Popular (BPOP) Q4 2005 earnings summary

Executive summary

• FY05 net income reached $540.7M, up 10.4% YoY; diluted EPS was $1.97 vs. $1.79. Results included $67.4M in investment-security gains vs. $15.3M in 2004.

• Year-end assets were $48.6B, up 10% YoY, while loans grew 10% to $31.7B; the year was shaped by higher rates, a flattening yield curve and challenging Puerto Rico banking conditions.

Financial highlights

• Net interest income was $1.424B, up $48.7M YoY; taxable-equivalent net interest income rose $66.3M, or 4%, as average earning assets grew, partly offset by margin compression.

• Non-interest income rose 29% to $785.3M; gains on investment securities were $52.1M on the income statement, while gross net gains on sales totaled $67.4M before valuation adjustments.

• Provision for loan losses rose 9% to $195.3M; net charge-offs were $178.5M and the allowance was $461.7M, or 1.49% of year-end loans held in portfolio.

• Operating expenses increased 13% to $1.328B; the efficiency ratio rose to 62.30% from 59.86%, while operating expenses were 2.86% of average assets vs. 2.94%.

• Q4 net income was $130.2M vs. $128.2M a year earlier; diluted EPS was $0.47. Q4 net interest margin was 3.50% vs. 3.76%, while non-interest income rose 34% and expenses rose 19%.

Outlook and guidance

• The 2006 outlook was described as challenging, with optimism that disciplined execution would support continued progress; no quantified earnings guidance was stated.

• The 2005–2008 BPNA plan targets substantial growth in customers, revenue and earnings; PFH had a stated goal of growing its managed portfolio to $25B by 2010.

• Full implementation of the Transaction Vault and its connection to Banco Popular de Puerto Rico customer channels was planned for 2006.