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TRANSCRIPT
Annual Report 1999
2
General Information
Banco Popular Español, S.A. was incorporated on July 14, 1926, and is registered in the Madrid MercantileRegister in volume 174, folio 44, page 5,458, 1st entry. The Bank is a member of the Deposit Guarantee Fundfor banking entities. 1997 was the Bank's 73nd year of operations. The Bank's head office is located at 34Velázquez, 28001 Madrid.
The Ordinary Shareholders' Meeting will take place on Thursday, June 22, 2000, at 1:00 p.m., at 29 José Ortegay Gasset, Madrid.
The financial accounting and statistical data provided herein were prepared with the utmost objectivity, detail,reporting clarity and consistency over time, from the specifically prepared financial information periodically filedwith the Bank of Spain. The financial statements are presented in accordance with the standards applicable in1997, specifically those of Bank of Spain Circulars 4/1991, 2/1996, 5/1997 and 7/1998; the figures for periodsprior to the entry into force of the 1998 standards have been adjusted, as far as possible, to conform thereto.
Average balances were calculated on the basis of daily, monthly or quarterly data, depending on the informationavailable in each case. Figures in brackets are negative amounts, differences or variation rates.
In addition to the Annual Report and its accompanying documents, the Bank issues quarterly financial reports onits operations, including a detailed analysis of variations in assets, liabilities, earnings and profitability in eachquarter. All the information is available at the Banco Popular Shareholders Office (29 José Ortega y Gasset,28006 Madrid; telephone: 34 91.520.73.03/26, fax: 34 91.577.92.08, e-mail: [email protected]).
3
Contents Pages
General information 2
List of tables, boxes and graphs in the Management Report 4
Banco Popular financial highlights 5
Board and management 6
Editorial 7-8
Management report 9-69
1999 performance 11-48
Banco Popular 49-58
Banking subsidiaries 58-65
Nonbanking finance and service subsidiaries 66-69
Financial statements 71-136
Report of independent auditors 72
Financial reporting responsibility 73
Consolidated balance sheets and statements of income 74-76
Notes to the financial statements 77-126
Corporate Governance Report 127-136
Assets and funds: Total assets. Shareholders' equity. Customer funds. Loans and discounts. Off-balance sheetrisks. Risk management (Credit risk. Cross–border risk. Market risk). Securities portfolios. Premises andequipment.
Income and profitability: Income statement. Yields and costs. Causal analysis of changes in net interestrevenue. Operating profitability. Final measures of return. Analytical breakdown of profitability. Marketperformance of Banco Popular shares.
Assets and funds: Total assets. Shareholders' equity. Customer funds. Loans and discounts. Riskmanagement. Securities portfolio.
Income and profitability: Income statement. Yields and costs. Net interest margin and ordinary margin.Operating costs, depreciation and other operating income. Operating margin. Net income and profitability.
4
List of Tables, Boxes and Graphs in the Management Report
Tables (Consolidated data)
1. Summarized consolidated balance sheets2. Breakdown of share ownership3. Common stock ownership distribution4. Customer funds5. Breakdown of euro customer deposits by size of balance6. Breakdown of customer deposits by region in Spain7. Customer deposits by original maturity8. Mutual funds, by type9. Loans and discounts
10. Lending matrix11. Breakdown of loans and discounts by region in Spain12. Loans and discounts by original maturity13. Off–balance sheet risks14. Risk concentration15. Risk distribution by industry16. Risk performance17. Allowance for nonperforming loans18. Summarized euro and foreign currency financial statements19. Liquidity gap20. Maturity and repricing gap in the balance sheet
21. Notional amounts of derivatives22. Security portfolios detail23. Period changes in premises and equipment24. Income statements25. Service revenues26. Itemized breakdown of general expenses
and taxes other than income tax27. Operating efficiency28. Quarterly income and profitability29. Corporate income tax calculation30. Per share data31. Yields and costs32. Quarterly yields and costs33. Causal analysis of the variation in net interest revenue34. Profitability35. Measures of return36. Analytical breakdown of operating margin37. Share performance38. Market performance of the stock over a 10–year period
39. Summarized balance sheets40. Customer funds41. Loans and discounts42. Risk performance43. Allowance for nonperforming loans
44. Security portfolios detail45. Comparative statements of income46. Yields and costs47. Profitability
(Banco Popular)
48. Customer funds and loans and discounts 49. Risk performance50a y 50b. Profitability
51. Per share data52. Employees and branches53. Business volume and income returnAnnex: Summarized financial statements
(Banking subsidiaries)
1. Total assets managed2. Level of solvency3. Customer funds 4. Eurovalor mutual funds5. Pension plans managed6. Loans and discounts7. Customer funds and loans and discounts per employee8. Customer funds and loans and discounts per branch9. Variation in the nonperforming loans ratio and coverage
for delinquent balances10. Growth of income
11. Service revenues12. Components of the ordinary margin13. Quarterly revenues14. Income and dividend per share15. Net interest margin16. Quarterly customer spread17. Interest rates in 199918. Quarterly ROA and ROE19. Book value and market capitalization20. Share liquidity21. 1999 stock market indexes
Graphs
Boxes
(Nonbanking finance and service subsidiaries)Summarized financial statements
1. Summary of permanent management policies andcommercial activity
2. Equity management as an element of valuecreation
3. Banco Popular ratings4. Statistical coverage allowance for credit losses
5. Net interest revenue6. Internet and remote banking7. Operating efficiency and productivity.
Extraordinary retirement plans8. Pension commitments9. Per share data calculation
5
Banco Popular Financial Highlights
(Euro thousand, or of the equivalent currency, unless otherwise indicated)
Income before taxes . . . . . . . . . . . . . . . . .
Net income:
Attributable to Popular shareholders . .
Attributable to minority interests . . . . . .
Dividends
Year-end business volume:
Total assets managed . . . . . . . . . . . . .
Customer funds
On-balance sheet . . . . . . . . . . . . . . . .
Other intermediated customer funds .
Loans and discounts . . . . . . . . . . . . . .
Off-balance sheet risks . . . . . . . . . . . .
Average equity
Average total on-balance sheet assets . .
Net return (%):
On average equity (ROE) . . . . . . . . . . .
On average total assets (ROA) . . . . . .
Per share data (euros ) a:
Earnings per share . . . . . . . . . . . . . . . .
Dividend per share . . . . . . . . . . . . . . . .
Share year-end book value . . . . . . . . .
Market price: High . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . .
Closing . . . . . . . . . . . . . .
Dividend yield (%) b . . . . . . . . . . . . . . . . .
Earnings yield (%) b . . . . . . . . . . . . . . . .
Price/earnings ratio (P/E) c. . . . . . . . . . . .
Employees
Shareholders
Branches
a. Figures adjusted for the 4 x 1 split in September 1997b. Percentages relating to closing market pricec. High and low in the yeard. Rate of exchange: Euro 1 = 1.0046 US $e. Euros 0.78 per share were also paid to shareholders out of the paid-in surplus reserves
1998%
variation 1997 1996 1995
558,076
371,197
345,474
25,723
162,405
24,220,548
19,049,974
14,532,851
4,517,123
12,284,861
1,703,322
1,613,098
19,752,431
21.42
1.88
2.99
1.406
15.54
33.78
22.99
33.61
4.18
8.89
11.3-7.7
12,175
50,593
1,835
584,244
392,894
366,629
26,265
180,592
27,275,323
21,320,995
14,965,292
6,355,703
13,350,919
2,033,969
1,766,086
20,570,433
20.76
1.91
3.17
1.581
16.63
39.07
30.04
38.31
4.13
8.28
12.3 - 9.5
12,139
48,391
1,881
640,150
427,686
396,073
31,613
196,405
29,453,313
23,993,160
15,383,692
8,609,468
14,902,667
2,297,994
1,732,045
21,160,248
22.87
2.02
3.53
1.773
16.56
68.21
36.98
64.01
2.77
5.51
19.3 - 10.5
11,742
50,796
1,936
655.740
439,129
406,963
32,166
216,376
34,163,535
26,384,010
16,376,690
10,007,320
16,895,875
2,413,310
1,765,365
22,647,087
23.05
1.94
3.67
1.953
16.53
92.68
44.47
64.31
3.04
5.71
25.2 - 12.1
11,600
84,137
1,966
7.5
6.1
6.3
2.8
8.2
6.8
8.6
13.1
1.3
12.1
11.6
(1.5)
6.6
7.1
10.1
0.8
(0.5)
3.7
1.9
1999
704,626
465,782
432,727
33,055
234,041
36,473,098
28,658,579
18,516,184
10,142,395
18,939,380
2,693,669
1,738,980
24,141,096
24.88
1.93
3.93
2.150
16.67
73.40
56.95
64.75
3.32
6.06
18.7 - 14.5
11,539
87,275
2,004
117,240
77,500
72,000
5,500
38,941
6,068,613
4,768,387
3,080,834
1,687,553
3,151,248
448,189
289,342
4,016,740
Pesetas (Millions)
e
707,867
467,925
434,718
33,207
235,118
36,640,874
28,790,408
18,601,358
10,189,050
19,026,501
2,706,060
1,746,979
24,252,145
US $ d
6
Asociación de DirectivosIldefonso AYALADetlev BREMKAMPJosé María CATAFrancisco DONATEGonzalo FERNANDEZ DE LA MORAEric GANCEDO(Representing "Sindicatura de Accionistas")José Manuel HERNANDEZ SUAREZMartin KÖLSCHManuel LAFFONLuis MIRALLES
Juan ESPUNY, Crédito BalearAntonio FEREZ, CastillaFrancisco FERNANDEZ DOPICO, Andalucía
Antonio PUJOL, GaliciaFrancisco Joaquín SAFONT, Vasconia
Casimiro MOLINSSantos MONTOROLuis MONTUENGAManuel MORILLOMiguel NIGORRAAlberto PARERAEnrique PEREZ SALAJosé Ramón RODRÍGUEZ Miguel A. de SOLIS y MARTINEZ-CAMPOSJorge STECHERRafael TERMESPedro VALLS
Network Line ManagementBanco Popular
Senior Line Managers:
Santiago BERROCAL, Madrid Francisco PARDO, Cataluña
Regional Banking Subsidiaries
Other Banking and Financial Subsidiaries
Regional Managers:
Board and ManagementBoard of Directors
Javier VALLS, ChairmanLuis VALLS, Chairman
Gabriel GANCEDO, Deputy ChairmanFulgencio GARCIA CUELLAR, Chief Executive Officer
Jesús PLATERO, SecretaryDirectors
Executive ManagementFulgencio GARCIA CUELLAR, Chief Executive Officer
Angel RON, General ManagerPablo ISLA, General Manager
Jesús ARELLANO, Risk prevention, control and auditingRafael BERMEJO, Chief EconomistIsaac BOTIJA, Economic and management analysisJuan ECHANOJAUREGUI, Shareholders and institutional investorsJosé María FERNANDEZ CONQUERO, Specialist companiesJosé Carlos GOMEZ BORRERO, Investment banking and asset managementRoberto HIGUERA, Financial managerJulio HORTIGÜELA, Internet and remote bankingJose María LUCIA, Investments
Luis Felipe MARCOS, Legal advisory servicesEutimio MORALES, Technical resourcesErnesto REY, TreasuryAngel RIVERA, International commercial bankingRafael ROCA, ControllerJosé María SANZ, Support and internal coordinationJosé SARTORIUS, International activitiesFernando de SOTO, Corporate AffairsJuan VIVES, Human resources
José BRAVO, SevillaAlonso CUETOS, GaliciaAmadeu FONT, Canary Is.José Fernando MARTINEZ ISACH, MurciaAntonio MINGUEZ, Asturias and CantabriaAntonio MOLINA, Basque Country
José ORTIZ, AlicanteJuan Antonio RODRIGUEZ, ExtremaduraEladio SEBASTIAN, Castilla-LeónPedro SEGOVIA, Castilla-La ManchaJuan José TORREGLOSA, ValenciaCarlos VELAZQUEZ, Aragón, Navarra and La Rioja
Juan José ARGÜELLO, Banco Popular Comercial (France)Alfredo JIMENEZ-MILLAS and Klaus ZIMMERMANN, Banco Popular HipotecarioJuan Manuel COBO, Abacá Crédito y FinanciaciónCarlos RAMOS, Europea Popular de Inversiones
Alfonso JORDAN, SogevalJosé María FERNANDEZ CONQUERO, HellerFactoring EspañolaJavier GEFAELL, Europensiones y EurovidaJosé Luis LOPEZ QUESADA, Eurogestión
7
How is change possible;logically possible, that is?How can a thing change without losing its identity?If it remains the same, it does not change;yet if it loses its identity, then it is no longer that thing which has changed.
Karl. R. Popper. "Conjectures and Refutations"
The editorials that traditionally preface the Annual Reports of Banco Popular have repeatedly alludedin recent years to the progressive transformation of the banking business and of the operatingframework in which that business is conducted.
In this respect 1999 was a paradigmatic year, and the last twelve months saw very significant changes inthe banking sector, the banking business and Banco Popular itself.
It was a year replete with agreements, disagreements, mergers, bids and counter-bids, and all theindications suggest that this same trend will persist in the near future. At year-end, the banking map inSpain seemed reasonably fixed, although subsequent shifts are still possible, particularly if changes aremade to the legal status of Spanish thrifts.
The process of transformation of the banking business accelerated in 1999. Together with factorsperceived in previous years such as the sharpening of competition, the shrinkage of margins connectedwith rapid reduction of interest rates or the disintermediation of savings, 1999 may be viewed as theyear in which the development of Internet banking in Spain started. Although it is impossible to predictat present to what extent or at what speed Internet will transform the banking business, there is noquestion that it is already causing significant changes which will become even more relevant as newroutes of access to the network are progressively developed and popularized.
Banco Popular, while maintaining its own identity, also changed during 1999. The year opened with abroad-ranging renovation of the organization structure, with the accent on flexibility and on adapting itto the new circumstances of the environment. Intensive commercial activity was maintained during theyear, basically aimed at increasing the customer base and strengthening customer bonding and loyalty.Major effort was applied to the development of Internet banking by allowing access to this channel forall Bank customers and upgrading the quality of the service offered, and significant emphasis wasplaced on developing electronic means of payment and ATMs, the number of which exceeded that ofbranch offices for the first time.
8
Similarly, without veering from its concentration on the domestic retail banking business, the Bankaddressed other increasingly important sources of business generically encompassed in the investmentbanking and asset management area, ranging from asset portfolio management and mutual funds totypical capital market activities, stock market intermediation, advising on corporate transactions ortaking equity positions through venture capital entities.
The creation of economic added value for shareholders on an ongoing basis over time is the ultimatemanagement objective at Banco Popular, and the only framework of reference to justify any decision oraction for change. In pursuing this objective, the regularity and growth of earnings must be thepermanent priority. Likewise, active management of the capital base unquestionably contributes to thecreation of value for shareholders by increasing the return on equity, efficiency and productivity, andearnings per share.
The salient features of Banco Popular’s 1999 income statement can be summarized in three essentialaspects: sustained growth of all margins, control of operating costs, and improvement of the alreadyhigh levels of efficiency and profitability.
From the management standpoint, the first major challenge was the evolution of the net interest revenuewhich, as a result of the severe and widespread fall in interest rates in recent years, had been decliningsince mid-1996. Concentration on the basic principle of growth with profitability enabled the Bank toend the year with net interest revenue in excess of Euros 1,000 million, 4.9% higher than in 1998.
The effort to optimize and contain operating costs so as to achieve greater operating efficiency is apermanent requirement. Active management of the Bank’s intellectual capital, by means of therejuvenation, dynamization and skill-enhancement of the staff, and the availability of suitabletechnologies for operation of the business are essential elements for achieving that regularity inearnings growth. At the end of 1999, Banco Popular had an efficiency ratio of 41.9%, significantlybetter than in the previous year and again with a clear differential over Spanish banks as a whole.However, regardless of the baseline level, the enhancement of efficiency continues to be a clear priority.
To conclude this synthesis of the reality of Banco Popular’s management in 1999, mention must be madeof the expanding business volume, with more than 200,000 new customers and growth of 12.1% in loansand discounts and of 13.1% in on-balance sheet customer funds; the nonperforming loans ratio of below1% with coverage in excess of 165%; the ROA again of around 2% and an ROE rising to 24.88%; andthe 7.1% increase in earnings per share.
Maintenance of the Bank’s own identity and of its management model, the validity and efficacy ofwhich have been demonstrated in widely varying social, political and economic circumstances, cannotsignify immobility, resistance to change, rigidity of approaches, nor a descent into complacency. On thecontrary, openness, capability to change, flexibility and self-criticism are the elements that make itpossible to maintain and strengthen the credibility of the model in the future.
The year now beginning looks full of challenges and opportunities. The setting of ambitious targets forthe growth of loans and discounts and managed funds, of expanding the number of customers,strengthening Internet banking and the Bank’s role in electronic commerce through the Net, ofincreasing employee productivity and improving operating efficiency and the return on equity, will serveas a catalyst to energize management and make Banco Popular even more nimble and competitive.
January 2000
9
Management Report
This report reflects the opinion of the Management ofBanco Popular on the recent performance of andupcoming prospects for the Bank, and explains thepolicies on which daily management decisions havebeen based. The report also contains detailedsupplementary information on the financial statementsappearing later on in this document, drawn from the in-house accounting and statistical records underlyingmanagerial decisions.
Banco Popular heads a financegroup which at 1999 year-end includedfive regional banks in Spain (Banco deAndalucía, Banco de Castilla, Bancode Crédito Balear, Banco de Galiciaand Banco de Vasconia), a bank inFrance (Banco Popular Comercial), abank specializing in mortgagefinancing (Banco Popular Hipotecario),several finance, portfolio and financialservice companies, and variousinstrumental companies. In some ofthe companies and in the bank inFrance and the specialized bank,Banco Popular shares ownershipinterests and managementresponsibilities with front-lineinternational financial entities.
By virtue of Banco Popular'scontrolling majority holdings or themanagement agreements with itspartners, the group operates —to alleffects and purposes— under unifieddirection and management and withcommon technical and administrativeservices. The banking and othersubsidiaries act as geographical orfunctional units forming part of theBanco Popular organization, the onlyspecial differentiating features beingthose arising from the legal status ofeach.
For an accurate measurementand evaluation of the Bank's businessand earnings, the starting-point musttherefore be the consolidated financialstatements which, after elimination ofthe intragroup financial relationships,provide a global, proportional or equitymethod picture, as appropriate, of theevolution of that business and detailthe equity of any minority intereststherein.
This first section of theManagement Report analyzes theconsolidated financial statements andreviews in detail the recent changes inassets and funds, the related riskmanagement, earnings andprofitability.
The subsequent sections of theReport analyze more specifically thegroup's banking activity, with a detailedreview of the performance of BancoPopular individually, as the group’sparent company, and a summaryreview of that of the bankingsubsidiaries, which report individuallyon their activities. The Reportconcludes with basic financialinformation of the nonbanking financeand service subsidiaries.
11
MANAGEMENT REPORT
1999 PERFORMANCE
12
Assets and funds
Total assets
The consolidated balance sheetsas of December 31, 1999 and 1998,which are included in full in the"Financial Statements" section, aresummarized for comparison purposesin Table 1.
The total on-balance sheet assetsamounted to Euros 26,330,703,000 at1999 year-end, 9% more than in 1998.
The balance sheets do notinclude all the financial assets in whichother group-intermediated funds,
managed by certain of the servicesubsidiaries, are invested; these otherintermediated funds have been ofincreasing importance in recent yearsas a result of changes in savers’preferences. With the inclusion of theaforementioned assets, the totalbusiness volume managed by thegroup amounted to Euros36,473,098,000 at 1999 year-end, upby 6.8% on 1998. Figure 1 plots thegrowth of year-end total assetsmanaged in the last five years.
Signs of identity:- Preference for the domestic retail market- Integration and development of the various distribution
channels- Service agility, quality and personalization as basic
competitive instruments- Offering of overall solutions to homogeneous groups of
customers- Alliances and cooperation agreements with other entities
for the performance of overall or specific activities
Summary of permanent management policies and commercial activity Box 1
Creation of value:- Orientation of the organization towards the creation of
economic added value for the shareholders on an ongoingbasis over time
- Growth with profitability- Improvement of operating efficiency- Active equity management focused on maximizing the ROE
and the earnings per share- Dividend increasing over time and quarterly dividend
payments
Technological innovation and new distribution channels:- Development of Internet banking- Transformation of branch offices from administrative and
processing centers into commercial units- Unification of the various remote-banking platforms- Use of IT to support greater knowledge of the business and
of the customers (data mining and intranet)
Management quality:- Active management of intellectual capital. Staff motivation,
rejuvenation and skill-enhancement- Regularity in the conduct of the business- Maximum soundness of assets- Professionalism of people and decision-making processes- Flexibility of the organizational structure- Internal and external transparency
Commercial activity:- Increase of the customer base: at December 31, 1999, Banco Popular had 3,608,591 customers, having added 212,287 new
customers during the year- Setting of ambitious commercial production targets, in terms both of total volume and of productivity per employee- Strengthening of customer loyalty and bonding by means of a continuous effort of segmentation and of the development of
personalized product offerings- Expansion of electronic means of payment and of the business arising from their use- Development of the investment banking, venture capital and asset management area
13
Shareholders' equity
Consolidated equity (the capitaland reserves of Banco Popular plusthe reserves disclosed inconsolidation), before the allocation of1999 income, amounted to Euros1,611,142,000 at December 31, 1999,a decrease of Euros 220,100,000 inthe year.
On June 23, 1999, theShareholders Meeting of the Bankauthorized the execution during thesecond half of the year of a programto buy back Bank shares in themarket for subsequent cancellationwith a charge to equity. Accordingly,2,197,942 shares, 1.98% of theBank’s capital stock, were bought foran overall price of Euros 147,893,000.As resolved by the ShareholdersMeeting on December 16, 1999,these shares were canceled by acharge to equity.
Also approved by theaforementioned June ShareholdersMeeting and by those of the group’sbanking subsidiaries was the provisionof a special allowance for anextraordinary early retirements plan(see Box 7 on page 37), with a chargeto unrestricted reserves. The net effectof implementation of this plan, afterreversing to the accounts of origin theminor unused surplus amounts atcertain banks in the group and the plan-related prepaid taxes, was a reductionof Euros 67,154,000 in equity.
The two operations referred toabove reduced equity by Euros215,047,000. The remaining Euros5,053,000 were the net effect ofvariations in the percentages ofownership in certain group companiesand of the process of consolidation.
When the proposed distributionof 1999 income is made, consolidated
Table 1. Summarized consolidated balance sheets
December 31, 1999Variation
Amount %December 31
1998
Assets
Cash and due from central banks . . . . .Government debt securities . . . . . . . . . .Due from financial intermediaries . . . . . .Loans and discounts . . . . . . . . . . . . . . .Private fixed-interest securities . . . . . . .Equity securities . . . . . . . . . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . .Shares of group companies . . . . . . . . . .Intangible assets . . . . . . . . . . . . . . . . . .Goodwill in consolidation . . . . . . . . . . . .Tangible assets . . . . . . . . . . . . . . . . . . .Prepayments and accrued income . . . . .Other assets accounts . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . .
Liabilities and capital
Due to financial intermediaries . . . . . . . .Customer deposits . . . . . . . . . . . . . . . . .Bonds and other marketable debt securitiesOther liability accounts . . . . . . . . . . . . . .Accruals and deferred income . . . . . . . .Special allowances . . . . . . . . . . . . . . . . .Negative difference in consolidation . . .Shareholders' equity . . . . . . . . . . . . . . .Minority interests . . . . . . . . . . . . . . . . . . .Net income for the year . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . .
565,729498,333
4,701,07718,640,575
466,41545,957
4,37830,15113,500
8,501589,775237,473528,839
26,330,703
4,444,18317,304,101
1,212,083595,378193,226340,640
5521,611,142
163,616465,782
26,330,703
290,856(18,880)(70,899)
2,011,507(27,785)(33,347)
1,5592,6792,5927,185
(29,225)18,53019,716
2,174,488
1,2791,752,799
386,69518,71915,747(7,791)
(1)(29,513)
9,90126,653
2,174,488
>(3.7)(1.5)12.1(5.6)
(42.0)55.3
9.823.8
>(4.7)8.53.9
9.0
–11.346.9
3.28.9
(2.2)(0.2)(1.8)6.46.1
9.0
274,873517,213
4,771,97616,629,068
494,20079,304
2,81927,47210,908
1,316619,000218,943509,123
24,156,215
4,442,90415,551,302
825,388576,659177,479348,431
5531,640,655
153,715439,129
24,156,215
(Euro thousand)Fig.1 Total assets managed
at year-end(Euro million)
Total assets
On-balance sheet assets
0
10,000
40,000
30,000
20,000
27,274
29,456
34,163
24,221
9998979695
20,84320,92119,701 24,156
10,007
4,5206,353
8,613
36,473
26,331
10,142
94,12982,916
782,1933,101,531
77,6057,647
7285,0172,2461,415
98,13039,51287,991
4,381,060
739,4502,879,160
201,67499,06332,15056,678
92268,070
27,22377,500
4,381,060
Pesetas(Millions)
14
equity will total Euros 1,809,828,000,signifying a book value per share ofEuros 16.67 for each of the108,577,058 shares of the Bankoutstanding. This book value pershare was 0.8% higher than in 1998.
The December 16, 1999,Shareholders Meeting also authorizedthe reduction of the par value of theshares from Euros 1 to Euros 0.50,thereby increasing the number of
shares outstanding to 217,154,116.This operation will be recorded in thebooks in the early months of 2000,after completion of the necessaryprocedures to make it effective.
Table 2 presents a detail of thespread of share ownership and of thepercentage of holding in commonstock of each share ownershipbracket at the end of 1999 and 1998.
TotalForeign
ownershipDomesticownership
30.86
50.3918.75
100.00
31.98
49.2818.74
100.00
10.11
31.700.29
42.10
9.84
34.020.34
44.20
20.75
18.6918.46
57.90
22.14
15.2618.40
55.80
* Directly or indirectly** More than 80,000 shareholders in 1999 and 77,000 in 1998, each one owning fewer than 4,000 shares.
19981999 1998 1998 19991999
Controlled by the Board of Directors* . .
Other: Institutional holdings . . . . . . . .Individual investors** . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . .
Table 3. Common stock ownership distribution at year-end (%)
Up to 100 . . . . . . . . . . . . . .From 101 to 400 . . . .From 401 to 1,000 . . . .From 1,001 to 2,000 . . . .From 2,001 to 4,000 . . . . .From 4,001 to 20,000 . . . .From 2,001 to 40,000 . . . .From 40,001 to 80,000 . . .Over 80,000 . . . . . . . . . . .
Total . . . . . . . . . . . . . . .
42,65628,494
9,0103,3701,7941,456
207145143
87,275
48.8732.6510.32
3.862.061.670.240.170.16
100.00
47.4333.5410.40
4.032.161.810.270.180.18
100.00
39,90528,219
8,7523,3881,8201,520
226153154
84,137
1.615.045.274.424.64
10.825.177.23
55.80
100.00
1.504.985.134.424.71
11.605.777.77
54.12
100.00
1999 1998 1999 1998 19981999
Shareholders
Number of shares ownedper shareholder
Number %
Table 2. Breakdown of year-end share ownership
Percentageholding
in common stock
A breakdown of the shareownership spread data by type ofowner, showing the level of control of
the common stock by the Bank'sBoard of Directors, is presented inTable 3.
There were certain changes inthe structure and composition of theshareholders in 1999, with anincrease of 2.10 percentage points inthe holdings of non-resident investorsin the capital stock. The number ofshareholders rose by 3.7% from84,137 at the end of 1998 to 87,275at 1999 year-end. At the latter date,the largest individual shareholderowned 0.25% of the common stock. Alegally linked group owned slightly
more than 5% and another economicgroup controlled a similar percentage,disregarding an international bankthat administers a substantial numberof customer portfolios and, inaggregate, grouped together a similarpercentage.
Shareholders who areemployees of the finance groupheaded by Banco Popularrepresented 1.76% of the total
15
number of shareholders, and inaggregate owned 0.67% of thecommon stock.
Law 13/1985, on investmentratios, capital base and reportingrequirements for financial
intermediaries, required financialintermediaries to have certainminimum capital amounts, havingregard to the characteristics of theirconsolidated balance sheet assets.This 1985 legislation was amendedby Law 13/1992, which came into
In recent years Banco Popular has applied a policy of active equity management, seeking an appropriate long-term balancebetween the desirable levels of leverage and solvency.
At the beginning of 1996 the Bank’s BIS ratio was 14.99%; at the end of 1999 it was 10.67%. The Euros 835,953,000 ofundistributed earnings in the last four years represent 39.84% of the initial capital base and would have enabled the Bank to post a BISratio of 14.31% at 1999 year-end. This excessive level of the ratio was avoided by adopting active equity management policies for atotal amount of Euros 748,730,000.
In 1997, Euros 210,318,000 were used to implement a program to buy back in the market and subsequently cancel sharesrepresenting 4.17% of the total number of Banco Popular shares then outstanding. In 1998, Euros 86,552,000 of the paid-in surplusreserves were returned to the shareholders, at a rate of Euros 0.78 per share. Finally, in 1996, 1997 and 1998, Euros 233,963,000were used to fund three extraordinary retirement plans, as explained in detail in Box 7 of this report.
This practice of active equity management was intensified in 1999. Specifically, as authorized by the shareholders meetingsof each of the Group banks and with the prior approval of the Bank of Spain, Euros 70,004,000 of the capital base were used to coverthe financial requirements arising from execution during the year of a further extraordinary retirements plan.
Also, and as authorized by the shareholders meeting, on September 1, 1999, the Bank announced the immediateimplementation of a program to buy back in the market, for subsequent cancellation, up to 2% of its capital stock, with a charge toequity. This operation was completed on November 10, after the purchase of 2,197,942 shares (1.98% of the total number) for a totalprice of Euros 147,893,000. As resolved by the shareholders meeting in December, the shares bought back were duly canceled.Overall, 29.57% of the excess of the capital base at the start of the year was used in these two operations.
The effect of all these measures to create value for the shareholders, by means of increasing the return on equity, theefficiency and productivity of the staff (via retirement plans), the earnings per share (via buybacks) and the cash return on the shares(via refund of paid-in surplus reserves), is beyond question.
Equity management as an element of value creation Box 2
The accompanying graph shows theevolution in recent years of the Bank’s ROE andcost of capital (CAPM), and also of the resultingequity spread (difference between ROE and capitalcost), which is clearly tending to grow and is anindicator of the value being created by a companyfor its shareholders.
Looking to future years, and once thesolvency ratio is at a reasonable level, equitymanagement as an element of value creation willhave to focus basically on optimizing the structure ofthe equity, thereby contributing to the reduction ofthe cost of capital and to the ongoing improvementof the return on equity and of the earnings pershare.
95 96 97 98 990%
5%
10%
15%
20%
25%
30%
Cost of capital Equity spread
ROE
14.5312.51
11.058.55 7.95
21.42 20.7622.87 23.05
24.88
Fig.2 Level of solvency ( Millions of euros and %)
Total capital
Minimum required
Bank of Spain solvency ratio. Tier 1(Right-hand scale)
BIS ratio. (Right-hand scale)
16
1,951
1,132
2,200
1,900
1,600
1,300
1,000 2
7
12
17
22
13.4113.57
14.76
13.79
12.11
14.99
9998979695
10.80
12.08
1,224
1,316
1,477
2,076
1,991 1,994
10.67
9.50
1,965
1,655
force at the beginning of 1993 andwas enacted to harmonize Spanishregulations with EU law as regardsthe capital and supervision of financialentities. Law 13/1992 and itssubsequent implementing regulationsquantify in detail the minimum capitalfunds required for each entity, basedon its credit and exchange andinterest rate risks, both on- and off-balance sheet.
Figure 2 plots the computablecapital in the last five years and theminimum requirement under theregulations applicable in each year.Following the consumption of capitalinvolved in the operations describedin Box 2, the Bank continued to havea substantial capital base cushion .At 1999 year-end, with computablecapital of Euros 1,965,481,000against a minimum requirement ofEuros 1,655,143,000, the cushionwas Euros 310,338,000 or 18.7%.
Customer funds
The 1999 year-end totalconsolidated assets were 70.3%financed with customer funds , which
totaled Euros 18,516,184,000 on thebalance sheet. This amount includesnot only the typical deposits atdifferent terms but also the proceedsarising from the temporary sale ofassets and Euros 1,028,330,000raised by the placement of notesissued under the medium-termEuronotes program (with a limit ofUS$ 2,000 million).
The total on-balance sheetcustomer funds increased by 13.1%from January 1 to December 31,1999, and average customer fundsincreased by 7.0%. Considering onlythe typical deposits, the increase inthe year was 11.5%.
The deposits of private-sectorresidents increased by 13.3% in1999. Both demand deposits (sightand savings accounts) and timedeposits showed significant growthrates, evidencing a clear decelerationduring 1999 of the process ofdisintermediation of savings. Demanddeposits were up by 10.9% fromJanuary 1 to December 31, 1999, andtime deposits grew by 18.6%.
The data for the first elevenmonths of 1999 available at the timeof this writing for private-sectorresidents’ deposits in all Spanishbanks and savings banks highlight again in market share during theyear.
Per provisional figures, thesavings switched to mutual funds inthe Spanish market increased by1.3% in 1999. The balances of theEurovalor funds managed by thegroup decreased by 0.8%, amountingat year-end to Euros 7,060,242,000,with completely differentperformances by the FIAMM (moneymarket asset) funds, which decreasedby 16.7%, and by all the other typesof fund, which increased by 12.1%.Determination of the total fundsintermediated outside the traditionalbanking circuit requires the addition tothe foregoing figures of those relating
Leading international rating agencies have awarded Banco Popular thehighest ratings in the Spanish financial sector. At December 31, 1999, these ratingswere as follows:
In June 1998 Moody’s raised the Bank’s long-term rating from the previousAa2; this same agency gives Banco Popular an overall "A" rating for its financialstrength and for the prospects of sound and consistent financial performance in thefuture.
Fitch IBCA assigns to Banco Popular, together with very few other banksworldwide, an individual "A" rating for profitability, balance sheet integrity, franchise,management, operating environment and prospects. This rating, which is the agency’shighest, was awarded to the Bank in February 1998, up from the previous rating ofA/B, and was confirmed in the agency’s annual report of February 1999.
Banco Popular ratings Box 3
Agency Overall Short-term Long-term
Fitch IBCA A A1+ AAMoody´s A P1 Aa1Standard & Poor´s A1+ AA
17
to other instruments for attractingsavings, most notably pension plans(up by 17.4% in 1999). At group levelthese funds totaled Euros10,142,395,000 at 1999 year-end,with an increase of 1.3% over 1998.
The breakdown of total customerfunds managed, including both thetraditional on-balance sheet savingsproducts and the funds placed inother financial assets, is shown indetail in Table 4, together with the
Table 5. Percentage breakdown of year-end euro customer deposits by size of balance
Under 1,000 . . . . . . . . . . . . . . . . . . . . . . . .From 1,000 to 5,000 . . . . . . . . . . . . . . . . .From 5,000 to 10,000 . . . . . . . . . . . . . . . .From 10,000 to 20,000 . . . . . . . . . . . . . . .From 20,000 to 35,000 . . . . . . . . . . . . . . . .From 35,000 to 50,000 . . . . . . . . . . . . . . .From 50,000 to 100,000 . . . . . . . . . . . . . .100,000 or over. . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
Account balancebracket(Euros)
Fig.3 Customer funds (Euro million)
On-balance sheet funds
Other intermediated funds
Table 4. Customer funds
December 31,1999
Variation
Amount %EurosDecember 31
1998
Customer deposits:
From public bodies:Demand deposits . . . . . . . . . . . . . . . .Savings deposits . . . . . . . . . . . . . . . .Time deposits . . . . . . . . . . . . . . . . . .Assets sold under repurchase agreementsOther accounts . . . . . . . . . . . . . . . . .
From other residents:Deposits of private-sector residents
Demand deposits . . . . . . . . . . . . . .Savings deposits . . . . . . . . . . . . . .Time deposits . . . . . . . . . . . . . . . . .
Assets sold under repurchase agreementsOther accounts . . . . . . . . . . . . . . . . .
From nonresidents:Demand deposits . . . . . . . . . . . . . . .Savings deposits . . . . . . . . . . . . . . . .Time deposits . . . . . . . . . . . . . . . . . .Assets sold under repurchase agreementsOther accounts
Bonds and other marketable debt securities .
Total (a) . . . . . . . . . . . . . . . . . . . .
Other intermediated customer funds:
Financial assets sold outrightto customers (outstanding balances)
Mutual funds . . . . . . . . . . . . . . . . . . . . . .Asset portfolio management . . . . . . . . . .Pension funds . . . . . . . . . . . . . . . . . . . . .Life insurance technical reserves . . . . . . . . .
Total (b) . . . . . . . . . . . . . . . . . . . .
Total (a+b) . . . . . . . . . . . . . . . . . .
17,304,101
338,721190,341
9,00340,91198,466
–
14,472,58113,341,528
5,669,4383,271,6914,400,3991,131,053
–
2,492,799369,140577,231
1,542,1242,6411,663
1,212,083
18,516,184
1,042,7417,060,242
229,7421,617,064
192,606
10,142,395
28,658,579
15,551,302
234,160181,704
9,13539,997
3,31212
12,905,19011,773,328
5,118,7662,943,2283,711,3341,131,862
–
2,411,952299,971507,783
1,596,5296,894
775
825,388
16,376,690
1,160,8197,117,161
202,4871,376,985
149,868
10,007,320
26,384,010
1,752,799
104,5618,637(132)914
95,154(12)
1,567,3911,568,200
550,672328,463689,065
(809)–
80,84769,16969,448
(54,405)(4,253)
888
386,695
2,139,494
(118,078) (56,919)27,255
240,07942,738
135,075
2,274,569
11.3
44.74.8
(1.4)2.3
>(100.0)
12.113.310.811.218.6(0.1)
>
3.423.113.7(3.4)
(61.7)>
46.9
13.1
(10.2)(0.8)13.517.428.5
1.3
8.6
(Euro thousand)
Fig.4 Eurovalor mutual funds (Euro million and %)
Assets
Market share
0
7,500
30,000
22,500
15,000
9998979695
4,520
6,353
14,935
24,420
26,384
19,455
21,769
8,61310,007
15,416 15,807 16,377
28,658
10,142
18,516
0
2,500
10,000
7,500
5,000
2,525
9998979695
3.453.66
0
10
2.50
7.50
5
3.75 3.51
4,110
6,074
7,117 7,060
3.43
2,879,160
56,35831,670
1,4986,807
16,383–
2,408,0352,219,844
943,315544,364732,165188,191
–
414,76761,42096,043
256,588439277
201,674
3,080,834
173,4981,174,725
38,226269,057
32,047
1,687,553
4,768,387
Pesetas(Millions)
Number Amount
55.5223.68
8.925.992.851.181.210.65
100.00
1.359.37
10.0613.6312.11
7.8713.3132.30
100.00
18
Demand1 to 3 months . . . . . . . . . . . . . .3 months to 1 year . . . . . . . . . .1 to 5 years . . . . . . . . . . . . . . . .Over 5 years . . . . . . . . . . . . . . . .Unclassified . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . .
1998 1997 1996 19951999
Table 7. Year-end customer deposits by original maturity
59.4421.2013.18
5.74–
0.44
100.00
53.1430.8410.02
5.84–
0.16
100.00
47.4827.9615.19
9.18–
0.19
100.00
44.4222.1726.76
6.52–
0.13
100.00
Term
54.4712.2118.7111.10
3.370.14
100.00
(Data in %)
variations in 1999. The overall totalamount of savings intermediatedby Banco Popular and its subsidiariesat the end of 1999 was Euros28,658,579,000, an increase of Euros2,274,569,000 (8.6%) in the year.
Figure 3 plots the growth in thelast five years.
Table 5 presents the customarydetail of the level of concentration ofeuro customer deposits, by numberand size of year-end balance.
Table 6 shows the averageannual distribution of customerdeposits by region in Spain in the lastfive years.
Table 6. Breakdown of customer deposits by region in Spain
Andalucía . . . . . . . . . . . . . . . . . . . . .Aragón . . . . . . . . . . . . . . . . . . . . . . .Asturias . . . . . . . . . . . . . . . . . . . . . .Balearic Islands . . . . . . . . . . . . . . . .Basque Country . . . . . . . . . . . . . . . .Canary Islands . . . . . . . . . . . . . . . . .Cantabria . . . . . . . . . . . . . . . . . . . . .Castilla-La Mancha . . . . . . . . . . . . . .Castilla-León . . . . . . . . . . . . . . . . . .Cataluña . . . . . . . . . . . . . . . . . . . . . .Extremadura . . . . . . . . . . . . . . . . . .Galicia . . . . . . . . . . . . . . . . . . . . . . .Madrid . . . . . . . . . . . . . . . . . . . . . . .Murcia . . . . . . . . . . . . . . . . . . . . . . .Navarra . . . . . . . . . . . . . . . . . . . . . . .Rioja . . . . . . . . . . . . . . . . . . . . . . .Valencia . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . .
1998 1997 1996 19951999
17.250.952.233.862.702.280.392.16
11.3811.16
1.159.41
20.712.482.870.768.26
100.00
16.810.982.303.682.822.170.372.36
12.1910.94
1.179.35
20.282.532.890.798.37
100.00
17.641.092.713.622.951.940.392.71
13.3611.04
1.259.43
16.652.723.210.878.42
100.00
18.331.132.823.512.921.890.402.84
13.9611.09
1.339.57
15.242.713.220.888.16
100.00
Region of Spain
18.161.072.163.822.932.430.412.10
10.5911.22
1.139.08
20.972.442.760.777.96
100.00
(Annual average %)
Fig.5 Pension plans managed(Euro million and %)
Assets
Total market share
Market share in individual plans
* Last figure available at September 30, 1999
The year-end balances of on-balance sheet customer funds in the
last five years, broken down byoriginal maturity, are shown in Table 7.
The balances of the differenttypes of mutual fund at the end of1999 and 1998 are shown in Table 8,which reveals that the proportional
weight of the various types of FIM(securities) funds in the totalmanaged in the group continued toincrease progressively.
0
500
2,000
1,500
1,000
552
9998979695
4.20 4.694.43
0
5
20
15
10
8.108.37 8.29 7.85
4.92
793
1,057
1,377
1,617
8.08*
5.06*
19
Loans and discounts
At the end of 1999 loans anddiscounts totaled Euros18,939,380,000, with an increase perbooks of Euros 2,043,505,000(12.1%) in the year, and represented71.9% of balance sheet assets. Theloans and discounts figure shown inthe summarized balance sheet inTable 1 is after deduction from the
foregoing amount of the relatedallowance for credit losses.
Average loans and discountsduring the year amounted to Euros17,448,890,000, an increase of 9.3%over 1998.
In October 1998 the groupparticipated, together with otherfinancial entities of maximum
Fig.6 Loans and discounts (Euro million)
Table 9. Loans and discounts
To public bodies:
Secured loans . . . . . . . . . .Other term loans . . . . . . . .Overdrafts and other . . . . .
To other residents:
Trade loans and discounts .Secured loans:
Mortgage loans . . . . . . .Other . . . . . . . . . . . . . . .
Other term loans:
Loans and credits. . . . . . .Repos . . . . . . . . . . . . . . .
Overdrafts and other . . . . .Leasing . . . . . . . . . . . . . . .
To nonresidents:
Trade loans and discounts Secured loans . . . . . . . . . . .
Mortgage loans . . . . . . .Other . . . . . . . . . . . . . . .
Other term loans . . . . . . . .Overdrafts and other . . . . .
Nonperforming loans:
To public bodies . . . . . . . . .To other residents . . . . . . .To nonresidents . . . . . . . . .
Total . . . . . . . . . . . . . . . .
(Euro thousand)
10,000
12,500
20,000
17,500
15,000
12,285
9998979695
13,348
14,905
16,896
18,939
Table 8. Mutual funds, by type
Variation
Amount En %
1999
1998
FIAMM money market assets funds . . . . . . .FIM fixed-interest securities funds . . . . . . . .FIM securities funds . . . . . . . . . . . . . . . . . . .FIM mixed funds . . . . . . . . . . . . . . . . . . . . . .Guaranteed and other funds . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,182,5751,075,838
582,800907,148
1,368,800
7,117,161
2,651,283943,432782,454
1,398,9221,284,151
7,060,242
(531,292)(132,406)199,654491,774(84,649)
(56,919)
(16.7)(12.3)34.354.2(6.2)
(0.8)
(Euro thousand)
441,136156,974130,189232,761213,665
1,174,725
Pesetas(Millions)
Variation
Amounts In %
December 31, 1999
1998
30,291
–30,243
48
16,485,311
3,041,1635,705,570
5,671,64333,927
5,945,957
5,454,852491,105
745,7961,046,825
173,699
4,784106,818
85,20521,613
43,55518,542
206,574
751204,549
1,274
16,895,875
4,233
–4,218
15
3,066,117
548,2951,129,245
1,124,4154,830
1,056,018
1,030,58925,429
119,026213,533
49,173
43727,525
24,7902,735
17,8103,401
31,725
10731,372
246
3,151,248
25,440
–25,352
88
18,427,732
3,295,3196,786,895
6,757,86829,027
6,346,795
6,193,966152,829
715,3661,283,357
295,537
2,626165,426
148,98816,438
107,04320,442
190,671
641188,551
1,479
18,939,380
(4,851)
–(4,891)
40
1,942,421
254,1561,081,325
1,086,225(4,900)
400,838
739,114(338,276)
(30,430)236,532
121,838
(2,158)58,608
63,783(5,175)
63,4881,900
(15,903)
(110)(15,998)
205
2,043,505
(16.0)
>(16.2)83.3
11.8
8.419.019.2
(14.4)
6.7
13.5(68.9)
(4.1)22.6
70.1
(45.1)54.9
74.9(23.9)
145.810.2
(7.7)
(14.6)(7.8)16.1
12.1
Pesetas(Millions)
20
solvency, in a mortgagesecuritization program , to which itcontributed Euros 420,708,000 ofmortgage loans. The outstandingbalance of the bonds of thissecuritization operation was Euros331,343,000 at December 31, 1999,as shown in Table 22.
The breakdown of loans anddiscounts at the end of 1999 and1998 is shown in Table 9, togetherwith the absolute and percentagevariations between the years.
The increase of 11.8% in creditextended to resident private-sectorborrowers in 1999, accounting for97.3% of total loans and discounts,evidences Banco Popular’sorientation towards the growth ofprofitable lending.
Turning from the overall figuresfor credit to resident private-sectorborrowers to the detail by type oftransaction, Table 9 shows thatleasing transactions were up by22.6% and mortgage loans rose by19.2%. It should be noted that 60.5%of the on-balance sheet mortgagelending was for homes, of which 4.1%was provided to developers and56.4% to private individuals. Homemortgage loans to individualsincreased by 19.6% in 1999.
Also with respect to the figures forresident private-sector borrowers,unsecured loans and discounts wereup by 13.5% at year-end. Trade loansand discounts were 8.4% higher. Tradebills discounted in 1999 totaled Euros17,329,914,000, 2.3% less than in1998, and the average discount termwas 61 days. Bills not honored atmaturity represented 3.97% of the totalin 1999, as compared with 4.23% in1998.
The expansion in lending in 1999to cater for growing demand fromcustomers was accompanied by aclear enhancement of risk quality , asthe following "Risk management"subsection makes plain.
Table 10 summarizes thestatistical data provided by thelending matrix periodically preparedby the Control Department. Brokendown by maturity and transactionsize, the loans and discounts as ofDecember 31, 1999, were classifiedas follows: 65.8% related to singletransactions not exceeding Euros150,000, 18.6% to transactions ofbetween Euros 150,000 and Euros600,000, and the remaining 15.6% totransactions exceeding Euros600,000. The correspondingpercentages at the end of 1998 were63.8%, 20.5% and 15.7%.
By maturity term, 26.2% are dueat or under three months, 21.7% atbetween three months and one year,16.3% at between one and three
years and 35.8% at over three years.The corresponding percentages at theend of 1998 were 30.2%, 22.3%,15.7% and 31.8%.
Customer funds
Loans and discounts
Fig.7 Customer funds and loansand discounts per employee (Euro thousand)
Customer funds
Loans and discounts
Fig.8 Customer funds and loansand discounts per branch (Euro thousand)
Table 10. Year-end lending matrix (%)
Up to 150 TotalOver 600150 to 600
Up to 3 months . . . . .3 months to 1 year . .1 to 3 years. . . . . . . .Over 3 years . . . . . . .
Total. . . . . .
7.534.952.585.47
20.53
17.9912.4310.6822.66
63.76
1999
30.2122.3215.6831.79
100.00
4.694.942.423.66
15.71
1998199919981999199819991998
Amounts (euro thousand)
Term
15.8212.9211.4425.59
65.77
26.1521.7416.2935.82
100.00
5.154.222.154.07
15.59
5.184.602.706.16
18.64
2,500
2,000
1,500
1,000
500
2,080
9998979695
1,597
1,100
1,457
1,269
1,009
2,313
1,793
2,484
1,641
15,000
12,500
10,000
7,500
5,0009998979695
6,695
10,601
11,573
12,612
13,649
7,098
7,698
8,596
14,301
9,451
21
Off-balance sheet risks
In addition to the at-riskplacement of third-party funds inloans and discounts, the group hadoff-balance sheet risks forguarantees, other sureties anddocumentary credits totaling Euros2,693,669,000 at December 31, 1999,up 11.6% on 1998, before deductionof the provisions for coverage of the
risk of having to meet some of thecommitments assumed.
Table 13 containscomparative 1999/1998 details ofthese nonmonetary risks, classified bytype of operation guaranteed, anddiscloses the amount of the balancesdeemed to be doubtfully recoverableand of the allowances booked.
Transactions of under Euros600,000 due within one year accountfor 38.5% of the total.
The distribution of average loansand discounts by region in Spain in
the last five years is shown in Table11, and Table 12 is a breakdown, byoriginal maturity, of year-end loansand discounts (excludingnonperforming loans).
Table 11. Breakdown of loans and discounts by region in Spain
Andalucía . . . . . . . . . . . . . . . . . . . .Aragón . . . . . . . . . . . . . . . . . . . . . .Asturias . . . . . . . . . . . . . . . . . . . . .Balearic Islands . . . . . . . . . . . . . . .Basque Country . . . . . . . . . . . . . . .Canary Islands . . . . . . . . . . . . . . . .Cantabria . . . . . . . . . . . . . . . . . . . .Castilla-La Mancha . . . . . . . . . . . .Castilla-León . . . . . . . . . . . . . . . . .Cataluña . . . . . . . . . . . . . . . . . . . . .Extremadura . . . . . . . . . . . . . . . . .Galicia . . . . . . . . . . . . . . . . . . . . . .Madrid . . . . . . . . . . . . . . . . . . . . . .Murcia . . . . . . . . . . . . . . . . . . . . . .Navarra . . . . . . . . . . . . . . . . . . . . .Rioja . . . . . . . . . . . . . . . . . . . . . . . .Valencia . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . .
1998 1997 1996 19951999
19.571.481.532.864.282.890.442.14
10.0812.33
1.479.44
17.952.642.521.067.32
100.00
19.181.461.542.654.502.580.452.12
10.3512.38
1.279.67
17.942.622.611.157.53
100.00
19.041.541.482.654.172.420.442.20
10.3912.74
1.149.34
18.392.702.571.147.65
100.00
19.251.511.492.754.042.290.402.21
10.3713.33
1.039.19
18.132.702.601.197.52
100.00
20.081.491.502.863.882.200.402.05
10.4813.56
0.958.71
17.352.722.661.657.46
100.00
Region of Spain
(Annual average %)
1998 1997 1996 19951999
Table 12. Year-end loans and discounts by original maturity*
364,3192,322,0932,261,8996,887,7956,691,802
220,801
18,748,709
702,7042,203,9873,898,2454,719,8015,112,126
52,438
16,689,301
578,1802,212,2303,307,3404,111,6504,437,068
4,802
14,651,270
606,3612,208,6933,066,8543,644,1433,496,421
19,491
13,041,963
718,8172,281,7952,391,5253,642,9622,912,895
11,840
11,959,834
* Excluding nonperforming loans
Term
Up to 1 month . . . . . . . . . . . . . . . . .1 to 3 months . . . . . . . . . . . . . . . . .3 months to 1 year . . . . . . . . . . . . .1 to 5 years . . . . . . . . . . . . . . . . . . .Over 5 years . . . . . . . . . . . . . . . . . .No maturity . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . .
(Euro thousand)
22
Risk management
The performance and quality of abanking group's management arebasically measured by its ability todevelop policies and procedureswhich enable the risks assumed to bemanaged efficiently. The properassessment, assumption, review andcontrol of risk is the very essence ofbanking. An in-depth analysis of therisks assumed and their evolutionover time is therefore a keycomponent both of any managementinformation system worthy of thename and of the report generatedthereby.
This subsection analyzes theBanco Popular finance group's riskmanagement and the results of thatmanagement in 1999. For expositionpurposes, and following the patternsdefined in detail in previous years’Reports, three categories of risk areaddressed: credit risk, cross-borderrisk and market risk.
Credit risk
Credit risk is the name given tothe risk of customer insolvency, i.e.the risk of nonrecovery of loans anddiscounts and the related interest.Credit risk arises from pastexperience of some credits not being
repaid in full at maturity, of discountedbills not being honored whenpresented for collection, or of a bankhaving to subrogate a customerwhose obligation to a third party it hasguaranteed.
Credit risk is of the essence ofbanking, although its greater or lesserpractical impact — measurable by thebehavior of nonperforming, doubtfuland bad loans — depends on thegeneral state of the economy, on thedifferences in risk in the borrower'ssegment of business activity, and onthe relative efficiency with which riskis managed, in short on theprofessional competence of theexecutives responsible for assessing,granting and monitoring loans.
In a given economic situation,risk quality depends on respect for theprinciple of diversification (i.e.avoiding the accumulation of riskswith any one customer or businesssector beyond certain predefinedlevels), on the use of adequateanalytical and assessment techniquesin the approval process, and of theongoing application of provenmonitoring, review and controlprocedures .
Tables 14 and 15 present asummary drawn from some of the
Table 13. Year-end off-balance sheet risks
Guarantees and other sureties:
Credit and off-balance sheet risks of third parties . . . . .Foreign trade transactions . . . . . . . . . . . . . . . . . . . . .Deferred payments on sales . . . . . . . . . . . . . . . . . . .Housing construction . . . . . . . . . . . . . . . . . . . . . . . . .Construction, service or supply contracts . . . . . . . . . .Participation in tenders . . . . . . . . . . . . . . . . . . . . . . . .Liabilities to administrative agencies . . . . . . . . . . . . . .Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Documentary credits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other contingent liabilities . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro memoria: Balances classified as doubtful . . . . . . . . .
Allowance for doubtful balances . . . . . . . . . . . . . . . . . . .
Guarantees provided for. . .
1999 1998
% %
%
variation
(Euro thousand)
Pesetas(Millions)
2,159,298
104,13178,45053,50812,243
139,83744,986
1,214,483511,660
225,067
28,945
2,413,310
6,166
(26,439)
2,438,318
139,04181,60748,92724,938
175,07837,110
1,264,742666,875
230,680
24,671
2,693,669
5,987
(29,276)
405,702
23,13413,578
8,1414,149
29,1316,175
210,435110,959
38,382
4,105
448,189
996
(4,871)
90.52
5.163.031.820.936.491.38
46.9524.76
8.56
0.92
100.00
0.22
(1.09)
89.47
4.323.252.220.515.791.86
50.3221.20
9.33
1.20
100.00
0.26
(1.10)
12.9
33.54.0
(8.6)>
25.2(17.5)
4.130.3
2.5
(14.8)
11.6
(2.9)
10.7
internal operating programs preparedfor management purposes on thebasis of the information filed monthlywith the Bank of Spain's RiskInformation Center. The tables showthe distribution of the total risk inconcentration brackets atcustomer and industry level ,together with segregated data of the
degree of delinquency and insolvencyat both levels.
In no case does the group'sexposure to any one party reach thethreshold of 10% of capital defined bycurrent regulations as giving rise toundue concentration of risk.
23
Table 15. Risk distribution by industry as of December 31, 1999
CreditOff-balance
sheetNonperforming
loans*
Total risk
WriteoffsNonperformingloans/Total risk
Writeoffs/Total risk
Outstanding risk Percentages
Industry
Primary activities . . . . . . . . . . . . . . . . .Industrial sector . . . . . . . . . . . . . . . . . .Construction. . . . . . . . . . . . . . . . . . . . .Services:
Trade and hotels. . . . . . . . . . . . . . .Transport and communications . . .Other services. . . . . . . . . . . . . . . . .
To individuals:Consumer credit and other . . . . . . .Home mortgages . . . . . . . . . . . . . .
Unclassified . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . .
Distribution(%)
* Before 1999 writeoffs
(Euro thousand)
Table 14. Risk concentration as of December 31, 1999
Over 6,000 . . . . . . . . . . . . . .From 3,000 to 6,000 . . . . . . .From 1,000 to 3,000 . . . . . . .From 500 to 1,000 . . . . . . .From 250 to 500 . . . . . . .From 125 to 250 . . . . . . .From 50 to 125 . . . . . . .From 25 to 50 . . . . . . .Under 25 . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . .
CreditOff-balance
sheetNonperforming
loans
Total risk
% of total
Nonperformingloans as % of total risk
Pro memoria:% in 1998Exposure by customer
Outstanding risk(Euro thousand)
Table 16 is a condensedsynthesis of the results achieved inthe last two years by the application,at all the companies in the financegroup, of strictly professionalcriteria for the assessment, appraisaland assumption of risks and from theenforcement of maximum assetsoundness policies requiring therecognition, when they arise, of
doubtful items and the writeoff oflosses and the accumulation ofallowances of the necessaryamounts.
Nonperforming loans atDecember 31, 1999, includingdoubtful off-balance sheet risks,amounted per books to Euros196,013,000, a decrease of 7.6%
1,425,420553,899
1,481,7051,662,5142,129,5962,479,8843,940,5002,275,8292,799,362
18,748,709
837,456212,933401,572274,632240,279207,097207,517
88,902217,294
2,687,682
1085,4396,509
11,47916,18526,40336,31923,30770,264
196,013
2,262,984772,271
1,889,7861,948,6252,386,0602,713,3844,184,3362,388,0383,086,920
21,632,404
10.463.578.749.01
11.0312.5419.3411.0414.27
100.00
–0.700.340.590.680.970.870.982.28
0.91
–1.550.570.750.841.181.121.152.35
1.10
Pesetas(Millions)
376.529128,495314,434324,224397,007451,469696,215397,336513,620
3,599,329
584,9593,892,4791,793,2406,525,4953,278,593
936,9902,309,9125,730,5122,933,9492,796,563
222,024
18,748,709
80,962590,218502,176
1,357,698455,573171,373730,752
156,628
2,687,682
6,04049,60826,19265,54640,280
6,67718,58985,08574,41710,66825,313
257,784
671,9614,532,3052,321,6087,948,7393,774,4461,115,0403,059,2535,815,5973,008,3662,807,231
403,965
21,694,175
3.1020.8910.7036.6417.40
5.1414.1026.8113.8712.94
1.86
100.00
0.901.091.130.821.070.600.611.462.470.386.27
1.19
0.230.290.290.250.280.150.240.350.610.070.10
0.28
1,52113,126
6,84619,66510,698
1,6657,302
20,22418,313
1,911389
61,771
Pesetas(Millions)
111,805754,112386,283
1,322,559628,015185,527509,017967,634500,550467,084
67,215
3,609,608
24
from 1998, and represented 0.91%(1998: 1.10%) of the total risks.
The Euros 156,533,000 ofnonperforming balances booked inthe accounts in 1999 were 13.2%lower than in 1998. Recoveries were23.4% lower. The net variation wasan increase in nonperforming loans ofEuros 45,747,000, which was 28.2%higher than the 1998 figure.
The delinquent balances that hadto be classified as losses in 1999 andwritten off against the recordedallowances were 24.2% lower atEuros 61,771,000 than the 1998figure of Euros 81,491,000.
The resulting nonperformingloans ratio at year-end, which asstated earlier was 0.91%, 0.19percentage points lower than at the
On December 17, 1999, the Bank of Spain adopted an amendment to its Circular 4/1991 regulating accounting standardsand financial statement formats for credit entities.
As stated in the explanatory introduction of the Circular, this amendment was responsive to the Bank of Spain’s perceptionof the need to include in the accounting standards for credit entities certain criteria for the recognition of the medium- and long-termrisk of an increase in nonperforming loans in the event of a possible change in the economic cycle. The Bank of Spain considers thatthe appropriate time to take this step is precisely when nonperforming loans are at a minimum and when the general state of theeconomy makes it possible to think that this situation will not vary substantially in the next few years.
Accordingly, and together with other modifications in the current rules for the classification of and provision for credit lossand cross-border risks, credit entities will now be required to set up an allowance for the statistical coverage of credit losses by makingquarterly provisions thereto out of income for amounts equal to one-fourth of the calculated figure.
The provisions to be made to the allowance will be calculated by applying to the categories of credit risk defined in theCircular certain coefficients ranging from 0 to 1.5% (0% for balances without any appreciable risk; 0.1% for low risk balances; 0.4% for
Statistical coverage allowance for credit losses Box 4
medium-low risk balances; 0.6% for medium risk balances; 1% for medium-high risk balances; and 1.5% for high risk balances). Banks may, instead ofusing these coefficients, record provisions determined by applying calculationmethods, duly approved by the Bank of Spain, based on their own experienceof loan defaults and on the expectations of losses in homogeneous categoriesof credit risk.
The amount of the provision to be booked quarterly will be thepositive difference between, on the one hand, one-fourth of the statisticallyestimated overall latent credit losses in the various portfolios of homogeneousrisks (credit risk weighted by the corresponding coefficient) and, on the other,the net provisions recorded for credit losses in the quarter.
The application of the criteria stipulated in the Circular to BancoPopular’s credit risk at December 31, 1999, would signify the use of anaverage coefficient of 0.49%, and the net provisions for credit loss booked inthe year, as defined in the Circular, amounted to Euros 50,490,000. Thecoverage cushion at year-end was Euros 30,720,000.
This regulatory change is scheduled to come into force on July 1,2000, and therefore, since the provisions of one-fourth each have to berecorded quarterly, it will not be until the third quarter of 2000 that the Bankwill have to start calculating the provisions required under the newregulations.
The accompanying graph shows the evolution of the nonperformingloans ratio in the last three years, and also two indicators - marginalproduction of delinquency and delinquent balances as a percentage of totalloans and discounts granted in the preceding year - which make it reasonableto deduce that an increase in delinquency is not foreseeable in the immediatefuture.
96 97 98 99
2.5%
2.0%
1.5%
1.0%
0.5%
Nonperforming loans ratio at year-end
Ratio of marginal production of delinquency in 12 months
Annual increase in nonperforming loans / Risk granted inpreceding year
25
end of 1998, was far below theaverage levels for Spanish banks as awhole.
Table 16 also providesinformation about the variation in theallowance for credit losses which,after the deduction of the delinquentbalances classified as losses in theyear, was 11.5% higher than at 1998year-end. Notwithstanding theongoing improvement in credit riskquality , the provisions charged toperiod income were 18.9% higherthan in 1998, as a result of theapplication of maximum balancesheet soundness criteria.
This table shows, in addition, thevariation in foreclosed real estateassets, the balance of which
decreased by 22.9% in 1999, and inthe allowance booked for potentiallosses on those assets, strictly inaccordance with the relevant Bank ofSpain regulations that take intoaccount the age of the foreclosedproperties and the market valueattributable to them per independentappraisals.
The detail of the level ofcoverage for nonperforming loans inthe last two years is shown in Table17, which also discloses theprovisions required strictly inaccordance with the current creditloss allowance regulations, underwhich provisions have to be recordedfor increasing percentages of thenonperforming and doubtful balances,based on their nature or age, and for
Table 16. Risk performance
December 31, 1999
1998
Nonperforming loans*:Balance at January 1 . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . .Balances recovered . . . . . . . . . . . . . . . . . .Net variation for the year . . . . . . . . . . . . . .
% increase . . . . . . . . . . . . . . . . . . . . . .Writeoffs . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31 . . . . . . . . . . . . . . . .
Allowance for credit losses:Balance at January 1 . . . . . . . . . . . . . . . . . . .
Annual provision:Gross . . . . . . . . . . . . . . . . . . . . . . . . . .Recoveries . . . . . . . . . . . . . . . . . . . . . .Net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other variations . . . . . . . . . . . . . . . . . . . . .Writeoffs . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31 . . . . . . . . . . . . . . . .
Foreclosed real estate assets . . . . . . . . . . . . .Allowance for potential losses on foreclosed assets
Pro memoria:Total risks . . . . . . . . . . . . . . . . . . . . . . . . . . . .Loans transferred to suspense accounts . . . .Nonperforming mortgage loans. . . . . . . . . . . .
Risk quality measures (%):Nonperformance (Nonperforming loans/Total risks)Insolvency (Writeoffs/Total risks) . . . . . . .Coverage: (Credit loss allowance / Nonperforming loans) . . . . . . . . . . . . . . . . .Credit loss allowance plus mortgages/Nonperforming loans) . . . . . . . . . . . . . . . . .
* Including doubtful off-balance sheet risks, but excluding country riskand the related country risk allowance
(Euro thousand)
%AmountVariation
257,846180,364
(144,682)35,682
13,8(81,491)212,037
295,320
120,640(40,118)80,522
(72)(81,491)294,279
146,91838,284
19,312,460531,409
59,608
1.100.42
138.79
166.90
(17.8)(13.2)(23.4)28.2
(24.2)(7.6)
(0.4)
11.7(2.8)18.9(1.4)
(24.2)11.5
(22.9)(9.5)
12.04.9
(27.6)
212,037156,533
(110,786)45,747
21,6(61,771)196,013
294,279
134,747(38,983)95,764
(71)(61,771)328,201
113,27834,666
21,632,404557,195
43,179
0.910.29
167.44
189.47
(45,809)(23,831)33,89610,065
19,720(16,024)
(1,041)
14,1071,135
15,2421
19,72033,922
(33,640)(3,618)
2,319,94425,786
(16,429)
35,28026,045
(18,433)7,612
(10,278)32,614
48,964
22,420(6,486)15,934
(12)(10,278)54,608
18,8485,768
3,599,32992,709
7,184
Pesetas(Millions)
26
Table 17. Allowance for nonperforming loans as of December 31
Provision required . . . . . . . . . . . . . . . . . . . . . . . . . .Provision not required . . . . . . . . . . . . . . . . . . . . . . . .Doubtful off-balance sheet balances . . . . . . . . . . . . .
Total nonperforming loans . . . . . . . . . . . . . . . . . . . . .
Computable risks for a general provision of: 1 % . .0.5 % .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Total required provisions . . . . . . . . . . . . . . . . . . . . . .Balance of credit loss allowances . . . . . . . . . . . . . . .Cushion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Euro thousand) 1999
1998
BalanceRequiredprovisions
fixed percentages of the risksoutstanding, and sundry otherprovisions.
Compared with the regulatorilyrequired figure of Euros 297,481,000as of December 31, 1999, the group'srecorded credit loss allowancesamounted to Euros 328,201,000.
The year-end credit lossallowance balance, representing167.4% of the total nonperformingbalances outstanding (138.8% in1998), was thus 10.3% higher thanthe regulatorily required amount. Thedegree of financial soundnessimplicit in this level of coverageshould be evaluated bearing in mindthat the nonperforming balancesinclude Euros 43,179,000 ofmortgage loans which are more thancovered by the value of the underlyingproperties. Taking into account themortgage guarantees, the credit lossallowance coverage of nonperformingbalances was 189.5% in 1999, ascompared with 166.9% in 1998.
The net credit loss provisionsrecorded against income in 1999amounted to Euros 95,764,000,18.9% more than in 1998, andrepresented an average implicit riskpremium of 0.55% for outstandings,as compared with 0.50% in 1998.
Figure 9 plots the variation in thenonperforming loans ratio (i.e.
nonperforming loans as a percentageof total risks) in recent years, beforeand after allocation to thenonperforming balances of theallowances recorded for them, andthe variation in the level of coveragefor delinquent balances.
Cross-border risk
Cross-border risk , i.e. the risk ofnonrecovery of funds lent abroad, isnot conceptually different from creditrisk but has certain obvious specificfeatures calling for it to be treatedseparately. Cross-border risk ariseswhen all or the principal economicagents in a given country, including thegovernment, are unable to meet theirfinancial obligations (country risk) orwhen, despite being domesticallysolvent, they cannot make the relatedpayments because of a scarcity or lackof foreign currency (transfer risk) .
Table 18 is an abridged version ofthe consolidated balance sheet as ofDecember 31, 1999, with the captionbalances broken down into euros andforeign currencies and by percentages.
Foreign currency assetsaccounted for 6.4% of the total at theend of 1999.
In view of the troubled financialsituation in certain countries whichwere debtors of Spanish credit
Gross nonperforming loans ratio lefthand scale)
Nonperforming loans ratio net of credit lossallowances (lefthand scale)
(1)
1
7
5
3
9796959493
Fig.9 Variation in the nonperforming loans ratio and coverage for delinquent balances(Nonperforming loans at year end as % of total
risks, and credit loss allowance as % of non-
performing balances)
929190 99
1.501.17
2.052.22
2.93
2.40
2.38
(0.22)
(0.22)
0.40
0.39
1.060.58
0.44
98
0.20
2.06
1.10
(0.43)
Coverage for delinquent balances (righthand scale)
0
45
180
135
90
0.91
(0.61)
160,91129,350
5,752
196,013
16,255,8235,122,456
103,593–
3,753
107,346
162,55925,611
1,965297,481328,201
30,720
169,22136,650
6,166
212,037
14,510,3254,185,057
103,446–
4,387
107,833
145,10220,927
3,131276,993294,279
17,286
BalanceRequired
provisions
26,7734,884
957
32,614
2,704,741852,305
17,236–
625
17,861
27,0484,261
32749,49754,608
5,111
Pesetas(Millions)
RequiredprovisionsBalance
institutions, in October 1984 the Bankof Spain issued Circular 34/1984regulating the classification of therelated risks and the provisions to berecorded therefor, in addition to andseparately from the credit lossallowances discussed earlier. Theseregulations were subsequentlyupdated, and the provisionrequirements have been strengthenedas the evolution of the related risksmade it advisable to do so.
Of the Euros 1,683,333,000 ofassets in foreign currencies at the endof 1999, only Euros 10,572,000 camewithin the scope of the relevant Bank
of Spain regulations. Euros 6,795,000of this latter amount related to riskswith nonresident customers and Euros3,777,000 to sundry positions withcredit entities. There were also Euros6,604,000 of off-balance sheet risks.The provisions required and recordedfor this country risk exposureamounted to Euros 2,788,000.
Market risk
Because of the major changesthat have taken place in the financialmarkets and of the monetary policiesapplied in recent years, banks andtheir customers have become
27
increasingly and more acutelyexposed to exchange and interestrate volatility and to frequentfluctuations in the levels of liquidity.
The term "market risk " is usedto encompass all these kinds of risk,
and the following paragraphs analyzespecifically liquidity risk and interestrisk. Exchange risk is of scant relativeimportance in the Bank's businessactivities, as the foregoing Table 18shows.
Table 18. Summarized euro and foreign currency financial statements
Assets:
Cash and due from central banks . . . . . . . . . .Government debt securities . . . . . . . . . . . . . .Due from financial intermediaries . . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . .Private fixed-interest securities . . . . . . . . . . . .Equity securities . . . . . . . . . . . . . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . . . . . .Shares of group companies . . . . . . . . . . . . . .Intangible assets . . . . . . . . . . . . . . . . . . . . . . .Goodwill in consolidation . . . . . . . . . . . . . . . . .Tangible assets . . . . . . . . . . . . . . . . . . . . . . .Prepayments and accrued income . . . . . . . . .Other assets accounts . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and capital:
Due from financial intermediaries . . . . . . . . . .Customer deposits . . . . . . . . . . . . . . . . . . . . .Bonds and other marketable debt securities . .Other liability accounts . . . . . . . . . . . . . . . . . .Accruals and deferred income . . . . . . . . . . . . .Special allowances . . . . . . . . . . . . . . . . . . . . .Negative difference in consolidation . . . . . . . .Shareholders' equity . . . . . . . . . . . . . . . . . . . .Minority interests . . . . . . . . . . . . . . . . . . . . . . .Net income for the year . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . .
Pro memoria: Off-balance sheet risks . . . .Unused portion of credit lines
EurosForeign
currencies Total EurosForeign
currencies
0.02–
5.200.890.18
––––––
0.070.03
6.39
3.653.120.280.080.050.01
––– –
7.19
559,635498,333
3,330,88518,407,241
418,06945,957
4,37830,15113,500
8,501589,775219,753521,192
24,647,370
3,482,36816,483,6591,138,909
573,889179,407337,240
5521,611,142
163,616465,782
24,436,564
2,365,5473,341,086
2.131.89
12.6569.91
1.590.180.020.110.050.032.240.831.98
93.61
13.2362.60
4.332.180.681.28
–6.120.621.77
92.81
565,729498,333
4,701,07718,640,575
466,41545,957
4,37830,15113,500
8,501589,775237,473528,839
26,330,703
4,444,18317,304,101
1,212,083595,378193,226340,640
5521,611,142
163,616465,782
26,330,703
2,693,6693,341,086
6,094–
1,370,192233,334
48,346––––––
17,7207,647
1,683,333
961,815820,442
73,17421,48913,819
3,400––––
1,894,139
328,122–
Structure (%)Amounts(Euro thousand)
Banco Popular has a formallyestablished asset and liabilitymanagement committee (ALCO) thatplans and manages the group’sbalance sheet in order to take thepositions best suited to theexpectations of interest and exchangerate variations and thus insureoptimum balance sheet funding andenhanced management of capital andof the liquidity risk.
Liquidity risk arises from anexcessive concentration of maturitieswhich may jeopardize, albeittemporarily, the ability to meetpayment commitments. It may becaused by internal factors in how abank conducts its intermediationactivity, or by external factorsconnected with conjunctural orsystemic financial crises.
The asset and liability committeeperiodically analyzes the liquiditygap , i.e. the difference betweeninflows and outflows of funds over ashort-term timescale, and overseescompliance with the stipulated limits.The group’s liquidity gap at 1999year-end is summarized in Table 19.
This committee also keeps aclose watch on the evolution andstructure of the balance sheet interms of medium-term liquidity.Additionally there is a liquiditycommittee that only convenes inspecial circumstances and there areformally defined emergency plans toenable the necessary liquidity to bemaintained in such circumstances.The group complied amply with thestipulated levels of liquidity during1999.
28
Table 19. Liquidity gap as of December 31, 1999
Money market . . . . . . . . . . . . . . . . .Credit market. . . . . . . . . . . . . . . . . .Capital market . . . . . . . . . . . . . . . . .Other assets . . . . . . . . . . . . . . . . . .Total assets . . . . . . . . . . . . . . . . . .
Money market . . . . . . . . . . . . . . . . .Deposit market . . . . . . . . . . . . . . . .Capital market . . . . . . . . . . . . . . . .Other liabilities. . . . . . . . . . . . . . . . .Total liabilities . . . . . . . . . . . . . . . .
Gap . . . . . . . . . . . . . . . . . . . . . . . .Accumulated gap . . . . . . . . . . . . .
Illiquidity ratio (%) . . . . . . . . . . . .
1 day2 to 8days
1 to 2months
587.1–––
587.1
84.0495.8
––
579.8
7.37.3
–
(Euro million)
9 to 31days
2 to 3months
3 to 6months
6 to 12months
Over 12months
Notsensitive Total
887.7357.6914.9
–2,160.2
1,598.11,386.5
10.2–
2,994.8
(834.6)(827.3)
3.7%
2,483.01,605.0
––
4,088.0
1,169.63,520.7
162.3–
4,852.6
(764.6)(1,591.9)
7.1%
543.51,417.4
––
1,960.9
504.52,710.7
1.2–
3,216.4
(1,255.5)(2,847.4)
316.51,070.0
––
1,386.5
531.52,728.0
6.6–
3,266.1
(1,879.6)(4,727.0)
135.11,598.9
––
1,734.0
353.42,179.4
3.0–
2,535.8
(801.8)(5,528.8)
252.92,220.1
––
2,473.0
215.7624.7
––
840.4
1,632.6(3,896.2)
13.29,131.6
48.6–
9,193.4
1,328.12,662.4
––
3,990.5
5,202.91,306.7
466.6822.2
–1,458.82,747.6
166.3518.1
–3,369.94,054.3
(1,306.7)
5,685.618,222.8
963.51,458.8
26,330.7
5,951.216,826.3
183.33,369.9
26,330.7
Interest risk is addressed byanalysis of balance sheet sensitivityto changes in interest rates. Thisanalysis is essential for evaluation ofthe degree of earnings stability orvolatility over time.
The periodic analysis of balancesheet sensitivity makes it possible todefine and implement the strategiesrequired at short and medium term.These strategies focus at short termon risk management, and at mediumterm on modifying the structure of
assets and liabilities, on defining theproducts and services to be offered,and on optimizing the capital base, inthe context of the group’s generalpolicies.
The tools of analysis include,among others, a static study of on- andoff-balance sheet items by maturityand/or repricing in each of the definedtime-brackets, including implicit optionssuch as early cancellations of loans ordeposits, or volatility in the unusedportion of credit lines; the use of
29
duration analysis techniques toevaluate the sensitivity of the value ofequity to interest rate variations; orthe construction of dynamicsimulations in different scenarios toevaluate their impact on the netinterest margin and on the futureprospects of the business. Eachscenario addresses, with the insertion
of different probabilities, differentenvironments of interest rates, ofbalance sheet growth and structurestrategies, and of differentials foreach type of product.
Table 20 presents a summary, bymarket area, of the maturity andrepricing gap in the balance sheet at
Table 20. Maturity and repricing gap in the consolidated balance sheet as of December 31, 1998
Money market . . . . . . . . . . . . . . . . .Credit market. . . . . . . . . . . . . . . . . .Capital market . . . . . . . . . . . . . . . . .Other assets . . . . . . . . . . . . . . . . . .Total assets . . . . . . . . . . . . . . . . . .
Money market . . . . . . . . . . . . . . . . .Deposit market . . . . . . . . . . . . . . . .Other liabilities. . . . . . . . . . . . . . . . .Capital market . . . . . . . . . . . . . . . . .Total liabilities . . . . . . . . . . . . . . . .
Off-balance sheet transactions . . . .
Gap . . . . . . . . . . . . . . . . . . . . . . . .Accumulated gap . . . . . . . . . . . . .
Under 1month
1 to 2months
3 to 4months
3,724.13,154.7
119.6–
6,998.4
3,508.82,399.3
172.5–
6,080.6
(104.0)
813.8813.8
(Euro million)
2 to 3months
4 to 5months
5 to 6months
6 to 12months
Over 12months
Notsensitive Total
665.02,229.8
94.4–
2,989.2
721.5926.3
1.2–
1,649.0
(66.1)
1,274.12,087.9
433.72,278.2
456.2–
3,168.1
678.22,728.1
6.6–
3,412.9
–
(244.8)1,843.1
48.71,295.2
5.4–
1,349.3
152.6284.5
2.4–
439.5
(108.2)
801.62,644.7
49.31,156.6
––
1,205.9
224.1226.7
––
450.8
(278.3)
476.83,121.5
30.41,231.8
9.0–
1,271.2
282.51,668.8
0.6–
1,951.9
(90.2)
(770.9)2,350.6
264.85,334.9
205.5–
5,805.2
146.5685.4
––
831.9
12.0
4,985.37,335.9
3.0719.5
73.3–
795.8
70.7759.4
––
830.1
634.8
600.57,936.4
466.6822.2
–1,458.82,747.6
166.37,147.8
–3,369.9
10,684.0
(7,936.4)
5,685.618,222.8
963.51,458.8
26,330.7
5,951.216,826.3
183.33,369.9
26,330.7
1999 year-end. The Group had asensitive asset position with acumulative positive gap, i.e. interestrate variations impact the balancesheet assets more quickly than theyaffect balance sheet liabilities.
The duration of sensitiveassets at that date was 157.1 daysand that of sensitive liabilities was119.6 days. The duration of equitywas 0.61 years. The sensitivity ofequity was 0.59% and that of the netinterest margin was 4.8% to a 1%variation in interest rates.
The Bank’s activity in thederivatives markets is essentiallydetermined by normal operations withthe customers and the hedging ofBank positions. Thus, derivatives areused to design and offer structuredproducts to customers. Also, the factthat Banco Popular is a very activeoperator in the Government debtsecurities market involves thearrangement of a substantial numberof hedging operations. Finally, thefinancial resources raised under theEuronotes program require the
Table 21. Notional amounts of derivatives at year-end
Unmatured Fx contracts . . . . . . . . . . . . . . . . . . . . . . . .Forward financial assets contracts . . . . . . . . . . . . . . . .Securities and interest rate futures . . . . . . . . . . . . . . . .Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .FRAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Financial swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,174,528151,631288,300
4,374150,000
3,962,230
5,731,063
Amount
(Euro thousand)Under1 year
1 to 2years
2 to 5years
5 to 10years
Over10 years
1,108,832151,631288,300
4,374–
2,471,682
4,024,819
––––
150,000541,779
691,779
26,757––––
206,612
233,369
29,203––––
388,338
417,541
9,736––––
353,819
363,555
30
related exchange and interest ratehedges for most of the issues.
Accordingly, the main purpose ofthe derivatives portfolio is to hedgeoperations arranged with customersand those performed for the Bank’sown account, and there are nosignificant open positions.
Table 21 shows the notionalamounts of derivatives , based onresidual contract arrangement term.
Securities portfolios
The aggregate balance of thesecurities portfolios reflected in theDecember 31, 1999, consolidatedbalance sheet was Euros
1,045,234,000, a decrease of Euros75,774,000 from 1998.
The balance of the Governmentdebt securities portfolio decreased byEuros 18,880,000 and the privatefixed-interest securities portfoliodecreased by Euros 27,785,000. Inthe latter portfolio, Euros 331,343,000related to the bonds issued in themortgage securitization operation,which the group banks keep on thebalance sheet. The portfolio of sharesand other equity securities decreasedby Euros 29,109,000 as a result ofrecomposition of the portfolios ofcertain financial service subsidiaries.
Table 22 presents a detail of therelated portfolios classified by natureand issuer.
In accordance with currentaccounting principles (see Note 1 tothe financial statements), theportfolios are stated at the lower ofcost or market. The unrealizedlosses so disclosed are fully providedfor by the security price fluctuation
allowances shown in the table. Incontrast, accounting recognition is notgiven to the unrealized gains in theportfolios, basically arising from theinclusion of the regional bankingnetwork in consolidation at straightunderlying book value.
Table 22. Year-end security portfolios detail
Government debt securities:
Bank of Spain certificates of deposit . . . . . . . . . . . . . . . . .Treasury bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other "book entry system" securities . . . . . . . . . . . . . . . . .Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Allowance for security price fluctuation . . . . . . . . . . .Pro memoria: Balance of security price fluctuation allowance
Deferred writedowns (unrealized losses) . . .
Other fixed-interest securities:
Issued by: Public bodies . . . . . . . . . . . . . . . . . . . . . .Financial intermediaries . . . . . . . . . . . . . . .Other residents . . . . . . . . . . . . . . . . . . . . .Nonresidents . . . . . . . . . . . . . . . . . . . . . .Mortgage-backed bonds. . . . . . . . . . . . . . .
Less: Allowance for security price fluctuation . . . . . . . . . . . .Pro memoria: Balance of security price fluctuation allowance
Deferred writedowns (unrealized losses) . .
Equity securities:
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Shares of group companies . . . . . . . . . . . . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Allowance for security price fluctuation . . . . . . . . . . .
1998
1999(Euro thousand) Variation
Amount %
517,213
266,429197,26453,244
282
(6)(6)–
494,200
24,44343,273
7,16933,315
388,007
(2,007)(2,007)
–
109,595
83,53530,014
2,819
(6,773)
498,333
138,642345,03514,471
281
(96)(96)
–
466,415
1,51934,888
6,32695,234
331,343
(2,895)(2,895)
–
80,486
50,65732,693
4,378
(7,242)
(18,880)
(127,787)147,771(38,773)
(1)
(90)(90)
–
(27,785)
(22,924)(8,385)
(843)61,919
(56,664)
(888)(888)
–
(29,109)
(32,878)2,6791,559
(469)
(3.7)
(48.0)74.9
(72.8)(0.4)
>>>
(5.6)
(93.8)(19.4)(11.8)
>(14.6)
44.244.2
>
(26.6)
(39.4)8.9
55.3
6.9
82,916
23,06857,409
2,40847
(16)(16)
–
77,605
2535,8051,052
15,84655,131
(482)(482)
–
13,392
8,4295,440
728
(1,205)
Pesetas(Millions)
31
Premises and equipment
There was a net decrease ofEuros 29,225,000 in premises andequipment during 1999 from thebeginning book balance of Euros619,000,000, which included Euros
108,633,000 of foreclosed real estateassets, net of the related allowancefor losses thereon. Details of thiscaption are given in Table 23, whichalso shows the related cost andaccumulated depreciation figures.
Table 23. Period changes in premises and equipment
(Euro thousand)
Balance as of December 31, 1998 .
Net variation . . . . . . . . . . . . . . . . . .1999 depreciation . . . . . . . . . . . . .Provisions to allowance for
foreclosed assets and other . . . .
Balance as of December 31,1999 .
Euros . . . . . . . . . . . . . . . . . . . . .Pesetas (millions) . . . . . . . . . . .
CostAccumulateddepreciation
Bookvalue Cost
Accumulateddepreciation
Bookvalue
Premises Equipment
Allowance forforeclosed assets
Otherallowances
426,910
(29,451)–
–
397,45966,131
64,639
(1,136)5,487
–
68,99011,479
38,284
(16,553)–
12,935
34,6665,768
629,293
(56)
–
629,237104,696
333,572
(60,984)60,308
–
332,89655,389
295,013
61,468(60,308)
(201)
295,97249,246
323,987
(11,762)(5,487)
(12,935)
293,80348,884
708
(540)–
201
36961
At 1999 year-end the value of theforeclosed real estate assets, net ofthe related allowance, was Euros78,612,000, following the decrease in
such assets, net of disposals, ofEuros 33,640,000 and the decreaseof Euros 3,618,000 in the allowancefor possible losses thereon.
32
Income and profitability
Income statement
The "Financial Statements"section of this Report presents theconsolidated income statements forthe last five years in accordance withthe current public reporting format forthe banking sector in Spain. Table 24shows the income statement for 1999compared with that of 1998, with the
same level of analytical breakdownthat the Bank furnishes in all itsperiodic reports. The quarterly detailof the 1999 and 1998 incomestatements is presented in Table 28.
Interest revenues in 1999,excluding the dividend revenues onthe equity securities portfolio, were6.7% lower than in 1998 at Euros1,362,862,000. The dividendsamounted to Euros 5,923,000, 35.4%
Table 24. Income statements
(Euro thousand)
Interest and similar revenues . . . . . . . . . .– Interest and similar charges:
On liabilities . . . . . . . . . . . . . . . .Allocable to pension allowance . . . . . . . .
+ Revenues from equity securities . . . . . . . . .= Net interest revenue . . . . . . . . . . . . .+ Fees for services, net:
Loan-related fees . . . . . . . . . . . . .Fees for guarantees, other sureties and documentary creditsFees for other banking services . . . . . . . .
= Basic banking revenue . . . . . . . . . . . .+ Asset trading and exchange profits, net:
Financial asset trading income . . . . . . . .Less: Writedowns of securities portfolio and derivatives .Exchange, translation and dealing gains . . . . .
= Ordinary revenue . . . . . . . . . . . . . .– Operating costs:
Personnel expenses . . . . . . . . . . . .General expenses . . . . . . . . . . . . .Taxes other than income tax . . . . . . . . .
– Depreciation . . . . . . . . . . . . . . . .+ Other operating income . . . . . . . . . . . .– Other operating expenses:
Contribution to Deposit Guarantee Fund . . . . .Directors’ fees and other mandated appropriationsOther . . . . . . . . . . . . . . . . . .
= Operating income . . . . . . . . . . . . . .+ Share in equity method investees’ income, net . . .– Amortization of goodwill in consolidation . . . . .+ Gains (Losses) on group transactions, net . . . . .– Writeoffs and provisions for credit losses:
Provision to allowance for credit losses . . . . .Less: Recovery of bad debts written off . . . . .
± Extraordinary gains (losses), net:Gain on disposal of fixed assets . . . . . . . .Pension allowance release . . . . . . . . . .Extraordinary provision to allowance for pensions .Provision to allowances for other purposes . . . .Other . . . . . . . . . . . . . . . . . .
= Income before taxes . . . . . . . . . . . . .– Corporate income tax provision . . . . . . . . .= Net income . . . . . . . . . . . . . . . . .– Minority interests . . . . . . . . . . . . . . .= Net income attributable to Popular shareholders .
1998% increase(decrease)
1999
1,362,862 368,663 356,549
12,114 5,923
1,000,122 466,855
46,755 36,857
383,243 1,466,977
45,837 28,551 (3,395)20,681
1,512,814 633,923 461,650 148,220
24,053 66,135
1,333 37,430 13,830 23,021
579 776,659
6,258 1,459
353 65,403 97,242
(31,839)(11,782) 16,818
–(15,599)
(5,792) (7,209)
704,626238,844 465,782
33,055 432,727
1,460,676 516,323 502,061
14,262 9,171
953,524 412,312
44,721 34,841
332,750 1,365,836
47,323 14,298 (3,973)36,998
1,413,159 625,377 455,525 144,465
25,387 64,465
1,094 37,221 13,108 23,019
1,094 687,190
6,647 703
4,628 45,526 80,938
(35,412)3,504
11,600 –
(9,616)4,808
(3,288)655,740216,611 439,129
32,166 406,963
(6.7)(28.6)(29.0)(15.1)(35.4)
4.913.2
4.55.8
15.2 7.4
(3.1)99.7
(14.5)(44.1)
7.1 1.4 1.32.6
(5.3) 2.6
21.8 0.65.5
–(47.1)13.0 (5.9)
> (92.4)43.720.1
(10.1)
45.0
62.2
>7.5
10.3 6.1 2.8 6.3
226,761 61,340 59,325
2,015 985
166,406 77,678
7,779 6,132
63,767 244,084
7,627 4,751 (565)
3,441 251,711 105,476
76,812 24,662
4,002 11,004
222 6,228 2,301 3,831
96 129,225
1,041 243
59 10,882 16,180 (5,298)(1,960) 2,798
–(2,595)
(964) (1,199)
117,24039,740 77,500
5,500 72,000
Pesetas(Millions)
Net income
Income before taxes
Net income attributable to Banco Popularshareholders
800
650
500
350
200
9998979695
Fig.10 Growth of income(Euro million)
558584
640656
371393
428 439
345 367
396407
705
466
433
33
down on 1998, and total interestrevenues were therefore Euros1,368,785,000, 6.9% lower than in1998.
Interest expenses were 28.6%lower than in 1998. Subtraction fromthe interest expenses of thoseallocable to the in-house allowancefor pension commitments to servingemployees, which under currentaccounting regulations have to bereported under the interest expensescaption, leaves the real interestexpenses of Euros 356,549,000incurred for the use of third-partyfunds in 1999, 29% down on 1998.
The decline in interest revenuesand expenses is an accuratereflection of the differing impact whichthe ongoing decline in money market
interest rates progressively had in1999 on the credit and savingsmarkets. The average reduction of 1.3percentage points in the average 3-month money market rate from 1998to 1999 led to decreases of 0.91percentage points in Banco Popular’saverage yield on credit and of 0.86percentage points in the average rateof cost of customer funds.
The resulting net interestrevenue of Euros 1,000,122,000 in1999 was 4.9% higher (5.3%excluding dividends) than in 1998.Figure 13 plots the quarter-by-quartervariation in the last two years,evidencing the change of trendinitiated in the fourth quarter of 1998.Thus, the 3.1% growth in net interestrevenue in the first quarter wasfollowed by a rise of 3.4% at June 30,
In 1999, despite the average fall of 1.3percentage points in the average three-month moneymarket rate as compared with 1998, the net interestrevenue made a clear recovery. It grew by 3.1% inthe first quarter, by 3.4% at the end of June and by4.5% at September 30, and ended the year withgrowth of 4.9% (5.3% excluding dividends).
The net interest margin was practicallystable for the year as a whole, as compared with1998, and at year-end was 4.14%.
The accompanying graph plots thequarter-to-quarter variation during the last four yearsof the net interest margin, as compared in each casewith the same quarter of the preceding year.
The graph shows that there was a clearchange of trend in 1999, and it is reasonable to thinkthat this change will be favored in the immediatefuture by the foreseeable evolution of interest rates.
Net interest revenue Box 5
1st 2nd 3rd 4th
1996 19981997 1999
Rate of variation of the quarterly net interest revenueas compared with the same quarter
of the preceding year
The sustained recovery of the net interest revenue in 1999 was a true reflection of Banco Popular’s orientation towardsgrowth with profitability.
The acute and widespread decline of interest rates in the financial markets in recent years led to a persistent shrinkage ofmargins in the banking sector. Although Banco Popular’s capability to resist this trend was very significant, it was obviously notpossible for the Bank to remain unaffected by it. Thus, although the Bank maintained a net interest margin (net interest revenue as apercentage of average total assets) clearly higher than those of the Spanish banking sector as a whole, it was sharply squeezed in thelast few years, as Figure 15 shows.
10
5
0
(5)
(10)
1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th
34
an increase of 4.5% at the end ofSeptember, and growth of 4.9% forthe year as a whole.
The net fee revenues forservice s increased overall by 13.2%to Euros 466,855,000 in 1999, thebreakdown being shown in Table 25.Figure 11 plots the evolution ofservice fee revenues in the last fiveyears, during which they rose fromrepresenting 20% of ordinary revenueto 31%, as detailed in Figure 12.
The net interest revenue plusservice fee revenues leads to thebasic banking revenue which, atEuros 1,466,977,000 in 1999, was7.4% higher than in 1998.
The asset trading andexchange profits totaled Euros45,837,000 in 1999, a decrease of3.1% from 1998. As its nameindicates, this caption includes twobasic items: the net revenues arisingfrom trading in financial assets andderivatives, and exchange, translationand dealing gains. The first of thesetwo items includes the net results onstraight financial intermediationservices , i.e. the involvement ofgroup entities as intermediaries in theplacement of financial assetsacquired for their own account fromthe issuers, for the differentialbetween the purchase and sale pricesof the assets traded; the gains onsales of fixed-interest and equity
100
200
500
400
300
261
9998979695
Fig.11 Service revenues(Euro million)
282
347
412
Net interest revenue as % of ordinary revenue
Service fee revenues as % of ordinaryrevenue
100
75
50
25
09998979695
Fig.12 Components of the ordinary margin (In %)
77 76
7167 66
20 20
2429 31
467
Table 25. Service revenues
Loan-related fees:Bill discounting . . . . . . . . . . . . . . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision of guarantees and other sureties . . . . . . .Operating services:
Collection and payment handling :Note collection. . . . . . . . . . . . . . . . . . . . . . . . .Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Direct debit transactions . . . . . . . . . . . . . . . . .Payment systems . . . . . . . . . . . . . . . . . . . . . .Fund transfers . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency purchase and sale transactions Customer financial asset management:
Securities portfolio (including public offerings)Mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . .Pension plans . . . . . . . . . . . . . . . . . . . . . . . . .
Administration of demand deposits . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1998 % Variation
(Euro thousand)
Pesetas(Millions)
46,75527,81618,93936,857
383,243165,608
41,19717,56912,01665,01229,814
8,769169,179
15,487120,015
33,67732,357
7,330
466,855
44,72128,31316,40834,841
332,750148,078
39,76914,62312,00255,76825,916
2,855150,626
16,462106,638
27,52628,939
2,252
412,312
4.5(1.8)15.4
5.815.211.8
3.620.2
0.116.615.0
>12.3(5.9)12.522.411.8
>
13.2
7,7794,6283,1516,132
63,76727,555
6,8552,9231,999
10,8174,9611,459
28,1492,577
19,9695,6035,3841,220
77,678
1999
securities other than shares of groupcompanies; the gains or losses onfutures, options or other instruments;and the related provisions forwritedowns. These transactionscontributed in aggregate Euros25,156,000 to income in 1999,143.6% more than in 1998, and madeit possible to virtually offset the 44.1%decline in exchange, translation anddealing gains following the entry intoforce of the euro at the beginning ofthe year.
Addition to the basic bankingrevenue of the asset trading andexchange profits leads to theordinary revenue , which in 1999amounted to Euros 1,512,814,000,7.1% higher than in 1998.
Operating costs (personnel andgeneral expenses and sundry taxes)increased overall by 1.4% in 1999and absorbed 41.90% of the ordinaryrevenue. The individual percentagesof variation were: personnel expenses
35
1.3% higher; general expenses 2.6%higher; and sundry taxes 5.3% lower.The principal items of generalexpenses and sundry taxes in 1999and 1998 are detailed in Table 26.The general expenses figure includessignificant nonrecurring amountsconnected with the introduction of theeuro and the work of adaptation to theyear 2000.
Table 27 shows the level of operatingefficiency and its evolution over time,
highlighting the significantimprovement in 1999, as discussed inBox 7.
Depreciation of tangible assetsand amortization of intangible assetsin 1999 totaled Euros 66,135,000, anincrease of 2.6% over the 1998 figure.
The remaining operating resultsnot allocable to the foregoing captionswere negative by a net amount ofEuros 36,097,000 in 1999, which was
The development and integration of the new distribution channels are a clear management priority for Banco Popular, as ameans to expand the customer base and to upgrade the quality and personalization of the service provided. The phenomenon ofremote banking, encompassing Internet, the telephone, mobile phones used to access Internet and interactive television, is alreadygiving rise to a substantial transformation in how the banking business is managed. Banco Popular is firmly committed to thedevelopment of these channels, either integrated in its own organization or run as a separate entity.
Internet and remote banking Box 6
The new field of electronic commerce deserves specialmention and, in view of Banco Popular’s degree of penetration in andknowledge of the small and medium-sized companies sector, offersmyriad opportunities.
Banco Popular’s "Bank-on-Line" Internet service, set up inOctober 1998, enables users to perform in real time a broad range ofbank transactions: purchase and sale of securities, contributions to andwithdrawals from mutual funds, contributions to pension plans, transfers,movements between accounts, payment of taxes, and requests forcheck books.
This service also offers information about companies and thepossibility for holders of Visa or 4B cards issued by the Group to makereal-time inquiries about accounts, loans, credit cards, security deposits,pension plans and mutual funds, among other products.
Banco Popular had 98,067 Internet banking customers atDecember 31, 1999, and was adding new customers at a rate of morethan 18,000 per quarter.
The telephone banking service, which has been in operationsince the beginning of 1997 and uses CTI technology, enables users toperform not only remote banking activities similar to Internet, but alsonumerous activities aimed at providing services throughout the group’soperating network, including most notably telecollection andtelemarketing, a tool of great importance in the field of commercialactivity.
Banco Popular had 134,335 telephone banking customers atthe end of 1999, an increase of 37,500 during the year.
A total of 11,075,000 transactions were routed through theInternet banking and telephone banking channels in 1999, with asignificant cost saving as compared with the traditional channels. Thenumber of Internet transactions per month increased exponentially, from412,000 in December 1998 to 1,395,000 in December 1999.
1st 2nd 3rd 4th
Number of customers in each quarter
42,494
64,282
76,054
98,067
Internet banking
Growth in number of Internet transactionseach month (in thousands)
D J F M A M J J A S O N D
1998 1999
0
375
750
1,125
1,500
36
from assets not used in the bankingbusiness. The expense items in 1999were as follows: Euros 13,830,000 forthe annual contribution to the DepositGuarantee Fund; a provision of Euros247,000 for directors' remuneration; acontribution of Euros 22,774,000 towelfare foundations, pursuant to
resolutions adopted with permanenteffects in the past by the consolidatedentities' governing bodies, suchcontribution signifying a reduction, byat least the same amount, of theprovision made in each case fordirectors' remuneration; and sundrycharges of Euros 579,000.
400
325
250
175
100
Fig.13 Quarterly revenues(Euro million)
Ordinary revenue
Basic banking revenueNet interest revenueOperating income
173
3rd1st 2nd 4th 3rd1st 2nd 4th
1998 1999
173 164177
197 190 189
242 241231
240 250 249 247
340 345335
347359
364 366350 355
345
363376 374 373
390
378
254
201
0.1% lower than the also negativefigure in 1998. These resultsencompass a series of revenues andexpenses not relating to ordinaryoperations but which are of arecurrent nature. The revenues,amounting to Euros 1,333,000,consisted basically of those arising
Table 26. Itemized breakdown of general expenses and taxes other than income tax
General expenses:
Rents and common services . . . . . . . . . .Communications . . . . . . . . . . . . . . . . . . .Maintenance of premises and equipment EDP expenses . . . . . . . . . . . . . . . . . . . . .Stationery and office supplies . . . . . . . . .Technical reports and legal expenses . . .Advertising and publicity . . . . . . . . . . . . .Insurance . . . . . . . . . . . . . . . . . . . . . . . . .Security and fund transport services . . . .Travel . . . . . . . . . . . . . . . . . . . . . . . . . . .Other*. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . .
Taxes other than income tax:
Stamp duties . . . . . . . . . . . . . . . . . . . . . .Municipal tax . . . . . . . . . . . . . . . . . . . . . .Urban property tax . . . . . . . . . . . . . . . . . .Business license tax . . . . . . . . . . . . . . . . .Value added tax . . . . . . . . . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . .
* Net of the expenses recovered from third parties not allocated to their respective captions
(Euro thousand)
Pesetas(Millions)
4,5674,2422,4126,090
860608
1,217392
1,7141,2651,295
24,662
–131266830
2,69778
4,002
27,44825,49614,49736,599
5,1703,6577,3152,353
10,3037,6047,778
148,220
–790
1,6004,989
16,212462
24,053
27,27424,16715,05529,714
5,6014,201
10,1332,031
10,0378,2048,048
144,465
–781
1,4914,856
17,454805
25,387
0.65.5
(3.7)23.2(7.7)
(12.9)(27.8)15.9
2.7(7.3)(3.4)
2.6
>1.27.32.7
(7.1)(42.6)
(5.3)
1999
1998%
Variation
Subtraction from ordinaryrevenue of the operating costs, of thedepreciation and amortization, and ofthe net balance of other operatingresults leads to the operatingincome , which in 1999 amounted toEuros 776,659,000 and was 13%higher than in 1998.
Table 27. Operating efficiency
Intermediation margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Fees for services and asset trading and exchange profits . . . . . . . . . . . . . . . . . . . .
Ordinary margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other operating income/expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Writedowns and provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Corporate income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67.4732.53
100.00
(44.25)(4.57)(2.56)(3.61)1.39
(15.33)
31.07
71.0928.91
100.00
(42.92)(3.97)(2.51)(6.92)1.45
(14.98)
30.15
76.2623.74
100.00
(41.66)(3.42)(3.50)(9.59)(0.15)
(13.65)
28.03
77.3922.61
100.00
(42.09)(3.10)(3.16)
(10.96)1.37
(14.08)
27.98
1999 1998 1997 1996 1995
66.1133.89
100.00
(41.90)(4.37)(2.39)(5.83)1.07
(15.79)
30.79
(As % of ordinary margin)
37
Banco Popular has in place, on a permanent basis, formal mechanismsfor monitoring and controlling operating costs, aimed at eliminating nonproductiveexpenses, achieving growing rationalization of back-office processes,technological development, and tailoring its human resources - both in numberand quality - to the real needs of the business. All this has enabled the Bank tomaintain, with the natural annual fluctuations, levels of efficiency which comparevery favorably with those of other Spanish and international banks.
The accompanying graph shows the evolution of operating efficiency(operating costs as a percentage of ordinary revenue) in the last five years. Themost characteristic feature of the relevant improvement in the level of efficiency in1999 as compared with the two preceding years was not so much the continuingcontainment of operating costs as the achievement of significant rates of growthin ordinary revenue.
As part of the measures taken periodically to achieve these objectives,and taking into account the ample capital cushion in excess of the regulatoryminimum requirements, Banco Popular has implemented in each of the last fouryears separate extraordinary early retirement plans. All four plans wereauthorized, as required, by the Bank of Spain and approved by the shareholdersmeetings of each of the Group’s banks.
The following table summarizes the final result of the four plans, andshows clearly that their importance lay both in the annual savings of personnelcosts and in the rejuvenation and dynamization of the Bank’s intellectual andhuman capital which the plans made possible through the recruitment of newstaff:
Operating efficiency and productivity Box 7
Extraordinary retirement plans
Employees covered by the plan . . . . . . . . . . . . . . . . . . . .New staff recruitments as a result of the plan . . . . . . . . . .
(Amounts in thousands of euros)Premiums paid (capital invested) . . . . . . . . . . . . . . . . . . . .Annual savings in personnel costs* . . . . . . . . . . . . . . . . . .
Apparent gross return on the invested capital . . . . . . . . . .
361145
70,28810,440
14.85%
441189
110,92913,811
12.45%
1996 Plan 1997 Plan
The extraordinary retirements plan carried out in 1999 was funded with Euros 110,789,000, of which Euros 90,420,000 weredrawn from reserves of Banco Popular and the banking subsidiaries and Euros 20,058,000 from the internal allowance provided out ofincome. Of the total single premiums paid to guarantee the future coverage of the supplementary pension payments to employeescovered by the plan, a further Euros 312,000 were charged to the recorded internal allowance at four of the banks which exceeded theprovision booked, and Euros 2,581,000 of residual unspent provisions at the remaining banks were reversed to reserves.
In addition to the employees who retired under this extraordinary plan, another 48 employees also took retirement in 1999.The single premiums paid in this connection amounted to Euros 13,927,000 and were charged to the recorded internal allowance.
Per the authorization granted by the Bank of Spain, the prepaid taxes recovered on the premiums paid were reversed to theaccounts from which the provisions were made, increasing equity by Euros 20,416,000 in 1999. The prepaid taxes will be recoveredover the next ten years as the pensions are paid to the beneficiaries.
* Net of marginal substitution costs
29091
134,86112,002
8.90%
1998 Plan
313111
110,78910,067
9.09%
1999 Plan
Operating efficiency (Righthand scale)
Ordinary revenue (Lefthand scale)
Operating costs (Lefthand scale)
1,600
1,200
800
400
09998979695
Operating efficiency(Millions of euros and %)
559 584 609 625
1,327
100
75
50
25
0
1,402 1,419 1,413
42.09 41.66 42.92 44.25
1,513
41.90
634
38
Figure 13 plots the quarterly evolutionin the last two years of ordinaryrevenue, basic banking revenue, netinterest revenue and operatingincome as discussed above, andshows that in all cases there weresignificant increases in the different
quarters of 1999, as compared withthe same periods in 1998.
Determination of the final incomefigure requires the addition to orsubtraction from the operatingincome, as appropriate, of the itemsanalyzed below, in the same order asin Table 24.
The share in the results ofinvestee companies which, under theconsolidation rules, are carried by theequity method , net of the dividendscollected from them and recorded asinterest revenues, contributed Euros6,258,000 to income in 1999. TheEuros 1,459,000 of amortization ofthe goodwill in consolidation relatedto the chargeoff of the price in excessof book value paid for certainshareholdings. The result on grouptransactions includes that arisingfrom marginal intervention in the stockmarket to provide liquidity for tradingin the banking subsidiaries’ shares.
Credit loss provisions of Euros95,764,000 were booked in 1999, asexplained earlier in the "Riskmanagement" subsection, plus Euros1,478,000 for country risk coverage.Recoveries of bad debts written off inprior years amounted to Euros31,839,000 in 1999. The net effect ofthese three items was a charge ofEuros 65,403,000 to the incomestatement, a 43.7% increase ascompared with 1998.
The breakdown of the negativenet amount of Euros 11,782,000under the "Extraordinarygains/losses, net " caption in theincome statement is shown in Table24.
A gain of Euros 16,818,000 wasobtained on the disposal ofnonfinancial assets in 1999, andEuros 7,209,000 of sundry net losseswere recorded in connection withcorrections in the accrual of resultsbooked in prior years or reversalsthereof, and with losses arising fromthefts.
In October 1995 Banco Popular and its banking subsidiaries decided tomodify the criteria they had followed since 1980 with regard to the method of providingcoverage for their commitments to supplement, up to a certain amount, the socialsecurity pension payments to employees for retirement, death of spouse, death ofparent, or permanent disability.
Previously, the total actuarial cost of the existing commitments to retired staffand of the potential commitments to serving employees was covered by an internal on-balance sheet allowance to which provisions were made out of period income.Because of the problems that this procedure might have given rise to following theenactment of new insurance legislation in 1995, it was decided to modify the procedurebeing applied and, accordingly, insurance contracts were entered into with the AllianzRas company by the Bank and each of its banking subsidiaries that have since thenguaranteed the coverage over time of all supplementary pension payments to retiredemployees.
The single premiums paid in 1995 in connection with employees who hadretired through the end of that year amounted to Euros 290,427,000. From 1996 to1998 the premium payments for new retirees, or because of changes in the conditionsinitially pacted for certain of the liabilities included in the original contracts (because ofearly retirements), totaled Euros 352,037,000. This latter figure included the Euros316,078,000 of premiums paid as a result of the extraordinary retirements planscarried out in those years.
In 1999, premiums of Euros 132,615,000 were paid, of which Euros110,789,000 related to a fourth retirements plan implemented during the year. All fourplans are explained in detail in Box 7.
At December 31, 1999, Allianz Ras held mathematical reserves of Euros676,710,000 to cover supplementary pension payments to the group banks’ 4,771qualifying beneficiaries.
The potential commitments to serving employees continue to be covered bythe same type of internal on-balance sheet allowance as in previous years. At the endof 1999, the actuarial cost of these commitments amounted to Euros 286,509,000,based on the parameters, hypotheses and actuarial tables used. At year-end, thesecommitments were covered by an internal allowance of Euros 295,847,000, recordedon the liability side of the consolidated balance sheet.
Regulations were issued in October 1999 on the instrumentation ofcompanies’ pension commitments to their employees and beneficiaries. Theregulations permit credit entities to opt to instrument these commitments either via apension plan, an insurance contract or an internal allowance. This option must betaken before January 1, 2001.
The regulations stipulate certain discount rates and actuarial tables whichwill trigger an appreciable upward revision of the actuarial cost of the commitments toserving employees, depending on the option chosen. The Bank has started in thecurrent year the process of adaptation to these new discount rates and actuarial tablesand has ten years in which to complete this process.
Pension commitments Box 8
39
The provision to allowancesfor other purposes included, inaddition to other provisions orreleases, that relating to writedownsof foreclosed real estate assets,determined in accordance with Bankof Spain regulations which take intoaccount independent appraisals ofsuch assets and the period for whichthey have been held in bank balancesheets. Effective 1998, the Bank ofSpain modified the regulationsapplicable to this allowance,
extending the timetable for the mostrecent foreclosures by one year. Theeffect of application of this newregulation was to release Euros9,171,000 at the beginning of 1998,out of which provisions of Euros6,010,000 had to be booked duringthe year.
The extraordinary provision forpension commitments calls forspecial comment. As explained inBox 8, since October 1995 the group
Interest and similar revenues . . . . . . . .– Interest and similar charges . . . . . . . . .= Net interest revenue . . . . . . . . . . . . . .+ Fees for services, net . . . . . . . . . . . . . .+ Asset trading and exchange profits, net . . . .= Ordinary revenue . . . . . . . . . . . . . . . .– Operating costs:
Personnel expenses . . . . . . . . . . . . .Other expenses . . . . . . . . . . . . . . . .
– Depreciation . . . . . . . . . . . . . . . . . . . . .± Other operating income/expenses, net . . . .= Operating income . . . . . . . . . . . . . . . .± Other items, net . . . . . . . . . . . . . . . . . .– Provisions and writedowns . . . . . . . . .= Income before taxes . . . . . . . . . . . . . .– Corporate income tax provision . . . . . .= Net income . . . . . . . . . . . . . . . . . . . . .– Minority interests . . . . . . . . . . . . . . . . . .= Net income attributable . . . . . . . . . . . .
Table 28. Quarterly income and profitability
(Euro thousand)
Yield on assets . . . . . . . . . . . . . . . . . . . . . . . .– Cost of funds . . . . . . . . . . . . . . . . . . . . . . . . .= Net interest margin . . . . . . . . . . . . . . . . . . . .+ Yield on services, net . . . . . . . . . . . . . . . . . . .+ Yield on financial asset trading and exchange profits = Ordinary margin . . . . . . . . . . . . . . . . . . . . . .– Operating costs:
Personnel costs . . . . . . . . . . . . . . . . . . . . .Other expenses . . . . . . . . . . . . . . . . . . . . .
– Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .± Other operating income/expenses, net . . . . . . . . .= Operating profitability . . . . . . . . . . . . . . . . .± Other items, net . . . . . . . . . . . . . . . . . . . . . . .– Provisions and writedowns . . . . . . . . . . . . . .= Pre-tax income return . . . . . . . . . . . . . . . . .– Corporate income tax . . . . . . . . . . . . . . . . . . .= Net income return (ROA) . . . . . . . . . . . . . . .
Pro memoria:Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net return on average equity (ROE) . . . . . . . .
Operating efficiency . . . . . . . . . . . . . . . . . . . .
(As annualized % of average total assets)
I
334,11584,648
249,467114,152
9,891373,510157,362114,449
42,91316,549(9,059)
190,540(719)
17,589172,232
58,558113,674
8,441105,233
361,953130,636231,317103,308
10,476345,101155,722114,547
41,17516,317(8,968)
164,0947,302
12,699158,697
49,566109,131
8,601100,530
III
1998
IV
1999
364,598124,950239,648107,196
15,891362,735160,723113,892
46,83116,179(8,895)
176,9383,750
16,630164,058
54,127109,931
7,446102,485
348,66599,137
249,528109,090
17,700376,318154,328113,592
40,73616,197(9,160)
196,633517
17,940179,210
61,207118,003
7,910110,093
IIIII
330,67383,604
247,069119,282
7,043373,394159,229116,340
42,88916,637(8,905)
188,6237,143
17,793177,973
62,079115,894
8,495107,399
355,332101,274254,058124,331
11,203389,592163,004117,269
45,73516,752(8,973)
200,8639,279
34,931175,211
57,000118,211
8,209110,002
IVI
369,003128,478240,525104,252
10,127354,904156,726114,048
42,67816,131(9,250)
172,7971,473
15,777158,493
52,889105,604
7,27898,326
374,292132,258242,034
97,55610,830
350,420152,206113,038
39,16815,837(9,015)
173,3627,0625,932
174,49260,029
114,4638,841
105,622
II
5.701.444.261.950.176.382.691.960.730.28
(0.16)3.25
(0.01)0.302.941.001.94
11.9 x
23.0042.13
6.322.284.041.810.186.032.722.000.720.28
(0.16)2.870.130.222.780.871.91
12.4 x
23.6245.12
6.102.094.011.790.276.072.691.910.780.27
(0.15)2.960.060.282.740.901.84
13.1 x
24.1344.31
5.951.694.261.860.306.422.631.940.690.28
(0.15)3.360.010.313.061.052.01
12.0 x
24.0641.01
III IV I
19991998
II
5.461.384.081.970.116.162.631.920.710.27
(0.15)3.110.120.292.941.031.91
13.3 x
25.3642.64
III5.581.593.991.950.186.122.561.840.720.26
(0.14)3.160.140.552.750.891.86
14.8 x
27.4841.84
IV
6.662.324.341.880.186.402.832.060.770.29
(0.16)3.120.030.292.860.961.90
11.3 x
21.5244.16
7.022.484.541.830.216.582.862.120.740.30
(0.17)3.250.130.113.271.122.15
10.9 x
23.3643.44
I II
40
Subtraction of corporate incometax leaves consolidated net incomeof Euros 465,782,000 for 1999, anincrease of 6.1% over 1998.
Euros 432,727,000 (6.3% morethan in 1998) of the net income for theyear correspond to the shareholdersof Banco Popular and the remainingEuros 33,055,000 to the minorityshareholders of the consolidatedentities. The resulting earnings pershare for 1999, after cancellation ofthe shares bought back in the market,
amounted to Euros 3.93, 7.1% higherthan in 1998.
Figure 10 plots the growth in incomebefore taxes, net income, and incomeattributable to shareholders in the lastfive years, and Table 30 and Figure14 show the evolution of earnings anddividend per share in the sameperiod, adjusted for the 4X1 split inSeptember 1997. The data of per-share cash flow, earnings anddividend, and the number and bookvalue of the shares outstanding, will
Income per share
Dividend per share
4
3
2
1
0
9998979695
1.41
Fig.14 Income and dividend per share(Euros)
1.581.77
1.95
2.99
3.17
3.533.67
3.93
2.15
Table 29. Corporate income tax calculation
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Tax charge (35 %) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Tax credits: For double taxation . . . . . . . . . . . . . . . . . .
For tax relief . . . . . . . . . . . . . . . . . . . . . . .For investments. . . . . . . . . . . . . . . . . . . . .
Tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Adjustment for temporary differences in payments and other, netTotal provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Euro thousand)
banks have consistently included asan internal allowance in their balancesheets only the amount needed tofully cover the potential commitmentsto serving employees at any time, andhave each taken out insurancecontracts with the Allianz Rascompany that guarantee the pensionpayments to retired employees.
Addition or subtraction of theforegoing items to or from theoperating income leaves income
before taxes of Euros 704,626,000,7.5% higher than in 1998.
The calculated amount of Euros238,844,000 for corporate incometax was 10.3% higher than in 1998.Table 29 shows how this provisionwas calculated, starting from the bookincome and having regard to thevarious revenue and expense itemswhich are wholly or partly notrecognizable for tax purposes, andthe legally permitted deductions.
704,626120,837
78,420
747,043261,465
27,620672863
232,3106,534
238,844
Pesetas(Millions)
1999
1998%
Variation
117,24020,10513,048
124,29743,504
4,595112144
38,6531,087
39,740
655,740114,018
73,924
695,834243,542
32,821685902
209,1347,477
216,611
7.56.06.1
7.47.4
(15.9)(1.9)(4.3)
11.1(12.6)10.3
Table 30. Per share data*
Year Cash flow Net income Dividend Book value** HighMarket price
Low Closing
19951996199719981999
(Euro thousand)
* Figures adjusted for 4 x 1 share split in 1997** After distribution of income for the year
6.937.027.477.458.23
2.993.173.533.673.93
1.4061.5811.7731.9532.150
15.5416.6316.5616.5316.67
33.7839.0768.2192.6873.40
22.9930.0436.9844.4756.95
33.6138.3164.0164.3164.75
41
be affected by the 2X1 splitauthorized by the ShareholdersMeeting on December 16, 1999,which will become effective in theearly months of 2000.
Out of the amount allocable to theshareholders, the Bank's Board of
Directors proposes to distribute adividend of Euros 2.15 per share(involving a total of Euros234,041,000). This proposed dividendrepresents a pay-out of 54.09% of thenet income for the year.
The only problem posed by the calculation of per-share data is that of choosing the right number of shares to be used asthe divisor.
In 1999 the number of Banco Popular shares was altered as a result of the buyback in the market of 2,197,942 shares andtheir subsequent cancellation in December.
Taking into account the exact timing of the buybacks, the average number of shares outstanding in 1999 was 110,105,611,and this was the divisor used to calculate the amounts of earnings and cash flow per share included in this Report. Since the buybackstook place in the second half of the year, the resulting increase in earnings per share will be more evident in 2000.
There is a further complication in calculating the dividend per share, because of the time-lag between the obtaining of theincome for the year and the payment, out of that income, of the related dividend. Banco Popular pays its annual dividend on aquarterly split basis in October of the same year and in January, April and July of the following year, on the shares outstanding at eachpayment date. Since the share buyback began after payment of the 1998 dividend, all the shares collected this dividend. As regardsthe 1999 dividend, the shares bought back before the first interim dividend was paid received nothing even though they had beenoutstanding for part of the year because, as legally required, the dividend that would have been payable on them was added to thatpayable on the shares still outstanding at the payment date. The shares bought back after that date only received the first interimdividend because they were canceled in December.
Accordingly, the average number of shares entitled to the 1999 dividend is 108,862,794.
The use of different numbers of shares as the divisor in calculating the earnings and dividend per share means that theresulting figures are not appropriate for determining the pay-out, which has to be calculated on the basis of the total earnings anddividend.
The following table summarizes the process of calculation of the earnings and dividend per share in 1999 and 1998:
Per share data calculation Box 9
A methodological note
(Amounts in thousands of euros)Allocable net income . . . . . . . . . . . . . . . . . . . . . . . . .Total dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Pay-out (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average number of shares (adjusted):For calculating the earnings per share . . . . . . . . .For calculating the dividend per share . . . . . . . . .
(Amounts in euros)Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . .Dividend per share . . . . . . . . . . . . . . . . . . . . . . . . . .
432,727234,041
54,09
110,105,611108,862,794
3.932.15
406,963216,376
53,17
110,775,000110,775,000
3.671.953
6.38.2
(0.6)(1.7)
7.110.1
1999 1998%
Variation
42
Yields and costs
The process of convergence tothe European Monetary Union andthe progressive fall in interest ratesin all the financial markets in Spain inthe last few years constitute theessential framework of reference for aproper assessment of the detailedanalysis of the group’s yields andcosts in this subsection.
Table 31 summarizes theaverage yield and cost data for eachcategory of assets and funds in 1999and 1998, together with details of thepercentage distribution of the relatedaverage balances and absoluteamounts on which the calculationsare based, with the most detailedbreakdown possible to insure that thecomparison is uniform, having regard
to the variations between accountsarising from the introduction of theeuro.
Average total assets in 1999amounted to Euros 24,141,096,000,an increase of 6.6% over 1998.
The average yield on assets fellby 0.82 percentage points from 6.49%in 1998 to 5.67% in 1999. Theaverage yield on loans anddiscounts fell by 0.91 percentagepoints to 6.76% in 1999.
The average cost of funds fellby 0.75 percentage points from 2.28%in 1998 to 1.53% in 1999, and theaverage cost of customer fundswas 0.86 percentage points lower at1.49% in 1999.
Table 31. Yields and costs
(Euro thousand)
Treasury bills and Bank of Spain certificates of depositFinancial system:
In euros . . . . . . . . . . . . . . . . . . . . . . . . . . . .In foreign currencies . . . . . . . . . . . . . . . . . .
Loans and discounts:In euros . . . . . . . . . . . . . . . . . . . . . . . . . . . .In foreign currencies . . . . . . . . . . . . . . . . . .
Securities portfolio:Government debt securities . . . . . . . . . . . . .Other fixed-interest securities . . . . . . . . . . .Equity securities . . . . . . . . . . . . . . . . . . . . .
Total earning assets (a) . . . . . . . . . . . . .Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
Financial system:In euros . . . . . . . . . . . . . . . . . . . . . . . . . . . .In foreign currencies . . . . . . . . . . . . . . . . . .
Customer funds:Customer accounts:
In euros:Demand and savings deposits . . . . . . .Time deposits . . . . . . . . . . . . . . . . . . .Assets sold under repurchase agreements .Other . . . . . . . . . . . . . . . . . . . . . . . . . .
In foreign currencies . . . . . . . . . . . . . . . .Bonds and other marketable debt securities . . . .
Pension allowance . . . . . . . . . . . . . . . . . . . . . .Total interest-bearing liabilities (b) . . . . . . . .
Other non-interest-bearing liabilities . . . . . . . . .Capital accounts . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and capital . . . . . . . . . . . .
Spread (a-b) . . . . . . . . . . . . . . . . . . . . . . . . . . .
1999 1998
Average balanceDistri-bution
(%)Revenue
or expense
Averagerate(%)
Averagebalance
Distri-bution
(%)Revenue
or expense
Averagerate(%)
360,8674,315,0933,155,5221,159,571
17,448,89017,239,754
209,136627,205
61,335474,426
91,44422,752,055
1,389,041
24,141,096
3,262,5032,583,789
678,71417,159,71216,381,50815,521,948
9,617,4104,747,0761,155,662
1,800859,560778,204336,538
20,758,7531,643,3631,738,980
24,141,096
1.4917.8713.07
4.8072.2871.41
0.872.600.251.970.38
94.245.76
100.00
13.5110.70
2.8171.0867.8664.3039.8419.66
4.790.013.563.221.39
85.986.827.20
100.00
16,457149,682
88,38561,297
1,178,8551,167,602
11,25323,791
3,91913,949
5,9231,368,785
–
1,368,785
100,39973,80126,598
256,150232,471197,938
59,447107,274
31,217–
34,53323,67912,114
368,663––
368,663
4.563.472.805.296.766.775.383.796.392.946.486.02
–
5.67
3.082.863.921.491.421.280.622.262.70
–4.023.043.601.78
––
1.53
4.24
448,4784,595,103
15,959,510
365,35295,490
160,462109,401
21,368,4431,278,644
22,647,087
2,987,056
16,038,52215,517,534
520,988351,808
19,377,3861,504,3361,765,365
22,647,087
1.9820.29
70.47
1.610.420.710.48
94.355.65
100.00
13.19
70.8268.52
2.301.55
85.566.647.80
100.00
24,413199,939
1,224,021
21,4745,7346,5699,171
1,469,847–
1,469,847
125,707
376,354353,870
22,48414,262
516,323––
516,323
5.444.35
7.67
5.886.004.098.386.88
–
6.49
4.21
2.352.28
4.324.052.66
––
2.28
4.22
60,043717,971525,035192,936
2,903,2512,868,454
34,797104,358
10,20578,93815,215
3,785,623231,117
4,016,740
542,835429,906112,929
2,855,1362,725,6542,582,6351,600,203
789,847192,286
299143,019129,482
55,9953,453,966
273,432289,342
4,016,740
Pesetas(Millions)
43
Subtraction from the averageyield on earning assets of the averagecost of interest-bearing liabilitiesleaves the spread , which was 4.24points in 1999 (1998: 4.22 points).
The net interest margin —i.e.the average yield on total assetsminus the average cost of totalfunds— was 4.14% in 1999, 0.07percentage points lower than in 1998.
Table 32 permits detailedanalysis of its most recent marginalbehavior by presenting quarterly datafor 1999 and 1998 of the distributionof average assets and funds and ofthe related rates of yield and cost.
Figure 15 plots the variation inthe net interest margin in the last fiveyears, highlighting the virtual haltingof the decline in this margin in 1999.
Figure 16 presents the evolutionof the average rate of yield of loansand discounts, the average rate ofcost of customer funds, and theresulting customer spread in the lastfive years, and evidences the clearsigns of stabilization of this spread in1999 after three consecutive years ofdecline.
Figure 17 provides additionaldetail for going more deeply into thatmarginal analysis from the yield andcost standpoints, showing thequarterly variation in 1999 and 1998in the average yield on each month'snew or renewed euro loans anddiscounts and in the average cost oftotal euro deposits at each month-end.
Table 32. Quarterly yields and costs
(Data in % and rates annualized)
Treasury bills and Bank of Spaincertificates of deposit . . . . . . . . . . .
Financial system. . . . . . . . . . . . . . . . .Loans and discounts. . . . . . . . . . . . . .Securities portfolio . . . . . . . . . . . . . . .
Total earning assets (a) . . . . . . . .Other assets . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . .
Financial system. . . . . . . . . . . . . . . . .Customer funds . . . . . . . . . . . . . . . . .Pension allowance . . . . . . . . . . . . . . .
Total interest-bearing liabilities (b) .Other non-interest-bearing liabilities . .Capital accounts . . . . . . . . . . . . . . . .
Total liabilities and capital . . . . . .
Spread (a-b) . . . . . . . . . . . . . . . . . . .
Pro memoria: Average total assets(euro thousand) . . . . . . . . . . . . . . . .
1st 2nd 3rd 4th
1998
Distri-bution Rate Rate Rate Rate
1st
Rate
1999
Rate
2nd
Rate
3rdDistri-bution
Distri-bution
Distri-bution
Distri-bution
Distri-bution
Distri-bution
Distri-bution Rate
4th
25,456,94623,916,54322,883,40022,179,61821,608,789 23,436,753 23,432,810 24,237,877
Net interest margin
Yield on assets
Cost of funds
16
12
8
4
09998979695
9.36
Fig.15 Net interest margin(As % of average total assets)
10.05
4.164.85
5.205.20
2.90
4.77
7.67
6.49
4.21
2.28
5.67
4.14
1.53
1.9920.7571.01
1.5095.25
4.75
100.00
13.2672.79
1.7087.75
4.817.44
100.00
5.384.167.444.816.64
–
6.32
4.292.273.602.60
––
2.28
4.04
1.8221.0171.12
1.2595.20
4.80
100.00
10.7575.22
1.4087.37
4.398.24
100.00
5.694.287.77
10.286.99
–
6.66
4.502.354.572.65
––
2.32
4.34
2.3121.1970.65
1.1595.30
4.70
100.00
11.7574.21
1.4587.41
4.108.49
100.00
5.784.628.248.187.37
–
7.02
4.572.534.842.84
––
2.48
4.53
1.8221.5369.19
2.4895.02
4.98
100.00
16.6969.57
1.6087.86
5.047.10
100.00
4.983.777.383.516.42
–
6.10
3.782.013.642.38
––
2.09
4.04
1.5818.9771.42
2.7394.70
5.30
100.00
13.5071.09
1.3485.93
6.267.81
100.00
5.273.517.095.156.28
–
5.95
3.431.663.921.97
––
1.69
4.31
1.5917.2372.84
2.4194.07
5.93
100.00
11.8272.32
1.3385.47
6.727.81
100.00
4.443.466.803.536.06
–
5.70
2.671.494.091.69
––
1.44
4.37
1.5217.3772.60
2.6394.12
5.88
100.00
12.9071.28
1.5485.72
7.296.99
100.00
4.303.096.582.945.80
–
5.46
2.771.373.181.61
––
1.38
4.19
1.3117.9472.25
2.6194.11
5.89
100.00
15.6669.73
1.3686.75
6.966.29
100.00
4.193.796.583.535.93
–
5.58
3.321.473.331.83
––
1.59
4.10
Causal Analysis of changes in netinterest revenue
Table 33 presents a quantitativesynthesis of all the conclusions that
have been drawn from the informationpresented so far about how the 1999net interest revenue was achieved.The net interest revenue increased byEuros 46,598,000 from 1998 to 1999,
44
and this increase was the finaloutcome of the following: the greatervolume of assets managedcontributed, other things being equal,an increase of Euros 64,828,000 tonet interest revenue; the variations inthe various rates of yield and costgave rise to a negative impact ofEuros 18,230,000, equal to 28.1% ofthe increase in net interest revenuecontributed by the previous item.
It is worthwhile to analyze theseeffects separately, starting with themost immediately evident one arisingfrom the influence during the year ofthe process of reduction of marketinterest rates discussed earlier. Thisfact alone led to the yield on loansand discounts decreasing by Euros159,401,000 and the cost of customerfunds decreasing by Euros151,014,000. Despite this impact, thenet interest revenue grew atsignificant rates because it waspossible to offset it by a highervolume of business and a decisiveoptimization of the use of theavailable funds.
Particularly noteworthy was theprogressively higher relative weight ofloans and discounts in the totalconsolidated balance sheet, whichrose from 63.82% in 1996 to 71.9% in1999.
Operating profitability
Table 34 is a logical extension ofTable 31 to permit the finaldetermination, by comparing theconsolidated net income with averagetotal assets, of the net return onaverage total assets (ROA), whichwas 1.93% in 1999, 0.01 percentagepoints lower than in 1998.
The rates and variations reflectedin cascade format in the table aresufficiently self-explanatory and donot call for any further comments.
The lower half of Table 28provides the same information on aquarterly basis for 1999 and 1998.
Customer spread (points)
Credit yield
Cost of funds
16
12
8
4
09998979695
11.50
Fig.16 Quarterly customer spread
12.19
4.565.13
6.947.06
3.02
6.20
9.22
7.67
5.39
2.28
6.76
5.34
1.42
Average yield on loans and discountsgranted each month
Average cost of customer peseta deposits at month end
8
6
4
2
0
Fig.17 Interest rates in 1999 (%)
6.09
6.366.02
1.39
1.73
1.80
2.07
1st
1999
2nd 3rd 4th2nd 3rd 4th 1st
1998
5.63
5.67
5.51
5.36
5.74
1.20
0.97
0.95
1.05
Table 33. Causal analysis of the variation in net interest revenue
Treasury bills and Bank of Spain certificates of deposit . . . . . . . . . . . . . . . . . . . . . .Financial system . . . . . . . . . . . . . . . . . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . . . .Securities portfolio . . . . . . . . . . . . . . . . . . . . . . . .Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . .
Financial system . . . . . . . . . . . . . . . . . . . . . . . . .Customer funds:
Customer deposits . . . . . . . . . . . . . . . . . . . . .Bonds and other marketable debt securities .
Pension allowance . . . . . . . . . . . . . . . . . . . . . . . .Other funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Capital accounts . . . . . . . . . . . . . . . . . . . . . . . . . .
Total funds . . . . . . . . . . . . . . . . . . . . . . . .
Net interest revenue . . . . . . . . . . . . . . . . . . . . . . .
Variation in ...Increase in
volume
Changes ininterestrates
Total variation
(4,766)(12,180)114,235
9,328–
106,617
11,596
19,69911,112
(618)––
41,789
64,828
(3,190)(38,077)
(159,401)(7,011)
–
(207,679)
(36,905)
(141,097)(9,917)(1,530)
––
(189,449)
(18,230)
(7,956)(50,257)(45,166)
2,317–
(101,062)
(25,309)
(121,398)1,195
(2,148)––
(147,660)
46,598
(Euro thousand) Due to ...
45
Final measures of return
Table 35 reflects theconsolidated net income from 1995 to1999, disclosing the amountcorresponding to Banco Popularshareholders, and shows the growthin consolidated average total assetsand average equity during the five-year period, together with the relatednet return percentages.
Comparison of the portion of netincome allocable to Banco Popularshareholders with the consolidatedaverage equity figures gives thereturn on equity (ROE), whichincreased from 23.05% in 1998 to24.88% in 1999, with an effectiveleverage of 11.9 times in 1998 and12.9 times in 1999. The leverage
coefficient is equal to the inverse ratioof average equity to the average totalfunds used to finance assets,adjusted for minority interests.
The return on equity can bebroken down into two elements whichmake it easier to identify the impacton ROE of investment and lendingdecisions, on the one hand, andfunding decisions, on the other. Theformer determines the return oninvested funds (ROIF), i.e. the ratioof net income plus interest expensesnet of taxes to average total assets,and reflects both the productivity andthe efficiency of asset operations. Thesecond element measures the returnon financial leverage (ROFL). Asalready stated, these two elementstogether make up the return on equity.
Table 35. Measures of return
19951996199719981999
YearTotal netincome
Net incomeallocable to Banco
Popular sharesAverage
total assetsAverageequity Leverage
On averagetotal assets
(ROA)
On averageequity (ROE)
ROE components
ROFL
Net return (%)
ROIF
(Euro thousand)
Table 34. Profitability
Variation1999 1998
Yield on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Cost of funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin . . . . . . . . . . . . . . . . . . . . . . . . . . .
Yield on services, net . . . . . . . . . . . . . . . . . . . . . . . . . . .Yield on financial asset trading and exchange profits, net
Ordinary margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs:Personnel expenses . . . . . . . . . . . . . . . . . . . . . . . .Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other operating income / expenses, net . . . . . . . . . . . . .
Operating profitability . . . . . . . . . . . . . . . . . . . . . . . . .
Other items, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Provisions and writedowns . . . . . . . . . . . . . . . . . . . . . . .
Pre-tax income return . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate income tax . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income return (ROA) . . . . . . . . . . . . . . . . . . . . . .
5.671.53
4.14
1.940.19
6.27
2.631.910.720.27
(0.15)
3.22
0.070.37
2.92
0.99
1.93
6.492.28
4.21
1.820.21
6.24
2.762.010.750.29
(0.16)
3.03
0.090.22
2.90
0.96
1.94
(0.82)(0.75)
(0.07)
0.12(0.02)
0.03
(0.13)(0.10)(0.03)(0.02)0.01
0.19
(0.02)0.15
0.02
0.03
(0.01)
(As % of average total assets)
371,197392,894427,686439,129465,782
345,474366,629396,073406,963432,727
19,752,43120,570,43321,160,24822,647,08724,141,096
1,613,0981,766,0861,732,0451,765,3651,738,980
11.4 x10.911.311.912.9
1.88 %1.912.021.941.93
21.42 %20.7622.8723.0524.88
4.90 %4.563.863.382.89
16.52 %16.2019.0119.6721.99
46
In 1998 the ROIF was 3.38% andthe ROFL was 19.67%. The ROE in1999 was the result of an ROIF of2.89%, 0.49 percentage points lowerthan in 1998 as a result of the fall inmarket interest rates. The ROFL was21.99%, an increase of 2.32percentage points.
Figure 18 plots the variation inthe ROA and the ROE in the eight lastquarters, revealing the clearly positiveimpact on the ROE of the measuresto actively manage equity which areanalyzed in detail in Box 2.
Analytical breakdown ofprofitability
Following the practice adopted16 years ago, this Report includes asummary of the analytical costaccounting systems developed atBanco Popular to facilitate expensecontrol and to provide baseline datafor establishing rational pricingpolicies .
Substantially all the asset, liabilityand service activity areas have beeninventoried, analyzed and brokendown into homogeneous ongoingoperating processes to which their
relevant costs can be allocated. Forpractical purposes, 86 separate"products" have been defined towhich it is possible to allocate not onlytheir respective financial revenues orexpenses but also their directoperating costs (i.e. the measurableor calculable costs for the differentprocesses which are identifiable ineach case) and indirect operatingcosts (personnel costs relating tocommercial management andoperational studies and analysis).
A substantial portion of totalpersonnel and general expenses isthus allocated to assets, liabilities orservices, as appropriate, and theunallocated remainder is treated asstructural costs , which include rentpaid for premises and equipment andthe related maintenance expenses,utilities, and administrativedepartments’ expenses.
Table 36 summarizes the entireallocation process in 1999, ascompared with 1998. It will be seenfrom this table that the group's netinterest margin of 4.14% fell to 3.11%after the allocation of operating costs.
ROE (Left-hand scale)
ROA (Right-hand scale)
30.00
25.00
20.00
15.00
10.00
1.90
Fig.18 Quarterly ROA y ROE (Annualized %)
1.911.84
2.01
23.36
1st
1999
2nd 3rd 4th2nd 3rd 4th 1st
1998
3.00
2.50
2.00
1.50
1.00
21.52
23.62
24.13 24.06
23.00
25.36
1.94 1.91
2.15
27.48
1.86
Table 36. Analytical breakdown of 1999 operating margin
Amount
Direct Indirect
Amount
Financial revenues Operating expenses Net revenues
Yield on assets . . . . . . . . . . . .Cost of funds . . . . . . . . . . . . .
Intermediation margin . . . . .
Yield on services and other . . .
Ordinary margin . . . . . . . . .
Unallocated costs . . . . . . . . . .Taxes other than income tax . .Depreciation . . . . . . . . . . . . . . .
Other operating income/expenses.
Operating margin . . . . . . . .
(Data in thousands of euros and as % of average total assets
1,368,785368,663
1,000,122
512,692
1,512,814
5.671.53
4.14
2.12
6.26
6.492.28
4.21
2.03
6.24
33,91364,620
98,533
213,825
312,358
90,48559,930
150,415
73,832
224,247
1,244,387493,213
751,174
225,035
976,209
73,26524,05366,135
(36,097)
776,659
5.152.04
3.11
0.93
4.04
0.300.100.27
(0.15)
3.22
5.902.88
3.02
0.86
3.88
0.290.110.28
(0.16)
3.03
% % 1998 % % 1998
227,74661,340
166,406
85,305
251,711
Pesetas(Millions)
Pesetas(Millions)
207,04982,064
124,985
37,443
162,428
12,1914,002
11,004(6,006)
129,225
47
The table also shows the marginon service fee revenues after theallocation to them of the relatedoperating costs.
To summarize, 20.4% of the totaloperating costs were allocable to the19 "products" defined as assets,20.4% to the 15 liability "products"and 47.2% to the 52 service andfinancial asset trading "products",leaving 12% of total operating costsclassified as structural costs.
Market performance of the Bank’sshares
After reaching a high of Euros73.40 during 1999, the closing shareprice of Banco Popular commonstock was Euros 64.75 per share,
which was 0.7% higher than the priceat the beginning of the year. Adjustedfor the dividends during the period,the variation was an increase of 3%.The Madrid Stock Exchange totalprice index, reflecting a similaradjustment for dividends, rose by19.7% during the year.
Table 30 presents the marketprice data for Banco Popular sharesin the last five years, and Table 37provides further details to show themarket valuation of operatingperformance . Figure 19 shows thevariation in the book value in BancoPopular's accounting records and themarket capitalization.
The volume of trading in BancoPopular shares from 1995 to 1999,expressed as a percentage of the
average number of sharesoutstanding, is plotted in Figure 20.This measurement mode highlightsthe index of liquidity of BancoPopular shares in the stock market.
Figure 21 plots the price range ofthe Bank's stock in 1999, usingdividend-adjusted month-end indexes,as compared with the variations in theMadrid Stock Exchange total priceindex.
Finally, Table 38 analyzes themarket return on the shares for thelast ten years for different timinghypotheses of investment anddivestment and assuming thatdividends were reinvested. The firstline in this table shows that aninvestor who acquired Banco Popularshares in 1989 and continued to holdthem, reinvesting the dividends, at theend of 1999 would have obtained acompound average annual return of
Fig.20 Share liquidity (Shares traded as % of capital stock)
Market capitalizationBook value
Fig.19 Book value and marketcapitalization at year-end (Euro million)
Table 37. Share performance*
YearAverage
outstandingAverage daily
volume of trading Cash flow Net income Book valueDividend
yieldEarnings
yield
19951996199719981999
Number of shares (thousands)**
Price as a multiple of
* Relating to closing figures for the year** Adjusted for the 4 x 1 split in 1997*** Not including the additional return (of 1.21%) arising from the distribution at year-end of 0.78 euros
per share out of paid-in surplus reserves.
115,600115,600112,283110,775110,106
279.2269.2404.5417.9367.4
4.9 x5.58.68.67.9
11.2 x12.118.117.516.5
2.2 x2.33.93.93.9
4.18 %4.132.773.04***3.32
8.89 %8.285.515.716.06
8,000
6,000
4,000
2,000
0
9998979695
7,091
4,429
3,886
7,124
1,834 1,8311,796 1,922
7,030
1,810
0
25
100
75
50
58.8860.39
9998979695
90.7893.18
83.41
Fig.21 1999 stock market indexes(Month-end figures)
Bank did not own any of its ownshares, either directly or through anyof its subsidiaries, whetherconsolidable or not. As a result of theshare buy-back and cancellationoperation executed in the second halfof the year, in 1999 the Bank acted inthe market as a buyer for 2.68% ofthe shares traded and as a seller for0.28%. The maximum treasury stockheld at any time during the year,excluding the aforementionedoperation, was virtually zero.
21.4%. Also, the average of therates of return in the 55hypothetical situations analyzed inthe table was 24.9%, whichsignifies that, regardless of theresult obtained by each individualinvestor, the return on BancoPopular shares in the market forthis stock as a whole in the last tenyears was practically 25%.
As was the case at the end of1998, at December 31, 1999, the
48
1989199019911992199319941995199619971998
Table 38. Market performance of the stock over a 10 - year period*
Year-endin 1990
* Assuming immediate reinvestment of dividends net of withholding tax
199919981997199619951994199319921991
Year-end out
(% cumulative annual return)
5.4 21.525.026.432.822.948.4
12.319.6
11.214.1
8.9
20.826.429.955.0
16.719.719.825.6
1.7
20.923.724.628.821.132.117.6
26.329.631.436.432.144.142.071.5
23.626.127.030.325.932.827.933.4
3.8
21.423.323.726.021.826.221.222.4
3.43.0
145
130
115
100
85
119.7
103.0
Popular shareindex
Market index
49
BANCO POPULAR
The relative weight of BancoPopular, considered individually, inthe aggregates of its finance groupmore than justifies a separate reviewof its activities and performance.Moreover, this is a formal obligation inan annual accountability report to theBank's shareholders.
This section analyzes thevariations in the major aggregates inthe Bank's 1999 financial statements,which are included in the notes to thefinancial statements.
Assets and funds
Total assets
The Bank's balance sheets as ofDecember 31, 1999 and 1998, aresummarized for comparison purposesin Table 39, which also shows theinterannual variation in staffheadcount and number of branches.
Total on-balance sheet assetsgrew by 6.1% in 1999 and stood atEuros 18,657,767,000 at year-end.The average total assets of Euros16,618,959,000 in 1999 were 4.6%higher than in 1998.
Table 39. Summarized balance sheets
December 31 Variation
Amount %1999 1998Assets
Cash and due from central banks . . . . . . . . . . . . . .Government debt securities . . . . . . . . . . . . . . . . . . .Due from financial intermediaries . . . . . . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . . . . . .Private fixed-interest securities . . . . . . . . . . . . . . . .Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . . . . . . . . . .Shares of group companies . . . . . . . . . . . . . . . . . . .Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .Tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .Prepayments and accrued income . . . . . . . . . . . . .Other assets accounts . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and capital
Due to financial intermediaries . . . . . . . . . . . . . . . .Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . .Bonds and other marketable debt securities . . . . . .Other liability accounts . . . . . . . . . . . . . . . . . . . . . . .Accruals and deferred income . . . . . . . . . . . . . . . . .Special allowances . . . . . . . . . . . . . . . . . . . . . . . . .Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . .Net income for the year . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro memoria:No. of employees . . . . . . . . . . . . . . . . . . . . . . . . . . .No. of branches . . . . . . . . . . . . . . . . . . . . . . . . . . . .
153,012372,249
5,048,96510,377,572
292,51238,03243,357
381,8658,883
391,74691,751
390,712
17,590,656
5,196,25610,293,011
–391,234137,109251,457
1,008,360313,229
17,590,656
7,3121,108
357,056413,494
4,745,18311,474,999
272,05718,69949,554
403,4439,051
375,718116,819421,694
18,657,767
4,635,06511,795,269
190,281403,535162,206243,710903,913323,788
18,657,767
7,2851,134
204,04441,245
(303,782)1,097,427
(20,455)(19,333)
6,19721,578
168(16,028)25,06830,982
1,067,111
(561,191)1,502,258
190,28112,30125,097(7,747)
(104,447)10,559
1,067,111
(27)26
>11.1(6.0)10.6(7.0)
(50.8)14.3
5.71.9
(4.1)27.3
7.9
6.1
(10.8)14.6
100.03.1
18.3(3.1)
(10.4)3.4
6.1
(0.4)2.3
(Euro thousand)
Addition to the on-balance sheetassets of the contra item for otherfunds intermediated by the Bankgives the total business volumemanaged , which at 1999 year-endamounted to Euros 25,683,771,000,up 4.6% on 1998.
The variations in the main assetand liability balance sheet captionsare analyzed in detail in the followingsubsections.
50
Shareholders' equity
The Bank's book equity at thebeginning of 1999, after thedistribution of 1998 income,amounted to Euros 1,105,207,000.
During 1999, the Bank’s capitalstock decreased by Euros 2,198,000and its reserves by Euros145,695,000 as a result of thebuyback in the market of 2,197,942shares, 1.98% of the sharesoutstanding, and of the cancellation inDecember of the shares so boughtback. The reserves also decreased byEuros 69,002,000 due to the transferof this amount to a special allowanceagainst which the execution of anextraordinary early retirements plan,similar to those of the three previousyears, was charged. The prepaidtaxes of Euros 15,596,000 arising
from the use of this allowancereverted to reserves at year-end, asrequired by the terms of the Bank ofSpain’s authorization for thisoperation. This operation wasauthorized by the ShareholdersMeeting on June 23, 1999.
The Bank’s capital was increasedin 1999 by Euros 27,553,000,charged to paid-in surplus reserves,in order to fix the par value of thecapital stock at Euros 1 per share.
Assuming that the ordinaryShareholders Meeting, called for June22, 2000, approves the proposeddistribution of 1999 income, the totalbook equity will amount to Euros993,658,000, 10.1% less than in 1998and equivalent to 1,226% of the parvalue of common stock.
Table 40 . Customer funds
December 31 Variation
%1998
186,10382,438
3,2946,770
93,601
9,330,226
3,944,4231,830,2432,505,2741,050,286
2,278,940156,239288,554
1,832,3551,792
190,281
11,985,550
982,5444,646,128
218,4721,045,902
132,958
7,026,004
19,011,554
90,91586,419
3,462800234
8,187,065
3,596,6851,638,7861,999,038
952,556
2,015,031138,479274,182
1,597,6224,748
–
10,293,011
1,075,9264,666,354
202,487903,147104,167
6,952,081
17,245,092
95,188(3,981)
(168)5,970
93,367
1,143,161
347,738191,457506,236
97,730
263,90917,76014,372
234,733(2,956)
190,281
1,692,539
(93,382)(20,226)15,985
142,75528,791
73,923
1,766,462
>(4.6)(4.9)
>>
14.0
9.711.725.310.3
13.112.8
5.214.7
(62.3)
–
16.4
(8.7)(0.4)7.9
15.827.6
1.1
10.2
Amount1999
(Euro thousand)
Customer deposits:
From public bodies:Demand deposits . . . . . . . . . . . . . . . . . . . . . . .Savings deposits . . . . . . . . . . . . . . . . . . . . . . .Time deposits . . . . . . . . . . . . . . . . . . . . . . . . .Assets sold under repurchase agreements . . .
From other residents:Deposits of private-sector residents
Demand deposits . . . . . . . . . . . . . . . . . . . .Savings deposits . . . . . . . . . . . . . . . . . . . . .Time deposits . . . . . . . . . . . . . . . . . . . . . . .Assets sold under repurchase agreements .
From nonresidents:Demand deposits . . . . . . . . . . . . . . . . . . . . . .Savings deposits . . . . . . . . . . . . . . . . . . . . . . .Time deposits . . . . . . . . . . . . . . . . . . . . . . . . .Assets sold under repurchase agreements . . .
Bonds and other marketable debt securities . . . . . . . .
Total (a) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intermediated customer funds:
Financial assets sold outrightto customers (outstanding balances) . . . . . . . .
Mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Asset portfolio management . . . . . . . . . . . . . . . .Pension funds . . . . . . . . . . . . . . . . . . . . . . . . . . .Life insurance technical reserves . . . . . . . . . . . . . . .
Total (b) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total (a+b) . . . . . . . . . . . . . . . . . . . . . . . . .
Customer funds
The 1999 year-end total on-balance sheet assets were 64.2%financed with customer funds , whichtotaled Euros 11,985,550,000, up16.4% on 1998.
The average on-balance sheetcustomer funds held in 1999 wereEuros 11,317,383,000, 8.7% up onthe 1998 figure.
Table 40 details, by sector andtype of account, the variation in thesecustomer funds from 1998 to 1999.
The foregoing figures do notinclude certain other funds alsointermediated by the Bank which arenot reflected in the balance sheet
because they were invested in otherspecific assets or financialinstruments (financial assets soldoutright to customers, savings routedto mutual or pension funds, directasset portfolio investments, or lifeinsurance technical reserves).
Including these additional funds,which are also detailed in Table 40,the total customer funds or totalintermediated savings at 1999 year-end amounted to Euros19,011,554,000, an increase of 10.2%over 1998.
Loans and discounts
Banco Popular's loans anddiscounts to customers at December31, 1999, including nonperforming
Table 41. Loans and discounts
December 31 VariationAmount %1999 1998
8,528
–8,516
12
10,350,516
2,031,7393,196,092
3,193,2252,867
3,949,942
3,458,957490,985
498,461674,282
61,417
27034,282
29,3294,953
22,6104,255
119,054
619117,720
715
10,539,515
6,362
–6,305
57
11,403,637
2,199,5993,833,030
3,828,4484,582
4,072,273
3,919,532152,741
465,483833,252
137,174
– 51,841
47,8134,028
80,2535,080
109,195
618107,687
890
11,656,368
(2,166)
–(2,211)
45
1,053,121
167,860636,938
635,2231,715
122,331
460,575(338,244)
(32,978)158,970
75,757
(270)17,559
18,484(925)
57,643825
(9,859)
(1)(10,033)
175
1,116,853
(25.4)
–(26.0)
>
10.2
8.319.9
19.959.8
3.1
13.3(68.9)
(6.6)23.6
>
(100.0)51.2
63.0(18.7)
>19.4
(8.3)
(0.2)(8.5)24.5
10.6
(Euro thousand)
To public bodies:
Secured loans . . . . . . . . . . . . . . . . . . . . . . .Other term loans . . . . . . . . . . . . . . . . . . . . .Overdrafts and other . . . . . . . . . . . . . . . . . .
To other residents:
Trade loans and discounts . . . . . . . . . . . . . .Secured loans. . . . . . . . . . . . . . . . . . . . . . . .
Mortgage loans . . . . . . . . . . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other term loans . . . . . . . . . . . . . . . . . . . . .
Loans and credits . . . . . .Repos . . . . . . . . . . . . . .
Overdrafts and other . . . . . . . . . . . . . . . . . .Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To nonresidents:
Trade loans and discounts . . . . . . . . . . . . .Secured loans. . . . . . . . . . . . . . . . . . . . . . . .
Mortgage loans . . . . . . . . . . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other term loans . . . . . . . . . . . . . . . . . . . . .Overdrafts and other . . . . . . . . . . . . . . . . . .
Nonperforming loans:
To public bodies . . . . . . . . . . . . . . . . . . . . . .To other residents . . . . . . . . . . . . . . . . . . . .To nonresidents . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51
loans, totaled Euros 11,656,368,000,an increase of Euros 1,116,853,000(10.6%) over the 1998 year-endfigure. The amount of loans anddiscounts shown in the summarizedbalance sheet in Table 39 is net of therelated credit loss allowance.
Average loans and discountsincreased by 8.9% in 1999 over 1998.
Table 41 is a breakdown, byborrower sector and type oftransaction, of year-end loans anddiscounts in 1999 and 1998, showingalso the year-on-year variation.
The commentary in the earliersection of this Report on the variationin loans and discounts at consolidatedlevel is fully applicable to this captionat Banco Popular.
Risk management
Table 42 presents detailedinformation for analyzing BancoPopular's credit risk management,and the results of that management in1999.
The book balance ofnonperforming loans , includingdoubtful off-balance sheet risks, at thebeginning of 1999 amounted to Euros123,087,000 and represented 0.95%of the Bank's total risk at that date.
Euros 96,734,000 of additionalbalances were classified asnonperforming during the year, 2.9%less than in 1998, and Euros69,146,000 of delinquent loans weresettled, 16.7% less than in 1998. The
Table 42. Risk performance
December 31
%1999 1998
Nonperforming loans*:Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Balances recovered . . . . . . . . . . . . . . . . . . . . . . .Net variation for the year . . . . . . . . . . . . . . . . . . .
% increase . . . . . . . . . . . . . . . . . . . . . . . . . . . .Writeoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31 . . . . . . . . . . . . . . . . . . . . .
Allowance for credit losses:Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . .
Annual provision:Gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . .Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other variations . . . . . . . . . . . . . . . . . . . . . . . . . .Writeoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31 . . . . . . . . . . . . . . . . . . . . .
Foreclosed real estate assets . . . . . . . . . . . . . . . . . .Allowance for potential losses on foreclosed assets .
Pro memoria:Total risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Loans transferred to suspense accounts . . . . . . . . .Nonperforming mortgage loans . . . . . . . . . . . . . . . . .
Risk quality measures (%):Nonperformance (Nonperforming loans/Total risks)Insolvency (Writeoffs/Total risks) . . . . . . . . . . . . .Coverage (Credit loss allowance/Nonperforming loans)
(Credit loss allowance plus mortgages/Nonperforming loans) . . . . . . . . . . . . . .
123,08796,734
(69,146)27,588
22,4(37,863)112,812
181,812
82,415(23,666)58,749
(2)(37,863)202,696
67,75516,974
14,514,662334,281
17,851
0.780.26
179.68
195.50
(20.8)(2.9)
(16.7)66.1
(22.8)(8.3)
(3.6)
27.96.9
38.9
(22.8)11.5
(22.6)(4.5)
11.97.3
(40.6)
*Including doubtful off-balance sheet risks, but excluding country riskand the related country risk allowance
155,50699,624
(83,012)16,612
10,7(49,031)123,087
188,544
64,441(22,147)42,294
5(49,031)181,812
87,52517,766
12,976,668311,601
30,051
0.950.38
147.71
172.12
(Euro thousand)
(32,419)(2,890)13,86610,976
11,168(10,275)
(6,732)
17,974(1,519)16,455
(7)11,16820,884
(19,770)(792)
1,537,99422,680
(12,200)
Amount
Variation
52
53
Table 43. Allowance for nonperforming loans as of December 31
Provision required . . . . . . . . . . . . . . . . . . . . . . . . . .Provision not required . . . . . . . . . . . . . . . . . . . . . . . .Doubtful off-balance sheet balances . . . . . . . . . . . . .
Total nonperforming loans . . . . . . . . . . . . . . . . . . . . .
Computable risks for a general provision of: 1 % . . .0.5 % . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Total required provisions . . . . . . . . . . . . . . . . . . . . . .Balance of credit loss allowances . . . . . . . . . . . . . . .Cushion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BalanceRequiredprovisions
98,31920,032
4,736
123,087
9,312,0762,386,914
60,390–
3,877
64,267
93,12111,935
2,086171,409181,812
10,403
(Euro thousand)
BalanceRequiredprovisions
92,97615,574
4,262
112,812
10,525,5742,914,496
61,406–
3,144
64,550
105,25614,572
1,491185,869202,696
16,827
1999 1998
net increase of Euros 27,588,000 was66.1% higher than in 1998.
Loans written off in 1999 againstthe recorded allowances, eitherbecause of expiration of the periodstipulated by the Bank of Spain forkeeping them on the books orbecause they were classified aslosses, amounted to Euros37,863,000, 22.8% less than in 1998.
The net balance of Euros112,812,000 at year-end represented0.78% of the Bank's total risks andwas 179.7% covered by credit lossallowances. In evaluating the degreeof asset soundness implicit in thatpercentage of coverage, it should beborne in mind that the nonperformingloans balance included Euros17,851,000 of nonperformingmortgage loans ; taking into accountthe mortgage guarantees of theseloans, the level of coverage was195.5%.
The net credit loss provisionsrecorded in 1999 and charged toincome for the year totaled Euros58,749,000, 38.9% more than in1998, and represented the use of anaverage implicit risk premium foroutstandings of 0.56% in 1999, ascompared with 0.44% in 1998.
Table 42 provides additionalinformation about the value of the
foreclosed real estate assets and ofthe provisions recorded for possiblelosses on the book value of theseassets.
Table 43 shows in detail theminimum coverage required fornonperforming and doubtful balancesunder current Bank of Spainregulations, and the year-end finalbalance of the Bank's credit lossallowance , which was 9.1% inexcess of the required minimum levelat year-end. In absolute value theover-provision amounted to Euros16,827,000.
Securities portfolios
The balance of the securitiesportfolios reflected in the Bank'sDecember 31, 1999, balance sheetwas Euros 1,157,247,000, anincrease of 2.6% over 1998.
Table 44 presents a detail of theportfolios classified by issuer.
Except for the shares of groupcompanies, which are carried at cost,the portfolios are stated at the lowerof cost or market. The unrealizedlosses so disclosed are fully providedfor by the security price fluctuationallowances required by Bank ofSpain regulations that are specificallyidentified in the table. In contrast,accounting recognition is not given to
54
the unrealized gains in the portfolios.Comparison of the book value of theequity securities and participatinginterests with their market value orunderlying book value per theinvestees' balance sheets disclosedunrealized gains of at least Euros
717,873,000. This figure includes theshareholdings in banking subsidiariesstated at straight book value; on thebasis of the year-end share marketprices, there was a further Euros1,238,303,000 of unrealized gains.
Table 44. Year-end security portfolios detail
19981999
372,249
163,511191,585
17,153– .–––
292,512
23,60229,780
214,45325,759
(1,082)(1,082)
–
38,032
39,691(1,659)
43,357
47,913(4,556)
381,865
383,806318,470
65,336(1,941)
413,494
85,087328,177
2291–––
272,057
1,18911,930
181,74778,788
(1,597)(1,597)
–
18,699
19,216(517)
49,554
55,534(5,980)
403,443
405,653339,089
66,564(2,210)
(Euro thousand)
Government debt securities:
Bank of Spain certificates of deposit . . . . . . . . . . . . . . . . . . . . .Treasury bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other "book entry system" securities . . . . . . . . . . . . . . . . . . . .Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Allowance for security price fluctuations . . . . . . . . . . . . .Pro memoria: Balance of security price fluctuation allowance
Deferred writedowns (unrealized losses) . . . .
Private fixed-interest securities:
Issued by: Public bodies . . . . . . . . . . . . . . . . . . . . . . . . . . . .Financial intermediaries . . . . . . . . . . . . . . . . . . . .Other residents . . . . . . . . . . . . . . . . . . . . . . . . . . .Nonresidents . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Allowance for security price fluctuations . . . . . . . . . . . . .Pro memoria: Balance of security price fluctuations allowance
Deferred writedowns (unrealized losses) . . . . .
Equity securities:
Equity securities, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Less: Allowance for security price fluctuations . . . . . . . . . . . . .
Participating interests:
Participating interests, gross . . . . . . . . . . . . . . . . . . . . . . . . . . .Less: Allowance for security price fluctuations . . . . . . . . . . . . .
Shares of group companies:
Shares of group companies:Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Allowance for security price fluctuations . . . . . . . . . . . . .
Variation
Amount %
41,245
(78,424)136,592(16,924)
1
–––
(20,455)
(22,413)(17,850)(32,706)53,029
(515)(515)
–
(19,333)
(20,475)1,142
6,197
7,621(1,424)
21,578
21,84720,619
1,228(269)
11.1
(48.0)71.3
(98.7)100.0
–––
(7.0)
(95.0)(59.9)(15.3)
>
47.647.6
–
(50.8)
(51.6)(68.8)
14.3
15.931.3
5.7
5.76.51.9
13.9
Income and profitability
Income statement
The Bank's income statementsfor the last five years, presented inthe currently required official format,are included in the Notes to thefinancial statements section of thisReport.
Table 45 summarizes andcompares the 1999 and 1998 incomestatements, and Table 46summarizes the yields on assets andthe costs of funds in the two years.
Yields and costs
The starting point for an orderlyanalysis of the Bank's incomestatement is the interest revenuesdirectly earned on the assets in whichthe available funds were invested.
The Bank's average total assetsin 1999 amounted to Euros16,618,959,000, an increase of 4.6%over 1998.
55
The interest revenues of Euros969,788,000 obtained on theaforementioned assets were 7.6%lower than in 1998 and the overall
average yield on assets fell by 0.78percentage points from 6.61% in 1998to 5.83% in 1999.
Variation
Amount %1999 1998
969,788301,209
668,579
273,73631,469
973,784
402,964295,869107,095
42,475(21,685)
506,660
43,8971,691
(15,336)
445,736
121,948
323,788
1,049,547415,480
634,067
239,71338,280
912,060
394,962292,189102,773
41,175(21,552)
454,371
24,701559
(2,753)
426,358
113,129
313,229
(79,759)(114,271)
34,512
34,023(6,811)
61,724
8,0023,6804,3221,300(133)
52,289
19,1961,132
(12,583)
19,378
8,819
10,559
(7.6)(27.5)
5.4
14.2(17.8)
6.8
2.01.34.23.20.6
11.5
77.7>>
4.5
7.8
3.4
Table 45. Comparative statements of income
(Euro thousand)
Interest revenues . . . . . . . . . . . . . . . . . . . . . . . . .Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest revenue . . . . . . . . . . . . . .
Fees for services, net . . . . . . . . . . . . . . . . . . . . .Asset trading and exchange profits, net . . . . . . . .
Ordinary margin . . . . . . . . . . . . . . . . .
Operating costs:Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other expenses . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other operating income/expenses, net . . . . . . . .
Operating margin . . . . . . . . . . . . . . . .
Writeoffs and provisions for credit losses . . . . . . .Writedowns of financial assets . . . . . . . . . . . . . . .Extraordinary gains (losses), net . . . . . . . . . . . . .
Income before taxes . . . . . . . . . . . . .
Corporate income tax provision . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . .
Table 46. Yields and costs
Monetary assets and financial system. . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . . . . .Securities portfolio . . . . . . . . . . . . . . . . . . . . . . . .
Total earning assets (a) . . . . . . . . . . . . . . . . .Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial system . . . . . . . . . . . . . . . . . . . . . . . . . .Customer funds . . . . . . . . . . . . . . . . . . . . . . . . . .Pension allowance. . . . . . . . . . . . . . . . . . . . . . . . .
Total interest bearing liabilities (b) . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Capital accounts . . . . . . . . . . . . . . . . . . . . . . . . . .
Total funds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spread (a-b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1999 1998
Averagebalance
Distri-bution
(%)
Interestrevenue orexpense
Averagerate(%)
Averagebalance
Distri-bution
(%)
Interestrevenue orexpense
Averagerate(%)
3.616.85
10.856.12
5.83
3.281.543.531.99
1.81
4.13
164,444721,108
84,236969,788
969,788
117,734174,796
8,679301,209
301,209
27.4263.32
4.6795.41
4.59
100.00
21.5968.10
1.4891.17
2.666.17
100.00
4,556,74210,522,958
776,48415,856,184
762,775
16,618,959
3,588,73911,317,383
245,71215,151,834
442,1371,024,988
16,618,959
4,955,0929,664,767
592,85115,212,710
675,183
15,887,893
3,643,75610,409,019
258,58514,311,360
453,6441,122,889
15,887,893
31.1960.83
3.7395.75
4.25
100.00
22.9365.51
1.6390.07
2.867.07
100.00
220,628747,737
81,1821,049,547
1,049,547
159,334245,827
10,319415,480
415,480
4.457.74
13.696.90
6.61
4.372.363.992.90
2.62
4.00
(Euro thousand)
56
Interest expenses arising fromthe use of third-party funds totaledEuros 292,530,000 in 1999, 27.8%less than in 1998. With theregulatorily required addition of theamount equivalent to interestexpenses allocated to the aggregatein-house pension allowance, totalinterest expenses amounted to Euros301,209,000 in 1999, a decrease of27.5% from 1998.
The average overall cost offunds decreased by 0.81 percentagepoints from 2.62% in 1998 to 1.81% in1999.
The commentary in the earliersection of this Report analyzing theconsolidated income statement is fullyapplicable to the variation in the yieldand cost rates at Banco Popular, bothoverall and as broken down in Table46.
Net interest revenueand ordinary margin
Net interest revenue (totalinterest revenues less total interestexpenses) amounted to Euros668,579,000 in 1999, 5.4% higherthan in 1998.
Subtraction of the average rate ofcost of interest-bearing funds (1.99%in 1999) from the average rate of yieldon earning assets (6.12% in 1999)discloses the Bank's spread for theyear, which at 4.13 points was 0.13points higher than in 1998.
Subtraction of the average rate ofcost of total funds from the averagerate of yield on total assets disclosesthe net interest margin (net interestrevenue as a percentage of averagetotal assets), which was 4.02% in1999, 0.03 percentage points higherthan the 1998 figure of 3.99%.
The ordinary revenue of Euros973,784,000 in 1999, which was 6.8%
higher than in 1998, comprises thenet interest revenue plus the servicefee revenues of Euros 273,736,000,up by 14.2% on 1998, and the assettrading and exchange profits of Euros31,469,000, which included Euros16,317,000 of exchange, translationand dealing gains.
Operating costs, depreciation andother operating incomeand expenses
Personnel expenses increasedby 1.3% to Euros 295,869,000 in1999. General expenses were 5.2%higher at Euros 91,708,000 in 1999.Sundry taxes , totaling Euros15,387,000, were 1.2% lower than in1998.
Total operating costs(personnel and general expensesplus sundry taxes other than incometax) increased by 2.0% in 1999.
The depreciation andamortization of tangible and intangibleassets booked in 1999 amounted toEuros 42,475,000, 3.2% up on 1998.
The other operatingincome/expenses headingencompasses, together with otherresidual revenue or expense items,the contribution for the year to theDeposit Guarantee Fund, whichamounted to Euros 8,447,000; aprovision of Euros 189,000 fordirectors’ remuneration; and thecontribution of Euros 13,427,000 to awelfare foundation pursuant to aresolution adopted on a permanentbasis by the Board of Directors in1979, which was amended, as to thebeneficiary foundation, in 1982, suchcontribution signifying a reduction byat least the same amount of theprovision for directors' remunerationauthorized by Article 16 of the Bank'sbylaws.
57
The net effect of these provisionsand recoveries signified that the costto the Bank of maintaining creditsoundness in 1999 amounted toEuros 43,897,000, 77.7% more thanin 1998. Euros 1,691,000 of financialinvestment writedown provisions werealso recorded in 1999.
The extraordinary gains(losses) caption includes a profit ofEuros 8,443,000 on the sale ofassets; Euros 2,940,000 of provisionsfor sundry purposes, basically forpossible losses on foreclosed realestate assets; and net charges ofEuros 6,968,000, includingadjustments or reversals of accruedprior years’ results and losses forthefts.
This caption also includes anextraordinary provision of Euros13,871,000 to the internal allowancefor pensions to cover the potentialcommitments to serving employees.
After application of all theforegoing items, the resulting incomebefore taxes in 1999 amounted toEuros 445,736,000, 4.5% higher thanin 1998.
Table 47. Profitability
Variation1999 1998
5.831.81
4.02
1.650.19
5.86
2.421.780.640.26
(0.13)
3.05
0.010.38
2.68
0.73
1.95
6.612.62
3.99
1.510.24
5.74
2.491.840.650.26
(0.13)
2.86
0.010.19
2.68
0.71
1.97
(0.78)(0.81)
0.03
0.14(0.05)
0.12
(0.07)(0.06)(0.01)
––
0.19
–0.19
–
0.02
(0.02)
Yield on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Cost of funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin . . . . . . . . . . . . . . . . . . . . . . . . . . .
Yield on services, net . . . . . . . . . . . . . . . . . . . . . . . . . . .Yield on financial asset trading and exchange profits, net .
Ordinary margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs:Personnel expenses . . . . . . . . . . . . . . . . . . . . . . . .Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other operating income / expenses, net . . . . . . . . . . . . .
Operating profitability . . . . . . . . . . . . . . . . . . . . . . . . .
Other items, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Provisions and writedowns . . . . . . . . . . . . . . . . . . . . . . .
Pre-tax income return . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate income tax . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income return (ROA) . . . . . . . . . . . . . . . . . . . . . .
(As % of average total assets)
Operating margin
The difference between theordinary revenue, on the one hand,and the operating costs, depreciationand amortization, and other operatingresults, on the other, is the operatingincome , which at Euros 506,660,000in 1999 was 11.5% higher than in1998.
The next step in determining thefinal income is the subtraction fromthe operating income of the provisionsand writedowns made during theyear, and the addition or subtractionof other results classified asextraordinary items in the officialincome statement.
The credit loss provisionsrecorded in 1999 amounted, as statedearlier, to Euros 58,749,000, 38.9%up on 1998. To that figure must beadded the provision of Euros1,459,000 to the country riskallowance in order to comply with therequired level of coverage.
Recoveries of doubtful creditbalances written off as losses in prioryears amounted to Euros 16,311,000in 1999, which was Euros 1,689,000lower than in 1998.
58
The core of the finance groupheaded by Banco Popular Español isthe banking group consisting of theBank itself, five regional banks(Banco de Andalucía, Banco deCastilla, Banco de Crédito Balear,Banco de Galicia and Banco deVasconia), and two joint-venturebanks with leading EU financialentities, of which one —BancoPopular Hipotecario (in which the
other shareholder is Germany'sHypoVereinsbank)— is a specializedbank operating in Spain and theother, Banco Popular Comercial(jointly owned with Banco ComercialPortugués), operates in France.
Since there is completelyunified management in the group, allthe considerations made previously in
Majority owned(consolidated by global integration method)
Andalucía . . . . . . . . .Castilla . . . . . . . . . .Crédito Balear . . . . . . . .Galicia . . . . . . . . . . .Vasconia . . . . . . . . . .
Total . . . . . . . . .
50 % owned(consolidated by proportional integration method)
Popular Comercial . . . . . .Popular Hipotecario . . . . . .
Total . . . . . . . . .
Banks 1999 1998%
variation 1999 1998%
variation
Customer funds* Loans and discounts
2,955,5942,344,608
870,8111,590,4771,437,653
9,199,143
629,6672,713
632,380
2,721,5942,253,916
807,9761,525,1091,331,711
8,640,306
640,9792,094
643,073
8.64.07.84.38.0
6.5
(1.8)29.6
(1.7)
2,387,7581,441,702
572,0731,330,911
970,143
6,702,587
119,238836,258
955,496
2,032,2681,293,655
485,8761,201,958
881,643
5,895,400
95,549709,008
804,557
17.511.417.710.710.0
13.7
24.817.9
18.8
BANKING SUBSIDIARIES
Table 48. Year-end customer funds and loans and discounts
* On-balance sheet customer funds and other intermediated funds
(Euro thousand)
Subtraction from that figure ofcorporate income tax of Euros121,948,000 (7.8% higher than in1998) leaves the final net income forthe year.
Net income and profitability
Net income is the finalexpression of the Bank's results forthe year. The path by which the Bankobtained net income of Euros323,788,000 in 1999, an increase of
3.4% over 1998, has been explained,step by step, in the precedingparagraphs.
Table 47 summarizes all theforegoing analysis by presenting acomparison of earnings in 1999 and1998 as percentages of average totalassets, in order to determine the finalnet income return , which in 1999was 1.95%, as compared with 1.97%in 1998.
59
Nonperforming loans*:Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Balances recovered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Net variation for the year . . . . . . . . . . . . . . . . . . . . . . . . . . .
% increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Writeoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for credit losses:Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual provision:Gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other variations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Writeoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreclosed real estate assets . . . . . . . . . . . . . . . . . . . . . . . . .Allowance for potential losses on foreclosed assets . . . . . . . .
Pro memoria:Total risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Loans transferred to suspense accounts . . . . . . . . . . . . . . . .Nonperforming mortgage loans . . . . . . . . . . . . . . . . . . . . . .
Risk quality measures (%):Nonperformance (Nonperforming loans/Total risks) . . . . . .Insolvency (Writeoffs/Total risks) . . . . . . . . . . . . . . . . . . . . .Coverage (Credit loss allowance / Nonperforming loans) . . .Coverage (Credit loss allowance plus mortgages/
Nonperforming loans) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
* Including doubtful off-balance sheet risks
Table 49. 1999 risk performance
(Euro thousand)
Andalucía CastillaCréditoBalear Galicia Vasconia
PopularComercial
3,970478
(1,615)(1,137)
(28.6)(1,144)1,689
16,643
6,428(779)
5,649–
(1,144)21,148
5,6861,424
854,1471,1441,538
0.200.13
1,252.10
1,343.16
1,082374
(276)98
9.1(18)
1,162
758
352(141)211
–(18)951
––
124,757–
580
0.930.01
81.84
131.76
9,5446,516
(4,375)2,141
22.4(2,839)8,846
16,265
5,750(1,775)3,975
–(2,839)17,401
3,8391,530
1,090,49836,499
2,377
0.810.26
196.71
223.58
15,5309,284
(5,403)3,881
25.0(4,239)15,172
18,264
7,857(1,471)6,386
–(4,239)20,411
2,138411
1,484,64927,576
4,543
1.020.29
134.53
164.47
2,5304,835
(2,680)2,155
85.2(1,897)2,788
6,550
2,968(684)
2,284–
(1,897)6,937
4,2982,778
604,55713,038
722
0.460.31
248.82
274.71
20,68712,752(8,901)3,851
18.6(4,173)20,365
21,368
10,377(3,771)6,606
–(4,173)23,801
7,8232,109
1,615,80753,291
7,220
1.260.26
116.87
152.33
37,91225,509
(19,256)6,253
16.5(10,180)33,985
40,533
20,940(7,094)13,846
–(10,180)44,199
24,5829,900
2,835,23291,916
9,407
1.200.36
130.05
157.73
PopularHipotecario
this Report are also directly applicableto the banking subsidiaries. Thissection presents relevant financialdata of all the banking subsidiaries,whose individual 1999 and 1998summarized financial statements areincluded in an exhibit hereto.
Table 48 compares each bank'scustomer funds and loans anddiscounts at the end of 1999 and1998 and shows the related totalamounts.
Table 49 details the changes innonperforming loans and creditloss allowances at the banking
subsidiaries in 1999, together withdata of foreclosed real estate assetsand the related provisions, and showsclearly how each of them managedtheir credit risk by strictly applying theoperating principles and policiesdiscussed earlier in analyzing thegroup or individual Banco Populardata.
Tables 50a and 50b present thebanks' individual 1999 and 1998income statements expressed aspercentages of average total assets, inorder to disclose the explanatory,conditioning and determining factorsthat led to their final net income return .
60
Yield on assets . . . . . . . . . . . . . . . . . . . . . . . . . .Cost of funds . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin . . . . . . . . . . . . . . . . . . . . .
Yield on services, net . . . . . . . . . . . . . . . . . . . . . .Yield on financial asset trading and exchange profits, net
Ordinary margin . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . .Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other operating income / expenses, net . . . . . . .
Operating profitability . . . . . . . . . . . . . . . . . . . .
Other items, net . . . . . . . . . . . . . . . . . . . . . . . . . .Provisions and writedowns . . . . . . . . . . . . . . . . .
Pre-tax income return . . . . . . . . . . . . . . . . . . .
Corporate income tax . . . . . . . . . . . . . . . . . . . . .
Net income return (ROA) . . . . . . . . . . . . . . . . .
Table 50 b. Profitability of banks 50 % owned
(As % of average total assets)
1999 1998
PopularComercial
PopularHipotecario
1999 1998
3.641.70
1.94
1.210.04
3.19
2.650.330.02
0.23
(0.17)0.02
0.04
–
0.04
4.152.86
1.29
0.830.19
2.31
1.780.210.01
0.33
(0.01)(0.07)
0.39
0.14
0.25
5.373.04
2.33
(0.06)–
2.27
0.260.02
–
1.99
0.110.84
1.26
0.71
0.55
6.474.20
2.27
(0.01)–
2.26
0.340.03
–
1.89
0.120.68
1.33
0.78
0.55
Yield on assets . . . . . . . . . . . . . . . . . . . . . . . . . .Cost of funds . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin . . . . . . . . . . . . . . . . . . . . .
Yield on services, net . . . . . . . . . . . . . . . . . . . . . .Yield on financial asset trading and exchange profits, net
Ordinary margin . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs:Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other operating income / expenses, net . . . . . . .
Operating profitability . . . . . . . . . . . . . . . . . . . .
Other items, net . . . . . . . . . . . . . . . . . . . . . . . . . .Provisions and writedowns . . . . . . . . . . . . . . . . .
Pre-tax income return . . . . . . . . . . . . . . . . . . .
Corporate income tax . . . . . . . . . . . . . . . . . . . . .
Net income return (ROA) . . . . . . . . . . . . . . . . .
1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
Andalucía CastillaCrédito Balear Galicia Vasconia
Table 50 a. Profitability of majority owned banks
(As % of average total assets)
6.591.04
5.55
1.950.13
7.63
2.920.31
(0.19)
4.21
0.110.38
3.94
1.37
2.57
7.351.66
5.69
1.920.10
7.71
3.170.34
(0.21)
3.99
0.110.30
3.80
1.30
2.50
5.731.17
4.56
1.520.05
6.13
2.480.26
(0.21)
3.18
0.040.21
3.01
1.08
1.93
6.711.94
4.77
1.430.04
6.24
2.570.27
(0.21)
3.19
(0.04)0.30
2.85
0.99
1.86
5.791.18
4.61
2.460.20
7.27
3.550.34
(0.13)
3.25
0.040.19
3.10
1.05
2.05
6.571.89
4.68
2.150.42
7.25
3.720.37
(0.15)
3.01
2.24(0.29)
5.54
1.12
4.42
6.091.38
4.71
1.450.05
6.21
2.260.20
(0.20)
3.55
0.010.26
3.30
1.15
2.15
6.892.24
4.65
1.320.05
6.02
2.260.20
(0.19)
3.37
–0.25
3.12
1.10
2.02
5.391.48
3.91
1.900.09
5.90
2.560.26
(0.17)
2.91
0.030.29
2.65
0.86
1.79
6.202.44
3.76
1.800.10
5.66
2.600.24
(0.17)
2.65
0.090.31
2.43
0.77
1.66
61
Finally, Table 53 provides asynthesis of the performance ofeach bank in 1999 and 1998 byshowing the volume of business as
measured by average total on-balance sheet assets and averageequity, and the resulting finalmeasures of return .
Table 53. Business volume and income return
Bank
Average totalassets
Averageequity
Return on assets(ROA)
Andalucía . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Castilla. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Crédito Balear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Galicia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Vasconia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Popular Comercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Popular Hipotecario. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on equity (ROE)
(Euro thousand and %)
1999 1998 1999 19981999 1998 1999 1998
2,647,6811,856,971
772,5951,518,5651,058,947
647,399766,169
2,437,4591,836,110
731,7441,498,5161,046,645
777,481614,625
15.61 %13.9549.1317.9521.62
2.186.08
16.33 %13.9518.0817.6721.70
0.296.52
2.50 %1.864.422.021.660.250.55
2.57 %1.932.052.151.790.040.55
389,636245,009
65,793168,824
80,39187,48955,864
417,235257,624
87,652184,559
87,39989,39965,261
Andalucía . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Castilla . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Crédito Balear. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Galicia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Vasconia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Popular Comercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Popular Hipotecario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Table 51. Per share data *
BankNet income Dividend
Bookvalue*
* After distribution of income for the year
Closingmarket price
(Euros)
1999 1998 1999 19981999 1998 1999 1998
3.140.831.121.070.591.05
51.34
2.800.792.291.000.547.61
46.62
37.2421.4117.5615.6011.79
35.0015.0018.0016.00
9.87
19.416.026.426.102.79
357.22874.29
20.936.376.856.673.05
358.28892.75
1.200.380.480.420.24
––
1.300.390.520.450.25
––
Table 51 shows the comparative1998/1999 per share data forincome, dividends, book value andmarket price.
The variations in each bank'snumber of employees and branchoffices are shown in Table 52.
Andalucía . . . . . . . .Castilla . . . . . . . . . .Crédito Balear . . . .Galicia . . . . . . . . . .Vasconia . . . . . . . .Popular Comercial .Popular Hipotecario
1999 1998 1999 1998
1,503856432668502239
26
1,519883451690510170
28
291206102130116
211
292205102135119
291
Table 52. Year-end number of employeesand branches
Bank
No.of employees
No. of branches
62
AnnexSummarized financial statements of banking subsidiaries(Euro thousand)
Assets
Cash and due from central banks . . . . . . . . . . . . .Government debt securities . . . . . . . . . . . . . . . . .Due from financial intermediaries . . . . . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . . . . .Private fixed-interest securities . . . . . . . . . . . . . . .Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . . . . . . . . .Shares of group companies . . . . . . . . . . . . . . . . .Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .Tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .Prepayments and accrued income . . . . . . . . . . . .Other assets accounts . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and capital
Due to financial intermediaries . . . . . . . . . . . . . . .Customer deposits . . . . . . . . . . . . . . . . . . . . . . . .Bonds and other marketable debt securities . . . .Other liability accounts . . . . . . . . . . . . . . . . . . . . .Accruals and deferred income . . . . . . . . . . . . . . . .Special allowances . . . . . . . . . . . . . . . . . . . . . . . .General banking risk allowance. . . . . . . . . . . . . . .Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . .Net income for the year . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro memoria: Other intermediated customer funds
31.12.99 31.12.98Balance sheets
Banco de Andalucía
43,36935,628
252,4011,995,318
73,119409
–421
1,20293,82414,43655,665
2,565,792
140,9191,852,296
– 67,45715,09740,598
1,491387,112
60,822
2,565,792
869,298
76,17623,897
165,5182,347,442
61,904436
–421
1,59486,50713,67949,822
2,827,396
114,4442,109,053
–63,96314,86340,630
1,492414,818
68,133
2,827,396
846,541
179,12640,532
138,594
46,9032,506
188,003
77,2788,348
(5,133)
97,244
8,120–
3,582
92,706
31,884
60,822
26,12034,702
174,53527,548
146,987
51,6523,411
202,050
77,2788,233
(5,097)
111,442
7,089–
57
104,410
36,277
68,133
28,24839,885
1999 1998Statements of income
Banco de Castilla
Interest revenues . . . . . . . . . . . . . . . . . . . . . .– Interest expenses . . . . . . . . . . . . . . . . . . . . . .
= Net interest revenue . . . . . . . . . . . . . . . . . . . . .
+ Fees for services, net . . . . . . . . . . . . . . . . . . .+ Asset trading and exchange profits, net . . . . .
= Ordinary margin . . . . . . . . . . . . . . . . . . . . . . . .
– Operating costs: . . . . . . . . . . . . . . . . . . . . . . . .– Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .+ Other operating income/expenses . . . . . . . . .
= Operating margin . . . . . . . . . . . . . . . . . . . . . . .
– Writeoffs and provisions for credit losses . . . .– Writedowns of financial assets . . . . . . . . . . . . .+ Extraordinary gains (losses), net . . . . . . . . . . .
= Income before taxes . . . . . . . . . . . . . . . . . . . .
– Corporate income tax provision . . . . . . . . . . . .
= Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ Retained earnings . . . . . . . . . . . . . . . . . . . . . .
Assets
Cash and due from central banks . . . . . . . . . . . . .Government debt securities . . . . . . . . . . . . . . . . .Due from financial intermediaries . . . . . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . . . . .Private fixed-interest securities . . . . . . . . . . . . . . .Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . . . . . . . . .Shares of group companies . . . . . . . . . . . . . . . . .Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .Tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .Prepayments and accrued income . . . . . . . . . . . .Other assets accounts . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and capital
Due to financial intermediaries . . . . . . . . . . . . . . .Customer deposits . . . . . . . . . . . . . . . . . . . . . . . .Bonds and other marketable debt securities . . . .Other liability accounts . . . . . . . . . . . . . . . . . . . . .Accruals and deferred income . . . . . . . . . . . . . . . .Special allowances . . . . . . . . . . . . . . . . . . . . . . . .General banking risk allowance. . . . . . . . . . . . . . .Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . .Net income for the year . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro memoria: Other intermediated customer funds
31.12.99 31.12.98Balance sheets
22,03362,559
393,2691,273,364
34,69690
–276
7842,52813,21627,008
1,869,117
138,9721,394,595
– 30,10410,25314,839
2,560243,614
34,180
1,869,117
859,321
39,58829,424
330,8961,419,032
30,09493
–275307
38,92510,52924,530
1,923,693
115,1891,457,279
–30,290
9,69315,070
2,560257,685
35,927
1,923,693
887,329
123,23835,622
87,616
26,270679
114,565
47,1435,012
(3,871)
58,539
5,968–
(198)
52,373
18,193
34,180
16,69017,490
106,45621,771
84,685
28,197997
113,879
46,0634,898
(3,852)
59,066
2,282–
(903)
55,881
19,954
35,927
17,09718,830
1999 1998Statements of income
Interest revenues . . . . . . . . . . . . . . . . . . . . . .– Interest expenses . . . . . . . . . . . . . . . . . . . . . .
= Net interest revenue . . . . . . . . . . . . . . . . . . . . .
+ Fees for services, net . . . . . . . . . . . . . . . . . . .+ Asset trading and exchange profits, net . . . . .
= Ordinary margin . . . . . . . . . . . . . . . . . . . . . . . .
– Operating costs: . . . . . . . . . . . . . . . . . . . . . . . .– Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .+ Other operating income/expenses . . . . . . . . .
= Operating margin . . . . . . . . . . . . . . . . . . . . . . .
– Writeoffs and provisions for credit losses . . . .– Writedowns of financial assets . . . . . . . . . . . . .+ Extraordinary gains (losses), net . . . . . . . . . . .
= Income before taxes . . . . . . . . . . . . . . . . . . . .
– Corporate income tax provision . . . . . . . . . . . .
= Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ Retained earnings . . . . . . . . . . . . . . . . . . . . . .
63
Assets
Cash and due from central banks . . . . . . . . . . . . .Government debt securities . . . . . . . . . . . . . . . . .Due from financial intermediaries . . . . . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . . . . .Private fixed-interest securities . . . . . . . . . . . . . . .Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . . . . . . . . .Shares of group companies . . . . . . . . . . . . . . . . .Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .Tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .Prepayments and accrued income . . . . . . . . . . . .Other assets accounts . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and capital
Due to financial intermediaries . . . . . . . . . . . . . . .Customer deposits . . . . . . . . . . . . . . . . . . . . . . . .Bonds and other marketable debt securities . . . .Other liability accounts . . . . . . . . . . . . . . . . . . . . .Accruals and deferred income . . . . . . . . . . . . . . . .Special allowances . . . . . . . . . . . . . . . . . . . . . . . .General banking risk allowance. . . . . . . . . . . . . . .Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . .Net income for the year . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro memoria: Other intermediated customer funds
31.12.99 31.12.98Balance sheets
Banco de Crédito Balear
16,4688,685
187,997479,758
26,23436
–90
–23,800
3,64217,669
764,379
46,837587,537
– 11,318
3,78016,432
1,17264,98132,322
764,379
220,439
29,2275,249
132,656565,559
22,37530
–90
–23,499
3,89416,256
798,835
25,735636,265
–11,565
3,47816,746
1,16988,03315,844
798,835
234,546
48,06913,859
34,210
15,7043,125
53,039
27,2262,723
(1,057)
22,033
72–
18,595
40,556
8,234
32,322
6,77925,543
44,7589,123
35,635
18,9701,548
56,153
27,4332,639(994)
25,087
1,513–
371
23,945
8,101
15,844
7,3308,514
1999 1998Statements of income
Banco de Galicia
Interest revenues . . . . . . . . . . . . . . . . . . . . . .– Interest expenses . . . . . . . . . . . . . . . . . . . . . .
= Net interest revenue . . . . . . . . . . . . . . . . . . . . .
+ Fees for services, net . . . . . . . . . . . . . . . . . . .+ Asset trading and exchange profits, net . . . . .
= Ordinary margin . . . . . . . . . . . . . . . . . . . . . . . .
– Operating costs: . . . . . . . . . . . . . . . . . . . . . . . .– Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .+ Other operating income/expenses . . . . . . . . .
= Operating margin . . . . . . . . . . . . . . . . . . . . . . .
– Writeoffs and provisions for credit losses . . . .– Writedowns of financial assets . . . . . . . . . . . . .+ Extraordinary gains (losses), net . . . . . . . . . . .
= Income before taxes . . . . . . . . . . . . . . . . . . . .
– Corporate income tax provision . . . . . . . . . . . .
= Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ Retained earnings . . . . . . . . . . . . . . . . . . . . . .
Assets
Cash and due from central banks . . . . . . . . . . . . .Government debt securities . . . . . . . . . . . . . . . . .Due from financial intermediaries . . . . . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . . . . .Private fixed-interest securities . . . . . . . . . . . . . . .Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . . . . . . . . .Shares of group companies . . . . . . . . . . . . . . . . .Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .Tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .Prepayments and accrued income . . . . . . . . . . . .Other assets accounts . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and capital
Due to financial intermediaries . . . . . . . . . . . . . . .Customer deposits . . . . . . . . . . . . . . . . . . . . . . . .Bonds and other marketable debt securities . . . .Other liability accounts . . . . . . . . . . . . . . . . . . . . .Accruals and deferred income . . . . . . . . . . . . . . . .Special allowances . . . . . . . . . . . . . . . . . . . . . . . .General banking risk allowance. . . . . . . . . . . . . . .Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . .Net income for the year . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro memoria: Other intermediated customer funds
31.12.99 31.12.98Balance sheets
20,95720,422
214,3511,184,871
30,21948
–174373
27,1068,270
20,579
1,527,370
104,7021,170,764
– 32,054
9,62811,900
–168,025
30,297
1,527,370
354,345
35,27712,365
144,6551,311,657
22,89347
–177760
24,8327,675
20,876
1,581,214
95,7191,216,083
–32,398
8,63511,443
–184,322
32,614
1,581,214
374,394
103,20633,573
69,633
19,761758
90,152
33,8732,939
(2,909)
50,431
3,125–
(541)
46,765
16,468
30,297
12,80217,495
92,52020,968
71,552
22,027713
94,292
34,3823,046
(2,959)
53,905
3,748–
(28)
50,129
17,515
32,614
13,84518,769
1999 1998Statements of income
Interest revenues . . . . . . . . . . . . . . . . . . . . . .– Interest expenses . . . . . . . . . . . . . . . . . . . . . .
= Net interest revenue . . . . . . . . . . . . . . . . . . . .
+ Fees for services, net . . . . . . . . . . . . . . . . . . .+ Asset trading and exchange profits, net . . . . .
= Ordinary margin . . . . . . . . . . . . . . . . . . . . . . . .
– Operating costs: . . . . . . . . . . . . . . . . . . . . . . . .– Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .+ Other operating income/expenses . . . . . . . . .
= Operating margin . . . . . . . . . . . . . . . . . . . . . . .
– Writeoffs and provisions for credit losses . . . .– Writedowns of financial assets . . . . . . . . . . . . .+ Extraordinary gains (losses), net . . . . . . . . . . .
= Income before taxes . . . . . . . . . . . . . . . . . . . .
– Corporate income tax provision . . . . . . . . . . . .
= Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ Retained earnings . . . . . . . . . . . . . . . . . . . . . .
64
Assets
Cash and due from central banks . . . . . . . . . . . . .Government debt securities . . . . . . . . . . . . . . . . .Due from financial intermediaries . . . . . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . . . . .Private fixed-interest securities . . . . . . . . . . . . . . .Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . . . . . . . . .Shares of group companies . . . . . . . . . . . . . . . . .Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .Tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .Prepayments and accrued income . . . . . . . . . . . .Other assets accounts . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and capital
Due to financial intermediaries . . . . . . . . . . . . . . .Customer deposits . . . . . . . . . . . . . . . . . . . . . . . .Bonds and other marketable debt securities . . . .Other liability accounts . . . . . . . . . . . . . . . . . . . . .Accruals and deferred income . . . . . . . . . . . . . . . .Special allowances . . . . . . . . . . . . . . . . . . . . . . . .General banking risk allowance. . . . . . . . . . . . . . .Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . .Net income for the year . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro memoria: Other intermediated customer funds
31.12.99 31.12.98Balance sheets
Banco de Vasconia
11,35315,24897,335
866,78617,886
24–
18060
21,8775,481
26,996
1,063,226
213,017708,473
– 25,711
6,54512,615
–79,48417,381
1,063,226
623,238
23,7469,675
76,345954,141
15,28225
–180308
22,8014,528
19,945
1,126,976
184,543791,122
–27,175
6,29412,194
–86,68218,966
1,126,976
646,531
64,89125,519
39,372
18,8061,046
59,224
27,2502,524
(1,749)
27,701
1,328–
(908)
25,465
8,084
17,381
7,6939,688
57,08115,675
41,406
20,123907
62,436
27,0682,746
(1,792)
30,830
3,003–
208
28,035
9,069
18,966
7,93611,030
1999 1998Statements of income
Banco Popular Comercial
Interest revenues . . . . . . . . . . . . . . . . . . . . . .– Interest expenses . . . . . . . . . . . . . . . . . . . . . .
= Net interest revenue . . . . . . . . . . . . . . . . . . . . .
+ Fees for services, net . . . . . . . . . . . . . . . . . . .+ Asset trading and exchange profits, net . . . . .
= Ordinary margin . . . . . . . . . . . . . . . . . . . . . . . .
– Operating costs: . . . . . . . . . . . . . . . . . . . . . . . .– Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .+ Other operating income/expenses . . . . . . . . .
= Operating margin . . . . . . . . . . . . . . . . . . . . . . .
– Writeoffs and provisions for credit losses . . . .– Writedowns of financial assets . . . . . . . . . . . . .+ Extraordinary gains (losses), net . . . . . . . . . . .
= Income before taxes . . . . . . . . . . . . . . . . . . . .
– Corporate income tax provision . . . . . . . . . . . .
= Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ Retained earnings . . . . . . . . . . . . . . . . . . . . . .
Assets
Cash and due from central banks . . . . . . . . . . . . .Government debt securities . . . . . . . . . . . . . . . . .Due from financial intermediaries . . . . . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . . . . .Private fixed-interest securities . . . . . . . . . . . . . . .Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . . . . . . . . .Shares of group companies . . . . . . . . . . . . . . . . .Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .Tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .Prepayments and accrued income . . . . . . . . . . . .Other assets accounts . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and capital
Due to financial intermediaries . . . . . . . . . . . . . . .Customer deposits . . . . . . . . . . . . . . . . . . . . . . . .Bonds and other marketable debt securities . . . .Other liability accounts . . . . . . . . . . . . . . . . . . . . .Accruals and deferred income . . . . . . . . . . . . . . . .Special allowances . . . . . . . . . . . . . . . . . . . . . . . .General banking risk allowance. . . . . . . . . . . . . . .Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . .Net income for the year . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31.12.99 31.12.98Balance sheets
15,326–
564,58594,84018,794
697––
36,61410,313
6,9062,337
750,412
4,435640,979
– 6,5119,027
66–
87,4891,905
750,412
9,273–
523,331118,341
30,91614
––
38,90814,484
8,4404,972
748,679
16,664629,667
– 5,4007,212
75–
89,399262
748,679
32,23222,183
10,049
6,4731,448
17,970
13,8771,635
108
2,566
6–
463
3,023
1,118
1,905
–1,905
23,58911,041
12,548
7,857231
20,636
17,1682,143
182
1,507
145–
(1,100)
262
–
262
–262
1999 1998Statements of income
Interest revenues . . . . . . . . . . . . . . . . . . . . . .– Interest expenses . . . . . . . . . . . . . . . . . . . . . .
= Net interest revenue . . . . . . . . . . . . . . . . . . . . .
+ Fees for services, net . . . . . . . . . . . . . . . . . . .+ Asset trading and exchange profits, net . . . . .
= Ordinary margin . . . . . . . . . . . . . . . . . . . . . . . .
– Operating costs: . . . . . . . . . . . . . . . . . . . . . . . .– Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .+ Other operating income/expenses . . . . . . . . .
= Operating margin . . . . . . . . . . . . . . . . . . . . . . .
– Writeoffs and provisions for credit losses . . . .– Writedowns of financial assets . . . . . . . . . . . . .+ Extraordinary gains (losses), net . . . . . . . . . . .
= Income before taxes . . . . . . . . . . . . . . . . . . . .
– Corporate income tax provision . . . . . . . . . . . .
= Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ Retained earnings . . . . . . . . . . . . . . . . . . . . . .
65
Assets
Cash and due from central banks . . . . . . . . . . . . .Government debt securities . . . . . . . . . . . . . . . . .Due from financial intermediaries . . . . . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . . . . .Private fixed-interest securities . . . . . . . . . . . . . . .Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . . . . . . . . .Shares of group companies . . . . . . . . . . . . . . . . .Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .Tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .Prepayments and accrued income . . . . . . . . . . . .Other assets accounts . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and capital
Due to financial intermediaries . . . . . . . . . . . . . . .Customer deposits . . . . . . . . . . . . . . . . . . . . . . . .Bonds and other marketable debt securities . . . .Other liability accounts . . . . . . . . . . . . . . . . . . . . .Accruals and deferred income . . . . . . . . . . . . . . . .Special allowances . . . . . . . . . . . . . . . . . . . . . . . .General banking risk allowance. . . . . . . . . . . . . . .Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . .Net income for the year . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31.12.99 31.12.98Balance sheets
Banco Popular Hipotecario
30–
3,937692,618
–––––
6,8823,474
228
707,169
633,2142,094
– 1,8734,9221,382
–60,288
3,396
707,169
5––
815,290–––––
4,6093,018
144
823,066
737,7902,713
– 2,7594,1611,701
–69,690
4,252
823,066
39,78725,813
13,974
(54)–
13,920
2,074192(30)
11,624
3,089–
(349)
8,186
4,790
3,396
–3,396
41,17323,346
17,827
(431)–
17,396
1,979152(36)
15,229
5,649–
86
9,666
5,414
4,252
–4,252
1999 1998Statements of income
Interest revenues . . . . . . . . . . . . . . . . . . . . . .– Interest expenses . . . . . . . . . . . . . . . . . . . . . .
= Net interest revenue . . . . . . . . . . . . . . . . . . . .
+ Fees for services, net . . . . . . . . . . . . . . . . . . .+ Asset trading and exchange profits, net . . . . .
= Ordinary margin . . . . . . . . . . . . . . . . . . . . . . . .
– Operating costs: . . . . . . . . . . . . . . . . . . . . . . . .– Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .+ Other operating income/expenses . . . . . . . . .
= Operating margin . . . . . . . . . . . . . . . . . . . . . . .
– Writeoffs and provisions for credit losses . . . .– Writedowns of financial assets . . . . . . . . . . . . .+ Extraordinary gains (losses), net . . . . . . . . . . .
= Income before taxes . . . . . . . . . . . . . . . . . . . .
– Corporate income tax provision . . . . . . . . . . . .
= Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ Retained earnings . . . . . . . . . . . . . . . . . . . . . .
66
In addition to the bankingsubsidiaries reported on in theprevious section, the finance groupheaded by Banco Popular Españolalso includes affiliates specializing infactoring (Heller Factoring Española),consumer credit (Abacá Crédito yFinanciación), mutual fundmanagement and administration(Sogeval), portfolio management(Eurogestión), pension fund and planmanagement (Europensiones), lifeinsurance (Eurovida) and securitiesmarket trading (Europea Popular deInversiones), as well as severalportfolio and instrumentalsubsidiaries.
The statement about completelyunified management in the precedingsection on the banking subsidiaries isfully applicable to these financial andservice affiliates.
The summarized 1999 and 1998financial statements (in thousands ofeuros) of the subsidiaries namedabove are presented in the followingtables.
NONBANKING FINANCE
AND SERVICE SUBSIDIARIES
Assets
Cash and due from central banks . . . . . . . . . . . . .Government debt securities . . . . . . . . . . . . . . . . .Due from financial intermediaries . . . . . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . . . . .Private fixed-interest securities . . . . . . . . . . . . . . .Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . . . . . . . . .Shares of group companies . . . . . . . . . . . . . . . . .Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .Tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .Prepayments and accrued income . . . . . . . . . . . .Other assets accounts . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and capital
Due to financial intermediaries . . . . . . . . . . . . . . .Customer deposits . . . . . . . . . . . . . . . . . . . . . . . .Bonds and other marketable debt securities . . . .Other liability accounts . . . . . . . . . . . . . . . . . . . . .Accruals and deferred income . . . . . . . . . . . . . . . .Special allowances . . . . . . . . . . . . . . . . . . . . . . . .General banking risk allowance. . . . . . . . . . . . . . .Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . .Net income for the year . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro memoria: off-balance sheet risks . . . . . . . . . .
31.12.99 31.12.98Balance sheets
Heller Factoring
––
1,17897,406
–––––
6911218
99,305
61,796––
21,570565252379
13,1141,629
99,305
25,495
32–
9,138128,798
–––––
6563268
138,724
90,696––
29,631964266376
14,7432,048
138,724
26,601
3,3421,659
1,683
3,270–
4,953
1,61184
168
3,426
757–
(6)
2,663
1,034
1,629
–1,629
4,0442,484
1,560
4,008–
5,568
1,76094
134
3,848
640–
(22)
3,186
1,138
2,048
–2,048
1999Statements of income
Interest revenues . . . . . . . . . . . . . . . . . . . . . .– Interest expenses . . . . . . . . . . . . . . . . . . . . . .
= Net interest revenue . . . . . . . . . . . . . . . . . . . .
+ Fees for services, net . . . . . . . . . . . . . . . . . . .+ Asset trading and exchange profits, net . . . . .
= Ordinary margin . . . . . . . . . . . . . . . . . . . . . . . .
– Operating costs: . . . . . . . . . . . . . . . . . . . . . . . .– Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .+ Other operating income/expenses . . . . . . . . .
= Operating margin . . . . . . . . . . . . . . . . . . . . . . .
– Writeoffs and provisions for credit losses . . . .– Writedowns of financial assets . . . . . . . . . . . . .+ Extraordinary gains (losses), net . . . . . . . . . . .
= Income before taxes . . . . . . . . . . . . . . . . . . . .
– Corporate income tax provision . . . . . . . . . . . .
= Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ Retained earnings . . . . . . . . . . . . . . . . . . . . . .
1998
67
Assets
Cash and due from central banks . . . . . . . . . . . . .Government debt securities . . . . . . . . . . . . . . . . .Due from financial intermediaries . . . . . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . . . . .Private fixed-interest securities . . . . . . . . . . . . . . .Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . . . . . . . . .Shares of group companies . . . . . . . . . . . . . . . . .Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .Tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .Prepayments and accrued income . . . . . . . . . . . .Other assets accounts . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and capital
Due to financial intermediaries . . . . . . . . . . . . . . .Customer deposits . . . . . . . . . . . . . . . . . . . . . . . .Bonds and other marketable debt securities . . . .Other liability accounts . . . . . . . . . . . . . . . . . . . . .Accruals and deferred income . . . . . . . . . . . . . . . .Special allowances . . . . . . . . . . . . . . . . . . . . . . . .General banking risk allowance. . . . . . . . . . . . . . .Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . .Net income for the year . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31.12.99 31.12.98Balance sheets
Sogeval *
61,773
29,9009,135
–35,862
––
123,300
16213
80,163
–––
11,62330
––
57,35511,155
80,163
21,776
46,11411,76814,54219,596
––
883,168
35818
97,430
–––
14,41044
––
68,26714,709
97,430
2,338–
2,338
16,221(174)
18,385
2,855210
54
15,374
––
1,088
16,462
5,307
11,155
24010,915
2,131–
2,131
19,1315,572
26,834
3,282250
9
23,311
––
28
23,339
8,630
14,709
24014,469
1999 1998Statements of income
Interest revenues . . . . . . . . . . . . . . . . . . . . . .– Interest expenses . . . . . . . . . . . . . . . . . . . . . .
= Net interest revenue . . . . . . . . . . . . . . . . . . . . .
+ Fees for services, net . . . . . . . . . . . . . . . . . . .+ Asset trading and exchange profits, net . . . . .
= Ordinary margin . . . . . . . . . . . . . . . . . . . . . . . .
– Operating costs: . . . . . . . . . . . . . . . . . . . . . . . .– Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .+ Other operating income/expenses . . . . . . . . .
= Operating margin . . . . . . . . . . . . . . . . . . . . . . .
– Writeoffs and provisions for credit losses . . . .– Writedowns of financial assets . . . . . . . . . . . . .+ Extraordinary gains (losses), net . . . . . . . . . . .
= Income before taxes . . . . . . . . . . . . . . . . . . . .
– Corporate income tax provision . . . . . . . . . . . .
= Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ Retained earnings . . . . . . . . . . . . . . . . . . . . . .
* Sogeval manages twenty six mutual funds, twenty four security mutualfunds and two money market asset mutual funds, with aggregate net worthtotaling Euros 7,067,978,000 and 7,140,745,000 at the end of 1999 and1998, respectively.
Assets
Cash and due from central banks . . . . . . . . . . . . .Government debt securities . . . . . . . . . . . . . . . . .Due from financial intermediaries . . . . . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . . . . .Private fixed-interest securities . . . . . . . . . . . . . . .Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . . . . . . . . .Shares of group companies . . . . . . . . . . . . . . . . .Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .Tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .Prepayments and accrued income . . . . . . . . . . . .Other assets accounts . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and capital
Due to financial intermediaries . . . . . . . . . . . . . . .Customer deposits . . . . . . . . . . . . . . . . . . . . . . . .Bonds and other marketable debt securities . . . .Other liability accounts . . . . . . . . . . . . . . . . . . . . .Accruals and deferred income . . . . . . . . . . . . . . . .Special allowances . . . . . . . . . . . . . . . . . . . . . . . .General banking risk allowance. . . . . . . . . . . . . . .Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . .Net income for the year . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31.12.99Balance sheets
Abacá, Crédito y Financiación
––
27432,431
–108
––
13251329117
33,523
24,581––
399578
––
8,567(602)
33,523
2,340422
1,918
(800)–
1,118
1,15798
–
(137)
533–
68
(602)
–
(602)
–(602)
1999Statements of income
Interest revenues . . . . . . . . . . . . . . . . . . . . . .– Interest expenses . . . . . . . . . . . . . . . . . . . . . .
= Net interest revenue . . . . . . . . . . . . . . . . . . . .
+ Fees for services, net . . . . . . . . . . . . . . . . . . .+ Asset trading and exchange profits, net . . . . .
= Ordinary margin . . . . . . . . . . . . . . . . . . . . . . . .
– Operating costs: . . . . . . . . . . . . . . . . . . . . . . . .– Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .+ Other operating income/expenses . . . . . . . . .
= Operating margin . . . . . . . . . . . . . . . . . . . . . . .
– Writeoffs and provisions for credit losses . . . .– Writedowns of financial assets . . . . . . . . . . . . .+ Extraordinary gains (losses), net . . . . . . . . . . .
= Income before taxes . . . . . . . . . . . . . . . . . . . .
– Corporate income tax provision . . . . . . . . . . . .
= Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ Retained earnings . . . . . . . . . . . . . . . . . . . . . .
31.12.98
––
2,5545,782
–108
––6
30718
–
8,775
–––
15554
––
9,015(449)
8,775
571–
571
––
571
90754
–
(390)
59– –
(449)
–
(449)
–(449)
1998
68
Assets
Cash and due from central banks . . . . . . . . . . . . .Government debt securities . . . . . . . . . . . . . . . . .Due from financial intermediaries . . . . . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . . . . .Private fixed-interest securities . . . . . . . . . . . . . . .Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . . . . . . . . .Shares of group companies . . . . . . . . . . . . . . . . .Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .Tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .Prepayments and accrued income . . . . . . . . . . . .Other assets accounts . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and capital
Due to financial intermediaries . . . . . . . . . . . . . . .Customer deposits . . . . . . . . . . . . . . . . . . . . . . . .Bonds and other marketable debt securities . . . .Other liability accounts . . . . . . . . . . . . . . . . . . . . .Accruals and deferred income . . . . . . . . . . . . . . . .Special allowances . . . . . . . . . . . . . . . . . . . . . . . .General banking risk allowance. . . . . . . . . . . . . . .Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . .Net income for the year . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31.12.99 31.12.98Balance sheets
Europensiones *
–649
12,6762,067
10,9261,226
––
84403
2,36230
30,423
–––
1,9411,935
––
15,42211,125
30,423
–2,453
14,6392,400
12,8161,622
––
98308
2,456400
37,192
–––
2,8251,262
––
18,31314,792
37,192
1,539–
1,539
21,318126
22,983
5,553163
–
17,267
–– –
17,267
6,142
11,125
10,638487
1,404–
1,404
25,04880
26,532
3,870165
–
22,497
–– 7
22,504
7,712
14,792
14,310482
1999 1998Statements of income
Interest revenues . . . . . . . . . . . . . . . . . . . . . .– Interest expenses . . . . . . . . . . . . . . . . . . . . . .
= Net interest revenue . . . . . . . . . . . . . . . . . . . .
+ Fees for services, net . . . . . . . . . . . . . . . . . . .+ Asset trading and exchange profits, net . . . . .
= Ordinary margin . . . . . . . . . . . . . . . . . . . . . . . .
– Operating costs: . . . . . . . . . . . . . . . . . . . . . . . .– Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .+ Other operating income/expenses . . . . . . . . .
= Operating margin . . . . . . . . . . . . . . . . . . . . . . .
– Writeoffs and provisions for credit losses . . . .– Writedowns of financial assets . . . . . . . . . . . . .+ Extraordinary gains (losses), net . . . . . . . . . . .
= Income before taxes . . . . . . . . . . . . . . . . . . . .
– Corporate income tax provision . . . . . . . . . . . .
= Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ Retained earnings . . . . . . . . . . . . . . . . . . . . . .
Eurogestión *
Assets
Cash and due from central banks . . . . . . . . . . . . .Government debt securities . . . . . . . . . . . . . . . . .Due from financial intermediaries . . . . . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . . . . .Private fixed-interest securities . . . . . . . . . . . . . . .Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . . . . . . . . .Shares of group companies . . . . . . . . . . . . . . . . .Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .Tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .Prepayments and accrued income . . . . . . . . . . . .Other assets accounts . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and capital
Due to financial intermediaries . . . . . . . . . . . . . . .Customer deposits . . . . . . . . . . . . . . . . . . . . . . . .Bonds and other marketable debt securities . . . .Other liability accounts . . . . . . . . . . . . . . . . . . . . .Accruals and deferred income . . . . . . . . . . . . . . . .Special allowances . . . . . . . . . . . . . . . . . . . . . . . .General banking risk allowance. . . . . . . . . . . . . . .Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . .Net income for the year . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31.12.99 31.12.98Balance sheets
––
52990
1381,418
––––––
2,175
–––
24–––
2,049102
2,175
1–
1,376149577
1,520–––
1113
8
3,655
–––
5643––
2,150938
3,655
108–
108
4156
529
397––
132
–– –
132
30
102
–102
117–
117
3951,335
1,847
4121–
1,434
–– 1
1,435
497
938
–938
1999 1998Statements of income
Interest revenues . . . . . . . . . . . . . . . . . . . . . .– Interest expenses . . . . . . . . . . . . . . . . . . . . . .
= Net interest revenue . . . . . . . . . . . . . . . . . . . .
+ Fees for services, net . . . . . . . . . . . . . . . . . . .+ Asset trading and exchange profits, net . . . . .
= Ordinary margin . . . . . . . . . . . . . . . . . . . . . . . .
– Operating costs: . . . . . . . . . . . . . . . . . . . . . . . .– Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .+ Other operating income/expenses . . . . . . . . .
= Operating margin . . . . . . . . . . . . . . . . . . . . . . .
– Writeoffs and provisions for credit losses . . . .– Writedowns of financial assets . . . . . . . . . . . . .+ Extraordinary gains (losses), net . . . . . . . . . . .
= Income before taxes . . . . . . . . . . . . . . . . . . . .
– Corporate income tax provision . . . . . . . . . . . .
= Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ Retained earnings . . . . . . . . . . . . . . . . . . . . . .
* The asset portfolios administered by Eurogestion totaled Euros229,742,000 and Euros 202,487,000 at the end of 1999 and 1998,respectively.
* Europensiones was managing Euros 1,617,064,000 and 1,376,985,000of pension funds at the end of 1999 and 1998, respectively.
69
Assets
Cash and due from central banks . . . . . . . . . . . . .Government debt securities . . . . . . . . . . . . . . . . .Due from financial intermediaries . . . . . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . . . . .Private fixed-interest securities . . . . . . . . . . . . . . .Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . . . . . . . . .Shares of group companies . . . . . . . . . . . . . . . . .Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .Tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .Prepayments and accrued income . . . . . . . . . . . .Other assets accounts . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and capital
Due to financial intermediaries . . . . . . . . . . . . . . .Customer deposits . . . . . . . . . . . . . . . . . . . . . . . .Bonds and other marketable debt securities . . . .Other liability accounts . . . . . . . . . . . . . . . . . . . . .Accruals and deferred income . . . . . . . . . . . . . . . .Special allowances . . . . . . . . . . . . . . . . . . . . . . . .General banking risk allowance. . . . . . . . . . . . . . .Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . .Net income for the year . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31.12.99 31.12.98Balance sheets
Europea Popular de Inversiones
––
11,299168
–481
–––
294102
–
12,344
–––
3,504703
––
6,6711,466
12,344
––
5,32469
4,507870
–––
1179510
10,992
–––
2,113672
––
6,8181,389
10,992
601–
601
2,831(60)
3,372
1,08248
–
2,242
––
(24)
2,218
752
1,466
1,316150
5563
553
2,844(43)
3,354
1,08853
–
2,213
––
(147)
2,066
677
1,389
1,250139
1999Statements of income
Interest revenues . . . . . . . . . . . . . . . . . . . . . .– Interest expenses . . . . . . . . . . . . . . . . . . . . . .
= Net interest revenue . . . . . . . . . . . . . . . . . . . .
+ Fees for services, net . . . . . . . . . . . . . . . . . . .+ Asset trading and exchange profits, net . . . . .
= Ordinary margin . . . . . . . . . . . . . . . . . . . . . . . .
– Operating costs: . . . . . . . . . . . . . . . . . . . . . . . .– Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .+ Other operating income/expenses . . . . . . . . .
= Operating margin . . . . . . . . . . . . . . . . . . . . . . .
– Writeoffs and provisions for credit losses . . . .– Writedowns of financial assets . . . . . . . . . . . . .+ Extraordinary gains (losses), net . . . . . . . . . . .
= Income before taxes . . . . . . . . . . . . . . . . . . . .
– Corporate income tax provision . . . . . . . . . . . .
= Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ Retained earnings . . . . . . . . . . . . . . . . . . . . . .
1998
Eurovida
Assets
Premises and equipment . . . . . . . . . . . . . . . . . . .Securities portfolio . . . . . . . . . . . . . . . . . . . . . . . .Reserves on reinsurance business . . . . . . . . . . . .Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Prepayments, accrued income and other . . . . . . .Cash and due from banks . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and capital
Insurance reserves . . . . . . . . . . . . . . . . . . . . . . . .Other reserves . . . . . . . . . . . . . . . . . . . . . . . . . . .Accounts payable on reinsurance . . . . . . . . . . . . .Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .Accruals, deferred income and other . . . . . . . . . .Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . .Net income for the year . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31.12.99 31.12.98Balance sheets
522179,201
1,803105
3,3681,796
186,795
157,3161,8681,8033,923
65814,270
6,957
186,795
616260,505
2,421122
4,6111,437
269,712
236,292987
2,4213,912
43915,21710,444
269,712
64,20412,56518,54938,839
6,1341,909
11,338
664
10,674
6112
405
10,882
3,925
6,957
6,010947
106,86215,60022,60277,249
6,2431,752
14,616
630
13,986
1,4872–
15,475
5,031
10,444
10,217227
1999 1998Statements of income
Premiums written . . . . . . . . . . . . . . . . . . . . . . .+ Technical financial revenues . . . . . . . . . . . . . .– Claims paid. . . . . . . . . . . . . . . . . . . . . . . . . . . .– Increase in insurance reserves . . . . . . . . . . . .– Fees and other . . . . . . . . . . . . . . . . . . . . . . . . .– Operating costs: . . . . . . . . . . . . . . . . . . . . . . . .
= Gross underwriting income . . . . . . . . . . . . . . .
– Reinsurance result . . . . . . . . . . . . . . . . . . . . . .
= Net underwriting income . . . . . . . . . . . . . . . . . .
+ Nontechnical financial revenues. . . . . . . . . . . .+ Other revenues . . . . . . . . . . . . . . . . . . . . . . . .– Extraordinary expenses
= Income before taxes . . . . . . . . . . . . . . . . . . . .
– Corporate income tax provision . . . . . . . . . . . .
= Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .+ Retained earnings . . . . . . . . . . . . . . . . . . . . . .
Financial Statements
72
Independent Auditors Report
73
Financial Reporting Responsibility
The Bank's General Management, as the technical and executivebody of Banco Popular pursuant to Article 22 of the Bank's Bylaws, isresponsible for the preparation and presentation of all the financialinformation appearing hereinafter.
In the Management's opinion, this information presents a true andfair view of the Bank's financial position, and all the operational andaccounting processes applied comply with current legal andadministrative regulations and with Bank of Spain instructions andrecommendations.
To this end, certain procedures, which are periodically reviewedand optimized, have been implemented to ensure that a uniformaccounting record is kept of all transactions by means of an appropriatesystem of internal controls.
These procedures include monthly management controls at alldecision-making levels, the scrutiny and approval of transactions in theframework of a formal system of functional delegation, ongoingprofessional training of the staff and the issuance and updating ofmanuals and operating standards. Also, the professional independenceof the related control bodies is formally established in the organization.
The financial statements were audited by PricewaterhouseCoopers.The accompanying notes, which are integral part of the financialstatements, include such explanations as were considered necessaryfor a clearer understanding and the disclosure of certain items requiredto bring the information into line with the current legally required formatsfor balance sheets and statements of income. For a thoroughunderstanding of the financial statements, reference should be made tothe background events and major results impacting them, which aredescribed in the Management Report contained in the preceding pagesof this document.
74
Banco Popular GroupConsolidated balance sheets (Notes 1,2,3 and 4)
Euro thousand
Assets
Cash and due from central banksCash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Bank of Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other central banks . . . . . . . . . . . . . . . . . . . . . . . . .
Government debt securities (*) (Note 5) . . . . . . . . . . .Due from financial intermediaries (Note 6)
Demand balances . . . . . . . . . . . . . . . . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans and discounts (Note 7) . . . . . . . . . . . . . . . . . . .Private fixed-interest securities (Note 8)
Issued by public bodies . . . . . . . . . . . . . . . . . . . . . .Issued by other issuers . . . . . . . . . . . . . . . . . . . . . .
Pro memoria: own securities . . . . . . . . . . . . . . . .Equity securities (Note 9) . . . . . . . . . . . . . . . . . . . . . .Participating interests (Note 10)
In financial intermediaries . . . . . . . . . . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares of Group companies (Note 11)Financial intermediaries . . . . . . . . . . . . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets (Note 13)Formation and preopening expenses . . . . . . . . . . .Other amortizable expenses . . . . . . . . . . . . . . . . . .
Goodwill in consolidation (Note 12)Global and proportional integration method companiesEquity method companies . . . . . . . . . . . . . . . . . . . .
Tangible assets (Note 14)Land and buildings for own use . . . . . . . . . . . . . . . .Other properties . . . . . . . . . . . . . . . . . . . . . . . . . . . .Furniture, installations and other . . . . . . . . . . . . . . .
Unpaid subscribed common stockUnpaid capital calls . . . . . . . . . . . . . . . . . . . . . . . . .Remainder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stockPro memoria: face value . . . . . . . . . . . . . . . . . . .
Other asset accounts (Note 15) . . . . . . . . . . . . . . . . .Prepayments and accrued income (Note 16) . . . . . . .Losses at consolidated companies
Global and proportional integration method companiesEquity method companies . . . . . . . . . . . . . . . . . . . .Translation differences . . . . . . . . . . . . . . . . . . . . . . .
Consolidated loss for the yearGroup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(*) Including Bank of Spain certificates of deposit
1998 1997
December 31
1996 1995
1999
274,873176,835
91,1806,858
517,2134,771,976
91,4684,680,508
16,629,068494,200
24,443469,757
–79,304
2,819–
2,81927,472
–27,47210,908
610,902
1,316–
1,316619,000191,404132,583295,013
–––––
509,123218,943
–––––––
24,156,215
286,562156,431129,861
270597,773
4,011,809108,903
3,902,90614,632,752
94,40119,62974,772
–28,007
3,732–
3,73238,591
–38,591
4,04512
4,0332,356
–2,356
615,058189,036148,264277,758
–––––
388,711140,048
–––––––
20,843,845
428,804151,533276,958
3131,681,1694,311,516
123,0754,188,441
13,087,303178,711
1,070177,641
–59,518
3,768–
3,76832,022
–32,022
2,476138
2,3382,542
–2,542
577,957188,159157,429232,369
–––––
361,629192,205
–––––––
20,919,620
464,679127,505337,060
1142,109,2763,714,411
80,7343,633,677
12,032,358177,587
2,975174,612
–53,1534,808
–4,808
27,400–
27,400342174168
–––
521,817178,152157,381186,284
–––––
348,053249,541
–––––––
19,703,425
565,729275,066287,258
3,405498,333
4,701,077204,161
4,496,91618,640,575
466,4151,519
464,896–
45,9574,378
–4,378
30,151–
30,15113,500
23713,263
8,501491
8,010589,775194,364
99,439295,972
–––––
528,839237,473
–––––––
26,330,703
94,12945,76747,796
56682,916
782,19333,969
748,2243,101,531
77,605253
77,352–
7,647728
–728
5,017–
5,0172,246
392,2071,415
821,333
98,13032,33916,54549,246
–––––
87,99139,512
–––––––
4,381,060
Pesetas(Millions)
75
Liabilities and Capital
Due to financial intermediaries (Note 17)Demand balances . . . . . . . . . . . . . . . . . . . . . . . . . .Term or prenotification balances . . . . . . . . . . . . . . .
Customer deposits (Note 18)Savings deposits
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other depositsDemand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bonds and other marketable debt securities (Note 19)Bonds and debentures outstanding . . . . . . . . . . . . .Promissory notes and other securities . . . . . . . . . . .
Other liability accounts (Note 15) . . . . . . . . . . . . . . . .Accruals and deferred income (Note 16) . . . . . . . . . .Special allowances (Note 20)Pension allowance . . . . . . . . . . . . . . . . . . . . . . . . . .Provision for taxes . . . . . . . . . . . . . . . . . . . . . . . . . .Other allowances . . . . . . . . . . . . . . . . . . . . . . . . . . .
General banking risk allowance (Note 21) . . . . . . . . .Negative difference in consolidation (Note 12)Global and proportional integration method companiesEquity method companies . . . . . . . . . . . . . . . . . . . .
Consolidated income for the yearGroup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated liabilities (Note 22) . . . . . . . . . . . . . . . .Minority interests (Note 23) . . . . . . . . . . . . . . . . . . . .Common stock (Note 24) . . . . . . . . . . . . . . . . . . . . . .Paid-in surplus (Note 25) . . . . . . . . . . . . . . . . . . . . . .Reserves (Note 25) . . . . . . . . . . . . . . . . . . . . . . . . . .Revaluation reserves (Note 25) . . . . . . . . . . . . . . . . .Consolidation reserves (Note 26)Global and proportional integration method companiesEquity method companies . . . . . . . . . . . . . . . . . . . .Translation differences . . . . . . . . . . . . . . . . . . . . . . .
Prior years´ earnings . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Memorandum accountsContingent liabilitiesRediscounts, endorsements and acceptances . . . .Assets securing sundry commitments . . . . . . . . . . .Guarantees and other sureties . . . . . . . . . . . . . . . . .Other contingent liabilities . . . . . . . . . . . . . . . . . . . .
CommitmentsRepos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Unused portion of credit lines . . . . . . . . . . . . . . . . . .Other commitments . . . . . . . . . . . . . . . . . . . . . . . . .
The accompanying Notes 1 to 33 and Exhibits I to VI are an integral part of the consolidated financial statements
1998 1997
December 31
1996 1995
4,442,904164,744
4,278,16015,551,30214,408,4489,060,5885,347,8601,142,854
121,142,842
825,388825,388
–576,659177,479348,431310,633
9,17728,621
–553
18535
439,129406,963
32,166–
153,71583,22248,718
907,787–
600,922585,229
14,797896
6
24,156,215
2,413,310–
28,9452,159,298
225,0673,281,676
–3,096,949
184,727
2,217,254122,715
2,094,53915,383,69213,648,4987,976,6515,671,8471,735,194
2461,734,948
–––
513,481171,252348,467307,838
10,51830,111
–619
18601
427,686396,073
31,613–
147,16483,222
135,270886,168
–529,564512,123
16,582859
6
20,843,845
2,297,994–
7512,053,929
243,3143,459,810
–3,261,308
198,502
2,568,75697,526
2,471,23014,965,29213,140,0126,869,3706,270,6421,825,280
9501,824,330
–––
522,267229,298358,840314,660
14,52629,654
–619
18601
392,894366,629
26,265–
145,61986,846
135,2701,032,857
–481,062465,063
15,296703
–
20,919,620
2,033,969–
7571,810,008
223,2042,880,964
–2,736,264
144,700
1,938,282101,024
1,837,25814,363,88812,809,0105,856,3586,952,6521,554,878
5531,554,325
168,963168,963
–476,897292,754334,656289,285
13,45731,914
4,075619
18601
371,197345,474
25,723–
138,99686,846
135,270969,967
–421,015408,316
12,080619
–
19,703,425
1,703,322–
8171,506,545
195,9602,738,200
–2,539,511
198,689
4,444,183195,905
4,248,27817,304,10116,070,27810,086,8445,983,4341,233,823
–1,233,8231,212,0831,028,330
183,753595,378193,226340,640295,847
9,47935,314
–552
18534
465,782432,727
33,055–
163,616108,577
21,164805,195
–676,203659,762
15,549892
3
26,330,703
2,693,669–
24,6712,438,318
230,6804,086,788
–3,341,086
745,702
739,45032,596
706,8542,879,1602,673,8691,678,309
995,560205,291
–205,291201,674171,100
30,57499,06332,15056,67849,225
1,5775,876
–92
389
77,50072,000
5,500–
27,22318,066
3,521133,973
–112,510109,775
2,587148
–
4,381,060
448,189–
4,105405,702
38,382679,984
–555,910124,074
1999
Pesetas(Millions)
76
Interest and similar revenuesOf which: revenues from fixed-interest securities . . . . .
Interest and similar charges . . . . . . . . . . . . . . . . . . . . . . . . .Revenues from equity securities
Shares and other equity securities . . . . . . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . . . . . . . . . . . . .Shares of Group companies . . . . . . . . . . . . . . . . . . . . .
Intermediation margin (net interest revenue) . . . . . . . . .Fee revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Fee expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Asset trading and exchange profits (Note 31.c) . . . . . . . . . .Ordinary margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other operating income (Note 31.e) . . . . . . . . . . . . . . . . . . .General administrative expenses
Personnel expenses (Note 31.d) . . . . . . . . . . . . . . . . . .- Of which: wages and salaries . . . . . . . . . . . . . . .
social security charges . . . . . . . . . . . .- Of which: pensions . . . . . . .
Other administrative expenses . . . . . . . . . . . . . . . . . . .Depreciation and writedowns of tangible and intangible assets .Other operating expenses (Note 31.e) . . . . . . . . . . . . . . . . .Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Net earnings (losses) of equity method companies
Share in income of equity method companies . . . . . . .Share in losses of equity method companies . . . . . . . .Value adjustments for dividends collected . . . . . . . . . . .
Amortization of goodwill in consolidation . . . . . . . . . . . . . . .Gains on Group transactions
Gains on disposal of holdings in global and proportionalintegration method companies . . . . . . . . . . . . . . . . . . . .Gains on disposal of holdings in equity methodcompanies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Gains on transactions involving controlling companyshares and financial liabilities issued by the Group . . . .Reversal of negative differences in consolidation . . . . .
Losses on Group transactionsLosses on disposal of holdings in global and proportionalintegration method companies . . . . . . . . . . . . . . . . . . . .Losses on disposal of holdings in equity methodcompanies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Losses on transactions involving controlling companyshares and financial liabilities issued by the Group . . . .
Writeoffs and provisions for credit losses (net) . . . . . . . . . . .Writedowns of financial investments (net) . . . . . . . . . . . . . .Provision to general banking risks allowance . . . . . . . . . . . .Extraordinary income (Note 31.f) . . . . . . . . . . . . . . . . . . . . .Extraordinary losses (Note 31.f) . . . . . . . . . . . . . . . . . . . . .Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Corporate income tax (Note 27) . . . . . . . . . . . . . . . . . . . . . .Other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Consolidated income for the year . . . . . . . . . . . . . . . . . . .
Income attributed to minority interests . . . . . . . . . . . . . .Net income attributable to BPE shareholders . . . . .
Banco Popular GroupConsolidated income statements (Notes 1,2,3,4 and 31)
The accompanying Notes 1 to 33 and Exhibits I to VI are an integral part of the consolidated financial statements
1998 1997 1996 1995
1,460,67636,716
516,3239,1713,2751,1724,724
953,524497,007
84,69547,324
1,413,1601,094
625,377455,525351,448
91,600–
169,85264,46537,221
687,1916,647
12,543–
(5,896)703
4,628
1,569
3,047
12––
–
–
–45,527
––
36,20532,701
655,740216,052
559439,129
32,166406,963
1,612,25773,450
613,4839,7124,5732,3262,813
1,008,486426,670
79,23162,722
1,418,6471,376
608,903447,634345,636
89,364156
161,26956,26737,022
717,8319,580
14,719–
(5,139)667
4,135
3,979
–
156––
–
–
–76,593
––
32,07646,212
640,150211,214
1,250427,686
31,613396,073
1,915,810134,338855,631
8,7213,5283,3781,815
1,068,900354,615
72,86150,960
1,401,614919
583,931437,909337,769
87,08124
146,02247,92549,974
720,703(65)
5,128–
(5,193)511228
228
–
––
24
18
6
–95,122
––
19,41360,378
584,244190,274
1,076392,894
26,265366,629
1,982,348207,614958,506
3,0471,359
889799
1,026,889320,533
59,77739,276
1,326,9214,285
558,503417,193321,842
82,51342
141,31041,12146,242
685,3405,2667,020
66(1,688)
–96
96
–
–––
–
–
–121,555
––
36,24147,312
558,076185,142
1,737371,197
25,723345,474
1,362,86234,325
368,6635,9232,238
1623,523
1,000,122560,010
93,15545,837
1,512,8141,333
633,923461,650356,640
93,371–
172,27366,13537,430
776,6596,2589,943
–(3,685)1,459
353
19
–
334––
–
–
–65,403
––
33,82345,605
704,626238,844
–465,782
33,055432,727
226,7615,711
61,340985372
27586
166,40693,17815,500
7,627251,711
222105,476
76,81259,34015,536
–28,66411,004
6,228129,225
1,0411,654
–(613)243
59
3
–
56––
–
–
–10,882
––
5,6287,588
117,24039,740
–77,500
5,50072,000
1999
Pesetas(Millions)
Euro thousand
77
NOTES TO THE FINANCIALSTATEMENTS
(1) Description of Banco Popular Español,basis of presentation of the financialstatements, consolidation principles and networth
Description of Banco Popular Español
Banco Popular Español, S.A. is a private lawentity whose corporate purpose, per Article 4 ofits bylaws, is banking. Its activities are subject tothe rules and regulations applicable to banksoperating in Spain.
The Bank was founded on July 14, 1926, and isregistered with the Madrid Mercantile Register(volume 174, sheet 44, page 5,458, first entry). Itis a member of the Spanish Bank DepositsGuarantee Fund, and its registered offices are at34 Velázquez Street, 28001 Madrid.
The Bank is the controll ing company of acorporate group whose business activities aredirectly and indirectly controlled by it.
Basis of presentation
The accompanying financial statements of theBanco Popular Group are presented in theformats stipulated in Bank of Spain Circular4/1991 and subsequent amendments thereto and,accordingly, give a true and fair view of theconsolidated net worth, financial position, risksand results. All amounts are expressed in euros.For information purposes, the 1999 balance sheetand income statement are also presented inmillions of pesetas.
The introduction of the euro on January 1, 1999,led to a structural change in the composition ofthe information because of the translation toeuros of all the currencies in the euro, includingthe peseta, thus reducing the foreign currencyvolume, which reflects only the amounts incurrencies not participating in the EuropeanMonetary Union. The data for prior years in thebreakdowns in euros and foreign currency werereclassified in order to unify them with the 1999figures.
In accordance with the requirements of Article 8of Law 13/1985 regulating investment and capitalratios and reporting obligations for financialintermediaries, the consolidated financialstatements reflect all the financial businessactivities of the Group in the broadest sense,including the instrumental companies used tolegally support such activities.
The consolidation methods used are those setforth in Royal Decree 1371/1985, regulating theconsolidation of the financial statements ofdeposit-taking entities, in Bank of Spain Circular4/1991 implementing that Royal Decree, and inRoyal Decree 1815/1991 on the preparation ofconsolidated financial statements.
The notes to the financial statements wereprepared in accordance with the specif icrequirements of Bank of Spain Circular 4/1991and with the generally applicable provisions of theCorporations Law, the Commercial Code, theNational Chart of Accounts and Royal Decree1815/1991.
The 1999 financial statements have not yet beenapproved by the Shareholders Meeting. However,the Bank´s Board of Directors considers that theywill be approved without any significant changes.
Accounting principles
The generally accepted accounting principles andvaluation methods described in Note 2 wereapplied in preparing the financial statements.
Consolidation principles
The scope of consolidation, defined inaccordance with Bank of Spain Circulars 4/1991and 5/1993, comprised the Group companies(consolidated and nonconsolidable), themultigroup companies and the associatedcompanies. The Group includes all the companieswhich are directly or indirectly 50% or moreowned by the Bank and the less than 50% Bank-owned companies which are effectively controlledby the Bank and constitute, together with theBank, a single decision-making unit.
The global integration method was used toconsolidate the finance and instrumentalcompanies in the consolidated Group, theproportional integration method for the multigroup
financial companies, and the equity method forthe subsidiaries not consolidable due to their lineof business and for the associated companies.
Except for the nonconsolidated portioncorresponding, in the case of businessrelationships between global integration methodconsolidated companies and multigroupcompanies, to the latter, al l accounts andtransactions between consolidated companieswere eliminated in consolidation; the amounts noteliminated are disclosed in the relevant sectionsof the notes to financial statements. Minorityinterests, which are explicitly reflected as such in
the 1999 and 1998 consolidated balance sheetsand income statements, correspond toshareholders not directly or indirectly related tothe Group.
Net worth
The Group´s year-end net worth per books, afterthe distribution of income, and the variationstherein are shown in the following table. The"Banco Popular" column reflects the amounts ofthe following accounts in the consolidatedbalance sheet: common stock; paid-in surplus;reserves, after consolidation adjustments
78
Peseta million
BancoPopular
Consolidationreserves Total
Balance at 12/31/94 . . . . . . . . . . . . . . . .
Variations:Due to merger operations . . . . . . . . . . . .Consolidation operations (net) . . . . . . . .1995 net income . . . . . . . . . . . . . . . . . . .1995 dividend . . . . . . . . . . . . . . . . . . . . .
Balance at 12/31/95 . . . . . . . . . . . . . . . .
Variations:Transfer to pension allowance . . . . . . . .Consolidation operations (net) . . . . . . . .1996 net income . . . . . . . . . . . . . . . . . . .1996 dividend . . . . . . . . . . . . . . . . . . . . .
Balance at 12/31/96 . . . . . . . . . . . . . . . .
Variations:Cancellation of shares . . . . . . . . . . . . . .Transfer to pension allowance . . . . . . . .Transfer from pension allowance . . . . .Consolidation operations (net) . . . . . . . .1997 net income . . . . . . . . . . . . . . . . . . .1997 dividend . . . . . . . . . . . . . . . . . . . . .
Balance at 12/31/97 . . . . . . . . . . . . . . . .
Variations:Transfer to pension allowance . . . . . . . .Dividend charged to reserves . . . . . . . . .Transfer from pension allowance . . . . .Consolidation operations (net) . . . . . . . .1998 net income . . . . . . . . . . . . . . . . . . .1998 dividend . . . . . . . . . . . . . . . . . . . . .
Balance at 12/31/98 . . . . . . . . . . . . . . . .
Variations:Transfer to pension allowance . . . . . . . .Dividend charged to reserves . . . . . . . . .Transfer from pension allowance . . . . .Consolidation operations (net) . . . . . . . .1999 net income . . . . . . . . . . . . . . . . . . .1999 dividend . . . . . . . . . . . . . . . . . . . . .
Balance at 12/31/99 . . . . . . . . . . . . . . . .
189,441
8,401504
44,661(27,022)
215,985
(7,000)(175)
47,293(30,048)
226,055
(34,994)(12,500)
4,383857
48,086(32,679)
199,208
(15,000)(14,401)
2,693497
52,117(36,002)
189,112
(11,481)(24,607)
2,595(59)
53,874(38,941)
170,493
79,685
(8,401)(1,233)12,821
–
82,872
(2,269)(561)
13,709–
93,751
–(4,980)1,690
(2,349)17,815
–
105,927
(5,134)–
1,502(2,310)15,596
–
115,581
(3,247)–
960(783)
18,126–
130,637
269,126
–(729)
57,482(27,022)
298,857
(9,269)(736)
61,002(30,048)
319,806
(34,994)(17,480)
6,073(1,492)65,901
(32,679)
305,135
(20,134)(14,401)
4,195(1,813)67,713
(36,002)
304,693
(14,728)(24,607)
3,555(842)
72,000(38,941)
301,130
BancoPopular
Consolidationreserves Total
1,138,563
50,4913,029
268,418(162,405)
1,298,096
(42,071)(1,052)
284,237(180,592)
1,358,618
(210,318)(75,127)26,342
5,151289,003
(196,405)
1,197,264
(90,152)(86,552)16,185
2,988313,229
(216,376)
1,136,586
(69,002)(147,893)
15,596(348)
323,788(234,041)
1,024,686
478,916
(50,491)(7,410)77,056
–
498,071
(13,637)(3,371)82,392
–
563,455
–(29,930)10,157
(14,118)107,070
–
636,634
(30,856)–
9,027(13,883)93,734
–
694,656
(19,515)–
5,767(4,705)
108,939–
785,142
1,617,479
–(4,381)
345,474(162,405)
1,796,167
(55,708)(4,423)
366,629(180,592)
1,922,073
(210,318)(105,057)
36,499(8,967)
396,073(196,405)
1,833,898
(121,008)(86,552)25,212
(10,895)406,963
(216,376)
1,831,242
(88,517)(147,893)
21,363(5,053)
432,727(234,041)
1,809,828
Euro thousand
79
allocable to the parent company´s net worth; andrevaluation reserves. The material amounts anditems are detailed in the section dealing with theindividual components of net worth.
Capital requirements
The current legislation on the capital of financialentities and their supervision on a consolidatedbasis came into force in 1993 after the previouslegislation (Law 13/1985 regulating theinvestment ratios, capital and reportingobligations of financial intermediaries) had beenamended by the enactment of Law 13/1992(subsequently implemented by Royal Decrees1343/1992 and 2024/1995, a Ministerial Order ofDecember 30, 1992, modified by Ministerial Orderdated December 4, 1996, and Bank of SpainCircular 5/1993) on the determination and controlof minimum capital. Circular 5/1993 wasexpanded and amended by the inclusion of thefinal implementing instructions on this topic inCircular 12/1993, which regulated the treatment oftrading portfolios and the risks assumed by banksin their foreign currency transactions and cameinto force in 1994. Also, Bank of Spain Circulars12/1996, 3/1997 and 5/1998 introduced the mostrecent changes in this area. Under theseregulations, financial entities must at all timeshave sufficient computable capital to cover theiraggregate exposure for credit risks, based on theassets, commitments and other memorandumaccounts exposed to credit r isk, and theirexposure for exchange rate risk, based on the netoverall foreign currency posit ion; and theexposure for trading portfolio risks. The adjustedrisk assets -net of depreciation, specif icallowances, capital deductions and compensatingbalances- are weighted by certain coefficientsbased on the level of counterparty risk. Therequirements for contingent liabilities and forexchange and interest rate related memorandumaccounts are determined in the same way asdescribed above for risk assets, with theapplication of certain correction factors -depending on the level of risk in the contingentliabilities and on the period of time since originalmaturity in the exchange and interest rate relatedmemorandum accounts- before weighting by thecounterparty risk coefficients.
As of December 31, 1999, when the proposeddistribution of the income for the year is made, theconsolidated Group´s computable capital willexceed the regulatorily required minimum amount
by Euros 310,338,000. The cushion at 1998 year-end was Euros 516,912,000. The regulatorilystipulated limits for foreign currency positions, riskconcentration and fixed asset additions were alsocomplied with in 1999 and 1998.
Changes in accounting regulations in 1999and 1998
The most significant changes to accountingregulations in 1999 and 1998 which affected thefinancial statements were as follows:
1. Changes made to Circular 4/1991 by Circular7/1998, which came into force in 1999.
Checks on credit entities and balances at clearinghouses, both previously booked under the "Duefrom financial intermediaries" caption, and thebalances of unsettled financial transactions,previously booked under the "Loans anddiscounts" caption, are now recorded as "Otherasset accounts".
Balances at clearing houses and the tax collectionand special accounts, previously booked under"Customer deposits", are now recorded as "Otherliability accounts".
2. Changes made to Circular 4/1991 by Circular5/1997 and by Circular 7/1998, in the portions ofthese two Circulars which came into force in1998.
The changes made by Circular 5/1997 were asfollows:
Marketable securities acquired at a discount arenow booked at the cash value.
Pension and payroll prepayments made on behalfof public bodies are now classif ied in the"residents" category rather than as public sectortransactions, and are exempt from generalcoverage in the credit loss allowance.
The period for provision of the allowance forforeclosed property assets not added to thefunctional assets of the Group’s banks and notdisposed of within three years is now one yearlonger.
The accounting changes introduced by Circular7/1998 affecting the 1998 figures relate to thetreatment of loans assigned to securitization
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funds and to certain aspects of the introduction ofthe euro. For ease of interpretation, these mattersare dealt with in specific sections of Note 2.
For comparison purposes, the figures for yearsprior to 1999 are presented, when appropriate,adjusted to the 1999 principles, but may differfrom those shown in the 1998 report.
(2) Accounting principles and valuationmethods
The financial statements were prepared inaccordance with the accounting principles setforth in Bank of Spain Circular 4/1991 andsubsequent circulars. The most signif icantaccounting principles applied are as follows:
a) Recognition of income and expenses
Revenues and expenses are recognized foraccounting purposes on an accrual basis. Inaccordance with banking practice, transactionsare recorded as of the date they are made, whichmay differ from the value date as of which interestrevenue and expense are calculated. However, inapplication of the accounting principle ofprudence and as required by Bank of Spainregulations, interest revenues on nonperforming,disputed or doubtful balances are not recognizeduntil they are collected.
b) Foreign currency transactions
The balances of accounts in foreign currencies(including those of the dependent companies)have generally been translated to euros at theaverage official exchange rates published by theEuropean Central Bank at each year-end; theincome statements of the foreign companiesconsolidated, which have been translated at theaverage exchange rates of each year; and thereserves of these companies, which have beentranslated at historical exchange rates.
The exchange differences at each entity arerecognized and accounted for currently, and arepresented at their net amount under the "Assettrading and exchange profits" caption in theconsolidated income statements. The differencesrelating to term transactions are booked as acontra item in a balance sheet account includedunder the "Other asset accounts" or "Other liabilityaccounts" caption, depending on their sign.
Exchange gains in consolidation are recorded asan item of "Consolidation reserves", withindividual disclosure of the companies at whichthey arise.
For the treatment of 1998 year-end balances incurrencies of EMU member states, see Note2.o.1.).
c) Credit loss allowance
The credit loss allowance is recorded to cover anypotential losses in the recovery of all the risksassumed by the Bank and the companies in itsconsolidated Group.
This allowance is calculated as follows:
- The allowance for loans and discounts and off-balance sheet risks (excluding country risk) isdetermined on an individual borrower basis asrequired by Bank of Spain regulations and alsoincludes the general 1% allowance (0.5% in thecase of certain specific mortgage loans andleasing transactions) for these credit and off-balance sheet risks, including documentarycredits, which is intended to provide coverage forexposure which, although not specif icallyidentified, might arise in the future.- The country risk allowance is based on theestimated degree of difficulty being experiencedby each financially troubled country.
The credit loss allowance balance is increased byprovisions charged to period income anddecreased by writeoffs of debts classified asuncollectible or that have been nonperforming formore than three years (six years fornonperforming mortgage loans), by releases ofprovisions previously recorded, and by transfersto the allowance for foreclosed assets when thebanks repossess foreclosed assets.
The allowances for loans and discounts and forcountry risk are presented in the balance sheetsas deductions under the asset captions to whichthey relate -"Due from financial intermediaries"and "Loans and discounts" and "Private fixed-interest securities"- and the allowance for off-balance sheet risks is presented under the"Special allowances" liability caption; however,the balances of "Guarantees and other sureties"and "Other contingent l iabil i t ies" in thememorandum accounts of the balance sheets are
81
presented at the gross amount, i.e. not net of therelated allowance for doubtful balances. In thepublic income statements, the provisions bookedare presented net of allowances released and ofrecoveries of bad debts written off.
d) Securities portfolios
The aggregate securities comprising the differentsecurities portfolios are presented in the balancesheet in accordance with their nature. However,Bank of Spain Circular 6/1994 (on accountingstandards and financial statement formats)amended Circular 4/1991 and regulated fourcategories of securities portfolio for valuationpurposes, as follows:
I. Trading portfolio. This portfolio can includefixed-interest and equity securities that a bankwants to hold in its assets to benefit at short-termfrom price variations. Only publicly l istedsecurities in which trading is brisk, of good depthand not susceptible to influence by individualprivate agents qualify for inclusion in this portfolio.Securities issued by the bank itself or by group orassociated companies, securities bought and soldon a repo basis, and securities delivered forguarantee purposes may not be included in thetrading portfolio.
The securities in the trading portfolio must bevalued at market prices, and the differencesbetween book value and market price must bereported as "Asset trading and exchange profits".However, the interest earned and dividendscollected are recorded as "Interest and similarrevenues" and "Revenues from equity securities",respectively.
II. Ordinary investment portfolio. This portfolioincludes the fixed-interest or equity securities notassigned to any other category. Fixed-interestsecurities must be recorded initially at purchaseprice, net where appropriate of accrued interest.The positive or negative difference between thepurchase price and the redemption value must beaccrued over the residual term of the security,adjusting the security's initial price by a credit ordebit to income under "Interest and similarrevenues", with the resulting valuation beingdenominated as "adjusted purchase price".
The valuation and security price fluctuationallowance procedures for listed fixed-interestsecurities in this portfolio are as follows:
- The difference between the adjusted purchaseprice, as defined above, and the closing marketprice, net where appropriate of accrued interest,must be calculated for each class of securities. Inthe case of securities for which the market is ofscant depth or erratic, the average market price inthe last ten market days of the year must be usedinstead of the closing market price. Whensecurities are sold under repurchase agreements,the difference is limited to the proportional part forthe period between completion of the repotransaction and the maturity date of the security.
- The aggregate amount of the net unrealizedlosses disclosed by the calculation must berecorded in an asset account under the"Prepayments and accrued income" caption,netting off from its balance the unrealized gainson listed securities in this portfolio. The resultingamount must be deducted from the capital basefor the purpose of calculating compliance with therelated minimum level requirements. The contraitem for these adjustments is the security pricefluctuation allowance.
- When securities in this portfolio are disposed of,the gains or losses with respect to the adjustedpurchase price must be recognized in income,and if there are gains, a provision for the netamount of the gains less the losses on thisportfolio must be made to the security pricefluctuation allowance. This provision may bereleased if and as continued coverage ceases tobe necessary because of market price recovery orlosses on subsequent disposals.
III. "Held to maturity" investment portfolio. Thisportfolio consists of fixed-interest securities whichthe bank has decided to hold until maturity.
The valuation procedures are the same as for theordinary investment portfolio, except that asecurity price fluctuation allowance is obviouslynot required. If disposals are made, the resultinggains or losses must be taken to income, and ifthere are gains, a specific provision for theamount must be booked and recognized inincome on a straight-line basis over the residualterm of the security sold.
IV. Permanent shareholdings portfolio. Thisportfolio includes shareholdings intended to be oflong-term utility for the activities of the bank or thegroup to which they belong.
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To comply with the Bank of Spain regulations, theBanco Popular group has established criteria forassigning securities to the different portfolios.These criteria are in summary as follows:
Government debt securities bought and sold bythe Bank in its capacity as a "trading entity in themarket for government bonds traded by theaccounting entry system", as a "debt securitiesmarket managing entity" and as "a market makerfor government bonds traded by the accountingentry system" are included in the trading portfolio.The ordinary investment portfolio is conceptually,but not quantitatively, of a residual nature, since itincludes all fixed-interest or equity securities thatare not included in the other portfolios. Banco deCastilla is the only group entity which has a "heldto maturity" investment portfolio. Finally, thepermanent shareholdings portfolio includes all theequity securities representing shareholdings incompanies of the nonconsolidable group and inmultigroup and associated companies.
In the public balance sheets these securities arepresented identified by their nature, net of theprovisions for coverage, charged to the incomestatement, in the related allowances for securityprice fluctuations and for credit losses.
d.1.) Government debt securities
This caption includes Bank of Spain certificates ofdeposit, Treasury bills and government bonds anddebentures, recorded as trading portfolio, ordinaryinvestment portfolio or "held to maturity" portfolioitems in accordance with the classification criteriadescribed above.
d.2.) Private fixed-interest securities
The securities under this caption in the balancesheets are assigned to the trading and ordinaryinvestment portfol ios and are recorded inaccordance with the stated criteria for theseportfolios, both as regards valuation and withrespect to coverage by the security pricefluctuation and credit loss allowances.
d.3.) Equity securities
The "Equity securities" account includes theequity securities (both Spanish and foreign) ofl isted companies not classif ied as group,
multigroup or associated companies, which arecarried at the lower of cost, restated whereappropriate under the enabling legislation of pastyears, or average last quarter or closing marketvalue. The securities of unlisted companies arecarried on the same basis as the shares of groupcompanies.
d.4.) Participating interests and shares of groupcompanies
The shareholdings in associated companies andin nonconsolidable group companies,respectively, constitute, by their nature, thepermanent shareholdings portfolio. In the balancesheet they are carried at underlying book valueadjusted for the amount of unrealized gains at thetime of acquisition and still existing at the end ofeach year. Also, the reporting year results andconsolidation adjustments are included in theprocess of consolidation.
e) Intangible assets
Since the entry into force in 1996 of Bank ofSpain Circular 2/1996, certain payments for thedevelopment of computer software with anestimated useful life of several years have beenrecorded under this caption in the consolidatedbalance sheets and are being amortized on astraight-line basis over the projected period ofuseful life, which cannot exceed three years. Theamortization is recorded on the basis of thenature of the expenses. For the treatment ofcertain of these expenses connected with theintroduction of the euro and the "year 2000effect", see Note 2.o.).
The formation and start-up expenses and otheramortizable expenses of nonbanking consolidatedcompanies, which are of scant amount, arepresented net of accumulated amortization.These expenses are amortized in a maximumperiod of five years.
f) Goodwil l and negative difference inconsolidation
The difference between the cost of the holdings ineach of the consolidated companies and theirrespective adjusted underlying book values at thedate of initial consolidation are accounted for asfollows:
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1. If the difference can be allocated directly to theaffiliate´s balance sheet items, it is booked as anincrease in the value of the assets (or as adecrease in the value of the liabilities) whosemarket values are higher than the net book valuesper its balance sheet and which are treated foraccounting purposes in the same way as theGroup treats its similar assets.
2. Any difference remaining after application ofthe foregoing procedure is booked, depending onits sign, as follows:
a) Positive balances are reflected as goodwill inconsolidation and are amortized on a straight-linebasis from the date of purchase in a maximumperiod of five years, which is the period duringwhich the Group considers that it will benefit fromthe goodwill. The charges to the accompanyingconsolidated income statements for amortizationof goodwill are recorded under the "Amortizationof goodwill in consolidation" caption.
b) The negative differences in consolidation arereflected as a provision in the consolidatedbalance sheets and wil l be creditable toconsolidated income if and when theshareholdings in the related companies are whollyor partially disposed of (see Note 12).
g) Tangible assets
Premises and equipment are carried at cost,restated where appropriate pursuant to theenabling restatement legislation, net of the relatedaccumulated depreciation and the specif icallowances recorded to cover potential losses onforeclosed assets. All fixed asset items, whetherlegally restated or not, are depreciated at theofficial rate-table rates published in Royal Decree537/1997.
The annual depreciation rates most commonlyused in 1999 and 1998 were as follows:
Buildings 2% - 4%
Office equipment 12% - 25%
Furniture and installations 6% - 16%
Computer equipment 16% - 25%
Accumulated depreciation at the consolidatedcompanies totaled Euros 401,886,000 in 1999and Euros 398,211,000 in 1998.
Upkeep and maintenance expenses areexpensed currently.
Leased premises and equipment are recorded atcost, net of the related accumulated depreciation.
Fixed assets, if any, rented to Group companiesare included under the "Premises and Equipment"caption and fixed assets assigned to third partiesare included under the "Loans and Discounts"caption.
The premises and equipment of the subsidiariesmerged in prior years are accounted for at thepost-merger company at the book value at whichthey had been carried by the companiesabsorbed, without any write-up.
h) Treasury stock
In 1999, following the authorization granted by theShareholders Meeting in June 1999 for theacquisition of treasury stock, a program to buyback Banco Popular shares in the market forimmediate cancellation was implemented.Pursuant to the resolution adopted by theShareholders Meeting on December 16, 1999, onthat same day an accounting entry was posted forthe cancellation of 2,197,942 shares, representing1.98% of the Bank´s common stock, which hadbeen acquired in the market from July toNovember for a total price of Euros 147,893,000.The effect of this accounting entry was to reducecommon stock by Euros 2,198,000 andunrestricted reserves by Euros 145,695,000.
To insure the liquidity of the stock in the market,the Bank intervened as a buyer in 1999 in 0.28%of the transactions involving its own shares andas a seller in the same percentage. The maximumtreasury stock held at any time during the yearwas virtually zero.
In January 1999, the Board of Directors executedthe resolution of the Shareholders Meeting of June1998 to increase the Bank’s capital stock, with acharge to paid-in surplus reserves, by Euros27,553,605, the total amount required in order tofix the face value of each share at Euros 1.
i) Pension commitments
Under the current collective bargainingagreement, Spanish banks have undertaken to
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supplement, under certain conditions, the socialsecurity benefits of their employees, or of theiremployees' beneficiary rightholders, forretirement, permanent disability, death of spouseor death of parent. The undertaking for retirementbenefits is only applicable to employees hiredbefore March 8, 1980.
At December 31, 1999, all the Group banks hadrecorded allowances to cover the full amount ofthe potential commitments to their servingemployees, and these allowances are recorded inthe accompanying balance sheets under the"Special allowances - Pension allowance" caption.
The interest allocable to the aggregate internalallowance, calculated at the average yield on totalfinancial assets, is booked under the "Interest andsimilar charges - Allocable to pension allowance"caption. The provision for possible shortfalls in thecoverage of the commitments that have come dueduring the year is recorded as "Personnelexpenses". Any other shortfall or surplus arisingas a result of changes in the calculation basis isrecorded as a provision or as an allowancerecovered under the "Extraordinary losses -Provision to pension allowance" or "Extraordinaryincome - Recovery from pension allowance"captions, respectively.
In 1999, the Group banks changed the technicalbases used to calculate the current actuarial costof these commitments in order to adapt themgradually to those stipulated in the regulations oninstrumentation of pension commitments (RoyalDecree 1588/1999), the adaptation period forwhich cannot exceed ten years.
The technical bases applied in 1999 and 1998were as follows:
1999 1998Mortality tables. . . . . . GRM/F-80 PEM/F-80Discount rate. . . . . . . . . . . 6 % 6 %Differential between discount rate and growth rate of salaries & pensions. . 2% 3%
The accrual basis is ratio of the number of yearsof service elapsed to the total number of years ofservice.
The current actuarial cost of the pensioncommitments to serving employees at December
31, 1999, at consolidated level was Euros286,509,000 and the consolidated internalallowance at that date amounted to Euros295,847,000. The corresponding amounts atDecember 31, 1998, were Euros 299,568,000 andEuros 310,633,000.
The Group implemented early retirement plans in1999 and 1998. For these purposes, and withprior authorization from the ShareholdersMeetings and Boards of Directors of BancoPopular and the banking subsidiaries and fromthe Bank of Spain, it set up a specific allowance,within the allowance for pensions, by transfersfrom voluntary reserves. In 1999 transfers fromunrestricted reserves aggregating Euros93,001,000 (Euros 69,002,000 from BancoPopular Español, Euros 8,997,000 from Banco deAndalucía, Euros 4,502,000 from Banco deCastilla, Euros 5,499,000 from Banco de CréditoBalear, Euros 1,503,000 from Banco de Galiciaand Euros 3,498,000 from Banco de Vasconia)were made to a special allowance to cover thefinancial requirements arising from execution ofthis extraordinary early retirements plan duringthe year.
In 1998 the Group implemented a similar plan,setting up for this purpose an allowance of Euros129,218,000 by transfers from voluntary reserves(Euros 90,152,000 from Banco Popular Español,Euros 18,030,000 from Banco de Andalucía,Euros 4,808,000 from Banco de Castilla, Euros9,015,000 from Banco de Crédito Balear, Euros4,207,000 from Banco de Galicia and Euros3,005,000 from Banco de Vasconia).
The prepaid and recovered taxes arising fromthese early retirement plans were booked to thepension allowance until the conclusion of eachplan in December 1999 and 1998 respectively, atwhich time the balance then existing wastransferred back in full to the accounts of origin -reserves and general banking risk allowances - atthe banks concerned. The amounts so booked inthis connection and for the return of the amountsnot used were Euros 22,997,000 for the 1999plan (Euros 15,596,000 in reserves, Euros5,767,000 in consolidation reserves and Euros1,634,000 in minority interests) and Euros23,187,000 for the 1998 plan (Euros 16,185,000in reserves, Euros 5,674,000 in consolidationreserves and Euros 1,328,000 in minorityinterests).
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In early October 1995 all the Group banks tookout individual insurance policies with Allianz RasSeguros y Reaseguros, S.A., unconditionallycollateralized by this insurance company’s parententity Allianz A.G., to provide assured futurecoverage of all supplementary pension paymentsto the retired employees.
Germany’s Allianz group, which is the leadinginsurance group in Europe, is a shareholder ofBanco Popular and a partner in the latter’sEuropensiones and Eurovida subsidiaries.
The mathematical reserves relating to theseinsurance policies covering all employees whowere retired or had taken early retirement as ofDecember 31, 1999, amounted at that date toEuros 676,710,000 at Group level. The relatedamount at December 31, 1998, was Euros576,341,000.
j) Allowance for general banking risks
This allowance, which has no specif icallyassigned purpose, was set up to providecoverage for potential f luctuations andextraordinary risks (see Note 21). Its balance isdeemed to form part of the balance sheetreserves for the purpose of compliance withcapital requirements.
k) Financial futures on securities, interest ratesand commodities
These transactions are booked in memorandumaccounts at their principal amount. The results onhedges are recognized symmetrically with theresults on the transactions hedged. Other futurestransactions in organized markets are marked tomarket daily; futures transactions outsideorganized markets are recorded at the time ofsettlement, with coverage provisions beingbooked in the case of potential losses; FRAs andinterest swaps are booked at the beginning of theinterest period.
In the income statements, the results on hedgesof balance sheet asset or liability items aretreated as adjustments to the interest revenuefrom or interest expense of the item hedged.Other hedging results are booked as "Assettrading and exchange profits".
l) Deposit Guarantee Fund
As required by Bank of Spain regulations, thecontributions to the Deposit Guarantee Fund areexpensed currently. The rate of contribution in
1999 and 1998 was 0.10% of the computablefunds.
m) Corporate income tax
The expense for period corporate income tax iscalculated individually by each company on thebasis of book income before taxes, increased ordecreased, as appropriate, by the permanentdifferences from the taxable income for corporateincome tax purposes.
As required by Bank of Spain regulations and asstipulated in the Spanish National Chart ofAccounts, corporate income tax is recorded, netof withholdings and prepayments, under the"Customer deposits-From public bodies" captionin the year-end balance sheets.
n) Bonds and other marketable debt securitiesand subordinated liabilities
Marketable debt securities reflect bearer ordemand debts, such as cash or treasury bonds,other bonds, debentures, promissory notes orsimilar instruments.
Subordinated liabilities are presented in thebalance sheet on a separate line and include allsubordinated financing which, for credit rankingpurposes, comes after common creditors,regardless of how instrumented. This financing iscomputable for capital requirement purposeswhen certain regulatori ly defined specif icrequirements are met.
Subordinated l iabil i t ies are presented atredemption value in the balance sheet. In thecase of bonds issued at a discount, the differencebetween the redemption value and the amountreceived is recorded in a compensating accountuntil the liability is removed from the balancesheets. For an explanation of the operation of thiscompensating account, see Note 16"Prepayments and accrued income and accrualsand deferred income". Zero-coupon issues withearly redemption options are recorded inaccordance with the foregoing principles, with thedate of the next option being deemed to be thematurity date.
1) Euronotes issue:
In 1997 Banco Popular announced a program toissue medium-term Euronotes in differentcurrencies in international markets, up to a limit ofUS$ 2,000 million. The notes were to be issuedby the wholly owned instrumental subsidiaries set
86
up for this purpose by Banco Popular, namelyPopular Finance (Cayman) Ltd. for the bond issueand Popular Capital (Cayman) Ltd. for thesubordinated debt issue. The payments of theprincipal and interest of these issues areunconditionally and irrevocably guaranteed byBanco Popular. On October 30, 1997, BancoPopular issued the Offering Circular containing allthe information about this program. Thisdocument was renewed on November 4, 1999.
The 32 issues of instruments under this programin 1998 amounted to Euros 825,388,000 at year-end. At the end of 1999, the outstanding balanceof the 45 issues outstanding was Euros1,028,330,000.
The ratings assigned to the program by ratingagencies are as follows: Moody’s Aa2; S&P AA;and Fitch-IBCA AA.
2) Corporate promissory note issue program
In 1999, Banco Popular carried out a commercialpaper issuance program, the prospectus for whichwas registered with the Spanish Securities andExchange Commission on November 25, 1999.The features of this program are as follows: themaximum nominal outstanding balance at anytime will be Euros 600 million, after the initial limitof Euros 300 million was increased to this figureon December 23, 1999; the face value of eachnote is Euros 3,000, represented by a book-entrysystem entry, with maturity at any term from 7days to 18 months from the date of issue of eachnote; the paper is issued at a discount, the cashvalue of which is determined at the time ofissuance of each note, based on the pactedinterest rate. The program has been rated ashighly liquid and the notes are traded on the AIAForganized second market.
ñ) Mortgage securitization
The Banco Popular Group, jointly with othermaximum-solvency Spanish banks, participated in1998 in a mortgage securitization program. OnOctober 16, 1998, TDA5 Mortgage SecuritizationFund issued Euros 1,171,974,000 of mortgage-backed bonds represented by accounting entriesof Euros 150,000 face value each. The 7,800bonds consist of 7,644 Series A bonds and 156Series B subordinated bonds and were issued atpar, with quarterly interest payments tied to the 3-month EURIBOR. These bonds are listed on theAIAF bond market.
The ratings assigned to this issue by Moody’sInvestors Service España, S.A. and Fitch IBCA
España are Aaa and AAA, respectively, for theSeries A bonds and Aa3 and AA-, respectively,for the Series B bonds.
The Banco Popular Group contributed Euros420,708,000 of mortgage loans for this bondissue, which were booked as asset transfers inmemorandum accounts when the issue waslaunched.
This transfer of mortgage loans did not lead toany recognition of income at the Banco PopularGroup. The yield differential on the transaction isreflected monthly under the "Asset trading andexchange profits" caption.
o) Adaptation to the euro and to the year 2000
The challenge that adaptation to these twohistoric events posed for the Banco PopularGroup, particularly as regards technical andhuman resources, required special inter-areaorganization and coordination, supported anddirected by the Group’s most senior officers.These issues were initially addressed at thebeginning of 1997 with the start-up of the jointeuro/year 2000 adaptation plan, aimed atoptimizing the deployment of extraordinaryresources in view of the interrelation of the ITaspects of the two projects. A unit called the EuroOffice was formed in November 1997 tocoordinate the work on these projects in theGroup.
An impact study conducted to determine thetechnological scope of the adaptation needs ledto the Group having to adapt a total of 17,330computer programs and to have 1,960 newprograms written to replace applicationsconsidered to have become obsolete. Thesecomputer work tasks were outsourced to sixservice, consulting and IT firms for a total amountof Euros 12,321,000. The business andoperational effects of the introduction of the eurowere also investigated, and the necessarymeasures were designed to cater for them.
Highlights of the two projects are detailed in thefollowing paragraphs:
1) Aspects arising from the introduction of theeuro:
Implementation of the euro project affected, andto a greater or lesser degree required thecollaboration of, the Group’s entire labor force.The areas most strongly affected by the advent ofthe euro included most notably Information
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Technology, Systems, Accounting, Legal,Treasury, Commercial, International and Training.However, by means of instruction and customerrelations, all the geographical and functionalpoints of the organization were reached.
Notable features in the 1998 financial statementsarising from the introduction of the euro were asfollows:
- Exchange risk futures transactionsinvolving the currencies of EMU member stateswere removed from the related memorandumaccounts. The amounts receivable or payable forthese transactions are presented, depending ontheir sign and without offset, on the "Other" lineunder the other asset accounts and other liabilityaccounts headings. For the non-hedgetransactions, Euros 72,000 of gains and the sameamount of losses were recorded as "Exchangedifferences" under the "Asset trading andexchange profits" caption at December 31, 1998.In the case of the hedge transactions, theamounts receivable and payable were taken tothe income statement symmetrically with theitems hedged and therefore obviously had aneutral effect on consolidated income. Thecalculations were made at the irrevocably fixedexchange rates at December 31, 1998, aspublished by the EU Commission.
- As required by Bank of Spain regulations, aportion of the expenses incurred for theadaptation and acquisition of software as a resultof the introduction of the euro was recorded in aspecific account under the "Intangible assets"caption. The balance of this account must beamortized before the end of 2001, with theamortization charges being recorded on the basisof the nature of the expense. The "Intangibleassets" caption in the consolidated balance sheetas of December 31, 1998, includes a balance ofEuros 4,237,000 arising from the introduction ofthe euro, and the amortization charged to periodincome amounted to Euros 811,000.
- The expenses recorded by nature due tothe introduction of the euro, excluding thosereferred to in the previous paragraph, totaledEuros 8,156,000 for the Banco Popular Group in1998, the breakdown being as follows: Euros6,245,000 for technology and systems, Euros1,424,000 for training, Euros 403,000 forcommunications to customers and Euros 84,000for other sundry expenses.
The 124 classroom training sessions held in 1998were attended by a total of 3,314 participants.Distance training was provided for all Group staffand 3 basic information publications were sent toall personnel. A total of 53 euro briefings wereorganized in different parts of Spain forcustomers, professional associations, universitiesand secondary schools.
- In 1999, the expenses recorded by naturearising from the introduction of the euro amountedto Euros 2,482,000.
The consolidated balance sheet as of December31, 1999, includes a balance of Euros 4,334,000of intangible assets relating to the introduction ofthe euro.
- In the consolidated financial statements asof December 31, 1999 and 1998, respectively, theexchange differences relating to shareholdingsdenominated in the national currencies of theEMU member states are presented, as inprevious years, as translation differences underthe "Consolidation reserves" caption and will bemaintained until disposal of the shareholdings.
2) Aspects arising from the "year 2000" effect
Part of the work relating to the "year 2000" effectwas performed jointly with that for the euro fromthe beginning of 1997. The extraordinaryresources available were used intensively in 1999for the "year 2000" effect in order to achieve thedesired objective in September 1999 of fullcompliance with the relevant requirementsstipulated by the Spanish Banking Association.
The Bank set up a specific committee to controland monitor the progress of the "year 2000" effectwork. It was necessary to revise nearly 19,000programs, of which 10,800 had to be adapted.The operation of processes and applications, bothin the CPU and at the branch off ices, waschecked and a pilot center was used to simulatedates in the year 2000. In addition to this in-housetesting, an outside firm was engaged to verify thecorrect adaptation of the Group’s programs.
The general expenses recorded by nature in 1999as a result of the adaptation process amounted toEuros 1,959,000. A total of 600 PCs also had tobe replaced at a cost of Euros 457,000.
All the group companies are operating normally in2000 and no problems have arisen because ofthe "year 2000" effect.
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Banco Popular Español, S.A. Summarized balance sheets at December 31
Euro thousand
Assets
Cash and due from central banks . . . . . . . . . . .Government debt securities . . . . . . . . . . . . . . . .Due from financial intermediaries . . . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . . .Private fixed-interest securities . . . . . . . . . . . . .Equity securities . . . . . . . . . . . . . . . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . . . . . . .Shares of Group companies . . . . . . . . . . . . . . .Intangible assets . . . . . . . . . . . . . . . . . . . . . . . .Tangible assets . . . . . . . . . . . . . . . . . . . . . . . . .Unpaid subscribed common stock . . . . . . . . . . .Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . .Other asset accounts . . . . . . . . . . . . . . . . . . . . .Prepayments and accrued income . . . . . . . . . .Loss for the year . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and capital
Due to financial intermediaries . . . . . . . . . . . . .Customer deposits . . . . . . . . . . . . . . . . . . . . . . .Bonds and other marketable debt securities . . .Other liability accounts . . . . . . . . . . . . . . . . . . . .Accruals and deferred income . . . . . . . . . . . . . .Special allowances . . . . . . . . . . . . . . . . . . . . . .General banking risk allowance . . . . . . . . . . . . .Income for the year . . . . . . . . . . . . . . . . . . . . . .Subordinated liabilities . . . . . . . . . . . . . . . . . . . .Common stock . . . . . . . . . . . . . . . . . . . . . . . . . .Paid-in surplus . . . . . . . . . . . . . . . . . . . . . . . . . .Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Revaluation reserves . . . . . . . . . . . . . . . . . . . . .Prior years´ earnings . . . . . . . . . . . . . . . . . . . . .
Total liabilities and capital . . . . . . . . . . . . . . .
Memorandum accounts
Contingent liabilities . . . . . . . . . . . . . . . . . . . . . .Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Banco Popular Group
Banco Popular Español
The Bank is the parent company of the Group andaccounted for approximately 64% of theaggregate 1999 balance sheet and net incomebefore the related intra-Group adjustments inconsolidation.
Following are the summarized balance sheets,income statements and statements of changes in
financial position of the Bank for the last fiveyears.
Group companies
Exhibits I to VI provide information about thecompanies comprising the Banco Popular Groupat December 31, 1999, showing those included inthe consolidated documentation by the globalintegration method separately from thoseconstituting, because of their line of business, the
1997
1999
19961998
153,012372,249
5,048,96510,377,572
292,51238,03243,357
381,8658,883
391,746––
390,71291,751
–
17,590,656
5,196,25610,293,011
–391,234137,109251,457
–313,229
–83,22248,718
876,414–6
17,590,656
2,437,8562,356,785
1995
164,593295,157
4,067,7409,006,407
55,87019,06439,997
361,8692,230
384,732––
285,88588,156
–
14,771,700
3,213,5289,479,115
–340,810118,399254,571
–289,003
–83,222
135,270857,776
–6
14,771,700
1,653,9852,568,359
259,6131,169,2633,215,8358,003,011
104,61845,29842,948
345,257914
357,416––
260,210117,630
–
13,922,013
2,623,0699,027,142
–353,119146,358256,356
–284,237
–86,846
135,2701,009,616
––
13,922,013
1,403,9101,972,287
279,8611,681,6862,239,5457,450,681
111,85446,68139,324
326,410–
316,601––
251,032153,306
–
12,896,981
1,907,1328,611,548
168,963337,828192,805242,496
–268,418
–86,846
135,270945,675
––
12,896,981
1,212,1452,011,413
357,056413,494
4,745,18311,474,999
272,05718,69949,554
403,4439,051
375,718––
421,694116,819
–
18,657,767
4,635,06511,795,269
190,281403,535162,206243,710
–323,788
–108,577
21,164774,169
–3
18,657,767
2,858,9392,809,168
59,40968,800
789,5321,909,279
45,2673,1118,245
67,1271,506
62,514––
70,16419,437
–
3,104,391
771,2101,962,568
31,66067,14226,98940,550
–53,874
–18,066
3,521128,811
––
3,104,391
475,687467,406
Pesetas(Millions)
89
Banco Popular Español, S.A. Summarized income statements for the years ended December 31
Euro thousand
Interest and similar revenues . . . . . . . . . . . . . . . .Interest and similar charges . . . . . . . . . . . . . . . . .Revenues from equity securities . . . . . . . . . . . . . .Intermediation margin (net interest revenue) . .Fee revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .Fee expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .Asset trading and exchange profits . . . . . . . . . . . .Ordinary margin . . . . . . . . . . . . . . . . . . . . . . . . .Other operating income . . . . . . . . . . . . . . . . . . . . .General administrative expenses . . . . . . . . . . . . .Depreciation and writedown of tangible and
intangible assets . . . . . . . . . . . . . . . . . . . . . . .Other operating expenses . . . . . . . . . . . . . . . . . . .Operating margin . . . . . . . . . . . . . . . . . . . . . . . .Writeoffs and provisions for credit losses (net) . . .Writedowns of financial investments (net) . . . . . . .Provision to general banking risk allowance . . . . .Extraordinary income . . . . . . . . . . . . . . . . . . . . . .Extraordinary losses . . . . . . . . . . . . . . . . . . . . . . .Income before tax . . . . . . . . . . . . . . . . . . . . . . . .Corporate income tax . . . . . . . . . . . . . . . . . . . . . .Other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Income for the year . . . . . . . . . . . . . . . . . . . . . . .
Banco Popular Español, S.A. Summarized statements of changes in financial position for the years ended December 31
Euro thousand
Source of fundsNet income for the year . . . . . . . . . . . . . . . . . . . . .Amounts which reduce income but do notinvolve an application of funds:
Net provision to allowances:For credit loss . . . . . . . . . . . . . . . . . . . . . . .For country risk . . . . . . . . . . . . . . . . . . . . . .For pensions . . . . . . . . . . . . . . . . . . . . . . . .For accelerated depreciation and other . . .
Writedown of securities portfolio . . . . . . . . . . .Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .Gain on sale of permanent assets (–) . . . . . . .
Funds provided by operations . . . . . . . . . . . . . . . .Net increase in:
Due to banks (net) . . . . . . . . . . . . . . . . . . . . . .Customer deposits . . . . . . . . . . . . . . . . . . . . .
Net decrease in:Fixed-interest securities . . . . . . . . . . . . . . . . . .Shares and nonpermanent participating interests
Sale of permanent assets . . . . . . . . . . . . . . . . . . .Total . . . . . . . . . . . . . . . . . . . . . . .
Application of fundsPrior year´s dividend . . . . . . . . . . . . . . . . . . . . . . .Capital reduction . . . . . . . . . . . . . . . . . . . . . . . . . .Net increase in:
Due from banks (net) . . . . . . . . . . . . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . .Fixed-interest securities . . . . . . . . . . . . . . . . . .Shares and nonpermanent participating interestsOther assets and liabilities (net) . . . . . . . . . . .
Acquisition of permanent assets . . . . . . . . . . . . . .Total . . . . . . . . . . . . . . . . . . . . . . .
1997
1999
19961998
972,960415,480
76,587634,067300,668
60,95538,280
912,060439
394,962
41,17521,991
454,37124,701
559–
23,80026,553
426,358113,129
–313,229
1995
1,053,274460,844
68,251660,681259,036
56,83838,651
901,530487
382,712
35,24921,877
462,17955,251
427–
20,29631,649
395,148106,145
–289,003
1,204,705569,044
63,755699,416223,132
52,23436,091
906,405361
364,027
29,73229,528
483,47960,937
(793)–
10,83144,271
389,895105,658
–284,237
1,265,671653,595
53,803665,879218,943
62,22322,412
845,0112,128
353,539
26,19827,461
439,94162,481(3,065)
–25,41634,570
371,371102,953
–268,418
894,140301,209
75,648668,579339,974
66,23831,469
973,784528
402,964
42,47522,213
506,66043,897
1,691–
18,47933,815
445,736121,948
–323,788
148,77250,11712,587
111,24256,56711,021
5,236162,024
8867,048
7,0673,696
84,3017,304
281–
3,0745,626
74,16420,290
–53,874
Pesetas(Millions)
1997
1999
19961998
313,229
42,293409
16,624(1,617)1,989
41,175(5,518)
408,584
1,024,611818,398
––
54,5242,306,117
196,405–
–1,417,126
315,45320,338
229,867126,928
2,306,117
1995
289,003
72,644613
18,2957,056
66135,249(9,003)
414,518
–461,860
889,86526,23472,909
1,865,386
180,592210,318
164,7011,081,167
––
81,528147,080
1,865,386
284,237
77,074174
26,12617,273(3,642)29,732(1,551)
429,423
–220,385
499,2251,274
24,1071,174,414
162,405–
223,558636,514
––
18,500133,437
1,174,414
268,418
84,15412
20,52516,918(3,131)26,198(4,171)
408,923
259,283697,919
229,220–
23,9441,619,289
147,639–
–1,129,999
–9,334
239,17893,139
1,619,289
323,788
58,7491,459
22,5502,9402,032
42,475(8,443)
445,550
–1,691,170
–20,47349,637
2,206,830
216,376147,893
392,669153,962
21,305–
174,78499,841
2,206,830
53,874
9,775243
3,752489338
7,067(1,405)74,133
–281,388
–3,4068,259
367,186
36,00224,607
65,335192,003
3,545–
29,08216,612
367,186
Pesetas(Millions)
90
(4) Distribution of income and Boardremuneration
Distribution of income
The proposed distribution of Banco PopularEspañol´s 1999 income is as follows:
Euros
Net income for the year 323,787,803
Brought forward from 1998 2,565
Total distributable income 323,790,368
Dividend 234,040,719
Allocation to reserves:
Bylaw reserve 12,677,832
Voluntary reserves 77.071.018
Carried forward to next year 799
The Bank´s policy is to pay dividends quarterly,as follows: in October a first interim dividend ispaid out of income for the year; second and thirdinterim dividends are paid in the following Januaryand April; and the final supplementary dividend ispaid in the following July.
Accordingly, in 1999 the dividends paid on theshares outstanding at each payment date, havingregard to the timing of the buyback of the sharescanceled in December, were as follows: Euros0.48 in January, Euros 0.49 in April and Euros0.50 in July on 110,775,000 shares. An interimdividend of Euros 0.525 per share, out of 1999income, was paid in October; this dividendincluded a further Euros 0.005 for proration of thedividends not paid on the shares bought back andcanceled, as stipulated by Article 79 of theCorporations Law.
The detail of the 1999 dividends paid at thebeginning of October 1999 and January 2000,compared with the year-to-date net income at theend of September and December 1999,respectively, is as follows:
Thousands of eurosSeptember 1999 December 1999
Year-to-date net income 242,333 323,788
Interim dividends paid 57,603 57,546
nonconsolidable group, which were included inthat documentation by the equity method.
In 1999, Banco Popular acquired the remaining50% of Abacá Crédito y Financiación, which thusbecame a wholly-owned subsidiary company ofthe group. Goodwil l of Euros 526,000 wasrecognised on this acquisition.
In 1998 Banco Popular set up InversionesInmobiliarias Alprosa, which is classified in thenonconsolidable group because its l ine ofbusiness is property. Also in 1998, the Group soldits holding in the IMISA subgroup, consisting ofInmuebles y Materias Industriales (IMISA),Balnearios y Playas, Marina de Santa Ponsa andNova Santa Ponsa Golf, all included in thenonconsolidable group; the result ing gainrecorded in consolidated income for the yearamounted to Euros 3,306,000.
Other companies included within the scope ofconsolidation
Although these are not Group companies, theyare consolidated by virtue of being multigroup andassociated companies. The accompanyingexhibits present significant data of each of thesecompanies.
In 1999, the only change in multigroup companieswas the transfer of Abacá Crédito y Financiaciónto the group companies category, as discussedabove. Also, Banco Popular Comercial purchasedthe branch network in France of Banco Portuguésdo Atlántico, thus increasing its size. Among theassociated companies, the holding in Sistemas4B was increased from 15% to 20.45%, withrecognition of Euros 8,123,000 of goodwill.
In the multigroup companies category, there wereno variations in 1998.
The associated company Aguas del Término deCalviá, which formed part of the IMISA subgroup,was excluded from the Group in 1998. The 10%holding in Crosselling was also disposed of, givingrise to the recognition of a gain of Euros 54,000 fordisposal of equity method companies from therecovery of the goodwill amortized in 1997.
At the end of 1998 Banco Popular, together withother entities, set up the Consorcio Iberióncompany, in which it has a 12.5% holding andwhich is classified as an associated company.
91
Remuneration and other benefits of BancoPopular Board members
The names of the Board members at December31, 1999, together with additional informationabout them, are shown below.
The amounts for directors´ fees, otherremuneration and risk exposure relate to BancoPopular and, where appropriate, to consolidatedsubsidiaries. In addition to the figures shown,Euros 17,000 were paid for life insurance of 10directors.
The total f igure for direct and indirect r iskexposure to directors of any of the consolidated
companies comprises Euros 8,005,000 relating toloans, Euros 4,568,000 relating to guarantees,Euros 5,235,000 to indirect risk exposure.
The interest rates on the loans and leasingtransactions range from 3.50% to 7.75% and thequarterly fees for guarantees range from 0.12% to0.75%.
The related 1998 figures were directors’ fees:Euros 227,000; executive remuneration: Euros1,007,000; and direct and indirect risk exposure:Euros 17,099,000.
Directors´fees
(Euro thousand)Number %
––––
5665
––
58–––––––
56–––––––––––
235
0.190.245.370.090.140.450.250.150.203.430.200.265.430.040.930.340.020.150.290.010.44
10.640.970.010.231.230.110.17
31.98
204,340255,880
5,829,56692,000
146,556491,379275,104158,441213,796
3,726,824213,426287,134
5,894,97246,933
1,007,354371,445
26,187166,000317,055
4,304482,609
11,553,1431,047,859
5,400253,983
1,332,766120,474184,757
34,709,687
–––––––
260––––––––––
45209
–––––
350292
–1,156
Asociación de Directivos de BPE . . . . . . . . . .Ayala, Ildefonso . . . . . . . . . . . . . . . . . . . . . . .Bremkamp, Detlev . . . . . . . . . . . . . . . . . . . . .Catá, José María . . . . . . . . . . . . . . . . . . . . . .Donate, Francisco . . . . . . . . . . . . . . . . . . . . .Fernández de la Mora, Gonzalo . . . . . . . . . .Gancedo, Gabriel . . . . . . . . . . . . . . . . . . . . . .García Cuéllar, Fulgencio . . . . . . . . . . . . . . .Hernández, José Manuel . . . . . . . . . . . . . . . .Kölsch, Martin * . . . . . . . . . . . . . . . . . . . . . . . .Laffón, Manuel . . . . . . . . . . . . . . . . . . . . . . . .Miralles, Luis . . . . . . . . . . . . . . . . . . . . . . . . .Molins, Casimiro . . . . . . . . . . . . . . . . . . . . . .Montoro, Santos . . . . . . . . . . . . . . . . . . . . . . .Montuenga, Luis . . . . . . . . . . . . . . . . . . . . . .Morillo, Manuel ** . . . . . . . . . . . . . . . . . . . . . .Nigorra, Miguel . . . . . . . . . . . . . . . . . . . . . . . .Parera, Alberto . . . . . . . . . . . . . . . . . . . . . . . .Pérez Sala, Enrique . . . . . . . . . . . . . . . . . . . .Platero, Jesús . . . . . . . . . . . . . . . . . . . . . . . .Rodríguez, José Ramón . . . . . . . . . . . . . . . .Sindicatura de Accionistas de BPE . . . . . . . .Solís y Martínez-Campos, Miguel A. de . . . . .Stecher, Jorge . . . . . . . . . . . . . . . . . . . . . . . .Termes, Rafael . . . . . . . . . . . . . . . . . . . . . . .Valls, Javier . . . . . . . . . . . . . . . . . . . . . . . . . .Valls, Luis . . . . . . . . . . . . . . . . . . . . . . . . . . . .Valls, Pedro . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
–––
4,357–––
144–––––
2,48254
–5,710
–––––
5,061–––––
17,808
Shares owned andrepresented
Direct and indirectrisk exposure
(Euro thousand)
Executiveremuneration
(Euro thousand)Name
(5) Government debt securities
The breakdown of this caption is shown in thefollowing table.
There were no transfers from trading portfolios toordinary investment portfolios in 1999 or 1998.
* Resigned at December 31** Appointed on April 22; appointment ratified by the Shareholders Meeting on June(1) Euros 3,426,000 of this amount relate to exposure for loans from Iberpistas, of which he is Chairman.
(1)
92
The Bank of Spain certificates of deposit wereacquired in 1990 in compliance with therequirements of Circular 2/1990 on the cash ratiosof financial intermediaries. These assets, withannual interest at 6%, mature semiannually fromMarch 1993 to September 2000. The amountsredeemed at consolidated level were Euros127,787,000 in 1999 and Euros 116,933,000 in1998.
The government debt securities assigned tosecure commitments of the Group and thirdparties amounted to Euros 25,289,000 in 1999and Euros 34,985,000 in 1998.
(6) Due from financial intermediaries
An itemized detail of this asset caption is shownin the following table, with breakdowns by type, bycurrency and by company category, and by termfor the term accounts. Also included are theamounts of nonperforming balances and thecoverage for them.
The amounts shown for multigroup companies are thebalances not eliminated at the companies consolidatedby the global integration method for their positions withthe companies consolidated by the proportionalintegration method (multigroup companies).
Euro thousand
By type:Banks operating in Spain . . . . . . . . . . . . . .Savings banks . . . . . . . . . . . . . . . . . . . . . .Credit cooperatives . . . . . . . . . . . . . . . . . .Offcial Credit Institute . . . . . . . . . . . . . . . .Nonresident credit entities . . . . . . . . . . . . .Asset repos . . . . . . . . . . . . . . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .By currency:
Euros . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Foreign currencies . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .By company category:
Group companies:Banks operating in Spain . . . . . . . . . . .Resident credit entities . . . . . . . . . . . .Nonresident credit entities . . . . . . . . . .
Multigroup companies . . . . . . . . . . . . . . . .Associated companies . . . . . . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .Distribution of term accounts:
Up to 3 months . . . . . . . . . . . . . . . . . . . . .3 months to 1 year . . . . . . . . . . . . . . . . . . .1 to 5 years . . . . . . . . . . . . . . . . . . . . . . . .Over 5 years . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .Nonperforming balances and coverage:
Nonperforming balances . . . . . . . . . . . . . .Provision for credit loss and country risk . .
Euro thousand
Bank of Spain certificates of deposit . . . . . . . . . . . .Government debt securities:
Treasury bills . . . . . . . . . . . . . . . . . . . . . . . . . . .Other book-entry system securities . . . . . . . . . .Other securities . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Detail by portfolios:
Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Ordinary investment . . . . . . . . . . . . . . . . . . . . . .“Held to maturity” investment . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Security price fluctuation allowance charged to income
1997
1999
19961998
266,429
197,26453,244
282517,219
38,152445,717
33,350517,219
6
1995
383,362
147,68766,316
498597,863
11,101534,913
51,849597,863
90
490,264
802,291163,794224,994
1,681,343
–1,629,013
52,3301,681,343
174
587,489
835,665328,291361,978
2,113,423
5652,112,858
–2,113,423
4,147
138,642
345,03514,471
281498,429
–489,322
9,107498,429
96
Pesetas(Millions)
23,068
57,4092,408
4782,932
–81,417
1,51582,932
16
1997
1999
19961998
726,912210,769
505–
2,041,0131,602,875
190,2454,772,319
3,630,6471,141,6724,772,319
–––
178,182–
4,594,1374,772,319
3,911,586638,052130,672
1984,680,508
–343
1995
658,986151,413
859–
1,250,4481,809,431
140,7924,011,929
2,777,4461,234,4834,011,929
–––
149,490–
3,862,4394,011,929
3,392,082437,206
61,27912,339
3,902,906
–120
1,549,34985,218
1,515–
1,669,509822,497183,674
4,311,762
2,889,4321,422,3304,311,762
–––
160,843–
4,150,9194,311,762
3,343,863731,600101,625
11,3534,188,441
246246
1,737,78446,957
1,64745,437
1,417,000297,056168,554
3,714,435
2,684,6211,029,8143,714,435
–––
143,149–
3,571,2863,714,435
2,495,456939,809193,033
5,3793,633,677
1224
510,603382,344
325–
1,887,4011,819,010
101,9474,701,630
3,330,9081,370,7224,701,630
–––
193,216–
4,508,4144,701,630
3,807,828422,171255,594
11,3234,496,916
–553
Pesetas(Millions)
84,95763,617
54–
314,037302,658
16,962782,285
554,216228,069782,285
–––
32,148–
750,137782,285
633,56970,24442,527
1,884748,224
–92
93
(7) Loans and discounts
The following table provides breakdowns of thisbalance sheet caption by type of lending, byborrower sector, by currency, by companycategory and by term; also shown is the relatedcredit loss and country risk allowance.
The credit loss allowance, reflected in the balancesheets as a deduction from the balance of loans
and discounts, is the aggregate of the provisionsfor credit loss and for country risk. The variationsin this allowance and in the provisions for off-balance sheet risks are disclosed in Note 20.
In 1998 the Group launched an issue ofmortgage-backed securities, reducing the relatedasset caption by Euros 420,708,000.
Euro thousand
By type:Trade loans . . . . . . . . . . . . . . . . . . . . . . . . . .Secured loans . . . . . . . . . . . . . . . . . . . . . . . .Other term loans . . . . . . . . . . . . . . . . . . . . . .Demand and sundry loans . . . . . . . . . . . . . . .Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Nonperforming loans . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
By borrower sector:Public authorities . . . . . . . . . . . . . . . . . . . . . .Other residents . . . . . . . . . . . . . . . . . . . . . . . .Nonresidents . . . . . . . . . . . . . . . . . . . . . . . . .Doubtful balances . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
By currency:Euros . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Foreign currencies . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
By company categories:Group companies . . . . . . . . . . . . . . . . . . . . . .Associated companies . . . . . . . . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
By term:Up to 3 months . . . . . . . . . . . . . . . . . . . . . . . .3 months to 1 year . . . . . . . . . . . . . . . . . . . . .1 to 5 year . . . . . . . . . . . . . . . . . . . . . . . . . . .Over 5 year . . . . . . . . . . . . . . . . . . . . . . . . . .Indefinite . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Coverage allowance:Allowances for credit losses and country risk
(8) Private fixed-interest securities
The criteria for assignment of securities to thedifferent types of portfolio are described in Note2.d). Itemized breakdowns of the balances of this
caption, showing also the portfolio to which theyare assigned, yield rates and coverageallowances, are presented in the following table:
1997
1999
19961998
3,045,9475,812,3886,019,755
764,3861,046,825
206,57416,895,875
30,29116,485,311
173,699206,574
16,895,875
16,718,451177,424
16,895,875
––
16,895,87516,895,875
5,954,5883,017,9944,535,3403,387,953
–16,895,875
266,807
1995
3,103,3385,084,4904,980,419
665,526817,497251,397
14,902,667
31,05414,465,882
154,334251,397
14,902,667
14,645,318257,349
14,902,667
1,136–
14,901,53114,902,667
5,620,0832,472,7444,006,6892,803,151
–14,902,667
269,915
2,909,5003,881,8654,898,471
703,527648,600308,956
13,350,919
195,59912,734,636
111,728308,956
13,350,919
13,102,209248,710
13,350,919
162–
13,350,75713,350,919
5,350,4562,661,2883,257,2452,081,930
–13,350,919
263,616
2,843,6593,143,1014,699,109
710,480563,485325,027
12,284,861
207,49911,630,131
122,204325,027
12,284,861
12,047,284237,577
12,284,861
841–
12,284,02012,284,861
4,773,1172,614,4813,113,2731,783,990
–12,284,861
252,503
3,297,9456,952,3216,479,190
735,8961,283,357
190,67118,939,380
25,44018,427,732
295,537190,671
18,939,380
18,702,810236,570
18,939,380
3,355–
18,936,02518,939,380
5,650,3683,773,1325,303,510 4,212,370
–18,939,380
298,805
548,7321,156,7691,078,047
122,442213,533
31,7253,151,248
4,2333,066,117
49,17331,725
3,151,248
3,111,88639,362
3,151,248
558–
3,150,6903,151,248
940,142627,796882,430700,880
–3,151,248
49,717
Pesetas(Millions)
94
Euro thousand
Beginning balances . . . . . . . . .
Increase . . . . . . . . . . . . . . .Decrease . . . . . . . . . . . . . .Coverage allowance (net) .
Ending balance . . . . . . . . . . . .
At 1999 and 1998 year-end the balance of the"Other residents" account in the foregoing tableincludes Euros 331,343,000 and Euros388,007,000, respectively, of mortgage-backed
bonds issued by the Group in 1998. Thevariations in the balance of private fixed-interestsecurities were as follows:
Euro thousand
By issuer:Public bodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Credit entities:
Own securities . . . . . . . . . . . . . . . . . . . . . . . . . .Other issuers . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other residents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other nonresidents . . . . . . . . . . . . . . . . . . . . . . . . . .Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
By listing status:Listed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Unlisted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
By currency:Euros . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Foreign currencies . . . . . . . . . . . . . . . . . . . . . . . . . .Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
By nationality:Spanish securities . . . . . . . . . . . . . . . . . . . . . . . . . .Foreign securities . . . . . . . . . . . . . . . . . . . . . . . . . . .Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
By portfolio:Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Ordinary investment . . . . . . . . . . . . . . . . . . . . . . . . .Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . .Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
By company category:Group companies . . . . . . . . . . . . . . . . . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
By term:Maturity in following year . . . . . . . . . . . . . . . . . . . . .Other maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . .Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
By valuation:Total market value . . . . . . . . . . . . . . . . . . . . . . . . . .Total book value . . . . . . . . . . . . . . . . . . . . . . . . . . . .Difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . .Unrealized losses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance coverage:Security price fluctuation allowance charged to incomeCredit loss allowance . . . . . . . . . . . . . . . . . . . . . . . .Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Yield rates by issuer type (in %):Public bodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Credit entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other residents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other nonresidents . . . . . . . . . . . . . . . . . . . . . . . . . .Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1997
1999
19961998
24,44343,273
–43,273
395,17633,315
496,207
476,28319,924
496,207
472,29323,914
496,207
462,89333,314
496,207
3,516492,691
–496,207
–496,207496,207
19,334476,873496,207
498,660496,207
2,4532,459
6
62,0012,007
5.964.803.366.744.30
1995
19,62945,851
–45,85115,54213,48794,509
64,15830,35194,509
87,2157,294
94,509
77,67516,83494,509
–94,509
–94,509
–94,50994,509
17,86276,64794,509
94,94894,509
43945112
1296
108
9.335.015.265.765.61
1,07054,055
–54,05534,57689,557
179,258
132,95046,308
179,258
149,15530,103
179,258
63,359115,899179,258
–179,258
–179,258
–179,258179,258
27,959151,299179,258
180,580179,258
1,3221,466
144
144403547
12.145.137.406.406.41
2,99351,164
–51,16439,43885,218
178,813
117,20361,610
178,813
142,02536,788
178,813
83,22895,585
178,813
–178,813
–178,813
–178,813178,813
41,193137,620178,813
178,585178,813
(228)595823
823403
1,226
12.025.419.356.086.26
1,51934,888
–34,888
337,66995,234
469,310
456,68512,625
469,310
420,57648,734
469,310
372,91896,392
469,310
31,257438,053
–469,310
–469,310469,310
29,154440,156469,310
469,904469,310
5941,134
540
5402,3552,895
4.374.833.096.483.46
2535,805
–5,805
56,18315,84678,087
75,9862,101
78,087
69,9788,109
78,087
62,04816,03978,087
5,20172,886
–78,087
–78,08778,087
4,85173,23678,087
78,18678,087
99189
90
90392482
Pesetas(Millions)
1997
1999
19961998 1995
94,401
1,496,2791,094,581
1,899
494,200
178,711
740,164824,913
(439)
94,401
177,587
565,132564,687
(679)
178,711
287,825
454,845566,105
(1,022)
177,587
494,200
381,791408,688
888
466,415
82,228
63,52568,000
148
77,605
Pesetas(Millions)
95
(9) Equity securities
This balance sheet caption reflects the amount ofthe investment, net of the security pricefluctuation allowance, in shares of or participatinginterests in companies other than the Group,multigroup and associated companies. Thesesecurities are assigned to the ordinary investment
portfolio, in accordance with the classificationcriteria described in Note 2.d).
Breakdowns by listing status and currency,together with valuation and price fluctuationallowance details, are shown in the followingtable.
The variations in the caption balance in theconsolidated balance sheets is shown below.
For the variations in the security price fluctuationallowance, see Note 20.
Euro thousand
By listing status:Listed . . . . . . . . . . . . . . . . . . . . . . . . . . .Unlisted . . . . . . . . . . . . . . . . . . . . . . . . . .Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
By currency:Euros . . . . . . . . . . . . . . . . . . . . . . . . . . . .Foreign currencies . . . . . . . . . . . . . . . . . .Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
By valuation:Total market value . . . . . . . . . . . . . . . . . .Total book value . . . . . . . . . . . . . . . . . . . .Difference . . . . . . . . . . . . . . . . . . . . . . . . .Unrealized gains . . . . . . . . . . . . . . . . . . .Unrealized losses . . . . . . . . . . . . . . . . . . .
Security price fluctuation allowance . . . . .
Euro thousand
Beginning balances . . . . . . . . . . . . . . . .
Increase . . . . . . . . . . . . . . . . . . . . . .Decrease . . . . . . . . . . . . . . . . . . . . .Security price fluctuation allowance .
Ending balances . . . . . . . . . . . . . . . . . . .
(10) Participating interests
This caption reflects the amount, net of therelated security price fluctuation allowance, of theinvestment made in shares of non-Groupcompanies in order to establish lasting links withthem that will contribute to the Banco PopularGroup’s business activities. In view of the natureof the investment, these securities are assignedto the permanent shareholdings portfolio, theclassification criteria for which are described inNote 2.d). None of these securities are listed atthe present time.
The multigroup companies, i.e. jointly managedjoint ventures of Banco Popular and another
partner, are consolidated by the proportionalintegration method if they engage in financialbusiness activities as defined in Article 3.1 ofRoyal Decree 1343/1992. The interests inassociated companies are carried by the equitymethod in the consolidated balance sheets, asrequired by Bank of Spain Circular 4/1991.
The companies in this group are listed in ExhibitII, which also details the percentages of direct andindirect ownership and other relevant data.
The resulting amounts in consolidation by theproportional integration and equity methods areindividually disclosed in the appropriate notes.
1997
1999
19961998
72,20011,33583,535
82,4111,124
83,535
148,87783,53565,34269,573
4,2314,231
1995
14,18414,15428,338
25,6212,717
28,338
96,18028,33867,84268,173
331331
48,91611,07759,993
59,873120
59,993
86,79259,99326,79927,274
475475
41,84811,75653,604
53,53866
53,604
74,38153,60420,77721,228
451451
39,58611,07150,657
50,59463
50,657
107,07250,65756,41561,115
4,700 4,700
6,5871,8428,429
8,41811
8,429
17,8158,4299,386
10,168782 782
Pesetas(Millions)
1997
1999
19961998 1995
28,007
133,07677,879
3,900
79,304
59,518
47,18678,841
(144)
28,007
53,153
17,30310,914
24
59,518
42,107
12,5781,262
270
53,153
79,304
55,84088,718
469
45,957
13,195
9,29114,761
78
7,647
Pesetas(Millions)
96
Euro thousand
Nonconsolidable:Listed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Unlisted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Security price fluctuation allowance . . . . . . . . . . . . . .
In 1999, the multigroup company Abacá becamea group company, and the holding in the 4Bassociated company was increased.
Euro thousand
1999 1998 1997 1996 1995
Multigroup companies – – – – –
Associated companies 4,378 2,819 3,732 3,768 4,808
Total 4,378 2,819 3,732 3,768 4,808
Security price
fluctuation allowance – – – – –
(11) Shares of Group companies
The companies in which the Banco PopularGroup directly or indirectly owns a majority of thecommon stock or of the voting rights or which, inthe case of investees which are 20% or moreowned, are managed solely by the Group aretreated as Group companies. Those engaging infinancial business, in a broad sense, including theinstrumental companies used as legal support forfinancial business activities, constitute the globalintegration method consolidated Group, and theremaining companies, i.e. those not engaging infinancial business activit ies, constitute the
nonconsolidable Group. All the sharesrepresenting these investments in Groupcompanies are assigned to the permanentshareholdings portfol io. For the portfol ioclassification criteria, see Note 2.d).
The exhibits list all the companies comprising theconsolidated -by the global and proportionalintegration methods- Group and thenonconsolidable Group, and disclose thevariations in 1999.
There is no amount in the consolidated balancesheet caption relating to financial intermediariesbecause this investment was eliminated inconsolidation by the global integration method.The amount shown for "Other" relates in full tocompanies in the nonconsolidable Group, whichsince 1992 have been carried by the equitymethod as required by Bank of Spain Circular4/1991. All the amounts arising from consolidationby the global integration or equity methods areindividually disclosed in the appropriate notes.The balance sheet presentation of these amountsis net of the security price fluctuation allowance.
The l isting status breakdown of theseshareholdings is as shown below.
See Exhibit IV for an itemized breakdown of theshareholdings in Group companies, the detail bycompany and the variations in 1999. Abacá wasincluded as a Group company in 1999 followingacquisit ion of all i ts capital stock. Theshareholdings relating to the IMISA subgroupwere deleted from this caption in 1998.
(12) Goodwill and negative difference in consolidation
The balance of the "Goodwill in consolidation"account in the Group’s balance sheets reflects the
amount by which the price paid for investeecompanies’ shares exceeded the book value perthe latter’s accounting records, net of depreciationcharged to the consolidated income statement.This goodwill was not attributed to any balancesheet item and is amortized on a straight-linebasis in five years, this being the period for whichthe Group considers that it will benefit therefrom.
The detail of this consolidated balance sheetcaption, at company level, is as follows:
Euro thousand
Group companies:Abacá Crédito y Financiación . . . . . . . . . . . . . .
Global integration total . . . . . . . . . . . . . . . . . .Associated companies:
Sistema 4B . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Crosselling . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity method total . . . . . . . . . . . . . . . . . . . . .
1997
1999
19961998
–30,01430,014
2,542
1995
–41,13341,133
2,542
–34,56434,5642,542
–29,94229,942
2,542
–32,69332,693
2,542
–5,4405,440
423
Pesetas(Millions)
1997
1999
19961998
––
1,929427
2,356
––
1,316
1,316
491491
8,010
8,010
––
2,542–
2,542
––
–––
1995
8282
1,333
1,333
Pesetas(Millions)
97
(13) Intangible assets
The intangible assets recorded by theconsolidated companies in accordance with the
principles described generally in Note 2, includingthe sections on "Introduction of the euro" and"Year 2000 effect" in Note 2.o, are shown below,disclosing the year-by-year variations.
Euros 1,459,000 and Euros 703,000 ofamortization of goodwill were booked in 1999 and1998, respectively. The holding in Crosselling wassold in 1998.
The amount of the "Negative difference inconsolidation" caption on the liability side of theconsolidated balance sheet reflects the differencesin the initial consolidation of the Group companiesby the global or proportional integration or equitymethods. Following the inclusion of the equity
method in banking regulations in 1992, the date ofinitial consolidation was taken to be June 1985,when consolidation was first performed for thecalculation of the equity ratio. In the case of thecompanies which entered the Group after thatdate, the calculations were based on the relevantdata at their dates of entry. The negative differencein consolidation is deemed to be a provision.
The detail by company is as follows:
Euro thousand
Companies consolidated (by the global and proportionalintegration methods)Aula 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Cis-Tasación . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total global and proportional integration methods . . . . . .
Nonconsolidable groupAgroforestal Balear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Aliseda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Balnearios y Playas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Cía. de Gestión Inmobiliaria . . . . . . . . . . . . . . . . . . . . . . . . . .Correduría Bética de Seguros . . . . . . . . . . . . . . . . . . . . . . . . .Desarrollo Aplicaciones Especiales . . . . . . . . . . . . . . . . . . . .Eurocorredores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Eurovida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Inmuebles y Materias Industriales . . . . . . . . . . . . . . . . . . . . . .Inversiones Inmobiliarias Alprosa . . . . . . . . . . . . . . . . . . . . . .Los Pámpanos de Santa Ponsa . . . . . . . . . . . . . . . . . . . . . . .Marina de Santa Ponsa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Nova Santa Ponsa Golf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Popular de Renting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Proseguros Popular . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Promoción Social de Viviendas . . . . . . . . . . . . . . . . . . . . . . . .Sicomi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Urbanizadora Española . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Associated companiesAguas del Término de Calviá . . . . . . . . . . . . . . . . . . . . . . . . .Panorama Ibicenca . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Servicios de Información Bancaria . . . . . . . . . . . . . . . . . . . . .Sistema 4B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Consorcio Iberión . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Euro thousand
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Period amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1997
1999
19961998
18
18
–
96–
12––
–
–30
––
265
132–––
535
553
1995
18–
18
–––
96–
12––
66
––––
30––
265
–132
––
601
619
18–
18
–––
96–
12––
66
––––
30––
265
–132
––
601
619
18–
18
–––
96–
12––
66
––––
30––
265
–132
––
601
619
18
18
–
96–
12––
–
–30
––
264
132–––
534
552
Pesetas(Millions)
3
3
–
16–2––
–
–5––
44
22–––
89
92
1997
1999
19961998
2,4763,2761,352
3554,045
4,04510,686
3,522301
10,908
10,90829,39026,458
34013,500
3422,536
222180
2,476
385125
18150342
1995Pesetas(Millions)
1,8154,8904,402
572,246
98
Further information about premises andequipment is presented below. The nonoperating
assets consist of buildings, commercial premises,housing units and land.
Euro thousand
Nonoperating fixed assets:Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Accumulated depreciation . . . . . . . . . . . . . . . . . . . .Allowance for foreclosed assets . . . . . . . . . . . . . . .Period net rental revenues . . . . . . . . . . . . . . . . . . . .Annual fixed asset insurance premiums . . . . . . . . .
(14) Tangible assets
The variations in the last five years in the bookbalance of premises and equipment, net ofdepreciation and special allowances, are shownbelow. The "Furniture and installations" and
"Buildings" columns include any assets leased tothe consolidated companies by Group companiesthat engage in leasing. Buildings rented byconsolidated companies from other consolidatedcompanies are classif ied in the "Own use"column.
Balance at 12/31/94 . . . . . . . . .Net variation in 1995 . . . . . .Period depreciation . . . . . . .
Balance at 12/31/95 . . . . . . . . .Net variation in 1996 . . . . . .Period depreciation . . . . . . .
Balance at 12/31/96 . . . . . . . . .Net variation in 1997 . . . . . .Period depreciation . . . . . . .
Balance at 12/31/97 . . . . . . . . .Net variation in 1998 . . . . . .Period depreciation . . . . . . .
Balance at 12/31/98 . . . . . . . . .Net variation in 1999 . . . . . .Period depreciation . . . . . . .
Balance at 12/31/99 . . . . . . . . .
Foreclosed assets are recorded at the lower offoreclosure price or appraised value. The creditloss allowance for these assets is maintained forup to 25% of the loan principal and 100% of theinterest recovered. Also, in the case of foreclosedassets not added to the banks’ functional fixedassets, an allowance must be set up to coverpossible losses thereon, based on a scale tied tothe net book value and the length of time elapsedsince obtention of the asset. This allowance is notapplicable for completed housing units andmultipurpose premises if the book value is
supported by a current appraisal by anindependent appraisal entity.
The variations in foreclosed assets and therelated allowance in the last five years are shownbelow. In 1998, the extension by one year of thetimetable for provision of the allowance (see thecommentary on changes introduced by Bank ofSpain Circular 5/1997 in Note 1) led to the releaseof Euros 9,171,000, out of which a provision ofEuros 6,010,000 had to be booked during theyear.
Other TotalOwn use
28,5588,4666,029
30,99514,772
7,10438,66315,980
8,42846,21512,657
9,78649,08610,19410,03449,246
Buildings
28,5801,797
73529,642
2,450785
31,307965819
31,4531,232
83831,8471,359
86732,339
20,3605,879
5326,186
6355
26,194(1,469)
5624,669(2,557)
5222,060(5,469)
4616,545
77,49816,142
6,81786,82317,285
7,94496,16415,476
9,303102,337
11,33210,676
102,9936,084
10,94798,130
Peseta million Euro thousand
171,63750,88236,235
186,28488,78142,696
232,36996,04250,653
277,75876,07058,815
295,01361,26760,308
295,972
171,76910,800
4,417178,152
14,7254,718
188,1595,7994,922
189,0367,4045,036
191,4048,1705,210
194,364
122,36635,334
319157,381
379331
157,429(8,828)
337148,264(15,368)
313132,583(32,867)
27799,439
465,77297,01640,971
521,817103,885
47,745577,957
93,01355,912
615,05868,10664,164
619,00036,57065,795
589,775
Furniture andinstallations Other TotalOwn use
BuildingsFurniture andinstallations
1997
1999
19961998 1995
175,3754,508
38,284998198
202,9564,802
49,8901,310
198
207,5484,580
45,539908240
196,7354,688
34,666679240
137,9603,855
34,6661,138
197
Pesetas(Millions)
22,955642
5,768189
33
99
Under the regulations for determination andcontrol of the minimum capital base, net tangibleassets cannot exceed 70% of computable capital.The Banco Popular Group’s tangible assets at1999 year-end, after distribution of the income forthe year, represented 40.1% of computablecapital
(15) Other asset and other liability accounts
The main items in "Other asset accounts" in theconsolidated balance sheets are disclosed below.
Balance at 12/31/94 . . . . . . . . . . . . . . . . . . . . . . . .Net variation in 1995 . . . . . . . . . . . . . . . . . . . . .
Balance at 12/31/95 . . . . . . . . . . . . . . . . . . . . . . . .Net variation in 1996 . . . . . . . . . . . . . . . . . . . . .
Balance at 12/31/96 . . . . . . . . . . . . . . . . . . . . . . . .Net variation in 1997 . . . . . . . . . . . . . . . . . . . . .
Balance at 12/31/97 . . . . . . . . . . . . . . . . . . . . . . . .Net variation in 1998 . . . . . . . . . . . . . . . . . . . . .
Balance at 12/31/98 . . . . . . . . . . . . . . . . . . . . . . . .Net variation in 1999 . . . . . . . . . . . . . . . . . . . . .
Balance at 12/31/99 . . . . . . . . . . . . . . . . . . . . . . . .
Euro thousand
Checks on credit entities . . . . . . . . . . . . . . . . .Transactions in transit . . . . . . . . . . . . . . . . . . . .Interim dividends . . . . . . . . . . . . . . . . . . . . . . . .Prepaid taxes . . . . . . . . . . . . . . . . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The detail of the "Other liability accounts" captionin the consolidated balance sheet is as follows:
Euro thousand
Payment obligations . . . . . . . . . . . . . . . . . . . . .Factoring payables . . . . . . . . . . . . . . . . . . . . . .Transactions in transit . . . . . . . . . . . . . . . . . . . .Tax collection accounts . . . . . . . . . . . . . . . . . .Special accounts . . . . . . . . . . . . . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(16) Prepayments and accrued income andaccruals and deferred income
The following table provides breakdowns of theasset and liability accrual accounts balances inthe consolidated balance sheets.
Allowance NetTotal
22,0935,991
28,0841,848
29,932(1,174)28,758(4,313)24,445(5,597)18,848
Foreclosed assets
4,882886
5,7681,8097,577
7248,301
(1,931)6,370(602)
5,768
17,2115,105
22,31639
22,355(1,898)20,457(2,382)18,075(4,995)13,080
Peseta million Euro thousand
Allowance NetTotal
132,78236,007
168,78911,107
179,896(7,056)
172,840(25,922)146,918(33,640)113,278
Foreclosed assets
29,3415,325
34,66610,87345,539
4,35149,890
(11,606)38,284(3,618)34,666
103,44130,682
134,123234
134,357(11,407)122,950(14,316)108,634(30,022)78,612
1997
1999
19961998 1995
192,66646,40457,895
144,03968,119
509,123
168,69834,67253,087
111,03121,223
388,711
147,17065,31847,58284,05217,507
361,629
123,32852,82943,91071,88156,105
348,053
119,26736,13263,158
175,461134,821
528,839
Pesetas(Millions)
19,8446,012
10,50929,19422,432
87,991
1997
1999
19961998 1995
41,30210,32525,092
316,974133,052
49,914
576,659
38,9222,410
12,735313,151
89,67120,008
476,897
31,2232,753
25,561342,631105,273
14,826
522,267
34,5168,498
17,598299,695124,674
28,500
513,481
36,67914,46815,987
340,030130,408
57,806
595,378
Pesetas(Millions)
6,1032,4072,660
56,57621,698
9,619
99,063
100
Euro thousand
Assets:Prepaid interest on funds taken at a discount . . . . . . . . . .Accrued unmatured revenues from investments not
taken at a discount . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Accrued unmatured costs of funds taken at a
discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities:Deferred revenues from asset transactions at
a discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Accrued unmatured costs of funds not taken at
a discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Accrued unmatured revenues from investments
taken at a discount . . . . . . . . . . . . . . . . . . . . . . . . . . . .Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Euro thousand
By type:Bank of Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . .Banks operating in Spain . . . . . . . . . . . . . . . . . . . .Savings banks . . . . . . . . . . . . . . . . . . . . . . . . . . . .Credit cooperatives . . . . . . . . . . . . . . . . . . . . . . . .Official Credit Institute . . . . . . . . . . . . . . . . . . . . . .Credit entities abroad . . . . . . . . . . . . . . . . . . . . . . .Asset repos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .By currency:
Euros . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Foreign currencies . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .By company category:
Group companiesBanks operating in Spain . . . . . . . . . . . . . . . . .Other resident credit entities . . . . . . . . . . . . . .Nonresident credit entities . . . . . . . . . . . . . . . .
Multigroup companies . . . . . . . . . . . . . . . . . . . . . .Associated companies . . . . . . . . . . . . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Distribution of term accounts:
Up to 3 months . . . . . . . . . . . . . . . . . . . . . . . . . . .3 months to 1 year . . . . . . . . . . . . . . . . . . . . . . . . .1 to 5 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Over 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Under Bank of Spain accounting regulations forcredit institutions, interest revenues and expensesrelating to asset and liability discount transactionsmust be recorded in specific accounts at thetransaction date for the total amount concerned.Thereafter, the amounts accrued are reflected asunmatured accruals through maturity of thetransaction, at which time this account iseliminated against the first account in which thetotal amount of the discount was recorded. For
this reason they are presented net of theunmatured accrued amounts, so that the balanceof accruals for discount transactions in thebalance sheet only includes the unincurredadvanced amounts.
(17) Due to financial intermediaries
The following table presents breakdowns of thiscaption by nature, currency and companycategory, and by term for the term accounts.
1997
1999
19961998 1995
96,505
109,00621,930
(8,498)218,943
54,500
77,16473,035
(27,220)177,479
10,758
126,1769,238
(6,124)140,048
64,128
79,04561,826
(33,747)171,252
23,950
178,9995,273
(16,017)192,205
118,369
112,83456,640
(58,545)229,298
32,623
226,9664,352
(14,400)249,541
160,771
151,60555,565
(75,187)292,754
99,594
110,35743,682
(16,160)237,473
55,065
92,84872,561
(27,248)193,226
16,571
18,3627,268
(2,689)39,512
9,162
15,44912,073
(4,534)32,150
Pesetas(Millions)
1997
1999
19961998
3,173623,268815,537
95,110519,695662,868
1,709,58513,668
4,442,904
3,799,295643,609
4,442,904
21,516–
4,421,3884,442,904
3,175,303620,725349,278132,854
4,278,160
1995
–451,036302,549121,170462,118467,245400,851
12,2852,217,254
1,765,500451,754
2,217,254
24,425–
2,192,8292,217,254
1,372,453292,272328,778101,036
2,094,539
–420,414319,781
44,060344,933587,369848,461
3,7382,568,756
1,839,700729,056
2,568,756
33,062–
2,535,6942,568,756
1,795,633243,163389,402
43,0322,471,230
–261,302186,813
49,902245,754297,717891,992
4,8021,938,282
1,678,839259,443
1,938,282
5,253–
1,933,0291,938,282
1,220,373272,307319,612
24,9661,837,258
–696,821579,838114,351562,206
1,368,5261,106,698
15,7434,444,183
3,482,368961,815
4,444,183
9,583–
4,434,6004,444,183
2,980,528559,189615,140
93,4214,248,278
Pesetas(Millions)
–115,94196,47719,02693,543
227,704184,139
2,620739,450
579,417160,033739,450
1,595–
737,855739,450
495,91893,041
102,35115,544
706,854
101
(19) Bonds and other marketable debtsecurities
The balance of this caption in the consolidatedbalance sheet as of December 31, 1999, relatesto the balance of the outstanding issues launchedby Popular Finance (Cayman) under the
Euronotes program described in Note 2 n), and tothe commercial paper issues described in thesame note.
The detail of the issues launched by PopularFinance (Cayman), by currency, showing theamount in the currency of issuance and the
The amounts shown for the multigroup companiesare the balances not eliminated at the globalintegration method consolidated companies fortheir positions with the proportional integrationmethod (i.e. multigroup) companies.
(18) Customer deposits
In the balance sheets this caption is broken downinto savings deposits and other deposits, each ofwhich is subdivided into demand and termaccounts. The savings deposits category includes
those relating to Spanish public bodies, to otherresidents and nonresidents, in sight, savings andterm accounts.
The other deposits category reflects the balanceof the accounts of the sectors mentioned abovefor asset repo and other accounts.
The following table provides addit ionalbreakdowns by account type, depositor sector,currency and company category, and by term forthe term accounts.
Euro thousand
By type:Sight accounts . . . . . . . . . . . . . . . . . . . . . .Savings accounts . . . . . . . . . . . . . . . . . . . .Time deposits . . . . . . . . . . . . . . . . . . . . . . .Asset repos . . . . . . . . . . . . . . . . . . . . . . . . .Other accounts . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .By sector:
Public bodies . . . . . . . . . . . . . . . . . . . . . . .Other residents . . . . . . . . . . . . . . . . . . . . . .Nonresidents . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .By currency:
Euros . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Foreign currencies . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .By company category:
Group companiesConsolidated . . . . . . . . . . . . . . . . . . . . .Nonconsolidable . . . . . . . . . . . . . . . . . .
Associated companies . . . . . . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .Distribution of term accounts:
Up to 3 months . . . . . . . . . . . . . . . . . . . . . .3 months to 1 year . . . . . . . . . . . . . . . . . . .1 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . .Over 5 years . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
In Euros:Euros . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Portuguese escudos . . . . . . . . . . . . . . . . . . . .French francs . . . . . . . . . . . . . . . . . . . . . . . . .Deutschmarks . . . . . . . . . . . . . . . . . . . . . . . .
In foreign currencies:US dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . .Swiss francs . . . . . . . . . . . . . . . . . . . . . . . . . .Japanes yens . . . . . . . . . . . . . . . . . . . . . . . . .
Bonds and debentures outstanding . . . . . . .
Issuance currency
1997
1999
19961998
5,600,4413,460,1475,347,8601,142,067
78715,551,302
234,16012,905,190
2,411,95215,551,302
14,710,019841,283
15,551,302
–16,756
6615,534,48015,551,302
5,060,4191,011,059
419,104120
6,490,702
1995
4,913,4423,063,2085,671,8471,722,585
12,61015,383,692
229,92912,649,045
2,504,71815,383,692
14,338,3871,045,305
15,383,692
–19,803
37315,363,51615,383,692
5,832,8411,164,112
409,842–
7,406,795
4,205,0352,664,3356,613,2731,481,699
95014,965,292
249,33012,282,103
2,433,85914,965,292
13,951,7911,013,501
14,965,292
–15,422
59514,949,27514,965,292
5,878,6491,778,311
438,012–
8,094,972
3,786,5692,382,9416,952,6521,241,174
55214,363,888
239,27511,947,723
2,176,89014,363,888
13,274,6411,089,247
14,363,888
–12,850
73314,350,30514,363,888
5,373,2882,383,686
749,600403
8,506,977
6,228,9193,857,9255,983,4341,232,160
1,66317,304,101
338,72114,472,581
2,492,79917,304,101
16,483,659820,442
17,304,101
–18,885
2717,285,18917,304,101
5,000,7701,423,352
790,5382,597
7,217,257
1,036,405641,904995,560205,014
2772,879,160
56,3582,408,035
414,7672,879,160
2,742,650136,510
2,879,160
–3,142
52,876,0132,879,160
832,058236,826131,535
4321,200,851
Pesetas(Millions)
EurosForeign currency
Amount in thousands
789,7001,480,3991,000,000
11,000
26,88312,001
4,000,000
789,7007,384
152,4495,624
26,7597,477
38,9371,028,330
1999
Euros
408,0731,480,3991,000,000
11,000
250,00012,001
4,000,000
408,0737,384
152,4495,624
214,2717,466
30,121825,388
1998
Foreign currency
102
equivalent euro value at the end of 1999 and1998, is presented below.
The breakdown of the 1999 year-end balance bycontractual maturity and by issuance currency isas follows:
All the issues in foreign currencies are hedged byissuance currency/euro swaps and therefore thereal cost of the issues for the Group is in euros.The detail of the average rate of cost of thetransactions in 1999 and 1998, by type ofinstrument, is as follows:
(In %)1999 1998
Fixed rate . . . . . . . . . . . . . . . . . . . . . .2.98 4.13Floating rate . . . . . . . . . . . . . . . . . . . .3.14 4.42Zero-coupon:
Fixed rate . . . . . . . . . . . . . . . . . . .2.96 4.36Floating rate . . . . . . . . . . . . . . . . .2.91 4.26
Average rate . . . . . . . . . . . . . . . . . . . .3.05 4.37
At 1999 year-end the outstanding balance of thecommercial paper issued by Banco Popular underthe program described in Note 2 n) was Euros183,753,000, with average maturity of 33 daysand an average rate of cost of 3.41%.
(20) Special allowances
In the consolidated balance sheet this caption isbroken down into "Pension allowance", "Provisionfor taxes" and "Other allowances".
The allowances for credit losses and country risk(excluding that for off-balance sheet risks) arepresented in the balance sheets as deductionsfrom the asset accounts covered by them,basically loans and discounts; the security pricefluctuation allowance provided by charges to theincome statement has been deducted from thebalances comprising the securities portfolio, withthe allowance provided by charges to"Prepayments and accrued income" being nettedoff against this account; and the allowance forforeclosed assets has been deducted fromtangible assets. The allowance for off-balancesheet risks is presented on the liability side underthe "Other allowances" caption. In order toprovide an overall picture, the followingparagraphs present general descriptions of thetype of coverage provided by each allowance,regardless of where it appears in the balancesheet, and, for ease of analysis, a detail of thevariations in each year.
The pension allowance is shown specifically onthe liability side of the balance sheets. For detailsof its origin, content and accounting treatment, seeNote 2.i). The total amount of the taxes capitalizedin 1999 and 1998 relates to the early retirementplans implemented in 1999 and 1998. Thevariations in the last five years were as follows:
Euro thousand
Beginning balances . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variations:Net provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Amounts used:
For pension payments . . . . . . . . . . . . . . . . . . .For insurance premium payments . . . . . . . . . .
Transfer from reserves, consolidation reserves andminority interests . . . . . . . . . . . . . . . . . . . . . . .
Prepaid taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Transfer to reserves, consolidation reserves and
minority interests . . . . . . . . . . . . . . . . . . . . . . .Other variations and transfers . . . . . . . . . . . . . . . .
Ending balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency
In Euros:Euros . . . . . . . . . . . . . . . . .Portuguese escudos . . . . .French francs . . . . . . . . . . .Deutschmarks . . . . . . . . . .
In foreign currencies:US dollars . . . . . . . . . . . . .Swiss francs . . . . . . . . . . . .Japanes yens . . . . . . . . . . .
Total . . . . . . . . . . . . . . . .
Euro thousand
Subsequentyears2000 2001 2002 2003 Total2004
44,821–––
–7,477
–52,298
365,002–––
–––
365,002
19,530–––
11,828––
31,358
98,3507,384
–5,624
– ––
111,358
48,981–––
14,931 ––
63,912
213,016–
152,449–
––
38,937404,402
789,7007,384
152,4495,624
26,7597,477
38,9371,028,330
1997
1999
19961998 1995
307,838
23,878
–(146,046)
129,21823,187
(27,664)222
310,633
314,660
18,012
–(121,158)
111,18724,101
(38,879)(85)
307,838
289,285
32,665
–(81,918)
60,10114,310
–217
314,660
578,144
26,871
(25,032)(290,427)
––
–(271)
289,285
310,633
27,713
–(132,579)
93,00120,416
(22,997)(340)
295,847
51,685
4,611
–(22,059)
15,4743,397
(3,826)(57)
49,225
Pesetas(Millions)
103
Except for the allowance for contingent liabilitieswhich is recorded on the liability side of thebalance sheet, the allowances for credit lossesand country risk, the accounting treatment of
which is described in Note 2.c), are presented asdeductions from the following captions in theconsolidated balance sheets:
Euro thousand
Government debt securities . . . . . . . . . . . . . .Private fixed interest securities . . . . . . . . . . . .Equity securities . . . . . . . . . . . . . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . . . . . .Shares of Group companies . . . . . . . . . . . . . .Financial futures (memorandum accounts) . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The variations in the balances of the credit loss and
Euro thousand
Beginning balance . . . . . . . . . . . . . . . . . . . . .
Variations:Net provisions . . . . . . . . . . . . . . . . . . . . . .Amount used . . . . . . . . . . . . . . . . . . . . . . .Accruals . . . . . . . . . . . . . . . . . . . . . . . . . .Other variations and transfers . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . .
The security price fluctuation allowance, reflecting thecoverage for the ordinary investment and permanentshareholdings portfolios and for financial futures, ispresented in the balance sheets as a deduction fromthe "Government debt securities", "Private fixed-interest securities", "Equity securities", "Participatinginterests" and "Shares of Group companies"captions, with the provisions for financial futuresbeing included under "Other allowances" on theliability side. The joint presentation of the variouscoverages provided by this allowance is for ease of
analysis. The price fluctuation allowance for the listedsecurities in the ordinary investment portfolio isprovided partly by charges to the income statementand also, since the entry into force of Bank of SpainCircular 6/1994, with a contra item in an accountunder the "Prepayments and accrued income"caption, for the negative differences net of thepositive differences; this treatment is not appliedto securities loaned. The year-end coverage detailfor each of the accounts cited is as follows:
Euro thousand
Due from banks . . . . . . . . . . . .Loans and discounts . . . . . . . .Private fixed-interest securitiesContingent liabilities . . . . . . . . .
Total . . . . . . . . . . . . . . . . . .
For credit losses For country risk
Euro thousand
Beginning balances . . . . . . . .
Variations:Net provisions . . . . . . . . . . .Amount used . . . . . . . . . . .Other variations and transfers
Ending balances . . . . . . . . . . .
For credit losses For country risk
The variations in this allowance were as follows:
1997
1999
19961998
–265,839
2,00126,439
294,279
1995 1997
1999
19961998 1995
–269,134
9626,090
295,320
–263,568
40322,760
286,731
–252,413
40319,076
271,892
343968
––
1,311
2490
––
114
24648––
294
120781
––
901
–296,990
2,35528,856
328,201
5531,815
–420
2,788
92302
–70
464
–49,415
3924,801
54,608
Pesetas(Millions)
Pesetas(Millions)
1997
1999
19961998 1995 1997
1999
19961998 1995
295,320
80,522(81,491)
(72)
294,279
286,731
109,727(99,876)
(1,262)
295,320
271,892
128,647(113,814)
6
286,731
232,237
155,933(116,518)
240
271,892
901
416–
(6)
1,311
108
12–
(6)
114
114
174–6
294
294
613–
(6)
901
294,279
95,764(61,771)
(71)
328,201
1,311
1,478–
(1)
2,788
218
246––
464
Pesetas(Millions)
48,964
15,934(10,278)
(12)
54,608
Pesetas(Millions)
1997
1999
19961998
66
4,231–
2,542228
7,013
1995
9012
331–
2,542198
3,173
174144475
–2,542
–
3,335
4,147823451
–2,542
523
8,486
96540
4,700–
2,5421,709
9,587
Pesetas(Millions)
1690
782–
423284
1,595
1997
1999
19961998
3,173
3,973(144)
–11
7,013
1995
3,335
(72)(216)
–126
3,173
8,486
(6,821)(2,290)
–3,960
3,335
44,547
(3,883)(66)
(34,811)2,699
8,486
7,013
3,395(841)
–20
9,587
Pesetas(Millions)
1,167
565(140)
–3
1,595
country risk allowances were as follows:
104
The remaining special allowances include thefollowing: accelerated depreciation allowance,booked pursuant to specific tax regulations in1985; provisions for potential tax contingencies;allowance for potential losses on foreclosedassets; and other special al lowances. Theallowance for potential losses on foreclosedassets is presented in the balance sheets as a
deduction from "Tangible assets"; the otherspecial allowances are shown on the liability sideof the balance sheet under "Provision for taxes"and "Other allowances".
The year-end balances of these allowances wereas follows:
Euro thousand
In credit loss allowance:For contingent liabilities . . . . . . . . . . . . . . .
In security price fluctuation allowance:For financial futures . . . . . . . . . . . . . . . . . .
In other specific allowances:Other allowances . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The variations in the last five years were as follows:
Euro thousand
For tangible assets . . . . . . . . . . . . . . . . . . . . .For taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other allowances . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Euro thousand
Beginning balance . . . . . . . . . . . . . . . . . . . . . .
Variations:Net provisions . . . . . . . . . . . . . . . . . . . . . .Amount used . . . . . . . . . . . . . . . . . . . . . . .Other variations and transfers . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . .
The reconciliation detail of "Other allowances" inthe consolidated balance sheets, classified by
coverage nature, is as follows:
(21) General banking risk allowance
The balance of this account is booked, afterpayment of the relevant taxes (since it is anondeductible expense), as a provision forpossible fluctuations and extraordinary risks. Thebalances of the consolidated companies otherthan Banco Popular are deemed to form part ofnet worth and are therefore eliminated in theconsolidated balance sheets, giving rise toconsolidation reserves and minority interests atindividual banking subsidiary level. Under currentregulations, for so long as this allowance ismaintained as such, it is included in the capitalbase. There was no balance in this account atconsolidated level at the end of 1999 or 1998,reflecting the situation at Banco Popular, theGroup’s parent company.
(22) Subordinated liabilities
The Banco Popular Group has no subordinatedliabilities.
(23) Minority interests
The minority interests reflected in the 1999 and1998 consolidated balance sheets relate toshareholders not linked either directly or indirectlyto the Banco Popular Group. The following tablesdisclose the balances which arose at the globalintegration method consolidated companies andthe minority interests which arose by equitymethod consolidation at the end of 1999 and1998, and the variations at each company in1999, when the increases were basically due tothe allocation to reserves out of the prior year’s
1997
1999
19961998
38,9949,1771,954
50,125
1995
50,84610,518
3,823
65,187
46,56614,526
6,894
67,986
35,50813,45712,315
61,280
35,0359,4794,329
48,843
Pesetas(Millions)
5,8291,577
721
8,127
1997
1999
19961998
65,187
(4,808)(4,159)(6,095)
50,125
1995
67,986
13,529(3,444)
(12,884)
65,187
61,280
24,155(5,992)
(11,457)
67,986
52,228
22,826(2,951)
(10,823)
61,280
50,125
(5,792)(3,328)(3,746)
48,843
Pesetas(Millions)
8,340
964(554)(623)
8,127
1997
1999
19961998
26,439
228
1,954
28,621
1995
26,090
198
3,823
30,111
22,760
–
6,894
29,654
19,076
523
12,315
31,914
29,276
1,709
4,329
35,314
Pesetas(Millions)
4,871
284
721
5,876
105
income and the other increases or decreaseswere due fundamentally to variations inshareholdings or adjustments in consolidation. Itshould be noted that although the minorityinterests at nonconsolidable and associatedequity method companies are generated by thesecompanies, they are attributable to those of theshareholder companies. No minority interests canarise at the multigroup companies consolidatedby the proportional integration method.
The transfers made to the pension allowancefrom unrestricted reserves by Banco de
Andalucía, Banco de Castilla, Banco de CréditoBalear, Banco de Galicia and Banco de Vasconiain 1999 led to a decrease of Euros 4,484,000 in"Minority interests" and to an increase of Euros1,634,000 for prepaid and recovered taxes andthe unused portion returned to the account oforigin (see Note 2.i). The amount so transferred in1998 was Euros 8,210,000. The prepaid taxesarising from the early retirements plans whichreturned to this balance sheet caption when theywere recorded by each bank in the accounts oforigin amounted to Euros 788,000 in 1999 andEuros 1,328,000 in 1998.
Euro thousand
DecreaseBalance at12/31/98 Increase
Consolidated companiesDeposit-taking entities:Banco de Andalucía . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Banco de Castilla . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Banco de Crédito Balear . . . . . . . . . . . . . . . . . . . . . . . . . . . .Banco de Galicia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Banco de Vasconia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Banco Popular Comercial (Proportional integration method)Banco Popular Hipotecario (Proportional integration method) .Finance companies:Abacá Crédito y Financiación . . . . . . . . . . . . . . . . . . . . . . . . .Heller Factoring (Proportional integration method) . . . . . . . .Portfolio and services companies:Europea Popular Inversiones . . . . . . . . . . . . . . . . . . . . . . . .Europensiones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Eurogestión . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Gestora Popular . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Sogeval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Instrumental companies:Aula 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Finespa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Inmobiliaria Viagracia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Inmobiliaria Vivesa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Intermediación y Servicios Tecnológicos . . . . . . . . . . . . . . .Popular Finance (Cayman) . . . . . . . . . . . . . . . . . . . . . . . . .Popular Capital (Cayman) . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal global integration method companies . . . . . . . .
Balance at 12/31/99Variation in 1999
Euro thousand
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variations:For capital increases . . . . . . . . . . . . . . . . . . . . . . .For merger transactions . . . . . . . . . . . . . . . . . . . .Transfer to pension allowance . . . . . . . . . . . . . . .Transfer from pension allowance . . . . . . . . . . . . .Consolidation transactions (net) . . . . . . . . . . . . . .Net income for the year . . . . . . . . . . . . . . . . . . . . .Dividend for the year . . . . . . . . . . . . . . . . . . . . . . .
Ending balance, after the distribution of income . . . . .
The detail, by company, of the balances of thisaccount in the 1999 and 1998 balance sheets,
showing the variation in 1999, before thedistribution of income, is as follows:
1997
1999
19961998 1995
164,094
1,178–
(8,210)2,452
(5,799)32,166
(15,953)
169,928
158,673
––
(6,130)2,380
(7,759)31,613
(14,683)
164,094
151,563
2,061–
(4,393)–
(3,613)26,265
(13,210)
158,673
146,124
589–––
(7,717)25,723
(13,156)
151,563
169,928
1,178–
(4,484)1,634
(4,640)33,055
(18,278)
178,393
Pesetas(Millions)
28,274
196–
(746)272
(772)5,500
(3,042)
29,682
85,86713,64928,46415,085
2,981––
––
–7,555
–––
–––––––
153,601
8,0021,0216,5971,584
393––
––
–1,418
–––
–––––––
19,015
4,964553
2,904565144
––
––
–––––
–––––––
9,130
88,90514,11732,15716,104
3,230––
––
–8,973
–––
–––––––
163,486
14,7932,3495,3502,679
537––
––
–1,493
–––
–––––––
27,201
Pesetas(Millions)
106
(24) Common stock and treasury stock
Through December 16, 1999, Banco Popular’scapital stock consisted of 110,775,000 registeredshares of Euros 1 face value each, following thecapital increase mentioned in Note 2.h). Pursuantto the resolution adopted by the ShareholdersMeeting on that day, an accounting entry wasposted for the cancellation of 2,197,942 shares,representing 1.98% of the capital stock, whichhad been purchased in the market from July toNovember, 1999, for a total price of Euros147,893,000. The effect of this accounting entrywas a reduction of Euros 2,198,000 in capital
stock and of Euros 145,695,000 in unrestrictedreserves.
All the shares are listed on the Spanish stockexchanges and are traded in the continuousmarket.
The book value of the treasury stock bought andsold in the last five years, excluding the sharesbought back for cancellation for Euros147,893,000 in 1999 and Euros 210,318,000 in1997, was as follows:
Euro thousand
Beginning balance . . . . . . . . . . .
Increase . . . . . . . . . . . . . . . .Decrease . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . .
(25) Reserves
Under the legislation applicable to corporations inSpain, 10% of a company's income for each yearmust be transferred to the Legal Reserve until the
balance of this reserve reaches 20% of commonstock. The balance of the Legal Reserve inexcess of 10% of common stock can becapitalized. Except for such capitalization, untilthe Legal Reserve exceeds 20% of common
Euro thousand
DecreaseBalance at12/31/98 Increase
(Continuation)
Nonconsolidable companiesAliseda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Cía. de Gestión Inmobiliaria . . . . . . . . . . . . . . . . . . . . . . . . .Correduría Bética de Seguros . . . . . . . . . . . . . . . . . . . . . . .Desarrollo Aplicaciones Especiales . . . . . . . . . . . . . . . . . . .Eurocorredores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Eurovida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Inversiones Inmobiliarias Alprosa . . . . . . . . . . . . . . . . . . . . .Popular de Renting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Proseguros Popular . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Promoción Social de Viviendas . . . . . . . . . . . . . . . . . . . . . .Sicomi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Urbanizadora Española . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Associated companiesPanorama Ibicenca . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Servicios de Información Bancaria . . . . . . . . . . . . . . . . . . . .Sistema 4B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Consorcio Iberión . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal equity method companies . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at 12/31/99Variation in 1999
–1212
––
90––––––
––––
114
153,715
–32––
11––––––
––––
16
19,031
––––––––––––
––––
–
9,130
–1514
––
101––––––
––––
130
163,616
Pesetas(Millions)
–32––
17––––––
––––
22
27,223
1997
1999
19961998 1995
–
763763
–
–
25,15825,158
–
–
228228
–
–
307307
–
–
17,28917,289
–
Pesetas(Millions)
–
2,8772,877
–
107
stock it can only be used to offset losses, ifsufficient other reserves are not available for thispurpose.
Companies in Spain are also legally required toset up restricted reserves for transactions involvingtheir own shares or the shares of their parentcompany, for amounts equal to the related assetbalances (acquisitions of such shares or financingprovided to acquire them) or to the effective valueof such shares held as collateral for loans. Thesereserves become unrestricted when the reasonsfor their recording cease to exist.
Under Spanish corporate law, the paid-in surplusreserve can be capitalized and there are norestrictions on its use. Pursuant to resolutionsadopted by the Board of Directors on October 23,1998, and by the Shareholders Meeting onDecember 17, 1998, Euros 86,552,000 of the
Euro thousand
Increases:Distribution of prior year’s income .Reserves arising from
merger transactions . . . . . . . . . .Transfer from pension allowance . .Consolidation adjustments . . . . . . .
Decreases:Cancellation of shares . . . . . . . . . .Transfer to pension allowance . . . .Distribution of reserves . . . . . . . . . .Consolidations adjustments . . . . . .
Net period variation . . . . . . . . . . . . . .
In 1999, Euros 27,553,000 of paid-in surplusreserves were used to increase capital and Euros145,695,000 of unrestricted reserves were used toreduce capital.
The detail of the variations in the aggregatereserves in the last five years is as follows:
Euro thousand
Restricted reserves:Legal reserve . . . . . . . . . . . . . . . .Reserves for own shares:
For acquisition . . . . . . . . . . . .For collateral . . . . . . . . . . . . . .For share purchase loans . . . .
Other restricted reserves . . . . . . .
Unrestricted reserves:Bylaw reserve . . . . . . . . . . . . . . . .Paid-in surplus . . . . . . . . . . . . . . .Voluntary and other reserves . . . .
Total . . . . . . . . . . . . . . . . . . . .
The increases caused by transfer from thepension allowance relate to the prepaid taxes inconnection with the early retirements.
The variations in each account in 1999 were asfollows:
paid-in surplus reserve were distributed to theshareholders in 1998, at the rate of Euros 0.78per share.
Transfers of Euros 69,002,000 in 1999 and Euros90,152,000 in 1998 were made from BancoPopular Español’s unrestricted reserves to an in-house pension allowance to cover the financialrequirements arising from execution of anextraordinary early retirements plan. The Euros15,596,000 in 1999 and Euros 16,185,000 in1998 of prepaid and recovered taxes inconnection with these early retirements wereincluded in unrestricted reserves.
The breakdown of the aggregate reservesincluded in the consolidated balance sheet underthe "Paid-in surplus", "Reserves" and"Revaluation reserves" captions is as follows:
1997
1999
19961998 1995
35,696
–6,756
40127,015
41,61148,717
796,309
956,505
35,694
–5,217
26429,420
41,608135,270773,965
1,021,438
35,694
–4,838
–27,015
43,423135,270921,887
1,168,127
35,694
–3,342
24075,613
43,423135,270811,655
1,105,237
35,696
–8,951
73927,015
41,61121,164
691,183
826,359
5,939
–1,489
1234,495
6,9233,521
115,004
137,494
Pesetas(Millions)
1997
1999
19961998 1995
92,604
–16,1852,982
––
90,15286,552
–
(64,933)
103,639
–26,342
5,151
–206,694
75,127––
(146,689)
106,013
–––
––
42,071–
1,052
62,890
96,511
50,491–
3,029
–––––
150,031
96,856
–15,596
–
27,553145,695
69,002–
348
(130,146)
16,115
–2,595
–
4,58424,24211,481
–58
(21,655)
Pesetas(Millions)
108
The balances of the aggregate of these reservesin the consolidated balance sheets differ fromthose in Banco Popular’s individual balancesheets (see Note 3) due to the inclusion of thecontra items for certain adjustments and
eliminations relating to intra-Group transactionsimputable to the parent company. The effect ofthese adjustments, which basically relates tointra-Group dividends, is shown below in thefollowing table.
(26) Consolidation reserves
The reserves of companies consolidated by theglobal and proportional integration methods reflectthe differences disclosed in consolidation whenthe investment in the affiliates consolidated iseliminated against their equity. The equity methodconsists of valuing the Group’s nonconsolidableand associated companies at their net worth perbooks and recording the difference from theportfolio carrying value in this account.
The differences disclosed by application of theaforementioned methods and procedure arecalculated from the date of each company’sinclusion within the scope of consolidation; thevariations relate to the accumulation of the portionof the company’s earnings which is attributable tothe Group, net of the eliminations andadjustments made in consolidation for internalbusiness relationships between the variouscompanies within that scope.
The reserves transferred to the pension allowanceby Banco de Andalucía, Banco de Castilla, Bancode Crédito Balear, Banco de Galicia and Banco deVasconia gave rise to a decrease of Euros19,515,000 in consolidation reserves in 1999.These reserves increased by Euros 5,767,000 in1999 due to the return of the prepaid andrecovered taxes and the amount not used to theaccount of origin. The transfers made fromreserves to the pension allowance by these Groupbanks in 1998 gave rise to a decrease inconsolidation reserves at consolidated level ofEuros 21,829,000 (see Note 2.i).
In 1999 the prepaid taxes arising from the earlyretirement plans at the banking subsidiariesaccounted for Euros 4,032,000 in theconsolidation reserves when they were bookedback in the accounts of origin. The related amountfor the 1998 plans was Euros 5,674,000.
The detail, by company, of the caption balance inthe last five years is shown in the following table.
Euro thousand
Amount in Banco Popular balance sheet . . . .
Consolidation adjustments:For dividends . . . . . . . . . . . . . . . . . . . . . . .For other items (net) . . . . . . . . . . . . . . . . .
Amount in consolidated balance sheet . . . . . .
Euro thousand
Restricted reserves:Legal reserve . . . . . . . . . . . . . . . . . . . . . . . . .Reserves for own shares:
For acquisition . . . . . . . . . . . . . . . . . . . . .For collateral . . . . . . . . . . . . . . . . . . . . . .For share purchase loans . . . . . . . . . . . .
Other restricted reserves . . . . . . . . . . . . . . . .
Unrestricted reserves:Bylaw reserve . . . . . . . . . . . . . . . . . . . . . . . .Paid-in surplus . . . . . . . . . . . . . . . . . . . . . . . .Voluntary and other reserves . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Causes of the variations:Distribution of the prior year’s income . . . . . .Transfers between reserves . . . . . . . . . . . . .Transfer to pension allowance . . . . . . . . . . . .Transfer from pension allowance . . . . . . . . . .Distribution of reserves . . . . . . . . . . . . . . . . .Consolidation adjustments . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DecreaseBalance at12/31/98 Increase
Balance at 12/31/99Variation in 1999
35,696
–6,756
40127,015
41,61148,717
796,309
956,505
–
147,893739162
–
–27,553
366,371
542,718
–300,120
69,00227,553
145,695348
542,718
35,696
–8,951
73927,015
41,61121,164
691,183
826,359
–
147,8932,934
500–
––
261,245
412,572
96,856300,12015,596
–––
412,572
Pesetas(Millions)
5,939
–1,489
1234,495
6,9233,521
115,004
137,494
1997
1999
19961998
925,132
31,37342,041
(10,668)
956,505
1995
1,080,945
24,29228,446(4,154)
1,105,237
1,144,886
23,24132,262(9,021)
1,168,127
993,046
28,39236,746(8,354)
1,021,438
795,333
31,02642,926
(11,900)
826,359
132,332
5,1627,142
(1,980)
137,494
Pesetas(Millions)
109
Euro thousand
Consolidated companies
Deposit-taking entities:Banco de Andalucía . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Banco de Castilla . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Banco de Crédito Balear . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Banco de Galicia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Banco de Vasconia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Banco Popular Comercial (Proportional integration method) .Banco Popular Hipotecario (Proportional integration method)Popular Rabobank (Proportional integration method) . . . . . . .Finance companies:Heller Factoring (Proportional integration method) . . . . . . . . .Abacá Crédito y Financiación . . . . . . . . . . . . . . . . . . . . . . . . . .Portfolio and service companies:Europea Popular Inversiones . . . . . . . . . . . . . . . . . . . . . . . . .Europensiones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Eurogestión . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Gestora Popular . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Sogeval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Instrumental companies in Spain:Aula 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Cis-Tasación . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Finespa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Inmobiliaria Viagracia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Inmobiliaria Vivesa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Intermediación y Servicios Tecnológicos . . . . . . . . . . . . . . . .Instrumental companies abroad:Popular Finance (Cayman) . . . . . . . . . . . . . . . . . . . . . . . . . . .Popular Capital (Cayman) . . . . . . . . . . . . . . . . . . . . . . . . . . .Other companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total global and proportional integration method companies (a)
Nonconsolidable companiesAgroforestal Balear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Aliseda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Balnearios y Playas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B. Europeo de Negocios . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Cía. de Gestión Inmobiliaria . . . . . . . . . . . . . . . . . . . . . . . . . .Correduría Bética de Seguros . . . . . . . . . . . . . . . . . . . . . . . . .Desarrollo Aplicaciones Especiales . . . . . . . . . . . . . . . . . . . . .Eurocorredores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Eurovida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Inmuebles y Materias Industriales . . . . . . . . . . . . . . . . . . . . . .Inversiones Inmobiliarias Alprosa . . . . . . . . . . . . . . . . . . . . . .Los Pámpanos de Santa Ponsa . . . . . . . . . . . . . . . . . . . . . . .Marina de Santa Ponsa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Nova Santa Ponsa Golf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Popular de Renting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Proseguros Popular . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Promoción Social de Viviendas . . . . . . . . . . . . . . . . . . . . . . . .Sicomi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Urbanizadora Española . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal nonconsolidable companies (b) . . . . . . . . . . . . . .
Associated companiesAguas del Término de Calviá . . . . . . . . . . . . . . . . . . . . . . . . .Consorcio Iberón . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Panorama Ibicenca . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Servicios de Información Bancaria . . . . . . . . . . . . . . . . . . . . .Sistema 4B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal associated companies (c) . . . . . . . . . . . . . . . . . .Total equity method companies (b)+(c) . . . . . . . . . . . . .
Translation differencesBanco Popular Comercial (Proportional integration method) .Other companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total translation differences (d) . . . . . . . . . . . . . . . . . . . . .Consolidation reserves (a)+(b)+(c)+(d) . . . . . . . . . . . . .
1997
1999
19961998
159,136165,963
22,057102,340
45,70712,850
6,106
4,940–
5711,1241,310
64354,008
–
1,8215,2051,454
6
(6)(6)–
585,229
1,605
29448
31318
2,560
–
–(30)
6–
9,694–
14,508
–(96)
–385289
14,797
896–
896600,922
1995
151,413147,579
13,91990,74738,39911,185
5,830
4,327
3971,0461,250
63736,878
–
1,8575,1991,454
6
–––
512,123
162847
–
28242
31318
2,3442,284
–457
–(30)
6–
9,485–
16,210
96
(6)–
282372
16,582
859–
859529,564
141,106131,075
13,19279,84439,108
9,4965,746
198
3,780
331691
1,220757
29,174
––
1,8396,0521,454
–
–––
465,063
168847
––
27612
18018
2,1042,296
(120)–
427–
(30)6–
8,758–
14,942
78
(6)–
282354
15,296
703–
703481,062
131,153116,488
11,56967,18133,074
6,5755,042(180)
3,251
294451
1,196721
22,165
––
1,8395,9981,454
–
––
45408,316
–763
––
276127218
2,1041,148
(54)–
72–
(30)6–
4,80812
9,207
30
(6)–
2,8492,873
12,080
60712
619421,015
178,333178,885
28,210116,475
52,56613,880
7,799
5,749(224)
7181,3721,409
85064,994
1
2,0105,2731,452
10
4(4)–
659,762
1,601
29951
31317
3,007
3
19(31)
32
9,977
15,261
–(93)
(1)382288
15,549
892–
892676,203
29,67229,764
4,69419,380
8,7462,3091,298
957(37)
119228235141
10,814
–
334877242
2
1(1)–
109,775
266
509
523
500
–
3(5)––
1,660
2,538
–(15)
–6449
2,587
148–
148112,510
Pesetas(Millions)
110
(27) Tax matters
The Banco Popular Group is not taxed on aconsolidated basis, and each company thereforefiles an individual tax return.
The amounts for the payment of the taxesapplicable to each consolidated company are, asregulatorily required, included under the "Otherliability accounts" caption on the liability side ofthe balance sheets, net of tax withholdings andprepayments.
In calculating the amount of corporate income tax,included under the "Income tax" caption in theconsolidated income statement, regard was hadto the various legally authorized tax credits.
The consolidated companies generally have thelast five years open for inspection by the taxauthorities with respect to the taxes applicable tothem.
The differing interpretations that can be made ofthe tax regulations applicable to certainoperations might give rise to contingent taxliabilities. However, the consolidated companies’tax advisors consider that the possibility of theseliabilities materializing is remote and that, in anycase, the tax charges which might arise therefromwould not materially affect the consolidatedfinancial statements.
Although the 1999 corporate income tax returnhas not yet been fi led, the table below
summarizes the calculations for determining,starting from the income before taxes, theconsolidated expense for income tax, taking intoaccount not only the pretax income but also thatarising from the permanent differences in thetaxable base. The tax credits for double taxation,for tax relief and for investments are treated asreductions of the period corporate income tax.Entitlement to these tax credits is conditionalupon compliance with the current regulatoryrequirements.
The tax expenses arising from prior years werenegative by Euros 20,111,000 in 1999 and byEuros 13,210,000 in 1998.
Also, Banco Popular and certain Groupcompanies availed themselves of the possibility ofdeferring payment of the corporate income tax onthe capital gains obtained on transfers of fixedassets by reinvesting the proceeds of disposal.The proceeds of disposal were reinvested inbuildings, computer equipment, and furniture andinstallations, and all the reinvestmentcommitments had been fulfilled at 1999 year-end.Capital gains for which taxes have been deferredwill be reported as taxable income in equalamounts in the following years:
(Euro thousand)Period of
Year Amount reporting
1999 10,884 2003 - 20091998 8,931 2002 - 20081997 9,021 2001 - 20071996 3,672 2000 - 2006
Euro thousand
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . .Additions to the taxable base (per detail) . . . . . . . .Reductions of the taxable base (per detail) . . . . . . .Offset of prior years’ tax losses . . . . . . . . . . . . . . . .Taxable base (income for tax purposes) . . . . . . . . .Tax charge (35%) . . . . . . . . . . . . . . . . . . . . . . . . . .Tax credits:
For double taxation . . . . . . . . . . . . . . . . . . . . . .For tax relief . . . . . . . . . . . . . . . . . . . . . . . . . . . .For investments . . . . . . . . . . . . . . . . . . . . . . . . .
Tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Tax for timing differences (net) . . . . . . . . . . . . . . . .Other adjustments (net) . . . . . . . . . . . . . . . . . . . . . .Corporate income tax charge . . . . . . . . . . . . . . . . .
The details referred to in the foregoing table,relating to increases and decreases in the taxablebase, based on their classification as timing or
permanent differences, are disclosed in thefollowing information.
1997
1999
19961998 1995
655,740114,01873,924
–695,834243,542
32,821685902
209,13417,189
(10,271)216,052
640,15087,86857,385
–670,633234,722
25,249715950
207,80812,746(9,340)
211,214
584,24493,36155,059
–622,546217,891
22,778896
4,153190,064
9,958(9,748)
190,274
558,076111,055119,175
72549,884192,459
20,416932
2,404168,707
23,238(6,803)
185,142
704,626120,837
78,420–
747,043261,465
27,620672863
232,31023,681
(17,147)238,844
Pesetas(Millions)
117,24020,10513,048
–124,297
43,504
4,596112144
38,6533,940
(2,853)39,740
111
Euro thousand
Public-sector securities . . . . . . . . . . . . . . . . . . .Own buildings mortgaged . . . . . . . . . . . . . . . . .Other assets assigned in guarantee . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Coverage allowance . . . . . . . . . . . . . . . . . . . . .
Apart from the taxes capitalized and recovered inconnection with the early retirement plans in 1999and 1998, respectively (see Note 2.i), other taxesof Euros 19,983,000 in 1999 and Euros12,387,000 in 1998, which were paid becauseprovisions to the pension allowance have notbeen tax-deductible since 1987, were capitalizedwith a credit to income. As required by Bank ofSpain Circular 7/1991, only the taxes which areexpected to be recovered in the next ten years forthe pension payments effectively made havebeen capitalized. In this same connection Euros18,168,000 were used in 1999. Other timingdifferences for Euros 396,000 of taxes in 1999and Euros 529,000 in 1998 were capitalized.There are Euros 40,441,000 of other balances tobe recovered from the Tax Administration, andprepaid taxes of Euros 139,841,000 relating to
pensions which have not been capitalizedbecause their recovery period exceeds ten years.Deferred taxes of Euros 663,000 and Euros667,000 were deferred and paid, respectively, in1999 and 1998 in application of the authorizationcontained in Royal Decree-Law 3/1993 for taxrecognition of higher than technical depreciationon new tangible fixed assets acquired. Taxes ofEuros 3,809,000 in 1999 and Euros 3,125,000 in1998 were also deferred due to the reinvestmentof capital gains. The prepaid and deferred taxeswhich will revert in future years amount to Euros135,061,000 and Euros 15,676,000, respectively.
The table below also shows the detail of incometax on ordinary and extraordinary income. Thelatter consists of income from non-financialbusiness transactions and prior years’ income.
(28) Guarantees for Group and third-partycommitments
The following table details the assets assigned tosecure Group and third-party commitments at
each year-end in the Banco Popular Group’sconsolidated balance sheet.
Euro thousand
Increases: . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Permanent difference . . . . . . . . . . . . . . . . . .Current year timing difference . . . . . . . . . . .Prior years’ timing difference . . . . . . . . . . . .
Decreases: . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Permanent difference . . . . . . . . . . . . . . . . . .Current year timing difference . . . . . . . . . . .Prior years’ timing difference . . . . . . . . . . . .
Euro thousand
Income tax:Ordinary income . . . . . . . . . . . . . . . . . . . . . .Extraordinary income . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1997
1999
19961998 1995
114,018110,406
1,5392,073
73,92421,192
9,17143,561
111,055110,857
198–
119,17552,571
5,93860,666
93,36192,400
961–
55,05925,633
8,03621,390
87,86884,568
8962,404
57,38517,634
9,08730,664
120,837119,626
1,211–
78,4209,542
15,11853,760
20,10519,904
201–
13,0481,5882,5158,945
Pesetas(Millions)
1997
1999
19961998 1995
214,8261.226
216,052
190,407(5,265)
185,142
202,932(12,658)190,274
215,956(4,742)
211,214
238,977(133)
238,844
39,762(22)
39,740
Pesetas(Millions)
1997
1999
19961998 1995
34,985240
28,94564,170
289
30,051457817
31,3258
385421756
1,5628
30,351349751
31,4518
25,289214
121,115146,618
246
Pesetas(Millions)
4,20836
20,15224,396
41
112
(29) Futures transactions
The year-end data of the financial futurescontracts entered into by the Group in the normal
course of its business are shown in the followingtable:
Euro thousand
Forward foreign currency transactions:Purchases . . . . . . . . . . . . . . . . . . . . . . . . . .Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency financial futures . . . . . . . . . . .Financial asset transactions:
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . .Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security and interest rate futures:Purchases . . . . . . . . . . . . . . . . . . . . . . . . . .Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options:On securities:
Purchases . . . . . . . . . . . . . . . . . . . . . . .Sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
On interest rates:Purchases . . . . . . . . . . . . . . . . . . . . . . .Sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
On foreign currencies:Purchases . . . . . . . . . . . . . . . . . . . . . . .Sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other interest rate transactions:FRAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commodity futures transactions . . . . . . . . . . . .Unsettled on-credit securities transactions . . . .Coverage for futures transactions:
Allowance for futures . . . . . . . . . . . . . . . . . .
(30) Transactions with Group, multigroup andassociated companies
This note refers to the balances in theconsolidated balance sheets and incomestatements relating to transactions with Group,multigroup and associated companies.
The dividends collected from subsidiaries whichare not consolidable because of their line of
business and from associated companies arerecorded in the consolidated income statementsas equity securit ies portfol io income and,simultaneously, as value adjustments for thecollection of dividends paid by equity methodcompanies, the breakdown being as follows:
Euro thousand
Relating to income of:Current year . . . . . . . . . . . . . . . . . . . . . . . . .Prior years . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
The following table details the 1999 and 1998year-end balances, as reflected in theconsolidated balance sheets and incomestatements, of the transactions with companies
consolidated by the proportional integrationmethod, with companies not consolidablebecause of their l ine of business, and withassociated companies.
1997
1999
19961998 1995
2,264,1691,794,857
–
29,17324,323
408,316441,269
––
––
19,30519,305
132,5352,538,369
–––
228
1,117,6001,075,589
–
24,834–
37,86442,191
––
––
14,05214,052
132,6011,179,282
–––
198
1,127,4931,133,371
–
49,64449,644
15,0256,010
––
––
2,6682,693
1,424,6991,731,882
–––
–
991,556988,845
–
19,49719,497
27,0463,005
––
––
––
539,1081,093,001
–––
523
113,17277,753
–
10,17710,175
22,76225,207
––
––
364364
24,958659,260
–––
284
Pesetas(Millions)
680,177467,302
–
61,16261,150
136,800151,500
––
––
2,1872,187
150,0003,962,230
–––
1,709
1997
1999
19961998 1995
2,6263,2705,896
9924,1475,139
4441,2441,688
–5,1935,193
1073,5783,685
Pesetas(Millions)
18595613
113
Euro thousand
Interest and similar revenuesSpain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Rest of Europe . . . . . . . . . . . . . . . . . . . . . . . . . ..America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
Service fee revenues (net)Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Rest of Europe . . . . . . . . . . . . . . . . . . . . . . . . . ..America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
Asset trading and exchange profitsSpain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Rest of Europe . . . . . . . . . . . . . . . . . . . . . . . . . ..America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
Interest and similar chargesSpain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Rest of Europe . . . . . . . . . . . . . . . . . . . . . . . . . ..America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
(31) Income statement disclosures
Following are relevant disclosures relating to theconsolidated income statements.
a. Geographical distribution
The consolidated Group’s financial activity outsideSpain is that conducted by Banco PopularComercial in France and Popular Finance in theCayman Islands.
The following table shows the split of thebalances of the main consolidated incomestatement captions for the last five years betweenthe countries where the Group companies arelocated.
Euro thousand
Balance sheet
Assets:Due from financial intermediaries .Loans and discounts . . . . . . . . . . .Prepayments and accrued income
Liabilities:Due to financial intermediaries . . .Customer deposits . . . . . . . . . . . .Accruals and deferred income . . .
Memorandum accounts:Contingent liabilities . . . . . . . . . . .Commitments . . . . . . . . . . . . . . . .
Income statement:Interest and similar revenues . . . .Interest and similar charges . . . . .Fee revenues . . . . . . . . . . . . . . . .Fee expenses . . . . . . . . . . . . . . . .
Proportional integrationmethod companies
Equity method companies
Nonconsolidable Associated
19991999
19981998
1999
178,182–
1,262
21,516–
66
1689,652
5,8301,406
6731,388
1998
–––
–16,756
78
313541
–355
7,0502,212
–––
–66
–
––
––––
193,216–
1,035
9,583–
69
19126,413
6,776525905
1,340
–558
–
–3,142
8
505185
528
1,414249
–––
–5–
––
––––
–––
–27
–
––
–1––
–3,355
–
–18,885
50
3,0321,114
30166
8,4961,498
32,148–
172
1,595–
12
324,395
1,12787
151223
Pesetas(Millions)
Pesetas(Millions)
Pesetas(Millions)
1997
1999
19961998 1995
1,445,80714,869
–
410,2692,043
–
46,596727
–
480,32310,98025,020
1,596,60715,650
–
344,3503,089
–
61,6761,046
–
601,63711,846
–
1,896,87818,932
–
278,8572,897
–
50,275685
–
841,09914,532
–
1,964,58217,766
–
257,9252,831
–
38,645631
–
945,54212,964
–
1,351,58111,281
–
464,1522,703
–
45,719118
–
317,8425,492
45,329
224,8841,877
–
77,228450
–
7,60720
–
52,884914
7,542
Pesetas(Millions)
114
c. Asset trading and exchange profits, net
The detail of the balances of this incomestatement caption is as follows:
Euro thousand
Interest and similar revenuesBank of Spain and other central banks . . . . . . . .Financial intermediaries . . . . . . . . . . . . . . . . . . .Fixed-interest securities . . . . . . . . . . . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Revenues from equity securitiesShares and other equity securities . . . . . . . . . . .Participating interests . . . . . . . . . . . . . . . . . . . . .Shares of Group companies . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Service fee revenuesContingent liabilities . . . . . . . . . . . . . . . . . . . . . .Collection and payment services . . . . . . . . . . . .Securities services . . . . . . . . . . . . . . . . . . . . . . .Other transactions . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Asset trading and exchange profitsSpanish and foreign fixed-interest securities . . .Equity securities . . . . . . . . . . . . . . . . . . . . . . . . .Exchange and derivatives . . . . . . . . . . . . . . . . . .Mortgage securitization . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and similar chargesBank of Spain . . . . . . . . . . . . . . . . . . . . . . . . . . .Financial intermediaries . . . . . . . . . . . . . . . . . . .Depositors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Debt securities and subordinated liabilities . . . . .Cost imputable to recorded pension
allowance . . . . . . . . . . . . . . . . . . . . . . . . . . .Other interest . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Euro thousand
Exchange differences . . . . . . . . . . . . . . . . . . . .
Fixed-interest securitiesTrading profit . . . . . . . . . . . . . . . . . . . . . . . . . . . .Portfolio writedown . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Equity securitiesTrading profit . . . . . . . . . . . . . . . . . . . . . . . . . . . .Portfolio writedown . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . .DerivativesTrading profit . . . . . . . . . . . . . . . . . . . . . . . . . . . .Writedown of futures . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Mortgage securitization
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
b. Nature of transactions
The detail of certain consolidated incomestatement captions by type of originatingtransactions is as follows:
1997
1999
19961998 1995
156199,782
36,7161,224,0221,460,676
3,2751,1724,7249,171
34,841148,078150,626
78,767412,312
7,898372
38,158896
47,324
12,946112,762353,467
22,484
14,262402
516,323
–233,427
73,4501,305,3801,612,257
4,5732,3262,8139,712
35,141136,658103,741
71,899347,439
8,89618,34235,484
–62,722
20,681101,860474,872
–
15,825245
613,483
–314,960134,338
1,466,5121,915,810
3,5283,3781,8158,721
34,726135,035
58,68953,304
281,754
10,85410,78329,323
–50,960
41,52496,042
695,9003,967
18,11583
855,631
–328,663207,614
1,446,0711,982,348
1,359889799
3,047
33,134125,600
45,51556,507
260,756
6,9363,131
29,209–
39,276
77,66389,401
729,77920,464
41,14554
958,506
8,478141,204
34,3251,178,8551,362,862
2,238162
3,5235,923
36,857165,608169,179
95,211466,855
6,92512,28619,311
7,31545,837
3,79996,600
232,10323,679
12,114368
368,663
1,41123,494
5,711196,145226,761
37227
586985
6,13227,55528,14915,84277,678
1,1522,0453,2131,2177,627
63216,07338,619
3,940
2,01660
61,340
Pesetas(Millions)
1997
1999
19961998 1995
36,998
7,886(12)
7,898
4,2913,919
372
1,22666
1,160896
47,324
32,551
8,860(36)
8,896
18,072(270)
18,342
3,167234
2,933–
62,722
28,163
8,480(2,374)10,854
6,858(3,925)10,783
637(523)
1,160–
50,960
28,422
7,249313
6,936
84(3,047)3,131
(361)(1,148)
787–
39,276
20,681
7,545620
6,925
13,5801,294
12,286
1111,481
(1,370)7,315
45,837
Pesetas(Millions)
3,441
1,255103
1,152
2,260215
2,045
18246
(228)1,217
7,627
115
number %
Under 20,000 . . . . . . . . . . . . . . . . .20,001 - 26,000 . . . . . . . . . . . . . . . .26,001 - 32,000 . . . . . . . . . . . . . . . .32,001 - 38,000 . . . . . . . . . . . . . . . .38,001 - 50,000 . . . . . . . . . . . . . . . .50,001 - 80,000 . . . . . . . . . . . . . . . .80,001 - 120,000 . . . . . . . . . . . . . . .120,001 - 180,000 . . . . . . . . . . . . . .Over 180,000 . . . . . . . . . . . . . . . . .
Totals . . . . . . . . . . . . . . . . . . . .
total(Euros) %
Average perbracket(Euros)
Personnel Remuneration
Bracket(Euros)
d. General administrative expenses.Personnel expenses
The breakdown of the balances of this consolidatedincome statement caption is as follows:
The 1995 pension payments figure refers topension payments through September 30, 1995.Since that date payments have been made byAllianz Ras Seguros y Reaseguros, S.A. underthe insurance contracts with this companycovering retired employees, as discussedelsewhere in this Report.
The following tables show the variations in the Group’syear-end and average annual headcount, thedistribution of the staff by age group and length ofservice, and the 1999 remuneration pyramid. This lattertable does not include the remuneration of theexecutives who are Board members, which isindividually disclosed in the earlier table showing thecomposition of the Board.
Year-end Annual average
Data in %
Years of service
Under 6 . . . . . . . . . . . . . . . .6 - 10 . . . . . . . . . . . . . . . .11 - 20 . . . . . . . . . . . . . . . .21 - 30 . . . . . . . . . . . . . . . .31 - 40 . . . . . . . . . . . . . . . .41 - 50 . . . . . . . . . . . . . . . .
Distribution by age group . .
Under 21 21-30 31-40 41-50 51-60Marginal
distribution ofyears of service
Over 60
Euro thousand
Remmuneration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Social security charges . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension payments (charged to special allowance) . . . .
Age
Authorized officers . . .Clerical staff . . . . . . . .General services . . . .
Total . . . . . . . . . . .
1997
1999
19961998 1995
363,92591,600
455,525
–
358,27089,364
447,634
–
350,82887,081
437,909
–
334,68082,513
417,193
25,032
368,27993,371
461,650
–
Pesetas(Millions)
61,27615,536
76,812
–
19971999 19961998 1995
6,7304,799
71
11,600
19971999 19961998 1995
6,5315,131
80
11,742
6,3905,619
130
12,139
6,2005,818
157
12,175
6,6655,006
79
11,750
6,4515,384
104
11,939
6,3255,839
132
12,296
6,0635,883
160
12,106
6,8434,650
46
11,539
6,8254,750
50
11,625
0.01–––––
0.01
2.459.805.710.98
––
18.94
0.510.477.75
27.603.28
–
39.61
0.220.091.229.417.300.20
18.44
0.010.010.050.090.080.08
0.32
24.0412.1714.7738.0810.66
0.28
100.00
20.841.800.04
–––
22.68
9743,8132,5861,4231,284
5175722
7
10,683
9.1235.6824.2113.3212.024.840.530.210.07
100.00
16,514,72089,888,30573,929,08249,353,42254,969,14030,295,013
5,385,8263,334,4271,423,388
325,093,324
5.0827.6422.7415.1816.91
9.321.661.030.44
100.00
16,955.5623,574.1728,588.2034,682.6642,810.8658,597.7094,488.18
151,564.88203,341.11
30,430.90
116
In order to insure the uniformity and level ofsignificance of the information in the foregoingpyramid, it was calculated without including the payof employees who, either because they were hiredor ceased to be employed during the year or workedon a part-time basis, would be classified in a bracketdifferent from that actually corresponding to them onthe basis of their equivalent annual earnings.
e. Other operating income and expenses
The detail of "Other operating income" in the lastfive years is shown in the following table. Theproperty rental income figures are afterelimination of intra-Group rental income.
The items comprising "Other operating expenses"in the consolidated income statements of the last
five years were as follows:
f. Extraordinary gains and losses
The main items comprising "Extraordinary gains"in the income statements of the last five yearswere as follows:
Euro thousand
Net property rental income . . . . . . . . . . . . . . . . .Other sundry revenues . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Euro thousand
Net property rental losses . . . . . . . . . . . . . . . . . . . .Contribution to Deposit Guarantee Fund . . . . . . .Directors’ fees . . . . . . . . . . . . . . . . . . . . . . . . . . . .Contributions to welfare foundations . . . . . . . . . .Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Euro thousand
Net gains on fixed asset disposals . . . . . . . . . .Fee income for atypical services . . . . . . . . . . . .Prior years’ income . . . . . . . . . . . . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Recovery of other specific allowances . . . . . . . ..
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The detail for "Extraordinary losses" is as follows:
Euro thousand
Net losses on fixed asset disposals . . . . . . . . . .Provision to other special allowances (net) . . . . .Prior years’ losses . . . . . . . . . . . . . . . . . . . . . . . .Other losses . . . . . . . . . . . . . . . . . . . . . . . . . . . .Extraordinary provisions to in-house
pension allowance . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1997
1999
19961998 1995
99896
1,094
1,31066
1,376
90811
919
6793,606
4,285
1,138195
1,333
Pesetas(Millions)
18933
222
1997
1999
19961998 1995
–13,108
24622,772
1,095
37,221
–12,946
24622,772
1,058
37,022
–25,934
24022,7661,034
49,974
–24,359
28820,531
1,064
46,242
–13,830
24722,774
579
37,430
Pesetas(Millions)
–2,301
413,789
97
6,228
1997
1999
19961998 1995
13,487980
12,2614,6694,808
36,205
9,165709
11,3779,5571,268
32,076
8,679715
12,53714,310
–
36,241
5,980391
10,5062,536
–
19,413
18,794689
10,2394,101
–
33,823
Pesetas(Millions)
3,127115
1,704682
–
5,628
1997
1999
19961998 1995
1,887–
11,06510,133
9,616
32,701
2,42814,79710,90210,638
7,447
46,212
2,19422,826
9,00312,261
1,028
47,312
2,22424,155
9,7729,701
14,526
60,378
1,9765,792
12,2869,952
15,599
45,605
Pesetas(Millions)
329964
2,0441,656
2,595
7,588
117
(32) Statement of changesin financial position
Euro thousand
Source of funds
Net income for the year . . . . . . . . . . . . . . . . . . . . . .
Amounts which reduce income but do not involve anapplication of funds:
Net provision to allowances:For credit loss . . . . . . . . . . . . . . . . . . . . . . .For country risk . . . . . . . . . . . . . . . . . . . . . .For pensions . . . . . . . . . . . . . . . . . . . . . . . .For accelerated depreciation and other . . . .
Writedown of securities portfolio . . . . . . . . . . . .Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . .Gain on sale of permanent assets (-) . . . . . . . .Imputation of results of equity method
subsidiaries (-) . . . . . . . . . . . . . . . . . . . . . . .Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funds provided by operations . . . . . . . . . . .
Net increase in:
Due to banks (net) . . . . . . . . . . . . . . . . . . . . . . .Customer deposits . . . . . . . . . . . . . . . . . . . . . . .
Net decrease in:
Fixed-interest securities . . . . . . . . . . . . . . . . . . .Shares and nonpermanent participating interests
Sale of permanent assets . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Application of funds
Prior year’s dividend . . . . . . . . . . . . . . . . . . . . . . . .
Equity reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in:Due from banks (net) . . . . . . . . . . . . . . . . . . . . .Loans and discounts . . . . . . . . . . . . . . . . . . . . .Fixed-interest securities . . . . . . . . . . . . . . . . . . .Shares and nonpermanent participating interestsOther assets and liabilities (net) . . . . . . . . . . . .
Acquisition of permanent assets . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(33) Relevant events subsequent toDecember 31, 1999
The 2X1 split authorized by the ShareholdersMeeting on December 16, 1999, will be made inFebruary 2000.
1997
1999
19961998 1995
439,129
80,522416
23,878(4,808)3,973
65,168(16,228)
(9,051)–
582,999
1,498,107906,051
––
102,605
3,089,762
211,088
–
–2,082,291
323,57355,215
264,193
153,402
3,089,762
427,686
109,727613
18,01213,529
(72)56,934
(10,872)
(11,101)–
604,456
94,215431,689
1,126,65731,782
88,126
2,376,925
193,803
210,318
–1,664,581
––
120,196
188,027
2,376,925
392,894
128,647174
32,66524,155(6,821)48,436(3,961)
(5,128)–
611,061
92,364439,286
401,776–
24,377
1,568,864
175,561
–
–1,192,919
–3,696
40,178
156,510
1,568,864
371,197
155,93312
26,87122,826(3,883)41,121(6,581)
(6,954)(252)
600,290
–780,751
605,009–
44,337
2,030,387
158,427
–
272,4871,025,567
–11,323
411,831
150,752
2,030,387
77,500
15,934246
4,611963565
11,247(2,857)
(1,161)–
107,048
–355,468
7,6025,333
14,072
489,523
37,790
24,607
20,010350,272
––
37,020
19,824
489,523
465,782
95,7641,478
27,7135,7923,395
67,594(17,171)
(6,977)–
643,370
–2,136,405
45,69132,053
84,576
2,942,095
227,122
147,893
120,2622,105,178
––
222,494
119,146
2,942,095
Pesetas(Millions)
118
EXHIBIT I
Banco Popular Group. Companies comprising the consolidated group and the nonconsolidable groupat December 31, 1999
Registered offices and line of business
Address
Velázquez, 34 Madrid BankingFernández y González, 4 Sevilla BankingPl. de los Bandos, 10 Salamanca BankingPl. de España, 1 Palma de Mallorca BankingPolicarpo Sanz, 23 Vigo BankingPl. del Castillo, 39 Pamplona Banking
María de Molina, 34 Madrid Consumed credit
Velázquez, 64-66 Madrid StockbrockingJ.Ortega y Gasset, 29 Madrid Pension plan managementVelázquez, 64-66 Madrid Portfolio managementJ.Ortega y Gasset, 29 Madrid Share portfolio and ownershipVelázquez, 64-66 Madrid Mutual fund management
J.Ortega y Gasset, 29 Madrid ServicesJ.Ortega y Gasset, 29 Madrid PropertyJ.Ortega y Gasset, 29 Madrid PropertyJ.Ortega y Gasset, 29 Madrid PropertyLagasca, 144 Madrid ServicesUgland House George Town FinanceUgland House George Town Finance
8, Rue D´Anjou París BankingMaría de Molina, 4 Madrid Banking
María de Molina, 54 Madrid Factoring
J.Ortega y Gasset, 29 Madrid Asset ownershipJ.Ortega y Gasset, 29 Madrid Asset ownershipFdez. y Glez., 4 y 6 Sevilla Insurance brokingCapitán Haya, 38 Madrid Data processingJ.Ortega y Gasset, 29 Madrid Insurance brokingJ.Ortega y Gasset, 29 Madrid InsuranceJ.Ortega y Gasset, 29 Madrid PropertyCedaceros, 1 Madrid RentingJ.Ortega y Gasset, 29 Madrid Insurance agencyJ.Ortega y Gasset, 29 Madrid Asset ownershipJ.Ortega y Gasset, 29 Madrid DormantJ.Ortega y Gasset, 29 Madrid Property
a) Consolidated group
a.1.) By global integration method
Deposit-taking entities:Banco Popular Español . . . . . . . . . . . .Banco de Andalucía . . . . . . . . . . . . . . .Banco de Castilla . . . . . . . . . . . . . . . . .Banco de Crédito Balear . . . . . . . . . . .Banco de Galicia . . . . . . . . . . . . . . . . .Banco de Vasconia . . . . . . . . . . . . . . .
Finance companies:Abacá Crédito y Financiación . . . . . . .
Portfolio and service companies:Europea Popular de Inversiones . . . . .Europensiones . . . . . . . . . . . . . . . . . . .Eurogestión . . . . . . . . . . . . . . . . . . . . .Gestora Popular . . . . . . . . . . . . . . . . . .Sogeval . . . . . . . . . . . . . . . . . . . . . . . .
Instrumental companies:Aula 2000 . . . . . . . . . . . . . . . . . . . . . . .Finespa . . . . . . . . . . . . . . . . . . . . . . . .Inmobiliaria Viagracia . . . . . . . . . . . . .Inmobiliaria Vivesa . . . . . . . . . . . . . . . .Intermediación y Servicios TecnológicosPopular Finance (Cayman) . . . . . . . . . .Popular Capital (Cayman) . . . . . . . . . .
a.2.) By proportional integration method
Deposit-taking entities:Banco Popular Comercial . . . . . . . . . .Banco Popular Hipotecario . . . . . . . . .
Finance companies:Heller Factoring . . . . . . . . . . . . . . . . . .
b) Nonconsolidable group
Aliseda . . . . . . . . . . . . . . . . . . . . . . . . .Cía. de Gestión Inmobiliaria . . . . . . . .Correduría Bética de Seguros . . . . . . .Desarrollo Aplicaciones Especiales . . .Eurocorredores . . . . . . . . . . . . . . . . . .Eurovida . . . . . . . . . . . . . . . . . . . . . . . .Inversiones Inmobiliairas Alprosa . . . .Popular de Renting . . . . . . . . . . . . . . .Proseguros Popular . . . . . . . . . . . . . . .Promoción Social de Viviendas . . . . . .Sicomi . . . . . . . . . . . . . . . . . . . . . . . . .Urbanizadora Española . . . . . . . . . . . .
Line of business
119
EXHIBIT II
Banco Popular Group. Group and multigroup companies at December 31, 1999
Percentage of direct and indirect ownership and book value of holdings
% of ownership
Global integration method companies
Deposit-taking entities:Banco Popular Español . . . . . . . . . . . . . .Banco de Andalucía . . . . . . . . . . . . . . . . .Banco de Castilla . . . . . . . . . . . . . . . . . . .Banco de Crédito Balear . . . . . . . . . . . . .Banco de Galicia . . . . . . . . . . . . . . . . . . .Banco de Vasconia . . . . . . . . . . . . . . . . .
Finance companies:Abacá Crédito y Financiación . . . . . . . . .
Portfolio and service companies:Europea Popular de Inversiones . . . . . . .Europensiones . . . . . . . . . . . . . . . . . . . . .Eurogestión . . . . . . . . . . . . . . . . . . . . . . .Gestora Popular . . . . . . . . . . . . . . . . . . . .Sogeval . . . . . . . . . . . . . . . . . . . . . . . . . .
Instrumental companies:Aula 2000 . . . . . . . . . . . . . . . . . . . . . . . . .Finespa . . . . . . . . . . . . . . . . . . . . . . . . . . .Inmobiliaria Viagracia . . . . . . . . . . . . . . . .Inmobiliaria Vivesa . . . . . . . . . . . . . . . . . .Intermediación y Servicios Tecnológicos .Popular Finance (Cayman) . . . . . . . . . . .Popular Capital (Cayman) . . . . . . . . . . . .
Proportional integration method companies
Deposit-taking entities:Banco Popular Comercial . . . . . . . . . . . . .Banco Popular Hipotecario . . . . . . . . . . .
Finance companies:Heller Factoring . . . . . . . . . . . . . . . . . . . .
Equity method companies:
Aliseda . . . . . . . . . . . . . . . . . . . . . . . . . . .Cía. de Gestión Inmobiliaria . . . . . . . . . . .Correduría Bética de Seguros . . . . . . . . .Desarrollo Aplicaciones Especiales . . . . .Eurocorredores . . . . . . . . . . . . . . . . . . . . .Eurovida . . . . . . . . . . . . . . . . . . . . . . . . . .Inversiones inmobiliarias Alprosa . . . . . . .Popular de Renting . . . . . . . . . . . . . . . . .Proseguros Popular . . . . . . . . . . . . . . . . .Promoción Social de Viviendas . . . . . . . .Sicomi . . . . . . . . . . . . . . . . . . . . . . . . . . . .Urbanizadora Española . . . . . . . . . . . . . .
Direct Indirect Total
Book value ofholding
(Euro thousand)
–78.5794.4663.7091.1896.25
100.00
100.0051.00
100.00100.00100.00
100.004.19
100.00100.00100.00100.00100.00
50.0050.00
50.00
100.0078.00
–50.6790.0037.00
–100.00100.00
––
97.53
–0.090.120.280.090.03
–
–––––
–95.81
–––––
––
–
–18.6578.66
–10.0010.3790.00
––
70.6499.66
–
–78.6694.5863.9891.2796.28
100.00
100.0051.00
100.00100.00100.00
100.00100.00100.00100.00100.00100.00100.00
50.0050.00
50.00
100.0096.6578.6650.67
100.0047.3790.00
100.00100.00
70.6499.6697.53
–151,943
67,96329,41751,98431,005
9,317
6,1007,968
6516,8053,002
68,058
20,6323,1131,202
4646
9,53827,046
1,810
2,59229474762
4,2682,702
12073
4337
10,379
120
EXHIBIT II(continuation)
Banco Popular Group. Associated companies and other significant investees at December 31,1999
Percentage of direct and indirect ownership and book value of holdings
% ownership
Associated companiesConsorcio Iberión . . . . . . . . . . . . . . . . . . . . . .Panorama Ibicenca . . . . . . . . . . . . . . . . . . . . .Servicios de Información Bancaria . . . . . . . . .Sistema 4B . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other significant investee companiesA.I.A.F. Renta Fija . . . . . . . . . . . . . . . . . . . . . .Añoreta Golf . . . . . . . . . . . . . . . . . . . . . . . . . . .Asema . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Autopista Vasco Aragonesa . . . . . . . . . . . . . . .Bahía de Mazarrón . . . . . . . . . . . . . . . . . . . . .Corretaje e Información Monetaria y de DivisaInversiones y Construcciones . . . . . . . . . . . . .Neva Rica Industrias . . . . . . . . . . . . . . . . . . . .
Direct Indirect Total
Book value ofholding
(Euro thousand)
Associated companies: those at least 20% owned, if unlisted, or at least 3% owned, if listed, or whose business activity is aclear prolongation of the Group’s financial activity, regardless of the percentage of ownership.
Other significant investee companies: those 5% or more and less than 20% owned, whose shares are unlisted.
12.50–
15.0020.45
0.95–
17.0010.97
5.94–
8.33–
90147
2317,027
131326303
6,74915
575290166
12.5050.0015.0020.45
4.3914.0917.0010.97
5.945.008.33
10.70
–50.00
––
3.4414.09
–––
5.00–
10.70
121
EXHIBIT III
Banco Popular Group, Consolidated companies at December 31, 1999
Common stock, reserves, income and dividends collected
(Data in thousands of euros, unless otherwise indicated)
Income for the year
Deposit-taking entities:Banco Popular Español . . . . . . . . . . . . . .Banco de Andalucía . . . . . . . . . . . . . . . . .Banco de Castilla . . . . . . . . . . . . . . . . . . .Banco de Crédito Balear . . . . . . . . . . . . .Banco de Galicia . . . . . . . . . . . . . . . . . . .Banco de Vasconia . . . . . . . . . . . . . . . . .Banco Popular Comercial (2) . . . . . . . . . .Banco Popular Hipotecario (2) . . . . . . . . .
Finance companies:Abacá Crédito y Financiación . . . . . . . . .Heller Factoring (2) . . . . . . . . . . . . . . . . .
Portfolio and service companies:Europea Popular de Inversiones . . . . . . .Europensiones . . . . . . . . . . . . . . . . . . . . .Eurogestión . . . . . . . . . . . . . . . . . . . . . . .Gestora Popular . . . . . . . . . . . . . . . . . . . .Sogeval . . . . . . . . . . . . . . . . . . . . . . . . . .
Instrumental companies:Aula 2000 . . . . . . . . . . . . . . . . . . . . . . . . .Finespa . . . . . . . . . . . . . . . . . . . . . . . . . .Inmobiliaria Viagracia . . . . . . . . . . . . . . . .Inmobiliaria Vivesa . . . . . . . . . . . . . . . . . .Intermediación y Servicios Tecnológicos .Popular Finance (Cayman) (1) . . . . . . . . .Popular Capital (Cayman) (1) . . . . . . . . .
Capital stock Reserves Total
Dividendscollected
in the yearExtraordinary
(1) Data in thousands of US dollars(2) Consolidated by the proportional integration method
108,57716,29726,03610,572
9,1299,600
38,15054,209
9,015902
4,50815,626
603,744
962
61,2924,688
9021,202
5050
795,333398,521231,649
77,461175,193
77,08251,24915,481
(448)13,839
2,3102,6872,0903,778
67,305
198,604
22,607268
10–
(8)
323,78868,13335,92715,84432,61418,966
2624,252
(602)2,047
1,38914,792
938723
14,709
3328
4,5803
18–
(2)
(15,336)57
(903)371(28)208
(1,100)86
68(22)
(147)711
28
107119
4,542–
(6)––
75,648240180
60142120
––
––
266343964
579
–27
604––––
122
EXHIBIT III(continuation)
Banco Popular Group. Nonconsolidable companies at December 31, 1999
Common stock, reserves and income
(Data in thousands of euros)
Income for the year
Aliseda . . . . . . . . . . . . . . . . . . . . . . . . .Cía. de Gestión Inmobiliaria . . . . . . . . .Correduría Bética de Seguros . . . . . . .Desarrollo Aplicaciones Especiales . . .Eurocorredores . . . . . . . . . . . . . . . . . .Eurovida . . . . . . . . . . . . . . . . . . . . . . . .Inversiones Inmobiliarias Alprosa . . . .Popular de Renting . . . . . . . . . . . . . . .Proseguros Popular . . . . . . . . . . . . . . .Promoción Social de Viviendas . . . . . .Sicomi . . . . . . . . . . . . . . . . . . . . . . . . .Urbanizadora Española . . . . . . . . . . . .
Common stock Reserves Total Extraordinary
Banco Popular Group. Associated companies and other significant investee companies at December 31, 1999
Capital stock and reserves
(Data in thousands of euros, unless otherwise indicated)
Address
Paseo de la Castellana, 51. MadridSanta Eulalia del Río. IbizaFrancisco Sancha, 12. MadridFrancisco Sancha, 12. Madrid
Pedro Texeira, 8. MadridRincón de la Victoria. MálagaA-68 Arrigorriaga (Vizcaya)B. Anuntzibay. Orozco (Vizcaya)Plaza de Cetina, 6. MurciaPlaza Ruiz Picasso, s/n pta. 23. MadridPlaza de San Pedro, 12. AlmeríaSan Petersburgo. Rusia
(1) Data in millions of roubles
Common stock Reserves
Associated companiesConsorcio Iberión . . . . . . . . . . . . . . . . . . . . . .Panorama Ibicenca . . . . . . . . . . . . . . . . . . . . .Servicios de Información Bancaria . . . . . . . . .Sistema 4B . . . . . . . . . . . . . . . . . . . . . . . . . . .
OtherA.I.A.F. Renta Fija . . . . . . . . . . . . . . . . . . . . . .Añoreta Golf . . . . . . . . . . . . . . . . . . . . . . . . . .Asema . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Autopista Vasco Aragonesa . . . . . . . . . . . . . .Bahía de Mazarrón . . . . . . . . . . . . . . . . . . . . .Corretaje e Información Monetaria y de DivisaInversiones y Construcciones . . . . . . . . . . . . .Neva Rica Industrias (1) . . . . . . . . . . . . . . . . .
1,897343
65645
186,202
–1912
127(3)
11,406
231
950123
10,444179
39–––
245
5––
(100)–––––––
130
2,04390609060
9,0153,005
12060
27012
240
72160
6012,565
3,0053,902
601240,405
2162,354
282476
–312
(2)14,144
49(59)
2,039355,979
35915,693
(60)–
123
EXHIBIT IV
Banco Popular Group. Nonconsolidable companies at December 31, 1999
Breakdown of book value in the consolidated balance sheets
(Data in thousands of euros)
Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Difference in initial consolidation . . . . . . . . . . . . . . . . . . . . . .Variations in value:
In consolidation reserves . . . . . . . . . . . . . . . . . . . . . . . . .In minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .For imputed period income . . . . . . . . . . . . . . . . . . . . . . . .For adjustments in consolidation . . . . . . . . . . . . . . . . . . .For balance sheet restatement under
Article 17 of Royal Decree 7/1996 . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security price fluctuation allowance . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balanceat
12/31/98
Balanceat
12/31/99
Banco Popular Group. Nonconsolidable companies at December 31, 1999
Breakdown by company of book value amounts and variations in the consolidated balance sheets
(Data in thousands of euros)
Aliseda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Cía. de Gestión Inmobiliaria . . . . . . . . . . . . . . .Correduría Bética de Seguros . . . . . . . . . . . . . .Desarrollo Aplicaciones Especiales . . . . . . . . . .Eurocorredores . . . . . . . . . . . . . . . . . . . . . . . . .Eurovida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Inversiones Inmobiliarias Alprosa (1) . . . . . . . . .Popular de Renting . . . . . . . . . . . . . . . . . . . . . .Proseguros Popular . . . . . . . . . . . . . . . . . . . . . .Promoción Social de Viviendas . . . . . . . . . . . . .Sicomi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Urbanizadora Española . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . .
Balanceat
12/31/98
Balanceat
12/31/991999 variations
DecreaseIncrease
(1) Incorporated in 1998
10,830403
18,78114,226
1146,599
(2,440)
282
30,014
(2,542)
27,472
10,840402
21,45114,984
1256,167(107)
282
32,693
(2,542)
30,151
1,80467
3,5692,493
211,026
(18)
47
5,440
(423)
5,017
Pesetas(Millions)
4,297433120721
8410,404
–138
726–
11,197
27,472
2136
481124
5,118164
401–2
256
6,216
123––
4566
2,948– – 13––
3,537
4,195436126746202
12,574164178
7232
11,453
30,151
Pesetas(Millions)
6987321
12434
2,092273012
––
1,906
5,017
124
EXHIBIT V
Banco Popular Group. Consolidated companies at December 31, 1999
Net income
(Data in thousands of euros)
Corresponding to
Consolidated companies:
Deposit-taking entities:Banco Popular Español . . . . . . . . . . .Banco de Andalucía . . . . . . . . . . . . .Banco de Castilla . . . . . . . . . . . . . . . .Banco de Crédito Balear . . . . . . . . . .Banco de Galicia . . . . . . . . . . . . . . . .Banco de Vasconia . . . . . . . . . . . . . .Banco Popular Comercial (1) . . . . . . .Banco Popular Hipotecario (1) . . . . . .
Finance companies:Abacá Crédito y Financiación . . . . . . .Heller Factoring (1) . . . . . . . . . . . . . . .
Portfolio and service companies:Europea Popular de Inversiones . . . .Europensiones . . . . . . . . . . . . . . . . . .Eurogestión . . . . . . . . . . . . . . . . . . . .Gestora Popular . . . . . . . . . . . . . . . . .Sogeval . . . . . . . . . . . . . . . . . . . . . . .
Instrumental companies:Aula 2000 . . . . . . . . . . . . . . . . . . . . . .Finespa . . . . . . . . . . . . . . . . . . . . . . .Inmobiliaria Viagracia . . . . . . . . . . . .Inmobiliaria Vivesa . . . . . . . . . . . . . . .Intermediación y Servicios TecnológicosPopular Finance (Cayman) . . . . . . . . .Popular Capital (Cayman) . . . . . . . . .
Subtotal global and proportionalintegration methods companies . .
Net income BPE shareholders Minority interests
(1) Consolidated by the proportional integration method; for these companies, the income is that attributable to the Group.
1999
1998
1999
1998
1999
1998
323,78868,13335,92715,84432,61418,966
1332,126
(602)1,024
1,38914,792
938723
14,709
3328
4,5803
18–
(2)
535,434
313,22960,82234,18032,32230,29717,381
9561,701
(222)817
1,46611,125
1021,707
11,155
6523
1,46018
6–
(6)
519,045
323,78853,59333,98010,13729,76718,260
1332,126
(602)1,024
1,3897,544
938723
14,709
3328
4,5803
18–
(2)
502,439
313,22947,39632,28620,35627,58016,732
9561,701
(222)817
1,4665,674
1021,707
11,155
6523
1,46018
6–
(6)
482,942
–14,540
1,9475,7072,847
706––
––
–7,248
–––
–––––––
32,995
–13,427
1,89311,966
2,717649
––
––
–5,451
–––
–––––––
36,103
–2,419
324949474118
––
––
–1,206
–––
–––––––
5,490
53,8748,9175,6541,6874,9533,038
22354
(100)171
2311,255
156120
2,447
–55
762–3––
83,599
53,87411,336
5,9782,6365,4273,156
22354
(100)171
2312,461
156120
2,447
–55
762–3––
89,089
Pesetas(Millions)
Pesetas(Millions)
Pesetas(Millions)
125
EXHIBIT V(continuation)
Banco Popular Group. Nonconsolidable and associated companies at December 31, 1999
Net income
(Data in thousands of euros)
Nonconsolidable companiesAliseda . . . . . . . . . . . . . . . . . . . . . . . . . .Cía. de Gestión Inmobiliaria . . . . . . . . . .Correduría Bética de Seguros . . . . . . . .Desarrollo Aplicaciones Especiales . . . .Eurocorredores . . . . . . . . . . . . . . . . . . . .Eurovida . . . . . . . . . . . . . . . . . . . . . . . . .Inversiones Inmobiliarias Alprosa (2) . . . .Popular de Renting . . . . . . . . . . . . . . . . .Proseguros Popular . . . . . . . . . . . . . . . .Promoción Social de Viviendas . . . . . . .Sicomi . . . . . . . . . . . . . . . . . . . . . . . . . . .Urbanizadora Española . . . . . . . . . . . . .
Associated companies
Income of equity method companies imputableto third parties outside the Group . . . . . . . .
Subtotal equity method companies . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments and eliminations . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . .
Corresponding to
Net income BPE shareholders Minority interests
(2) Incorporated in 1998
* Earnings of these companies attributable to minority interests of the shareholder entities
231
950123
10,444179
39–––
245
3,958
(8,967)
6,977
542,411
(76,629)
465,782
1266–
8296
6,960–
18–––
2,687
2,494
(6,154)
6,972
526,017
(86,888)
439,129
231
481123
4,948161
39–––
239
810
–
6,807
509,246
(76,519)
432,727
1266–
4216
3,294–
18–––
2,614
373
–
6,858
489,800
(82,837)
406,963
–––––
170––––––
–
–
170
33,165
(110)
33,055
––
––
114
–
–––
114
36,217
(4,051)
32,166
–––
15821
1,73730
7–––
41
659
(1,492)
1,161
90,250
(12,750)
77,500
–––––
28––––––
–
–
28
5,518
(18)
5,500
–––
8021
82327
7–––
40
135
–
1,133
84,732
(12,732)
72,000
1999
1998
1999
1998
1999
1998Pesetas(Millions)
Pesetas(Millions)
Pesetas(Millions)
**
126
EXHIBIT VI
Banco Popular Group. Capital increase authorizations at December 31, 1999
Capital increaseauthorizations
Number of shares listed
Eurothousand
Deadlinedate
Banco Popular . . . . . . . . . . . . . .
Banco de Andalucía . . . . . . . . .
Banco de Castilla . . . . . . . . . . .
Banco de Crédito Balear . . . . . .
Banco de Galicia . . . . . . . . . . . .
Banco de Vasconia . . . . . . . . . .
54,289
8,148
13,018
5,286
4,564
4,800
6.23.2004
5.25.2004
6.01.2004
6.03.2004
5.13.2004
5.23.2004
108,577,058
21,729,240
43,392,900
14,096,448
30,429,000
32,000,000
Corporate Governance Report
PART ONE: INTRODUCTION TO CORPORATEGOVERNANCE IN THE GROUP
A. The Olivencia Report one year on.
The 1998 Corporate Governance Reporthighlighted the publication, at the beginning ofthat year, of the Olivencia Report and Code. Thiswas a necessary reference to a fundamentalmilestone in the recent history of the debate onthe governance of listed companies in Spain,which thereby joined a doctrinal and mercantilemovement which began some decades ago in theAnglo-Saxon world.
The merits of the Olivencia Report were evident.Firstly, it represented a considerable effort tosynthesize conclusions regarding corporategovernance good practice in Spain andinternationally, and possible ways to combineboth. Secondly, it set forth, systematically andcoherently, a series of ideas, criteria andprinciples which until then had been disperse ornot sufficiently elaborated.
1999 was the first full year for the movement ofreflection prompted by the Olivencia Report. Thebalance, in general terms, is positive. Manycompanies realized that there was scope forimproving their governance practices, either byapplying recipes successfully tested in othercompanies or other jurisdictions, or by developingtheir own mechanisms for resolving theshortcomings observed. Thus did they follow theOlivencia Committee’s recommendationencouraging "companies themselves, under theautonomy of private will and the faculties for self-regulation of their governing bodies, to takedecisions conducive to their better governance…"
Nevertheless, there are also less satisfactoryaspects. Some circles have conveyed to publicopinion the impression that they rather wished toignore the Report and merely "comply with theCode", conferring on it the nature of a paralegalcompulsory regulation which, in principle (and asa matter of principle), it lacked. Thus, there havebeen those who, having complied literally with therequirements for adaptation laid down in astandardized form, have then felt themselves
freed from any commitment towards corporategovernance in the future. This is a step back,which is as dangerous as the step forward takenby those who, moved by the positive urge to gofurther, have sought to apply ideas and solutionswhich, although considered of interest in theOlivencia Report, bore little or no relation to thespecific conditions of their company. On thesesame lines may be situated the disingenuousrather than genuine debate regarding the"independence" of board members.
Improved corporate governance is much morethan a doctrinal fashion or a public authorityinitiative. It is a social need. The century nowclosing, and in particular its most recent decades,has seen a significant change in the way in whichcompanies are structured throughout the world.Overall, there has been widespread acceptanceof principles of social and political organizationbased on the transparency of information, theaccountability of those in positions of authority,control of the latter by the individuals and groupsaffected by their actions, a proper balancing of allinterests meriting oversight and efficacy inmanagement.
Citizens of this new era, in their capacity asinvestors, customers or suppliers, are no longerprepared to approach companies passively. Theywant the same principles that guide the society inwhich they live to underlie the governance ofcompanies, and will reward with their confidencethe companies that do so and distrust those thatare reluctant to conform.
B. Sources
The corporate culture of Banco Popular Españoland its Group has been progressivelydocumented year by year in the Annual Reports.Since 1998, coinciding with publication of theOlivencia Report and in order to permit a stillmore direct and transparent approximation of theshareholders, customers and analysts to ourcorporate policy, a Corporate Governance Reporthas also been prepared, the second part of whichdeals with the regulations applicable to the boardof directors. The Bank’s Corporate GovernanceReport conforms to the system established in theOlivencia Report and Code, thus also facilitatingcomprehension and analysis of our Report.
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C. New developments in 1999
The foregoing section A of this first Part definedthe reflection about improving corporategovernance as a social need, a need that leads tocompanies being viewed and treated in the sameway as any other modern human community.Social change in the modern era is based ondynamic and fluid evolution, rather than ontraumatic breaks. The change in corporategovernance must therefore also be fluid, theoutcome of a constant, conscientious, forward-looking effort, and not based on permanentinnovation for the sake of appearance and withscant continuity and results. The fact that BancoPopular was one of the pioneers in Spain indeveloping a modern corporate policy hastraditionally enabled it to avoid having to makebrusque changes in its corporate governanceprinciples, and this trend was maintained in 1999.
In 1999, the Board established and expanded thecontent of the two new specialized StandingCommittees set up in 1998 (the Audit, Control andRemuneration Committee and the Nominations,Governance and Confl icts of InterestsCommittee). The department of the Secretary ofthe Board, in fulfillment of its information andguarantee functions, was active in providinginformation to directors about matters within theircompetence. Similarly, at the proposal of theBoard, the June 1999 Shareholders Meetingresolved to respect the maximum number ofboard members which the June 1998Shareholders Meeting had set at thirty, and theonly new director appointed to the Board was Mr.Manuel Morillo Olivera.
PART TWO. CORPORATE GOVERNANCE ATBANCO POPULAR
Principles of Corporate Governance at BancoPopular
In 1953, and based on its previous experience,Banco Popular decided to base the operation ofits Board of Directors on criteria different fromthose which had been followed until then. Thesegovernance criteria have, with constant updates,since then marked the personality of BancoPopular in this sphere for more than four decadesand are the profile of the Bank’s corporategovernance identity at the threshold of the newcentury.
The 1998 Corporate Governance Report,following the Annual Report for 1986, commentedon the process of reflection at the Bank aboutwhat the functions of the Board should be. Theconclusions of that exercise led to the definition ofthe role of the Board in terms of the followingmissions:
1. Keep its finger on the pulse of banking.2. Manage the Bank by remote control.3. Merge into the collective background of
the Bank.4. Refrain from interfering individually in
issues relating to personnel, loans, purchases, or in subsidiaries.
5. Receive no remuneration.6. Refrain from speculating.7. Exercise the directors’ right to express
themselves freely and with critical judgment before other directors, and to have regard to their duty to avoid leaks ofinformation and fissures, both outside theBank and internally downwards.
The continuing confirmation of this declaration ofintent in the course of the subsequent forty-fiveyears has led to the formation of an implicitcompendium of standards of conduct andoperation, whose essential elements could beconsidered to be those set forth below.
The strict separation of ownership and management.
As indicated in the 1991 reporting documents, ina synthesis of criteria already outlined in previousyears, this is perhaps "the most long-standingprinciple applied at Banco Popular", as is borneout by the fact that it has been applied withoutinterruption for over four decades. It was in 1953that "fortunately the criterion of separatingdirectors from management was implemented,and the Bank began to note its positive effects".
The documents for that same year stated, quotingPeter F. Drucker: "What the Board is, and shouldbe, is the body which monitors that the companyis being managed effectively". According to thereporting documents, management involvesimportant decisions which need to be madequickly on issues that require considerabletraining in the field of management, and this issomething which it would be difficult for the Boardof Directors to fulfill.
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The separation between ownership andmanagement in corporations thus becomes "theideal arrangement for each to fulfill its rôle withmaximum efficiency, whereby the directors areresponsible for monitoring and insuring that thecompany is being managed efficiently, and themanagers are professional executives whoseperformance is not hindered by interference"(annual reporting documents 1991).
No speculation by directors
Instead of feeling that "he owned the place", theBanco Popular director came to realize that inorder to feel "at home" he had to "keep the Bankand his private, family and social life completelyseparate and observe the 1953 rule forbiddingspeculation" (annual reporting documents 1986).
Non-remuneration of directors
This principle was established in the annualreporting documents of 1987, which emphasizedthat "directors receive no remuneration as such,since those who belong to the Bank’s staff receivetheir paycheck like any other employee, and thereis no allowance established for the others. Onlyretired persons and academicians with nosignificant income receive an amount for servicesrendered in an advisory capacity".
Balanced composition of the Board
The Banco Popular Board is a balanced group.The annual reporting documents for 1986, 1987and 1988 all pointed out that "a third of thedirectors are individual shareholders who arebusinessmen, a third are individuals recruitedfrom within the organization itself whoseprofessional merit makes them worthy of adirectorship, and the remaining third belong to theBoards of banking subsidiaries or othercompanies, or are even academicians".
Transparency of information
As early as 1992 the Board said that "ashareholder with a sufficient shareholding may bea member of the Board or not. The sameinformation is available in both cases, and is asfull as the shareholder wishes. The onlylimitations are those established personally,legally or in the bylaws."
The incorporation in 1989 of three new directorsrepresenting international institutional investorsand as such therefore obliged to inform theirsuperiors abroad, together with the circumstanceof "residing outside Spain, has been a newimpetus to improve both the decision-makingprocess and the system of reporting to themembers of the Board of Directors" (1989 annualreporting documents).
Definition of the conduct and size of the Board
The 1987 reporting documents pointed out hownecessary it was to "define the fields of action ofsenior directors and senior management, in orderto avoid interference and to gain in effectiveness",which had already been noted as early as 1953.According to those documents, the variouscompetencies incumbent upon the Board "aredivided into areas, whose monitoring and controlare the responsibility of the director best fitted byhis personal characteristics and qualities toperform the task of supervision with which he isentrusted".
With regard to the size of the Board, the 1987reporting documents also explained that "one ofthe prerequisites for the stability of companiesappears to be that their Boards of Directorsshould own, directly or indirectly, a sufficientlyhigh percentage of the common stock to deterpossible adventurers from carrying out surpriseraids". Accordingly, "since the Banco PopularBoard had a minority holding in the capital stock,that vulnerable position had to be changed". Thatis why the 1988 Shareholders Meeting made amajor effort to increase the representative base ofthe Board by opening it up to the varioussensitivities of the shareholders. That effort hasbeen maintained throughout the past decade.
Delegation to the Executive Committee
The 1989 annual reporting documents pointed outthat "at Banco Popular, as in any complexorganization, whether of a business or politicalnature, whether bureaucratized or otherwise,there is a natural tendency for suggestions to beignored, for information not to be received, forincidents to be concealed, for mistakes not to berecognized and for failures to be excused".
That is why the decision was taken in 1989 to setup an Executive Committee consisting of six
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members each of whom had "a holding of morethan 0.5% in the Bank’s capital stock" (1990annual reporting documents). The members ofthe Executive Committee meet frequently, "sit onthe Loans Committee, consider themselvesresponsible for monitoring and for audits - bothexternal and internal -, keep a close watch onevents, endeavor to keep themselves informed"(1989 annual reporting documents).
Criteria of Corporate Governance at Banco Popular
In l ine with its own tradit ion of corporategovernance and with the acceptance of thecriteria set forth in the Olivencia Report and Codeby the Board of Directors on April 24, 1998, andby the Shareholders Meeting on June 26, 1998,and in accordance with the resolution adopted bythe Board of Directors on December 17, 1998, thegovernance of Banco Popular Español and itsgroup entities is based on the following principles:
1. Duties of the Board
The Board of Directors explicitly accepts that itsfundamental rôle is that of general supervision, itexercises the responsibilities that this entailswithout delegation to others, and understandsthat, without interfering in the management of thecompany, the following matters are reserved forits own cognisance and may not be delegated toothers:
- the approval and supervision of the general strategies of the company;
- the appointment, remuneration and, as appropriate, removal of the company’s senior executives;
- the control of management activities and evaluation of the executives;
- the identification of the company’s main risks and the implementation and monitoring of the appropriate internal control and information systems, and
- the establishment and supervision of policies relating to reporting to and communication with the shareholders, themarkets and public opinion.
2. Independence
In addition to five directors who are executives,the Bank’s Board of Directors includes fiveshareholding directors (representing the Allianz
group and the BPE Shareholders Syndicate andindividuals in their own name). The remainingeighteen may be considered to be independentdirectors, particularly those who do not own asignificant shareholding, have a high professionalprofile and are not related to the executive teamor the significant shareholders. Following theBank’s customary practice, the personal andprofessional profiles of each of the servingdirectors are included in an attachment to thisReport.
3. Representativeness
In the Banco Popular Board of Directors the non-executive (shareholding and independent)directors constitute an ample majority over thosewho may be considered to be more related to theBank’s executive team. The proportion ofshareholding to independent directors has beenestablished taking into account the ratio of theamount of capital stock held in signif icantshareholdings to the rest.
4. Appropriate size
The Bank’s Board of Directors is of the right sizeto insure it functions efficiently and with theappropriate degree of participation, whilecombining numerical moderation with theessential prerequisite for a large listed financialinstitution such as Banco Popular that itsshareholders and their diverse sensitivities can besufficiently represented on the Board.
Taking these arguments into account and at theproposal of the Board, on June 26, 1998, theShareholders Meeting considered that such abalance is achieved by establishing a maximumlimit of thirty directors, which althoughconsiderably below the limit set by the Bank’sBylaws, is still higher than that established by theBoard itself (which currently, as decided by theShareholders Meeting on June 23, 1999, regularlyhas twenty-eight members).
5. Deconcentration
The Board of Directors considers that itstraditional criterion of not combining the posts ofchairman and chief executive officer is a basicprecaution to reduce the risks of concentratingpower in the hands of a single person, and againin 1999 reasserted its intention of maintaining thisline of action, initiated in 1953.
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6. Regulatory guarantee
The Secretary of the Board, as a specializedprofessional guaranteeing the formal and materiallegality of the Board’s actions, enjoys the fullsupport of the Board in discharging thosefunctions with full independence and stability, andis also entrusted with the task of insuring that thedirectors are correctly briefed about matters oftheir competence. Accordingly, these functionshave been performed by a professional lawyersince June 1998 and throughout 1999.
7. Efficiency
The Executive Committee reflects the balancewithin the Board of the different categories ofdirector, their mutual relations being inspired bythe same principle of transparency which hastraditionally been the basis of Banco Popular’sentire corporate culture. In all cases the Board isfully informed of the matters discussed and thedecisions adopted by the Executive Committee.
In 1999, the composit ion of the ExecutiveCommittee was as follows:
Chairman Javier Valls Taberner / Luis VallsTaberner
Member: Gabriel Gancedo de Seras.Member: Luis Montuenga AguayoMember: José Ramón Rodríguez GarcíaMember: Eric Gancedo Holmer (BPE
Shareholders’ Syndicate)Secretary: Jesús Platero Paz
8. Self-control
Since 1998, in addition to the Loans Committee,the Banco Popular Board of Directors has alsoincluded two special Standing Committees,whose existence in the practice of the Bank’scorporate governance was consolidated in 1999.
The first is the "Audit, Control and RemunerationStanding Committee". This checks that all theperiodic reporting to the markets is produced inaccordance with the same principles andprofessional practices as the annual financialstatements, and supervises such reporting prior topublication. It also monitors situations which maypose a risk to the independence of the Bank’sexternal auditors. It endeavors to insure that theaccounts submitted by the Board of Directors to
the Shareholders Meeting contain no reservationsor qualifications in the auditors’ report, and if thatis unavoidable, that the auditors explain publicly,and in particular to the Bank’s shareholders, thecontent and scope of the discrepancies. It alsoconfirms the appropriateness and integrity of thecontrol systems. Finally, i t reviews thecompensation policy for the Bank’s executivemanagement, its senior line managers, regionaland general managers, and proposes to theBoard the measures it considers appropriate tomaintain, adjust or improve and, in particular, toadapt that policy to the principles of restraint andlinkage with the Bank’s performance.
The second is the "Nominations, Governance andConflicts of Interests Standing Committee". Thissupervises appointments to the Bank’s executivemanagement and to the Board itself, seeking toinsure in both cases that vacancies are filled byindividuals who fulfill the requirements of the post.It also insures that directors receive sufficientinformation, both in quantity and quality, to beable to perform their duties properly. It seeks toidentify circumstances in which a director’srelationship with the Bank may adversely affect itsfunctioning or its standing or reputation. It alsoidentifies possible conflicts of interests betweendirectors or senior executives and the Bank,insuring fulf i l lment of the obligations ofconfidentiality, diligence and loyalty by the formerand, as appropriate, by the signif icantshareholders. It takes the necessary measures toinsure that the Board approves an annual reportbased on the Bank’s rules of corporategovernance.
Each of these Standing Committees consists of aminimum of three directors (the current size ofboth) and a maximum of five. In accordance withthe instructions of the Olivencia Report, theirmembers are non-executive directors.Notwithstanding the foregoing, the Bank’sexecutive management attends committeemeetings when requested to do so. Committeemembers and their chairman are freely appointedby the Board of Directors.
The term of office is three years, following whichcommittee members may be re-elected forconsecutive periods of one year. The secretary ofthe Committees is the Director and Secretary ofthe Board, and his term of off ice andrequirements for re-election are the same as
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those for the Board. Members of the StandingCommittees receive no remuneration for theirservices.
Each Standing Committee meets at least twice ayear, at the proposal of its chairman or a majorityof i ts members, although in practice bothCommittees met more frequently in 1999. TheSecretary takes care to insure that eachCommittee operates in accordance with therelevant resolutions of the Board of Directors andthe provisions of the Spanish Code of CorporateGovernance and the Olivencia Report. Similarly,the Secretary is responsible for coordinating thework of the Committee with the Board and withthe Bank’s executive management. Any change inthe operation, structure or objectives of aStanding Committee must be explicitly approvedby the Board of Directors. Each StandingCommittee may submit to the Board anyproposals for improvement that it considersappropriate on these issues.
In 1999, the composition of the two Committeeswas as follows:
Audit, Control and Remuneration Committee
Chairman: José Ramón Rodríguez GarcíaMember: Eric Gancedo Holmer (BPE
Shareholders’ Syndicate)Secretary: Jesús Platero Paz
Nominations, Governance and Confl icts ofInterests Committee
Chairman: Gonzalo Fernández de la Mora yMon
Member: Miguel Angel de Solís y Martínez-Campos
Secretary: Jesús Platero Paz
9. Documentation
Directors are provided with information specificallyproduced and designed to enable them to preparefor Board Meetings sufficiently in advance,without any limitations other than those imposedby the current legal and regulatory frameworkregulating insider trading.
10. Frequency
The Board holds ordinary meetings at least onceevery quarter, which it may supplement as
necessary with extraordinary meetings for thebetter fulfillment of its rôle.
It is the Chairman’s duty to insure that all thedirectors participate as actively as possible indiscussions and are free to adopt the positions oftheir choosing. The Secretary is responsible fordrafting the minutes in accordance with criteria ofclarity, accuracy and completeness.
In its last meeting of each year the Board ofDirectors assesses the quality and efficiency of itswork, and its analysis is reflected in the minutes ofthe meeting.
11. Appointments
When it is necessary to select a new, or re-electan existing, director, the Nominations,Governance and Conflicts of Interests Committeesubmits a duly argued proposal to the Board,whose intervention is fully transparent.
The appointment of the new director, Mr. ManuelMorillo Olivera, and all the appointments of seniorexecutives of the Bank in 1999 were examinedand reported on by this Standing Committee at itsvarious meetings. The appointments reported onby the Standing Committee included most notablythose of the new General Manager (Mr. RonGüimil), the new Chief Economist (Mr. BermejoBlanco), three new deputy General Managers(Messrs. Berrocal Enríquez, Pardo Martínez andFernández Dopico), the new Controller (Mr. RocaGarcía), the two new managers of bankingsubsidiaries and ten regional managers.
12. Obligation to resign
Members of Banco Popular’s Board of Directorsundertake to offer their resignation to theShareholders Meeting when their continuance inoffice could adversely affect the running of theBoard or the standing and reputation of the Bankor of any of the Group entities.
13. Age limit
Members of Banco Popular’s Board of Directorsundertake to continue in office for so long as theyremain fully in possession of the faculties andcapabilities which brought about their election tothe Board, or otherwise to resign. This precautionis reinforced by the established practice of all the
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offices on the Board being renewable by the entityevery year. The Group’s corporate practice in thisrespect diverges from Recommendation 13 of theOlivencia Code, in that no formal age limit hasbeen set and the l imit of term of off ice issubordinated to the effective contribution of eachdirector to the tasks of governance of the entityand to assurance of faithful representation of thedifferent groups of significant shareholders.
14. Advice and research
Each director has the right and the duty to seekand obtain appropriate information and advice forthe fulfillment of his duties of supervision, in thebroadest terms, and to channel any requests tothis effect through the department of theSecretary of the Board.
15. Remuneration
The policy on the remuneration of directors, whichit is the responsibility of the Audit, Control andRemuneration Committee to propose, assess andreview, will continue to conform to the Bank’straditional criterion, and to follow the rule that onlyexecutive directors receive remuneration. Theremuneration received by these directors and anyother fees or mandated appropriations paid tothem are detailed in full for each individualdirector in the Bank’s annual reportingdocuments. At its meeting on June 25, 1999, theCommittee reaffirmed the Group’s corporategovernance principle of not remunerating thedirectors and focused its attention on analyzingand reviewing directors’ fees and other mandatedappropriations.
The Audit, Control and Remuneration Committeealso exhaustively evaluated and reviewed theremuneration of the senior management team ofthe Group and established criteria in this respect(meetings on October 5 and 18 and December28, 1999).
16. Loyalty of directors
The Report on Corporate Governance and theInternal Regulations of Conduct of Banco Populargive details of the obligations arising from thegeneral duties of diligence and loyalty incumbentupon directors and address, in particular,situations of conflict of interests, the duty tomaintain confidentiality, the non-exploitation of
business opportunities and the use of companyassets.
17. Loyalty of significant shareholders
The Board of Directors fosters the adoption ofappropriate measures to insure that significantshareholders, whether or not they are on theBoard, are subject to the same requirement forloyalty, and it applies maximum transparency andstrict control to any transactions between themand the Bank.
18. Transparency of information
The Board will maintain the transparency of themechanism for proxy voting and of the Bank’scommunications with all its shareholders whichhas always been an identifying feature of theGroup.
19. Full disclosure
Following its tradit ion of going beyond therequirements imposed by current legislation, in1999 the Board continued to provide the marketswith swift, precise and reliable informationregarding the Bank’s shareholder structure andmodifications to the rules of governance, as wellas operations of special significance.
As detailed in Note 24 to the financial statements,by decision of the Shareholders Meeting and theBoard of Directors on June 23, 1999, the Bankimplemented in 1999 a program to buy back itsown shares. This program was completed onNovember 10, 1999, and shares representing1.98% of the Bank’s capital stock were thusacquired and were fully canceled as authorized bythe Shareholders Meeting on December 16, 1999.
20. Reliability of information
All periodic financial reporting offered to themarkets, in addit ion to the annual reports,continues to be prepared following the sameprofessional principles and practices which applyto the financial statements, and is verified, prior topublication, by the Audit, Control andRemuneration Committee.
21. Independence of auditors
The Board of Directors and the Audit, Control andRemuneration Committee used a series of
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channels in 1999 to monitor the independence ofthe external auditors.
The Committee therefore requested theattendance at several of its meetings (includingthose on July 7 and October 18, 1999) of theexecutives responsible for auditing the Groupentities. Thus it was confirmed that the fees paidto the external auditors by the Bank and Groupentities under all headings did not represent asignificant percentage - in any case considerablybelow 10% - of the revenues of the audit firm,which is one of the world’s Big Five accountingfirms. Fees relating to periodic or habitualprofessional services other than auditing, paid topractitioners or companies directly or indirectlyrelated to the audit firm, were also verified not tohave reached a significant level, being in theregion of 10% of the total fees, nor to haveaffected at any time either the Bank’s strategy orgeneral planning. In 1999 a specific consultingservice was engaged for Euros 47,029.
22. Accounting quality
The Board of Directors endeavors, by itself andthrough the Audit, Control and RemunerationCommittee, to insure that the accounts it preparesare not presented to the Shareholders Meetingwith reservations and qualif ications in theauditors’ report. During the joint meetings with theauditors referred to in the previous point, anexhaustive review was requested of various areasin the accounts in order to evaluate the quality ofthe effort applied in examining them.
23. Continuity
The Board of Directors, having adopted thisReport for 1999, undertakes to adopt a similarreport as a supplement to the Public AnnualReport for 2000, the last year in the 20th century.
AttachmentDirector profiles
Asociación de Directivos de BPE:Association set up in 1977, membership of whichis voluntary for executives of the Bank; there areat present 2,712 members.
Ayala, Ildefonso:6-28-32. Professional; has held various posts in the
Bank since 1946, and has been a director since1990; from 1990 to 1994 he was Managing Director.
Bremkamp, Detlev:3-2-44. Professional; specialist in insurance, hasheld important posts in the Allianz group and ispresently a member of its management board inMunich (this group owns 5.23% of the Bank’scapital stock) and its physical representative onthe Bank’s Board.
Catá, José María:3-2-28. Businessman; has been a board membersince 1980; has been Chairman of Iberpistas,S.A., IberMadrid de Infraestructuras, S.A., andCompañía Eólica Segoviana, S.A., and, in thecultural f ield, a director of the BarcelonaContemporary Art Museum Foundation andConsortium.
Donate, Francisco:6-11-22. Professional; very active in the businessworld since 1947, holding important managementpositions and as director of chemical and financialfirms and of RENFE; has been a director of theBank since 1985.
Fernández de la Mora, Gonzalo:4-30-24. Academician and diplomat; a member ofthe Spanish Royal Academy of Moral and PoliticalSciences; occupied senior posit ions in theAdministration including those of Minister ofPublic Works and Director of the DiplomaticSchool; also served in various SpanishEmbassies in Europe and America; he waselected to the Spanish Parliament for Pontevedrain 1977, was Secretary of the BPE Shareholders’Syndicate from 1960 to 1964, joining the Board inthat latter year; chairman since 1998 of theNominations, Governance and Confl icts ofInterests Standing Committee.
Gancedo, Gabriel:12-20-30. Businessman; very active in thebusiness world, particularly at industrial,commercial and service companies; connectedwith the group since 1964, became a Boardmember in 1971, was Secretary from 1974 to1989, when he became Deputy Chairman of theBoard and a member of the Executive Committee;chairman of the Loans Committee since 1992.
García Cuéllar, Fulgencio:11-17-48. Professional; faculty member in theEconomics Faculties of Malaga and Madrid
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Universities and ICADE from 1971 to 1977;investment analysis at Banco Popular from 1974;appointed investment and risk control manager atBanco de Casti l la in 1978, subsequentlyoccupying other executive posts at the Bank(Deputy Regional Manager Sevilla, RegionalManager Casti l la-León, Regional ManagerAlicante, Human Resources Manager andExecutive Manager Madrid); appointed ManagingDirector of Banco Popular in December 1998.
Hernández, José Manuel:10-29-03. Engineer and businessman; has heldtechnical and management posts in constructioncompanies in USA, Argentina and Benelux; Boardmember since 1975.
Laffón, Manuel:1-8-31. Professional; connected since 1957 withthe Group, having held important positions in it;Board member since 1976.
Miralles, Luis:12-15-26. Businessman and professional; connectedwith the Group since 1967, while also active incommercial, service and Eastern Spain exportbusiness activities; Board member since 1983.
Molins, Casimiro:1-18-20. Businessman; head of Cementos Molins,S.A. and involved in property and constructionbusinesses in Spain and America; chairman ofBanco Atlántico from 1962 to 1983; Boardmember of Banco Popular since 1987.
Montoro, Santos:2-27-33. Businessman; active mainly in theelectromechanical and automobile industries;Board member since 1988.
Montuenga, Luis:3-29-26. Businessman; has held senior executiveand corporate posts at chemical andpharmaceutical companies; founder and promoterof Naarden Ibérica, Naarden Internacional andProductos Orgánicos, S.A.; also active in socio-cultural projects (Youth Foundation, etc.); memberof the Board and its Loans Committee since 1987;member of the Executive Committee since 1990.
Morillo, Manuel:8-13-25. Professional, with a long professionalrecord in the corporate world, particularly in the
texti le, property and construction sectors;currently Chairman of the Carmen y Mª JoséGodó Foundation, one of the leading welfareinstitutions in Spain. Significantly involved inwelfare projects in cooperation with the CataluñaAutonomous Government and the SpanishGovernment. Member of the Board of BancoPopular since 1999.
Nigorra, Miguel:7-9-29. Businessman and professional; qualifiedProperty Registrar; apart from posts in the Group,has been active in public bodies (Palma deMallorca Harbor Works Board) and in companies(Mare Nostrum and Inmobiliaria Urbis); chairmanof Banco de Crédito Balear and IMISA since1970; director of Banco Popular since 1974.
Parera, Alberto:6-2-24. Businessman; member of the PermanentCommittee of IESE and its chairman from 1976 to1984; director of Banco Atlántico from 1974 to1983; active in businesses such as PerfumeríaParera, S.A., Corporación Mediterránea deInversiones, S.A., Banco Comercial de Cataluña,S.A. and Shopping Centers, S.A.; director ofBanco Popular since 1987.
Pérez Sala, Enrique:1-18-49. Professional; very active record in theproperty business sector; Board membersince1983.
Platero, Jesús:12-27-38. Lawyer, specialist in corporate law; inprivate practice from 1964 to 1975; from 1975 to1990 held legal advisory and management postsin Spanish and American finance firms andentities; appointed physical representative on theBoard of the BPE Shareholders Syndicate andelected to the Executive Committee in 1991; hebecame Secretary of the Board and its StandingCommittees in 1998, in conformity with theOlivencia Report.
Rodríguez, José Ramón:8-14-47. Engineer and businessman; apart fromprofessional practice as a civil engineer, has beenan executive and director of textile, food andconstruction companies; Board member since1987, Executive Committee member since 1989;chairman of the Audit, Control and RemunerationStanding Committee.
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BPE Shareholders Syndicate:Association of small BPE shareholders to providethem with representation on the Board; obtained aseat on the Board in 1988, occupied since 1998by Eric Gancedo Holmer (12-7-59); member ofthe Audit, Control and Remuneration Committeesince 1998; also a member of the ExecutiveCommittee.
Solís y Martínez Campos, Miguel Angel de:5-1-47. Businessman; director of ZZJ MundoVisión, S.A., Sur Seguros, S.A. and Guadacorte,S.A.; director of Banco de Castilla from 1992 to1996; chairman of Banco de Andalucía anddirector of Banco Popular since 1996; member ofthe Nominations, Governance and Conflicts ofInterests Standing Committee.
Stecher, Jorge:10-22-22. Professional; has held important postsin Europe and America in the Allianz group;banker in Brazil from 1958 to 1973; member ofthe International Council of INSEAD; member ofthe EU Economic and Social Committee(Brussels) in representation of the SpanishBanking Association and heads this Committee’spermanent EMU working group; member of theEMU Committee of CEOE (Spanish employersassociation); member of the Board of BancoPopular since 1974.
Termes, Rafael:12-5-18. Academician (full member of the RoyalAcademy of Moral and Political Sciences and ofthe Royal Academy of Economic and Financial
Sciences); member of the General Council of theGeneral Foundation of Madrid ComplutenseUniversity; honorary chairman of the SpanishInstitute of Financial Analysts; faculty member atIESE since 1958 and director of its Madrid Centersince 1991; a Board member since 1964 andmanaging director from 1966 to 1977; chairman ofthe Spanish Banking Association from 1977 to1990.
Valls, Javier:7-26-30. Businessman; has held important postsin several insurance companies (AGF, AXA,Unión Popular de Seguros) and industrial andcommercial f irms (Henninger, La Seda deBarcelona, Gas Natural); director of BancoPopular since 1966, deputy chairman from 1972to 1989, and chairman since 1989.
Valls, Luis:6-5-26. Businessman and professional; from 1948to 1956 faculty member in the Law Schools ofBarcelona and Madrid Universit ies andpractitioner in the Publications Department of theSuperior Council of Scientific Research; directorof Banco Popular since 1957, executive deputychairman from 1957 to 1972, chairman from 1972to 1989 and co-chairman from 1989 to date.
Valls, Pedro:6-6-24. Businessman and professional;connected with the Bank since 1944, at theBarcelona main office; from 1948 to 1964 headedfamily businesses; rejoined the Group in 1964and became a director of the Bank in 1968.
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