Popular (BPOP) Q4 2009 earnings summary

Executive summary

• 2009 net loss was $573.9M vs. $1.24B in 2008; continuing-operations loss narrowed to $553.9M from $680.5M, while severe credit deterioration remained the central earnings drag.

• Capital and restructuring actions lifted Tier 1 common equity ratio to 6.39% from 2.45% at June 30; U.S. operations were sharply downsized and dividends suspended.

Financial highlights

• Net interest income fell $178.0M to $1.10B; provision for loan losses rose to $1.41B from $991.4M, exceeding net charge-offs of $1.03B.

• Non-interest income increased to $896.5M from $830.0M, led by investment-security gains; operating expenses declined $182.5M to $1.15B, including an $80.3M debt-extinguishment gain.

• Q4 net loss was $213.2M vs. $702.9M a year earlier; Q4 net interest income was $269.3M vs. $288.9M and provision was $352.8M vs. $388.8M.

• Total assets declined 11% to $34.7B; loans held in portfolio fell $2.0B, or 8%, and investment securities declined $1.3B, or 16%.

Outlook and guidance

• Management expected adverse economic conditions to persist through 2010, with heightened credit losses, additional significant loan-loss provisions and elevated non-performing assets likely to continue.

• Outlook remained cautious: Puerto Rico was expected to remain in recession, while the U.S. economy was projected to expand modestly; Puerto Rico stimulus disbursements were cited as potential support.

• Rising-rate simulations projected 2010 net interest income increases of $59.8M under a 200-bp rise and $103.2M under a 400-bp rise, versus a flat-rate forecast.

• BPNA restructuring was expected to yield ~$50M in recurring annual cost savings, primarily from personnel reductions.