Popular, Inc. (



Q4 2012 Earnings Call

January 25, 2011 10:30 a.m. ET


Enrique Martel – Manager, IR

Richard Carrion – President, Chairman and CEO

Jorge Junquera – CFO

Lidio Soriano – CPA Executive Vice President - Corporate Risk Management Group


Joe Gladue – B Riley

Ken Zerbe – Morgan Stanley

Michael Sarcone – Sandler O’Neill

Brett Scheiner – FBR Capital Markets

Derek Hewett – KBW



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Good day ladies and gentlemen and welcome to the fourth quarter 2011 Popular Earnings Conference Call. My name is Keish and I’ll be your operator for today. (Operator Instructions) I would now like to hand the conference over to Mr. Enrique Martel, Manager of Corporate Communications. Please proceed.

Enrique Martel

Good morning and thank you for joining us on today’s call. Our Chairman and CEO, Richard Carrion; our CFO, Jorge Junquera, and our CRO, Lidio Soriano will review our fourth quarter and year end results and then answer your questions. They will be joined in the Q&A session by other members of our management team.

Before we start, I would like to remind you that in today’s call, we may make forward-looking statements that are based on management’s current expectations, and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these forward-looking statements are set forth within today’s earnings press release and are detailed in our SEC filings, our financial quarterly release, and supplements.

You may find today’s press release and our SEC filings on our webpage, which you may visit by going to www.popular.com.

I would now turn the call over to Mr. Richard Carrion.

Richard Carrion

Good morning, and thank you for joining the call. There are three things we’d like to accomplish today, review our fourth quarter and annual results, analyze the latest credit trends in our portfolios, and present an outlook for 2012.

I will first go over the financial highlights and give general views of our results before I turn the call over to Jorge and Lidio. I will then come back to conclude our presentation. Please turn to the second slide.

If you mark a turnaround year for Popular, the $151 million profit for 2011 marks the first year of operational earnings since 2006. For the year, gross revenues remain strong amounting to $1.9 billion while the provision expense fell by $436 million. A substantial push to bring our cost of deposits down and greater interest income from our covered portfolio helped maintain a strong interest margin of 4.34% for the year.

For the quarter, we reported net income of $3 million in our fourth consecutive profitable quarter compared with net income of $27.5 million in the third quarter of 2011. Gross revenues amounted to $494 million for the quarter compared with $492 million in the third quarter.

The linked quarter decline in profit was primarily driven by a $16 million expense triggered by the implementation of a voluntary employee retirement program which we expect to generate $15 million in annualized savings. The fourth quarter reflected improved credit trend, and net charge off ratio decreased and commercial and construction NPL inflows in Puerto Rico fell by $111 million from the third quarter.

As a result, provision expense for non-covered loans fell by $27 million to $124 million. Effective management of liabilities drove the cost of Puerto Rico deposits to below 1% to help maintain the strong 4.97% margin in our main franchise, in line with the previous quarter.

The U.S. bank turned to a marginal loss in the fourth quarter on higher provision, but finished the year with a $30 million profit that compares with a $340 million loss for the previous year. Of still ways to go the financial turnaround of our U.S. bank has expanded our options to increase our return on capital.

We set four objectives at the beginning of 2011. Mitigated the client in earning assets amidst the economic headwinds in Puerto Rico, increased efficiency, de-risk our balance sheet by way of loan losses, loan sales, and loss mitigation, and accelerate the performance of our U.S. operation. I think we made great strides in all areas. Our held in portfolio loan book in Puerto Rico increased by $350 million at $648 million in loan purchases more than offset the decline in our public loan portfolio. We are seeking similar opportunities to take place in 2012. But we were able to substantially reduce credit cost in Puerto Rico during 2011, these remain elevated, and this is the one area where we anticipate the most improvement in 2012.

We believe most of the economic contraction in our main market has already taken place and we are well positioned for improved results in 2012. We’ve seen growth in the consumer lending sectors with declining delinquencies and losses and we are seeing an increase in the business appetite of our corporate client.

Before I turn the call over to Jorge, I want to briefly talk about TARP which has generated a fair amount of increase as of late. We understand these concerns about the possibility of Popular repaying TARP in a manner that is not in the best interest of shareholders. I would like to reiterate that we don’t have a current plan to repay TARP, we are not obligated to fully or partially repay it, and any repayment of TARP will be done in a manner that protect shareholder value and will be subject to regulatory approval.

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