POPULAR INC - 10-Q Quarterly Report

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Popular Center Building
209 Muñoz Rivera Avenue, Hato Rey
San Juan, Puerto Rico 00918

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:


				Page

Part I – Financial Information
Item 1.		Financial Statements
			Unaudited Consolidated Statements of Condition as of September 30, 2003, December 31, 2002 and September 30, 2002		3
			Unaudited Consolidated Statements of Income for the quarters and nine months ended September 30, 2003 and 2002		4
			Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2003 and 2002		5
			Unaudited Consolidated Statements of Comprehensive Income (Loss) for the quarters and nine months ended September 30, 2003 and 2002		6
			Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002		7
			Notes to Unaudited Consolidated Financial Statements		8-28
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			29-47
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			45
Item 4.		Controls and Procedures			48
Part II – Other Information
Item 1.		Legal Proceedings			48
Item 6.		Exhibits and Reports on Form 8-K			49
	—	Signatures			50

Forward-Looking Information. The information included in this Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the adequacy of the allowance for loan losses, the Corporation’s market and liquidity risks and the effect of legal proceedings on Popular, Inc.’s financial condition and results of operations, among others. Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may increase,” “may fluctuate,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” and “could.” These forward-looking statements involve certain risks, uncertainties, estimates and assumptions by management. Various factors such as regional and national economic conditions, competitive and regulatory factors, and legislative changes, could cause actual results to differ from those contemplated by such forward-looking statements.

With respect to the adequacy of the allowance for loan losses and market risk, these factors include, among others, the rate of growth in the economy, the relative strength and weakness in the consumer and commercial credit sectors and in the real estate markets, the performance of the stock and bond market and the magnitude of interest rate and foreign currency exchange rate changes. Moreover, the outcome of litigation, as discussed in “Part II, Item I. Legal Proceedings,” is inherently uncertain and depends on judicial interpretations of law and the findings of judges and juries. The Corporation assumes no obligation to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such Statements.


					September 30,			December 31,			September 30,
(In thousands, except share information)					2003			2002			2002

ASSETS
Cash and due from banks					$	762,912		$	652,556		$	574,282

Money market investments:
			Federal funds sold and securities purchased under agreements to resell			764,019			1,091,435			1,149,346
			Time deposits with other banks			9,157			3,057			3,056
			Bankers’ acceptances			162			154			677

						773,338			1,094,646			1,153,079

Investment securities available-for-sale, at market value:
			Pledged securities with creditors’ right to repledge			4,202,427			4,397,974			4,191,360
			Other investment securities available-for-sale			6,235,246			6,133,929			5,461,988
Investment securities held-to-maturity, at amortized cost						192,757			180,751			644,685
Trading account securities, at market value:
			Pledged securities with creditors’ right to repledge			452,306			416,979			324,301
			Other trading securities			115,866			93,367			149,101
Loans held-for-sale, at lower of cost or market						366,723			1,092,927			870,607

Loans:
	Loans pledged with creditors’ right to repledge					489,277			420,724			357,780
	Other loans					21,125,291			18,355,123			18,335,241
	Less – Unearned income					273,536			286,655			300,120
				Allowance for loan losses		398,578			372,797			354,282

						20,942,454			18,116,395			18,038,619

Premises and equipment						477,318			461,177			446,161
Other real estate						54,201			39,399			33,713
Accrued income receivable						209,273			184,549			194,500
Other assets						773,095			578,091			546,388
Goodwill						190,655			182,965			180,337
Other intangible assets						28,616			34,647			34,005

					$	35,777,187		$	33,660,352		$	32,843,126

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
	Deposits:
		Non-interest bearing			$	3,556,269		$	3,367,385		$	3,274,152
		Interest bearing				14,099,723			14,247,355			13,783,704

						17,655,992			17,614,740			17,057,856
	Federal funds purchased and securities sold under agreements to repurchase					6,796,169			6,684,551			5,887,739
	Other short-term borrowings					2,178,756			1,703,562			2,046,679
	Notes payable					5,528,277			4,298,853			4,629,284
	Subordinated notes					125,000			125,000			125,000
	Preferred beneficial interest in Popular North America’s junior subordinated deferrable interest debentures guaranteed by the Corporation					144,000			144,000			144,000
	Other liabilities					596,405			677,605			632,476

						33,024,599			31,248,311			30,523,034

	Commitments and contingencies (See Note 8)
Minority interest in consolidated subsidiaries						1,582			1,162			1,080

Stockholders’ equity:
	Preferred stock, $25 liquidation value; 10,000,000 shares authorized (7,475,000 issued and outstanding at September 30, 2003)					186,875			—			—
	Common stock, $6 par value; 180,000,000 shares authorized; 139,478,585 shares issued (December 31, 2002 – 139,133,156; September 30, 2002 – 139,028,367) and 132,776,235 shares outstanding (December 31, 2002 – 132,439,047; September 30, 2002 – 132,334,258)					836,872			834,799			834,170
	Surplus					285,591			278,366			275,443
	Retained earnings					1,559,925			1,300,437			1,246,098
	Treasury stock – at cost, 6,702,350 shares (December 31, 2002 – 6,694,109; September 30, 2002 - 6,694,109)					(205,527	)		(205,210	)		(205,210	)
	Accumulated other comprehensive income, net of tax of $22,218 (December 31, 2002 – $53,070; September 30, 2002 – $52,488)					87,270			202,487			168,511

						2,751,006			2,410,879			2,319,012

					$	35,777,187		$	33,660,352		$	32,843,126

The accompanying notes are an integral part of these unaudited consolidated financial statements.


		Quarter ended						Nine months ended
		September 30,						September 30,
(Dollars in thousands, except per share information)		2003			2002			2003			2002

INTEREST INCOME:
Loans		$	389,028		$	391,499		$	1,152,508		$	1,143,887
Money market investments			6,119			7,716			19,936			22,871
Investment securities			104,717			105,125			325,208			332,813
Trading account securities			9,535			3,770			26,688			10,357

			509,399			508,110			1,524,340			1,509,928

INTEREST EXPENSE:
Deposits			83,147			106,063			262,963			329,349
Short-term borrowings			36,201			46,185			114,794			135,902
Long-term debt			61,034			58,907			180,658			167,629

			180,382			211,155			558,415			632,880

Net interest income			329,017			296,955			965,925			877,048
Provision for loan losses			48,668			50,992			146,202			155,521

Net interest income after provision for loan losses			280,349			245,963			819,723			721,527
Service charges on deposit accounts			41,162			39,484			120,670			117,964
Other service fees			69,154			63,941			204,596			191,666
Gain (loss) on sale of investment securities			39,109			1,251			70,398			(2,674	)
Trading account (loss) profit			(4,599	)		1,247			(9,779	)		(142	)
Gain (loss) on derivatives			282			(21,759	)		(7,825	)		(22,103	)
Gain on sale of loans			13,412			14,960			48,295			44,502
Other operating income			13,315			18,370			49,812			53,677

			452,184			363,457			1,295,890			1,104,417

OPERATING EXPENSES:
Personnel costs:
	Salaries		98,732			92,704			289,101			272,011
	Profit sharing		3,834			5,646			14,997			15,954
	Pension and other benefits		29,647			25,163			90,232			78,433

			132,213			123,513			394,330			366,398
Net occupancy expenses			21,428			19,581			62,630			58,659
Equipment expenses			26,892			24,469			79,298			73,610
Other taxes			9,493			9,115			28,347			27,948
Professional fees			21,002			22,503			59,891			59,734
Communications			14,922			13,907			43,931			40,292
Business promotion			18,087			15,588			51,067			45,786
Printing and supplies			4,474			4,754			14,221			14,341
Other operating expenses			36,767			18,489			90,428			52,871
Amortization of intangibles			1,978			1,938			6,033			7,037

			287,256			253,857			830,176			746,676

Income before income tax and minority interest			164,928			109,600			465,714			357,741
Income tax			33,818			23,730			100,667			86,472
Net gain of minority interest			(184	)		(116	)		(425	)		(166	)

NET INCOME		$	130,926		$	85,754		$	364,622		$	271,103

NET INCOME APPLICABLE TO COMMON STOCK		$	127,947		$	85,754		$	357,681		$	268,593

EARNINGS PER COMMON SHARE (BASIC AND DILUTED)		$	0.96		$	0.65		$	2.69		$	2.00

DIVIDENDS DECLARED PER COMMON SHARE		$	0.27		$	0.20		$	0.74		$	0.60

The accompanying notes are an integral part of these unaudited consolidated financial statements.

POPULAR, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)


			Nine months ended September 30,
(In thousands)			2003			2002

Preferred stock:
	Balance at beginning of year			—		$	100,000
	Issuance (redemption) of preferred stock		$	186,875			(100,000	)

		Balance at end of period		186,875			—

Common stock:
	Balance at beginning of year			834,799			832,498
	Common stock issued under dividend reinvestment plan			2,042			1,671
	Options exercised			31			1

		Balance at end of period		836,872			834,170

Surplus:
	Balance at beginning of year			278,366			268,544
	Common stock issued under dividend reinvestment plan			9,414			6,297
	Issuance cost of preferred stock			(3,716	)		—
	Options granted			1,361			597
	Options exercised			166			5

		Balance at end of period		285,591			275,443

Retained earnings:
	Balance at beginning of year			1,300,437			1,057,724
	Net income			364,622			271,103
	Cash dividends declared on common stock			(98,193	)		(80,219	)
	Cash dividends declared on preferred stock			(6,941	)		(510	)
	Redemption of preferred stock			—			(2,000	)

		Balance at end of period		1,559,925			1,246,098

Accumulated other comprehensive income:
	Balance at beginning of year			202,487			80,188
	Other comprehensive (loss) income, net of tax			(115,217	)		88,323

		Balance at end of period		87,270			168,511

Treasury stock – at cost:
	Balance at beginning of year			(205,210	)		(66,136	)
	Purchase of common stock			(317	)		(139,074	)

		Balance at end of period		(205,527	)		(205,210	)

Total stockholders’ equity			$	2,751,006		$	2,319,012

The accompanying notes are an integral part of these unaudited consolidated financial statements.

POPULAR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)


			Quarters ended						Nine months ended
			September 30,						September 30,
(In thousands)			2003			2002			2003			2002

Net Income			$	130,926		$	85,754		$	364,622		$	271,103

Other comprehensive income, net of tax:
	Foreign currency translation adjustment			(7,696	)		(191	)		(20,852	)		(573	)
	Unrealized (losses) gains on securities:
		Unrealized holding (losses) gains arising during the period, net of tax of ($47,594) (2002 – $14,061) for the quarter and $(22,360) (2002 – $24,526) for the nine-month period		(119,499	)		50,981			(33,858	)		89,966
		Less: reclassification adjustment for gains (losses) included in net income, net of tax of $5,032 (2002 – $483) for the quarter and $9,490 (2002 – ($1,039)) for the nine-month period		34,077			768			60,908			(1,698	)
		Net gain (loss) on cash flow hedges		1,646			(2,360	)		(2,696	)		(4,814	)
		Less: reclassification adjustment for gains (losses) included in net income, net of tax of $99 (2002 – ($791)) for the quarter and ($1,953) (2002 – ($1,305)) for the nine-month period		134			(1,269	)		(3,115	)		(2,052	)
		Cumulative effect of accounting change
		Less: reclassification adjustment for gains included in net income		—			—			18			6

		Total other comprehensive (loss) income, net of tax	$	(159,760	)	$	48,931		$	(115,217	)	$	88,323

		Comprehensive (loss) income	$	(28,834	)	$	134,685		$	249,405		$	359,426

The accompanying notes are an integral part of these unaudited consolidated financial statements.


			For the nine months ended
			September 30,
(In thousands)			2003			2002

Cash flows from operating activities:
	Net income		$	364,622		$	271,103

	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization of premises and equipment		54,904			55,645
		Provision for loan losses		146,202			155,521
		Amortization of intangibles		6,033			7,037
		Net (gain) loss on sales of investment securities		(70,398	)		2,674
		Net loss on derivatives		7,825			22,103
		Net (gain) loss on disposition of premises and equipment		(13	)		547
		Net gain on sales of loans, excluding loans held-for-sale		(4,421	)		(6,284	)
		Net amortization of premiums and accretion of discounts on investments		19,713			10,580
		Net amortization of deferred loan fees and costs		28,279			21,759
		Earnings from investments under the equity method		(4,161	)		(4,527	)
		Stock options expense		1,408			597
		Net (increase) decrease in loans held-for-sale		(8,422	)		68,881
		Net increase in trading securities		(113,209	)		(203,216	)
		Net increase in accrued income receivable		(24,724	)		(8,357	)
		Net increase in other assets		(109,899	)		(10,951	)
		Net decrease in interest payable		(5,981	)		(2,429	)
		Net decrease in deferred and current taxes		(11,534	)		(28,779	)
		Net increase in postretirement benefit obligation		4,839			2,562
		Net (decrease) increase in other liabilities		(45,745	)		101,300

Total adjustments				(129,304	)		184,663

Net cash provided by operating activities				235,318			455,766

Cash flows from investing activities:
	Net decrease (increase) in money market investments			321,308			(323,513	)
	Purchases of investment securities held-to-maturity			(496,858	)		(18,206,606	)
	Proceeds from paydowns and maturities of investment securities held-to-maturity			485,137			18,154,282
	Purchases of investment securities available-for-sale			(5,469,727	)		(4,900,607	)
	Proceeds from calls, paydowns and maturities of investment securities available-for-sale			4,839,428			3,521,792
	Proceeds from sales of investment securities available-for-sale			755,503			1,112,116
	Net disbursements on loans			(560,976	)		(892,472	)
	Proceeds from sales of loans			170,671			425,510
	Acquisition of loan portfolios			(2,046,909	)		(913,579	)
	Assets acquired, net of cash			—			(13,613	)
	Acquisition of premises and equipment			(72,815	)		(103,924	)
	Proceeds from sales of premises and equipment			1,783			7,276

Net cash used in investing activities				(2,073,455	)		(2,133,338	)

Cash flows from financing activities:
	Net increase in deposits			38,193			715,864
	Net increase in federal funds purchased and securities sold under agreements to repurchase			111,618			135,971
	Net increase in other short-term borrowings			475,194			219,437
	Net proceeds from notes payable and capital securities			1,223,816			889,073
	Dividends paid			(94,776	)		(81,533	)
	Proceeds from issuance of common stock			11,606			7,974
	Proceeds from issuance of preferred stock			183,159			—
	Redemption of preferred stock			—			(102,000	)
	Treasury stock acquired			(317	)		(139,074	)

Net cash provided by financing activities				1,948,493			1,645,712

Net increase (decrease) in cash and due from banks				110,356			(31,860	)
Cash and due from banks at beginning of period				652,556			606,142

Cash and due from banks at end of period			$	762,912		$	574,282

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share information)

Popular, Inc. (the Corporation) is a financial holding company offering a full range of financial products and services to consumer and corporate customers through its offices in Puerto Rico, the United States, the Caribbean, including the U.S. and British Virgin Islands, and Central America. The Corporation’s subsidiaries are engaged in the following businesses: commercial banking, auto loans and lease financing, mortgage and consumer lending, broker/dealer activities, retail financial services, insurance agency services and information technology, ATM and data processing services through its subsidiaries in Puerto Rico, the United States, the Caribbean and Central America. Note 14 to the unaudited consolidated financial statements presents information about the Corporation’s business segments.

The unaudited consolidated financial statements include the accounts of Popular, Inc. and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. These statements are, in the opinion of management, a fair statement of the results for the periods presented. These results are unaudited, but, in the opinion of management, include all necessary adjustments, of a normal recurring nature, for a fair statement of such results. Certain minor reclassifications have been made to the prior period consolidated financial statements to conform with the 2003 presentation.

Certain information and note disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted from these statements pursuant to the rules and regulations of the Securities and Exchange Commission and, accordingly, these financial statements should be read in conjunction with the audited Consolidated Financial Statements of the Corporation for the year ended December 31, 2002, included in the Corporation’s Annual Report on Form 10-K.

FIN No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”

FASB’s Interpretation No. 45 (FIN No. 45) requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The provisions for initial recognition are effective for guarantees that are issued or modified after December 31, 2002. The adoption of FIN No. 45 did not have a material impact on the Corporation’s financial position and results of operations for the quarter and nine months ended September 30, 2003. Refer to Note 8 to the unaudited consolidated financial statements for further information.

FASB’s Interpretation No. 46 (FIN No. 46) expands upon and strengthens existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. A variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both. Certain variable interest entities that are qualifying special purpose entities subject to the reporting requirements for SFAS No. 140, “Accounting for Transfers and servicing of Financial Assets and Extinguishment of Liabilities,” will not be required to be consolidated under the provisions of FIN No. 46. The consolidation requirements of FIN No. 46 apply to variable interest entities created after January 31, 2003. The provisions of FIN No. 46 for variable interest entities created on or before January 31, 2003 were delayed until December 31, 2003 by FASB Staff Position No. FIN 46-6, issued in October 2003. Management is currently evaluating the impact that FIN No. 46 may have on the Corporation’s financial condition or results of operations. Based on management’s current understanding, which could change as a result of evolving changes in the interpretation of certain provisions of FIN No. 46 by the accounting industry, the impact that FIN No. 46 may have on the Corporation’s financial statements would include:

– As issued, FIN No. 46 would require the Corporation, beginning in the fourth quarter of 2003, to deconsolidate BanPonce Trust I (the “Trust”). Refer to Note 10 to the unaudited consolidated financial statements for information on this Trust. Deconsolidation would result in the re-characterization of the liability currently reflected as “Preferred Beneficial interest in Popular North America’s junior subordinated deferrable interest debentures guaranteed by the Corporation” (the “Capital Securities”) in the consolidated statement of condition as a liability (the “Junior Subordinated Debentures”) to the Trust that issued the Capital Securities. The Corporation’s equity interest in the Trust would be included in “available-for-sale securities” in the statement of condition. Management currently understands that the adoption of FIN No. 46 as it relates to the Trust would not have a significant impact on the Corporation’s consolidated financial statements.

The Capital Securities presently qualify as Tier 1 regulatory capital and are reported in Federal Reserve regulatory reports as a minority interest in a consolidated subsidiary. The Junior Subordinated Debentures do not qualify as Tier 1 regulatory capital. The Federal Reserve Bank has indicated that until further notice, the Capital Securities will continue to qualify as Tier 1 regulatory capital, even if, as a result of deconsolidation, they are no longer included on the consolidated statements of condition. As of September 30, 2003, assuming the Corporation was not allowed to include the Capital Securities issued by the Trust as Tier 1 regulatory capital, the Corporation’s regulatory capital would have been reduced by approximately $144 million. The Corporation would still exceed the regulatory threshold for well capitalized institutions.

SFAS No. 149 “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”

SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 149 (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative discussed in paragraph 6(b) of SFAS No. 133, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying to conform it to language used in FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, and (4) amends certain other existing pronouncements. Those changes will result in more consistent reporting of contracts as either derivatives or hybrid instruments. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, with certain exceptions, and for hedging relationships designated after June 30, 2003. In addition, except for certain situations, all provisions of this Statement are be applied prospectively. Also, the provisions related to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to both existing contracts and new contracts entered into after June 30, 2003. The adoption of SFAS No. 149 did not have an impact on the Corporation’s financial condition or results of operations for the quarter ended September 30, 2003.

SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”

SFAS No. 150 establishes how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify certain financial instruments, including some previously classified as equity, as a liability (or an asset in some circumstances) because the financial instrument embodies an obligation of the issuer. Specifically, SFAS No. 150 requires that financial instruments issued in the form of shares that are mandatorily redeemable, financial instruments that embody an obligation to repurchase the issuer’s equity shares or are indexed to such an obligation, or financial instruments that embody an unconditional obligation or a conditional obligation that can be settled in certain ways, be classified as liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and effective for other financial instruments held by the Corporation at the beginning of the first interim period beginning after June 15, 2003. In October 2003, the FASB deferred the provisions related to mandatorily redeemable noncontrolling interests until further notice. The adoption of the required provisions of SFAS No. 150 did not have an impact on the Corporation’s consolidated statements of condition or results of operations as of September 30, 2003.

The amortized cost, gross unrealized gains and losses, approximate market value (or fair value for certain investment securities where no market quotations are available), and contractual maturities of investment securities available-for-sale as of September 30, 2003, December 31, 2002 and September 30, 2002 were as follows:

AS OF SEPTEMBER 30, 2003

Gross

Amortized

Unrealized

Market

(In thousands)

Cost

Gains

Losses

Value

U.S. Treasury securities (average maturity of 10 years and 10 months)

597,838

417

23,345

574,910

Obligations of other U.S. Government agencies and corporations (average maturity of 6 years and 4 months)

6,375,449

73,693

16,037

6,433,105

Obligations of Puerto Rico, States and political subdivisions (average maturity of 10 years and 11 months)

124,821

6,315

1,911

129,225

Collateralized mortgage obligations (average maturity of 23 years and 6 months)

1,893,190

10,648

2,606

1,901,232

Mortgage-backed securities (average maturity of 20 years and 10 months)

975,020

25,441

2,715

997,746

Equity securities (without contractual maturity)

237,805

65,488

246

303,047

Others (average maturity of 14 years and 9 months)

97,190

1,221

98,408

10,301,313

183,223

46,863

10,437,673


	AS OF DECEMBER 31, 2002
			Gross		Gross
	Amortized		Unrealized		Unrealized		Market
(In thousands)	Cost		Gains		Losses		Value

U.S. Treasury securities (average maturity of 6 months)	$	354,957	$	5,262		—	$	360,219
Obligations of other U.S. Government agencies and corporations (average maturity of 5 years and 4 months)		6,192,871		125,675	$	388		6,318,158
Obligations of Puerto Rico, States and political subdivisions (average maturity of 7 years and 10 months)		79,004		4,915		14		83,905
Collateralized mortgage obligations (average maturity of 20 years and 6 months)		2,172,117		11,964		272		2,183,809
Mortgage-backed securities (average maturity of 23 years and 5 months)		1,094,276		36,556		156		1,130,676
Equity securities (without contractual maturity)		263,342		77,677		22		340,997
Others (average maturity of 16 years and 8 months)		112,342		1,800		3		114,139

	$	10,268,909	$	263,849	$	855	$	10,531,903


	AS OF SEPTEMBER 30, 2002
			Gross		Gross
	Amortized		Unrealized		Unrealized		Market
(In thousands)	Cost		Gains		Losses		Value

U.S. Treasury securities (average maturity of 8 months)	$	359,958	$	8,279		—	$	368,237
Obligations of other U.S. Government agencies and corporations (average maturity of 4 years and 3 months)		5,622,265		122,284	$	601		5,743,948
Obligations of Puerto Rico, States and political subdivisions (average maturity of 7 years and 3 months)		72,999		4,937		134		77,802
Collateralized mortgage obligations (average maturity of 19 years and 9 months)		2,373,036		11,475		1,026		2,383,485
Mortgage-backed securities (average maturity of 24 years and 8 months)		635,546		15,341		378		650,509
Equity securities (without contractual maturity)		256,394		64,011		35		320,370
Others (average maturity of 16 years and 1 month)		105,875		3,125		3		108,997

	$	9,426,073	$	229,452	$	2,177	$	9,653,348

Securities not due on a single contractual maturity date, such as mortgage-backed securities and collateralized mortgage obligations, are classified in the period of final contractual maturity.

The expected maturities of collateralized mortgage obligations, mortgage-backed securities and certain other securities may differ from their contractual maturities because they may be subject to prepayments or callable features.

Stock that is owned by the Corporation to comply with regulatory requirements, such as Federal Reserve Bank and Federal Home Loan Bank stock, is included as equity securities available-for-sale, at cost.

The amortized cost, gross unrealized gains and losses, approximate market value (or fair value for certain investment securities where no market quotations are available), and contractual maturities of investment securities held-to-maturity as of September 30, 2003, December 31, 2002 and September 30, 2002 were as follows:

Securities not due on a single contractual maturity date, such as mortgage-backed securities and collateralized mortgage obligations, are classified in the period of final contractual maturity.

Certain securities and loans were pledged to secure public and trust deposits, securities sold under agreements to repurchase, other borrowings and credit facilities available. The classification and carrying amount of the Corporation’s pledged assets, which the secured parties are not permitted to sell or repledge the collateral, were as follows:

Pledged securities and loans that the creditor has the right by custom or contract to repledge are presented separately in the consolidated statements of condition.

In managing its market risk the Corporation enters, to a limited extent, into certain derivatives, primarily interest rate swaps, interest rate forwards and future contracts, interest rate caps, swaptions, foreign exchange contracts and interest-rate caps, floors and options embedded in financial contracts. During the quarter ended September 30, 2003, there were no significant changes in derivative instruments and hedging activities since December 31, 2002, except for the cancellation of certain interest rate contracts and an option entered into by the Corporation, as described below.

The Corporation uses interest rate swaps to convert floating rate debt to fixed rate debt in order to fix the future cost of the portfolio of short-term borrowings. The specific terms and notional amounts of the swaps are determined based on management’s assessment of future interest rates, as well as other factors. During the second quarter of 2003, the Corporation terminated the interest rate contracts outstanding with a notional amount of $500,000. These swaps did not qualify as hedges in accordance with SFAS No. 133, as amended.

On September 30, 2003, the Corporation purchased an option to cover its exposure related to the issuance of $31,152 in notes linked to the S&P 500 Index. In accordance with SFAS No. 133, the Corporation bifurcated the embedded option from the host contract.

For the quarters ended September 30, 2003 and September 30, 2002, the Corporation recognized a gain of $282 and a loss of $21,759, respectively, as a result of the changes in fair value of the derivatives not accounted for as hedges.

SFAS No. 142 requires that goodwill and other indefinite-life intangible assets be tested for impairment at least annually using a two-step process at each reporting unit level. The Corporation performed the annual impairment test during the third quarter of 2003. The results of this test did not indicate an impairment in the Corporation’s recorded goodwill.

The Corporation’s management has defined the reporting units based on legal entity, which is the way that operating decisions are made and performance is measured. For presentation purposes, these reporting units have been aggregated by reportable segments based on the provisions of SFAS No. 131 “Segment Reporting.” These segments have been defined as follows: Commercial Banking, Mortgage and Consumer Lending, Auto and Lease Financing and Other. All the operating segments and components that constitute reporting units were determined evaluating the nature of the products and services offered, types of customers, methods used to distribute their products and provide their services, and the nature of their regulatory environment, as well as other similar economic characteristics. Goodwill is assigned to each reporting unit at the time of acquisition.

The changes in the carrying amount of goodwill for the nine months ended September 30, 2003, are as follows:

As of September 30, 2003, December 31, 2002 and September 30, 2002, goodwill totaled $190,655, $182,965 and $180,337, respectively. The Corporation has no other intangible assets not subject to amortization.

The following table reflects the components of other intangible assets subject to amortization as of September 30, 2003, December 31, 2002 and September 30, 2002:

During the quarter ended September 30, 2003, the Corporation recognized $1,978 in amortization expense related to other intangible assets with definite lives (September 30, 2002 – $1,938). For the nine months ended September 30, 2003, the amortization expense totaled $6,033 (September 30, 2002 – $7,037).

Certain core deposit intangibles became fully amortized as of September 30, 2003, and as such, their gross amount and accumulated amortization were eliminated from the accounting records and the tabular disclosure presented above for September 30, 2003.

The following table presents the estimated aggregate annual amortization expense of the intangible assets with definite lives for each of the following fiscal years:

No significant events or circumstances have occurred that would reduce the fair value of any reporting unit below its carrying amount.

In the normal course of business there are commercial letters of credit and stand-by letters of credit outstanding, which contract amounts at September 30, 2003 were $18,202 and $137,827, respectively (September 30, 2002 – $16,504 and $128,359; December 31, 2002 – $19,564 and $126,383). There are also other commitments outstanding and contingent liabilities, such as commitments to extend credit, which are not reflected in the accompanying financial statements.

In accordance with the provisions of FIN No. 45, during the nine months ended September 30, 2003, the Corporation recorded a liability of $276, which represents the fair value of the obligations undertaken in issuing the guarantees under the stand-by letters of credit issued or modified after December 31, 2002. This liability was included as part of “other liabilities” in the consolidated statement of condition. The stand-by letters of credit were issued to guarantee the performance of various customers to third parties. The contract amounts in stand-by letters of credit outstanding as of September 30, 2003 and 2002, and December 31, 2002 represent the maximum potential amount of future payments the Corporation could be required to make under the guarantees in the event of nonperformance by the customers. These stand-by letters of credit are used by the customer as a credit enhancement and typically expire without being drawn upon, normally within a year. The Corporation’s stand-by letters of credit are generally secured, and in the event of nonperformance by the customers, the Corporation has rights to the underlying collateral provided, which normally includes cash and marketable securities, real estate, receivables and others.

As of September 30, 2003, the Corporation has various outstanding commitments to purchase mortgage loans from other institutions at market. In 2002 and 2003, the Corporation entered into loan commitments to purchase an aggregate amount of $250,000 of mortgage loans with the option of purchasing $125,000 in additional loans. The commitments expire completely by September 30, 2004. As of September 30, 2003, $150,000 in loans had been purchased under these agreements.

The Corporation fully and unconditionally guarantees certain borrowing obligations issued by certain of the Corporation’s wholly-owned subsidiaries approximating $3,766,643 at September 30, 2003 (December 31, 2002 – $3,382,800).

The Corporation is a defendant in a number of legal proceedings arising in the normal course of business. Based on the opinion of legal counsel, management believes that the final disposition of these matters will not have a material adverse effect on the Corporation’s financial position or results of operations. Refer to Item 1 – Legal Proceedings in Part II – Other Information in this Form 10-Q for further information.

In September 2002, the Corporation opted to use the fair value method for recording stock options as described in SFAS No. 123 “Accounting for Stock-Based Compensation.” During the quarter and nine months ended September 30, 2003, the Corporation recognized $342 and $1,408, respectively, in stock option expense.

The following table summarizes information about stock options outstanding at September 30, 2003:

The following table summarizes the stock option activity and related information:

The fair value of these options was estimated on the date of the grants using the Black-Scholes Option Pricing Model. The weighted average assumptions used for the grants issued during 2003 were the following: an expected dividend yield of 2.42% (2002 – 2.16%), an average expected life of options of 10 years (2002 – 10 years), an expected volatility of 23.98% (2002 – 26.48%) and a risk-free interest rate of 3.77% (2002 – 4.91%). The weighted average fair value of options granted during 2003 was $9.06 per option (2002 — $9.80).

Subordinated notes of $125,000 consist of notes issued by the Corporation on December 12, 1995, maturing on December 15, 2005, with interest payable semi-annually at 6.75%.

On February 5, 1997, BanPonce Trust I, a statutory business trust created under the laws of the State of Delaware that is wholly-owned by Popular North America, Inc. (PNA) and indirectly wholly-owned by the Corporation, sold to institutional investors $150,000 of BanPonce Trust I’s 8.327% Capital Securities Series A (liquidation amount one thousand dollars per Capital Security) through certain underwriters. The proceeds of the issuance, together with the proceeds of the purchase by PNA of $4,640 of BanPonce Trust I’s 8.327% common securities (liquidation amount one thousand dollars per common security) were used to purchase $154,640 aggregate principal amount of PNA 8.327% Junior Subordinated Deferrable Interest Debentures, Series A (the “Junior Subordinated Debentures”). As of September 30, 2003, the Corporation had reacquired $6,000 of the capital securities. BanPonce Trust I is a 100% owned finance subsidiary of the Corporation. The capital securities qualify as Tier 1 capital, are fully and unconditionally guaranteed by the Corporation, and are presented in the Consolidated Statements of Condition as “Preferred Beneficial Interests in Popular North America’s Junior Subordinated Deferrable Interest Debentures Guaranteed by the Corporation.” The obligations of PNA under the Junior Subordinated Debentures and its guarantees of the obligations of BanPonce Trust I are fully and unconditionally guaranteed by the Corporation. The assets of BanPonce Trust I consisted of $148,640 of Junior Subordinated Debentures at September 30, 2003 (September 30, 2002 – $148,640; December 31, 2002 – $148,640) and a related accrued interest receivable of $1,031 (September 30, 2002 – $1,031; December 31, 2002 – $4,126). The Junior Subordinated Debentures mature on February 1, 2027; however, under certain circumstances, the maturity of the Junior Subordinated Debentures may be shortened (which shortening would result in a mandatory redemption of the Capital Securities). Refer to Note 2 to the unaudited consolidated financial statements for information on the potential impact of FIN No. 46.

The Corporation declared cash dividends on common stock amounting to $98,193 for the nine-month period ended September 30, 2003 (September 30, 2002 – $80,219).

During the first quarter of 2003, the Corporation issued 7,475,000 shares of its 6.375% noncumulative monthly income preferred stock, Series A, at a price of $25 per share. The net proceeds to the Corporation, after the underwriting discounts and expenses, amounted to $183,159. Dividends declared on the preferred stock during the nine months ended September 30, 2003 amounted to $6,941.

These shares of preferred stock are nonconvertible and are redeemable solely at the option of the Corporation beginning on March 31, 2008. The redemption price per share is $25.50 from March 31, 2008 through March 30, 2009, $25.25 from March 31, 2009 through March 30, 2010 and $25.00 from March 31, 2010 and thereafter. Dividends on the Series A preferred stock are noncumulative and are payable monthly at an annual rate of 6.375% of the liquidation preference value of $25.00 per share.

Potential common shares consist of common stock issuable based on the assumed exercise of stock options granted under the Corporation’s stock option plan, using the treasury stock method. This method assumes that the potential common shares are issued and the proceeds from exercise in addition to the amount of compensation cost attributed to future services are used to purchase common stock at the exercise date. The difference between the number of potential shares issued and the shares purchased will be added as incremental shares to the actual number of shares outstanding to compute diluted earnings per share. Stock options that result in lower potential shares issued than shares purchased under the treasury stock method are not included in the computation of dilutive earnings per share since their inclusion would have an antidilutive effect in earnings per share.

During the third quarter of 2003, there were 471,346 weighted average antidilutive stock options outstanding (2002 – 430,257) and for the nine months ended on September 30, 2003 there were 453,858 weighted average antidilutive stock options outstanding (2002 – 360,821).

Note 13 – Supplemental Disclosure on the Consolidated Statements of Cash Flows

During the nine-month period ended September 30, 2003, the Corporation paid interest and income taxes amounting to $564,396 and $112,565, respectively (2002 – $635,309 and $97,204). In addition, loans receivable transferred to other real estate and other property for the nine months ended September 30, 2003 amounted to $61,914 and $19,978, respectively (2002 – $40,092 and $23,783).

During the first quarter of 2003, the Corporation transferred $637,925 of loans held-for-sale to the loan portfolio (held-for-investment) based on management intent and ability.

Popular, Inc. operates the following reportable segments: commercial banking, mortgage and consumer lending, auto and lease financing, and other. Management has determined its reporting units based on legal entity, which is the way that operating decisions are made and performance is measured. These reporting units have then been aggregated into segments by products, services and markets with similar characteristics.

The Corporation’s commercial banking segment includes all banking subsidiaries, which provide individuals, corporations and institutions with commercial and retail banking services, including loans and deposits, trust, mortgage banking and servicing, asset management, credit cards and other financial services. These services are offered through a delivery system of branches throughout Puerto Rico, the U.S. and British Virgin Islands and the United States.

The Corporation’s mortgage and consumer lending segment includes those non-banking subsidiaries whose principal activity is originating mortgage and consumer loans such as Popular Mortgage, Popular Finance, Equity One and Levitt Mortgage.

The Corporation’s auto and lease financing segment provides financing for vehicles and equipment through Popular Auto in Puerto Rico and Popular Leasing, USA in the U.S. mainland. The “Other” category includes all holding companies and non-banking subsidiaries which provide insurance agency services, retail financial services, broker/dealer activities, as well as those providing ATM processing services, electronic data processing and consulting services, sale and rental of electronic data processing equipment and selling and maintenance of computer software.

The accounting policies of the segments are the same as those followed by the Corporation in the ordinary course of business and conform with generally accepted accounting principles and with general practices within the financial industry. Following are the results of operations and selected financial information by operating segment for the quarters and nine-month periods ended September 30, 2003 and 2002.

Quarter ended September 30, 2003

Mortgage and

Auto and

Commercial

Consumer

Lease

(In thousands)

Banking

Lending

Financing

Other

Eliminations

Total

Net interest income

237,003

66,557

21,215

2,482

1,760

329,017

Provision for loan losses

31,023

12,670

4,975

48,668

Other income

69,387

21,688

4,827

82,444

(6,511

)

171,835

Amortization of intangibles

1,888

1,978

Depreciation expense

11,937

1,149

2,814

2,107

18,007

Other operating expenses

180,238

40,527

8,232

38,508

(234

)

267,271

Net gain of minority interest

(184

)

(184

)

Income tax

12,667

11,443

3,851

7,020

(1,163

)

33,818

Net income

68,637

22,272

6,170

37,201

(3,354

)

130,926

Segment Assets

27,618,038

7,366,518

1,472,772

7,610,002

(8,290,143

)

35,777,187

Nine months ended September 30, 2003

Mortgage and

Auto and

Commercial

Consumer

Lease

(In thousands)

Banking

Lending

Financing

Other

Eliminations

Total

Net interest income

704,549

192,947

59,718

4,687

4,024

965,925

Provision for loan losses

92,667

38,610

14,925

146,202

Other income

205,816

63,011

15,246

210,882

(18,788

)

476,167

Amortization of intangibles

5,763

270

6,033

Depreciation expense

36,968

3,433

8,571

5,932

54,904

Other operating expenses

522,731

109,629

24,225

113,440

(786

)

769,239

Net gain of minority interest

(425

)

(425

)

Income tax

41,324

36,330

10,454

16,415

(3,856

)

100,667

Net income

210,912

67,531

16,789

79,512

(10,122

)

364,622

Segment Assets

27,618,038

7,366,518

1,472,772

7,610,002

(8,290,143

)

35,777,187

During the quarter and nine-month periods ended September 30, 2003, the Corporation’s parent holding company realized gains on the sale of marketable equity securities approximating $38,600 ($33,800 after-tax) and $67,900 ($59,400 after-tax) for each respective period. These gains are included in “other income” within the “other” reportable segment category.

For purposes of the intersegment revenues disclosure, revenues include interest income (expense) related to internal funding and other income derived from intercompany transactions, mainly related to gain on sales of loans.

Total revenues include net interest income, service charges on deposit accounts, other service fees, gain (loss) on sale of investment securities, gain (loss) on derivatives, trading account (loss) profit, gain on sale of loans and other operating income.

The following condensed consolidating financial information presents the financial position of Popular, Inc. Holding Company (PIHC) (parent only), Popular International Bank, Inc. (PIBI), Popular North America, Inc. (PNA) and all other subsidiaries of the Corporation as of September 30, 2003, December 31, 2002 and September 30, 2002, and the results of their operations and cash flows for the periods ended September 30, 2003 and 2002. PIBI, PNA, and their wholly-owned subsidiaries, except Banco Popular North America (BPNA) and Banco Popular, National Association (BP, N.A.), have a fiscal year that ends on November 30. Accordingly, the consolidated financial information of PIBI and PNA as of August 31, 2003, November 30, 2002 and August 31, 2002, corresponds to their financial information included in the consolidated financial statements of Popular, Inc. as of September 30, 2003, December 31, 2002 and September 30, 2002, respectively.

PIHC, PIBI and PNA are authorized issuers of debt securities and preferred stock under a shelf registration filed with the SEC.

PIBI is an operating subsidiary of PIHC and is the holding company of its wholly-owned subsidiaries, ATH Costa Rica, CreST, S.A., Popular Insurance, V.I., Inc. and PNA.

PNA is an operating subsidiary of PIBI and is the holding company of its wholly-owned subsidiaries, Popular Cash Express, Inc., Equity One, Inc., BPNA, including its wholly-owned subsidiaries Popular Leasing, U.S.A. and Popular Insurance, U.S.A.; and BP, N.A., including its wholly-owned subsidiary Popular Insurance, Inc.

PIHC fully and unconditionally guarantees all registered debt securities and preferred stock issued by PIBI and PNA. The principal source of cash flows for PIHC consists of dividends from Banco Popular de Puerto Rico.

As a member subject to the regulations of the Federal Reserve Board, BPPR must obtain the approval of the Federal Reserve Board for any dividend if the total of all dividends declared in any calendar year would exceed the total of net profits for that year, as defined by the Federal Reserve Board, combined with its retained net profits for the preceding two years. The payment of dividends may also be affected by other regulatory requirements and policies, such as the maintenance of certain minimum capital levels. At September 30, 2003, BPPR could have declared a dividend of approximately $138,777 without the approval of the Federal Reserve Board.

POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CONDITION
SEPTEMBER 30, 2003
(UNAUDITED)


				Popular, Inc.			PIBI			PNA		All other			Elimination			Popular, Inc.
(In thousands)				Holding Co.			Holding Co.			Holding Co.		Subsidiaries			Entries			Consolidated

ASSETS
Cash and due from banks				$	1,460		$	476		$	2,822	$	798,642		$	(40,488	)	$	762,912
Money market investments					85,167			301			1,165		1,126,831			(440,126	)		773,338
Investment securities available-for-sale, at market value					187,415			40,018			10,857		10,206,588			(7,205	)		10,437,673
Investment securities held-to-maturity, at amortized cost													341,397			(148,640	)		192,757
Trading account securities, at market value													568,172						568,172
Investment in subsidiaries					2,618,228			860,874			912,460		205,801			(4,597,363	)
Loans held-for-sale, at lower of cost or market													379,706			(12,983	)		366,723

Loans					71,009						3,050,357		23,503,150			(5,009,948	)		21,614,568
Less – Unearned income													273,536						273,536
			Allowance for loan losses										398,578						398,578

					71,009						3,050,357		22,831,036			(5,009,948	)		20,942,454

Premises and equipment					10,581								466,737						477,318
Other real estate													54,201						54,201
Accrued income receivable					246			1			12,163		215,878			(19,015	)		209,273
Other assets					27,304			21,040			1,988		713,684			9,079			773,095
Goodwill													190,655						190,655
Other intangible assets													28,616						28,616

				$	3,001,410		$	922,710		$	3,991,812	$	38,127,944		$	(10,266,689	)	$	35,777,187

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
	Deposits:
		Non-interest bearing										$	3,596,694		$	(40,425	)	$	3,556,269
		Interest bearing											14,158,160			(58,437	)		14,099,723

													17,754,854			(98,862	)		17,655,992
	Federal funds purchased and securities sold under agreements to repurchase									$	522,891		6,447,468			(174,190	)		6,796,169
	Other short-term borrowings			$	1,907						248,545		3,503,496			(1,575,192	)		2,178,756
	Notes payable				74,232		$	8,788			2,332,732		6,879,079			(3,766,554	)		5,528,277
	Subordinated notes				125,000														125,000
	Preferred beneficial interest in Popular North America’s junior subordinated deferrable interest debentures guaranteed by the Corporation												144,000						144,000
	Other liabilities				49,265			302			35,137		533,898			(22,197	)		596,405

					250,404			9,090			3,139,305		35,262,795			(5,636,995	)		33,024,599

Minority interest in consolidated subsidiary													105			1,477			1,582

Stockholders’ equity:
	Preferred stock				186,875														186,875
	Common stock				836,872			3,962			2		72,577			(76,541	)		836,872
	Surplus				282,980			678,038			619,964		1,335,998			(2,631,389	)		285,591
	Retained earnings				1,562,536			235,350			231,732		1,403,429			(1,873,122	)		1,559,925
	Treasury stock, at cost				(205,527	)							(780	)		780			(205,527	)
	Accumulated other comprehensive income (loss), net of tax				87,270			(3,730	)		809		53,820			(50,899	)		87,270

					2,751,006			913,620			852,507		2,865,044			(4,631,171	)		2,751,006

				$	3,001,410		$	922,710		$	3,991,812	$	38,127,944		$	(10,266,689	)	$	35,777,187

POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CONDITION
DECEMBER 31, 2002
(UNAUDITED)


				Popular, Inc.			PIBI		PNA		All other			Elimination			Popular, Inc.
(In thousands)				Holding Co.			Holding Co.		Holding Co.		Subsidiaries			Entries			Consolidated

ASSETS
Cash and due from banks				$	324		$	70	$	1,161	$	694,114		$	(43,113	)	$	652,556
Money market investments					2,937			300		9,708		1,250,994			(169,293	)		1,094,646
Investment securities available-for-sale, at market value					223,661			28,290		6,720		10,278,232			(5,000	)		10,531,903
Investment securities held-to-maturity, at amortized cost												329,391			(148,640	)		180,751
Trading account securities, at market value												510,346						510,346
Investment in subsidiaries, at equity					2,322,470			624,306		850,071		199,869			(3,996,716	)
Loans held-for-sale, at lower of cost or market value												1,109,161			(16,234	)		1,092,927

Loans					167,523					2,573,222		20,341,601			(4,306,499	)		18,775,847
Less – Unearned income												286,655						286,655
			Allowance for loan losses									372,797						372,797

					167,523					2,573,222		19,682,149			(4,306,499	)		18,116,395

Premises and equipment					11,192							449,985						461,177
Other real estate												39,399						39,399
Accrued income receivable					294			2		11,891		194,372			(22,010	)		184,549
Other assets					21,781			36,409		15,068		503,268			1,565			578,091
Goodwill												182,965						182,965
Other intangible assets												34,647						34,647

				$	2,750,182		$	689,377	$	3,467,841	$	35,458,892		$	(8,705,940	)	$	33,660,352

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
	Deposits:
		Non-interest bearing									$	3,410,409		$	(43,024	)	$	3,367,385
		Interest bearing										14,270,528			(23,173	)		14,247,355

												17,680,937			(66,197	)		17,614,740
	Federal funds purchased and securities sold under Agreements to repurchase			$	10,300				$	498,883		6,307,488			(132,120	)		6,684,551
	Other short-term borrowings				29,191		$	90		439,052		2,477,471			(1,242,242	)		1,703,562
	Notes payable				137,777			8,788		1,849,017		5,517,986			(3,214,715	)		4,298,853
	Subordinated notes				125,000													125,000
	Preferred beneficial interests in Popular North America’s junior subordinated deferrable interest debentures guaranteed by the Corporation											144,000						144,000
	Other liabilities				37,035			166		64,705		604,830			(29,131	)		677,605

					339,303			9,044		2,851,657		32,732,712			(4,684,405	)		31,248,311

Minority interest in consolidated subsidiaries												110			1,052			1,162

Stockholders’ equity:
	Common stock				834,799			3,962		2		72,577			(76,541	)		834,799
	Surplus				278,366			492,543		439,964		1,335,498			(2,268,005	)		278,366
	Retained earnings				1,300,437			170,874		170,956		1,178,321			(1,520,151	)		1,300,437
	Treasury stock, at cost				(205,210	)						(463	)		463			(205,210	)
	Accumulated other comprehensive income, net of tax				202,487			12,954		5,262		140,137			(158,353	)		202,487

					2,410,879			680,333		616,184		2,726,070			(4,022,587	)		2,410,879

				$	2,750,182		$	689,377	$	3,467,841	$	35,458,892		$	(8,705,940	)	$	33,660,352

POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CONDITION
SEPTEMBER 30, 2002
(UNAUDITED)


				Popular, Inc.			PIBI		PNA		All other			Elimination			Popular, Inc.
(In thousands)				Holding Co.			Holding Co.		Holding Co.		Subsidiaries			Entries			Consolidated

ASSETS
Cash and due from banks				$	320		$	17	$	1,673	$	640,788		$	(68,516	)	$	574,282
Money market investments					23,187			300		7,762		1,307,174			(185,344	)		1,153,079
Investment securities available-for-sale, at market value					209,732			30,564		82,664		9,316,293			14,095			9,653,348
Investment securities held-to-maturity, at amortized cost												793,325			(148,640	)		644,685
Trading account securities, at market value												473,402						473,402
Investment in subsidiaries					2,254,085			604,243		830,100		190,660			(3,879,088	)
Loans held-for-sale, at lower of cost or market												887,646			(17,039	)		870,607

Loans					163,123					2,636,162		20,136,439			(4,242,703	)		18,693,021
Less – Unearned income												300,120						300,120
			Allowance for loan losses									354,282						354,282

					163,123					2,636,162		19,482,037			(4,242,703	)		18,038,619

Premises and equipment					11,395							434,766						446,161
Other real estate												33,713						33,713
Accrued income receivable					309					13,691		201,697			(21,197	)		194,500
Other assets					21,841			35,137		15,065		473,075			1,270			546,388
Goodwill												180,337						180,337
Other intangible assets												34,005						34,005

				$	2,683,992		$	670,261	$	3,587,117	$	34,448,918		$	(8,547,162	)	$	32,843,126

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
	Deposits:
		Non-interest bearing									$	3,327,160		$	(53,008	)	$	3,274,152
		Interest bearing										13,818,702			(34,998	)		13,783,704

												17,145,862			(88,006	)		17,057,856
	Federal funds purchased and securities sold under agreements to repurchase								$	457,266		5,572,818			(142,345	)		5,887,739
	Other short-term borrowings			$	27,480		$	8,743		492,467		2,430,499			(912,510	)		2,046,679
	Notes payable				169,970					1,973,367		5,960,307			(3,474,360	)		4,629,284
	Subordinated notes				125,000													125,000
	Preferred beneficial interest in Popular North America’s Junior subordinated deferrable interest debentures guaranteed by the Corporation											144,000						144,000
	Other liabilities				42,530			137		67,970		549,808			(27,969	)		632,476

					364,980			8,880		2,991,070		31,803,294			(4,645,190	)		30,523,034

Minority interest in consolidated subsidiary												110			970			1,080

Stockholders’ equity:
	Common stock				834,170			3,962		2		72,577			(76,541	)		834,170
	Surplus				275,443			492,543		439,964		1,335,498			(2,268,005	)		275,443
	Retained earnings				1,246,098			148,806		150,184		1,116,482			(1,415,472	)		1,246,098
	Treasury stock, at cost				(205,210	)						(463	)		463			(205,210	)
	Accumulated other comprehensive income, net of tax				168,511			16,070		5,897		121,420			(143,387	)		168,511

					2,319,012			661,381		596,047		2,645,514			(3,902,942	)		2,319,012

				$	2,683,992		$	670,261	$	3,587,117	$	34,448,918		$	(8,547,162	)	$	32,843,126

POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE QUARTER ENDED SEPTEMBER 30, 2003
(UNAUDITED)


		Popular, Inc.			PIBI			PNA		All other			Elimination			Popular, Inc.
(In thousands)		Holding Co.			Holding Co.			Holding Co.		Subsidiaries			Entries			Consolidated

INTEREST INCOME:
Loans		$	544					$	36,217	$	404,346		$	(52,079	)	$	389,028
Money market investments			196		$	1			381		16,189			(10,648	)		6,119
Investment securities			164						210		107,294			(2,951	)		104,717
Trading account securities											9,535						9,535

			904			1			36,808		537,364			(65,678	)		509,399

INTEREST EXPENSE:
Deposits											83,417			(270	)		83,147
Short-term borrowings			49						3,236		49,131			(16,215	)		36,201
Long-term debt			3,851			58			32,110		75,968			(50,953	)		61,034

			3,900			58			35,346		208,516			(67,438	)		180,382

Net interest (loss) income			(2,996	)		(57	)		1,462		328,848			1,760			329,017
Provision for loan losses											48,668						48,668

Net interest (loss) income after provision for loan losses			(2,996	)		(57	)		1,462		280,180			1,760			280,349
Service charges on deposit accounts											41,162						41,162
Other service fees											69,245			(91	)		69,154
Gain on sale of securities			38,582						4		523						39,109
Trading account loss											(4,599	)					(4,599	)
Derivatives gains											282						282
Gain on sales of loans											19,412			(6,000	)		13,412
Other operating income			379			987					12,369			(420	)		13,315

			35,965			930			1,466		418,574			(4,751	)		452,184

OPERATING EXPENSES:
Personnel costs:
	Salaries					83					98,649						98,732
	Profit sharing										3,834						3,834
	Pension and other benefits					14					29,633						29,647

						97					132,116						132,213
Net occupancy expenses						4					21,424						21,428
Equipment expenses											26,892						26,892
Other taxes			358								9,135						9,493
Professional fees			411			5			153		20,552			(119	)		21,002
Communications			13								14,909						14,922
Business promotion											18,087						18,087
Printing and supplies											4,474						4,474
Other operating expenses			117			25			132		36,608			(115	)		36,767
Amortization of intangibles											1,978						1,978

			899			131			285		286,175			(234	)		287,256

Income before income tax, minority interest and equity in earnings of subsidiaries			35,066			799			1,181		132,399			(4,517	)		164,928
Income tax			4,823						400		29,757			(1,162	)		33,818
Net gain of minority interest											(184	)					(184	)

Income before equity in earnings of subsidiaries			30,243			799			781		102,458			(3,355	)		130,926
Equity in earnings of subsidiaries			100,683			24,115			23,022		13,687			(161,507	)

NET INCOME		$	130,926		$	24,914		$	23,803	$	116,145		$	(164,862	)	$	130,926

POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(UNAUDITED)


		Popular, Inc.			PIBI			PNA			All other			Elimination			Popular, Inc.
(In thousands)		Holding Co.			Holding Co.			Holding Co.			Subsidiaries			Entries			Consolidated

INTEREST INCOME:
Loans		$	2,686					$	109,955		$	1,199,693		$	(159,826	)	$	1,152,508
Money market investments			353		$	5			969			51,428			(32,819	)		19,936
Investment securities			921						616			332,490			(8,819	)		325,208
Trading account securities												26,688						26,688

			3,960			5			111,540			1,610,299			(201,464	)		1,524,340

INTEREST EXPENSE:
Deposits												263,607			(644	)		262,963
Short-term borrowings			299			1			11,977			154,985			(52,468	)		114,794
Long-term debt			12,646			174			97,380			222,835			(152,377	)		180,658

			12,945			175			109,357			641,427			(205,489	)		558,415

Net interest (loss) income			(8,985	)		(170	)		2,183			968,872			4,025			965,925
Provision for loan losses												146,202						146,202

Net interest (loss) income after provision for loan losses			(8,985	)		(170	)		2,183			822,670			4,025			819,723
Service charges on deposit accounts												120,683			(13	)		120,670
Other service fees												206,095			(1,499	)		204,596
Gain (loss) on sale of securities			67,779						(26	)		2,645						70,398
Trading account loss												(9,779	)					(9,779	)
Derivatives (losses) gains									(8,110	)		285						(7,825	)
Gain on sales of loans												63,448			(15,153	)		48,295
Other operating income			13,541			3,424						34,970			(2,123	)		49,812

			72,335			3,254			(5,953	)		1,241,017			(14,763	)		1,295,890

OPERATING EXPENSES:
Personnel costs:
	Salaries					243						288,857			1			289,101
	Profit sharing											14,997						14,997
	Pension and other benefits					45						90,187						90,232

						288						394,041			1			394,330
Net occupancy expenses						10						62,620						62,630
Equipment expenses												79,298						79,298
Other taxes			939									27,408						28,347
Professional fees			828			14			303			59,063			(317	)		59,891
Communications			33									43,898						43,931
Business promotion												51,067						51,067
Printing and supplies												14,221						14,221
Other operating expenses			282			73			707			89,836			(470	)		90,428
Amortization of intangibles												6,033						6,033

			2,082			385			1,010			827,485			(786	)		830,176

Income (loss) before income tax, minority interest and equity in earnings of subsidiaries			70,253			2,869			(6,963	)		413,532			(13,977	)		465,714
Income tax			8,490						(958	)		96,990			(3,855	)		100,667
Net gain of minority interest												(425	)					(425	)

Income (loss) before equity in earnings of subsidiaries			61,763			2,869			(6,005	)		316,117			(10,122	)		364,622
Equity in earnings of subsidiaries			302,859			61,606			66,781			38,665			(469,911	)

NET INCOME		$	364,622		$	64,475		$	60,776		$	354,782		$	(480,033	)	$	364,622

POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
(UNAUDITED)


		Popular, Inc.			PIBI			PNA			All other			Elimination			Popular, Inc.
(In thousands)		Holding Co.			Holding Co.			Holding Co.			Subsidiaries			Entries			Consolidated

INTEREST INCOME:
Loans		$	2,748					$	40,059		$	408,267		$	(59,575	)	$	391,499
Money market investments			46		$	2			24			18,410			(10,766	)		7,716
Investment securities			380						296			107,570			(3,121	)		105,125
Trading account securities												3,770						3,770

			3,174			2			40,379			538,017			(73,462	)		508,110

INTEREST EXPENSE:
Deposits												106,264			(201	)		106,063
Short-term borrowings			408			45			5,350			58,605			(18,223	)		46,185
Long-term debt			4,918						33,971			75,123			(55,105	)		58,907

			5,326			45			39,321			239,992			(73,529	)		211,155

Net interest (loss) income			(2,152	)		(43	)		1,058			298,025			67			296,955
Provision for loan losses												50,992						50,992

Net interest (loss) income after provision for loan losses			(2,152	)		(43	)		1,058			247,033			67			245,963
Service charges on deposit accounts												39,484						39,484
Other service fees												63,984			(43	)		63,941
Gain on sale of securities									2			1,699			(450	)		1,251
Trading account profit												1,247						1,247
Derivatives losses									(21,325	)		(434	)					(21,759	)
Gain on sales of loans												17,196			(2,236	)		14,960
Other operating income			7,760			1,138						9,521			(49	)		18,370

			5,608			1,095			(20,265	)		379,730			(2,711	)		363,457

OPERATING EXPENSES:
Personnel costs:
	Salaries		23			74						92,607						92,704
	Profit sharing											5,646						5,646
	Pension and other benefits					14						25,149						25,163

			23			88						123,402						123,513
Net occupancy expenses						3						19,578						19,581
Equipment expenses												24,469						24,469
Other taxes			290									8,825						9,115
Professional fees			258			3			45			22,260			(63	)		22,503
Communications			10									13,897						13,907
Business promotion												15,588						15,588
Printing and supplies												4,754						4,754
Other operating expenses			168			18			133			18,255			(85	)		18,489
Amortization of intangibles												1,938						1,938

			749			112			178			252,966			(148	)		253,857

Income (loss) before income tax, minority interest and equity in earnings of subsidiaries			4,859			983			(20,443	)		126,764			(2,563	)		109,600
Income tax									(7,170	)		31,463			(563	)		23,730
Net gain of minority interest												(116	)					(116	)

Income (loss) before equity in earnings of subsidiaries			4,859			983			(13,273	)		95,185			(2,000	)		85,754
Equity in earnings of subsidiaries			80,895			5,279			18,456			8,885			(113,515	)

NET INCOME		$	85,754		$	6,262		$	5,183		$	104,070		$	(115,515	)	$	85,754

POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)


		Popular, Inc.			PIBI			PNA			All other			Elimination			Popular, Inc.
(In thousands)		Holding Co.			Holding Co.			Holding Co.			Subsidiaries			Entries			Consolidated

INTEREST INCOME:
Loans		$	9,734					$	118,358		$	1,193,870		$	(178,075	)	$	1,143,887
Money market investments			218		$	8			43			55,167			(32,565	)		22,871
Investment securities			858						673			340,925			(9,643	)		332,813
Trading account securities												10,522			(165	)		10,357

			10,810			8			119,074			1,600,484			(220,448	)		1,509,928

INTEREST EXPENSE:
Deposits												329,972			(623	)		329,349
Short-term borrowings			1,381			106			16,473			173,855			(55,913	)		135,902
Long-term debt			15,174						101,329			215,237			(164,111	)		167,629

			16,555			106			117,802			719,064			(220,647	)		632,880

Net interest (loss) income			(5,745	)		(98	)		1,272			881,420			199			877,048
Provision for loan losses												155,521						155,521

Net interest (loss) income after provision for loan losses			(5,745	)		(98	)		1,272			725,899			199			721,527
Service charges on deposit accounts												117,964						117,964
Other service fees												191,823			(157	)		191,666
(Loss) gain on sale of securities			(1,078	)					2			(1,148	)		(450	)		(2,674	)
Trading account loss												(212	)		70			(142	)
Derivatives losses									(20,611	)		(1,492	)					(22,103	)
Gain on sales of loans												51,369			(6,867	)		44,502
Other operating income			14,059			3,790			169			36,768			(1,109	)		53,677

			7,236			3,692			(19,168	)		1,120,971			(8,314	)		1,104,417

OPERATING EXPENSES:
Personnel costs:
	Salaries		23			229						271,759						272,011
	Profit sharing											15,954						15,954
	Pension and other benefits					43						78,390						78,433

			23			272						366,103						366,398
Net occupancy expenses						10						58,649						58,659
Equipment expenses												73,610						73,610
Other taxes			780									27,168						27,948
Professional fees			549			9			140			59,239			(203	)		59,734
Communications			29									40,263						40,292
Business promotion												45,786						45,786
Printing and supplies												14,341						14,341
Other operating expenses			276			63			403			52,559			(430	)		52,871
Amortization of intangibles												7,037						7,037

			1,657			354			543			744,755			(633	)		746,676

Income (loss) before income tax, minority interest and equity in earnings of subsidiaries			5,579			3,338			(19,711	)		376,216			(7,681	)		357,741
Income tax			(147	)					(6,551	)		95,083			(1,913	)		86,472
Net gain of minority interest												(166	)					(166	)

Income (loss) before equity in earnings of subsidiaries			5,726			3,338			(13,160	)		280,967			(5,768	)		271,103
Equity in earnings of subsidiaries			265,377			39,720			52,657			24,306			(382,060	)

NET INCOME		$	271,103		$	43,058		$	39,497		$	305,273		$	(387,828	)	$	271,103

POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMER 30, 2003
(UNAUDITED)


			Popular, Inc.			PIBI			PNA			All other			Elimination			Consolidated
(In thousands)			Holding Co.			Holding Co.			Holding Co.			Subsidiaries			Entries			Popular, Inc.

Cash flows from operating activities:
	Net income		$	364,622		$	64,475		$	60,776		$	354,782		$	(480,033	)	$	364,622

	Adjustments to reconcile net income to net cash Provided by (used in) operating activities:
		Equity in undistributed earnings of subsidiaries		(302,859	)		(61,606	)		(66,781	)		(38,665	)		469,911			—
		Depreciation and amortization of premises and equipment		610									54,294						54,904
		Provision for loan losses											146,202						146,202
		Amortization of intangibles											6,033						6,033
		Net (gain) loss on sales of investment securities		(67,779	)					26			(2,645	)					(70,398	)
		Net derivatives losses (gains)								8,110			(285	)					7,825
		Net gain on disposition of premises and equipment											(13	)					(13	)
		Net gain on sales of loans, excluding loans held-for-sale											(4,421	)					(4,421	)
		Net amortization of premiums and accretion of discounts on investments											20,259			(546	)		19,713
		Net amortization of deferred loan fees and costs											28,279						28,279
		Earnings from investments under the equity method		(1,051	)		(3,110	)											(4,161	)
		Stock options expense		119									1,289						1,408
		Net increase in loans held-for-sale											(5,172	)		(3,250	)		(8,422	)
		Net increase in trading securities											(113,209	)					(113,209	)
		Net decrease (increase) in accrued income receivable		48			1			(272	)		(21,506	)		(2,995	)		(24,724	)
		Net decrease (increase) in other assets		2,292			(1,788	)		(332	)		(110,277	)		206			(109,899	)
		Net (decrease) increase in interest payable		(159	)		174			6,255			(15,074	)		2,823			(5,981	)
		Net increase (decrease) in deferred and current taxes		3,369						18,912			(29,959	)		(3,856	)		(11,534	)
		Net increase in postretirement benefit obligation											4,839						4,839
		Net increase (decrease) in other liabilities		1,426			(35	)		(49,400	)		2,018			246			(45,745	)

Total adjustments				(363,984	)		(66,364	)		(83,482	)		(78,013	)		462,539			(129,304	)

Net cash provided by (used in) operating activities				638			(1,889	)		(22,706	)		276,769			(17,494	)		235,318

Cash flows from investing activities:
		Net (increase) decrease in money market investments		(82,230	)		(1	)		8,543			124,163			270,833			321,308
		Purchases of investment securities held-to-maturity											(496,858	)					(496,858	)
		Proceeds from paydowns and maturities of investment Securities held-to-maturity											485,137						485,137
		Purchases of investment securities available-for-sale		(38	)		(3,108	)		(22,400	)		(5,444,181	)					(5,469,727	)
		Proceeds from calls, paydowns and maturities of investment Securities available-for-sale											4,836,678			2,750			4,839,428
		Proceeds from sales of investment securities available-for-sale		83,004						18,143			654,356						755,503
		Net collections (disbursements) on loans		96,515						(477,135	)		(883,805	)		703,449			(560,976	)
		Proceeds from sales of loans											170,671						170,671
		Acquisition of loan portfolios											(2,046,909	)					(2,046,909	)
		Capital contribution to subsidiary		(185,494	)		(180,000	)								365,494			—
		Acquisition of premises and equipment											(72,815	)					(72,815	)
		Proceeds from sale of premises and equipment											1,783						1,783
		Dividends received from subsidiary		98,100									32,000			(130,100	)		—

Net cash provided by (used in) investing activities				9,857			(183,109	)		(472,849	)		(2,639,780	)		1,212,426			(2,073,455	)

Cash flows from financing activities:
		Net increase in deposits											70,858			(32,665	)		38,193
		Net (decrease) increase in federal funds purchased and Securities sold under agreements to repurchase		(10,300	)					24,008			139,980			(42,070	)		111,618
		Net (decrease) increase in other short-term borrowings		(27,285	)		(90	)		(190,507	)		1,026,025			(332,949	)		475,194
		Net (payments of) proceeds from notes payable and capital securities		(69,152	)					483,715			1,361,093			(551,840	)		1,223,816
		Dividends paid to parent company											(98,100	)		98,100			—
		Dividends paid		(94,776	)								(32,000	)		32,000			(94,776	)
		Proceeds from issuance of common stock		11,606															11,606
		Net proceeds from issuance of preferred stock		180,548												2,611			183,159
		Treasury stock acquired											(317	)					(317	)
		Capital contribution from parent					185,494			180,000						(365,494	)		—

Net cash (used in) provided by financing activities				(9,359	)		185,404			497,216			2,467,539			(1,192,307	)		1,948,493

Net increase in cash and due from banks				1,136			406			1,661			104,528			2,625			110,356
Cash and due from banks at beginning of period				324			70			1,161			694,114			(43,113	)		652,556

Cash and due from banks at end of period			$	1,460		$	476		$	2,822		$	798,642		$	(40,488	)	$	762,912

POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)


				Popular, Inc.			PIBI			PNA			All other			Elimination			Consolidated
(In thousands)				Holding Co.			Holding Co.			Holding Co.			Subsidiaries			Entries			Popular, Inc.

Cash flows from operating activities:
	Net income			$	271,103		$	43,058		$	39,497		$	305,273		$	(387,828	)	$	271,103

	Adjustments to reconcile net income to net cash Provided by (used in) operating activities:
		Equity in undistributed earnings of subsidiaries			(265,377	)		(39,720	)		(52,657	)		(24,306	)		382,060
		Depreciation and amortization of premises and equipment			610									55,035						55,645
		Provision for loan losses												155,521						155,521
		Amortization of intangibles												7,037						7,037
		Net loss (gain) on sales of investment securities			1,078						(2	)		1,148			450			2,674
		Net loss on derivatives									20,611			1,492						22,103
		Net loss on disposition of premises and equipment												547						547
		Net gain on sales of loans, excluding loans held-for-sale												(6,284	)					(6,284	)
		Net amortization of premiums and accretion of discounts on investments												10,580						10,580
		Net amortization of deferred loan fees and costs												21,759						21,759
			Earnings from investments under the equity method		(1,052	)		(3,475	)											(4,527	)
		Stock options expense			119									478						597
		Net increase in loans held-for-sale												69,756			(875	)		68,881
		Net increase in trading securities												(202,296	)		(920	)		(203,216	)
		Net decrease (increase) in accrued income receivable			14			2			(1,428	)		(5,420	)		(1,525	)		(8,357	)
		Net increase (decrease) in other assets			(1,979	)		348			(5,528	)		(2,287	)		(1,505	)		(10,951	)
		Net increase (decrease) in interest payable			713			35			(1,016	)		(2,161	)					(2,429	)
		Net (decrease) increase in deferred and current taxes			(179	)					304			(29,825	)		921			(28,779	)
		Net increase in postretirement benefit obligation												2,562						2,562
		Net increase (decrease) in other liabilities			571			30			(503	)		100,633			569			101,300

Total adjustments					(265,482	)		(42,780	)		(40,219	)		153,969			379,175			184,663

Net cash provided by (used in) operating activities					5,621			278			(722	)		459,242			(8,653	)		455,766

Cash flows from investing activities:
		Net decrease (increase) in money market investments			89,750			1			(7,321	)		(226,096	)		(179,847	)		(323,513	)
		Purchases of investment securities held-to-maturity												(18,206,606	)					(18,206,606	)
		Proceeds from paydowns and maturities of investment Securities held-to-maturity												18,160,282			(6,000	)		18,154,282
		Purchases of investment securities available-for-sale			(34,179	)		(4,721	)		(75,983	)		(4,785,724	)					(4,900,607	)
		Proceeds from calls, paydowns and maturities of investment Securities available-for-sale												3,546,992			(25,200	)		3,521,792
		Proceeds from sales of investment securities available-for-sale												1,112,116						1,112,116
		Net collections (disbursements) on loans			33,289						(99,141	)		(1,020,926	)		194,306			(892,472	)
		Proceeds from sales of loans												425,510						425,510
		Acquisition of loan portfolios												(913,579	)					(913,579	)
		Capital contribution to subsidiary			(50	)		(81	)								131
		Assets acquired, net of cash												(13,613	)					(13,613	)
		Acquisition of premises and equipment												(103,924	)					(103,924	)
		Proceeds from sale of premises and equipment												7,276						7,276
		Dividends received from subsidiary			221,500												(221,500	)

Net cash provided by (used in) investing activities					310,310			(4,801	)		(182,445	)		(2,018,292	)		(238,110	)		(2,133,338	)

Cash flows from financing activities:
		Net increase in deposits												739,484			(23,620	)		715,864
		Net increase in federal funds purchased and securities sold under agreements to repurchase									35,649			10,936			89,386			135,971
		Net increase (decrease) in other short-term borrowings			27,480			4,472			(43,976	)		(233,077	)		464,538			219,437
		Net (payments of) proceeds from notes payable and capital securities			(28,948	)					192,915			1,245,047			(519,941	)		889,073
		Dividends paid to parent company												(221,500	)		221,500
		Dividends paid			(81,533	)														(81,533	)
		Proceeds from issuance of common stock			7,974															7,974
		Redemption of preferred stock			(102,000	)														(102,000	)
		Treasury stock acquired			(138,847	)								(227	)					(139,074	)
		Capital contribution from parent						50						81			(131	)

Net cash (used in) provided by financing activities					(315,874	)		4,522			184,588			1,540,744			231,732			1,645,712

Net increase (decrease) in cash and due from banks					57			(1	)		1,421			(18,306	)		(15,031	)		(31,860	)
Cash and due from banks at beginning of period					263			18			252			659,094			(53,485	)		606,142

Cash and due from banks at end of period				$	320		$	17		$	1,673		$	640,788		$	(68,516	)	$	574,282

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


				Third Quarter						Nine months
Selected Statistical
Information				2003			2002			2003			2002

Common Stock Data – Market price
			High	$	41.17		$	35.85		$	41.17		$	35.85
			Low		36.65			30.11			31.95			27.50
			End		39.80			31.60			39.80			31.60
		Book value at period end			19.31			17.52			19.31			17.52
		Dividends declared			0.27			0.20			0.74			0.60
		Dividend payout ratio			27.89	%		30.85	%		24.87	%		30.10	%
		Price/earnings ratio			12.06x			12.44x			12.06x			12.44x
Profitability Ratios – Return on assets					1.47	%		1.07	%		1.42	%		1.16	%
	Return on common equity				20.85			16.03			20.35			16.92
	Net interest spread (taxable equivalent)				3.95			3.81			3.96			3.81
	Net interest yield (taxable equivalent)				4.30			4.26			4.34			4.29
	Effective tax rate				20.50			21.65			21.62			24.17
	Overhead ratio *				35.08			45.92			36.65			41.48
	Efficiency ratio **				61.63			58.60			59.76			58.30
Capitalization Ratios – Equity to assets					7.43	%		6.66	%		7.27	%		6.84	%
		Tangible equity to assets			6.86			6.03			6.68			6.19
		Equity to loans			12.46			11.14			12.30			11.53
		Internal capital generation			14.08			11.18			13.85			11.80
		Tier I capital to risk – adjusted assets			11.14			9.93			11.14			9.93
		Total capital to risk – adjusted assets			12.76			11.70			12.76			11.70
		Leverage ratio			7.02			6.36			7.02			6.36

*		Non-interest expense less non-interest income divided by net interest income.

**		Non-interest expense divided by net interest income plus recurring fee income.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This financial review contains an analysis of the consolidated financial position and financial performance of Popular, Inc. and its subsidiaries (the Corporation). All accompanying tables, financial statements and notes included elsewhere in this report should be considered an integral part of this analysis. The Corporation is a financial holding company, which offers a wide range of products and services to consumer and corporate customers in Puerto Rico, the United States, the Caribbean and Central America. The Corporation’s subsidiaries are engaged in the following businesses:

Commercial Banking – Banco Popular de Puerto Rico (BPPR), Banco Popular North America (BPNA) and Banco Popular, National Association (BP, N.A.).

Auto Loans and Lease Financing – Popular Auto, Inc. and Popular Leasing, U.S.A.

Mortgage and Consumer Lending – Popular Mortgage, Inc., Equity One, Inc., Popular Finance, Inc. and Levitt Mortgage Corporation.

Processing and Information Technology Services and Products – GM Group, ATH Costa Rica and CreST, S.A.

Insurance Agency- Popular Insurance, Inc., Popular Insurance Agency U.S.A., Inc. and Popular Insurance V.I., Inc.

This discussion and analysis contains statements that are considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Refer to the footnotes on the Index page of this Form 10-Q for additional information regarding forward-looking statements.

The preparation of consolidated financial statements requires management to make judgments in the application of certain of its accounting policies that involve significant estimates and assumptions about the effect of matters that are inherently uncertain. These estimates and assumptions are based on information available as of the date of the financial statements. The accounting principles followed by the Corporation and the methods of applying these principles conform with generally accepted accounting principles in the United States and with general practices within the banking industry. The Corporation has identified as critical accounting policies those related to the allowance for loan losses, investment securities’classification and related values, goodwill and other intangible assets, and pension and post retirement benefit obligations. For a summary of the corporation’s critical accounting policies, refer to that particular section in the Management’s Discussion and Analysis included in Popular, Inc.’s 2002 Financial Review and Supplementary Information to Stockholders, incorporated by reference in Popular, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2002. Also, refer to Note 1 to the consolidated financial statements included in said report for a summary of the Corporation’s significant accounting policies, as well as to the accompanying notes to the unaudited consolidated financial statements included in this Form 10-Q. No significant changes in critical accounting policies have occurred since year-end 2002. During the third quarter of 2003, the Corporation opted to follow a more conservative policy with respect to interest recognition on non-accruing mortgage loans at Equity One, the Corporation’s U.S. based mortgage and consumer lending subsidiary. Effective in the beginning of the third quarter of 2003, Equity One began to charge against current earnings the balance of all accrued and uncollected interest on loans that were placed on non-accrual status in that period. Prior to this date, Equity One ceased to accrue interest on all mortgage loans that were 90 days or four scheduled payments in arrears, but did not take a charge against current earnings for uncollected interest that had accrued prior to the loan being placed on non-accrual status. In connection with this decision, the Corporation took a charge against earnings of approximately $1.9 million corresponding to mortgage loans placed in non-accrual status by Equity One during the third quarter of 2003.

The Corporation’s net income for the third quarter of 2003 was $130.9 million, compared with $85.8 million for the same quarter of 2002, an increase of $45.1 million or 53%. Earnings per common share (EPS), basic and diluted, for the quarter ended September 30, 2003, were $0.96, compared with $0.65 for the same period of 2002. Refer to Note 12 to the unaudited consolidated financial statements for a detail of the average shares used in the computation of basic and diluted EPS. Popular Inc.’s return on assets (ROA) and return on common equity (ROE) for the third quarter of 2003 were 1.47% and 20.85%, respectively, compared with 1.07% and 16.03%, respectively, for the same period in 2002.

The increase in the Corporation’s net income for the third quarter of 2003, when compared with the same period in the previous year, was principally attributed to higher net interest income by $32.0 million and non-interest income by $54.3 million. The provision for loan losses decreased by $2.3 million. These items were partially offset by a rise in operating expenses of $33.4 million and in income taxes of $10.1 million.

For the first nine months of 2003 the Corporation’s net income reached $364.6 million, compared with $271.1 million for the same period in 2002. EPS for the first nine months of 2003 and 2002 were $2.69 and $2.00, respectively. ROA and ROE for the nine-month period ended September 30, 2003 were 1.42% and 20.35%, respectively. For the same period in 2002, these ratios were 1.16% and 16.92%, respectively.

Net interest income for the quarter ended September 30, 2003 reached $329.0 million, an increase of $32.0 million, or 11%, over the same quarter of 2002. On a taxable equivalent basis, net interest income increased to $360.0 million from $321.8 million in the same quarter of 2002.

The improvement for the third quarter of 2003 of $38.2 million in net interest income, on a taxable equivalent basis, compared with the third quarter of 2002 resulted from a $37.2 million increase due to a higher volume of average earning assets and a $1.0 million increase due to a higher net interest margin.

Tables B and C present the different components of the Corporation’s net interest income for the quarter and nine-months ended September 30, 2003, respectively, as compared with the same periods in 2002, segregated by major categories of earning assets and interest bearing liabilities. Some of the assets, mostly investments in obligations of the U.S. Government and the Puerto Rico Commonwealth and its agencies, generate interest which is exempt for income tax purposes, principally in Puerto Rico. Therefore, to facilitate the comparison of all interest data related to these assets, the interest income has been converted to a taxable equivalent basis, using the applicable statutory income tax rates (in Puerto Rico the statutory tax rate is 39%).

TABLE B
ANALYSIS OF LEVELS & YIELDS ON A TAXABLE EQUIVALENT BASIS
Quarter ended September 30,


																								Variance
Average Volume							Average Yields/Costs										Interest							Attributable to
2003		2002		Variance			2003			2002			Variance				2003		2002		Variance			Rate			Volume

($ in millions)																	(In thousands)
$	790	$	877	$	(87	)		3.07	%		3.49	%		(0.42	)%	Money market investments	$	6,119	$	7,716	$	(1,597	)	$	(990	)	$	(607	)
	10,899		9,985		914			4.85			5.11			(0.26	)	Investment securities		132,205		127,697		4,508			(11,614	)		16,122
	682		343		339			5.87			4.49			1.38		Trading		10,084		3,885		6,199			1,477			4,722

	12,371		11,205		1,166			4.79			4.97			(0.18	)			148,408		139,298		9,110			(11,127	)		20,237

																Loans:
	8,296		7,784		512			5.95			6.71			(0.76	)	Commercial		124,428		131,671		(7,243	)		(15,540	)		8,297
	1,039		888		151			9.51			11.08			(1.57	)	Leasing		24,716		24,599		117			(3,744	)		3,861
	8,577		7,222		1,355			7.03			7.78			(0.75	)	Mortgage		150,759		140,525		10,234			(14,456	)		24,690
	3,202		3,150		52			11.46			12.25			(0.79	)	Consumer		92,149		96,909		(4,760	)		(4,932	)		172

	21,114		19,044		2,070			7.40			8.24			(0.84	)			392,052		393,704		(1,652	)		(38,672	)		37,020

$	33,485	$	30,249	$	3,236			6.44	%		7.03	%		(0.59	)%	Total earning assets	$	540,460	$	533,002	$	7,458		$	(49,799	)	$	57,257

																Interest bearing deposits:
$	2,538	$	2,472	$	66			1.23	%		2.07	%		(0.84	%)	NOW and money market	$	7,876	$	12,871	$	(4,995	)	$	(5,285	)	$	290
	5,185		4,857		328			1.22			2.13			(0.91	)	Savings		15,901		26,062		(10,161	)		(11,779	)		1,618
	6,536		6,444		92			3.60			4.13			(0.53	)	Time deposits		59,370		67,130		(7,760	)		(9,238	)		1,478

	14,259		13,773		486			2.31			3.06			(0.75	)			83,147		106,063		(22,916	)		(26,302	)		3,386

	8,841		7,626		1,215			1.62			2.40			(0.78	)	Short-term borrowings		36,201		46,185		(9,984	)		(16,100	)		6,116
	5,595		4,655		940			4.33			5.02			(0.69	)	Medium and long-term debt		61,034		58,907		2,127			(8,388	)		10,515

	28,695		26,054		2,641			2.49			3.22			(0.73	)	Total interest bearing liabilities		180,382		211,155		(30,773	)		(50,790	)		20,017
	3,565		3,189		376											Demand deposits
	1,225		1,006		219											Other sources of funds

$	33,485	$	30,249	$	3,236			2.14	%		2.77	%		(0.63	)%

								4.30	%		4.26	%		0.04	%	Net interest margin and
																Net interest income on a taxable equivalent basis		360,078		321,847		38,231		$	991		$	37,240

								3.95	%		3.81	%		0.14	%	Net interest spread

																Taxable equivalent adjustment		31,061		24,892		6,169

																Net interest income	$	329,017	$	296,955	$	32,062

Note: The changes that are not due solely to volume or rate are allocated to volume and rate based on the proportion of the change in each category.

The increase of $3.2 billion in average earning assets for the quarter ended September 30, 2003, compared with the third quarter of 2002, was driven principally by a $2.1 billion increase in the average loan portfolio and a $1.1 billion increase in average money market, trading and investment securities. The rise in the average loan portfolio was primarily in mortgage and commercial loans, which rose $1.4 billion and $512 million, respectively. The interest rate environment has stimulated mortgage loan originations and the refinancing through mortgage loans. Investment securities rose in average by $914 million, or 9%, mostly in U.S. Agency securities and mortgage-backed securities, while the trading portfolio increased in average by $339 million, mainly in mortgage-backed securities.

The average yield on earning assets, on a taxable equivalent basis, declined 59 basis points from 7.03% in the third quarter of 2002 to 6.44% for the same period in 2003. The average yield on the investment securities portfolio decreased by 26 basis points, due to the growth of the portfolio, and to the maturity of securities with higher yields that were replaced during a lower interest rate environment. Also, during the third quarter of 2003, the Corporation did not earn dividends on its investment in Federal Home Loan Bank of New York stock as a result of investment

portfolio actions at that institution, which prompted the FHLB of N.Y. not to pay dividends in this quarter. In the third quarter of 2002, the Corporation recorded approximately $0.4 million in dividends from its investment in this stock. On the other hand, the yield in the trading portfolio increased by 138 basis points, mainly due to a higher proportion of mortgage-backed securities in that portfolio.

The average yield on the loan portfolio decreased by 84 basis points. The commercial loans yield, including construction, fell by 76 basis points due to new loan growth and repricing in a lower rate environment. As of September 30, 2003, approximately 57% of the commercial and construction loan portfolios had floating or adjustable rates, compared with approximately 53% at the end of the third quarter in the previous year. The average yield on mortgage loans also declined 75 basis points, mainly due to the current interest rate scenario and higher loan prepayments and refinancing at current rates. Furthermore, the consumer loans yield declined 79 basis points, due in part to the interest rate scenario, coupled with promotional campaigns with lower rates for auto and personal loans. The lease financing yield declined 157 basis points, associated in part with the interest rate scenario and with a large medical and communications equipment lease portfolio purchased by the Corporation during the second quarter of 2003, which had a lower average yield than that of the remaining lease portfolio.

Interest-bearing liabilities for the third quarter of 2003, increased in average by $2.6 billion, or 10%, compared with the same quarter in 2002. Average interest-bearing deposits, mainly savings deposits, increased by $486 million, or 4%, while average borrowings rose by $2.1 billion, or 18%. Also, non-interest bearing sources of funds, including demand deposits and other sources of funds, such as capital raised through preferred stock issuance, rose $595 million.

Average short-term borrowings, comprised mostly of repurchase agreements and federal funds, increased by $1.2 billion, or 16%, in the third quarter of 2003, compared with the same quarter in the previous year, while longer-term borrowings increased by $940 million, or 20%. The latter includes the issuance during the second quarter of 2003 of $500 million in five-year, fixed-rate medium-term notes, and the issuance of secured borrowings arising in securitization transactions.

The average cost of interest-bearing liabilities for the quarter ended September 30, 2003 declined by 73 basis points, compared with the same quarter of 2002. The principal factors to the decrease were revisions made to interest rates on interest-bearing deposits since the last quarter of 2002 and the impact of the current low interest rate environment.

The Corporation’s net interest margin, on a taxable equivalent basis, for the third quarter of 2003 increased by four basis points, reaching 4.30%, while the net interest spread, which is the difference between the yield on earning assets and the cost of interest-bearing liabilities, increased by 14 basis points, rising to 3.95%, as compared with the same period of 2002.

As shown in Table C, for the nine-month period ended September 30, 2003, net interest income, on a taxable equivalent basis, rose $104.3 million, or 11%, compared with the same period of 2002. The improvement resulted from a $86.9 million increase due to a higher average volume of earning assets and a $17.4 million increase due to a higher net interest yield.

TABLE C
ANALYSIS OF LEVELS & YIELDS ON A TAXABLE EQUIVALENT BASIS
Nine-month period ended September 30,


																								Variance
Average Volume							Average Yields/Costs										Interest							Attributable to
2003		2002		Variance			2003			2002			Variance				2003		2002		Variance			Rate			Volume

($ in millions)																	(In thousands)
$	859	$	877		($18	)		3.10	%		3.49	%		(0.39	%)	Money market investments	$	19,936	$	22,871		($2,935	)		($2,664	)		($271	)
	10,676		9,918		758			5.07			5.39			(0.32	)	Investment securities		406,005		400,747		5,258			(35,689	)		40,947
	632		325		307			5.95			4.40			1.55		Trading		28,116		10,708		17,408			4,724			12,684

	12,167		11,120		1,047			4.98			5.21			(0.23	)			454,057		434,326		19,731			(33,629	)		53,360

																Loans:
	8,141		7,673		468			6.10			6.74			(0.64	)	Commercial		371,454		386,802		(15,348	)		(38,034	)		22,686
	943		873		70			10.14			11.21			(1.07	)	Leasing		71,712		73,370		(1,658	)		(7,347	)		5,689
	8,018		6,853		1,165			7.34			7.78			(0.44	)	Mortgage		441,594		400,093		41,501			(23,650	)		65,151
	3,162		3,118		44			11.63			12.41			(0.78	)	Consumer		275,472		289,854		(14,382	)		(14,086	)		(296	)

	20,264		18,517		1,747			7.64			8.29			(0.65	)			1,160,232		1,150,119		10,113			(83,117	)		93,230

$	32,431	$	29,637	$	2,794			6.64	%		7.14	%		(0.50	%)	Total earning assets	$	1,614,289	$	1,584,445	$	29,844			($116,746	)	$	146,590

																Interest bearing deposits:
$	2,539	$	2,521	$	18			1.42	%		2.24	%		(0.82	%)	NOW and money market	$	26,946	$	42,304		($15,358	)		($15,621	)	$	263
	5,170		4,685		485			1.39			2.36			(0.97	)	Savings		53,569		82,563		(28,994	)		(36,376	)		7,382
	6,562		6,445		117			3.72			4.24			(0.52	)	Time deposits		182,448		204,482		(22,034	)		(28,307	)		6,273

	14,271		13,651		620			2.46			3.23			(0.77	)			262,963		329,349		(66,386	)		(80,304	)		13,918

	8,451		7,428		1,023			1.82			2.45			(0.63	)	Short-term borrowings		114,794		135,902		(21,108	)		(40,336	)		19,228
	5,096		4,340		756			4.74			5.16			(0.42	)	Medium and long-term debt		180,658		167,629		13,029			(13,489	)		26,518

	27,818		25,419		2,399			2.68			3.33			(0.65	)	Total interest bearing liabilities		558,415		632,880		(74,465	)		(134,129	)		59,664
	3,454		3,209		245											Demand deposits
	1,159		1,009		150											Other sources of funds

$	32,431	$	29,637	$	2,794			2.30	%		2.85	%		(0.55	%)

								4.34	%		4.29	%		0.05	%	Net interest margin and		1,055,874
																Net interest income on a taxable equivalent basis		1,055,874		951,565		104,309		$	17,383		$	86,926

								3.96	%		3.81	%		0.15	%	Net interest spread

																Taxable equivalent adjustment		89,949		74,517		15,432

																Net interest income	$	965,925	$	877,048	$	88,877

Note: The changes that are not due solely to volume or rate are allocated to volume and rate based on the proportion of the change in each category.

Average earning assets for the nine-month period ended September 30, 2003 increased by $2.8 billion, or 9%, compared with the same period of 2002. Average interest-bearing liabilities increased by $2.4 billion, or 9%, compared with the nine-month period ended September 30, 2002. Also, non-interest bearing sources of funds, including demand deposits and other funds, rose $395 million.

The net interest margin, on a taxable equivalent basis, for the nine-month period ended September 30, 2003 reached 4.34%, an improvement of five basis points when compared with 4.29% reported during the same period in 2002. The net interest spread increased by 15 basis points, rising to 3.96%. The improvement in margin and spread was mostly associated with similar factors as explained above for the quarterly results.

The provision for loan losses reflects management’s assessment of the adequacy of the allowance for loan losses to cover probable losses inherent in the loan portfolio after taking into account loan impairment and net charge-offs for the current period. The provision for loan losses amounted to $48.7 million for the third quarter of 2003, a decrease of $2.3 million, compared with $51.0 million in the third quarter of 2002. Net charge-offs for the quarter ended September 30, 2003 were $49.5 million, or 0.94% of average loans, compared with $44.4 million, or 0.93% of average loans for the third quarter of 2002. The provision for loan losses represented 98% of net charge-offs for the quarter ended September 30, 2003, compared with 115% for the same quarter in the previous year. For the nine-month period ended September 30, 2003, the provision for loan losses totaled $146.2 million, a decrease of $9.3 million, or 6%, compared with $155.5 million for the same period in 2002. The provision for loan losses represented 116% of net charge-offs for the nine months ended September 30, 2003, compared with 111% for the same period in the previous year.

The allowance for loan losses totaled $399 million at September 30, 2003, or 1.84% of loans, compared with $354 million, or 1.84% of loans, at the same date in 2002. At December 31, 2002, the allowance for loan losses totaled $373 million or 1.90% of loans. The Corporation’s management considers the allowance for loan losses to be at a level sufficient to provide for inherent losses based on current economic conditions, the expected level of net loan losses and the methodology established to evaluate the adequacy of the allowance for loan losses. For more information regarding the allowance for loan losses and asset quality information for the period ended September 30, 2003 refer to the Credit Quality section of this report.

The methodology used to establish the allowance for loan losses is based on SFAS No. 114 (as amended by SFAS No. 118) and SFAS No. 5. Under SFAS No. 114, commercial loans over a predefined amount are identified for impairment evaluation on an individual basis. The Corporation has defined impaired loans as loans with interest and/or principal past due 90 days or more and other specific loans for which, based on current information and events, it is probable that the debtor will be unable to pay all amounts due according to the contractual terms of the loan agreement. Loan impairment is measured based on the present value of the expected future cash flows discounted at the loan’s effective rate, on the observable market price of the loan, or on the fair value of the collateral if the loan is collateral dependent. An impaired loan for which the discounted cash flows, collateral value or market price is less than its carrying value requires an allowance. The allowance for impaired loans is part of the Corporation’s overall allowance for loan losses. Meanwhile, SFAS No. 5 provides for the recognition of a loss allowance for groups of homogeneous loans. Under SFAS No. 5, the allowance for loan losses calculation for the Corporation is based on historical net charge-off experience by loan type and legal entity. For more information on the Corporation’s allowance for loan losses methodology refer to the Credit Risk and Loan Quality section in the Management’s Discussion and Analysis included in Popular, Inc.’s 2002 Financial Review and Supplementary Information to Stockholders, incorporated by reference in Popular, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2002.

The following table shows the Corporation’s recorded investment in impaired loans and the related valuation allowance calculated under SFAS No. 114 at September 30, 2003, December 31, 2002 and September 30, 2002.

Average impaired loans during the third quarter of 2003 and 2002 were $170 million and $139 million, respectively. The Corporation recognized interest income on impaired loans of $1.0 million and $0.8 million for the quarters ended September 30, 2003 and 2002, respectively.

Table D summarizes the movement in the allowance for loan losses and presents several loan loss statistics for the quarters and nine months ended September 30, 2003 and 2002.


		Third Quarter ended September 30,									Nine Months ended September 30,
(Dollars in thousands)		2003			2002			Change			2003			2002			Change

Balance at beginning of period		$	397,503		$	347,230		$	50,273		$	372,797		$	336,632		$	36,165
Allowance acquired			1,897			429			1,468			5,587			1,956			3,631
Provision for loan losses			48,668			50,992			(2,324	)		146,202			155,521			(9,319	)

			448,068			398,651			49,417			524,586			494,109			30,477

Losses charged to the allowance:
	Commercial		24,472			23,586			886			57,079			68,772			(11,693	)
	Construction		—			511			(511	)		135			3,833			(3,698	)
	Lease financing		5,072			5,973			(901	)		17,717			25,989			(8,272	)
	Mortgage		10,139			3,526			6,613			22,522			9,731			12,791
	Consumer		24,640			26,415			(1,775	)		72,016			78,479			(6,463	)

			64,323			60,011			4,312			169,469			186,804			(17,335	)

Recoveries:
	Commercial		5,425			4,863			562			14,553			13,073			1,480
	Construction		—			827			(827	)		27			1,069			(1,042	)
	Lease financing		2,693			3,721			(1,028	)		8,544			14,077			(5,533	)
	Mortgage		146			108			38			294			542			(248	)
	Consumer		6,569			6,123			446			20,043			18,216			1,827

			14,833			15,642			(809	)		43,461			46,977			(3,516	)

Net loans charged-off (recovered):
	Commercial		19,047			18,723			324			42,526			55,699			(13,173	)
	Construction		—			(316	)		316			108			2,764			(2,656	)
	Lease financing		2,379			2,252			127			9,173			11,912			(2,739	)
	Mortgage		9,993			3,418			6,575			22,228			9,189			13,039
	Consumer		18,071			20,292			(2,221	)		51,973			60,263			(8,290	)

			49,490			44,369			5,121			126,008			139,827			(13,819	)

Balance at end of period		$	398,578		$	354,282		$	44,296		$	398,578		$	354,282		$	44,296

Ratios:
	Allowance for losses to loans		1.84	%		1.84	%					1.84	%		1.84	%
	Allowance to non-performing assets		63.44			67.24						63.44			67.24
	Allowance to non-performing loans		69.43			71.84						69.43			71.84
	Non-performing assets to loans		2.89			2.74						2.89			2.74
	Non-performing assets to total assets		1.76			1.60						1.76			1.60
	Net charge-offs to average loans		0.94			0.93						0.83			1.01
	Provision to net charge-offs		0.98x			1.15x						1.16x			1.11x
	Net charge-offs earnings coverage *		4.32			3.62						4.86			3.67

* (Income before income tax and minority interest plus provision for loan losses) divided by net charge-offs.

Also, Table E presents annualized net charge-offs to average loans by loan category for the quarters and nine months ended September 30, 2003 and 2002.

The increase in mortgage loans net charge-offs for the quarter and nine-month period ended September 30, 2003, compared with the same periods in the previous year was mostly the result of portfolio growth coupled with increased delinquency due to current economic conditions. Also, the increase was associated with approximately $3.8 million in charge-offs recorded on the disposition of approximately $32 million in non-performing and other historically delinquent mortgage loans during the third quarter of 2003. Equity One, the Corporation’s mortgage and consumer lending subsidiary in the United States, which caters to non-prime mortgage borrowers, experienced an increase of $11 million in mortgage net charge-offs for the nine-months ended September 30, 2003, as compared with the same period in 2002. The mortgage loans net charge-offs to average loans ratio at this subsidiary was 0.49% for the nine-months ended September 30, 2003, compared with 0.27% for the same period in the previous year. The increase at Equity One is partially related to $3.1 million in net charge-offs realized at this subsidiary on the sale of non-performing mortgage loans during this quarter. Also, the increase is associated with a general economic slowdown. As a result, the job market has continued sluggish and bankruptcy levels have remained at high levels, thus adversely affecting the market segment that this subsidiary caters to. Notwithstanding the above, measures have been taken to improve collections and recovery processes with enhanced initiatives and strategies to expedite foreclosures and the subsequent sale of such properties.

For the quarter ended September 30, 2003, commercial and construction net charge-offs increased moderately a 3% compared with the same period of 2002, while for the nine months ended September 30, 2003, commercial and construction net charge-offs declined 27%, compared with the same period in the previous year.

Lease financing net charge-offs as a percentage of the average lease financing portfolio declined partly as a result of a better portfolio credit quality mix, coupled with enhanced collection strategies and initiatives.

Consumer loans net charge-offs declined by 11% and 14%, for the quarter and nine-month period ended September 30, 2003, as compared with each respective period in the previous year. This decline in consumer loans net charge-offs was partly due to the Corporation’s tightening of its credit criteria for consumer borrowings prompted by the current economic environment, coupled with enhanced collection/recovery strategies and initiatives. Also, this decline is partly due to the fact that most of the Corporation’s growth in the consumer portfolio has been in auto loans, a secured portfolio.

The Corporation places commercial loans on non-accrual status if payments of principal or interest are delinquent 60 days rather than the standard industry practice of 90 days. Financing leases, conventional mortgages and closed-end consumer loans are placed on non-accrual status if payments are delinquent 90 days or four scheduled payments in arrears. Closed-end consumer loans are charged-off when payments are delinquent 120 days, while open-end (revolving credit) consumer loans are charged-off when payments are delinquent 180 days. Certain loans, which would be treated as non-accrual loans pursuant to the foregoing policy, are treated as accruing loans if they are considered well-secured and in the process of collection. Unsecured retail loans to borrowers who declare bankruptcy are charged-off within 60 days of receipt of notification of filing from the bankruptcy court. Under the standard industry practice, closed-end consumer loans are charged-off when delinquent 120 days, but are not customarily placed on non-accrual status prior to being charged-off.

Non-performing assets consist of past-due loans that are no longer accruing interest, renegotiated loans and real estate property acquired through foreclosure. A summary of non-performing assets by loan categories and related ratios is presented in Table F.

The increase in non-performing assets since September 30, 2002 was primarily associated with mortgage loans, which rose by $67 million, or 27%. Non-performing mortgage loans represented 51% of total non-performing assets and 3.48% of total mortgage loans as of September 30, 2003, compared with 48% of total non-performing assets and 3.39% of total mortgage loans at September 30, 2002. As of December 31, 2002, non-performing mortgage loans were $279 million or 52% of total non-performing assets and 3.74% of total mortgage loans. The increase in non-performing mortgage loans was primarily driven by portfolio growth, coupled with increased delinquency due to current economic conditions. This growth in mortgage non-performing loans was mostly reflected in the Corporation’s consumer and mortgage-banking subsidiary in the United States, Equity One. Of the total mortgage non-performing loans at September 30, 2003, 69% or $220 million pertained to Equity One, compared with 64% or $161 million at September 30, 2002, and 66% or $186 million at December 31, 2002. Non-performing mortgage loans decreased by $5 million since June 30, 2003, resulting in part from the previously mentioned sale of mortgage loans in non-performing status and other loans with a history of delinquency in the third quarter of 2003. The sale of non-performing mortgage loans in particular, approximated $24 million. At June 30, 2003, non-performing mortgage loans were $323 million or 52% of total non-performing assets and 3.87% of total mortgage loans.

Non-performing commercial and construction loans represented 2.57% of that loan portfolio as of September 30, 2003, compared with 2.44% at September 30, 2002 and 2.09% at December 31, 2002. The increase in non-performing commercial and construction loans since the end of 2002 reflects the impact of the current economic conditions. The Corporation continues identifying and monitoring potential problem loans to reduce eventual charge-offs. Since June 30, 2003, commercial and construction non-performing loans increased by $12 million, mostly associated with one large commercial relationship.

Non-performing consumer loans were 1.10% of consumer loans at September 30, 2003, compared with 1.27% at September 30, 2002 and 1.29% at December 31, 2002. The decline was principally the result of a better credit quality mix, coupled with collection strategies and initiatives. Also, there has been a partial shift in loan originations from personal loans to mortgage loans.

Non-performing financing leases represented 0.67% of the lease financing portfolio at September 30, 2003, compared with 1.24% at September 30, 2002, and 1.20% at December 31, 2002. The decline in non-performing leases was primarily attributed to the strong quality of these portfolios, coupled with enhanced collection strategies and initiatives.

Other real estate assets reached $54 million at September 30, 2003, or 9% of non-performing assets, compared with $34 million, or 6%, respectively, at September 30, 2002, and $39 million, or 7%, respectively, at December 31, 2002. This increase was associated with higher foreclosures in the mortgage business together with strengthened and more dynamic foreclosure procedures.

The allowance for loan losses as a percentage of non-performing loans was 69.43% as of September 30, 2003, compared with 71.84% at September 30, 2002 and 74.58% at December 31, 2002. The lower allowance to non-performing loans ratio reflects the changing composition of the non-performing loans and the changing loan portfolio mix toward loans with lower inherent loss characteristics.

Assuming the standard industry practice of placing commercial loans on non-accrual status when payments of principal and interest are past due 90 days or more and excluding the closed-end consumer loans from non-accruing, the Corporation’s non-performing assets as of September 30, 2003 would have been $551 million or 2.54% of loans, and the allowance for loan losses would have been 80.17% of non-performing loans. At September 30, 2002 and December 31, 2002, adjusted non-performing assets would have been $455 million or 2.36% of loans and $478 million or 2.44% of loans, respectively. The allowance to non-performing loans would have been 84.13% and 85.01% at September 30, 2002 and December 31, 2002, respectively.

In addition to the non-performing loans discussed earlier, at September 30, 2003, there was $38 million of loans which in management’s opinion are currently subject to potential future classification as non-performing, and therefore are considered impaired under SFAS No. 114. At December 31, 2002 and September 30, 2002, these potential problem loans approximated $36 million and $25 million, respectively.

For the quarter ended September 30, 2003, non-interest income amounted to $171.8 million, compared with $117.5 million in the same period of 2002, an increase of $54.3 million, or 46%.

Service charges on deposit accounts reached $41.2 million for the quarter ended September 30, 2003, an increase of $1.7 million, or 4%, compared with the same quarter of 2002. This rise was mostly derived from commercial account analysis fees and charges related to authorized paid checks on accounts with nonsufficient funds.

For the quarter ended September 30, 2003, other service fees rose $5.2 million, or 8%, compared with the same quarter of 2002. Refer to Table G for a breakdown of other service fees by major categories. When comparing the results for the third quarter of 2003 with the same period in the previous year, insurance agency commissions rose by 19%, mainly due to higher volume driven by business expansion and strategic initiatives directed to capitalize on the Corporation’s broad delivery channels and client base. Also, mortgage servicing fees, net of amortization, increased by 38%, mainly due to an unfavorable adjustment in the fair value of mortgage servicing rights by approximately $1 million recorded in the third quarter of 2002. Another category contributing to the rise in other service fees was debit card fees, which rose by 7%, resulting mainly from higher transactional volume. Furthermore, check cashing fees rose 15%, mostly related to Popular Cash Express (PCE), the Corporation’s retail financial services subsidiary in the United States, while fees derived from the sale and administration of investment products rose by 13%, associated with the administration of mutual funds and commissions on the sale of stocks and bonds.


		Quarter ended September 30,							Nine-months ended September 30,

(In thousands)		2003		2002		Change			2003		2002		Change

Other service fees:
	Credit card fees and discounts	$	15,289	$	15,064	$	225		$	45,507	$	44,156	$	1,351
	Debit card fees		11,445		10,664		781			34,343		31,158		3,185
	Processing fees		9,173		9,046		127			28,758		27,713		1,045
	Insurance fees		8,282		6,957		1,325			22,059		17,497		4,562
	Other fees		8,057		7,627		430			23,426		23,847		(421	)
	Check cashing fees		5,778		5,026		752			18,811		15,978		2,833
	Sale and administration of investment products		5,704		5,049		655			15,945		15,299		646
	Mortgage servicing fees, net of amortization		3,349		2,421		928			9,789		8,809		980
	Trust fees		2,077		2,087		(10	)		5,958		7,209		(1,251	)

	Total other service fees	$	69,154	$	63,941	$	5,213		$	204,596	$	191,666	$	12,930

Gain on sale of securities for the quarter ended September 30, 2003 amounted to $39.1 million, compared with $1.3 million for the same period in 2002. These gains arose mainly from the sale of marketable equity securities held by the Corporation. The results of operations for the quarter ended September 30, 2002 included pre-tax derivative losses of $21.7 million related to the interest rate swaps that were canceled in the second quarter of 2003, with a total notional amount of $500 million. These favorable variances were partially offset by trading losses of $4.6 million for the quarter ended September 30, 2003, compared with trading gains of $1.2 million in the same quarter in the previous year. These trading account losses were mostly related to mortgage-backed securities, whose market value was negatively impacted by the increase in the long-term interest rate scenario experienced in this quarter.

Another variance included in non-interest income for the quarter ended September 30, 2003 was lower gains on the sales of loans, including loans held-for-sale, which decreased by $1.5 million, or 10%, compared with the same quarter in 2002. Also, other operating income declined by $5.1 million, or 28%, partly associated with lower management fees and dividends derived from the Corporation’s ownership participation in Telecomunicaciones de Puerto Rico, Inc., partially offset by an increase in placement and underwriting fees derived by the Corporation’s broker / dealer subsidiary, among other factors.

For the nine-month period ended September 30, 2003, non-interest income amounted to $476.2 million, compared with $382.9 million, an increase of $93.3 million, or 24%. Service charges on deposit accounts contributed with $2.7 million of this increase, mainly due to higher commercial account analysis fees, partially offset by lower charges derived from consumer accounts due in part to higher deposit balances and campaigns to attract depositors.

Other service fees rose by $12.9 million, or 7%, reaching $204.6 million for the nine-month period ended September 30, 2003, as compared with the same period of 2002. The factors described above for the quarterly results also explain the major variances for the nine-month periods, which comparative results are presented in Table G. In addition, credit card fees and discounts contributed to the positive variance, mostly as a result of higher transactional volume. Also, there were higher processing fees due to increased transactional volume and new service contracts. These favorable variances were partially offset by lower trust fees, mostly due to the sale of the Corporation’s trust operations in the United States during 2002. These trust operations contributed with approximately $1.0 million for the nine-month period ended September 30, 2002.

Gain on sale of securities amounted to $70.4 million for the first nine months of 2003, compared with losses of $2.7 million for the same period in 2002. The gains in 2003 resulted mostly from the sale of marketable equity securities held by the Corporation. Derivative losses amounted to $7.8 million for the nine-month period ended September 30, 2003, compared with losses of $22.1 million for the same period a year earlier. These favorable variances were partially offset by trading losses of $9.8 million for the nine-month period ended September 30, 2003, compared with a $0.1 million loss during the same period in the previous year. As previously mentioned, these trading losses during 2003 were partly related to mortgage-backed securities.

Gain on sale of loans totaled $48.3 million for the nine-month period ended September 30, 2003, an increase of $3.8 million, or 9%, compared with the same period in 2002, while other operating income decreased by $3.9 million, or 7%, when comparing the same periods. The results for 2002 included the gains on the sale of the U.S. trust operations and some branches of Popular Finance, which totaled $3.7 million.

Operating expenses totaled $287.3 million for the quarter ended September 30, 2003, an increase of $33.4 million, or 13%, compared with $253.9 million reported in the same period of 2002. Refer to the unaudited consolidated statements of income for a breakdown of operating expenses by major categories.

Personnel costs, the largest category of operating expenses, totaled $132.2 million in the third quarter of 2003, an increase of $8.7 million, or 7%, compared with the same period in the previous year. This rise was driven mostly by higher pension and post retirement benefit costs, incentive compensation and other bonuses, salaries and health insurance costs. The increase in salaries is partly due to higher headcount. As of the end of the third quarter of 2003, full time equivalent employees (FTE’s) totaled 11,393, compared with 11,199 as of the end of the same period in 2002. At December 31, 2002, the Corporation lowered the assumed discount rate for 2003 from 6.75% to 6.50%, and the expected rate of return on its pension plan assets from 8.50% to 8.00%. It also increased the rate of salary compensation assumption in calculating the cost for the pension plan. All these changes resulted in an increase of $2.3 million in the pension plan expense for the quarter ended September 30, 2003, compared with the same period in the previous year.

Operating expenses, excluding personnel costs, totaled $155.0 million for the quarter ended September 30, 2003, an increase of $24.7 million, or 19%, compared with the same period in 2002. This rise was mainly reflected in the categories of business promotion, equipment, net occupancy, communications and other operating expenses. Business promotion increased partly due to higher public relations and advertising expenses, mainly related with the sponsorship of various sporting events and a new advertising campaign for the mortgage lending business in Puerto Rico. The rise in equipment expenses was mainly due to higher amortization of software packages to support the internal technology infrastructure of the Corporation, and higher maintenance and repairs charges for data processing and other equipment. Net occupancy expenses increased mainly as a result of the Corporation’s continuous business expansion and new headquarter offices in the U.S., while the rise in communication expenses was mainly associated with the electronic and data network which supports business applications, support for the debit card business and higher postage expenses. The other operating expenses category rose in part due to a $12.1 million charge recorded in the third quarter of 2003 on the early cancellation of certain long-term borrowings as part of the Corporation’s asset / liability management strategies. Also, the rise was associated with higher miscellaneous losses, including the settlement of legal cases, other real estate expenses and credit card and ATM interchange expenses, among the most significant categories. The unfavorable variances in the above operating expense categories were partially offset by lower professional fees principally due to lower legal expenses.

For the nine-month period ended September 30, 2003, operating expenses amounted to $830.2 million, an increase of $83.5 million, or 11%, compared with the same period in 2002. Personnel costs rose $27.9 million, or 8%, mostly associated with the same categories previously described for the quarterly results. As previously stated, at December 31, 2002, the Corporation adopted some changes in the computation of the cost for the pension plan which resulted in an increase of $6.8 million in this expense for the nine-month period ended September 30, 2003, compared with the same period in the previous year. Also, during 2002 the Corporation began to expense its stock options. This item contributed with approximately $0.8 million of the increase in personnel costs for the nine months ended September 30, 2003, compared with the same period in 2002. Operating expenses, excluding personnel costs, for the nine months ended September 30, 2003 increased $55.6 million, or 15%, compared with the same period in the previous year. Besides the reasons previously explained for the quarterly variances in operating expenses, the results for the nine months ended September 30, 2003 were impacted by higher costs associated with the PREMIA customer rewards program and higher sundry losses. The latter increased by $17.0 million when compared with the same nine-month period in 2002, mostly related to the losses that resulted from unauthorized credit card transactions conducted on credit cards issued by BPPR, as explained in the Form 10-Q filed for the quarter ended June 30, 2003. Also, the results for 2003 included the $12.1 million charge on the early cancellation of certain long-term borrowings. These unfavorable variances were partially offset by lower amortization of intangible assets since certain intangibles became fully amortized during 2002.

Income tax expense for the quarter ended September 30, 2003 increased to $33.8 million, from $23.7 million in the same quarter in the previous year, representing an increase of $10.1 million, or 43%. The increase was primarily due to higher pretax earnings for the current period, partially offset by a higher benefit on tax exempt investments. The effective tax rate for these quarters were 20.50 % and 21.65 % respectively. The third quarter of 2003 was also impacted by an increase in gains on the sale of securities which are subject to a preferential tax rate on capital gains.

Income tax expense for the nine-month period ended September 30, 2003 amounted to $100.7 million, an increase of $14.2 million, or 16%, over the $86.5 million reported for the same period in 2002. The increase was primarily due to higher pretax earnings for the current period, partially offset by a decrease in the disallowance of expenses attributed to tax exempt investments, mainly due to lower cost of funds. The effective tax rate for the nine months ended September 30, 2003 was 21.62%, compared with 24.17 % in 2002, mostly as a result of higher amount of tax exempt revenues in Puerto Rico and by an increase in gains on the sale of securities subject to a lower tax rate.

The Corporation’s total assets at September 30, 2003 reached $35.8 billion, an increase of $2.1 billion, or 6%, compared with $33.7 billion at December 31, 2002. Total assets at September 30, 2002 amounted to $32.8 billion. Earning assets totaled $33.7 billion at September 30, 2003, compared with $31.9 billion at December 31, 2002 and $31.2 billion at September 30, 2002.

Investment and trading securities reached $11.2 billion at September 30, 2003, remaining at the same levels when compared with December 31, 2002. Investment and trading securities at September 30, 2002 totaled $10.8 billion. For a breakdown of the Corporation’s available-for-sale and held-to-maturity investment portfolios refer to Notes 3 and 4 to the unaudited consolidated financial statements. At September 30, 2003, money market investments totaled $773 million, a decrease of $321 million, or 29%, from the $1.1 billion at December 31, 2002, mostly in federal funds sold at the banking subsidiaries and resale agreements. At September 30, 2002, money market investments amounted to $1.2 billion. The decrease from September 30, 2002 to the same date in 2003 was mostly in federal funds sold.

A breakdown of the Corporation’s loan portfolio is presented in Table H. At September 30, 2003, total loans amounted to $21.7 billion, an increase of $2.1 billion, or 11%, from December 31, 2002. This increase resulted from higher mortgage loans by $1.7 billion, or 23%, while commercial loans, including construction loans, rose by $183 million, or 2%. The lease financing portfolio also grew by $145 million, or 16%, mostly associated with the acquisition of certain lease portfolios of medical and communications equipment by the Corporation’s banking and lease financing subsidiaries in the United States during the second quarter of 2003. Moreover, the consumer loan portfolio increased by $115 million, or 4%, mainly due to strong sales efforts in the auto loan market. When compared with September 30, 2002, the loan portfolio grew by $2.4 billion, or 13% at September 30, 2003. The mortgage and commercial loan portfolios, including construction loans, accounted for the largest increases, rising $1.7 billion and $459 million, respectively, from September 30, 2002. The growth in mortgage loans was associated with strong sales efforts, the prevailing low interest rate environment and portfolio acquisitions, while the growth in the commercial loan portfolio resulted in part from higher working capital needs from borrowers in the current economic environment. The consumer and lease financing portfolios increased by $94 million and $147 million, respectively, from September 30, 2002, mostly associated with the same factors previously discussed.

Premises and equipment totaled $477 million at September 30, 2003, compared with $461 million at December 31, 2002 and $446 million at September 30, 2002. The increase of $31 million since September 30, 2002 was mostly associated with office remodeling, as well as premises under construction for business expansion or relocations.

Other assets amounted to $773 million at September 30, 2003, compared with $578 million at December 31, 2002, an increase of $195 million or 34%. Beginning in 2003, the Corporation has $76 million in bank owned life insurance, which is included in other assets in the statement of condition. The increase in other assets since the end of 2002 was also associated with advances on securitizations and deferred tax assets. The rise since September 30, 2002 of $227 million, or 42%, was also associated with the factors described above.

At September 30, 2003, total deposits amounted to $17.7 billion, an increase of $41 million compared with December 31, 2002. Demand deposits rose by $189 million, while time deposits, excluding brokered certificates of deposits, increased by $47 million. On the other hand, savings deposits and brokered certificates of deposits decreased by $28 million and $167 million, respectively. When compared with September 30, 2002, total deposits rose $598 million, or 4%. Savings and demand deposits accounted for the largest increases, rising $338 million and $282 million, respectively. Time deposits, excluding brokered certificates of deposits, increased by $120 million. Brokered certificates of deposits declined by $142 million.

Other liabilities were $596 million at September 30, 2003, a decrease of $81 million, or 12%, compared with December 31, 2002. This decrease in other liabilities was mainly related to payables to broker/dealers and counterparties related to transactions accounted at trade date, lower accrued interest expense, the forfeiture payable under the Deferred Prosecution Agreement which was outstanding at the end of 2002 and lower derivative liabilities as a result of the cancellation of the interest rate swaps in 2003, among others. Other liabilities totaled $632 million at September 30, 2002. The decrease from that date was partly associated with lower derivative liabilities as explained above.

Borrowed funds, including subordinated notes and capital securities, increased by $1.8 billion, or 14%, since December 31, 2002, reaching $14.8 billion at September 30, 2003. Borrowed funds at September 30, 2002 were $12.8 billion. The increase in borrowed funds was used primarily to fund the Corporation’s loan and investment portfolio growth. During the nine-month period ended September 30, 2003, the Corporation sold $500 million in five-year fixed-rate medium-term notes and issued $31 million in corporate debt with its yield linked to the Standard & Poor’s 500 index. Also, during 2003 the Corporation has securitized approximately $1.7 billion in asset-backed securities, supported by mortgage loans. These transactions have been accounted as secured borrowings since they do not qualify as sales under SFAS No. 140.

The Corporation’s stockholders’ equity at September 30, 2003 was $2.8 billion, compared with $2.4 billion at December 31, 2002 and $2.3 billion at September 30, 2002. The increase of $340 million since the end of 2002 reflects the issuance of the Corporation’s preferred stock during 2003 and earnings retention. The rise was partially offset by lower unrealized gains in the securities available-for-sale portfolio and an unfavorable foreign currency translation adjustment. The increase in stockholders’ equity of $432 million from September 30, 2002 is also related to these factors. Refer to the consolidated statement of condition and the consolidated statement of comprehensive income for detailed information on these particular items.

The Corporation continues to exceed the well-capitalized guidelines under the federal banking regulations. Ratios and amounts of total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage as of September 30, 2003 and 2002, and December 31, 2002 are presented on Table I. Also, at September 30, 2003, December 31, 2002 and September 30, 2002, BPPR, BPNA and BP, N.A. were all well-capitalized.

The Corporation’s common and preferred stocks are traded on the National Association of Securities Dealers Automated Quotation (NASDAQ) under the symbols BPOP and BPOPO, respectively. Table A presents limited data on the Corporation’s common stock for the quarters and nine-month periods ended September 30, 2002 and 2003. The Corporation’s market capitalization at September 30, 2003 was $5.3 billion, compared with $4.2 billion at September 30, 2002 and $4.5 billion at December 31, 2002.

All banks are required to have a minimum Tier I leverage ratio of 3% or 4% of adjusted quarterly average assets, depending on the bank’s classification.

In the ordinary course of business, the Corporation has conducted asset securitizations involving the transfer of mortgage loans to a qualifying special purpose entity (QSPE), which in turned has transferred the assets, including their titles, to different trusts, thus isolating those loans from the Corporation’s assets. The transactions qualified for sale accounting based on the provisions of SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”, as such trusts are not consolidated in the Corporation’s financial statements. As of September 30, 2003, these trusts held approximately $177 million in assets in the form of mortgage loans. Their liabilities in the form of debt principal due to investors approximated $176 million at the end of the third quarter of 2003. In these securitizations, the Corporation retained servicing responsibilities and certain subordinated interest in the form of interest-only securities. The investors and the securitization trusts have no recourse to the Corporation’s assets. The servicing rights and the interest-only securities retained by the Corporation are recorded in the statement of condition at the lower of amortized cost or market, and fair value, respectively.

Market risk refers to the impact of changes in interest rates on the Corporation’s net interest income, market value of equity and trading operations. It also arises from fluctuations in the value of some foreign currencies against the U.S. dollar. Despite the varied nature of market risks, the primary source of this risk at the Corporation is the impact of changes in interest rates on net interest income. Depending on the duration and repricing characteristics of the Corporation’s assets, liabilities and derivatives instruments, changes in interest rates could either increase or decrease the level of net interest income. The Corporation maintains a formal asset and liability management process to quantify, monitor and control interest rate risk (IRR) and to assist management in maintaining stability in the net interest margin under varying interest rate environments.

An interest rate sensitivity analysis performed at the Corporation level is the primary tool used in expressing the potential loss in future earnings resulting from selected hypothetical changes in interest rates. Sensitivity analysis is calculated on a monthly basis using a simulation model, which incorporates actual balance sheet figures detailed by maturity and interest yields or costs, the expected balance sheet dynamics, reinvestments, and other non-interest related data. Simulations are processed using various interest rate scenarios to determine potential changes to the future earnings of the Corporation.

Computations of the prospective effects of hypothetical interest rate changes are based on many assumptions, including relative levels of market interest rates, loan prepayments and deposit decay. Thus, they should not be relied upon as indicative of actual results. Further, the computations do not contemplate actions that management could take to respond to changes in interest rates. By their nature, these forward-looking computations are only estimates and may be different from what actually may occur in the future.

Based on the results of the sensitivity analysis as of September 30, 2003, the change in net interest income, on a hypothetical rising rate scenario, for the next twelve months is an estimated increase of $0.3 million and the change for the same period, utilizing a hypothetical declining rate scenario, is an estimated increase of $8.6 million. Both hypothetical rate scenarios consider a gradual change of 100 basis points up and down during the twelve-month period from the prevailing rates at September 30, 2003. It should be mentioned that some short-term rates are below 1% at September 30, 2003. In the scenario of interest rates decreasing 100 basis points, rates were not permitted to fall below 0.1%. These estimated changes are within the policy guidelines established by the Board of Directors.

The Corporation maintains an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in net interest income that are caused by interest rate volatility. Refer to Note 6 to the consolidated financial statements for further information on the Corporation’s limited involvement in derivative instruments and hedging activities. The Corporation was a participant in certain interest rate swaps with an aggregate notional amount of $500 million. In such agreements, the Corporation converted floating rate debt to fixed rate debt. These contracts were cancelled during the second quarter of 2003 as part of the Corporation’s risk management strategies.

The Corporation conducts business in certain Latin American markets through several of its processing and information technology services and products subsidiaries. Also, it holds interests in Consorcio de Tarjetas Dominicanas, S.A. and Centro Financiero BHD, S.A. in the Dominican Republic. Although not significant, some of these businesses are conducted in the country’s particular foreign currency. At September 30, 2003 the Corporation had $23 million in foreign currency translation adjustment as part of accumulated other comprehensive income, compared with $2 million at December 31, 2002. The increase was mostly associated with a devaluation of the Dominican peso. However, management does not expect future exchange rate volatility between the U.S. dollar and the particular foreign currency to affect significantly the Corporation’s consolidated financial condition or results of operations.

The Corporation believes that there have been no significant changes in market risk compared with the disclosures in Popular, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2002.

The Corporation manages liquidity to provide adequate funds to meet its anticipated financial obligations, including withdrawals by depositors and debt service requirements, as well as to fund customer’s demand for credit.

Deposits are one of the Corporation’s primary sources of funding, and represent 49% of total assets. The extensive branch network of the Corporation in the Puerto Rico market and its expanding network in major U.S. markets have enabled it to maintain a significant and stable base of deposits. The Corporation’s core deposits, which consist of demand, savings, money market and time deposits under $100 thousand, constituted 82% of total deposits at September 30, 2003.

The Corporation has established borrowing relationships with the Federal Home Loan Bank (FHLB), the Federal Reserve Bank of New York and other correspondent banks, which further support and enhance liquidity. Wholesale or institutional sources of funds are comprised primarily of other financial intermediaries such as commercial banks, securities dealers, investment companies, insurance companies, as well as non-financial corporations. Wholesale or institutional sources of funding include the repo, federal funds and Eurodollar markets, commercial paper, medium-term notes, senior debentures and asset securitizations.

Liquidity is provided also by the scheduled maturities of the Corporation’s investment and loan portfolios, and from cash generated from operations, such as fees collected for services.

Refer to Notes 3 and 4 to the consolidated financial statements for further information as to the composition of the available-for-sale and held-to-maturity investment portfolios. Liquid U.S. Treasury and Agency securities can be used to raise funds in the repo markets. The loan portfolio can also be used to obtain funding in the capital markets. In particular, mortgage loans and some types of consumer loans, and to a lesser extent commercial loans, have highly developed secondary markets.

Also, the Corporation obtains liquidity in the capital markets through the sale of its debt and equity securities. The Corporation has a shelf registration with the Securities and Exchange Commission, which is intended to permit the Corporation to raise funds through sales of preferred stock, medium-term notes or other debt securities with a relatively short lead-time. At September 30, 2003, the Corporation had available approximately $1.2 billion under this shelf registration.

During the nine-month period ended September 30, 2003 the Corporation issued preferred stock under this shelf registration, which net proceeds, after the underwriting discounts and expenses, amounted to $183 million. These proceeds were used to fund operations.

Refer to the Balance Sheet comments section of this Form 10-Q for further information on major debt issuances and securitization transactions performed by the Corporation during the quarter ended September 30, 2003.

The Corporation’s ability to compete successfully in the marketplace for deposits depends on various factors, including service, convenience and financial stability as reflected by operating results and credit ratings. Although a downgrade in the credit rating of the Corporation may impact its ability to raise deposits, the fact that most deposits at the Corporation’s banking subsidiaries are federally insured, is expected to mitigate the effect of a downgrade in credit rating.

Although the Corporation raises the majority of its financing from retail deposits, it still borrows a material amount of funds from institutional sources. Institutional lenders tend to be sensitive to the perceived credit risk of the entities to which they lend and this exposes the Corporation to the possibility of having its access to funding affected by how the market perceives its credit quality; this in part, may be due to factors beyond its control.

Changes in the credit rating of the Corporation or any of its subsidiaries to a level below “investment grade” may affect the Corporation’s access to the capital markets. The Corporation’s counterparties are sensitive to the risk of a rating downgrade. In the event of a downgrade, it may be expected that the cost of borrowing funds in the institutional market would increase. In addition, the ability of the Corporation to raise new funds or renew maturing debt may be more difficult. Management does not anticipate changes in the credit ratings of the Corporation.

The Corporation and BPPR’s debt ratings as of September 30, 2003 were as follows:

Some of the Corporation’s borrowings and deposits are subject to “rating triggers”, contractual provisions that accelerate the maturity of the underlying obligations in the case of a change in rating. Therefore, the need for the Corporation to raise funding in the marketplace could increase more than usual in the case of a rating downgrade. The amount of borrowings and deposits subject to rating triggers was $230 million at September 30, 2003.

In the course of borrowing from institutional lenders, the Corporation has entered into contractual agreements to maintain certain levels of debt, capital and non-performing loans, among other financial covenants. If the Corporation does not comply with those agreements, an event of default may occur. Such failure may accelerate the repayment of the related borrowings. It could also affect the ability of the Corporation to raise new funds or renew maturing borrowings. The Corporation is currently in full compliance with all financial covenants in effect and expects to remain so in the future.

The Corporation’s non-banking subsidiaries may be subject to a higher degree of liquidity risk than the banking subsidiaries, due to the latters’ access to federally-insured deposits and the Federal Reserve Discount Window. A higher proportion of the funding of the non-banking subsidiaries is from institutional sources, as compared to the banking subsidiaries, and these are more sensitive to the perceived credit risk of the Corporation than providers of deposits. In the event of a downgrade in the credit ratings of the Corporation, the non-banking subsidiaries may experience an increase in their cost of funds and reduced availability of financing. Management does not anticipate such a scenario developing in the foreseeable future.

The importance of the Puerto Rico market for the Corporation is an additional risk factor that could affect its financing activities. In the case of an extended economic slowdown in Puerto Rico, the credit quality of the Corporation could be affected as a result of higher credit costs and possible decreases in profitability. The substantial integration of Puerto Rico with the U.S. economy should limit the probability of a prolonged recession in Puerto Rico (except if there is a prolonged recession in the U.S.) and its related risks to the Corporation.

Management intends to finance the future operations of the Corporation with a combination of retail and commercial deposits, short and long-term borrowed funds, and the issuance of trust preferred securities. The sources and the maturities of the borrowings will be diversified to avoid undue reliance on any single source and maintain an orderly volume of borrowings maturing in the future.

Factors that the Corporation does not control, such as the economic outlook of its principal markets, could affect its ability to obtain funding. In order to prepare for the possibility of such a scenario, management has adopted contingency plans for raising financing under stress scenarios, where important sources of funds that are usually fully available are temporarily not willing to lend to the Corporation.

These plans provide for using alternate funding mechanisms such as the pledging or securitization of certain asset classes, committed credit lines, and loan facilities implemented with the Federal Home Loan Bank of New York and the Federal Reserve Bank of New York. The Corporation has a substantial amount of assets available for raising funds through non-traditional channels.

The Corporation believes that there have been no significant changes in liquidity risk compared with the disclosures in Popular, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2002.

The Corporation’s management, with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Corporation’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Corporation’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Corporation in the reports that it files or submits under the Exchange Act.

There have been no changes in the Corporation’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the third quarter of 2003 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

The Corporation and its subsidiaries are defendants in various lawsuits arising in the ordinary course of business. Management believes, based on the opinion of legal counsel, that the aggregate liabilities, if any, arising from such actions would not have a material adverse effect on the financial position and results of operations of the Corporation.

As disclosed on page 15 of the 10-K, on January 16, 2003 the U.S. District Court for the District of Puerto Rico approved a Deferred Prosecution Agreement (the “Agreement”) among Banco Popular, the U.S. Department of Justice, the Board of Governors of the Federal Reserve System, and the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (“FinCEN”). The Agreement concludes an investigation related principally to the circumstances surrounding the activities of a former customer of the Bank, including Banco Popular’s reporting and compliance efforts, as well as certain other customers. The former customer has pleaded guilty to money laundering, including in connection with transactions made through an account at Banco Popular. No current or former Bank officer, director or employee has been charged with a crime or accused of benefiting financially from the transactions described in the Agreement.

Under the Agreement, Banco Popular agreed to the filing of a one-count information charging it with failure to file suspicious activity report in a timely and complete manner. The Agreement provides for Banco Popular to forfeit $21.6 million to the United States, and resolves all claims the United States, FinCEN or the Federal Reserve may have against Banco Popular arising from the matters that were subject to investigation.

This settlement also terminates the Written Agreement Banco Popular signed with the Federal Reserve Bank of New York on March 9, 2000, which required enhancements to Banco Popular’s anti-money laundering and Bank Secrecy Act program. The Federal Reserve found Banco Popular to be fully complaint with the Written Agreement on November 26, 2001. Finally, the Agreement provides that the court will dismiss the information and the Deferred Prosecution Agreement will expire 12 months following the settlement, provided that Banco Popular complies with its obligations under the Agreement.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Puerto Rico		66-041-6582

(State of incorporation)		(I.R.S. Employer
		Identification No.)


Common Stock $6.00 Par value		132,891,946

(Title of Class)		(Shares Outstanding as of November 13, 2003)


	ITEM 1. FINANCIAL STATEMENTS
		CONSOLIDATED STATEMENTS OF CONDITION
		CONSOLIDATED STATEMENTS OF INCOME
		CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
		CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		Notes to Unaudited Consolidated Financial Statements
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
Part II — Other Information
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EX-12.1 COMPUTAION OF RATIOS OF EARNINGS
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CEO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO


	September 30,		December 31,		September 30,
(In thousands)	2003		2002		2002

Investment securities available-for-sale	$	2,562,228	$	2,046,100	$	2,154,707
Investment securities held-to-maturity		1,599		3,278		3,281
Loans		7,381,624		3,402,042		3,499,336

	$	9,945,451	$	5,451,420	$	5,657,324


	Nine months ended September 30, 2003

			Mortgage		Auto and
	Commercial		and Consumer		Lease
(In thousands)	Banking		Lending		Financing		Other		Total

Balance as of January 1, 2003	$	110,482	$	11,247	$	6,727	$	54,509	$	182,965
Goodwill acquired during the period		3,788		3,212		—		690		7,690

Balance as of September 30, 2003	$	114,270	$	14,459	$	6,727	$	55,199	$	190,655


For Quarter Ended September 30, 2003		Commission file number 0 – 13818


Registrant’s telephone number, including area code		(787) 765-9800


		September 30, 2003				December 31, 2002				September 30, 2002

		Gross		Accumulated		Gross		Accumulated		Gross		Accumulated
(In thousands)		Amount		Amortization		Amount		Amortization		Amount		Amortization

Core Deposits		$	68,478	$	42,755	$	87,739	$	56,263	$	87,711	$	54,328
Other customer relationships			2,886		337		2,886		120		511		—
Other intangibles			511		167		509		104		202		91

	Total	$	71,875	$	43,259	$	91,134	$	56,487	$	88,424	$	54,419


	(In thousands)

2003	$	7,836
2004		7,121
2005		5,471
2006		5,322
2007		3,651


	Options				Weighted-Average
(Not in thousands)	Outstanding			Exercise Price

Outstanding at January 1, 2002		26,416			$	31.39
Granted		423,647				29.11
Exercised		(199	)			32.60
Forfeited		(4,789	)			28.84

Outstanding at December 31, 2002		445,075				29.25
Granted		475,444				33.64
Exercised		(5,136	)			29.23
Forfeited		(6,106	)			29.69

Outstanding at September 30, 2003		909,277			$	31.54


Note 10 –		Subordinated Notes and Preferred Beneficial Interest in Popular North America’s Junior Subordinated Deferrable Interest Debentures Guaranteed by the Corporation


	Quarter ended				Nine-months ended
	September 30,				September 30,
(In thousands, except share information)	2003		2002		2003		2002

Net income	$	130,926	$	85,754	$	364,622	$	271,103
Less: Preferred stock dividends (include amount paid on redemption of preferred stock in 2002)		2,979		—		6,941		2,510

Net income applicable to common stock	$	127,947	$	85,754	$	357,681	$	268,593

Average common shares outstanding		132,799,735		132,350,192		132,684,745		134,407,089
Average potential common shares – stock options		50,368		348		34,645		150

Average common shares outstanding – assuming dilution		132,850,103		132,350,540		132,719,390		134,407,239

Basic earnings per common share	$	0.96	$	0.65	$	2.69	$	2.00

Diluted earnings per common share	$	0.96	$	0.65	$	2.69	$	2.00


		Quarter ended September 30, 2002

				Mortgage and			Auto and
		Commercial		Consumer			Lease
(In thousands)		Banking		Lending			Financing		Other			Eliminations			Total

Net interest income		$	226,330	$	53,064		$	17,274	$	220		$	67		$	296,955
Provision for loan losses			33,439		10,573			6,980								50,992
Other income			65,397		19,265			4,732		30,878			(2,778	)		117,494
Amortization of intangibles			1,933							5						1,938
Depreciation expense			12,401		1,041			2,543		1,618						17,603
Other operating expenses			159,424		33,298			7,936		33,806			(148	)		234,316
Net gain of minority interest					(116	)										(116	)
Income tax			16,877		9,600			1,735		(3,919	)		(563	)		23,730

	Net income	$	67,653	$	17,701		$	2,812	$	(412	)	$	(2,000	)	$	85,754

	Segment Assets	$	26,171,941	$	5,397,639		$	1,201,864	$	6,994,579		$	(6,922,897	)	$	32,843,126


		Nine months ended September 30, 2002

				Mortgage and			Auto and
		Commercial		Consumer			Lease
(In thousands)		Banking		Lending			Financing		Other			Eliminations			Total

Net interest income		$	677,137	$	151,297		$	48,919	$	(504	)	$	199		$	877,048
Provision for loan losses			104,321		30,800			20,400								155,521
Other income			201,523		52,521			14,299		123,060			(8,513	)		382,890
Amortization of intangibles			7,022							15						7,037
Depreciation expense			39,686		3,154			8,116		4,689						55,645
Other operating expenses			472,228		91,612			22,725		98,062			(633	)		683,994
Net gain of minority interest					(166	)										(166	)
Income tax			53,237		27,207			4,416		3,525			(1,913	)		86,472

	Net income	$	202,166	$	50,879		$	7,561	$	16,265		$	(5,768	)	$	271,103

	Segment Assets	$	26,171,941	$	5,397,639		$	1,201,864	$	6,994,579		$	(6,922,897	)	$	32,843,126


Note 15 –		Condensed Consolidating Financial Information of Guarantor and Issuers of Registered Guaranteed Securities:


		September 30,		December 31,		September 30,
(In thousands)		2003		2002		2002

Selected Balance Sheet Information:
Puerto Rico
	Total assets	$	22,604,297	$	22,307,784	$	21,840,940
	Loans		10,447,561		10,065,646		10,015,317
	Deposits		11,931,233		12,036,491		11,463,494
Mainland United States
	Total assets	$	12,422,850	$	10,637,293	$	10,315,438
	Loans		10,810,358		9,140,382		8,885,565
	Deposits		4,900,887		4,778,234		4,758,428
Other
	Total assets	$	750,040	$	715,275	$	686,748
	Loans		449,836		376,091		362,626
	Deposits		823,872		800,015		835,934


	At September 30,							Average for the nine months

Balance Sheet Highlights	2003		2002		Change			2003		2002		Change
(In thousands)

Money market investments	$	773,338	$	1,153,079	$	(379,741	)	$	858,873	$	876,401	$	(17,528	)
Investment and trading securities		11,198,602		10,771,435		427,167			11,307,404		10,243,457		1,063,947
Loans		21,707,755		19,263,508		2,444,247			20,264,238		18,517,164		1,747,074
Total assets		35,777,187		32,843,126		2,934,061			34,290,003		31,234,800		3,055,203
Deposits		17,655,992		17,057,856		598,136			17,724,580		16,859,835		864,745
Borrowings		14,772,202		12,832,702		1,939,500			13,546,829		11,768,240		1,778,589
Stockholders’ equity		2,751,006		2,319,012		431,994			2,492,582		2,135,096		357,486


	Third Quarter							Nine months

Operating Highlights	2003		2002		Change			2003		2002		Change
(In thousands, except per share information)

Net interest income	$	329,017	$	296,955	$	32,062		$	965,925	$	877,048	$	88,877
Provision for loan losses		48,668		50,992		(2,324	)		146,202		155,521		(9,319	)
Fees and other income		171,835		117,494		54,341			476,167		382,890		93,277
Other expenses, net of minority interest		321,258		277,703		43,555			931,268		833,314		97,954
Net income	$	130,926	$	85,754	$	45,172		$	364,622	$	271,103	$	93,519
Net income applicable to common stock	$	127,947	$	85,754	$	42,193		$	357,681	$	268,593	$	89,088
Earnings per common share (basic and diluted)	$	0.96	$	0.65	$	0.31		$	2.69	$	2.00	$	0.69


a) Exhibit No.		Exhibit Description

12.1		Computation of the ratios of earnings to fixed charges and preferred stock dividends.

31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


Dated:		July 18, 2003

Items reported:		Item 7 – Financial Statements and Exhibits (News release dated July 15, 2003, announcing Popular, Inc.’s consolidated earnings for the quarter ended June 30, 2003)

		Item 9 – Regulation FD Disclosure (Information furnished under this Item 9 is provided under “Item 12 – Results of Operations and Financial Condition” in accordance with SEC Release No. 33-8216)

Dated:		August 7, 2003

Items reported:		Item 7 – Financial Statements, Pro Forma Financial Information and Exhibits (Exhibit 99(a) — Quarterly Report to Shareholders for the quarter ended June 30, 2003)

		Item 12 – Disclosure of Results of Operations and Financial Condition (Quarterly Report to Shareholders including the unaudited operational results for the quarter ended June 30, 2003)


			POPULAR, INC. (Registrant)

Date:	November 13, 2003	By:	/s/ Jorge A. Junquera

			Jorge A. Junquera
		Chief Financial Officer

Date:	November 13, 2003	By:	/s/ Amílcar L. Jordán

			Amílcar L. Jordán, Esq.
		Senior Vice President & Comptroller