Popular, Inc. (“the Corporation” or “Popular”) (NASDAQ: BPOP)
reported net income of $494.5 million for the quarter ended
September 30, 2010, compared with a net loss of $55.8 million for
the quarter ended June 30, 2010, and a net loss of $125.0 million
for the quarter ended September 30, 2009. For the nine months ended
September 30, 2010, the Corporation’s net income totaled $353.6
million, compared with a net loss of $360.7 million for the same
period in 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 statements of operations by reportable
segments. As a result of the EVERTEC sale described below, the
Corporation no longer presents EVERTEC as a reportable segment and
therefore, historical financial information for EVERTEC, including
the merchant acquiring business that was part of the Banco Popular
de Puerto Rico (“BPPR”) reportable segment, has been reclassified
under Corporate for all periods presented in Exhibit B.
Overview
As discussed in further detail below, the financial results for
the third quarter were mostly impacted by the following
factors:
- An after-tax gain of $531.0 million on
the sale of a 51% interest in the Corporation’s information
technology subsidiary;
- Net interest income reflects a $78.5
million discount accretion on covered loans acquired from the
Westernbank FDIC-assisted transaction that are accounted for under
ASC Subtopic 310-20 due to their revolving characteristics. This
was offset in part by a reduction in non-interest income resulting
from the reversal of approximately 80% of the discount
accreted;
- Non-interest expense reflects
$25.4 million of prepayment penalties or premiums paid to
extinguish high cost debt;
- Credit Quality: While net charge-offs
and the provision for loan losses decreased significantly as
compared to the third quarter of 2009, they increased from the
second quarter of 2010, reflecting a continued high level of
charge-offs in the Corporation’s Puerto Rico construction and
commercial loan portfolios. Key elements of credit quality are
listed below:
- Net charge-offs and the provision for
loan losses in the U.S. operations declined vis-a-vis the second
quarter reflecting continued improvement in credit quality for the
Corporation’s U.S. operations
- Puerto Rico operations reflected
increased net charge-offs and provision for loan losses, primarily
related to continued losses in the construction and commercial loan
portfolios.
Mr. Richard L Carrión, Chairman of the Board and Chief Executive
Officer, stated, “The results for the third quarter were somewhat
of a mixed bag but clearly reflect that we are moving in the right
direction. We are extremely pleased that during this period we
successfully completed the sale of a 51% interest in EVERTEC,
further solidifying the Corporation's capital base, and the
integration of Westernbank. We were also pleased by the improved
credit quality trends in the U.S. operations and the fact we
believe that in Puerto Rico, except for our construction and
commercial loan portfolios, credit quality is stabilizing if not
performing a little better than expected.”
Mr. Carrión added, “Now that we have successfully completed the
EVERTEC and Westernbank transactions that required a great deal of
management attention, we intend to redouble our efforts to improve
the credit quality of our Puerto Rico construction and commercial
loan portfolios. We are encouraged by the early results of Puerto
Rico new housing incentives that include a five year property tax
holiday and zero capital gains tax to purchasers of new homes. We
intend to leverage off these incentives that are designed to
increase absorption rates and stabilize property values with
initiatives of our own.”
Key Events and and Third Quarter Milestones:
On September 30, 2010, the Corporation completed the sale
pursuant to which funds managed by Apollo Management, L.P. acquired
a 51% interest in Popular’s processing subsidiary, EVERTEC, and
related processing businesses (the “EVERTEC transaction”). As part
of the transaction, Popular transferred its merchant acquiring and
processing and technology businesses to EVERTEC. The transaction
resulted in a net gain after taxes and transaction costs for
Popular of approximately $531.0 million. The net cash proceeds
received by the Corporation after transaction costs and taxes were
approximately $528.6 million. The sale had a positive impact of
approximately 2.20% on Tier 1 Common, 2.32% in Tier 1 Capital and
Total Capital ratios, and of approximately 1.20% on Popular’s Tier
1 Leverage ratio. This transaction completes the Corporation’s
capital plan. In April of this year, Popular raised $1.1 billion in
a public equity offering, which when combined with the gain in the
EVERTEC transaction, resulted in $1.6 billion in additional capital
that paved the way to make the FDIC-assisted acquisition of
Westernbank on April 30, 2010. The capital raise was agreed with
the Corporation’s regulators as a condition to be eligible to
participate in the FDIC-assisted transaction.
Also, in August 2010, Popular successfully completed the
Westernbank’s systems and branch conversions. All retail and
commercial accounts were converted to Popular’s applications.
Furthermore, out of the estimated 1,440 full-time equivalent
employees (“FTEs”) that Westernbank had at the time of acquisition,
the Corporation has hired to date close to 816 FTEs. Out of the 44
Westernbank branches at acquisition, the Corporation retained
approximately 12 branches. Certain other branches were consolidated
with other existing branches of BPPR.
The Corporation’s operations in Puerto Rico continue to
experience high level of charge-offs in the commercial and
construction loan portfolios principally due to reductions in real
estate collateral values. Credit management has remained a primary
area of focus in the BPPR reportable segment, principally in the
commercial and construction lending areas. The BPPR reportable
segment reported net income of $12.5 million for the quarter ended
September 30, 2010, compared with a net loss of $13.5 million for
the same quarter of 2009 and net income of $21.7 million for the
second quarter of 2010. The provision for loan losses of the BPPR
reportable segment amounted to $182.2 million for the quarter ended
September 30, 2010, compared with $153.4 million in the third
quarter of 2009 and $122.3 million in the second quarter of
2010.
In the U.S. mainland, management remains focused on managing
legacy assets and improving the performance of Banco Popular North
America’s (“BPNA”) core banking business. The credit performance of
BPNA has improved, resulting in a reduction in the provision for
loan losses for the third quarter of 2010 of $144.9 million
compared with the third quarter of 2009 and $47.1 million compared
with the second quarter of 2010. BPNA’s reportable segment reported
a net loss of $14.6 million in the quarter ended September 30,
2010, compared with net losses of $169.9 million in the same
quarter of 2009 and $57.8 million in the second quarter of 2010.
Net charge-offs in the U.S. operations fell below $100 million for
the first time since the third quarter of 2008 and marked the third
consecutive quarter in which loan losses have declined.
Significant variances in financial
results for the quarter ended September 30, 2010, compared with
June 30, 2010:
- Non-interest income increased by $580.7
million, of which $640.8 million pertained to the gain recognized,
before tax and transaction costs, on the EVERTEC transaction,
primarily offset by a decrease of $60.3 million in FDIC loss share
income. The decrease in FDIC loss share income is explained in the
Non-Interest Income section of this press release.
- Net interest income increased by $107.9
million, while the net interest yield increased from 3.21% for the
second quarter of 2010 to 4.49% for the third quarter of 2010. The
increase in the net interest yield was mainly as a result of $78.5
million discount accretion on covered loans acquired from the
Westernbank FDIC-assisted transaction that are accounted for under
ASC Subtopic 310-20 due to their revolving characteristics. Also,
the discount accretion on covered loans accounted for under ASC
Subtopic 310-30 amounted to $56.5 million for the quarter ended
September 30, 2010, compared with discount accretion of $39.0
million for the quarter ended June 30, 2010, reflecting three
months of accretion versus two months for the second quarter of
2010. Covered loans represent acquired loans from the Westernbank
FDIC-assisted transaction effected on April 30, 2010.
- The provision for loan losses for the
third quarter of 2010 increased by $12.8 million when compared with
the quarter ended June 30, 2010. The higher total provision was the
result of a $59.9 million increase in the provision related to the
Puerto Rico operations partially offset by a $47.1 million decrease
in the BPNA reportable segment. Excluding covered loans, the ratio
of allowance for loan losses to loans held-in-portfolio was 5.63%
as of September 30, 2010, compared with 5.68% as of June 30,
2010.
- Total operating expenses increased by
$43.1 million primarily due to transaction costs related to the
abovementioned EVERTEC transaction, including legal and consulting
fees, and loss on disposition of assets. Also, as further explained
in the Operating Expenses section, the Corporation incurred
approximately $25.4 million in losses related to early
extinguishment of debt during the third quarter of 2010.
- Income tax expense of $102.4 million
for the third quarter of 2010, compared to an income tax expense of
$20.0 million for the second quarter of 2010, primarily impacted by
the gain on the EVERTEC transaction and higher taxable income from
the Puerto Rico operations.
Reconciliation of net income (loss) per
common share:
The following table provides a reconciliation of net income
(loss) per common share for the quarters ended September 30, 2010,
June 30, 2010, and September 30, 2009 and for the nine months ended
September 30, 2010 and 2009:
Quarter ended Nine months ended (In thousands, except per share
information) September 30,
2010
June 30,
2010
September 30,
2009
September 30,
2010
September 30,
2009
Net income (loss) from continuing
operations
$
494,494
($55,828 ) ($121,561 ) $ 353,611
($340,720
) Net loss from discontinued operations - - (3,427 ) - (19,972 )
Deemed dividend on preferred stock [1] - (191,667 ) - (191,667 ) -
Preferred stock dividends [2] - - 5,974 - (39,857 ) Preferred stock
discount accretion - - (1,040 ) - (4,515 )
Favorable impact from exchange of shares
of Series A and B preferred stock for common stock, net of issuance
costs
- - 230,388 - 230,388
Favorable impact from exchange of Series C
preferred stock for trust preferred securities
- - 485,280 -
485,280 Net income (loss) applicable to
common stock
$ 494,494 ($247,495 ) $ 595,614 $ 161,944 $
310,604
Average common shares outstanding
1,021,374,014 853,010,208 425,672,578 839,196,564 330,325,348
Average potential dilutive common shares - -
- 312,961 - Average
common shares outstanding –
assuming dilution
1,021,374,014 853,010,208 425,672,578
839,509,525 330,325,348
Basic and diluted net income (loss) per
common share from continuing operations
$ 0.48 ($0.29 ) $ 1.41 $ 0.19 $ 1.00
Basic and diluted net loss per common
share from discontinued operations
- - (0.01 ) -
(0.06 )
Total basic and diluted net income (loss)
per common share
$ 0.48 ($0.29 ) $ 1.40 $ 0.19 $ 0.94
[1] Deemed dividend related to the issuance of depositary shares
and the conversion of the preferred stock into shares of common
stock in the second quarter of 2010.
[2] Amount presented for the quarter ended September 30, 2009
represents the reversal of dividends on Series C preferred stock
considered accrued as of June 30, 2009 for EPS purposes only. These
cumulative dividends were not paid as dividends to the Series C
preferred stockholders given the terms of the exchange agreement to
New Trust Preferred Securities, which was effected in August
2009.
Net Interest Income
Net interest income for the third quarter of 2010 was $386.9
million, compared with $279.0 million for the second quarter of
2010 and $276.4 million for the third 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 September 30, 2010, June 30, 2010
and September 30, 2009.
Average Balances Average Yields /
Costs (Dollars in billions)
3rdQuarter2010
2ndQuarter2010
3rdQuarter2009
3rdQuarter2010
2ndQuarter2010
3rdQuarter2009
Money market, trading and investment securities $ 8.2
$ 9.3 $ 9.0 3.21 % 3.06 % 3.69 % Loans:
Commercial (a) 13.0 13.6 15.0
4.81 4.84 4.85 Mortgage 4.6 4.6 4.5 5.94 5.75 6.15 Consumer 3.8 3.9
4.3 10.39 10.31 9.75 Lease financing 0.6
0.6 0.7 8.74 8.68
8.29 Total loans, excluding covered loans
22.0 22.7 24.5 6.13
6.07 6.04 Covered loans (b)
4.0 2.8 - 14.37
6.09 - Total earning assets
$ 34.2 $ 34.8 $ 33.5 6.39 % 5.26
% 5.41 % Interest bearing deposits $ 22.2 $ 22.2 $
22.4 1.54 % 1.64 % 2.11 % Borrowings 8.7
8.7 5.4 3.53 4.00
4.38 Total interest bearing liabilities
30.9 30.9 27.8 2.10
2.31 2.55 Non-interest bearing sources
of funds 3.3 3.9 5.7
Total funds $ 34.2
$ 34.8 $ 33.5 1.90 % 2.05 % 2.11
% Net interest spread
4.29 % 2.95 % 2.86 % Net interest yield (c)
4.49 % 3.21
% 3.30 %
(a) Includes commercial construction loans
(b) Covered loans represent loans acquired in the Westernbank
FDIC-assisted transaction which are covered under loss sharing
agreements with the Federal Deposit Insurance Corporation
(FDIC)
(c) Not on a taxable equivalent basis
Net interest yield for the quarter ended September 30, 2010
increased by 128 basis points, compared with the quarter ended June
30, 2010. The increase in net interest yield was principally
associated with the amortization of the discount on covered loans
accounted for under ASC Subtopic 310-20, particularly related to
revolving lines of credit, which contributed with approximately
$78.5 million in interest income during the third quarter of 2010.
Also, the discount accretion on covered loans accounted for under
ASC Subtopic 310-30 amounted to $56.5 million for the quarter ended
September 30, 2010, compared with discount accretion of $39.0
million for the quarter ended June 30, 2010, which represented two
months of accretion from the date of acquisition. Covered loans
represent acquired loans from the Westernbank FDIC-assisted
transaction on April 30, 2010.
Excluding covered loans, the yield on loans was 6.13% for the
quarter ended September 30, 2010, compared with 6.07% for the
quarter ended June 30, 2010. This increase was mostly on mortgage
loans, principally due to interest reversals in the second quarter
of 2010 related to loss mitigation programs and restructurings.
The decrease in the cost of deposits was primarily due to
management actions to reduce their cost, principally in
certificates of deposit and money market accounts both in the
Puerto Rico and U.S. mainland operations, as well as lower costs on
brokered certificates of deposit. The reduction in the cost of
borrowings was principally due to higher premium amortization on
the note issued to the FDIC as part of the FDIC-assisted
transaction, resulting in a reduction to interest expense. This
amortization amounted to $7.8 million for the third quarter of
2010, compared with $1.5 million for the second quarter of 2010.
The higher amount was driven by the $2.0 billion partial prepayment
of the note issued to the FDIC in July 2010. This note bears
interest at a fixed annual rate of 2.50%.
The decrease in total loans, excluding covered loans, for the
quarter ended September 30, 2010, compared with the quarter ended
June 30, 2010 was mostly due to lower loan origination activity
compared to runoffs and the impact of loans charged off,
principally in the commercial and construction loan portfolios.
Also, the decrease in average earning assets was due to a lower
volume of investment securities primarily related to the sale of
investments securities during the quarter and no reinvestment of
mortgage-backed securities prepayments. Average interest bearing
deposits remained stable for the quarter ended September 30, 2010,
compared with June 30, 2010, while demand deposits showed an
increase of $0.3 billion.
The increase of 119 basis points in net interest yield for the
third quarter of 2010, compared with the same quarter of 2009, was
primarily due to higher average earning assets primarily resulting
from the increase in loan volume attributed to the loans acquired
in the Westernbank FDIC-assisted transaction during the second
quarter of 2010. This increase was partially offset by a decline in
the average volume of non-covered loans, principally in the
commercial and consumer portfolios. This was influenced by lower
origination activity, loan charge-offs, and the impact of the
run-off of certain portfolios related to the downsizing or
discontinuance of certain loan origination units in the U.S.
mainland operations. The decline in investment securities was
influenced by deleveraging strategies, including the sale of
certain investment securities which resulted in a net gain of $3.7
million before taxes for the quarter ended September 30, 2010. The
average volume of borrowed funds increased from the quarter ended
September 30, 2009 to the quarter ended September 30, 2010
particularly due to the note issued to the FDIC during the quarter
ended June 30, 2010 with a fixed annual interest rate of 2.50%. The
improvement in the net interest yield for the third quarter of
2010, compared with the same quarter in 2009, was also influenced
by the discount accretion on the Westernbank acquired loan
portfolio mentioned above. The higher yield in earning assets was
accompanied with a reduction in the cost of deposits related to
both a low interest rate environment and management actions to
reduce the cost of deposits and improve the net interest yield.
Credit Quality
Excluding FDIC covered loans, the Corporation’s allowance for
loan losses represented 5.63% of loans held-in-portfolio as of
September 30, 2010, compared with 5.68% as of June 30, 2010 and
4.95% as of September 30, 2009. The covered loans were recognized
at fair value as of the April 30, 2010 acquisition date, which
included the impact of expected credit losses and therefore, no
allowance for credit losses was recorded at the acquisition date.
To the extent credit deterioration occurs on the covered loans, the
Corporation would record an allowance for loan losses. Also, the
Corporation has recorded an FDIC loss share indemnification asset
amounting to $3.3 billion as of September 30, 2010, which considers
expected reimbursements from the FDIC under the loss sharing
agreements. As of September 30, 2010, based on the inherent losses
on the loan portfolio accounted for under ASC Subtopic 310-20 and
the expected cash flows on loans accounted for under ASC Subtopic
310-30, management determined that there was no need to record an
allowance for loan losses on the covered loans.
Provision for Loan Losses
The provision for loan losses totaled $215.0 million or 87% of
net charge-offs for the quarter ended September 30, 2010, compared
with $202.3 million or 100% of net charge-offs for the quarter
ended June 30, 2010, and $331.1 million or 123% of net charge-offs
for the quarter ended September 30, 2009.
The higher provision for loan losses for the third quarter of
2010, compared with the second quarter of 2010, was the result of a
$59.9 million increase in the provision related to the Puerto Rico
operations partially offset by a $47.1 million decrease in the U.S.
mainland loan portfolios. The increase in the provision for the
Puerto Rico operations was primarily attributed to higher reserves
for commercial loans as of September 30, 2010. The U.S. mainland
operations experienced lower net charge-offs in the third quarter
of 2010 by $4.3 million, principally in the construction and
mortgage portfolios.
When compared with the third quarter of 2009, the provision for
loan losses for the third quarter of 2010 decreased by $116.1
million. 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 requiring substantial reserve increases in 2009. Since
September 30, 2009, loans held-in-portfolio, excluding covered
loans, decreased by approximately $2.3 billion, particularly in the
commercial, construction and consumer loan portfolios. This
decrease in the loan portfolio also contributed to the lower level
of provision for loan losses for the third quarter of 2010.
The following table summarizes the changes in the allowance for
loan losses for the periods indicated:
Quarters ended Nine months ended (In thousands) September 30, 2010
June 30, 2010 September 30, 2009 September 30, 2010 September 30,
2009 Balance as of the beginning of the period $ 1,277,016 $
1,277,036 $ 1,146,239 $ 1,261,204 $ 882,807 Provision for loan
losses 215,013 202,258 331,063 657,471
1,053,036 1,492,029 1,479,294
1,477,302 1,918,675 1,935,843 Net charge-offs:
Commercial 100,295 71,138 59,114 250,550 170,328 Construction
70,446 53,556 95,941 175,440 217,283 Lease financing 1,979 3,091
3,934 9,004 13,012 Mortgage 22,490 26,150 34,322 76,014 90,103
Consumer 52,825 48,343 76,590 163,673
237,716 Total net charge-offs 248,035 202,278
269,901 674,681 728,442 Balance as of the end
of the period $ 1,243,994 $ 1,277,016 $ 1,207,401 $ 1,243,994 $
1,207,401 Note: There was no further credit deterioration requiring
an allowance for loan losses related to the loans acquired in the
Westernbank FDIC-assisted transaction from June 30, 2010 to
September 30, 2010.
The following table presents annualized net charge-offs to
average loans held-in-portfolio, excluding covered loans:
Quarters ended For the nine months ended
September 30,2010
June 30,2010
September 30,2009
September 30,2010
September 30,2009
Commercial 3.47 % 2.37 % 1.81 % 2.78 % 1.71 % Construction 20.11
13.79 19.45 15.18 13.83 Lease financing 1.28 1.93 2.23 1.88 2.40
Mortgage 1.97 2.31 3.16 2.24 2.75 Consumer 5.54 4.97
7.18 5.60 7.17 Total 4.52 % 3.58 % 4.43 % 3.98
% 3.91 % Note: Average loans held-in-portfolio exclude covered
loans.
The increase in consumer loan net charge-offs for the quarter
ended September 30, 2010, compared with the quarter ended June 30,
2010, was primarily associated with the consumer loan portfolios in
the Puerto Rico operations. The results for the second quarter
reflected the positive impact of a recovery upon the sale of
consumer loans previously written off. Despite the increase
reported during the third quarter of 2010, the consumer loan
portfolios in Puerto Rico have continued to reflect stable credit
quality indicators in some portfolios.
Commercial loan net charge-offs experienced an increase of
approximately $29.2 million during the quarter ended September 30,
2010, when compared with the second quarter of 2010. This increase
was mainly attributed to the BPPR reportable segment by $25.4
million, particularly in commercial real estate loans by $15.0
million. Due to the recessionary environment that has resulted in
lower absorption rates and pressure on real estate values, the
commercial and construction loan portfolios in Puerto Rico
continues to reflect high delinquencies and reductions in the value
of the underlying collateral. The commercial loan net charge-offs
at the BPNA reportable segment also reported an increase of
approximately $3.7 million, mostly related to commercial and
industrial lines of business. Notwithstanding, the commercial loans
portfolio in the U.S. mainland reflected a reduction of
approximately $11 million in non-performing loans during the third
quarter of 2010.
The decrease in mortgage loan net charge-offs for the quarter
ended September 30, 2010, compared with the quarter ended June 30,
2010, was mainly related to the U.S. mainland non-conventional
mortgage business. This portfolio has reported stabilized trends in
terms of non-performing and delinquency levels. The BPPR reportable
segment also reported a slight reduction when compared to the
previous quarter. The underwriting criteria and high reinstatement
experience associated with the mortgage loans in Puerto Rico have
helped to maintain losses at manageable levels. However, the
mortgage business has continued to be negatively impacted by the
depressed economic conditions in Puerto Rico as evidenced by the
increased levels of non-performing mortgage loans. The
Corporation’s mortgage loan annualized net charge-off to average
mortgage loans held-in-portfolio in Puerto Rico and the U.S.
mainland operations for the quarter ended September 30, 2010
improved to 0.63% and 5.21%, respectively, compared with 0.75% and
5.83% for the quarter ended June 30, 2010.
As compared to the previous quarter, construction loan net
charge-offs increased by approximately $16.9 million during the
quarter ended September 30, 2010. In the BPPR reportable segment,
the construction loan net charge-offs increased by $23.1 million,
while in the BPNA reportable segment there was a decline of $6.2
million. The increase in construction loan net charge-offs at the
BPPR reportable segment was mainly related to low absorption rates
and the declines in real estate values in Puerto Rico. Most of
these construction loans were previously identified as impaired
loans and specific reserves were established in prior quarters. The
decrease in the construction loan net charge-offs in the BPNA
reportable segment was aided by certain large recoveries recorded
during the third quarter of 2010.
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)
September 30,
2010
As a percentage
of loans HIP by category (2)
June 30,
2010
As a percentage of loans HIP by category
(2)
September 30,
2009
As a percentage
of loans HIP
by category
Commercial $ 784,304 6.7 % $ 801,378 6.8 % $ 776,027 5.9 %
Construction 818,186 62.9 843,806 56.4 768,987 40.9 Lease financing
6,478 1.1 7,548 1.2 10,309 1.5 Mortgage 669,175 14.1 613,838 13.1
484,219 10.6 Consumer 65,906 1.7 63,021
1.6 75,992 1.8
Total non-performing loans, excluding
covered loans
2,344,049 10.6 % 2,329,591 10.4 %
2,115,534 8.7 %
Other real estate owned (“OREO”),
excluding covered OREO
168,823 142,372
129,485
Total non-performing assets, excluding
covered assets
2,512,872 2,471,963 $
2,245,019 Covered loans and OREO (1) 200,517
174,008 -
Total non-performing assets $ 2,713,389 $ 2,645,971
$ 2,245,019
Excluding covered loans
and covered OREO
Non-performing assets to total assets
6.85 % 6.46 % 6.30 %
Allowance for loan losses to loans
held-in-portfolio
5.63 5.68 4.95
Allowance for loan losses to
non-performing loans
53.07 54.82 57.07
Including covered loans and covered OREO
Non-performing assets to total assets
6.65 % 6.23 % 6.30 %
Allowance for loan losses to loans
held-in-portfolio
4.76 4.81 4.95
Allowance for loan losses to
non-performing loans
50.42 52.61 57.07
(1) The amount consists of $123 million in
non-performing covered loans accounted under ASC Subtopic 310-20
and $78 million in covered OREO as of September 30, 2010, and $98
million and $76 million, respectively, as of June 30, 2010. It
excludes covered loans accounted for under ASC Subtopic 310-30 as
they are considered to be performing due to the application of the
accretion method, in which these loans will accrete interest income
over the remaining life of the loans using estimated cash flow
analyses.
(2) Loans held-in-portfolio used in the
computation exclude $4.0 billion in covered loans as of September
30, 2010 and $4.1 billion as of June 30, 2010.
Non-performing assets - Non-covered loan
portfolio
The increase in non-performing loans from June 30, 2010 to
September 30, 2010 was concentrated in residential mortgage loans
in the BPPR reportable segment by $59 million. Weak economic
conditions in Puerto Rico have continued to adversely impact
mortgage delinquency rates. Commercial and construction loans in
non-performing status decreased in both BPPR and BPNA reportable
segments. The commercial and construction non-performing loans in
the BPPR reportable segment decreased by $6 million and $10
million, respectively. The decline in commercial non-performing
loans in the BPPR reportable segment was mainly related to the
increase in commercial loan net-charge-offs during the third
quarter of 2010. The decrease in construction non-performing loans
at BPPR was impacted by the increase in construction loan net
charge-offs and the transfer of certain real estate properties to
other real estate owned during the third quarter of 2010. The
commercial and construction loans in non-performing status at the
BPNA reportable segment decreased by $11 million and $15 million,
respectively, reflecting signs of stabilization. Consumer loans in
non-performing status increased in the BPPR reportable segment by
$3 million, offset by a slight decrease in the BPNA reportable
segment. Lease financing non-performing loans as of September 30,
2010 reported a slight decrease as compared to the previous
quarter. The increase in total non-performing loans as a percentage
of total loans held-in-portfolio from June 30, 2010 to September
30, 2010 was mostly influenced by the rise in the level of
non-performing mortgage loans in Puerto Rico combined with the
decrease in total loans outstanding. Refer to the Balance Sheet
Comments section of this news release for a breakdown of the loan
portfolio by major loan categories.
Non-performing assets – FDIC covered loan
portfolio
Loans acquired in the Westernbank FDIC-assisted transaction,
except for revolving credit lines, are accounted for by the
Corporation in accordance with ASC Subtopic 310-30, “Loans and Debt
Securities Acquired with Deteriorated Credit Quality.” Under ASC
Subtopic 310-30, the covered loans acquired from the FDIC were
aggregated into pools based on similar characteristics. Each loan
pool is accounted for as a single asset with a single composite
interest rate and an aggregate expectation of cash flows. The
covered loans which are accounted for under ASC Subtopic 310-30 by
the Corporation are not reported as non-performing and will
continue to have an accretable yield as long as there is a
reasonable expectation about the timing and amount of cash flows
expected to be collected.
Revolving lines of credit acquired as part of the Westernbank
FDIC-assisted transaction are to be accounted for under the
guidance of ASC Subtopic 310-20, which requires that any
differences between the contractually required loan payment
receivable in excess of the Corporation’s initial investment in the
loans be accreted into interest income on a level-yield basis over
the life of the loan. Loans accounted for under ASC Subtopic 310-20
are placed on non-accrual status when past due in accordance with
the Corporation’s non-accruing policy and any accretion of discount
is discontinued. These FDIC covered non-performing assets were
written-down to their estimated fair value on their acquisition
date, incorporating an estimate of future expected cash flows. To
the extent the Corporation has incurred losses on covered loans
accounted for under ASC Subtopic 310-20, additional provision for
loan losses on the covered loan portfolio would be recognized;
however, these provisions would be mostly offset by a corresponding
increase in the FDIC loss share indemnification asset.
Allowance for Loan Losses
The following table sets forth information concerning the
composition of the Corporation's allowance for loan losses (“ALLL”)
as of September 30, 2010, June 30, 2010, and September 30, 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. As
indicated earlier, the covered loans were recorded at fair value as
of April 30, 2010. Under the accounting guidance of ASC Subtopic
310-30, subsequent to acquisition, decreases in expected principal
cash flows on the covered loans are recorded as part of the
Corporation’s allowance for loan losses. As previously indicated,
the Corporation determined that as of September 30, 2010, there was
no need to record an allowance for loan losses on the loans
acquired in the Westernbank FDIC-assisted transaction considering
that cash flows expected to be collected on the covered loans are
not less than anticipated at April 30, 2010.
September 30, 2010 (Dollars in thousands) Commercial Construction
Lease Financing Mortgage Consumer Total Specific ALLL $ 107,318 $
182,134 - $ 62,039 - $ 351,491 Impaired loans (1) 621,557 794,716 -
309,840 - 1,726,113 Specific ALLL to impaired loans (1)
17.27 % 22.92 % - 20.02 % -
20.36 % General ALLL $ 405,053 $ 125,454 $ 14,302 $
112,641 $ 235,053 $ 892,503 Loans held-in-portfolio, excluding
impaired loans (1) 11,057,771 505,213 613,560 4,440,227 3,769,954
20,386,725
General ALLL to loans held-in-portfolio,
excluding impaired loans (1)
3.66 % 24.83 % 2.33 % 2.54 %
6.23 % 4.38 % Total ALLL $ 512,371 $ 307,588 $ 14,302 $
174,680 $ 235,053 $ 1,243,994
Total loans held-in-portfolio (1)
11,679,328 1,299,929 613,560 4,750,067 3,769,954 22,112,838
ALLL to loans held-in-portfolio (1)
4.39 % 23.66 % 2.33 % 3.68 %
6.23 % 5.63 % (1) Excludes covered loans from the
Westernbank FDIC-assisted transaction. June 30, 2010 (Dollars in
thousands) Commercial Construction Lease Financing Mortgage
Consumer Total Specific ALLL $ 132,753 $ 188,949 - $ 61,737 - $
383,439 Impaired loans (1) 644,575 816,471 - 278,025 - 1,739,071
Specific ALLL to impaired loans (1) 20.60 % 23.14 %
- 22.21 % - 22.05 %
General ALLL $ 345,712 $ 139,593 $ 16,799 $ 118,175 $ 273,298 $
893,577 Loans held-in-portfolio, excluding impaired loans (1)
11,141,660 679,145 636,913 4,410,630 3,858,969 20,727,317
General ALLL to loans held-in-portfolio,
excluding impaired loans (1)
3.10 % 20.55 % 2.64 % 2.68 %
7.08 % 4.31 % Total ALLL $ 478,465 $ 328,542 $ 16,799 $
179,912 $ 273,298 $ 1,277,016 Total loans held-in-portfolio (1)
11,786,235 1,495,616 636,913 4,688,655 3,858,969 22,466,388
ALLL to loans held-in-portfolio (1)
4.06 % 21.97 % 2.64 % 3.84 %
7.08 % 5.68 % (1) Excludes covered loans from the
Westernbank FDIC-assisted transaction. September 30, 2009 (Dollars
in thousands) Commercial Construction Lease Financing Mortgage
Consumer Total Specific ALLL $ 106,701 $ 171,031 - $ 35,492 - $
313,224 Impaired loans 619,544 751,976 - 167,863 - 1,539,383
Specific ALLL to impaired loans 17.22 % 22.74 %
-
21.14
% - 20.35 % General ALLL $ 266,563 $ 168,309 $
24,609 $ 108,848 $ 325,848 $ 894,177 Loans held-in-portfolio,
excluding impaired loans 12,456,324 1,130,093 699,350 4,379,509
4,191,410 22,856,686 General ALLL to loans held-in-portfolio,
excluding impaired loans 2.14 %
14.89
% 3.52 % 2.49 % 7.77 % 3.91 % Total
ALLL $ 373,264 $ 339,340 $ 24,609 $ 144,340 $ 325,848 $ 1,207,401
Total loans held-in-portfolio 13,075,868 1,882,069 699,350
4,547,372 4,191,410 24,396,069 ALLL to loans held-in-portfolio
2.85 % 18.03 % 3.52 % 3.17 %
7.77 % 4.95 %
As compared to the previous quarter, the allowance for loan
losses as of September 30, 2010 decreased by approximately $33
million from 5.68% to 5.63% as a percentage of loans
held-in-portfolio. This decrease is the net result of a decrease in
the BPNA reportable segment by $63 million offset by an increase of
$30 million in the BPPR reportable segment. The increase in the
allowance for loan losses for the commercial loan portfolio as of
September 30, 2010 was mainly attributed to BPPR’s commercial real
estate portfolio considering this market has been negatively
impacted by the current economic situation in Puerto Rico. The
construction loan portfolio continues to maintain the highest
allowance coverage mainly due to the continued deterioration of
economic and housing market conditions in Puerto Rico. The
allowance for loan losses for the commercial and construction
portfolios in the BPNA reportable segment decreased by
approximately $7 million and $24 million, respectively, as compared
to June 30, 2010. These reductions are a reflection of better
performance in terms of non-performing loans, more stable losses
and lower portfolio balances. The increase in the allowance for
loan losses for mortgage loans in the BPPR reportable segment from
June 30, 2010 to September 30, 2010 was influenced by the
increasing level of delinquent mortgages and increasing loan
modifications. The reduction in the allowance for loan losses for
the consumer loan portfolio continues to be driven by more stable
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, excluding FDIC acquired covered loans, and the
related allowance for loan losses as of September 30, 2010, June
30, 2010, and September 30, 2009 were:
September 30, 2010 June 30, 2010 September 30, 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 $ 1,246.7
$ 351.5 $ 1,349.5 $ 383.4 $ 1,134.5 $ 313.2 No allowance for loan
losses required 479.4 - 389.6 -
404.9 - Total impaired loans $ 1,726.1 $ 351.5 $ 1,739.1 $
383.4 $ 1,539.4 $ 313.2
As of September 30, 2010, the Corporation’s specific allowance
for loan losses decreased by $32 million when compared with June
30, 2010. This decrease was principally associated with the BPPR
reportable segment, particularly in the commercial portfolio as a
result of impairment charge-offs. The decrease in specific reserves
at the BPNA reportable segment was related to impairment
charge-offs combined with reductions in non-performing loans,
particularly in the commercial and construction portfolios. For the
quarter ended September 30, 2010, total net charge-offs for
individually evaluated impaired loans amounted to approximately
$133.8 million, of which $89.0 million pertained to the BPPR
reportable segment and $44.8 million to the BPNA reportable
segment. Most of these charge-offs were related to the commercial
and construction portfolios.
Given the challenging economic environment in Puerto Rico, the
Corporation’s credit metrics for its Puerto Rico operations will
remain under pressure in 2010, particularly mortgage related
assets. The U.S. operations have followed the general credit trends
on the mainland demonstrating progressive improvement; nonetheless,
credit quality continues to be closely monitored.
Non-interest Income
Non-interest income totaled $796.5 million for the quarter ended
September 30, 2010 compared with $215.9 million for the quarter
ended June 30, 2010 and $160.0 million for the quarter ended
September 30, 2009.
The increase of $580.7 million in non-interest income for the
quarter ended September 30, 2010, compared with the quarter ended
June 30, 2010, was principally due to the gain recognized on the
sale of a majority interest in EVERTEC. This gain was partially
offset by a decrease of $60.3 million in the FDIC loss share
income. This decrease was associated with a reduction in the
indemnification asset by $71.6 million resulting principally from
the Corporation’s application of reciprocal accounting for covered
loans accounted for under ASC Subtopic 310-20 due to their
revolving characteristics, which 80% of the losses are covered by
the FDIC under the loss share agreements. The accretion of the loan
discount was accounted as part of interest income, while the
reversal of the corresponding indemnification asset was recorded as
a reduction of non-interest income. Accounting guidance requires
that at each subsequent reporting date, the indemnification asset
be recognized on the same basis as the assets subject to loss share
protection. The above decrease was partially offset by higher
accretion of the indemnification asset, which amounted to $34.7
million for the quarter ended September 30, 2010, compared with
$23.3 million for the two months commencing after the April 30,
2010 transaction date included in the second quarter results. The
time value of money incorporated into the present value computation
of the indemnification asset is accreted into earnings over the
life of the loss sharing agreements. Also influencing the variance
in non-interest income was a lower favorable adjustment in the fair
value of the equity appreciation instrument issued to the FDIC
during the quarter ended June 30, 2010 as part of the purchase
price for the Westernbank assisted transaction, which amounted to
$10.6 million, compared with a favorable adjustment of $24.4
million for the second quarter of 2010. The favorable adjustment in
the fair value of the equity appreciation instrument for the
quarter ended September 30, 2010 was due to a reduction in the
assumption of volatility related to the Corporation’s stock price
and a shorter period remaining to the expiration of the
instrument.
The increase of $636.5 million in non-interest income for the
quarter ended September 30, 2010, compared with the same quarter in
2009, was mostly driven by the realized gain from the EVERTEC
transaction. Also, there were $3.7 million in net gains resulting
from the sale of investment securities during the quarter ended
September 30, 2010, compared with losses of $9.1 million for the
same quarter in 2009, principally associated with impairment losses
on equity securities. These favorable variances were partially
offset by an unfavorable quarterly net impact of $26.3 million from
the accounting of the FDIC loss share indemnification asset and
equity appreciation instrument explained above.
Operating Expenses
Operating expenses totaled $371.5 million for the quarter ended
September 30, 2010, compared with $328.4 million for the quarter
ended June 30, 2010 and $220.6 million for the quarter ended
September 30, 2009.
The increase of $43.1 million in operating expenses for the
third quarter of 2010, compared with the second quarter of 2010,
was principally due to approximately $25 million in transaction
costs related to the EVERTEC transaction. Also, the increase in
other operating expenses included a $15.8 million prepayment
penalty on the repurchase of $175 million in term notes in July
2010. These floating rate term notes had an interest rate of 9.75%
over the 3-month LIBOR, matured in September 2011 and had interest
rates that adjusted in the event of senior debt rating downgrades.
Also, the Corporation incurred $9.7 million in prepayment penalties
during the quarter ended September 30, 2010 on the cancellation of
$180 million of FHLB advances and $54 million in public fund
certificates of deposit as part of BPNA’s deployment of excess
liquidity and as part of a strategy to increase margin in future
periods.
Operating expenses for the quarter ended September 30, 2010
increased by $150.9 million compared with the same quarter of the
previous year. Similar factors described above influenced this
increase in operating expenses. FTEs resulting from the Westernbank
FDIC-assisted transaction also contributed to higher personnel
costs for the quarter ended September 30, 2010 when compared to the
same quarter in 2009. Also, influencing the increase in operating
expenses is the fact operating expenses for the third quarter of
2009 included a gain on extinguishment of debt of $80.3 million
from the exchange of trust preferred securities for common
stock.
Income Taxes
Income tax expense amounted to $102.4 million for the quarter
ended September 30, 2010, compared with an income tax expense of
$20.0 million for the quarter ended June 30, 2010 and income tax
expense of $6.3 million for the quarter ended September 30,
2009.
The variance in income tax expense for the third quarter of 2010
when compared with the second quarter of 2010 was mainly due to an
increase in income before tax on the Corporation’s Puerto Rico
businesses, including the gain on the sale of the 51% interest in
EVERTEC. Similar factors influenced the variance in income tax
expense for the third quarter of 2010 when compared with the same
quarter in 2009.
Balance Sheet Comments:
The accompanying Exhibit A provides information on the principal
categories of the Corporation’s balance sheet as of September 30,
2010, June 30, 2010 and September 30, 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 $6.0 billion as of
September 30, 2010, $6.7 billion as of June 30, 2010 and $7.2
billion as of September 30, 2009. The decline in investment
securities was primarily related to sales, maturities and
prepayments on securities. The proceeds from these activities were
not fully reinvested as part of a strategy to deleverage the
balance sheet.
Loans
The following table provides a breakdown of the Corporation’s
loan portfolio as of period-end. The loans acquired in the
Westernbank FDIC-assisted transaction which are subject to the loss
sharing agreements are presented as covered loans in a separate
loan category in the table below.
(In billions)
September 30,2010
June 30,2010
Variance
September 30,2009
Variance Non-covered loans: Commercial $11.7 $11.8 ($0.1)
$13.1 ($1.4) Construction 1.3 1.5 (0.2) 1.9 (0.6) Mortgage 4.7 4.8
(0.1) 4.6 0.1 Consumer 3.8 3.9 (0.1) 4.2 (0.4) Lease
Financing 0.6 0.6 - 0.7 (0.1) Total non-covered loans $22.1
$22.6 ($0.5) $24.5 (2.4) Covered loans 4.0 4.1 (0.1) - 4.0 Total
loans $26.1 $26.7 $(0.6) $24.5 $1.6
The reduction in commercial and construction loans between
September 30, 2009 and September 30, 2010 was principally due to
lower loan origination activity, as well as the high levels of net
charge-offs. 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. 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, the impact
of consumer loan net charge-offs and a decline in the BPPR
reportable segment auto loan portfolio. The increase in the
mortgage loans was experienced in the BPPR reportable segment.
Deposits
A breakdown of the Corporation’s deposits as of period-end
follows:
(In billions)
September 30,2010
June 30,2010
Variance
September 30,2009
Variance Demand * $6.0
$5.4 $0.6 $4.9 $1.1 Savings 10.3 10.6 (0.3) 9.5 0.8 Time
11.4 11.1 0.3 12.0 (0.6) Total deposits
$27.7 $27.1 $0.6 $26.4 $1.3 *
Includes non-interest and interest bearing demand deposits
Brokered certificates of deposit, which are included as time
deposits, amounted to $2.5 billion as of September 30, 2010
compared with $2.0 billion as of June 30, 2010 and $2.8 billion as
of September 30, 2009.
The increase in demand deposits from June 30, 2010 to September
30, 2010 was principally related to an increase in deposits in
trust held on a short-term basis for close to $0.4 billion,
principally for payment of government bonds. The remaining increase
in demand deposits pertained both to retail and commercial deposits
and was partially offset by the reduction in savings accounts. The
increase in time deposits was principally from brokered
certificates of deposit, partially offset by a reduction in retail
certificates of deposit.
The increase in demand and savings deposits from September 30,
2009 to the same date in 2010 included the impact of deposits
assumed as part of the Westernbank FDIC-assisted transaction and
higher deposits in trust as explained above. The decrease in time
deposits was due to a reduction in BPNA of approximately $1.1
billion in non-brokered time deposits, as well as a decline of $0.3
billion in brokered certificates of deposit, partially offset by
increases in BPPR of $0.8 billion in non-brokered time deposits,
influenced in part by deposits assumed in the Westernbank
FDIC-assisted transaction.
Borrowings and capital
The accompanying Exhibit A also provides information on
borrowings and stockholders’ equity as of September 30, 2010, June
30, 2010, and September 30, 2009.
The Corporation’s borrowings amounted to $7.7 billion as of
September 30, 2010, compared with $10.5 billion as of June 30, 2010
and $5.5 billion as of September 30, 2009. The decrease in
borrowings from June 30, 2010 to September 30, 2010 was mostly
related to a reduction of $2.4 billion in the note issued to the
FDIC, which has a carrying amount of $3.3 billion as of September
30, 2010 compared with $5.7 billion as of June 30, 2010. This
decrease was principally due to a prepayment of $2.0 billion in
July 2010 and the impact of payments of principal from loan
collections submitted to the FDIC as part of the note agreement
during the quarter. The decline in borrowings from June 30, 2010
was also influenced by $175 million in term notes, which had
contractual maturities in September 2011, that were repurchased by
the Corporation from holders of record in July 2010. The increase
in borrowings from September 30, 2009 to September 30, 2010 was
also related to the issuance of the note payable to the FDIC,
partially offset by a reduction in repurchase agreements and term
notes.
Stockholders’ equity totaled $4.1 billion as of September 30,
2010, compared with $3.6 billion as of June 30, 2010 and $2.7
billion as of September 30, 2009. The increase in stockholders’
equity from June 30, 2010 to September 30, 2010 was principally due
to the gain on the sale of a majority interest in EVERTEC. The
increase in stockholders’ equity from September 30, 2009 to the
same date in 2010 was mostly influenced by the gain on the EVERTEC
transaction and the issuance of depositary shares and conversion to
common stock during the second quarter of 2010.
Popular, Inc.’s capital ratios continued to exceed all
“well-capitalized” regulatory benchmarks as of September 30, 2010.
Below is a summary of the Corporation’s estimated regulatory
capital ratios as of September 30, 2010 and June 30, 2010. As
indicated earlier, the EVERTEC transaction improved the
Corporation’s capital ratios considerably.
September 30,
2010
June 30,
2010
Minimum required
Tier 1 risk-based capital
14.88% 12.56% 4.00% Total risk-based capital
16.17% 13.86% 8.00% Tier 1 leverage 9.99% 8.79% 3.00% - 4.00%
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 $3.3
billion as of September 30, 2010 compared to $2.8 billion as of
June 30, 2010. The Corporation’s Tier 1 common equity to
risk-weighted assets ratio was 11.41% as of September 30, 2010 and
9.22% as of June 30, 2010.
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) September 30,
2010
June 30,
2010
Total stockholders’ equity $ 4,109,200 $ 3,603,447 Less: Preferred
stock (50,160 ) (50,160 ) Less: Goodwill (665,333 ) (710,579 )
Less: Other intangibles (60,438 ) (63,721 ) Total
tangible common equity $ 3,333,269 $ 2,778,987
The following table provides a reconciliation of common
stockholders’ equity (GAAP) to Tier 1 common equity (non-GAAP):
(In thousands) September 30,
2010
June 30,
2010
Common stockholders’ equity $ 4,059,040 $ 3,553,287 Less:
Unrealized gains on available for sale securities, net of tax (1)
(195,564 ) (191,673 ) Less: Disallowed deferred tax assets (2)
(227,576 ) (183,759 ) Less: Intangible assets: Goodwill (665,333 )
(710,579 ) Other disallowed intangibles (30,045 ) (34,880 ) Less:
Aggregate adjusted carrying value of all non-financial equity
investments (1,590 ) (1,785 ) Add: Pension liability adjustment,
net of tax and accumulated net gains (losses) on cash flow hedges
(3) 74,301 75,669 Total Tier 1 common
equity $ 3,013,233 $ 2,506,280 (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 $134 million of the Corporation’s $337
million of net deferred tax assets as of September 30, 2010 ($186
million and $347 million, respectively as of June 30, 2010), were
included without limitation in regulatory capital pursuant to the
risk-based capital guidelines, while approximately $228 million of
such assets as of September 30, 2010 ($184 million as of June 30,
2010) exceeded the limitation imposed by these guidelines and, as
“disallowed deferred tax assets,” were deducted in arriving at Tier
1 capital. The remaining $25 million of the Corporation’s other net
deferred tax assets as of September 30, 2010 ($23 million as of
June 30, 2010) 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 and the Form 10-Qs for
the quarters ended March 31, 2010 and June 30, 2010, 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
33rd 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.
* * *
An electronic version of this press release can be found at the
Corporation’s website, www.popular.com.
***
Exhibits A and B follow
EXHIBIT A
POPULAR, INC. Financial Summary (Unaudited)
Quarter ended 3rd Quarter Quarter ended 3rd Quarter
2010 September 30, 2010 vs 2009 June 30, vs 2nd Quarter 2010
2010 2009 $ Variance 2010 $ Variance
Summary of
Operations --- (In thousands, except share information)
Interest income
$550,687 $454,463 $96,224 $456,721 $93,966
Interest expense
163,769 178,074 (14,305)
177,745 (13,976) Net interest income
386,918 276,389 110,529 278,976 107,942 Provision for loan
losses
215,013 331,063 (116,050)
202,258 12,755 Net interest income after provision
for loan losses
171,905 (54,674) 226,579 76,718 95,187
Net gain (loss) on sale and valuation adjustments of
investment securities
3,732 (9,059) 12,791 397 3,335 Trading
account profit
5,860 7,579 (1,719) 2,464 3,396 Loss on sale
of loans, including adjustments to indemnity reserves, and
valuation adjustments on loans held-for-sale
(1,573) (8,728)
7,155 (9,311) 7,738 FDIC loss share (loss) income
(36,936) -
(36,936) 23,334 (60,270) Fair value change in equity appreciation
instrument
10,641 - 10,641 24,394 (13,753) Gain on EVERTEC
transaction
640,802 - 640,802 - 640,802 Other non-interest
income
173,998 170,252 3,746 174,580
(582) Total non-interest income
796,524
160,044 636,480 215,858 580,666 Personnel costs
141,205 130,547 10,658 138,032 3,173 Loss (gain) on early
extinguishment of debt
25,448 (79,304) 104,752 430 25,018
Other operating expenses
204,894 169,357
35,537 189,954 14,940 Total operating expenses
371,547 220,600 150,947 328,416
43,131 Income (loss) from continuing operations before
income tax
596,882 (115,230) 712,112 (35,840) 632,722 Income
tax expense
102,388 6,331 96,057 19,988
82,400 Income (loss) from continuing operations, net
of income tax
494,494 (121,561) 616,055 (55,828) 550,322
Loss from discontinued operations, net of income tax
-
(3,427) 3,427 - - Net income
(loss)
$494,494 ($124,988) $619,482
($55,828) $550,322 Net income (loss) applicable to
common stock (1)
$494,494 $595,614 ($101,120)
($247,495) $741,989 Net income (loss) per
common share: (1) Basic and diluted per common share from
continuing operations
$0.48 $1.41
($0.29) Basic and diluted per common share from
discontinued operations
- ($0.01) - Basic and
diluted per common share - Total
$0.48
$1.40 ($0.29) Average common
shares outstanding
1,021,374,014 425,672,578 853,010,208
Average common shares outstanding - assuming dilution
1,021,374,014 425,672,578 853,010,208 Common shares
outstanding at end of period
1,022,686,418 639,541,515
1,022,695,797
Market value per common share
$2.90 $2.83 $2.68
Book value per common share
$3.97 $4.21 $3.47
Market Capitalization --- (In
millions) $2,966 $1,810 $2,741
Selected
Average Balances --- (In millions) Total assets
$40,280
$35,813 $4,467 $39,816 $464 Stockholders' equity
3,476 2,771
705 3,217 259
Selected Financial Data at Period-End ---
(In millions) Total assets
$40,821 $35,638 $5,183
$42,444 ($1,623) Loans
26,264 24,472 1,792 26,647 (383)
Earning assets
34,885 33,398 1,487 36,336 (1,451) Deposits
27,740 26,383 1,357 27,114 626 Borrowings
7,693 5,461
2,232 10,546 (2,853) Interest bearing liabilities
30,061
27,562 2,499 32,866 (2,805) Stockholders' equity
4,109 2,742
1,367 3,603 506
Performance Ratios Net interest yield
from continuing operations (2)
4.49% 3.30% 3.21% Return on
assets
4.87 (1.38) (0.56) Return on common equity
57.27 (26.24) (7.75) (1) Refer to the
table included in the press release for a reconciliation of net
income (loss) per common share. (2) Not on a taxable equivalent
basis. Note: Certain reclassifications have been made
to prior periods to conform with this quarter presentation.
EXHIBIT A (CONTINUED)
POPULAR, INC. Financial Summary (Unaudited)
For the nine months ended September 30,
2010
2009 $ Variance
Summary of Operations --- (In
thousands, except share information) Interest income
$1,434,603 $1,414,701 $19,902 Interest expense
499,792 582,766 (82,974) Net interest
income
934,811 831,935 102,876 Provision for loan losses
657,471 1,053,036 (395,565) Net
interest income after provision for loan losses
277,340
(221,101) 498,441 Net gain on sale and valuation adjustments
of investment securities
4,210 220,792 (216,582) Trading
account profit
8,101 31,241 (23,140) Loss on sale of loans,
including adjustments to indemnity reserves, and valuation
adjustments on loans held-for-sale
(23,106) (35,994) 12,888
FDIC loss share loss
(13,602) - (13,602) Fair value change
in equity appreciation instrument
35,035 - 35,035 Gain on
EVERTEC transaction
640,802 - 640,802 Other non-interest
income
518,808 504,575 14,233 Total
non-interest income
1,170,248 720,614 449,634
Personnel costs
400,169 412,044 (11,875) Loss (gain) on
early extinguishment of debt
26,426 (79,304) 105,730 Other
operating expenses
554,281 522,702 31,579
Total operating expenses
980,876 855,442
125,434 Income (loss) from continuing operations
before income tax
466,712 (355,929) 822,641 Income tax
expense (benefit)
113,101 (15,209) 128,310
Income (loss) from continuing operations, net of income tax
353,611 (340,720) 694,331 Loss from discontinued operations,
net of income tax
- (19,972) 19,972 Net
income (loss)
$353,611 ($360,692) $714,303
Net income applicable to common stock (1)
$161,944
$310,604 ($148,660) Net income (loss) per
common share: (1) Basic and diluted per common share from
continuing operations
$0.19 $1.00
Basic and diluted per common share from discontinued operations
- ($0.06) Basic and diluted per common share -
Total
$0.19 $0.94 Dividends
declared per common share
- $0.02
Average common shares outstanding
839,196,564 330,325,348
Average common shares outstanding - assuming dilution
839,509,525 330,325,348 Common shares outstanding at end of
period
1,022,686,418 639,541,515
Market value per
common share $2.90 $2.83
Book value per common
share $3.97 $4.21
Market Capitalization ---
(In millions) $2,966 $1,810
Selected Average
Balances --- (In millions) Total assets
$38,027 $37,090
$937 Stockholders' equity
3,041 2,961 80
Performance Ratios Net interest yield from continuing
operations (2)
3.73% 3.21% Return on assets
1.24
(1.30) Return on common equity
16.31 (31.48)
(1) Refer to the table included in the press release for a
reconciliation of net income (loss) per common share. (2) Not on a
taxable equivalent basis. Note: Certain reclassifications
have been made to prior periods to conform with this quarter
presentation.
EXHIBIT B (CONTINUED)
POPULAR, INC. Financial Summary - Segment
Reporting (Unaudited) Quarter ended September
30, 2010 BPPR BPNA
Total Reportable
Segments
Summary of Operations --- (In thousands) Net interest
income $336,580 $77,465 $414,045 Provision for loan losses 182,153
32,860 215,013 Net interest income after
provision for loan losses 154,427 44,605 199,032 Net gain on
sale and valuation adjustments of investment securities 3,732 -
3,732 Trading account profit 5,860 - 5,860 Loss on sale of loans,
including adjustments to indemnity reserves, and valuation
adjustments on loans held-for-sale (1,509) (2,409) (3,918) Other
non-interest income (service charges on deposits, other service
fees and other) 84,854 15,570 100,424 Total
non-interest income 92,937 13,161 106,098 Personnel costs
84,580 22,951 107,531 (Gain) loss on early extinguishment of debt
(27) 9,725 9,698 Other operating expenses 137,269 37,914
175,183 Total operating expenses 221,822
70,590 292,412 Income (loss) before income tax 25,542
(12,824) 12,718 Income tax expense 12,996 1,798
14,794 Net income (loss) $12,546 ($14,622)
($2,076)
Quarter ended September 30,
2010 Corporate Eliminations
Popular, Inc. Summary of Operations --- (In
thousands) Net interest (expense) income ($27,289) $162
$386,918 Provision for loan losses - - 215,013
Net interest income after provision for loan losses (27,289) 162
171,905 Net gain on sale and valuation adjustments of
investment securities - - 3,732 Trading account profit - - 5,860
Gain (loss) on sale of loans, including adjustments to indemnity
reserves, and valuation adjustments on loans held-for-sale 2,345 -
(1,573) Gain on EVERTEC transaction 640,802 - 640,802 Other
non-interest income (service charges on deposits, other service
fees and other) 87,436 (40,157) 147,703 Total
non-interest income 730,583 (40,157) 796,524 Personnel costs
33,674 - 141,205 Loss on early extinguishment of debt 15,750 -
25,448 Other operating expenses 70,035 (40,324)
204,894 Total operating expenses 119,459 (40,324)
371,547 Income before income tax 583,835 329 596,882
Income tax expense 87,382 212 102,388 Net
income $496,453 $117 $494,494
EXHIBIT B
POPULAR, INC. Financial
Summary - Segment Reporting (Unaudited)
Quarter ended June 30, 2010 BPPR BPNA
Total Reportable
Segments
Summary of Operations --- (In thousands) Net interest
income $232,046 $75,323 $307,369 Provision for loan losses 122,267
79,991 202,258 Net interest income after
provision for loan losses 109,779 (4,668) 105,111 Net (loss)
gain on sale and valuation adjustments of investment securities (5)
402 397 Trading account profit 2,464 - 2,464 Loss on sale of loans,
including adjustments to indemnity reserves, and valuation
adjustments on loans held-for-sale (7,375) (3,716) (11,091) Other
non-interest income (service charges on deposits, other service
fees and other) 151,230 19,240 170,470 Total
non-interest income 146,314 15,926 162,240 Personnel costs
82,697 27,263 109,960 Loss on early extinguishment of debt 430 -
430 Other operating expenses 137,000 41,020 178,020
Total operating expenses 220,127 68,283
288,410 Income (loss) before income tax 35,966 (57,025)
(21,059) Income tax expense 14,217 798 15,015
Net income (loss) $21,749 ($57,823) ($36,074)
Quarter ended June 30, 2010 Corporate
Eliminations Popular, Inc. Summary
of Operations --- (In thousands) Net interest (expense)
income ($28,556) $163 $278,976 Provision for loan losses - -
202,258 Net interest income after provision for loan
losses (28,556) 163 76,718 Net gain on sale and valuation
adjustments of investment securities - - 397 Trading account profit
- - 2,464 Gain (loss) on sale of loans, including adjustments to
indemnity reserves, and valuation adjustments on loans
held-for-sale 1,780 - (9,311) Other non-interest income (service
charges on deposits, other service fees and other) 87,120
(35,282) 222,308 Total non-interest income 88,900
(35,282) 215,858 Personnel costs 28,434 (362) 138,032 Loss
on early extinguishment of debt - - 430 Other operating expenses
45,184 (33,250) 189,954 Total operating
expenses 73,618 (33,612) 328,416 Loss before
income tax (13,274) (1,507) (35,840) Income tax expense 4,970
3 19,988 Net loss ($18,244) ($1,510)
($55,828)
EXHIBIT B (CONTINUED)
POPULAR, INC. Financial Summary - Segment
Reporting (Unaudited) Quarter ended September
30, 2009 BPPR BPNA
Total Reportable
Segments
Summary of Operations --- (In thousands) Net interest
income $217,750 $77,588 $295,338 Provision for loan losses 153,350
177,713 331,063 Net interest income after
provision for loan losses 64,400 (100,125) (35,725) Net loss
on sale and valuation adjustments of investment securities (311)
(5,173) (5,484) Trading account profit 7,579 - 7,579 Gain (loss) on
sale of loans, including adjustments to indemnity reserves, and
valuation adjustments on loans held-for-sale 593 (9,321) (8,728)
Other non-interest income (service charges on deposits, other
service fees and other) 101,222 20,889 122,111
Total non-interest income 109,083 6,395 115,478 Personnel
costs 73,253 27,287 100,540 Loss on early extinguishment of debt
955 - 955 Other operating expenses 112,745 46,347
159,092 Total operating expenses 186,953 73,634
260,587 Loss from continuing operations, before
income tax (13,470) (167,364) (180,834) Income tax expense 77
2,553 2,630 Loss from continuing operations, net of
income tax (13,547) (169,917) (183,464) Loss from discontinued
operations, net of income tax - - - Net loss
($13,547) ($169,917) ($183,464)
Quarter ended September 30, 2009 Corporate
Eliminations and
Discontinued
Operations
Popular, Inc. Summary of Operations --- (In
thousands) Net interest (expense) income ($19,232) $283
$276,389 Provision for loan losses - - 331,063
Net interest income after provision for loan losses (19,232) 283
(54,674) Net loss on sale and valuation adjustments of
investment securities (1,517) (2,058) (9,059) Trading account
profit - - 7,579 Loss on sale of loans, including adjustments to
indemnity reserves, and valuation adjustments on loans
held-for-sale - - (8,728) Other non-interest income (service
charges on deposits, other service fees and other) 84,718
(36,577) 170,252 Total non-interest income 83,201
(38,635) 160,044 Personnel costs 30,958 (951) 130,547 Gain
on early extinguishment of debt (78,337) (1,922) (79,304) Other
operating expenses 42,443 (32,178) 169,357
Total operating expenses (4,936) (35,051) 220,600
Income (loss) from continuing operations, before income tax
68,905 (3,301) (115,230) Income tax expense 2,976 725
6,331 Income (loss) from continuing operations, net of income tax
65,929 (4,026) (121,561) Loss from discontinued operations, net of
income tax - (3,427) (3,427) Net income (loss)
$65,929 ($7,453) ($124,988)
EXHIBIT C
POPULAR, INC. Financial
Summary - Segment Reporting (Unaudited) For
the nine months ended September 30, 2010 BPPR
BPNA
Total Reportable
Segments
Summary of Operations --- (In thousands) Net interest
income $787,923 $231,642 $1,019,565 Provision for loan losses
412,792 244,679 657,471 Net interest income
after provision for loan losses 375,131 (13,037) 362,094 Net
gain on sale and valuation adjustments of investment securities
3,814 396 4,210 Trading account profit 8,101 - 8,101 Loss on sale
of loans, including adjustments to indemnity reserves, and
valuation adjustments on loans held-for-sale (19,599) (7,585)
(27,184) Other non-interest income (service charges on deposits,
other service fees and other) 335,604 52,835 388,439
Total non-interest income 327,920 45,646 373,566
Personnel costs 236,042 74,147 310,189 Loss on early extinguishment
of debt 951 9,725 10,676 Other operating expenses 381,208
121,970 503,178 Total operating expenses 618,201
205,842 824,043 Income (loss) before income
tax 84,850 (173,233) (88,383) Income tax expense 26,304
3,382 29,686 Net income (loss) $58,546
($176,615) ($118,069)
For the nine
months ended September 30, 2010 Corporate
Eliminations Popular, Inc. Summary of
Operations --- (In thousands) Net interest (expense)
income ($85,241) $487 $934,811 Provision for loan losses - -
657,471 Net interest income after provision for loan
losses (85,241) 487 277,340 Net gain on sale and valuation
adjustments of investment securities - - 4,210 Trading account
profit - - 8,101 Gain (loss) on sale of loans, including
adjustments to indemnity reserves, and valuation adjustments on
loans held-for-sale 4,078 - (23,106) Gain on EVERTEC transaction
640,802 - 640,802 Other non-interest income (service charges on
deposits, other service fees and other) 260,266 (108,464)
540,241 Total non-interest income 905,146 (108,464)
1,170,248 Personnel costs 90,461 (481) 400,169 Loss on early
extinguishment of debt 15,750 - 26,426 Other operating expenses
158,111 (107,008) 554,281 Total operating
expenses 264,322 (107,489) 980,876 Income
before income tax 555,583 (488) 466,712 Income tax expense 82,983
432 113,101 Net income $472,600 ($920)
$353,611
EXHIBIT C
POPULAR, INC. Financial Summary - Segment
Reporting (Unaudited) For the nine months
ended September 30, 2009 BPPR BPNA
Intersegment
Eliminations
Total Reportable
Segments
Summary of Operations --- (In thousands) Net interest
income $650,679 $234,929 $0 $885,608 Provision for loan losses
486,343 566,693 - 1,053,036 Net
interest income after provision for loan losses 164,336 (331,764) -
(167,428) Net gain (loss) on sale and valuation adjustments
of investment securities 227,309 (5,173) - 222,136 Trading account
profit 31,241 - - 31,241 Gain (loss) on sale of loans, including
adjustments to indemnity reserves, and valuation adjustments on
loans held-for-sale 7,820 (43,814) - (35,994) Other non-interest
income (service charges on deposits, other service fees and other)
296,096 64,879 - 360,975 Total
non-interest income 562,466 15,892 - 578,358 Personnel costs
224,871 95,564 - 320,435 Loss on early extinguishment of debt 955 -
- 955 Other operating expenses 337,635 151,878 (27)
489,486 Total operating expenses 563,461
247,442 (27) 810,876 Income (loss) from
continuing operations, before income tax 163,341 (563,314) 27
(399,946) Income tax benefit (4,239) (5,692) 11
(9,920) Income (loss) from continuing operations, net of
income tax 167,580 (557,622) 16 (390,026) Loss from discontinued
operations, net of income tax - - - -
Net income (loss) $167,580 ($557,622) $16
($390,026)
For the nine months ended
September 30, 2009 Corporate
Eliminations and
Discontinued
Operations
Popular, Inc. Summary of Operations --- (In
thousands) Net interest (expense) income ($54,489) $816
$831,935 Provision for loan losses - - 1,053,036
Net interest income after provision for loan losses (54,489)
816 (221,101) Net gain on sale and valuation adjustments of
investment securities 714 (2,058) 220,792 Trading account profit -
- 31,241 Loss on sale of loans, including adjustments to indemnity
reserves, and valuation adjustments on loans held-for-sale - -
(35,994) Other non-interest income (service charges on deposits,
other service fees and other) 245,531 (101,931)
504,575 Total non-interest income 246,245 (103,989) 720,614
Personnel costs 93,037 (1,428) 412,044 Gain on early
extinguishment of debt (78,337) (1,922) (79,304) Other operating
expenses 130,051 (96,835) 522,702 Total
operating expenses 144,751 (100,185) 855,442
Income (loss) from continuing operations, before income tax 47,005
(2,988) (355,929) Income tax benefit (6,120) 831
(15,209) Income (loss) from continuing operations, net of income
tax 53,125 (3,819) (340,720) Loss from discontinued operations, net
of income tax - (19,972) (19,972) Net income
(loss) $53,125 ($23,791) ($360,692)
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