Popular, Inc. (“the Corporation” or “Popular”) (NASDAQ: BPOP)
reported net income of $10.1 million for the quarter ended March
31, 2011, compared with a net loss of $227.1 million for the
quarter ended December 31, 2010, and a net loss of $85.1 million
for the quarter ended March 31, 2010. Pre-tax income for the
quarter ended March 31, 2011 amounted to $157.4 million, compared
with a pre-tax loss of $238.9 million for quarter ended December
31, 2010 and a pre-tax loss of $94.3 million for the quarter ended
March 31, 2010. Refer to the accompanying Exhibit A - Financial
Summary for “per common share” information and key performance
ratios.
Main events for the quarter ended March
31, 2011
- On January 31, 2011, the Governor of
Puerto Rico signed into law a new Internal Revenue Code for Puerto
Rico (the “2011 Tax Code”) which resulted in a reduction in the
Corporation’s net deferred tax asset with a corresponding charge to
income tax expense of $103.3 million due to a reduction in the
marginal corporate income tax rate. Under the provisions of the
2011 Tax Code, the maximum statutory corporate income tax rate was
reduced from 39% (40.95% through December 31, 2011) to 30% for
years commencing after December 31, 2010. Under the new tax code,
the Corporation has an irrevocable one-time election to defer the
application of the 2011 Tax Code for five years. This election must
be made with the filing of the 2011 income tax return.
- Sale of the Corporation’s equity
investment in the processing business of Consorcio de Tarjetas
Dominicanas, S.A. (“CONTADO”) with a positive impact in first
quarter earnings of $16.7 million, net of tax. Under the terms of
the sale of the majority interest in EVERTEC during the third
quarter of 2010, the Corporation was required for a period of
twelve months following the sale to continue to seek to sell its
equity interest in CONTADO. The Corporation’s investment in
CONTADO, accounted for under the equity method, amounted to $27.4
million as of the transaction sale date.
- Equity pick-up from the Corporation’s
49% ownership interest in Carib Holdings (referred to as “EVERTEC”)
for the quarter ended March 31, 2011 was positively impacted by the
2011 Tax Code by approximately $13.8 million. This impact is
recorded in other operating income. As a result of the 2011 Tax
Code, EVERTEC recognized a reduction in its deferred tax liability,
which had been recognized at a higher marginal corporate income tax
rate. The deferred tax liability was principally the result of the
difference between assigned values and the tax basis of the assets
and liabilities recognized in the business combination.
- Prepayment penalties of $8.0 million
were recognized in other operating expenses associated with the
termination of $100 million in medium-term notes.
- Recognized impairment losses of $8.6
million related to the Corporation’s full write-off of its
investment in Tarjetas y Transacciones en Red Tranred, C.A.
(“TRANRED”) as the Corporation has decided to wind down these
operations. This subsidiary provides processing services in
Venezuela.
- Completed the sale of $457 million
(legal balance) in U.S. non-conventional residential mortgage loans
by Banco Popular North America that were reclassified to loans
held-for-sale during the fourth quarter of 2010. The sale had a
positive impact of approximately $16.4 million to the results of
operations for the first quarter of 2011, which included $2.6
million in gain on sale of loans and $13.8 million classified as a
reduction to the original write-down which was booked as part of
the activity in the allowance for loan losses because of improved
pricing. This included an out of period adjustment of $10.7 million
as a portion of the sale was completed just prior to the release of
the Corporation’s Form 10-K for the year ended December 31,
2010.
Mr. Richard L. Carrión, Chairman of the Board and Chief
Executive Officer, stated, “While the results for the quarter were
impacted by a number of significant items, they clearly reflect a
return to operational profitability. One quarter does not make a
trend and we are very conscious of the fragility of the economic
recovery. Nevertheless, these results, together with generally
encouraging economic and credit metrics, make us feel
optimistic.”
Financial overview
- The net income for the first quarter of
2011 was primarily driven by a decrease in the provision for loan
losses of $279.1 million, when compared with the quarter ended
December 31, 2010, of which approximately $190.3 million was due to
the impact of the reclassification during the fourth quarter of
2010 of approximately $1.0 billion in loans, mostly non-accruing
loans, from the held-in-portfolio to the held-for-sale category at
lower of cost or fair value. Excluding the $190.3 million impact to
the provision for loan losses relating to the loan
reclassifications, the provision for loan losses declined by $88.8
million for the first quarter of 2011 compared with the previous
quarter, mainly in the Banco Popular de Puerto Rico (“BPPR”)
reportable segment by $73.6 million and $15.2 million in the Banco
Popular North America (“BPNA”) reportable segment. Refer to the
Credit Quality section for information on these variances.
- Net income for the quarter ended March
31, 2011 was impacted by an unfavorable variance in income tax
expense of $159.0 million, which resulted from the impact of the
change in the Puerto Rico tax code described previously as well as
higher taxable income in the Corporation’s Puerto Rico operations
taxed at 30%.
- Non-interest income increased by $58.8
million mainly due to the gain on the sale of the equity interest
in CONTADO, lower indemnity reserve adjustments on loans sold, both
for standard representation and warranties and credit recourse, and
higher FDIC loss share income partially offset by an unfavorable
change in trading account profit and other service fees.
- Operating expenses for the quarter
ended March 31, 2011 declined by $69.6 million when compared with
the fourth quarter of 2010, principally because of lower provision
for unfunded credit commitments, other real estate owned expenses
and prepayment penalties on early extinguishment of debt, partially
offset by the write down of the net assets of the Venezuela
operations. There were also general reductions in other operating
expense categories as shown in the accompanying Exhibit A.
The BPPR reportable segment reported net income of $3.6 million
for the quarter ended March 31, 2011, compared with a net loss of
$22.9 million in the fourth quarter of 2010. Income before income
tax for the BPPR reportable segment amounted to $149.7 million for
the first quarter of 2011, compared with a pre-tax loss of $29.0
million for the fourth quarter of 2010. The favorable change in
pre-tax income was principally as a result of lower provision for
loan losses by $129.6 million. The results for the fourth quarter
of 2010 included $56.0 million in write-downs from the
reclassification of certain construction and commercial loans
held-in-portfolio to held-for-sale, which was recorded as part of
the provision for loan losses. Refer to the Credit Quality section
of this press release for additional information on the change in
the provision for loan losses. Non-interest income increased by
$13.7 million, mainly due to higher FDIC loss share income and
lower adjustments to indemnity reserves on loans sold with credit
recourse. Operating expenses declined $42.6 million, principally
due to losses on the sale of other real estate owned properties in
the fourth quarter of 2010, lower reserves for unfunded credit
commitments, and lower personnel costs, professional fees and
business promotion expenses.
The BPNA reportable segment reported net income of $22.3 million
for the quarter ended March 31, 2011, compared with a net loss of
$163.7 million in the fourth quarter of 2010. The favorable
variance was mainly the result of a lower provision for loan losses
by $149.5 million, principally because of the write-downs taken in
the fourth quarter of 2010 related to the reclassification of the
non-conventional mortgage loans held-in-portfolio to loans
held-for-sale. These loans were substantially sold in the first
quarter of 2011. The favorable variance was also due to lower
indemnity reserve adjustments for standard representation and
warranties, lower penalties on the early extinguishment of debt,
which amounted to $12.1 million in the fourth quarter of 2010, and
lower losses on write-downs on the value of other real estate
owned.
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 March 31, 2011,
December 31, 2010, and March 31, 2010:
Quarter ended (In thousands, except share
information) March 31, 2011 December 31,2010
March 31, 2010 Net income (loss) $ 10,132 ($227,141 )
($85,055 ) Preferred stock dividends (930 )
(310 ) - Net income (loss) applicable to
common stock $ 9,202 ($227,451 )
($85,055 ) Average common shares outstanding 1,021,536,201
1,021,527,855 639,003,599 Average potential dilutive common shares
802,894 - -
Average common shares outstanding - assuming dilution
1,022,339,095 1,021,527,855 639,003,599
Basic and diluted net income (loss) per common share
$ 0.01 ($0.22 ) ($0.13 )
Net Interest Income
Net interest income for the first quarter of 2011 was $343.4
million, compared with $354.6 million for the fourth quarter of
2010 and $268.9 million for the first quarter of 2010.
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, 2011, December 31, 2010
and March 31, 2010.
Average Balances Average Yields /
Costs (Dollars in billions) 1st
Quarter
2011
4th
Quarter 2010
1st
Quarter
2010
1st
Quarter
2011
4th
Quarter
2010
1st
Quarter
2010
Money market, trading and investment securities $ 7.5
$ 7.7 $ 8.1 3.33 % 3.22 % 3.57 % Loans:
Commercial (a) 12.1 12.7
14.2 4.77 4.77 4.85 Mortgage 4.7 4.7 4.5 6.01 5.91 6.13 Consumer
3.7 3.7 4.0 10.36 10.43 10.31 Lease financing 0.6
0.6 0.7 9.01 8.94
8.71 Total loans, excluding covered loans
21.1 21.7 23.4
6.14 6.10 6.14 Covered loans (b)
4.8 5.0 - 8.61
8.84 - Total earning assets
$ 33.4 $ 34.4 $ 31.5 5.87 % 5.86
% 5.48 % Interest bearing deposits $ 22.4 $ 22.1 $
21.1 1.39 % 1.45 % 1.78 % Borrowings 6.7
7.2 5.1 3.90 3.95
5.21 Total interest bearing liabilities
29.1 29.3 26.2 1.98
2.07 2.44 Non-interest bearing sources
of funds 4.3 5.1 5.3
Total funds $ 33.4
$ 34.4 $ 31.5 1.72 % 1.76 % 2.04
% Net interest spread
3.89 % 3.79 % 3.04 % Net interest yield (c)
4.15 % 4.10
% 3.44 %
(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
The decrease in net interest income of $11.2 million for the
quarter ended March 31, 2011 compared with the fourth quarter of
2010 was principally due to lower interest income on loans by $22.1
million, principally commercial and personal loans and credit
cards. This unfavorable variance was partially offset by lower
interest expense on deposits by $4.1 million due to lower cost of
funds and long-term debt by $5.9 million due to lower volume
because of reduced levels in the note issued to the FDIC as part of
the FDIC assisted transaction. During the first quarter of 2011,
the Corporation prepaid $224 million of the note issued to the FDIC
and $100 million in medium-term notes.
Net interest yield for the quarter ended March 31, 2011
increased by 5 basis points, compared with the quarter ended
December 31, 2010. This increase was primarily the result of a
reduction in the cost of interest-bearing deposits, principally
time deposits, because of management actions to reduce their
cost.
Credit Quality
As of March 31, 2011, including the allowance for loan losses on
loans covered under FDIC loss sharing agreements (the “covered
loans”), the Corporation’s allowance for loan losses decreased to
$737 million or 2.90% of the Corporation’s total loans
held-in-portfolio, compared with $793 million or 3.10% as of
December 31, 2010, and $1.3 billion or 5.53% as of March 31, 2010.
The decrease in the allowance for loan losses from December 31,
2010 to March 31, 2011 was mainly driven by a reduction of $61
million in the general component of the Corporation’s allowance for
loan losses ($70 million excluding covered loans), principally due
to a lower level of net charge-offs.
During the fourth quarter of 2010, the Corporation determined to
charge-off previously reserved impaired amounts of collateral
dependent loans both in Puerto Rico and in the U.S. mainland. As a
result of this determination, charge-offs for commercial and
construction loans of approximately $108.1 million and $101.3
million, respectively, were recorded during the fourth quarter of
2010.
The provision for loan losses for the quarter ended March 31,
2011, declined $279.1 million, or 79%, and $164.9 million, or 69%,
when compared to the quarters ended December 31, 2010 and March 31,
2010, respectively, as net charge-offs fell by $122.7 million, or
46%, and $78.5 million, or 35%, when compared to the same quarters
in 2010, reflecting an improvement in the credit quality of the
Corporation’s loan portfolio. The $122.7 million decrease as
compared with the fourth quarter of 2010 excludes the $209.4
million in charge-offs of previously reserved impaired amounts of
collateral dependent loans recorded in the fourth quarter of 2010
which were explained in the preceding paragraph. Major decreases
were reflected in the Corporation’s construction loan portfolio,
mainly in Puerto Rico, and in the U.S mainland non-conventional
mortgage loan portfolio. Both portfolios were significantly reduced
by the transfer of loans held-in-portfolio to loans held-for-sale
in December 2010.
The covered loans acquired in the Westernbank FDIC-assisted
transaction were recognized at fair value as of the April 30, 2010
acquisition date, which included the impact of expected credit
losses and thus, no allowance for loan losses was recorded at such
date. Based on management’s assessment of the covered loan
portfolio as of March 31, 2011, the Corporation established an
allowance for loan losses of $9 million. No allowance for loans
losses for covered loans was deemed necessary as of December 31,
2010.
Provision for Loan Losses
The Corporation’s provision for loan losses totaled $75.3
million or 52% of net charge-offs for the quarter ended March 31,
2011, compared with $354.4 million or 74% of net charge-offs for
the quarter ended December 31, 2010, and $240.2 million or 107% for
the quarter ended March 31, 2010. The lower provision for loan
losses for the first quarter of 2011, compared with the quarters
ended December 31, 2010 and March 31, 2010, reflects improvements
in the credit quality of certain portfolios as well as the positive
results of steps taken by the Corporation to mitigate the overall
credit risks.
As previously reported, during the fourth quarter of 2010, the
Corporation transferred approximately $1.0 billion of loans,
primarily non-accruing loans, from the held-in-portfolio to
held-for-sale category, at the lower of cost or fair value. The
provision for loan losses for the fourth quarter of 2010 included
the incremental effect of the $176.5 million write-down to account
for the difference between the book value and the estimated fair
value of the loan portfolios that were transferred to loans
held-for-sale. During the first quarter of 2011, the BPNA
reportable segment completed the sale of $457 million (legal
balance) in U.S. non-conventional residential mortgage loans that
had been reclassified to loans held-for-sale during the fourth
quarter of 2010. The sale had a positive impact to the provision
for loan losses of $13.8 million since the benefit of improved
pricing was classified as a reduction to the original write-down
which was booked as part of the activity in the allowance for loan
losses. Of this benefit, $10.7 million represents an out of period
adjustment as a portion of the sale was completed just prior to the
release of the Corporation’s Form 10-K for the year ended December
31, 2010. Excluding the $176.5 million negative charge in the
fourth quarter of 2010 and the $13.8 million positive charge in the
first quarter of 2011, the Corporation’s provision for loan losses
for the first quarter of 2011, declined by $88.8 million when
compared to the fourth quarter of 2010.
For the quarter ended March 31, 2011, the provision for loan
losses corresponding to the non-covered loans in the BPPR
reportable segment amounted to $51.7 million or 62% of net
charge-offs, compared with $140.9 million or 81% of net charge-offs
for the fourth quarter of 2010. The provision for loan losses
presented in the preceding sentence for the fourth quarter of 2010
excludes the negative charge of $56.0 million recognized during the
abovementioned reclassification of loans held-for-sale in the BPPR
reportable segment while the net charge-offs exclude the $152.9
million in charge-offs of previously reserved impaired amounts of
collateral dependent loans. The decrease in the provision for loan
losses was mainly related to lower net charge-offs, principally
from the construction and consumer loan portfolios. Net charge-offs
in the non-covered construction and consumer loan portfolios of the
BPPR reportable segment decreased by $87.0 million and $3.3
million, respectively, when compared to the fourth quarter of 2010.
The decrease in net-charge offs of the BPPR construction loan
portfolio was principally driven by the previously explained
held-for-sale transaction that took place in the fourth quarter of
2010, in which $503.9 million (book value) of construction loans
were transferred to the loans held-for-sale category. The decrease
in net charge-offs of the BPPR consumer loan portfolio was prompted
by a more stable credit performance in terms of delinquencies and
losses. The above positive variances were partially offset by a
higher provision for loan losses of the mortgage loan portfolio in
the BPPR reportable segment, when compared to the fourth quarter of
2010, driven principally by higher loan portfolio balance and
delinquencies. The BPPR mortgage loan portfolio continues to be
negatively impacted by the current economic conditions in Puerto
Rico.
During the quarter ended March 31, 2011, the Corporation
recognized a provision for loan losses of $15.6 million and net
charge-offs of $6.4 million related to the covered loan portfolio
from the Westernbank FDIC-assisted transaction. No provision for
loan losses was recorded in the quarters ended June 30, 2010,
September 30, 2010 and December 31, 2010. When the Corporation
records a provision for loan losses on the covered loans, it also
records a benefit attributable to the FDIC loss sharing agreements,
which is recorded in non-interest income.
As indicated in the Financial Overview section, the provision
for loan losses for the quarter ended March 31, 2011 in the BPNA
reportable segment resulted in a decrease of $149.5 million when
compared with the quarter ended December 31, 2010. Excluding the
impact to the provision for loan losses of the previously mentioned
loans held-for-sale reclassification (assuming that the exclusion
results in a provision for loan losses lower by $120.5 million for
the fourth quarter of 2010 and higher by $13.8 million for the
first quarter of 2011), the provision for loan losses in the BPNA
reportable segment decreased by $15.2 million. The decrease was
principally attributable to a lower volume of commercial and
construction loans associated with the Corporation’s decision to
exit or downsize certain business lines at BPNA and lower net
charge-offs. The provision for loans losses to net charge-offs
ratio for the first quarter of 2011 and fourth quarter of 2010 was
39%. This ratio excludes the $56.5 million in charge-offs of
previously reserved impaired amounts of collateral dependent loans
recorded in the fourth quarter of 2010 and the impact to the
provision for loan losses of the previously mentioned
reclassification of loans held-in-portfolio to loans held-for-sale
and subsequent sale at an improved pricing. Net charge-offs of the
BPNA reportable segment decreased to $55.6 million for the first
quarter of 2011, compared with $95.6 million for the fourth quarter
of 2010, considering the exclusion of the $56.5 million in
charge-offs of previously reserved impaired amounts of collateral
dependent loans recorded in the fourth quarter of 2010. The
decrease in net charge-offs was prompted by a lower level of
problem loans, particularly commercial and construction loans, and
the positive impact of certain improvements in the U.S.
economy.
The table that follows summarizes the changes in the allowance
for loan losses for the periods indicated.
Quarters ended March 31,
2011
March 31,
2011
March 31,
2011
December 31,
2010
March 31,
2010
(In thousands) Non-Covered
Loans
Covered
Loans
Total Total Total Balance as of the beginning
of the period $ 793,225 $ - $ 793,225 $
1,243,994 $ 1,261,204 Provision for loan losses
59,762 15,557 75,319
354,409 240,200
852,987 15,557 868,544
1,598,403 1,501,404 Net charge-offs:
Commercial 71,826 1,707 73,533 187,746 79,117 Construction 13,168
4,345 17,513 219,547 51,438 Lease financing 1,231 - 1,231 1,423
3,934 Mortgage 8,247 - 8,247 18,765 27,374 Consumer
44,976 346 45,322 50,490
62,505 Total net charge-offs $ 139,448
6,398 $ 145,846 477,971
224,368 Recovery (write-down) related to loans
transferred to loans held-for-sale 13,807
- 13,807 (327,207 )
- Balance as of the end of the period $ 727,346
$ 9,159 $ 736,505 $ 793,225 $
1,277,036
The Corporation’s net charge-offs decreased by approximately
$332.1 million, or 69%, during the quarter ended March 31, 2011,
compared with the fourth quarter of 2010. As explained before,
during the fourth quarter of 2010, the Corporation determined to
charge-off previously reserved impaired amounts of collateral
dependent loans both in Puerto Rico and in the U.S. mainland. As a
result of this decision, charge-offs for commercial and
construction loans of approximately $108.1 million and $101.3
million, respectively, were recorded during the fourth quarter of
2010.
Excluding covered loans and the effect of the abovementioned
charge-offs during the fourth quarter of 2010, the Corporation’s
net-charge offs decreased by $129.1 million, or 48%, for the
quarter ended March 31, 2011, from $268.5 million for the quarter
ended December 31, 2010. Net charge-offs in all loans categories
declined, driven principally by net charge-offs of the construction
loan portfolio which decreased by $105.0 million, from $118.2
million for the quarter ended December 31, 2010 to $13.2 million
for the first quarter of 2011.
Also excluding covered loans and the effect of the
abovementioned charge-offs during the fourth quarter of 2010, net
charge-offs of the construction loan portfolio for the BPPR and
BPNA reportable segments amounted to $8.0 million and $5.1 million,
respectively, for the quarter ended March 31, 2011, a decrease of
$87.0 million and $18.0 million, respectively, when compared with
the quarter ended December 31, 2010. The decrease in net
charge-offs of the BPPR segment was mainly associated with the
previously mentioned reclassification to loans held-for-sale that
took place in the fourth quarter of 2010. The decrease in net
charge-offs observed in the construction loan portfolio of the BPNA
reportable segment was attributable to a lower portfolio balance,
lower level of problem loans remaining in the portfolio, coupled by
an improvement in the U.S. economy.
The Corporation’s mortgage loan net charge-offs for the first
quarter of 2011 decreased by $10.5 million, compared with the
quarter ended December 31, 2010. This decrease was mainly
attributable to the benefits provided by the sale transaction of a
portion of the U.S. mainland non-conventional mortgage business, in
terms of net charge-offs and delinquencies. As previously reported,
on December 31, 2010, the Corporation’s U.S. banking subsidiary,
BPNA, reclassified approximately $396 million (book value) of U.S.
non-conventional residential mortgage loans as loans
held-for-sale.
Mortgage loan net charge-offs in the BPPR reportable segment for
the quarter ended March 31, 2011 increased slightly by $0.5 million
when compared with the quarter ended December 31, 2010. The
mortgage business has continued to be negatively impacted by the
current economic conditions in Puerto Rico which has resulted in
increased levels of non-performing mortgage loans. However, high
reinstatement experience associated with the mortgage loans under
foreclosure process in Puerto Rico have helped to maintain losses
at manageable levels. The Corporation’s mortgage loan annualized
net charge-offs to average covered mortgage loans held-in-portfolio
in Puerto Rico and the U.S. mainland operations for the quarter
ended March 31, 2011 were 0.85% and 0.26%, respectively, compared
with 0.86% and 3.60%, respectively, for the quarter ended December
31, 2010.
Excluding covered loans, the $5.5 million decrease in consumer
loan net charge-offs for the quarter ended March 31, 2011, compared
with the quarter ended December 31, 2010, was principally
associated with the consumer loan portfolios in the Puerto Rico
operations. Most consumer loan portfolios both in Puerto Rico and
the U.S. mainland have continued to reflect stable credit
trends.
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, 2011 As a percentage
of loans HIP
by category (2)
December 31,
2010
As a percentage
of loans HIP
by category (2)
March 31, 2010
As a percentage
of loans HIP
by category
Commercial $ 752,338 6.8 % $ 725,027
6.4 % $ 836,509 6.8 % Construction 224,159 51.0
238,554 47.6 852,095 52.6 Lease financing 5,312 0.9 5,937 1.0 7,837
1.2 Mortgage 599,361 12.2 542,033 12.0 558,384 12.0 Consumer
53,970 1.5 60,302
1.6 58,431 1.5
Total non-performing loans held-
in-portfolio, excluding covered
loans
$ 1,635,140 7.9 % 1,571,853 7.6 % 2,313,256 10.0 % Non-performing
loans held-for-sale 464,577 671,757 - Other real estate owned
(“OREO”),
excluding covered OREO
156,888 161,496
134,887
Total non-performing assets,
excluding covered assets
$ 2,256,605 $ 2,405,106
$ 2,448,143 Covered loans
and OREO (1) 79,075
83,539 -
Total non-performing assets $ 2,335,680
$ 2,488,645 $ 2,448,143
Excluding covered loans and covered OREO
(3) Allowance for loan losses to loans
held-in-portfolio
3.52 % 3.83 % 5.53 % Allowance for loan losses to
non-performing loans, excluding
loans held-for-sale
44.48 % 50.46 %
55.21 %
Including covered
loans and covered OREO Allowance for loan losses to loans
held-in-portfolio
2.90 % 3.10 % 5.53 % Allowance for loan losses to
non-performing loans, excluding
held-for-sale
44.67 % 49.64 %
55.21 %
(1) The amount consists of $13 million in non-performing covered
loans accounted for under ASC Subtopic 310-20 and $66 million in
covered OREO as of March 31, 2011, and $26 million and $58 million,
respectively, as of December 31, 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 $4.7
billion in covered loans as of March 31, 2011 and $4.8 billion as
of December 31, 2010.
(3) These asset quality ratios have been adjusted to remove the
impact of covered loans and covered foreclosed property.
Appropriate adjustments to the numerator and denominator have been
reflected in the calculation of these ratios. Management believes
the inclusion of acquired loans in certain asset quality ratios
that include non-performing assets, past due loans or net
charge-offs in the numerator and denominator results in distortions
of these ratios and they may not be comparable to other periods
presented or to other portfolios that were not impacted by purchase
accounting.
Non-performing assets - Non-covered loan
portfolio
The Corporation’s non-performing loans held-in-portfolio
(non-covered) increased by $63 million from December 31, 2010 to
March 31, 2011, reaching $1.6 billion or 7.9% of total loans
held-in-portfolio as of March 31, 2011. When we refer to
non-covered loans we are referring to loans not covered by the FDIC
loss sharing agreements.
The increase in non-performing loans held-in-portfolio was
driven by the commercial and residential mortgage loan portfolios
of the BPPR reportable segment which increased by $41 million and
$54 million, respectively. Weak economic conditions in Puerto Rico
have continued to adversely impact the commercial and residential
mortgage loans delinquency rates. Non-performing construction loans
of the BPPR reportable segment decreased by $8 million, mainly
associated to net charge-offs and a lower level of problem loans
remaining in the loan portfolio, as a result of the previously
mentioned loans held-for-sale reclassification that took place in
the fourth quarter of 2010. Consumer and lease financing loans in
non-performing status in the BPPR reportable segment continue to
reflect signs of a stable credit performance as non-performing
loans in both portfolios decreased by $3 million and $0.5 million,
respectively, as compared to the quarter ended December 31,
2010.
For the quarter ended March 31, 2011, additions to commercial
loans and construction loans held-in-portfolio in non-performing
status at the BPPR reportable segment (excluding commercial lines
of credit and business credit cards) amounted to $121 million and
$12 million, respectively, a decrease of $16 million and $25
million, when compared to the quarter ended December 31, 2010.
Although lower than the previous quarter, the level of new
non-performing commercial and construction loans continues to be
highly driven by the current economic conditions in Puerto
Rico.
Non-performing loans in the BPNA reportable segment decreased by
$22 million from December 31, 2010 to March 31, 2011. The decrease
was reflected in almost all loan categories, except for the
mortgage loan portfolio which increased slightly by $3 million.
Most loan portfolios of the BPNA reportable segment continue to
show signs of credit stabilization.
Additions to commercial and construction loans held-in-portfolio
in non-performing status at the BPNA reportable segment amounted to
$50 million and $12 million, respectively, for the first
quarter of 2011, a decrease of $49 million and $25 million
when compared to the fourth quarter of 2010.
Non-performing loans held-for-sale amounted to $465 million as
of March 31, 2011 and $672 million as of December 31, 2010. The
decrease of $207 million was attributable principally to the sale
of a significant portion of the Corporation's U.S. non-conventional
mortgage loan portfolio.
Refer to the Balance Sheet Comments section of this news release
for a breakdown of the loan portfolio by major loan categories.
Allowance for loan losses related to the
non-covered loan portfolio
The following table sets forth information concerning the
composition of the Corporation's allowance for loan losses
(“ALLL”), excluding the allowance for the covered loan portfolio,
as of March 31, 2011, December 31, 2010, and March 31, 2010 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, 2011 Non-Covered Loans
(Dollars in thousands) Commercial Construction
Lease Financing Mortgage Consumer Total
Specific ALLL (1) $ 9,726 - - $ 8,166
- $ 17,892 Impaired loans (1) 460,028 $ 217,892 -
147,026 - 824,946 Specific ALLL to impaired loans
2.11 %
-
-
5.55 % -
2.17 % General ALLL (2) $ 398,114 $ 39,204 $ 10,343 $ 71,944 $
189,849 $ 709,454 Loans held-in-portfolio, excluding impaired loans
(2) 10,664,303 221,507 592,091 4,748,656 3,625,286 19,851,843
General ALLL to loans held-in-portfolio, excluding impaired loans
3.73 % 17.70 % 1.75 %
1.52 % 5.24 % 3.57 %
Total ALLL $ 407,840 $ 39,204 $ 10,343 $ 80,110 $ 189,849 $ 727,346
Total non-covered loans held-in-portfolio 11,124,331 439,399
592,091 4,895,682 3,625,286 20,676,789 ALLL to non-covered loans
held-in-portfolio 3.67 % 8.92 %
1.75 % 1.64 % 5.24 %
3.52 %
(1) Excludes impaired covered loans acquired on the Westernbank
FDIC-assisted transaction.
(2) Excludes covered loans acquired on the Westernbank
FDIC-assisted transaction. The general allowance on these loans
amounted to $9 million as of March 31, 2011.
December 31, 2010 Non-Covered Loans
(Dollars in thousands) Commercial Construction
Lease Financing Mortgage Consumer Total
Specific ALLL $ 8,550 $ 216 - $ 5,004
- $ 13,770 Impaired loans (1) 445,968 231,322 -
121,209 - 798,499 Specific ALLL to impaired loans (1)
1.92 % 0.09 % -
4.13 % - 1.72 % General ALLL $
453,841 $ 47,508 $ 13,153 $ 65,864 $ 199,089 $ 779,455 Loans
held-in-portfolio, excluding impaired loans (1) 10,947,517 269,529
602,993 4,403,513 3,705,984 19,929,536 General ALLL to loans
held-in-portfolio, excluding impaired loans (1) 4.15
% 17.63 % 2.18 % 1.50 %
5.37 % 3.91 % Total ALLL $ 462,391 $
47,724 $ 13,153 $ 70,868 $ 199,089 $ 793,225 Total non-covered
loans held-in-portfolio (1) 11,393,485 500,851 602,993 4,524,722
3,705,984 20,728,035 ALLL to non-covered loans held-in-portfolio
(1) 4.06 % 9.53 % 2.18 %
1.57 % 5.37 % 3.83 % (1)
Excludes covered loans from the Westernbank FDIC-assisted
transaction. 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 non-covered loans
held-in-portfolio 12,250,591 1,618,828 653,734 4,649,223 3,905,923
23,078,299 ALLL to non-covered loans held-in-portfolio
3.77 % 21.45 % 2.85 %
3.55 % 7.27 % 5.53 %
As compared to the quarter ended December 31, 2010, the
allowance for loan losses as of March 31, 2011 decreased by
approximately $66 million from 3.83% to 3.52% as a percentage of
loans held-in-portfolio. This decrease considers a reduction in the
Corporation’s general allowance component of approximately $70
million and an increase in the specific allowance component of
approximately $4 million. The reduction in the general component of
the allowance for loan losses for the quarter ended March 31, 2011,
was primarily attributable to a lower level of net charge-offs,
principally from the Corporation’s commercial, construction and
consumer loan portfolios.
The decrease in the allowance for loan losses for the commercial
loan portfolio as of March 31, 2011 was mainly related to a
reduction of $37 million and $18 million in the general component
of the allowance for loan losses of the Puerto Rico segment and
U.S. mainland segment, respectively, principally due to a lower
level of net charge-offs. The allowance for loan losses of the
construction loan portfolio amounted to $39 million as of March 31,
2011, a decrease of $9 million compared with December 31, 2010.
This decrease was prompted principally by the previously mentioned
reclassification of construction loans held-for-sale of the BPPR
reportable segment that took place in the fourth quarter of 2010,
which produced a lower level of problem loans in the remaining
portfolio, coupled by decreases in loan portfolio and
non-performing loans in the U.S. mainland reportable segment.
The allowance for loan losses of the mortgage loan portfolio as
of March 31, 2011 increased by $9 million from $71 million as of
December 31, 2010. The increase was principally driven by the BPPR
reportable segment which contributed with a higher loan portfolio
balance, higher net charge-offs and an increase in specific
reserves on mortgage loan TDRs, partially offset by the decreases
in the volume of mortgage loans and related net charge-offs in the
BPNA reportable segment, as a result of the previously explained
held-for-sale transaction.
The allowance for loan losses of the consumer loan portfolio as
of March 31, 2011 decreased by $9 million from $199 million as of
December 31, 2010. Most consumer loan portfolios both in Puerto
Rico and the U.S. mainland have continued to reflect favorable
credit trends.
Allowance for loan losses for loans –
Covered loan portfolio
The Corporation’s allowance for loan losses as of March 31, 2011
includes $9 million related to the covered loan portfolio acquired
in the Westernbank FDIC-assisted transaction. This allowance covers
the estimated credit loss exposure related to: (i) acquired loans
accounted for under ASC Subtopic 310-30, which required an
allowance for loan losses of $5 million at quarter end, as one pool
reflected a higher than expected credit deterioration; (ii)
acquired loans accounted for under ASC Subtopic 310-20, which
required an allowance for loan losses of $2 million, and (iii) loan
advances on loan commitments assumed by the Corporation as part of
the acquisition, which required an allowance of $2 million.
Decreases in expected cash flows after the acquisition date for
loans (pools) accounted for under ASC Subtopic 310-30 are
recognized by recording an allowance for loan losses. For purposes
of loans accounted for under ASC 310-20 and new loans originated as
result of loan commitments assumed, the Corporation’s assessment of
the allowance for loan losses is determined in accordance with the
accounting guidance of loss contingencies in ASC Subtopic 450-20
(general reserve for inherent losses) and loan impairment guidance
in ASC Section 310-10-35 for individually impaired loans.
Concurrently, the Corporation recorded an increase in the FDIC loss
share indemnification asset for the expected reimbursement from the
FDIC under the loss sharing agreements.
Non-interest Income
Non-interest income totaled $164.4 million for the quarter ended
March 31, 2011, compared with $105.6 million for the quarter ended
December 31, 2010 and $157.9 million for the quarter ended March
31, 2010.
The increase of $58.8 million in non-interest income for the
quarter ended March 31, 2011, compared with the quarter ended
December 31, 2010, was principally due to a favorable variance in
FDIC loss share income of $19.1 million resulting mostly from the
positive impact of $12.4 million corresponding to the increase in
the FDIC loss share indemnification asset due to the recording of
$15.6 million in provision for loan losses for loans covered under
the loss sharing agreements due to an increase in expected losses
on particular loan pools accounted for under ASC Subtopic 310-30
and inherent losses on certain loans accounted pursuant to ASC
Subtopic 310-20. Also, the increase in FDIC loss share income is
the result of a reduction in the discount accretion for the
acquired loans accounted pursuant to ASC Subtopic 310-20 (recorded
in interest income) of approximately $6.0 million, which, as a
result of reciprocal accounting, caused a reduction in the related
FDIC loss expense (recorded in non-interest income) by $4.8 million
for the quarter ended March 31, 2011, compared with the fourth
quarter of 2010. As of March 31, 2011, the unamortized discount on
FDIC-assisted acquired loans accounted for under ASC Subtopic
310-20 approximated $14 million.
The increase in non-interest income for the first quarter of
2011 when compared with the fourth quarter of 2010 was also
influenced by lower adjustments to indemnity reserves on loans sold
by $24.7 million. The fourth quarter of 2010 included charges to
specific representation and warranty arrangements of the BPNA
reportable segment to fully settle the liability with certain
counterparties and higher charges to increase the recourse
liability related to the Puerto Rico operations. The favorable
variance in non-interest income was also due to the previously
mentioned gain on the sale of the equity interest in CONTADO and
the favorable impact in the equity pick-up from the minority
interest in EVERTEC due to the impact of the tax reform.
The above favorable variances were partially offset by lower
other service fees by $13.0 million, principally due to lower debit
card fees by $4.2 million, mortgage servicing fees, net of
valuation adjustments, by $3.1 million, lower insurance fees by
$2.9 million and sale and administration of investment products by
$1.9 million. Also, there were trading account losses of $0.5
million for the quarter ended March 31, 2011, compared with trading
account profits of $8.3 million in the fourth quarter of 2010
mostly related to the mortgage banking business.
Operating Expenses
Operating expenses totaled $275.0 million for the quarter ended
March 31, 2011, compared with $344.7 million for the quarter ended
December 31, 2010 and $280.9 million for the quarter ended March
31, 2010.
As shown in Exhibit A, the decrease of $69.6 million in
operating expenses for the first quarter of 2011, compared with the
fourth quarter of 2010, resulted from several factors, such as
lower prepayment penalties on the early extinguishment of debt,
higher write-downs on the value of other real estate owned in the
BPPR and BPNA reportable segments for the fourth quarter of 2010 as
well as higher maintenance costs, and lower provision for unfunded
credit commitments. The results of the fourth quarter of 2010 also
included $7.5 million to cover the uninsured portion of the
settlement for certain securities class action lawsuits. Overall,
there were also reductions in personnel costs, professional fees,
net occupancy expenses and business promotion. These favorable
variances were partially offset by the impairment loss of $8.6
million related to the previously mentioned write-down of the
Corporation’s Venezuela operations.
Income Taxes
Income tax expense amounted to $147.2 million for the quarter
ended March 31, 2011, compared with an income tax benefit of $11.8
million for the quarter ended December 31, 2010 and income tax
benefit of $9.3 million for the quarter ended March 31, 2010.
The variance in income tax for the first quarter of 2011 when
compared with the fourth quarter of 2010 was mainly due to an
additional income tax expense of $103.3 million for the quarter
ended March 31, 2011 resulting from a reduction in the marginal
corporate income tax rate due to the Puerto Rico tax reform
previously described. Also, the unfavorable variance in income tax
was due to higher taxable income in the Puerto Rico operations for
the quarter ended March 31, 2011.
Balance Sheet Comments:
The accompanying Exhibit A provides information on the principal
categories of the Corporation’s balance sheet as of March 31, 2011,
December 31, 2010 and March 31, 2010, and the following sections
provide more detailed information.
The Corporation’s portfolio of investment securities
available-for-sale and held-to-maturity totaled $5.8 billion as of
March 31, 2011, $5.4 billion as of December 31, 2010 and $6.7
billion as of March 31, 2010. The increase in investment securities
was primarily related to the purchase of collateralized mortgage
obligations (agencies) and U.S. agency securities to use the excess
liquidity from the BPNA reportable segment, partially offset by
maturities and prepayments in BPPR’s reportable segment
portfolio.
The following table provides a breakdown of the Corporation’s
portfolio of investment securities available-for-sale (“AFS”) and
held-to-maturity (“HTM”) on a combined basis.
(In millions)
March 31,
2011
December 31, 2010 Variance March 31,
2010
Variance U.S. Treasury securities $ 62.4 $
64.0 ($1.6 ) $ 113.0 ($50.6 ) Obligations of
U.S. Government sponsored entities 1,461.1 1,211.3 249.8 1,705.3
(244.2 ) Obligations of Puerto Rico, States and political
subdivisions 143.3 144.7 (1.4 ) 259.5 (116.2 ) Collateralized
mortgage obligations 1,684.7 1,323.4 361.3 1,587.1 97.6
Mortgage-backed securities 2,413.4 2,576.1 (162.7 ) 3,068.5 (655.1
) Equity securities 9.4 9.5 (0.1 ) 9.1 0.3 Others
54.1 30.2 23.9 2.8
51.3 Total investment securities AFS and HTM $
5,828.4 $ 5,359.2 $ 469.2 $ 6,745.3
($916.9 )
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 that follows.
(In billions) March 31, 2011 December 31, 2010
Variance March 31, 2010 Variance Non-covered loans
held-in-portfolio:
Commercial $ 11.2 $ 11.4 ($0.2 ) $ 12.3 ($1.1 ) Construction 0.4
0.5 (0.1 ) 1.6 (1.2 ) Mortgage 4.9 4.5 0.4 4.6 0.3 Consumer 3.6 3.7
(0.1 ) 3.9 (0.3 ) Lease Financing 0.6
0.6 - 0.7 (0.1 )
Total non-covered loans held-in-portfolio $ 20.7 $ 20.7 - $ 23.1
($2.4 ) Covered loans under FDIC loss sharing agreements 4.7 4.8
(0.1 ) - 4.7 Loans held-for-sale 0.6
1.0 (0.4 ) 0.1 0.5 Total
loans $ 26.0 $ 26.5 (0.5 ) $ 23.2
$ 2.8
The slight decrease in the commercial and construction loans
held-in-portfolio from December 31, 2010 to March 31, 2011 was
principally due to portfolio run-off and loan charge-offs. The
increase in mortgage loans was principally related to the
acquisition of approximately $236 million in unpaid principal
balance of performing residential mortgage loans, loans repurchased
under credit recourse arrangements and the loan origination
activity by the BPPR reportable segment. The decline in loans
held-for-sale was the result of the sale of a majority of the
non-conventional mortgage loan portfolio of the BPNA reportable
segment, which was classified as held-for-sale in December 2010.
The expected sale of the BPPR construction loan portfolio, which
was classified as held-for-sale in December 2010, was delayed due
to continuing negotiations with the potential buyer.
The decrease in the commercial loan portfolio from March 31,
2010 to the same date in 2011 was also associated with the
downsizing of the legacy portfolio of the business lines exited by
BPNA, a high volume of charge-offs and slow loan origination
activity due to the economic environment. The decline in the
construction loan portfolio from March 31, 2010 was also related to
charge-offs, repossessed properties and controlled activity for new
advances under existing construction projects. The decrease in the
construction and commercial loan portfolios was also related to the
reclassification of construction and commercial loans
held-in-portfolio to held-for-sale in December 2010. 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 credit
card portfolio. The increase in mortgage loans was mainly in the
BPPR reportable segment principally as a result of the loan
portfolio acquired in the first quarter of 2011 and new
originations, partially offset by the impact of loans securitized
into agency mortgage-backed securities and the sale of
non-conventional mortgage loans.
Deposits
A breakdown of the Corporation’s deposits as of period-end
follows:
(In billions) March 31, 2011 December 31, 2010
Variance March 31, 2010 Variance
Demand * $ 5.5 $ 5.5 - $ 5.1 $ 0.4 Savings 10.7 10.4
$ 0.3 9.8 0.9 Time 11.0 10.9
0.1 10.5 0.5 Total deposits
$ 27.2 $ 26.8 $ 0.4 $ 25.4 $ 1.8
* 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 March 31, 2011 compared
with $2.3 billion as of December 31, 2010 and $2.4 billion as of
March 31, 2010.
The increase in savings deposits from December 31, 2010 to March
31, 2011 was both in retail and commercial accounts. The increase
in time deposits was principally due to brokered certificates of
deposit.
The increase in demand and savings deposits from March 31, 2010
to the same date in 2011 included the impact of deposits assumed as
part of the Westernbank FDIC-assisted transaction. The increase in
time deposits from March 31, 2010 was in the BPPR reportable
segment due to higher volume of individual retirement accounts as
well as retail time deposits and public funds.
Borrowings and capital
The accompanying Exhibit A also provides information on
borrowings and stockholders’ equity as of March 31, 2011, December
31, 2010, and March 31, 2010.
The Corporation’s borrowings amounted to $6.7 billion as of
March 31, 2011, compared with $6.9 billion as of December 31, 2010
and $5.0 billion as of March 31, 2010. The decrease in borrowings
from December 31, 2010 to March 31, 2011 was mostly related to a
reduction of $470 million in the note issued to the FDIC, which has
a carrying amount of $2.0 billion as of March 31, 2011 compared
with $2.5 billion as of December 31, 2010. This decrease was due to
a prepayment of $224 million 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
was also influenced by the early extinguishment of $100 million in
medium-term notes. These reductions were partially offset by
increases in repurchase agreements. The increase in borrowings from
March 31, 2010 to the same date in 2011 was also related to the
issuance of the note payable to the FDIC.
Stockholders’ equity totaled $3.8 billion as of March 31, 2011
and December 31, 2010, compared with $2.5 billion as of March 31,
2010. The increase in stockholders’ equity from March 31, 2010 to
the same date in 2011 was mostly influenced by 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 March 31, 2011.
Below is a summary of the Corporation’s estimated regulatory
capital ratios as of March 31, 2011 and December 31, 2010.
March 31, 2011 December 31,
2010
Minimum required
Tier 1 risk-based capital
15.20% 14.54% 4.00% Total risk-based capital
16.50% 15.81% 8.00% Tier 1 leverage 10.15% 9.72% 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 Tier 1 common equity to risk-weighted assets
ratio was approximately 11.55% as of March 31, 2011 and 10.95% as
of December 31, 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) March 31, 2011 December 31,
2010
Total stockholders’ equity $ 3,804,906 $ 3,800,531
Less: Preferred stock (50,160 ) (50,160 ) Less: Goodwill (647,387 )
(647,387 ) Less: Other intangibles (56,441 )
(58,696
) Total tangible common equity $ 3,050,918 $
3,044,288
The following table provides a reconciliation of common
stockholders’ equity (GAAP) to Tier 1 common equity (non-GAAP):
(In thousands) March 31, 2011 December 31,
2010
Common stockholders’ equity $ 3,754,746 $ 3,750,371
Less: Unrealized gains on available for sale securities, net of tax
(1) (141,747 ) (159,700 ) Less: Disallowed deferred tax assets (2)
(143,137 ) (231,475 ) Less: Intangible assets: Goodwill (647,387 )
(647,387 ) Other disallowed intangibles (25,649 ) (26,749 ) Less:
Aggregate adjusted carrying value of all non-financial equity
investments (1,612 ) (1,538 ) Add: Pension liability adjustment,
net of tax and accumulated net gains (losses) on cash flow hedges
(3) 128,091 129,511 Total
Tier 1 common equity $ 2,923,305 $ 2,813,033
(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 $106 million of the
Corporation’s $250 million of net deferred tax assets as of March
31, 2011 ($144 million and $388 million, respectively as of
December 31, 2010), were included without limitation in regulatory
capital pursuant to the risk-based capital guidelines, while
approximately $143 million of such assets as of March 31, 2011
($231 million as of December 31, 2010) exceeded the limitation
imposed by these guidelines and, as “disallowed deferred tax
assets,” were deducted in arriving at Tier 1 capital. The remaining
$1 million of the Corporation’s other net deferred tax assets as of
March 31, 2011 ($13 million as of December 31, 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, 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
35th 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.
***
Exhibit A follows
EXHIBIT A POPULAR, INC. Financial
Summary (Unaudited)
Quarter ended 1st Quarter
Quarter ended 1st Quarter 2011 March 31,
2011 vs 2010 December 31, vs 4th Quarter 2010
2011 2010 $
Variance 2010 $
Variance Summary of Operations --- (In thousands, except
share information) Interest income
$
485,451 $ 427,195 $ 58,256 $ 507,199 ($21,748 ) Interest
expense
142,092 158,278
(16,186 )
152,624 (10,532 ) Net interest
income
343,359 268,917 74,442 354,575 (11,216 ) Provision
for loan losses
75,319
240,200 (164,881 )
354,409 (279,090 ) Net
interest income after provision for loan losses
268,040
28,717 239,323 166 267,874 Service charges on deposit
accounts
45,630 50,578 (4,948 ) 45,938 (308 ) Other service
fees
58,652 101,320 (42,668 ) 71,637 (12,985 ) Trading
account (loss) profit
(499 ) (223 ) (276 ) 8,303
(8,802 ) Net gain (loss) on sale and valuation adjustments of
investment securities
- 81 (81 ) (218 ) 218 Net gain on sale
of loans, including valuation adjustments on loans held-for-sale
7,244 5,068 2,176 1,478 5,766 Adjustments to indemnity
reserves on loans sold ((expense) recovery)
(9,848 )
(17,290 ) 7,442 (34,511 ) 24,663 FDIC loss share income (expense)
16,035 - 16,035 (3,046 ) 19,081 Fair value change in equity
appreciation instrument
7,745 - 7,745 7,520 225 Other
non-interest income
39,409
18,332 21,077
8,505 30,904
Total non-interest income
164,368 157,866
6,502 105,606 58,762 Personnel costs
106,140 120,932
(14,792 ) 114,029 (7,889 ) Net occupancy expenses
24,586
28,876 (4,290 ) 29,844 (5,258 ) Professional fees
46,688
27,049 19,639 56,607 (9,919 ) Business promotion
9,860 8,295
1,565 16,912 (7,052 ) FDIC deposit insurance
17,673 15,318
2,355 17,750 (77 ) Other real estate owned (OREO) expenses
2,211 4,703 (2,492 ) 20,467 (18,256 ) Loss on early
extinguishment of debt
8,239 548 7,691 12,361 (4,122 ) Other
operating expenses
59,652
75,192 (15,540 )
76,707 (17,055 ) Total
operating expenses
275,049
280,913 (5,864 )
344,677 (69,628 )
Income (loss) before income tax
157,359 (94,330 ) 251,689
(238,905 ) 396,264 Income tax expense (benefit)
147,227 (9,275 )
156,502 (11,764 )
158,991 Net income (loss)
$
10,132 ($85,055 )
$ 95,187 ($227,141 )
$ 237,273 Net income (loss) applicable to
common stock (1)
$ 9,202
($85,055 ) $ 94,257
($227,141 ) $ 236,343 Net income
(loss) per common share: (1) Basic and diluted per common share
$ 0.01
($0.13 ) ($0.22
) Average common shares outstanding
1,021,536,201 639,003,599 1,021,527,855 Average common
shares outstanding - assuming dilution
1,022,339,095
639,003,599 1,021,527,855 Common shares outstanding at end of
period
1,023,416,118 639,539,900 1,022,727,802
Market value per common share $ 2.92 $ 2.91 $
0.01 $ 3.14 ($0.22 )
Book value per common share $
3.67 $ 3.81 ($0.14 ) $ 3.67 -
Market
Capitalization --- (In millions) $ 2,988 $ 1,861
$ 1,127 $ 3,211 ($223 )
Selected Average Balances --- (In
millions) Total assets
$ 38,678 $ 33,916 $ 4,762
$ 39,337 ($659 ) Stockholders' equity
3,597 2,419 1,178
3,884 (287 )
Selected Financial Data at Period-End ---
(In millions) Total assets
$ 38,736 $ 33,832 $
4,904 $ 38,723 $ 13 Loans
25,976 23,185 2,791 26,459 (483 )
Earning assets
33,576 31,472 2,104 33,508 68 Deposits
27,197 25,360 1,837 26,762 435 Borrowings
6,728 5,044
1,684 6,947 (219 ) Interest bearing liabilities
29,011
25,928 3,083 28,770 241 Stockholders' equity
3,805 2,487
1,318 3,801 4
Performance Ratios Net interest yield
(2)
4.15 % 3.44 % 4.10 % Return on assets
0.11
(1.02 ) (2.29 ) Return on common equity
1.05 (14.56 ) (23.51
) (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.
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