Popular (BPOP) Q4 2012 earnings summary

Executive summary

• 2012 net income was $245.3M vs. $151.3M in 2011; Q4 net income was $83.9M vs. $3.0M, with the quarterly improvement mainly driven by a $97.0M lower loan-loss provision.

• Full-year results included a $72.9M tax benefit from the Westernbank loan tax agreement and $26.9M from an EVERTEC tax grant; reported results therefore include notable tax benefits.

• Top-line income, defined as net interest income plus non-interest income, was $1.8B; the taxable-equivalent net interest margin held at 4.47%.

Financial highlights

• Net interest income was $1.373B, down $59.4M reported and $64.0M on a taxable-equivalent basis from 2011; taxable-equivalent NIM stayed at 4.47%.

• Provision for loan losses fell $166.8M, or 29%, to $408.9M; non-covered provision declined $96.0M and covered provision declined $70.8M.

• Non-interest income declined $93.9M to $466.3M, primarily as FDIC loss-share income swung from $66.8M income in 2011 to $56.2M expense in 2012.

• Operating expenses rose $60.9M to $1.211B; key items included a $25.0M early debt-extinguishment loss and higher credit-related and OREO costs.

• Income tax benefit was $26.4M vs. $114.9M expense in 2011; the 2012 result included the $72.9M Westernbank-related benefit.

Outlook and guidance

• Management expected Puerto Rico’s economy to remain flat and the U.S. mainland economy to grow moderately in 2013.

• Puerto Rico priorities included resolving or selling non-performing loans, strengthening loss mitigation, consolidating branches, redesigning processes and adding lower-risk assets.

• U.S. priorities included running off or disposing of exited portfolios, managing classified loans, targeting loan growth and continuing to improve customer mix and retail offerings.

• Strong capital levels were expected to continue through Basel III implementation, supporting a potential TARP exit at a time and in a manner aligned with shareholder interests.