Popular Inc. reported a first quarter loss of $120.3 million that reflected some $189.6 million in after-tax losses and adjustments related to the sale of a bad loan portfolio and other assets.
Excluding the effect of the transaction completed last month, Popular Inc. would have reported adjusted net income of $60.3 million for the three-month period, according to the bank’s latest financial report released Thursday.
Through the sale of about $509 million in non-performing loans and other assets, the financial institution’s bad loan portfolio declined by $565.2 million, or 32 percent, quarter over quarter.
“We delivered a good underlying performance in the quarter and two important transactions were completed in recent weeks,” said Popular Inc. CEO Richard Carrión.
“The non-performing asset sale, the successful [initial public offering] of EVERTEC and the continuing organic improvements in our credit quality build on our efforts to de-risk our balance sheet, build capital and continue to drive value for our shareholders,” he said.
EVERTEC Inc.’s recently completed initial public offering benefited Popular Inc. as a minority owner as it stands to receive about $254.3 million from the $505.3 million raised through the sale of 25.3 million shares. Popular Inc. will recognize an after-tax gain of approximately $169.4 million during the second quarter of 2013.
“The EVERTEC IPO also represents an important step toward clarifying and realizing the significant value of our stake,” said Carrión during a call with investors Thursday, noting that the IPO price puts a value of some $530 million on the 33.5 percent stake Popular Inc. retains.
Credit quality improves on NPL drop
Meanwhile, Popular Inc.’s credit quality continued to improve as a result of its strategies to reduce non-performing loans and stabilize and improve the economic conditions of its current loan portfolios.
The bank’s non-performing loan portfolio decreased by $374.5 million, or 26 percent, from the fourth quarter of 2012, and 55 percent from peak levels in the third quarter of 2010 as a result of the sale in March.
“By selling nearly one-third of our [non-performing assets], we have substantially de-risked our balance sheet and made a positive contribution to future profitability. In addition, we retained a 24.9 percent interest in the acquiring entity, which ensures that we will participate in any future upside,” Carrión told industry analysts during the call.
TARP and the economy
During the presentation, Carrión addressed the looming issue of repaying the $935 million loan the bank has pending with the U.S. government’s Troubled Asset Relief Program.
Carrión said the proceeds from the EVERTEC IPO, combined with the gain from the recent non-performing loan sale — which add up to about $530 million combined — brings a “boost to our capital rations and represents another important step toward an ultimate TARP exit.”
“I know many of you would like to know when we might exit from TARP and what I can tell you is that I will continue to work with our regulators to chart a path toward [an] exit. I cannot provide a definitive time frame for you since the ultimate decision is up to the regulators,” he said, noting the bank is in discussions with the U.S. Treasury and the Federal Reserve on which avenue to take.
“But yes, we’ve looked at different scenarios for paying it off, with clearly some component of the EVERTEC proceeds,” he said.
Meanwhile, the veteran banking executive expressed optimism on an eventual economic recovery for Puerto Rico based on recent actions by the government.
“We mentioned before that we are very encouraged by the fiscal team that the new governor has appointed. Recent signing into law of the Puerto Rico retirement plan reform was a big accomplishment early on for the administration. And that, along with completing the airport transaction and other steps being taken, advances the agenda to improve the fiscal standing of the Commonwealth and pave the way for an eventual economic recovery,” Carrión said.
“There’s still a couple of areas that need to get tackled, specifically the Highway Authority and the [Puerto Rico Electric] Power Authority seem to be two large structural issues,” he said. “The governor is focused, I think, on job creation and we think that’s the right metric. But he’s been there 100 days, so you can’t expect too much change.”