Popular, Inc. (“the Corporation” or “Popular”) (NASDAQ: BPOP)
reported net income of $110.7 million for the quarter ended June
30, 2011, compared with net income of $10.1 million for the quarter
ended March 31, 2011, and a net loss of $44.5 million for the
quarter ended June 30, 2010. Pre-tax income for the quarter ended
June 30, 2011 amounted to $72.6 million, compared with pre-tax
income of $157.4 million for the quarter ended March 31, 2011 and a
pre-tax loss of $17.3 million for the quarter ended June 30,
2010.
For the six months ended June 30, 2011, the Corporation’s net
income and pre-tax income totaled $120.8 million and $229.9
million, respectively, compared to a net loss and pre-tax loss of
$129.5 million and $111.6 million, respectively, for the same
period in 2010.
Mr. Richard L. Carrión, Chairman of the Board and Chief
Executive Officer, stated, “We are producing strong and consistent
levels of revenues despite credit conditions not improving as
quickly as we would like. There are some encouraging signs in the
Puerto Rico economy but we remain cautious. The main takeaway is
that we had another profitable quarter, even excluding the
favorable tax impact.”
Amounts reported for the quarter and six months ended June 30,
2010 reflect the retrospective adjustments made during the fourth
quarter of 2010 to the estimated fair values of assets acquired and
liabilities assumed associated with the Westernbank FDIC-assisted
transaction which reflect new information obtained during the
measurement period, about facts and circumstances that existed as
of the acquisition date that if known, would have affected the
acquisition-date fair value measurements. Amounts reported in the
tables for the period ended June 30, 2010 are labeled “as
recasted”.
Refer to the accompanying Exhibit A - Financial Summary for “per
common share” information and key performance ratios.
Main events for the quarter ended June
30, 2011
- The results for the second quarter of
2011 reflect a tax benefit of $59.6 million related to the timing
of loan charge-offs for tax purposes. In May 2011, the Puerto Rico
Department of the Treasury (the “P.R. Treasury”) issued a private
ruling to the Corporation (the “Ruling”) creating an agreement to
establish the criteria to determine when a charge-off for
accounting and financial reporting purposes should be reported as a
deduction for tax purposes. On June 30, 2011, the P.R. Treasury and
the Corporation signed a closing agreement in which both parties
agreed that for tax purposes the deductions related to certain
charge-offs recorded on the financial statements of the Corporation
for the years 2009 and 2010 will be deferred until 2013, 2014, 2015
and 2016. As a result of the agreement, the Corporation made a
payment of $89.4 million to the P.R. Treasury and recorded a tax
benefit on its financial statements of $143 million, or $53.6 net
of the payment made to the P.R. Treasury, resulting from the
recovery of certain tax benefits not previously recorded during
years 2009 (the benefit of reduced tax rates for capital gains) and
2010 (the benefit of exempt income) that were previously
unavailable to the Corporation as a result of being in a loss
position for tax purposes in such years. Also, the Corporation
recorded a tax benefit of $6.0 million related to the tax benefit
of the exempt income for the first quarter of 2011. The effective
tax rate for the Corporation’s Puerto Rico banking operations for
2011 is estimated at 22%.
- During the second quarter of 2011, the
Corporation updated the cash flow estimates on the Westernbank
acquired covered loan portfolio to reflect the current and expected
credit performance of the portfolio. Interest income recognized on
the covered loans increased by $13.3 million for the quarter ended
June 30, 2011 when compared with the first quarter of 2011.
Management’s loan review during the quarter ended June 30, 2011 of
the covered loan portfolio reflected that overall expected credit
losses declined versus previous estimates. However, certain
Westernbank loans in some of the loan pools did show increased
expected losses, and the provision for loan losses was increased to
reflect this. During the quarter ended June 30, 2011, the
Corporation recognized $48.6 million in provision for loan losses
on covered loans related to certain loan relationships, compared
with $15.6 million for the quarter ended March 31, 2011. For loan
pools where expected cash flows improved, the benefit will be
recognized prospectively through interest income. For those ASC
Subtopic 310-30 loan pools where the cash flows have deteriorated
or ASC Subtopic 310-20 acquired loans which require a reserve due
to impairment, the Corporation records a provision for loan losses.
The negative effect of the provision to the Corporation’s results
of operations before tax is about 20 percent of the covered loans
related provision since the loss sharing agreement covers 80
percent of the losses and is included as part of FDIC loss share
income in the statement of operations included in Exhibit A and
described in the Non-interest Income section.
Financial overview
- Net interest income increased by $31.2
million for the quarter ended June 30, 2011 when compared with the
first quarter of 2011 driven primarily by an increase in the yield
on loans covered under FDIC loss sharing agreements (the “covered
loans”), an increase in interest income on the non-covered mortgage
loan portfolio due to higher volume, and lower cost of funds.
During the second quarter of 2011, the Corporation completed a $282
million purchase of performing mortgage loans in Puerto Rico; a
previous purchase was completed in March 2011 and involved
approximately $236 million of mortgage loans. The Corporation
continues to look for more transactions in which it can acquire
assets with moderate credit risk to help offset the limited demand
for loans and raise revenues.
- The provision for loan losses increased
by $69.0 million for the quarter ended June 30, 2011, compared with
the first quarter of 2011, principally due to the $33.0 million
increase related to the covered loans and $36.0 million in
non-covered loans principally due to higher volume of commercial
loan net charge-offs. Also, the provision for loan losses for the
first quarter of 2011 was favorably impacted by a benefit of $13.8
million related to an improvement in the pricing of
non-conventional mortgage loans sold by Banco Popular North America
(“BPNA”) during that quarter. Refer to the Credit Quality section
for additional information on these variances.
- Non-interest income declined by $40.2
million when comparing second and first quarter results for 2011.
The decline was mainly due to higher unfavorable valuation
adjustments on loans held-for-sale, principally due to $12.8
million in fair value adjustments related to disbursements made to
customers on the unfunded commitments of construction and
commercial loans held-for-sale. The decline in non-interest income
was also a result of the favorable impact on first quarter earnings
of $16.7 million, net of tax, from the sale of the Corporation’s
equity investment in the processing business of Consorcio de
Tarjetas Dominicanas, S.A. (“Contado”). The variance in
non-interest income was further influenced by a decrease in the
equity pick-up from the Corporation’s 49% ownership interest in
Carib Holdings (referred to as “EVERTEC”), which was positively
impacted during the quarter ended March 31, 2011 due to changes in
the tax code by $13.8 million. First quarter results were also
favorably impacted by a higher fair value adjustment in the equity
appreciation instrument compared to the second quarter of 2011 by
$7.2 million. These unfavorable variances were partially offset by
a net increase in FDIC loss share income of $22.6 million due to
the recording of a provision for loan losses on loans covered under
the loss sharing agreements.
- Operating expenses for the quarter
ended June 30, 2011 increased by $6.8 million when compared with
the first quarter of 2011, principally because of higher FDIC
deposit insurance assessments, personnel costs, professional fees
and losses on the sale of other real estate owned (“OREO”). These
unfavorable variances were partially offset by lower prepayment
penalties on early extinguishment of debt, lower provision for
unfunded credit commitments and lower write down of the net assets
of the Venezuela operations.
- Net income for the quarter ended June
30, 2011 was driven in part by the income tax benefit recorded in
the second quarter. The Corporation recognized an income tax
benefit of $38.1 million for the quarter ended June 30, 2011,
compared with an income tax expense of $147.2 million for the
quarter ended March 31, 2011. As explained previously, the variance
in income tax was the result of the impact of the private ruling
and closing agreement described previously which resulted in a tax
benefit for the Corporation of $59.6 million. During the first
quarter, the Corporation recorded a charge to income tax expense of
$103.3 million due to the impact on the deferred tax assets of a
reduction in the marginal corporate income tax rate.
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 June 30, 2011, March
31, 2011, and June 30, 2010 and for the six months ended June 30,
2011 and 2010:
Quarter ended Six months ended (In thousands,
except share information) June 30,
2011
March 31,2011
June 30,2010
(as recasted)
June 30,
2011
June 30,2010
(as recasted)
Net income (loss) $110,685 $10,132 ($44,489)
$120,817 ($129,544) Preferred stock dividends (931)
(930) - (1,861) - Deemed dividend on preferred stock -
- (191,667) - (191,667) Net income
(loss) applicable to common stock $109,754 $9,202
($236,156) $118,956 ($321,211) Average common
shares outstanding 1,021,225,911 1,021,536,201 853,010,208
1,021,380,199 746,598,082 Average potential dilutive common shares
670,230 802,894 - 1,162,996 -
Average common shares outstanding - assuming dilution
1,021,896,141 1,022,339,095 853,010,208
1,022,543,195 746,598,082 Basic and diluted net income
(loss) per common share $0.11 $0.01 (0.28)
$0.12 ($0.43)
Net Interest Income
Net interest income for the second quarter of 2011 was $374.5
million, compared with $343.4 million for the first quarter of 2011
and $314.6 million for the second quarter of 2010. The increase in
interest income for the second quarter of 2011 was mainly a
combination of higher loan yields, a higher volume of mortgage
loans, interest income on covered loans and lower funding costs,
including deposits and long-term debt.
The following table summarizes the principal changes in average
earning assets and funding sources and their corresponding yields
and costs for the quarters ended June 30, 2011, March 31, 2011 and
June 30, 2010.
Average
Balances
Average Yields /
Costs
2nd
Quarter
2011
1st
Quarter
2011
2nd
Quarter
2010
2nd
Quarter
2011
1st
Quarter
2011
2nd
Quarter
2010
(Dollars in billions)
(as recasted)
(as recasted)
Money market, trading and investment securities $7.6
$7.5 $9.3 3.39% 3.33% 3.06% Loans:
Commercial (a) 11.8 12.1 13.6 4.74 4.77 4.84 Mortgage 5.1 4.7 4.6
6.36 6.01 5.75 Consumer 3.6 3.7 3.9 10.26 10.36 10.39 Lease
financing 0.6 0.6 0.6 8.85 9.01
8.68 Total loans, excluding covered loans 21.1
21.1 22.7 6.19 6.14 6.09 Covered loans
(b) 4.7 4.8 3.4 9.91 8.61
9.07 Total earning assets $33.4 $33.4 $35.4
6.07% 5.87% 5.57% Interest bearing
deposits $22.6 $22.4 $22.2 1.25% 1.39% 1.64% Borrowings 6.5
6.7 8.7 3.81 3.90 4.01 Total
interest bearing liabilities 29.1 29.1 30.9
1.82 1.98 2.31 Non-interest bearing sources of
funds 4.3 4.3 4.5
Total funds $33.4 $33.4 $35.4
1.59% 1.72% 2.01% Net interest spread
4.25% 3.89%
3.26% Net interest yield (c)
4.48% 4.15% 3.56% (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 increase in net interest income of $31.2 million for the
quarter ended June 30, 2011 compared with the first quarter of 2011
was mostly due to higher interest income on loans by $19.1 million,
principally in covered loans and mortgage loans. Covered loans
contributed with interest income of $115.9 million for the second
quarter of 2011, compared with $102.5 million for the first quarter
of 2011. This increase was the result of higher accretion on loans
accounted for under ASC Subtopic 310-30 by $27.3 million due to an
improvement in actual and expected cash flows in certain loan
pools, partially offset by $15.3 million of lower discount
accretion on covered loans (revolving facilities) accounted
pursuant to ASC Subtopic 310-20. The increase in interest income on
mortgage loans was mainly the result of an increase in the mortgage
loan portfolio for the quarter ended June 30, 2011 by approximately
$370 million on average, as compared to the quarter ended March 31,
2011, mostly resulting from loan purchases of performing mortgage
loans during the six months ended June 30, 2011 and a higher volume
of loan originations, accompanied by an increase of 35 basis points
in the mortgage loan yield. The favorable variance in net interest
income was also the result of lower interest expense on
interest-bearing deposits by $6.2 million due to lower cost of
funds, principally on savings accounts and individual retirement
accounts. The Corporation has made progress in lowering the costs
of its Puerto Rico deposits. Interest expense on long-term debt
declined by $3.2 million due to a lower cost of funds and reduced
levels in the note issued to the FDIC as part of the FDIC-assisted
transaction by $434 million, on average, during the second quarter
of 2011. Reducing funding costs has been a major initiative of the
Corporation.
Net interest yield for the quarter ended June 30, 2011 increased
by 92 basis points, compared with the quarter ended June 30, 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 June 30, 2011, the Corporation’s allowance for loan
losses, including the allowance for loan losses on loans covered
under FDIC loss sharing agreements (the “covered loans”), increased
to $747 million or 2.95% of the Corporation’s total loans
held-in-portfolio, compared with $737 million or 2.90% as of March
31, 2011, and $1.3 billion or 4.64% as of June 30, 2010. The
increase in the allowance for loan losses, including the allowance
for covered loans, from March 31, 2011 to June 30, 2011 was mainly
driven by an increase of $7 million in the general component of the
Corporation’s allowance for loan losses, including covered loans,
coupled with an increase of $3 million in the specific allowance
component. The increase in the general reserve component was
prompted by: (i) higher general reserve requirements of $47 million
on loans acquired in the Westernbank FDIC-assisted transaction,
principally due to additional reserve requirements in acquired
loans accounted for pursuant to ASC Subtopic 310-30, mainly related
to certain commercial real estate pools that experienced higher
than expected credit deterioration, and (ii) an increase of $8
million in the allowance for loan losses for the Banco Popular de
Puerto Rico (“BPPR”) reportable segment non-covered commercial loan
portfolio resulting from higher net charge-offs experienced during
the second quarter of 2011. The increases described in items (i)
and (ii) were partially offset by decreases of $42 million in total
allowance for loan losses for the construction, leasing, mortgage
and consumer non-covered loan portfolios, mainly driven by
decreases of $19 million and $15 million in the Corporation’s total
allowance for loan losses for the non-covered construction and
consumer loan portfolios, respectively. The decrease in the
allowance for loan losses for the Corporation’s non-covered
construction loan portfolio was driven by lower net charge-offs at
the BPPR reportable segment together with lower portfolio balance,
and by lower level of problem loans remaining at the BPNA
reportable segment. The decrease in the Corporation’s allowance for
loan losses for the non-covered consumer loan portfolio from March
31, 2011 to June 30, 2011 continued to reflect favorable credit
trends both in Puerto Rico and the U.S. mainland operations.
The provision for loan losses, including the provision for
covered loans, for the quarter ended June 30, 2011, increased by
$69.0 million, or 92%, when compared to the quarter ended March 31,
2011. Compared to the quarter ended June 30, 2010, the provision
for loan losses decreased by $57.9 million, or 29%. The higher
provision for loan losses, including the provision for covered
loans, for the second quarter of 2011, compared to the first
quarter of 2011, was attributed to increases of $52.1 million and
$16.9 million in the provision for loan losses related to the BPPR
and BPNA reportable segments, respectively. The increase in the
provision for loan losses of the BPPR reportable segment was
primarily attributed to an increase of $33.0 million in the
provision for loan losses for the covered loan portfolio from the
Westernbank FDIC-assisted transaction and an increase in the
provision for loan losses for the BPPR non-covered commercial loan
portfolio, driven principally by higher net charge-offs experienced
during the quarter. The increase in the provision for loan losses
for the BPNA reportable segment compared to the first quarter was
mainly driven by the benefit experienced during the first quarter
of 2011 of $13.8 million related to the sale of a portion of the
U.S. mainland non-conventional mortgage loan portfolio. Excluding
the $13.8 million benefit recorded during the first quarter of
2011, the provision for loan losses for the BPNA reportable segment
increased by $3.1 million, driven principally by net charges-offs
in the mortgage loan portfolio.
Provision for Loan
Losses
The Corporation’s provision for loan losses totaled $144.3
million or 108% of net charge-offs for the quarter ended June 30,
2011, compared with $75.3 million or 52% of net charge-offs for the
quarter ended March 31, 2011. The higher provision for loan losses
for the second quarter of 2011, compared with the quarter ended
March 31, 2011 was mainly the result of a provision of $48.6
million on the covered loan portfolio recognized during the second
quarter of 2011, compared to a provision of $15.6 million on this
covered loan portfolio during the first quarter of 2011. Excluding
the impact of the provision for loan losses on the covered loans,
the provision for loan losses for the second quarter of 2011
increased by $36.0 million when compared with the first quarter of
2011. The increase was principally driven by a higher provision for
loan losses on the non-covered commercial loan portfolio at the
BPPR reportable segment, driven principally by higher net
charge-offs. This portfolio continues to be negatively impacted by
the current economic conditions in Puerto Rico.
The Corporation’s provision for loan losses for the second
quarter of 2011 decreased by $57.9 million when compared with the
quarter ended June 30, 2010, reflecting 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. Excluding covered loans, the Corporation’s provision for
loan losses for the quarter ended June 30, 2011 decreased by $106.5
million, compared with the same quarter in 2010.
For the quarter ended June 30, 2011, the provision for loan
losses corresponding to the non-covered loan portfolio in the BPPR
reportable segment amounted to $70.7 million or 89% of net
charge-offs, compared with $51.7 million or 62% of net charge-offs
for the first quarter of 2011. The increase was principally driven
by a higher provision for loan losses for the non-covered
commercial loan portfolio, driven principally by higher net
charge-offs. Net charge-offs in the non-covered commercial loan
portfolio of the BPPR reportable segment increased by $11.4 million
when compared to the first quarter of 2011. The increase in
net-charge offs of the BPPR commercial loan portfolio was driven by
net charge-offs on impaired non-covered commercial loans accounted
for as collateral dependent loans for impairment purposes.
The $48.6 million provision for loan losses related to the
covered loans recognized during the quarter ended June 30, 2011
principally consisted of: (i) a provision of $43.6 million for
covered loans accounted for under ASC Subtopic 310-30, as 9 pools
(out of 117 pools), mainly commercial real estate pools, reflected
higher than expected credit deterioration, and (ii) a
provision of $6.1 million for covered loans accounted for under ASC
Subtopic 310-20. 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 in the current period. 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. No provision for loan losses was necessary
to be recorded during the quarter ended June 30, 2010 on the
covered loans.
The provision for loan losses for the quarter ended June 30,
2011 as it corresponds to the BPNA reportable segment increased by
$16.9 million when compared with the quarter ended March 31, 2011.
This increase was mainly driven by the absence of the previously
mentioned benefit of $13.8 million recorded in the first quarter
related to the sale transaction of non-conventional mortgage loans.
The provision for loan losses to net charge-offs ratio in the BPNA
reportable segment for the second quarter of 2011 was 46%, compared
to 14% for the first quarter 2011. Net charge-offs of the BPNA
reportable segment decreased slightly to $54.3 million for the
second quarter of 2011, compared with $55.6 million for the first
quarter of 2011.
The table that follows summarizes the changes in the allowance
for loan losses for the periods indicated.
Quarters ended
June 30, 2011
March 31,2011
June 30, 2010 (In thousands) Non-Covered
Loans
Covered
Loans
Total Non-Covered
Loans
Covered
Loans
Total Total [1] Balance as of the beginning of the
period $727,346 $9,159 $736,505
$793,225 - $793,225 $1,277,036 Provision for
loan losses 95,712 48,605 144,317
59,762 $15,557 75,319 202,258
823,058 57,764 880,822 852,987 15,557
868,544 1,479,294 Net charge-offs: Commercial 81,928
263 82,191 71,826 1,707 73,533 71,138 Construction (1,356) -
(1,356) 13,168 4,345 17,513 53,556 Lease financing 757 - 757 1,231
- 1,231 3,091 Mortgage 11,181 - 11,181 8,247 - 8,247 26,150
Consumer 40,870 332 41,202 44,976
346 45,322 48,343 Total net charge-offs
$133,380 $595 $133,975 $139,448 $6,398
$145,846 $202,278 Recovery related to loans
transferred to loans held-for-sale - - -
13,807 - 13,807 - Balance as of the end
of the period $689,678 $57,169 $746,847
$727,346 $9,159 $736,505 $1,277,016 [1] There
was no allowance for loan losses on covered loans as of June 30,
2010. Six months ended
June 30, 2011
June 30, 2010 (In thousands) Non-Covered
Loans
Covered
Loans
Total Total [1] Balance as of the beginning of the
period $793,225 - $793,225 $1,261,204
Provision for loan losses 155,474 $64,162
219,636 442,458 948,699 64,162
1,012,861 1,703,662 Net charge-offs: Commercial 153,754
1,970 155,724 150,255 Construction 11,812 4,345 16,157 104,994
Lease financing 1,988 - 1,988 7,025 Mortgage 19,428 - 19,428 53,524
Consumer 85,846 678 86,524 110,848
Total net charge-offs $272,828 $6,993 $279,821
$426,646 Recovery related to loans transferred to loans
held-for-sale 13,807 - 13,807 - Balance
as of the end of the period $689,678 $57,169
$746,847 $1,277,016 [1] There was no allowance for loan
losses on covered loans as of June 30, 2010.
The Corporation’s net charge-offs for the quarter ended June 30,
2011 decreased by approximately $11.9 million, or 8%, compared with
the first quarter of 2011. Excluding covered loans, net charge-offs
for the second quarter of 2011 decreased by $6.1 million, or 4%,
compared with the quarter ended March 31, 2011. The decrease was
mainly driven by lower net charge-offs in the non-covered
construction and consumer loan portfolios.
Excluding covered loans, net charge-offs related to the
non-covered construction loan portfolios of the BPPR and BPNA
reportable segments decreased by $14.0 million and $0.6 million,
respectively. The decrease in construction loan net charge-offs for
the BPPR segment was mainly associated to lower charge-offs given
that a significant portion of the portfolio was reclassified to
held-for-sale in December 2010 and to loan recoveries of
approximately $6.2 million for the second quarter of 2011, mostly
related to certain construction loans to finance residential
projects which had been charged-off in previous quarters. The
decrease in net charge-offs experienced in the construction loan
portfolio of the BPNA reportable segment was attributable to a
lower portfolio balance and a lower level of problem loans
remaining in the portfolio.
The decrease of $4.1 million in non-covered consumer loan net
charge-offs for the quarter ended June 30, 2011, compared with the
quarter ended March 31, 2011, was mainly attributed to the consumer
loan portfolio of the Corporation’s U.S. mainland operations. Most
consumer loan portfolios both in Puerto Rico and the U.S. mainland
have continued to reflect stable credit trends.
The non-covered commercial loan net charge-offs for the second
quarter of 2011 increased by $10.1 million, compared with the
quarter ended March 31, 2011. The increase was attributable to net
charge-offs from the BPPR non-covered commercial loan portfolio,
driven principally by impaired commercial loans accounted for as
collateral dependent loans. Non-covered commercial loan net
charge-offs for the BPPR reportable segment increased by $11.4
million, from $38.5 million for the quarter ended March 31, 2011 to
$49.9 million for the quarter ended June 30, 2011. Commercial loan
net charge-offs for the BPNA reportable segment amounted to $32.0
million for the second quarter of 2011, compared with $33.3 million
for the first quarter of 2011. This decrease was associated with
certain U.S. commercial loan segments, which have shown improvement
in terms of delinquencies and losses.
The non-covered mortgage loan net charge-offs for the second
quarter of 2011 increased by $2.9 million, compared with the
quarter ended March 31, 2011. The increase was mainly attributable
to higher net charge-offs in the BPNA reportable segment mortgage
loan portfolio.
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)
June 30,2011
As apercentageof loans HIPby category
(2)
March 31,2011
As apercentageof loans HIPby category
(2)
June 30, 2010(as recasted)
As apercentageof loans HIPby category
Commercial $784,587 7.3% $752,338 6.8%
$801,378 6.8% Construction 198,235 50.3 224,159 51.0
843,806 56.4 Lease financing 4,457 0.8 5,312 0.9 7,548 1.2 Mortgage
615,762 11.5 599,361 12.2 613,838 13.1 Consumer 49,424
1.4 53,970 1.5 63,021 1.6
Total non-performing loans
held-in-portfolio, excluding covered loans
1,652,465 8.0% 1,635,140 7.9% 2,329,591 10.4%
Non-performing loans held-for-sale (4)
399,869 464,577 -
Other real estate owned (“OREO”),
excluding covered OREO
162,419 156,888
142,372
Total non-performing assets, excluding
covered assets
$2,214,753 $2,256,605
$2,471,963 Covered loans and OREO (1)
89,782 79,075
67,209
Total non-performing assets $2,304,535
$2,335,680
$2,539,172
Excluding covered loans and covered OREO (3)
Allowance for loan losses to loans
held-in-portfolio
3.34% 3.52% 5.68%
Allowance for loan losses to
non-performing loans, excluding loans held-for-sale
41.74% 44.48%
54.82%
Including covered loans and covered
OREO
Allowance for loan losses to loans
held-in-portfolio
2.95% 2.90% 4.64%
Allowance for loan losses to
non-performing loans, excluding held-for-sale
44.79% 44.67%
54.54%
(1) The amount consists of $15 million in
non-performing covered loans accounted for under ASC Subtopic
310-20 and $75 million in covered OREO as of June 30, 2011, and $13
million and $66 million, respectively, as of March 31, 2011, and
$12 million and $55 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 $4.6 billion in covered loans as of June 30,
2011, $4.7 billion as of March 31, 2011, and $5.1 billion as of
June 30, 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.
(4) Non-performing loans held-for-sale
consist of $341 million in construction loans, $58 in commercial
loans and $1 million in mortgage loans as of June 30, 2011,
compared with $392 million, $61 million and $11 million,
respectively, as of March 31, 2011.
Non-performing assets - Non-covered
loan portfolio
The Corporation’s non-performing non-covered loans
held-in-portfolio increased by $17 million from March 31, 2011 to
June 30, 2011, reaching $1.7 billion or 8.0% of total non-covered
loans held-in-portfolio as of June 30, 2011.
The increase in non-performing loans held-in-portfolio was
driven by the non-covered commercial and residential mortgage loan
portfolios of the BPPR reportable segment, which increased by $30
million and $10 million, respectively. Weak economic conditions in
Puerto Rico have continued to adversely impact the commercial and
residential mortgage loan delinquency rates. Non-performing
non-covered construction loans held-in-portfolio of the BPPR
reportable segment increased by $2 million from $57 million as of
March 31, 2011 to $59 million as of June 30, 2011, mostly due to
one construction credit relationship with an outstanding principal
balance of $5 million, which was placed in non-accrual status
during the second quarter of 2011. As of June 30, 2011, no specific
valuation allowance was required for this non-covered construction
credit relationship. The aforementioned increase was partially
offset by principal payments received during the quarter on the
non-performing non-covered construction loans held-in-portfolio.
Non-covered consumer loans in non-performing status in the BPPR
reportable segment continue to reflect signs of stable credit
performance as non-performing loans in the portfolio remained
almost unchanged when compared with the quarter ended March 31,
2011.
For the quarter ended June 30, 2011, additions to non-covered
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
$112 million and $5 million, respectively, a decrease of $9 million
and $7 million, when compared to the additions during the quarter
ended March 31, 2011. When compared to the quarter ended December
31, 2010, additions to non-covered commercial loans and
construction loans held-in-portfolio in non-performing status
decreased by $26 million and $32 million, respectively. Although
the Corporation continues to reflect additions to non-performing
loans because of current economic conditions in Puerto Rico, the
additions in the second quarter of 2011 were at a lower pace than
in the previous two quarters. Non-performing loans
held-in-portfolio in the BPNA reportable segment decreased by $23
million, from $438 million as of March 31, 2011 to $415 million as
of June 30, 2011. The decrease was reflected in almost all loan
categories, except for the commercial and mortgage loan portfolios
which increased by $2 million and $6 million, respectively. Most
loan portfolios in 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 during the
second quarter of 2011 amounted to $75 million and $3 million,
respectively, an increase of $26 million and a decrease of $8
million, respectively, when compared to the additions for the first
quarter of 2011. The increase in commercial non-performing loans
for the BPNA reportable segment was principally attributable to one
commercial credit relationship with an outstanding principal
balance of $21 million, before charge-offs, which was restructured
and placed in non-accrual status during the second quarter of 2011.
Concurrently, BPNA recorded a charge-off of $5 million with respect
to this credit relationship. At June 30, 2011, the outstanding
principal balance on this credit relationship was $16 million and
no specific valuation allowance was required. The decrease of $8
million in additions to BPNA’s non-performing construction loans
was attributable to a lower level of problem loans remaining in the
portfolio. When compared to the quarter ended December 31, 2010,
additions to non-covered commercial loans and construction loans
held-in-portfolio in non-performing status during the quarter ended
June 30, 2011 decreased by $23 million and $34 million,
respectively, driven by positive results of steps taken by the
Corporation to mitigate the overall credit risks.
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 for loans
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 June 30, 2011, March 31, 2011, and June 30, 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.
June 30, 2011 Non-Covered Loans (Dollars in thousands)
Commercial Construction Lease Financing
Mortgage Consumer Total (2) Specific ALLL
$7,755 $386 - $11,665 - $19,806
Impaired loans (1) 486,007 199,919 - 205,753 - 891,679 Specific
ALLL to impaired loans (1) 1.60% 0.19% -
5.67% - 2.22% General ALLL $404,010 $19,399
$5,770 $66,307 $174,386 $669,872 Loans held-in-portfolio, excluding
impaired loans (1) 10,250,326 193,840 586,056 5,141,759 3,594,034
19,766,015 General ALLL to loans held-in-portfolio, excluding
impaired loans (1) 3.94% 10.01% 0.98%
1.29% 4.85% 3.39% Total ALLL $411,765 $19,785 $5,770
$77,972 $174,386 $689,678 Total non-covered loans held-in-portfolio
(1) 10,736,333 393,759 586,056 5,347,512 3,594,034 20,657,694 ALLL
to non-covered loans held-in-portfolio (1) 3.84%
5.02% 0.98% 1.46% 4.85% 3.34% (1)
Excludes covered loans from the Westernbank FDIC-assisted
transaction.
(2) Excludes covered loans acquired on the
Westernbank FDIC-assisted transaction. As of June 30, 2011, the
general allowance on the covered loans amounted to $56 million
while the specific reserve amounted to $1 million.
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.
June 30, 2010
(as recasted)
Non-Covered Loans (Dollars in thousands) Commercial
Construction Lease Financing Mortgage Consumer
Total Specific ALLL (1) $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 20.60% 23.14% - 22.21% -
22.05% General ALLL (2) $345,712 $139,593 $16,799 $118,175
$273,298 $893,577 Loans held-in-portfolio, excluding impaired loans
(2) (3) 11,141,660 679,145 636,913 4,410,630 3,857,401 20,725,749
General ALLL to loans held-in-portfolio, excluding impaired loans
3.10% 20.55% 2.64% 2.68% 7.09%
4.31% Total ALLL $478,465 $328,542 $16,799 $179,912 $273,298
$1,277,016 Total non-covered loans held-in-portfolio (3) 11,786,235
1,495,616 636,913 4,688,655 3,857,401 22,464,820 ALLL to
non-covered loans held-in-portfolio 4.06% 21.97%
2.64% 3.84% 7.09% 5.68% (1) Excludes
impaired covered loans acquired on the Westernbank FDIC-assisted
transaction.
(2) Excludes covered loans acquired on the
Westernbank FDIC-assisted transaction. There was no allowance on
these loans as of June 30, 2010.
(3) Includes $43 million (as recasted) of
non-covered credit cards acquired on the Westernbank FDIC-assisted
transaction.
The allowance for loan losses on the non-covered loan portfolio
as of June 30, 2011 decreased by approximately $38 million when
compared with March 31, 2011. The Corporation’s general allowance
decreased by $40 million, while the specific allowance component
increased by $2 million. The reduction in the general component of
the allowance for loan losses on the non-covered loans for the
quarter ended June 30, 2011 was attributable to lower portfolio
balances and net charge-offs, principally from the Corporation’s
construction and consumer loan portfolios.
The allowance for loan losses on the non-covered construction
loan portfolio amounted to $20 million as of June 30, 2011, a
decrease of $19 million compared with March 31, 2011. This decrease
was prompted by a reduction of $4 million and $15 million in the
general component of the allowance for loan losses of the BPPR and
BPNA reportable segments, respectively. Net charge-offs related to
the construction loan portfolio of the BPPR reportable segment
decreased by $14.0 million for the second quarter of 2011, when
compared with the quarter ended March 31, 2011. The decrease in the
allowance for loan losses for the construction loan portfolio at
the BPNA reportable segment was attributable to a lower portfolio
balance and a lower level of problem loans remaining in the
portfolio. The construction loan portfolio and non-performing loans
of the BPNA reportable segment decreased by $58 million and $27
million, respectively, when compared with March 31, 2011.
The allowance for loan losses of the Corporation’s non-covered
commercial loan portfolio as of June 30, 2011 increased by $4
million, from $408 million as of March 31, 2011. The allowance for
loan losses for the non-covered commercial loan portfolio of the
BPPR reportable segment increased by $8 million, mainly driven by
higher non-performing loans and net charge-offs. Non-covered
non-performing commercial loans and net charge-offs for the BPPR
reportable segment increased by $30 million and $11.4 million,
respectively, when compared with March 31, 2011. As of June 30,
2011, the allowance for loans losses for the BPNA reportable
segment commercial loan portfolio reflected a decrease of $4
million when compared with March 31, 2011, principally driven by a
lower portfolio balance associated with the downsizing of the
legacy portfolio of the business lines exited by BPNA. The
commercial loan portfolio of the BPNA reportable segment as of June
30, 2011 reflected a decrease of $128 million when compared with
March 31, 2011.
The Corporation’s allowance for loan losses for the non-covered
consumer loan portfolio as of June 30, 2011 decreased by $15
million from $190 million as of March 31, 2011. Most consumer loan
portfolios both in Puerto Rico and the U.S. mainland have continued
to reflect favorable credit trends.
The Corporation’s allowance for loan losses corresponding to the
non-covered mortgage loan portfolio decreased by $2 million from
March 31, 2011 to June 30, 2011. The decrease was principally
driven by a higher level of net charge-offs from BPNA’s mortgage
loan portfolio and an increase in specific reserves on mortgage
loan troubled debt restructurings.
Non-interest Income
Non-interest income totaled $124.2 million for the quarter ended
June 30, 2011, compared with $164.4 million for the quarter ended
March 31, 2011 and $198.8 million for the quarter ended June 30,
2010.
The decrease of $40.2 million in non-interest income for the
quarter ended June 30, 2011, compared with the quarter ended March
31, 2011, was principally due to an unfavorable variance in the
caption of net (loss) gain on sale of loans, including valuation
adjustments on loans held-for-sale, of $20.0 million, principally
from higher fair value adjustments during the second quarter of
2011 on commercial and construction loans held-for-sale due to
advances made on these loans. Also, as explained in the financial
highlights section of this release, the first quarter earnings were
favorably impacted by $16.7 million, net of tax, from the sale of
the Corporation’s equity investment in the processing business of
Consorcio de Tarjetas Dominicanas, S.A. (“Contado”). The variance
in non-interest income was further influenced by a decrease in the
equity pick-up from the Corporation’s 49% ownership interest in
EVERTEC, which was positively impacted during the quarter ended
March 31, 2011 by the changes to the tax code by $13.8 million.
Additionally, the first quarter results included a higher benefit
resulting from the fair value change of the FDIC equity
appreciation instrument by $7.2 million. This higher benefit was
not present in the second quarter because the instrument expired in
early May 2011.
The above variances were partially offset by an increase of
$22.6 million in the FDIC loss share income resulting mostly from
the increase in the FDIC loss share indemnification asset due to
the recording of provision for loan losses on loans covered under
the loss sharing agreements as previously discussed. Also, the
increase in FDIC loss share income is the result of a reduction in
the discount accretion for the acquired loans accounted for
pursuant to ASC Subtopic 310-20 (unfavorable impact in interest
income and discussed in the net interest income section), which, as
a result of reciprocal accounting, caused an 80% reduction in the
related FDIC loss expense (favorable impact recorded in
non-interest income). As of June 30, 2011, the unamortized discount
on covered loans accounted for under ASC Subtopic 310-20 is not
significant. These favorable variances in FDIC loss share income
were partially offset by lower accretion of the FDIC loss sharing
indemnification asset in the second quarter of 2011. This is the
result of the reciprocal accounting which reflects the impact in
the indemnification asset of the reduction in expected credit
losses.
Operating Expenses
Operating expenses totaled $281.8 million for the quarter ended
June 30, 2011, compared with $275.0 million for the quarter ended
March 31, 2011 and $328.4 million for the quarter ended June 30,
2010.
As shown in Exhibit A, the increase of $6.8 million in operating
expenses for the second quarter of 2011, compared with the first
quarter of 2011, resulted principally from higher FDIC deposit
insurance assessments by $10.0 million, personnel costs by $4.8
million, mostly in salaries and commissions, OREO expenses by $4.2
million, mainly from losses on the sale of repossessed properties,
and professional fees by $2.8 million. These unfavorable variances
were partially offset by lower prepayment penalties on early
extinguishment of debt by $8.0 million, and general reductions in
other operating expenses, including lower provision for unfunded
commitments and lower write-downs on the net assets of the
Corporation’s Venezuela operations. During the first quarter of
2011, the Corporation recognized an impairment loss of $8.6 million
related to those operations.
Income Taxes
Income tax benefit amounted to $38.1 million for the quarter
ended June 30, 2011, compared with an income tax expense of $147.2
million for the quarter ended March 31, 2011 and income tax expense
of $27.2 million for the quarter ended June 30, 2010.
The variance in income tax for the second quarter of 2011 when
compared with the first quarter of 2011 was mainly due to the
previously mentioned impact in the quarter ended June 30, 2011 of
the private ruling and closing agreement with the P.R. Treasury.
Furthermore, during the quarter ended March 31, 2011, the
Corporation recorded an additional income tax expense of $103.3
million resulting from a reduction in the Corporation’s deferred
tax assets as a result of the reduction in the marginal corporate
income tax rate implemented by the Puerto Rico tax reform.
Balance Sheet Comments
The accompanying Exhibit A provides information on the principal
categories of the Corporation’s balance sheet as of June 30, 2011,
March 31, 2011 and June 30, 2010, and the following sections
provide more detailed information.
The table that follows provides a breakdown of the Corporation’s
portfolio of investment securities available-for-sale (“AFS”) and
held-to-maturity (“HTM”) on a combined basis. The decrease in
investment securities was primarily related to maturities of agency
securities and repayments of mortgage-backed securities, which
proceeds were mostly used for prepaying the note payable issued to
the FDIC as part of the assisted transaction.
(In millions)
June 30,2011
March 31,2011
Variance
June 30,2010
Variance U.S. Treasury securities $50.6 $62.4
($11.8) $166.5 ($115.9) Obligations of U.S.
Government sponsored entities 1,248.7 1,461.1 (212.4) 1,749.5
(500.8) Obligations of Puerto Rico, States and political
subdivisions 125.1 143.3 (18.2) 236.4 (111.3) Collateralized
mortgage obligations 1,683.7 1,684.7 (1.0) 1,547.2 136.5
Mortgage-backed securities 2,349.0 2,413.4 (64.4) 2,979.7 (630.7)
Equity securities 8.3 9.4 (1.1) 8.7 (0.4) Others 54.0
54.1 (0.1) 2.6 51.4 Total investment
securities AFS and HTM $5,519.4 $5,828.4
($309.0) $6,690.6 ($1,171.2)
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) June 30, 2011 March 31, 2011
Variance June 30, 2010 Variance Non-covered loans
held-in-portfolio:
Commercial $10.7 $11.2 ($0.5) $11.8 ($1.1) Construction 0.4 0.4 -
1.5 (1.1) Mortgage 5.4 4.9 0.5 4.7 0.7 Consumer 3.6 3.6 - 3.9 (0.3)
Lease Financing 0.6 0.6 - 0.6
- Total non-covered loans held-in-portfolio $20.7 $20.7 -
$22.5 (1.8) Covered loans under
FDIC loss sharing
agreements
4.6 4.7 (0.1) 5.1 (0.5) Loans held-for-sale 0.5 0.6
(0.1) 0.1 0.4 Total loans $25.8
$26.0 ($0.2) $27.7 ($1.9)
The increase in the non-covered mortgage loan portfolio from
March 31, 2011 to June 30, 2011 was mainly in the BPPR reportable
segment principally related to the previously mentioned purchase of
$282 million (unpaid principal balance) in performing residential
mortgage loans, loan origination activity in the BPPR reportable
segment as well as loans repurchased under credit recourse
arrangements.
The decrease in non-covered commercial loans held-in-portfolio
from March 31, 2011 to June 30, 2011 was mainly in the BPPR
reportable segment as a result of the repayment of commercial lines
of credit from the Puerto Rico public sector during the quarter
ended June 30, 2011, portfolio run-off, and loan charge-offs.
The decrease in the non-covered commercial loan portfolio from
June 30, 2010 to the same date in 2011 was primarily associated
with the downsizing of the legacy portfolio of the business lines
exited by BPNA, slow loan origination activity due to the economic
environment and charge-offs. The decline in the non-covered
construction loan portfolio from June 30, 2010 to the same date in
2011 was principally driven by the previously reported
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. Also, this
decline in construction loans was related to charge-offs,
conversion to repossessed properties and controlled activity for
new advances. The decline in the non-covered consumer loan
portfolio was mainly related to run-off of existing portfolios,
principally exited lines of business at the BPNA operations,
including E-LOAN, and lower volume of installment loans and credit
cards in the BPPR reportable segment.
Deposits
A breakdown of the Corporation’s deposits as of period-end is
presented in the following table.
(In billions) June 30, 2011 March 31, 2011
Variance June 30, 2010 Variance
Demand * $6.3 $5.5 $0.8 $5.4 $0.9 Savings 10.8 10.7
0.1 10.6 0.2 Time 10.9 11.0 (0.1) 11.1
(0.2) Total deposits $28.0 $27.2 0.8
$27.1 0.9 * Includes non-interest and interest
bearing demand deposits
Brokered certificates of deposit, which are included as time
deposits, amounted to $2.7 billion as of June 30, 2011 compared
with $2.5 billion as of March 31, 2011 and $2.0 billion as of June
30, 2010. The increase in demand deposits from March 31, 2011 was
principally due to an increase in the volume of public fund
deposits and deposits in trust.
Borrowings and capital
The accompanying Exhibit A also provides information on
borrowings and stockholders’ equity as of June 30, 2011, March 31,
2011, and June 30, 2010.
The Corporation’s borrowings amounted to $6.1 billion as of June
30, 2011, compared with $6.7 billion as of March 31, 2011 and $10.5
billion as of June 30, 2010. The decrease in borrowings from March
31, 2011 to June 30, 2011 was mostly related to a reduction in
principal of $505 million on the note issued to the FDIC, which had
a carrying amount of $1.5 billion as of June 30, 2011, compared
with $2.0 billion as of March 31, 2011. This decrease was due to a
prepayment of $256 million and the impact of payments of principal
from loan and claim collections. The decrease in borrowings from
June 30, 2010 to the same date in 2011 was also principally related
to paydowns on the note issued to the FDIC.
Stockholders’ equity totaled $4.0 billion as of June 30, 2011,
compared with $3.8 billion as of March 31, 2011 and $3.6 billion as
of June 30, 2010. The increase from March 31, 2011 to June 30, 2011
was mostly due to the net income for the quarter and a favorable
change in unrealized gains on securities available-for-sale, net of
tax, of $46 million. The increase in stockholders’ equity from June
30, 2010 to the same date in 2011 was mostly influenced by earnings
for the period.
Popular, Inc.’s capital ratios continued to exceed all
“well-capitalized” regulatory benchmarks as of June 30, 2011. Below
is a summary of the Corporation’s estimated regulatory capital
ratios as of June 30, 2011 and March 31, 2011.
June 30, 2011 March 31, 2011 Minimum
required
Tier 1 risk-based capital
15.19% 15.25% 4.00% Total risk-based capital
16.47% 16.52% 8.00% Tier 1 leverage 10.16% 10.18% 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 11.50% as of June 30, 2011 and 11.58% as of
March 31, 2011.
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) June 30, 2011 March 31, 2011 Total
stockholders’ equity $3,964,068 $3,804,906 Less:
Preferred stock (50,160) (50,160) Less: Goodwill (647,318)
(647,387) Less: Other intangibles (54,186) (56,441)
Total tangible common equity $3,212,404 $3,050,918
The following table provides a reconciliation of common
stockholders’ equity (GAAP) to Tier 1 common equity (non-GAAP):
(In thousands) June 30,
2011 March 31, 2011 Common stockholders’ equity
$3,913,908 $3,754,746 Less: Unrealized gains on available
for sale securities, net of tax (1) (188,171) (141,747) Less:
Disallowed deferred tax assets (2) (271,139) (143,137) Less:
Intangible assets: Goodwill (647,318) (647,387) Other disallowed
intangibles (22,596) (25,649) Less: Aggregate adjusted carrying
value of all non-financial equity investments (1,540) (1,612) Add:
Pension liability adjustment, net of tax and accumulated net gains
(losses) on cash flow hedges (3) 125,605 128,091
Total Tier 1 common equity $2,908,749 $2,923,305
(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 $96 million of the Corporation’s $362 million of
net deferred tax assets as of June 30, 2011 ($106 million and $251
million, respectively as of March 31, 2011), were included without
limitation in regulatory capital pursuant to the risk-based capital
guidelines, while approximately $271 million of such assets as of
June 30, 2011 ($143 million as of March 31, 2011) exceeded the
limitation imposed by these guidelines and, as “disallowed deferred
tax assets,” were deducted in arriving at Tier 1 capital. The
remaining $5 million of the Corporation’s other net deferred tax
assets as of June 30, 2011 ($2 million as of March 31, 2011)
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 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; (ix) the impact of the Dodd-Frank Act on our
businesses, business practice and cost of operations; and (x)
additional Federal Deposit Insurance Corporation assessments. 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 POPULAR,
INC. Financial Summary (Unaudited)
Quarter
ended 2nd Quarter Quarter ended 2nd Quarter
2011 June 30, 2011 vs 2010 March 31, vs
1st Quarter 2011 2011 2010 [1] $
Variance 2011 $ Variance Summary
of Operations --- (In thousands, except share information)
Interest income
$506,899 $492,417 $14,482 $485,451
$21,448 Interest expense
132,357 177,822
(45,465 ) 142,092 (9,735 )
Net interest income
374,542 314,595 59,947 343,359
31,183 Provision for loan losses
144,317
202,258 (57,941 ) 75,319 68,998
Net interest income after provision for loan losses
230,225 112,337 117,888 268,040 (37,815 ) Service
charges on deposit accounts
46,802 50,679 (3,877 ) 45,630
1,172 Other service fees
58,307 103,725 (45,418 ) 58,652
(345 ) Trading account profit (loss)
874 2,464 (1,590 ) (499
) 1,373 Net (loss) gain on sale and valuation adjustments of
investment securities
(90 ) 397 (487 ) - (90 ) Net
(loss) gain on sale of loans, including valuation adjustments on
loans held-for-sale
(12,782 ) 5,078 (17,860 ) 7,244
(20,026 ) Adjustments to indemnity reserves on loans sold
((expense) recovery)
(9,454 ) (14,389 ) 4,935 (9,848
) 394 FDIC loss share income (expense)
38,670 (15,037 )
53,707 16,035 22,635 Fair value change in equity appreciation
instrument
578 24,394 (23,816 ) 7,745 (7,167 ) Other
non-interest income
1,255 41,516
(40,261 ) 39,409 (38,154 ) Total
non-interest income
124,160 198,827 (74,667 ) 164,368
(40,208 ) Personnel costs
110,959 138,032 (27,073 )
106,140 4,819 Net occupancy expenses
25,957 29,058 (3,101 )
24,586 1,371 Professional fees
49,479 34,225 15,254 46,688
2,791 Business promotion
11,332 10,204 1,128 9,860 1,472
FDIC deposit insurance
27,682 17,393 10,289 17,673 10,009
Other real estate owned (OREO)
6,440 14,622 (8,182 ) 2,211
4,229 Loss on early extinguishment of debt
289 430 (141 )
8,239 (7,950 ) Other operating expenses
49,662
84,452 (34,790 ) 59,652 (9,990 )
Total operating expenses
281,800
328,416 (46,616 ) 275,049 6,751
Income (loss) before income tax
72,585 (17,252
) 89,837 157,359 (84,774 ) Income tax (benefit) expense
(38,100 ) 27,237 (65,337 )
147,227 (185,327 ) Net income (loss)
$110,685 ($44,489 ) $155,174
$10,132 $100,553 Net income
(loss) applicable to common stock [2]
$109,754
($236,156 ) $345,910 $9,202
$100,552 Net income (loss) per common share: [2]
Basic and diluted per common share
$0.11
($0.28 ) $0.01
Average common shares outstanding
1,021,225,911 853,010,208
1,021,536,201 Average common shares outstanding - assuming dilution
1,021,896,141 853,010,208 1,022,339,095 Common shares
outstanding at end of period
1,023,977,895 1,022,695,797
1,023,416,118
Market value per common share
$2.76 $2.68 $0.08 $2.92 ($0.16 )
Book value per common
share $3.82 $3.49 $0.33 $3.67 $0.15
Market
Capitalization --- (In millions) $2,826 $2,741 $85
$2,988 ($162 )
Selected Average Balances --- (In
millions) Total assets
$38,687 $39,758 ($1,071 ) $38,678
$9 Stockholders' equity
3,712 3,222 490 3,597 115
Selected Financial Data at Period-End --- (In millions)
Total assets
$39,013 $42,348 ($3,335 ) $38,736 $277 Loans
25,783 27,622 (1,839 ) 25,976 (193 ) Earning assets
33,647 37,311 (3,664 ) 33,576 71 Deposits
27,960
27,114 846 27,197 763 Borrowings
6,145 10,547 (4,402 ) 6,728
(583 ) Interest bearing liabilities
28,741 32,867 (4,126 )
29,011 (270 ) Stockholders' equity
3,964 3,615 349 3,805 159
Performance Ratios Net interest yield [3]
4.48
% 3.56 % 4.15 % Return on assets
1.15 (0.45 ) 0.11
Return on common equity
12.02 (6.17 ) 1.05 [1] As
recasted. [2] Refer to the table included in the press release for
a reconciliation of net income (loss) per common share. [3] Not on
a taxable equivalent basis.
EXHIBIT A (CONTINUED)
POPULAR, INC. Financial Summary (Unaudited)
For the six months ended June
30, 2011 2010 [1] $ Variance
Summary of Operations --- (In thousands, except share
information) Interest income
$992,350
$919,612 $72,738 Interest expense
274,449
336,100 (61,651 ) Net interest income
717,901 583,512 134,389 Provision for loan losses
219,636 442,458 (222,822 )
Net interest income after provision for loan losses
498,265 141,054 357,211 Service charges on deposit
accounts
92,432 101,257 (8,825 ) Other service fees
116,959 205,045 (88,086 ) Trading account profit
375
2,241 (1,866 ) Net (loss) gain on sale and valuation adjustments of
investment securities
(90 ) 478 (568 ) Net (loss)
gain on sale of loans, including valuation adjustments on loans
held-for-sale
(5,538 ) 10,146 (15,684 ) Adjustments
to indemnity reserves on loans sold ((expense) recovery)
(19,302 ) (31,679 ) 12,377 FDIC loss share income
(expense)
54,705 (15,037 ) 69,742 Fair value change in
equity appreciation instrument
8,323 24,394 (16,071 ) Other
non-interest income
40,664 59,848
(19,184 ) Total non-interest income
288,528
356,693 (68,165 ) Personnel costs
217,099 258,964
(41,865 ) Net occupancy expenses
50,543 57,934 (7,391 )
Professional fees
96,167 61,274 34,893 Business promotion
21,192 18,499 2,693 FDIC deposit insurance
45,355
32,711 12,644 Other real estate owned (OREO)
8,651 19,325
(10,674 ) Loss on early extinguishment of debt
8,528 978
7,550 Other operating expenses
109,314 159,644
(50,330 ) Total operating expenses
556,849 609,329 (52,480 )
Income (loss) before income tax
229,944 (111,582 ) 341,526
Income tax expense
109,127 17,962
91,165 Net income (loss)
$120,817
($129,544 ) $250,361 Net income
(loss) applicable to common stock [2]
$118,956
($321,211 ) $440,167 Net income (loss) per
common share: [2] Basic and diluted per common share
$0.12 ($0.43 )
Dividends declared per common share
- -
Average common shares outstanding
1,021,380,199 746,598,082
Average common shares outstanding - assuming dilution
1,022,543,195 746,598,082 Common shares outstanding at end
of period
1,023,977,895 1,022,695,797
Market value
per common share $2.76 $2.68 $0.08
Book value per
common share $3.82 $3.49 $0.33
Market
Capitalization --- (In millions) $2,826 $2,741
Selected Average Balances --- (In millions) Total assets
$38,683 $36,853 $1,830 Stockholders' equity
3,655
2,823 $832
Performance Ratios Net interest yield [3]
4.32 % 3.51 % Return on assets
0.63 (0.71 )
Return on common equity
6.66 (9.92 )
[1] As recasted. [2] Refer to the table included in the press
release for a reconciliation of net income (loss) per common share.
[3] Not on a taxable equivalent basis.
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