Popular Inc. reported net income of $52.9 million for the quarter ended Dec. 31, 2014 on Thursday, when CEO Richard Carrión told analysts that the bank’s “strong market position, significant liquidity, excess capital levels and internal capital generation will continue to be key to our future performance.”
Net income for continued operations of $43.8 million and adjusted net income of $80.8 million for the quarter ended Dec. 31, 2014, compared to net income from continuing operations of $32.8 million and adjusted net income of $81.7 million for the quarter ended September 30, 2014
“While there were a number of significant transactions that impacted these results, we are satisfied that our top line remains strong and our credit metrics continue to head in the right direction in spite of the challenging economic conditions in our principal market,” Carrión said.
“The sale of our California operations in the period caps a transformational year for the corporation which included the restructuring of our U.S. operations and the repayment of our [Troubled Assets Relief Program] funds without issuing additional equity,” he said, referring to the $935 million payment Popular made last year.
“We continue to focus on improving our operational and financial metrics and are well positioned for an eventual improvement in the Puerto Rico economy,” Carrión said.
During a call with analysts, Carrión said Popular will be mindful of the tax reform the government is expected to roll out and the ongoing restructuring of the Puerto Rico Electric Power Authority, which he said “will be the critical events, impacting the fiscal and economic outlook.”
“We also believe, the recent decline in the price of oil will be a positive for the broader Puerto Rico economic environment, however it’s still too early to assess the impact on our clients directly,” he noted.
Meanwhile, the bank continues its strategy of reeling in its operations, relocating certain back office operations of its North American division to Puerto Rico and New York. The corporation incurred $13.9 million in restructuring charges during the fourth quarter of 2014 and a total of $26.7 million during the year ended Dec. 31, 2014.
Additional restructuring charges amounting to approximately $22 million are expected to be incurred in this year, comprised of $13 million in personnel related costs and $9 million in lease cancellations and other restructuring costs, the bank said in its earning report.
‘Manageable’ government exposure
During the call with analysts, Popular officials told analysts that it is currently managing about $1 billion in direct exposure it has with Puerto Rico’s central government, as well as municipalities and other financial instruments.
Of that amount, approximately $811 million is outstanding, an increase of $84 million compared to the previous quarter.
The increase was mainly driven by $100 million participation in the short-term tax revenue anticipation notes issued by the Puerto Rico government during the fourth quarter, specifically in October 2014, Carrión said.
“We divide our direct government exposure in two main categories, loans to the central government and public corporations and municipalities. Our largest direct exposures, as previously mentioned, a $100 million exposure to tax revenue anticipation notes and loans to the Aqueduct and Sewer Authority of $100 million and to the Puerto Rico Electric Power Authority of $75 million, all are short-term facilities,” he said.
“We believe our total exposure to the central government and public corporation is manageable, representing only 8.7 percent of Popular’s total Tier 1 capital.
“This quarter we placed one of our public sector relationships with $75 million outstanding on non-accrual status. We are monitoring developments in this portfolio closely, and we believe this exposure is manageable as a percent of capital and in proportion to the rest of our loan book,” Carrión said.
“We continue to believe the risk-reward of our Puerto Rico government exposure is positive. And as such, we will continue to selectively participate in funding the Puerto Rico government’s capital needs,” he added.