Popular, Inc. (“the Corporation”) (NASDAQ: BPOP) reported a net
loss of $85.1 million for the quarter ended March 31, 2010,
compared with a net loss of $213.2 million for the quarter ended
December 31, 2009, and a net loss of $52.5 million for the quarter
ended March 31, 2009.
Refer to the accompanying Exhibit A - Financial Summary for “per
common share” information and key performance ratios. Also, refer
to Exhibit B for summarized income statement information by
reportable segment.
The principal item impacting the financial results for the
quarter ended March 31, 2010, when compared with the quarter ended
December 31, 2009, was a reduction in the provision for loan losses
of $112.6 million. This decrease in the provision for loan losses
reflects lower net charge-offs by $74.6 million, mainly in the
Puerto Rico construction and commercial loan portfolios, and in the
United States mainland home equity lines of credit portfolio,
combined with higher reserve provisioning during the fourth quarter
of 2009, particularly for the commercial loan sector. Also, the
decrease in the provision for loan losses for the first quarter of
2010 relates in part to a reduction of approximately $635 million
in loans held-in-portfolio, principally in the U.S. mainland. The
ratio of allowance for loan losses to loans held-in-portfolio was
5.53% at March 31, 2010, compared with 5.32% at
December 31, 2009.
“While these results reflect a slight improvement in credit
trends, we remain cautious for 2010 due to the complicated economic
environment in Puerto Rico and the slow recovery in the United
States. We continue to reinforce our asset management, servicing
and workout teams. In spite of the economic headwinds, our revenue
line has remained stable and we have implemented a number of
measures to control costs,” said Richard L. Carrión, Chairman of
the Board and Chief Executive Officer of Popular, Inc.
We were pleased to announce the successful completion of the
Corporation’s stock offering and are encouraged by the support
received. On April 19, 2010, the Corporation announced that it
raised $1.15 billion through the sale of 46,000,000 depositary
shares, each representing a 1/40th interest in a share of
Contingent Convertible Perpetual Non-Cumulative Preferred Stock,
Series D, no par value, $1,000 liquidation preference per share.
The preferred stock represented by depositary shares will
automatically convert into shares of Popular common stock at a
conversion rate of 8.3333 shares of common stock for each
depositary share on the fifth business day after Popular’s common
shareholders approve an amendment to increase the number of
authorized shares. The conversion of the preferred stock would
result in the issuance of over 383 million additional shares of
common stock. The net proceeds from the public offering amounted to
approximately $1.1 billion, after deducting the underwriting
discount and estimated offering expenses. Popular intends to use
the net proceeds of the offering for general corporate purposes,
including investments in, or extensions of credit to, its
subsidiaries to increase their capital, including positioning
Popular to participate in FDIC-assisted transactions.
Carrión further stated, “The share offering that we completed
this week substantially strengthens our balance sheet, giving us
the opportunity to pursue growth opportunities and withstand a
prolonged economic downturn. The offering is a vote of confidence
in Popular and the future of Puerto Rico. We are committed to
supporting the recovery of our main market, where we have operated
since 1893.”
Net Interest
Income
Net interest income for the first quarter of 2010 was $268.9
million, compared with $269.3 million for the fourth quarter of
2009 and $272.5 million for the first quarter of 2009.
The following table summarizes the
principal changes in average earning assets and funding sources and
their corresponding yields and costs for the quarters ended March
31, 2010, December 31, 2009 and March 31, 2009.
Average balances
Average Yields / Costs
(Dollars in billions)
1st Quarter 2010
4th Quarter 2009
1st Quarter 2009
1st Quarter 2010
4th Quarter 2009
1st Quarter 2009
Money market, trading and investment securities $8.1
$8.7 $9.8 3.57% 3.51% 3.60% Loans:
Commercial (a) 14.2 14.7 15.8 4.85 4.75
4.96 Mortgage 4.5 4.5 4.5 6.13 6.05 6.70 Consumer 4.0 4.1 4.6 10.25
10.11 9.97 Lease financing 0.7 0.7 0.9
8.71 8.61 8.45 Total loans 23.4 24.0
25.8 6.13 6.02 6.28 Total earning
assets $31.5 $32.7 $35.6 5.47%
5.35% 5.54% Interest bearing deposits $21.1 $21.8
$23.2 1.78% 1.92% 2.58% Borrowings 5.1 5.3 6.8
5.22 4.90 4.11 Total interest bearing
liabilities 26.2 27.1 30.0 2.45
2.50 2.93 Non-interest bearing sources of funds 5.3
5.6 5.6
Total funds $31.5 $32.7 $35.6 2.04%
2.07% 2.47% Net interest spread
3.02% 2.85% 2.61% Net
interest yield (b)
3.43% 3.28% 3.07%
(a) Includes commercial
construction loans
(b) Not on a taxable equivalent
basis
Net interest yield for the quarter ended
March 31, 2010 increased by 15 basis points, compared with the net
interest yield for the quarter ended December 31, 2009. This
improvement was mainly due to a reduction in the costs of deposits,
mainly certificates of deposits and money market accounts,
principally resulting from management’s actions to lower the rates
paid on certain deposits. Partially offsetting this improvement was
an increase in the cost of long-term borrowings, mainly from the
higher average cost of certain unsecured senior notes of the
Corporation that were subject to an increase in the interest rate
because of rating downgrades, including a reset in December
2009.
The reduction in average earning assets for the quarter ended
March 31, 2010, compared with the quarter ended December 31, 2009
was mostly due to a decline in the loan portfolio principally in
commercial, construction and consumer loans, in part due to lower
loan origination activities in credit markets that continue to be
tight, loan portfolios running-off in certain business areas which
the Corporation exited during 2008 and 2009, and loans charged-off
in all categories. Also, a decrease in the average balance of
investment securities, in part as a result of prepayments in the
mortgage-backed securities portfolio, and a lower balance of
short-term investments contributed to the reduction in average
earning assets. As shown in the preceding table, the Corporation
also experienced a decline in average deposits during the first
quarter of 2010, principally certificates of deposits, both in the
Corporation’s Puerto Rico and U.S. mainland operations. This
decrease was mainly reflected in retail deposits, influenced in
part by the continued reduction in the pricing of certificates of
deposits, and in brokered certificates of deposit due to maturities
during the quarter ended March 31, 2010.
The decrease in net interest income for the first quarter of
2010, compared with the same quarter of 2009, was primarily due to
lower average balances of earning assets, principally loans and
investment securities, partially offset by the impact of lower
average volume of borrowings and time deposits. The decline in the
average volume of loans was principally in commercial, lease
financing and consumer loans. This was influenced by lower
origination activity, loan charge-offs, the sale of most of the
lease financing portfolio in the U.S. mainland operations in early
2009, and the impact of the running-off portfolio related to the
downsizing or discontinuance of certain loan origination units in
the U.S. mainland. The Corporation’s deposit volume and borrowings
decreased in part associated with deleverage driven by the
reduction in the earning assets they fund. The improvement in the
net interest yield for the first quarter of 2010, compared with the
same quarter in 2009, was principally due to a decrease in the cost
of interest-bearing deposits, partially offset by lower loan yields
in the mortgage, commercial and construction loan portfolios
associated in part with greater levels of non-accruing loans. Also,
negatively impacting the Corporation’s net interest margin for the
quarter ended March 31, 2010, compared with the first quarter of
2009, was an increase in the cost of long-term debt. This latter
increase was influenced by $16.8 million in interest expense
related to the exchange of Series C preferred stock for trust
preferred securities, which occurred in August 2009 (this expense
was characterized as dividends prior to the exchange), the increase
in the cost of certain unsecured medium-term notes due to various
credit rating downgrades during 2009, and the maturities during
2009 of term notes that carried a lower cost. These negative
variances were partially offset by a reduction in interest expense
of $7.4 million due to the exchange of certain of the Corporation’s
trust preferred securities for common stock in August 2009.
Credit Quality
As previously indicated, the Corporation’s allowance for loan
losses represented 5.53% of loans held-in-portfolio as of March 31,
2010, compared with 5.32% as of December 31, 2009 and 4.19% as of
March 31, 2009.
Provision for Loan
Losses
The provision for loan losses totaled $240.2 million or 107% of
net charge-offs for the quarter ended March 31, 2010, compared with
$352.8 million or 118% of net charge-offs for the quarter ended
December 31, 2009, and $372.5 million or 188% of net charge-offs
for the quarter ended March 31, 2009.
The lower provision for loan losses for the first quarter of
2010, compared with the fourth quarter of 2009, was the result of
an $83.8 million decrease in the provision related to the U.S.
mainland loan portfolios and $28.8 million in the Puerto Rico
operations. The decrease in the U.S. mainland operations was mainly
due to lower net charge-offs in the first quarter of 2010 by $30.8
million, principally home equity lines of credit and closed-end
second mortgages, and higher reserve provisioning in the fourth
quarter of 2009. The decrease in the Puerto Rico operations was
primarily attributed to lower net charge-offs by $43.8 million,
mainly in the construction and commercial loan portfolios. Also,
the decrease in the provision for loan losses for the quarter ended
March 31, 2010 when compared to the quarter ended December 31, 2009
was influenced by the abovementioned reduction in loans
held-in-portfolio, principally in the U.S. mainland.
When compared with the first quarter of 2009, the provision for
loan losses for the first quarter of 2010 decreased by $132.3
million, in spite of an increase of $26.2 million in net
charge-offs. This decrease in the provision for loan losses was
mainly the result of higher amounts provisioned during 2009,
particularly for commercial and construction loans, U.S. mainland
non-conventional residential mortgage loans and home equity lines
of credit, combined with specific reserves recorded for loans
considered impaired. The deteriorated conditions of the Puerto Rico
and U.S. economies that prevailed during 2009, declines in property
values, and slowdown in consumer spending, negatively impacted the
Corporation’s net charge-offs and non-performing assets levels,
thus demanding substantial reserve increases in 2009. The decrease
of approximately $2.2 billion in loans held-in-portfolio since
March 31, 2009, particularly in the commercial, construction and
consumer loan portfolios, also contributed to the lower level of
provision for loan losses for the first quarter of 2010.
The following table summarizes the changes in the allowance for
loan losses for the periods indicated:
(In thousands)
1st Quarter 2010
4th Quarter 2009
1st Quarter 2009 Balance as of the beginning of the period
$1,261,204 $1,207,401 $882,807 Provision for
loan losses 240,200 352,771 372,529
1,501,404 1,560,172 1,255,336 Net loans
charged-off: Commercial 79,117 92,938 41,336 Construction 51,438
92,642 44,808 Lease financing 3,934 4,470 4,958 Mortgage 27,374
30,503 31,148 Consumer 62,505 78,415 75,961
Total net charge-offs 224,368 298,968 198,211
Balance as of the end of the period $1,277,036
$1,261,204 $1,057,125
The following table presents annualized net charge-offs to
average loans held-in-portfolio:
1st Quarter 2010
4th Quarter 2009
1st Quarter 2009
Commercial 2.54% 2.88% 1.22% Construction
12.30 20.37 8.16 Lease financing 2.39 2.63 2.73 Mortgage 2.43 2.74
2.83 Consumer 6.27 7.60 6.63 Total
3.85% 4.98% 3.12%
Construction loan net charge-offs experienced a decrease during
the quarter ended March 31, 2010 when compared with the fourth
quarter of 2009. In the Banco Popular de Puerto Rico (“BPPR”)
reportable segment, the construction loan net charge-offs declined
by $33.0 million while in the Banco Popular North America (“BPNA”)
reportable segment the decline was $8.2 million. These reductions
were mainly related to residential development projects, which were
charged-off during the fourth quarter of 2009. Most of these
credits were previously identified as impaired loans and specific
reserves were established in prior quarters. A significant portion
of the construction loan net charge-offs in the Corporation’s U.S.
mainland operations recorded during the fourth quarter of 2009 were
associated with projects located in the South Florida region.
The decrease in commercial loan net charge-offs for the quarter
ended March 31, 2010, compared with the quarter ended December 31,
2009, was attributed to the BPPR reportable segment by $10.1
million and the BPNA reportable segment by $3.7 million.
The decrease in consumer loans net charge-offs for the quarter
ended March 31, 2010, compared with the quarter ended December 31,
2009, was primarily associated with E-LOAN’s home equity lines of
credit and closed-end second mortgages, which constitute
running-off loan portfolios. These portfolios have experienced
recent improved delinquency trends. Consumer loans net charge-offs
in the BPPR reportable segment decreased in the first quarter of
2010, compared with the fourth quarter of 2009, reflecting
favorable delinquency trends in some portfolios.
The decrease in mortgage loans net charge-offs for the quarter
ended March 31, 2010, compared with the quarter ended December 31,
2009, was mainly related to the U.S. mainland non-conventional
mortgage business. Such reduction was offset by an increase in the
BPPR reportable segment, which has continued to be negatively
impacted by the sustained economic deterioration in Puerto Rico.
The Corporation’s net charge-off ratios for mortgages in Puerto
Rico and the U.S. mainland operations for the quarter ended March
31, 2010 were 0.47% and 6.59%, respectively, compared with 0.36%
and 7.42% for the quarter ended December 31, 2009.
Non-performing assets
The following table presents non-performing assets by type and
non-performing loans as a percentage of loans held-in-portfolio
(“HIP”):
(Dollars in thousands)
March 31, 2010
As a percentage of loans HIP by
category
December 31, 2009
As a percentage of loans HIP by
category
March 31, 2009
As a percentage of loans HIP by
category
Commercial $836,509 6.8% $836,728 6.6%
$524,577 3.9% Construction 852,095 52.6 854,937 49.6
435,383 20.2 Lease financing 7,837 1.2 9,655 1.4 13,270 1.8
Mortgage 558,384 12.0 510,847 11.1 352,812 7.8 Consumer
58,431 1.5 64,185 1.6 77,860 1.7
Total non-performing loans 2,313,256 10.0% 2,276,352 9.6% 1,403,902
5.6% Other real estate 134,887 125,483
95,773 Total non-performing
assets $2,448,143 $2,401,835
$1,499,675 Non-performing assets to
total assets 7.24% 6.91% 3.98% Allowance for loan losses to loans
held-in-portfolio 5.53 5.32 4.19
Allowance for loan losses to
non-performing loans
55.21 55.40 75.30
The increases from December 31, 2009 to March 31, 2010 in
non-performing loans were concentrated in residential mortgage
loans, principally in the BPPR reportable segment by $65.6 million,
partially offset by a reduction in the BPNA reportable segment of
$18.4 million. Deteriorated economic conditions in Puerto Rico have
continued to adversely impact the mortgage delinquency rates. Also,
construction loans in non-performing status in the BPPR reportable
segment increased by $24.7 million offset by a reduction in the
BPNA reportable segment of $27.5 million. At the consolidated
level, the commercial, construction, consumer and lease financing
non-performing loans as of March 31, 2010 decreased slightly
compared with December 31, 2009. The increase in total
non-performing loans as a percentage of total loans
held-in-portfolio from December 31, 2009 to March 31, 2010 was
mostly influenced by the rise in the level of non-performing
mortgage loans and decreases in the commercial, construction and
consumer loan portfolios. Refer to the Balance Sheet Comments
section of this news release for a breakdown of the loan portfolio
by major loan categories.
As of March 31, 2010, non-performing loans secured by real
estate amounted to $1.4 billion or 16.03% of total loans secured by
real estate in the Puerto Rico operations and $658 million or
10.47%, respectively, in the U.S. mainland operations. These
figures compare to $1.3 billion or 14.9% in the Puerto Rico
operations and $697 million or 10.7% in the U.S. mainland
operations as of December 31, 2009.
The Corporation’s commercial loan portfolio secured by
commercial real estate (“CRE”), excluding construction loans,
amounted to $7.4 billion as of March 31, 2010, of which $3.3
billion was secured with owner occupied properties, compared with
$7.5 billion and $3.4 billion, respectively, as of December 31,
2009. CRE non-performing loans amounted to $597 million, or 8.10%
of CRE loans as of March 31, 2010 compared to $557 million, or
7.41% as of December 31, 2009. The CRE non-performing loans ratios
for the Corporation’s Puerto Rico and U.S. mainland operations were
9.18% and 6.85%, respectively, as of March 31, 2010, compared with
8.29% and 6.39%, respectively, as of December 31, 2009.
Allowance for Loan
Losses
The following table sets forth information concerning the
composition of the Corporation's allowance for loan losses (“ALLL”)
as of March 31, 2010 and December 31, 2009 by loan category and by
whether the allowance and related provisions were calculated
individually pursuant to the requirements for specific impairment
or through a general valuation allowance:
MARCH 31, 2010 (Dollars in thousands)
Commercial Construction Lease
Financing Mortgage Consumer
Total Specific ALLL $120,419 $160,395 -
$64,791 - $345,605 Impaired loans 662,697
841,043 - 251,239 - 1,754,979 Specific ALLL to impaired loans
18.17% 19.07% - 25.79% -
19.69% General ALLL $342,023 $186,849 $18,653 $100,081 $283,825
$931,431 Loans held-in-portfolio, excluding impaired loans
11,587,894 777,785 653,734 4,397,984 3,905,923 21,323,320 General
ALLL to loans held-in-portfolio, excluding impaired loans
2.95% 24.02% 2.85% 2.28% 7.27%
4.37% Total ALLL $462,442 $347,244 $18,653 $164,872 $283,825
$1,277,036 Total loans held-in-portfolio 12,250,591 1,618,828
653,734 4,649,223 3,905,923 23,078,299 ALLL to loans
held-in-portfolio 3.77% 21.45% 2.85%
3.55% 7.27% 5.53%
DECEMBER 31, 2009
(Dollars in thousands) Commercial
Construction Lease Financing
Mortgage Consumer Total Specific
ALLL $108,769 $162,907 - $52,211
- $323,887 Impaired loans 645,513 841,361 - 186,747 -
1,673,621 Specific ALLL to impaired loans 16.85%
19.36% - 27.96% - 19.35% General ALLL
$328,940 $178,412 $18,558 $102,400 $309,007 $937,317 Loans
held-in-portfolio, excluding impaired loans 12,018,546 883,012
675,629 4,416,498 4,045,807 22,039,492 General ALLL to loans
held-in-portfolio, excluding impaired loans 2.74%
20.20% 2.75% 2.32% 7.64% 4.25% Total
ALLL $437,709 $341,319 $18,558 $154,611 $309,007 $1,261,204 Total
loans held-in-portfolio 12,664,059 1,724,373 675,629 4,603,245
4,045,807 23,713,113 ALLL to loans held-in-portfolio 3.46%
19.79% 2.75% 3.36% 7.64% 5.32%
The increase in the allowance for loan losses from December 31,
2009 to March 31, 2010 was primarily attributable to increased
reserves for commercial and mortgage loans, partially offset by a
decline in the reserve for consumer loans. The construction loan
portfolio continues to maintain the highest allowance coverage due
to the persistent deterioration of the economic and housing market
conditions in Puerto Rico, and also in the U.S. mainland. The
increase in the allowance for loan losses for the commercial loan
portfolio as of March 31, 2010 was mainly attributed to BPNA. The
increase in the allowance for loan losses for mortgage loans from
December 31, 2009 to March 31, 2010 was influenced by the high
level of delinquent mortgages and higher loss severity,
particularly in Puerto Rico. The reduction in the allowance for
loan losses for the consumer loan portfolio was mainly driven by
recent improved performance trends in certain portfolios combined
with portfolio reductions in the Puerto Rico and U.S. mainland
operations.
The Corporation’s recorded investment in commercial,
construction and mortgage loans that were individually evaluated
for impairment and the related allowance for loan losses as of
March 31, 2010, December 31, 2009, and March 31, 2009 were:
March 31,
2010 December 31, 2009 March 31, 2009
(In millions)
Recorded Investment
Allowance for loan losses Recorded Investment
Allowance for loan losses Recorded Investment
Allowance for loan losses Impaired loans:
Allowance for loan losses required $1,329.0 $345.6 $1,263.3 $323.9
$903.1 $279.2 No allowance for loan losses required 426.0
- 410.3 - 238.6 - Total impaired
loans $1,755.0 $345.6 $1,673.6 $323.9
$1,141.7 $279.2
The following tables set forth an analysis of the activity in
the specific reserves for impaired loans for the quarters ended
March 31, 2010, December 31, 2009 and March 31, 2009:
For the quarter ended March 31, 2010
(In thousands) Commercial Loans Construction Loans
Mortgage Loans Total Specific ALLL as of December 31,
2009 $108,769 $162,907 $52,211 $323,887
Provision for impaired loans 50,750 48,429 18,981 118,160 Less: Net
charge-offs 39,100 50,941 6,401 96,442
Specific ALLL as of March 31, 2010 $120,419 $160,395
$64,791 $345,605 For the
quarter ended December 31, 2009 (In thousands) Commercial
Loans Construction Loans Mortgage Loans Total
Specific ALLL as of October 1, 2009 $106,701 $171,031
$35,492 $313,224 Provision for impaired loans 45,370 84,155
25,188 154,713 Less: Net charge-offs 43,302 92,279
8,469 144,050 Specific ALLL as of December 31, 2009
$108,769 $162,907 $52,211 $323,887
For the quarter ended March 31, 2009
(In thousands) Commercial Loans Construction Loans
Mortgage Loans Total Specific ALLL as of January 1,
2009 $61,261 $119,566 $13,895 $194,722
Provision for impaired loans 35,409 95,213 13,958 144,580 Less: Net
charge-offs 16,743 37,571 5,792 60,106
Specific ALLL as of March 31, 2009 $79,927 $177,208
$22,061 $279,196
The Corporation’s specific allowance for loans losses as of
March 31, 2010 increased by $22 million when compared with December
31, 2009, primarily attributed to the commercial and mortgage loan
portfolios. For the quarter ended March 31, 2010, total net
charge-offs for individually evaluated impaired loans amounted to
approximately $96.4 million, principally from the BPNA reportable
segment. These net charge-offs for the quarter ended March 31, 2010
consisted mostly of construction loan net charge-offs of $50.9
million, of which $26.3 million pertained to the BPPR reportable
segment and $24.6 million to the BPNA reportable segment.
Due to the weakened economic conditions, the Corporation’s
credit quality will continue to remain stressed in 2010,
principally in mortgage-related assets. The sustained low
absorption levels could result in further deterioration in property
values, particularly in Puerto Rico.
Non-interest
Income
Non-interest income totaled $157.9 million for the quarter ended
March 31, 2010 compared with $175.9 million for the quarter ended
December 31, 2009 and $334.7 million for the quarter ended March
31, 2009.
The decrease of $18.0 million in non-interest income for the
quarter ended March 31, 2010, compared with the quarter ended
December 31, 2009, was principally due to an unfavorable variance
in the caption of loss on sale of loans by $13.2 million. The
non-interest income for the first quarter of 2010 was reduced by a
charge of $15.7 million to increase the loss indemnity reserve for
mortgage loans that had been previously sold with credit recourse
by the Corporation’s Puerto Rico operations. The increase in the
indemnity reserve was driven by higher delinquency and loss
severity levels. Also, the decrease in non-interest income for such
periods was influenced by an unfavorable variance in trading
account profit in the Puerto Rico operations by $8.7 million,
mostly related to the mortgage banking business.
The decrease of $176.9 million in non-interest income for the
quarter ended March 31, 2010, compared with the same quarter in
2009, was mostly driven by lower net gains on the sale and
valuation adjustments of investment securities by $176.1 million.
Non-interest income for the first quarter of 2009 included gains of
$182.7 million associated with the sale of $3.4 billion of
investment securities by BPPR, partially offset by
other-than-temporary impairment losses on certain equity
securities.
Operating
Expenses
Operating expenses totaled $280.9 million for the quarter ended
March 31, 2010, compared with $298.8 million for the quarter ended
December 31, 2009 and $304.2 million for the quarter ended March
31, 2009.
The decrease of $17.9 million in operating expenses for the
first quarter of 2010, compared with the fourth quarter of 2009,
was principally associated with lower business promotion,
professional fees and valuation adjustments on other real estate
properties.
The decrease of $23.3 million in operating expenses for the
quarter ended March 31, 2010 when compared with the same quarter of
the previous year was principally due to lower personnel costs by
$24.4 million. The reduction in personnel costs included reductions
associated with the pension, postretirement medical and savings
plans, as well as a reduction in salaries in part due to headcount
reduction, principally in the U.S. mainland operations. Full time
equivalent employees were 9,373 as of March 31, 2010, compared with
10,186 as of March 31, 2009.
Income Taxes
Income tax benefit amounted to $9.3 million for the quarter
ended March 31, 2010, compared with an income tax expense of $6.9
million for the quarter ended December 31, 2009 and income tax
benefit of $26.9 million for the quarter ended March 31, 2009.
The variance in income tax for the first quarter of 2010 when
compared with the fourth quarter of 2009 was mainly due to the
recognition of previously unrecognized tax benefits amounting to
$14.3 million during the quarter ended March 2010.
The decrease in income tax benefit for the first quarter of 2010
when compared with the same quarter in 2009 was primarily due to
lower capital gain income subject to a preferential tax rate of 15%
in Puerto Rico and a reduction in net exempt interest income. Also,
during the first quarter of 2009, a tax benefit was recognized due
to the increase in the deferred tax asset as a result of the
temporary increase in the statutory tax rate applicable to Puerto
Rico operations. In addition, during the quarter ended March 2009
there was a higher reversal in the U.S. mainland valuation
allowance due to the carryback of the net operating losses.
Balance Sheet
Comments:
The accompanying Exhibit A provides information on the principal
categories of the Corporation’s balance sheet as of March 31, 2010,
December 31, 2009 and March 31, 2009, and the following sections
provide more detailed information.
Investment
securities
The Corporation’s portfolio of investment securities
available-for-sale and held-to-maturity totaled $6.7 billion as of
March 31, 2010, compared with $6.9 billion as of December 31, 2009
and $7.3 billion as of March 31, 2009. The portfolio primarily
consists of very liquid, high quality securities. The reduction in
investment securities from December 31, 2009 to March 31, 2010 was
principally in mortgage-backed securities and collateralized
mortgage obligations and was impacted mostly by prepayments. The
decline in the investment securities from March 31, 2009 to the
same date in 2010 was mainly associated with sales, maturities and
prepayments of investment securities. The proceeds from these
activities were not fully reinvested as part of a strategy to
deleverage the balance sheet.
Loans
A breakdown of the Corporation’s loan portfolio as of
period-end, which represents the principal category of earning
assets, follows:
(In billions) March 31, 2010 December
31, 2009 Variance March 31, 2009 Variance
Commercial $12.3 $12.7 ($0.4)
$13.4 ($1.1) Construction 1.6 1.7 (0.1) 2.2 (0.6) Mortgage 4.7 4.7
- 4.7 - Consumer 3.9 4.0 (0.1) 4.5 (0.6) Lease financing 0.7
0.7 - 0.8 (0.1) Total loans
$23.2 $23.8 ($0.6) $25.6 ($2.4)
The reduction in commercial and construction loans between
December 31, 2009 and March 31, 2010 was principally due to slow
loan origination activity and credit markets continuing to be
tight, as well as net charge-offs for the quarter. Also, the
decrease in the commercial loan portfolio was associated with the
Corporation’s decision to exit or downsize certain business lines
at BPNA, which portfolios are currently in a run-off mode. Overall,
the reduction in loans held-in-portfolio from December 31, 2009 to
March 31, 2010 was also impacted by the $224.4 million in loans
charged-off during the quarter ended March 31, 2010.
The reductions in commercial and construction loans from March
31, 2009 to March 31, 2010 were associated with similar factors
described above as well as high levels of loan charge-offs. The
decline in the consumer loan portfolio was mainly related to
run-off of existing portfolios, principally exited lines of
businesses at the BPNA operations, including E-LOAN, and Popular
Finance, as well as the reduction caused by the consumer loan net
charge-offs and a decline in the Puerto Rico’s auto loan
portfolio.
Deposits
A breakdown of the Corporation’s deposits as of period-end
follows:
(In billions) March 31, 2010 December
31, 2009 Variance March 31, 2009 Variance
Demand * $5.1 $5.1 - $4.9 $0.2
Savings 9.8 9.6 $0.2 9.7 0.1 Time 10.5 11.2
(0.7) 12.5 (2.0) Total deposits $25.4
$25.9 ($0.5) $27.1 ($1.7) * Includes
non-interest and interest bearing demand deposits
Brokered certificates of deposit, which are included as time
deposits, amounted to $2.4 billion as of March 31, 2010 compared
with $2.7 billion as of December 31, 2009 and March 31, 2009.
The decrease in time deposits from December 31, 2009 to March
31, 2010, excluding brokered certificates of deposit, occurred both
in the Corporation’s Puerto Rico and U.S. mainland operations. The
reduction in time deposits was principally in retail deposits
influenced in part by the continued reduction in the pricing of
certificates of deposit. There was also a decrease in time deposits
for corporate accounts, which was offset by increases in commercial
savings accounts.
Borrowings and
capital
The accompanying Exhibit A also provides information on
borrowings and stockholders’ equity as of March 31, 2010, December
31, 2009 and March 31, 2009.
The Corporation’s borrowings amounted to $5.0 billion as of
March 31, 2010, compared with $5.3 billion as of December 31, 2009
and $6.3 billion as of March 31, 2009. The reduction in borrowings
from March 31, 2009 to March 31, 2010 was the result of the decline
in earning assets and management’s determination to deleverage the
Corporation’s balance sheet through a reduction in borrowings,
principally from the maturity of unsecured senior debt of Popular
North America and repurchase agreements.
Stockholders’ equity totaled $2.5 billion as of March 31, 2010
and December 31, 2009, compared with $3.1 billion as of March 31,
2009. The decrease in stockholders’ equity from March 31, 2009 to
March 31, 2010 was mainly related to the net loss recorded during
2009 and first quarter of 2010.
Popular, Inc.'s capital ratios continued to exceed all
“well-capitalized” regulatory benchmarks at March 31, 2010. Below
is a summary of the Corporation’s regulatory capital ratios as of
March 31, 2010 and December 31, 2009. Also, the table includes the
estimated pro-forma capital ratios as of March 31, 2010, assuming
the Corporation’s offering of $1.15 billion of depository shares
had been completed as of March 31, 2010.
March 31, 2010 December 31, 2009
Minimum required
Pro-forma March 31, 2010
Tier 1 risk-based capital
9.51% 9.81% 4.00% 13.95% Total risk-based capital 10.96% 11.13%
8.00% 15.25% Tier 1 leverage 7.34% 7.50% 3.00%
- 4.00% 10.75%
Rules adopted by the federal banking agencies provide that a
depository institution will be deemed to be well capitalized if it
maintains a leverage ratio of at least 5%, a Tier 1 risk-based
capital ratio of at least 6% and a total risk-based capital ratio
of at least 10%.
The Corporation’s tangible common equity amounted to $1.8
billion as of March 31, 2010 and December 31, 2009. The
Corporation’s Tier 1 common equity to risk-weighted assets ratio
was 6.12% as of March 31, 2010 and 6.39% as of December 31,
2009.
Regulatory capital requirements for banking institutions are
based on Tier 1 and Total capital, which include both common stock
and certain qualifying preferred stock.
Reconciliation of Non-GAAP
Financial Measures:
The tables below present a reconciliation of tangible common
equity to total stockholders’ equity and Tier 1 common equity to
common stockholders’ equity. Ratios calculated based upon Tier 1
common equity have become a focus of regulators and investors, and
management believes ratios based on Tier 1 common equity assist
investors in analyzing the Corporation’s capital position. Because
Tier 1 common equity is not formally defined by GAAP or, unlike
Tier 1 capital, codified in the federal banking regulations, this
measure is considered to be a non-GAAP financial measure.
Non-GAAP financial measures have inherent limitations, are not
required to be uniformly applied and are not audited. To mitigate
these limitations, the Corporation has procedures in place to
calculate these measures using the appropriate GAAP or regulatory
components. Although these non-GAAP financial measures are
frequently used by stakeholders in the evaluation of a company,
they have limitations as analytical tools, and should not be
considered in isolation, or as a substitute for analyses of results
as reported under GAAP.
The following table provides a reconciliation of total
stockholders’ equity to tangible common equity:
(In thousands)
March 31, 2010
December 31, 2009
Total stockholders’ equity $2,487,201 $2,538,817
Less: Preferred stock (50,160) (50,160) Less: Goodwill (604,349)
(604,349) Less: Other intangibles (41,762) (43,803)
Total tangible common equity $1,790,930 $1,840,505
The following table provides a reconciliation of common
stockholders’ equity (GAAP) to Tier 1 common equity (non-GAAP):
(In thousands)
March 31, 2010
December 31, 2009
Common stockholders’ equity $2,437,041 $2,488,657
Less: Unrealized gains on available for sale securities, net of tax
(1) (122,325) (91,068) Less: Disallowed deferred tax assets (2)
(210,142) (179,655) Less: Intangible assets: Goodwill (604,349)
(604,349) Other disallowed intangibles (14,467) (18,056) Less:
Aggregate adjusted carrying value of all non-financial equity
investments (2,220) (2,343) Add: Pension liability adjustment, net
of tax and accumulated net gains (losses) on cash flow hedges (3)
78,373 78,488
Total Tier 1 common equity
$1,561,911 $1,671,674 (1) In accordance with
regulatory risk-based capital guidelines, Tier 1 capital excludes
net unrealized gains (losses) on available-for-sale debt securities
and net unrealized gains on available-for-sale equity securities
with readily determinable fair values. In arriving at Tier 1
capital, institutions are required to deduct net unrealized losses
on available-for-sale equity securities with readily determinable
fair values, net of tax. (2) Approximately $165 million of the
Corporation’s $366 million of net deferred tax assets as of March
31, 2010 ($186 million and $364 million, respectively as of
December 31, 2009), were included without limitation in regulatory
capital pursuant to the risk-based capital guidelines, while
approximately $210 million of such assets as of March 31, 2010
($180 million as of December 31, 2009) exceeded the limitation
imposed by these guidelines and, as “disallowed deferred tax
assets,” were deducted in arriving at Tier 1 capital. The remaining
$9 million of the Corporation’s other net deferred tax assets as of
March 31, 2010 ($2 million as of December 31, 2009) represented
primarily the following items (a) the deferred tax effects of
unrealized gains and losses on available-for-sale debt securities,
which are permitted to be excluded prior to deriving the amount of
net deferred tax assets subject to limitation under the guidelines;
(b) the deferred tax asset corresponding to the pension liability
adjustment recorded as part of accumulated other comprehensive
income; and (c) the deferred tax liability associated with goodwill
and other intangibles. (3) The Federal Reserve Bank has
granted interim capital relief for the impact of pension liability
adjustment.
Forward-Looking
Statements:
The information included in this news release contains certain
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are
based on management’s current expectations and involve certain
risks and uncertainties that may cause actual results to differ
materially from those expressed in forward-looking statements.
Factors that might cause such a difference include, but are not
limited to (i) the rate of declining growth in the economy and
employment levels, as well as general business and economic
conditions; (ii) changes in interest rates, as well as the
magnitude of such changes; (iii) the fiscal and monetary policies
of the federal government and its agencies; (iv) changes in federal
bank regulatory and supervisory policies, including required levels
of capital; (v) the relative strength or weakness of the consumer
and commercial credit sectors and of the real estate markets in
Puerto Rico and the other markets in which borrowers are located;
(vi) the performance of the stock and bond markets; (vii)
competition in the financial services industry; (viii) possible
legislative, tax or regulatory changes; and (ix) difficulties in
combining the operations of acquired entities. For a discussion of
such factors and certain risks and uncertainties to which the
Corporation is subject, see the Corporation’s Annual Report on Form
10-K for the year ended December 31, 2009 as well as its filings
with the U.S. Securities and Exchange Commission. Other than to the
extent required by applicable law, including the requirements of
applicable securities laws, 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.
Founded in 1893, Popular, Inc. is the leading banking
institution by both assets and deposits in Puerto Rico and ranks
38th by assets among U.S. banks. In the United States, Popular has
established a community-banking franchise providing a broad range
of financial services and products with branches in New York, New
Jersey, Illinois, Florida and California. Popular provides
processing technology services through its subsidiary EVERTEC,
which processes approximately 1.1 billion transactions annually in
the Caribbean and Latin America.
An electronic version of this press release can be found at the
Corporation’s website, www.popular.com.
EXHIBIT A
POPULAR, INC. Financial Summary (Unaudited)
Quarter ended
March 31,
1st Quarter
2010 vs 2009
Quarter ended
December 31,
1st Quarter 2010
vs 4th Quarter 2009
2010 2009 $ Variance 2009 $
Variance
Summary of Operations --- (In thousands, except share
information) Interest income
$427,195 $489,192
($61,997) $440,296 ($13,101) Interest expense
158,278
216,706 (58,428) 170,978 (12,700) Net
interest income
268,917 272,486 (3,569) 269,318 (401)
Provision for loan losses
240,200 372,529
(132,329) 352,771 (112,571) Net interest
income after provision for loan losses
28,717 (100,043)
128,760 (83,453) 112,170 Net gain (loss) on sale and
valuation adjustments of investment securities
81 176,146
(176,065) (1,246) 1,327 Trading account (loss) profit
(223)
6,823 (7,046) 8,499 (8,722) (Loss) gain on sale of loans, including
adjustments to indemnity reserves, and valuation adjustments on
loans held-for-sale
(12,222) (13,813) 1,591 934 (13,156)
Other non-interest income
170,230 165,575
4,655 167,700 2,530 Total non-interest income
157,866 334,731 (176,865) 175,887 (18,021) Personnel
costs
120,932 145,291 (24,359) 121,219 (287) Other operating
expenses
159,981 158,906 1,075 177,535
(17,554) Total operating expenses
280,913
304,197 (23,284) 298,754 (17,841)
Loss from continuing operations before income tax
(94,330) (69,509) (24,821) (206,320) 111,990 Income tax
(benefit) expense
(9,275) (26,933) 17,658
6,907 (16,182) Loss from continuing
operations, net of income tax
(85,055) (42,576) (42,479)
(213,227) 128,172 Loss from discontinued operations, net of income
tax (1)
- (9,946) 9,946 - -
Net loss
($85,055) ($52,522) ($32,533)
($213,227) $128,172 Net loss applicable to
common stock
($85,055) ($77,200) ($7,855)
($213,227) $128,172 Net loss per common share:
Basic and diluted net loss per common share from continuing
operations
($0.13) ($0.24)
($0.33) Basic and diluted net loss per common share
from discontinued operations
- ($0.03) - Basic
and diluted net loss per common share - Total
($0.13) ($0.27)
($0.33) Dividends declared per common share
- $0.02 - Average common shares
outstanding
639,003,599 281,834,434 639,401,594 Average
common shares outstanding - assuming dilution
639,003,599
281,834,434 639,401,594 Common shares outstanding at end of period
639,539,900 282,034,819 639,540,105
Market value
per common share $2.91 $2.16 $2.26
Book value per
common share $3.81 $5.84 $3.89
Market
Capitalization --- (In millions) $1,861 $609 $1,445
Selected Average Balances --- (In millions) Total
assets
$33,916 $38,437 ($4,521) $35,025 ($1,109)
Stockholders' equity
2,419 3,113 (694) 2,530 (111)
Selected Financial Data at Period-End --- (In millions)
Total assets
$33,832 $37,709 ($3,877) $34,736 ($904) Loans
(2)
23,185 25,553 (2,368) 23,804 (619) Earning assets (2)
31,472 35,180 (3,708) 32,341 (869) Deposits
25,360
27,150 (1,790) 25,925 (565) Borrowings
5,044 6,311 (1,267)
5,289 (245) Interest bearing liabilities
25,928 29,088
(3,160) 26,718 (790) Stockholders' equity
2,487 3,132 (645)
2,539 (52)
Performance Ratios Net interest yield from
continuing operations (3)
3.43% 3.07% 3.28% Return on assets
(1.02) (0.55) (2.42) Return on common equity
(14.56)
(19.13) (34.12)
Credit Quality Data --- (Dollars in
millions) Non-performing loans (4)
$2,313.3 $1,403.9
$909.4 $2,276.4 $36.9 Non-performing loans to loans
held-in-portfolio (4)
10.02% 5.56% 9.60% Allowance for loan
losses to non-performing loans (4)
55.21 75.30 55.40
Allowance for loan losses to loans held-in-portfolio
5.53
4.19 5.32 (1) Represents financial results for
the discontinued operations of Popular Financial Holdings. (2)
Includes $7 million in loans from discontinued operations as of
March 31, 2009. (3) Not on a taxable equivalent basis. (4)
Non-performing loans ("NPL") exclude $3 million in NPL from
discontinued operations as of March 31, 2009. Notes: Certain
reclassifications may have been made to prior periods to conform
with this quarter presentation.
EXHIBIT B POPULAR, INC. Financial
Summary - Segment Reporting (Unaudited)
Quarter ended March 31, 2010 BPPR BPNA
EVERTEC Intersegment Eliminations
Total Reportable Segments Summary of Operations
--- (In thousands) Net interest income (expense)
$219,363 $78,854 ($227) - $297,990 Provision for loan losses
108,372 131,828 - - 240,200 Net
interest income after provision for loan losses 110,991 (52,974)
(227) - 57,790 Net gain (loss) on sale and valuation
adjustments of investment securities 87 (6) - - 81 Trading account
loss (223) - - - (223) Loss on sale of loans, including adjustments
to indemnity reserves, and valuation adjustments on loans
held-for-sale (10,715) (1,460) - - (12,175) Other non-interest
income (service charges on deposits, other service fees and other)
121,568 18,025 62,197 ($37,450) 164,340
Total non-interest income 110,717 16,559 62,197 (37,450)
152,023 Personnel costs 69,341 23,933 20,578 (119) 113,733
Other operating expenses 124,326 43,036 24,100
(37,336) 154,126 Total operating expenses 193,667
66,969 44,678 (37,455) 267,859
Income (loss) from continuing operations, before income tax 28,041
(103,384) 17,292 5 (58,046) Income tax expense 1,015 786
7,113 2 8,916 Income (loss) from continuing
operations, net of income tax 27,026 (104,170) 10,179 3 (66,962)
Loss from discontinued operations, net of income tax - -
- - - Net income (loss) $27,026
($104,170) $10,179 $3 ($66,962)
Quarter ended March 31, 2010 Corporate
Eliminations Popular, Inc. Summary of
Operations --- (In thousands) Net interest income
(expense) ($29,235) $162 $268,917 Provision for loan losses -
- 240,200 Net interest income after provision
for loan losses (29,235) 162 28,717 Net gain on sale and
valuation adjustments of investment securities - - 81 Trading
account loss - - (223) Loss on sale of loans, including adjustments
to indemnity reserves, and valuation adjustments on loans
held-for-sale (47) - (12,222) Other non-interest income (service
charges on deposits, other service fees and other) 6,595
(705) 170,230 Total non-interest income 6,548 (705)
157,866 Personnel costs 7,288 (89) 120,932 Other operating
expenses 6,994 (1,139) 159,981 Total operating
expenses 14,282 (1,228) 280,913 Loss from
continuing operations, before income tax (36,969) 685 (94,330)
Income tax benefit (18,406) 215 (9,275) Loss from
continuing operations, net of income tax (18,563) 470 (85,055) Loss
from discontinued operations, net of income tax - - -
Net loss ($18,563) $470 ($85,055)
EXHIBIT B (CONTINUED)
POPULAR, INC. Financial Summary - Segment
Reporting (Unaudited) Quarter ended December
31, 2009 BPPR BPNA EVERTEC
Intersegment Eliminations Total Reportable
Segments Summary of Operations --- (In thousands)
Net interest income (expense) $216,044 $80,540 ($274) $0 $296,310
Provision for loan losses 137,189 215,582 - -
352,771 Net interest income after provision for loan
losses 78,855 (135,042) (274) - (56,461) Net gain (loss) on
sale and valuation adjustments of investment securities 10 (484) -
- (474) Trading account profit 8,499 - - - 8,499 Gain (loss) on
sale of loans, including adjustments to indemnity reserves, and
valuation adjustments on loans held-for-sale 208 (6,666) - -
(6,458) Other non-interest income (service charges on deposits,
other service fees and other) 117,870 21,489 63,877
(37,015) 166,221 Total non-interest income
126,587 14,339 63,877 (37,015) 167,788 Personnel costs
75,617 21,884 19,261 (354) 116,408 Other operating expenses 130,344
44,852 25,763 (36,619) 164,340
Total operating expenses 205,961 66,736 45,024
(36,973) 280,748 (Loss) income from continuing
operations, before income tax (519) (187,439) 18,579 (42) (169,421)
Income tax expense (benefit) 5,341 (19,204) 7,247
(17) (6,633) (Loss) income from continuing
operations, net of income tax (5,860) (168,235) 11,332 (25)
(162,788) Loss from discontinued operations, net of income tax -
- - - - Net (loss) income
($5,860) ($168,235) $11,332 ($25)
($162,788)
Quarter ended December 31,
2009 Corporate Eliminations
Popular, Inc. Summary of Operations --- (In
thousands) Net interest income (expense) ($27,188) $196
$269,318 Provision for loan losses - - 352,771
Net interest income after provision for loan losses (27,188) 196
(83,453) Net loss on sale and valuation adjustments of
investment securities (772) - (1,246) Trading account profit - -
8,499 Gain on sale of loans, including adjustments to indemnity
reserves, and valuation adjustments on loans held-for-sale 7,392 -
934 Other non-interest income (service charges on deposits, other
service fees and other) 3,846 (2,367) 167,700
Total non-interest income 10,466 (2,367) 175,887 Personnel
costs 4,811 - 121,219 Other operating expenses 14,942
(1,747) 177,535 Total operating expenses 19,753
(1,747) 298,754 Loss from continuing
operations, before income tax (36,475) (424) (206,320) Income tax
expense 13,758 (218) 6,907 Loss from continuing
operations, net of income tax (50,233) (206) (213,227) Loss from
discontinued operations, net of income tax - - -
Net loss ($50,233) ($206) ($213,227)
EXHIBIT B (CONTINUED)
POPULAR, INC. Financial Summary - Segment
Reporting (Unaudited) Quarter ended March 31,
2009 BPPR BPNA EVERTEC
Intersegment Eliminations Total Reportable
Segments Summary of Operations --- (In thousands)
Net interest income (expense) $216,162 $76,520 ($245) $0 $292,437
Provision for loan losses 151,334 221,195 - -
372,529 Net interest income after provision for loan
losses 64,828 (144,675) (245) - (80,092) Net gain on sale
and valuation adjustments of investment securities 182,735 - - -
182,735 Trading account profit 6,823 - - - 6,823 Gain (loss) on
sale of loans, including adjustments to indemnity reserves, and
valuation adjustments on loans held-for-sale 6,649 (20,462) - -
(13,813)
Other non-interest income (service
charges on deposits, other service fees and other)
114,614 24,233 61,528 (36,269) 164,106
Total non-interest income 310,821 3,771 61,528 (36,269)
339,851 Personnel costs 77,346 37,411 22,153 (229) 136,681
Other operating expenses 121,576 44,194 24,137
(35,958) 153,949 Total operating expenses 198,922
81,605 46,290 (36,187) 290,630
Income (loss) from continuing operations, before income tax 176,727
(222,509) 14,993 (82) (30,871) Income tax (benefit) expense (3,084)
(9,033) 5,112 (32) (7,037) Income
(loss) from continuing operations, net of income tax 179,811
(213,476) 9,881 (50) (23,834) Loss from discontinued operations,
net of income tax - - - - - Net
income (loss) $179,811 ($213,476) $9,881 ($50)
($23,834)
Quarter ended March 31,
2009 Corporate Eliminations and Discontinued
Operations Popular, Inc. Summary of Operations
--- (In thousands) Net interest income (expense)
($20,217) $266 $272,486 Provision for loan losses - -
372,529 Net interest income after provision for loan losses
(20,217) 266 (100,043) Net (loss) gain on sale and valuation
adjustments of investment securities (6,589) - 176,146 Trading
account profit - - 6,823 Loss on sale of loans, including
adjustments to indemnity reserves, and valuation adjustments on
loans held-for-sale - - (13,813) Other non-interest income (service
charges on deposits, other service fees and other) 2,994
(1,525) 165,575 Total non-interest income (loss)
(3,595) (1,525) 334,731 Personnel costs 8,610 - 145,291
Other operating expenses 6,926 (1,969) 158,906
Total operating expenses 15,536 (1,969) 304,197
Loss from continuing operations, before income tax (39,348)
710 (69,509) Income tax benefit (20,173) 277 (26,933)
Loss from continuing operations, net of income tax (19,175) 433
(42,576) Loss from discontinued operations, net of income tax -
(9,946) (9,946) Net loss ($19,175)
(9,513) ($52,522)
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