BPOP

Popular, Inc. (BPOP)

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Popular, Inc. (BPOP)

Q3 2012 Earnings Call

October 19, 2012 10:30 a.m. ET

Executives

Enrique Martell - Corporate Communications

Richard Carrión - Chairman and Chief Executive Officer

Jorge Junquera - Chief Financial Officer

Lidio Soriano - Chief Risk Officer

Analysts

Joe Gladue - B. Riley

Ken Zerbe - Morgan Stanley

Todd Hagerman - Sterne Agee

Derek Hewett - KBW

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Popular Inc. Earnings Conference Call. My name is Derik and I’ll be your operator for today. At this time, all participants are in a listen-only mode. We shall facilitate a question-and-answer session towards the end of the conference. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr. Enrique Martell, Manager of Corporate Communications. Please proceed.

Enrique Martell

Good morning. Thank you for joining us on today’s call. Our Chairman and CEO, Richard Carrión, CFO, Jorge Junquera, and our CRO, Lidio Soriano will review our third quarter 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 popular.com.

We also want to announce that we will hold our Investor Day on Friday, December 14 in San Juan. We will furnish the press release next week with details. I will now turn the call over to Mr. Richard Carrión.

Richard Carrión

Good morning and thank you all for joining the call. I would like to address three topics in my remarks this morning. First, I will provide a high level overview of third quarter results and Jorge will provide more details in his remarks. Second, I would like to take a step back from this quarter’s results and provide some perspective on where we are today and how we are managing Popular to create shareholder value. And third, I want to focus on the fundamental strength of our company and the reasons we believe there is a substantial value in the franchise that is not being reflected in our current share price.

So please turn to the second slide. We have $47.2 million in net income in the net income which was marked by another strong performance from our core businesses despite slow commercial loan demand in Puerto Rico and the U.S. Gross revenues amounted $459 million and our net interest margin increased to 4.37% which stands well above our peers. We remain on track to meet our 2012 net income target range of $210 million to $225 million. Stable revenues, a lower provision for the covered portfolio and lower funding cost were the primary drivers of the improved performance in a quarter that was relatively clean. Notably absent from this quarter were three large recorded in the second quarter. A tax benefit, a write-down of our held for sale portfolio and the prepayment expense of high cost repos.

Excluding the write-down and the prepayment expense, pre-tax income increased by $23 million compared with Q2. We continued to reduced NPLs. NPLs held for sales declined by $70 million, while NPLs held in portfolio declined by $12 million as a result of our lost mitigation and resolution strategies. Year-over-year NPLs held for sales and non-performing assets are down $151 million and $256 million respectively. Charge-offs declined for the fourth consecutive quarter to the lowest level in more than four years. We have strong capital ratios today and our total capital the well capitalized threshold by $1.8 billion.

Our common equity tier one ratio at September 30 stood at 12.72%. We are well positioned to exceed the current and proposed Basel III requirements. Our tangible book value per share at quarter-end was $32.15. Jorge will also provide some additional color on capital.

Please turn to the third slide. While we can't control the pace of economic recovery, we will not use economic headwinds as an excuse. We are sharply focused on the factors that are under our control, and that we know are key areas of focus for you. Our number one priority is reducing non-performing loans. And while the pace of improvement is slower than all of us would like, we are continuing to make progress on this front in basically three ways. Aggressive loss mitigation efforts, one-off transactions and bulk sales.

We executed three individual loan transactions during the quarter that reduce our NPL held for sale portfolio to less than half of where it stood at the beginning of the year. Year-to-date NPLs held in portfolio are down by $187 million. We continue to actively pursue NPL sales on terms that make business sense. Or approach here is driven by economic and what creates the most value for our shareholders. Our progress on this front will have significant implications across our business. As we continue to reduce our NPL balance, we increase our flexibility in terms of the timing and form of a TARP exit.

And I know you would like more clarity on TARP so let me provide some perspective. First, there is no contractual repayment date or dates for TARP. Our primary objective is to repay TARP in a manner that protects shareholder value. Of course the timing and form of repayment will be subject to the approval of our principal regulator, the Federal Reserve, with whom we are in constant dialog. While the TARP program was never meant to be permanent, these trust preferred securities do not have a maturity date and there is no treasury call either in a contractual or on a official sense. So we are not facing any near-term pressure to repay.

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