BPOP

Popular, Inc. (BPOP)

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Popular, Inc. (BPOP)

Q4 2012 Earnings Call

January 24, 2013 10:30 am ET

Executives

Richard Carrión – President & Chief Financial Officer

Jorge Junquera – Chief Financial Officer

Lidio Soriano – Executive Vice President, Corporate Risk Management

Jorge Garcia – Senior Vice President, Corporate Comptroller

Enrique Martel – Manager of Corporate Communications

Analysts

Ken Zerbe – Morgan Stanley

Gerard Cassidy – RBC Capital Markets

Todd Hagerman – Sterne Agee & Leach

Alex Twerdahl – Sandler O’Neill & Partners

Derek Hewett – Keefe Bruyette & Woods

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2012 Popular, Inc. Earnings Conference Call. My name is Tahitia and I’ll be your Operator for today. (Operator instructions.) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Enrique Martel, Manager of Corporate Communications. Please proceed.

Enrique Martel

Good morning. Thank you for joining us on today’s call. Our Chairman and CEO Richard Carrión, our CFO Jorge Junquera, and our CRO, Lidio Soriano, will review our Q4 results and then answer your questions. We’ll be joined in the Q&A session by other members of our management team.

Before we start I would like to remind you that on 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 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.

We also want to remind shareholders and analysts that we will hold our Investor Day on Friday, March 1 in San Juan. You can find a link to the webcast in the Investor Relations section of our website. For further information please contact us via email at investor-relations@bppr.com. I will now turn the call over to Richard Carrión.

Richard Carrión

Good morning and thank you all for joining the call. I’d like to first address the highlights and key events of the quarter and then discuss our progress and priority areas. Jorge will go into greater detail on Q4 and full-year financial results and Lidio will provide an overview of credit trends and metrics. With that, please turn to the second slide.

While we reported $84 million in net income in Q4, this included a $27 million after-tax gain or equity pickup from our 49% interest in EVERTEC. Excluding this gain, net income amounted to $57 million for Q4 which was marked by another strong performance by our core businesses and continued improvement in credit. The sequential increase of $10 million in net income was driven by greater interest income, lower loss estimates for our covered portfolio, and further declines in our funding costs.

Q4 marked a strong finish to a good year that positions the company for continued progress in 2013. The $27 million after-tax gain was our proportional share of a tax grant received by EVERTEC from the Puerto Rico Treasury. Excluding the EVERTEC gain, we earned $218 million for the year in line with our expectations. [Including that], net income for the year amounted to $245 million.

We continued to make significant progress on the credit front. The $125 million decline in held in portfolio nonperforming loans was our largest quarterly decrease during the current credit cycle excluding bulk sales, while NPLs at quarter-end reached their lowest level since December, 2009. More than two-thirds of the decrease in NPLs this quarter occurred in our Puerto Rico commercial portfolio, which underwent its annual credit review in Q3 and Q4. The reduction in Puerto Rico commercial NPLs was mostly driven by lower NPL inflows and loans returning to accrual status.

We entered 2013 with strong capital levels. At year-end, our common equity Tier 1 ratio reached 13.18% and our total capital exceeded the current well-capitalized threshold by $2 billion. Our tangible booked value per share at quarter-end stood at $32.55. I also want to highlight that in December we received a $24 million cash dividend from EVERTEC. Some of the analysts who cover Popular have published estimates of the value of EVERTEC and of our 49% stake. I won’t comment on those estimates but I will say that based on EVERTEC’s total adjusted EBITDA of $118 million for the first nine months of 2012, we believe that our stake in the company is worth substantially more than its current booked value of $74 million.

Improved credit performance increased the contribution of our $3.8 billion covered loan portfolio in Q4 while our Puerto Rico mortgage operation had another superb performance. Excluding the EVERTEC gain, gross revenues amounted to $452 million and our net interest margin increased to 4.41% which continues to span well above our peers. Our continued improvement in credit, our unique franchise in Puerto Rico, and our strong capital levels were the primary reasons cited by Fitch Ratings for their one notch upgrade of Popular last week.

Please turn to the third slide. In 2012, we made clear and consistent progress in our number one objective – reducing NPLs. For the year, non-covered NPLs declined by $313 million to the lowest level since 2009, and NPAs fell $384 million to the lowest point since 2010. These reductions were the result of aggressive loss mitigation efforts, resolutions and restructuring, NPL sales, and stabilizing economic conditions. These results have helped lower the provision expense in Q4 by 30% when compared with the year-ago quarter.

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