2001.
POPULAR, INC. U.S.A. PROFIT SHARING/401(k) PLAN 5
NOTES TO FINANCIAL STATEMENTS
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Effective August 1, 2001, Article 9 of the Plan was amended by adding
Section 9.4 that allows a participant who has attained age 59 1/2 to elect
to receive 100% of the value of his before-tax deposit account and his
after-tax deposit account and the vested portion of Matching Employer
Contributions.
Effective February 13, 2002, US employees of Popular Insurance, Inc. were
eligible to participate in the plan as of September 25, 2001.
On February 19, 2002, a restated plan was submitted to the IRS for a new
determination letter. The restated plan incorporates prior amendments. In
addition the plan extends benefits to employees of the GM Group in the
United States as of July 1, 2001 and Popular Insurance Inc. employees in
the United States as of September 25, 2001.
Effective April 1, 2002, the Ivy International Fund was replaced by the
Templeton Foreign Fund. In addition, three new funds were added; Fidelity
Advisor Equity Growth Fund, Marshall Mid-Cap Value Fund and Strong Advisor
Small Cap Value Fund.
Effective August 1, 2002, the Capital Bank Plan, with assets of $1,014,942,
was merged into the Plan.
Effective December 12, 2002 the plan was amended to conform to the Economic
Growth and Tax Relief Reconciliation Act of 2001 and to allow for amendment
to eliminate the option of annuity for distribution.
The Plan is subject to the provisions of ERISA.
ELIGIBILITY AND VESTING
Prior to September 1, 2000, employees were automatically enrolled in the
Plan upon the first day of the month coinciding with or next following the
date they became an employee. Beginning September 1, 2000, employees are
automatically enrolled into the Plan upon the first day of the month
following 30 days of service. Participants are immediately vested in their
voluntary contributions and earnings thereon. Vesting in the Bank's
matching and discretionary contribution portion of their account plan plus
actual earnings thereon is based on years of credited service. A
participant begins to vest in the Plan according to the following table:
YEARS OF CREDITED SERVICE VESTING PERCENTAGE
Less than 2 0%
2 25
3 50
4 75
5 or more 100
CONTRIBUTIONS
Each year, employees may contribute from 1% to 10% of eligible pre-tax
annual compensation up to a maximum of $11,000 based on IRS limitations, as
defined in the Plan. Participants may also contribute amounts representing
distributions from other qualified defined benefit or defined contribution
plans.
The Bank contributes 50 cents for each pre-tax $1 contributed by an
employee. Additionally, the Bank contributes 50 cents for each pre-tax $1
contributed by an employee that has been invested in the Popular, Inc.
Common Stock Fund, subject to compliance with certain requirements defined
in the
POPULAR, INC. U.S.A. PROFIT SHARING/401(k) PLAN 6
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Plan agreement. Total contributions from the Bank will not exceed 6% of the
employee's pre-tax compensation. The Bank will also make a profit sharing
contribution in an amount determined by the Board of Directors of the Bank.
The Bank's profit sharing and 401(k) matching contribution is limited to
the total amount which the Bank can deduct for federal income tax purposes.
PARTICIPANT ACCOUNTS
As of the last day of each quarter, net earnings or losses are allocated
among eligible participants in proportion to their account balances
relative to the total of all such account balances as of the previous
valuation date, adjusted for distributions and employee contributions. As
of the last day of the Plan year, the Bank's profit sharing contribution is
allocated to participant accounts based upon the participants' eligible
compensation, as defined, and subject to compliance with certain
requirements included in the Plan agreement.
As of the last day of the plan year, the Bank's additional matching
contribution is allocated based on each employee's contribution, as
described above. The Bank's contributions plus the employee's after-tax and
pre-tax contributions are limited to the lesser of 25% of the employee's
eligible compensation or a maximum amount set annually by federal
authorities.
INVESTMENT OPTIONS
Upon enrollment in the Plan, a participant may direct his/her investments
and reinvestments, other than his/her Bonus Matching Contribution, into any
of the following investment options. As noted earlier, the Bank switched
its foreign fund option from Ivy International Fund to Templeton Foreign
Fund and added three new funds during the plan year.
M&I STABLE PRINCIPAL FUND: This fund's objective is to maintain safety of
principal while generating a level of current income generally exceeding
that of a money market fund. This fund primarily invests in traditional and
synthetic investment contracts.
PIMCO TOTAL RETURN FUND: This fund invests mainly in fixed income
securities, seeking maximum return, consistent with preservation of capital
and prudent investment management.
VANGUARD WELLINGTON INCOME FUND: This fund seeks to conserve capital and to
provide moderate long-term growth in capital and income by investing in
common stocks and debt securities.
DAVIS NEW YORK VENTURE FUND: This fund's investment objective is growth of
capital. The fund ordinarily invests in common stocks.
T. ROWE PRICE MID-CAP GROWTH FUND: This fund seeks long-term capital
appreciation through investments in medium-sized growth companies.
FIDELITY GROWTH & INCOME FUND: This fund seeks long-term growth, current
income and long-term growth of income consistent with reasonable investment
risk by investing in common stocks and corporate bonds.
VANGUARD S&P 500 INDEX FUND: This fund seeks investment results that
correspond to the price and yield performance of the S&P 500 Index.
IVY INTERNATIONAL FUND: This fund invests in foreign stocks, seeking
long-term capital growth. This fund was no longer available to participants
effective April 1, 2002. All holdings were transferred to Templeton Foreign
Fund.
POPULAR, INC. U.S.A. PROFIT SHARING/401(k) PLAN 7
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
FIDELITY ADVISOR EQUITY GROWTH FUND: This fund became available to
participants on April 1, 2002. This fund seeks capital appreciation by
investing in large capital common stocks with strong growth potential.
MARSHALL MID-CAP VALUE FUND: This fund became available to participants on
April 1, 2002. This fund seeks capital appreciation and income by investing
in companies with mid capitalization value traits.
STRONG ADVISOR SMALL CAP VALUE FUND: This fund became available to
participants on April 1, 2002. This fund seeks capital growth by investing
in equity securities of undervalued small capitalization companies.
TEMPLETON FOREIGN FUND: This fund became available to participants on April
1, 2002. This fund seeks long term growth by investing primarily in equity
securities of companies located outside the U.S. including emerging
markets.
POPULAR INC. COMMON STOCK FUND: This fund is primarily invested in Popular
Inc. Common Stock and cash.
PARTICIPANT LOANS
Participants may borrow against their fund accounts a minimum of $500 up to
a maximum of the lesser of $50,000 or 50% of the vested portion of the
participant's equity in the Plan. Loans are charged a reasonable interest
rate, which is determined by the Plan Committee and which meets all
regulatory requirements.
DISTRIBUTIONS
Distributions may occur for termination, retirement, disability, or death.
The Plan provides that benefits be distributed in one of the following
manners as selected by the participant or beneficiary: (a) payment in one
single sum; or (b) payment in substantially equal installments determined
by the participant or beneficiary.
PLAN TERMINATION
Although it has not expressed any intent to do so, the sponsor may
terminate the Plan for any reason at any time, in which event there shall
be no employer duty to make contributions. In the event of termination, all
participants become fully vested and have a nonforfeitable right to their
full account balance.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. A
description of the more significant accounting policies follows.
VALUATION OF INVESTMENTS
Plan investments are stated at fair value, with the exception of M&I Stable
Principal Fund that is stated at contract value, which approximates fair
value. Shares of registered investment companies are valued at quoted
market prices which represent the net asset value of shares held by the
Plan at year-end. Popular Inc. Common Stock is valued at its quoted market
price.
POPULAR, INC. U.S.A. PROFIT SHARING/401(k) PLAN 8
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The registered investment companies retain and reinvest all dividends. Such
undistributed income is included in the statement of changes in net assets
available for benefits and is recorded as an increase in the cost basis of
fund units held at year end in the statement of net assets available for
benefits.
Temporary investments are stated at cost, which approximates fair value.
Purchases and sales of securities are recorded on a trade-date basis.
INVESTMENT INCOME
Net gain on investments is a combination of net realized gains (losses) and
the change in unrealized appreciation (depreciation) from the previous
year-end. Dividends are recorded on the ex-dividend date. Interest income
on temporary investments is recorded on the accrual basis.
ADMINISTRATIVE EXPENSES
Legal and other administrative expenses are paid by the Bank and,
accordingly, have not been reflected in the Plan's financial statements.
PAYMENT OF BENEFITS
Benefits are recorded when paid.
FORFEITED ACCOUNTS
Forfeited nonvested accounts totaled $539,749 and $308,284 at December 31,
2002 and 2001, respectively. These accounts were used to reduce Employer
contributions.
REFUNDABLE CONTRIBUTIONS
Refundable contributions totaled $182,454 and $282,187 at December 31, 2002
and 2001, respectively. These excess contributions arise as a result from
failing non-discrimination tests in accordance with the Internal Revenue
Service Regulations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Plan administrator to make
estimates and assumptions that affect the reported amounts of assets,
liabilities and changes therein, and disclosure of contingent assets and
liabilities. Actual results could differ from these estimates.
RISKS AND UNCERTAINTIES
The Plan provides for various investment options in any combination of
stocks, fixed income securities, mutual funds and other investment
securities. Investment securities are exposed to various risks, such as
interest rate, market and credit risk. Due to the level of risk associated
with certain investment securities, it is at least reasonably possible that
changes in the value of investment securities will occur in the near term
and that such changes could materially affect participant account balances
and the amounts reported in the statement of net assets available for
benefits.
POPULAR, INC. U.S.A. PROFIT SHARING/401(k) PLAN 9
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
3. INCOME TAXES
The Popular, Inc. U.S.A. Profit Sharing/401(k) Plan received a favorable
determination letter from the Internal Revenue Service, dated April 7,
1999, indicating that it qualified under Section 401(a) of the Internal
Revenue Code (IRC). The Plan has been restated since receiving the
determination letter. However, the Plan administrator and the Plan's tax
counsel believe that the Plan is designed and is currently being operated
in compliance with the applicable provisions of the IRC. A request for a
new determination letter was submitted to the IRS on February 19, 2002.
POPULAR, INC. U.S.A. PROFIT SHARING/401(k) PLAN 10
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
4. INVESTMENTS HELD
Investments held by the Plan are summarized below. Those investments that
represent 5 percent or more of the Plan's net assets at the end of the year
are noted with an asterisk (*).
DECEMBER 31, 2002 DECEMBER 31, 2001
SHARES/UNITS FAIR VALUE SHARES/UNITS FAIR VALUE
Shares of registered
investment companies:
M&I Stable Principal Fund 2,160,338 $ 2,160,338 * 1,327,272 $ 1,327,272
PIMCO Total Return Fund 176,628 1,884,620 * 101,683 1,063,602
Vanguard Wellington
Income Fund 107,744 2,646,204 * 103,056 2,809,310 *
Davis New York Venture Fund 63,614 1,332,089 73,627 1,872,333 *
T. Rowe Price Mid-Cap
Growth Fund 47,644 1,478,893 49,789 1,961,685 *
Fidelity Growth & Income Fund 31,879 966,259 30,053 1,123,385
Vanguard S&P 500 Index Fund 16,889 1,370,476 15,566 1,648,331 *
Ivy International Fund -- -- 22,431 464,088
Fidelity Advisor Equity Growth
Fund 279 9,424 -- --
Marshall Mid-Cap Value Fund 3,596 37,840 -- --
Strong Advisor Small Cap Value
Fund 10,420 197,756 -- --
Templeton Foreign Fund 46,672 387,846 -- --
Popular Inc. Common Stock
Fund 560,310 21,863,326 * 546,981 18,021,051 *
Popular Inc. Common Stock -- -- 120 3,489
------------ ------------
34,335,071 30,294,546
Participant loans 866,823 835,736
------------ ------------
TOTAL $ 35,201,894 $ 31,130,282
============ ============
During 2002, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) appreciated
(depreciated) in value by $1,588,838 as follows:
Mutual funds $ (1,360,815)
Common stock fund 2,949,653
------------
$ 1,588,838
------------
The M&I Stable Principal Fund is fully benefit responsive. The average
yield for the year ended December 31, 2002 was 4.93%. The crediting
interest rate as of December 31, 2002 was 5.23%. The frequency and basis
for determining the crediting interest rate resets are daily and
accrual/units, respectively. There are no valuation reserves recorded to
adjust the contract amounts. There is no minimum crediting interest rate
under the terms of the contracts. There are no limitations or guarantees on
the contracts.
POPULAR, INC. U.S.A. PROFIT SHARING/401(k) PLAN 11
SUPPLEMENT SCHEDULE H, LINE 4I
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 2002 EXHIBIT I
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(c) DESCRIPTION OF
INVESTMENT INCLUDING
(b) IDENTITY OF ISSUE, MATURITY DATE, RATE OF
BORROWER, LESSOR, INTEREST, COLLATERAL, (e) CURRENT
(a) OR SIMILAR PARTY PAR, OR MATURITY VALUE (d) COST VALUE
--- ----------------------------- ------------------------------ ----------- -----------
* M&I Stable Principal Fund 2,160,336 shares $ 2,160,338 $ 2,160,338
PIMCO Total Return Fund 176,628 shares 1,867,017 1,884,620
Vanguard Wellington Income Fund 107,744 shares 3,047,364 2,646,204
Davis NY Venture Fund 63,614 shares 1,524,661 1,332,089
T. Rowe Price Mid-Cap Growth Fund 47,644 shares 1,621,457 1,478,893
Fidelity Growth & Income Fund 31,879 shares 1,256,208 966,259
Vanguard S&P 500 Index Fund 16,889 shares 1,899,156 1,370,476
Fidelity Advisor Equity Growth Fund 279 shares 9,885 9,424
Marshall Mid-Cap Value Fund 3,596 shares 39,989 37,840
Strong Advisor Small Cap Value Fund 10,420 shares 222,529 197,756
Templeton Foreign Fund 46,672 shares 447,313 387,846
* Popular Inc. Common Stock Fund 560,310 units 15,773,779 21,863,326
* Participant Loans Interest rates range between
6.25% and 11.50% 866,823 866,823
----------- -----------
Total $30,736,519 $35,201,894
----------- -----------
* Party in interest to the Plan
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
persons who administer the employee benefit plan have duly caused this annual
report to be signed on its behalf by the undersigned hereunto duly authorized.
POPULAR, INC. U.S.A. PROFIT SHARING/401(k) PLAN
(Name of Plan)
By: /s/ Pamela Kulnis
-------------------------------------
Pamela Kulnis
Authorized Representative
Dated: June 30, 2003
EXHIBIT INDEX
Exhibit
Exhibit 23 Consent of Independent Auditors
Exhibit 99 Section 906 Certification