Popular Inc. sailed through its third consecutive quarter on the positive side, reporting $27.5 million in net income for the three-month period ended Sept. 30. The results were fueled by the sale of its non-performing loan portfolio and investment securities available-for-sale.
During a morning webcast, Popular Inc. CEO Richard Carrión also discussed plans to continue stabilizing the company’s finances, which includes opening a retirement window in February and closing branches.
In all, the company seeks to save about $25 million next year as a result.
The current net income is significantly lower than the prior quarter results of $110.7 million, a difference the island’s largest financial institution attributes to a tax benefit of approximately $59.6 million related to the timing of loan charge-offs for tax purposes, while the results for the third quarter of 2010 — when it reported $494.1 million in net income — included a $640.8 million gain recognized in connection with the sale of its 51 percent interest in Evertec.
“With our third consecutive profitable quarter, we continue to make progress as we drive Popular on a path to greater profitability,” Carrión said. “In Puerto Rico, where we have a uniquely valuable franchise, the credit environment remains uneven.”
That said, in its results, the bank reported an increase in the provision for loan losses increased of $32 million, or 22 percent in comparison to the second quarter allowance for loan losses, which stood at 3.35 percent of non-covered loans held-in-portfolio; net charge-offs increased $3.5 million.
“While we have seen improvement in some of our portfolios, we increased our provisions for the commercial portfolio,” he said. “In the U.S., we exceeded our expectations with another quarter of steady net interest income and lower funding costs in the midst of improving credit conditions.”
On Sept. 29, Banco Popular de Puerto Rico, Popular Inc.’s main subsidiary, completed the sale of construction and commercial real estate loans with an unpaid principal balance and net book value of approximately $358 million and $128 million, respectively, to a newly created joint venture that is majority owned by a limited liability company created by Goldman Sachs & Co., Caribbean Property Group LLC and East Rock Capital LLC. The majority of the loans sold were non-performing.
From the sale, the bank achieved a net benefit of approximately $4.7 million, before tax, recorded on the $128 million book value of the loans, the bank said. BPPR received approximately $48 million in cash, a note for approximately $86 million as seller financing and a 24.9 percent equity interest in the new joint venture.
Meanwhile, Popular Inc. reported a gain of $8.1 million on the sale of investment securities available-for-sale completed during the quarter.
“Our unique market position is reflected in our ability to produce stable top line revenue throughout the credit cycle,” Carrión said. “We are continuing to de-risk our balance sheet and reduce our expense base, among other measures, to position Popular for improved performance in 2012.”
“We remain focused on reducing our elevated credit costs, which is the key to unlocking the enormous value potential of this organization,” he said.
Among other notables, Popular Inc. ended the quarter with net income per common share of $0.03, gross revenues of $492 million, versus $499 million in the prior quarter, stable operating expenses and strong capital ratios. Deposits dropped quarter-to-quarter to $65.8 million from $70.6 million.
Retirement window and branch closings in sight
Effective Feb. 1, Popular will give an estimated 200 employees who are eligible to retire the chance to do so. To be eligible, the employee must be 50 years-old and have completed 25 years of service, or be 45 with 30 years of service.
Employees who opt to retire will receive a year’s salary on top of their pension, Popular Spokeswoman Teruca Rullán said.
As for Banco Popular closings, she explained that the bank is looking to cutback on expenses related to running branches that may be close in proximity to each other. The closings would not represent the elimination of additional jobs, she said.
“We’re still addressing overlap issues from our mergers with Citibank and Westernbank, so this is part of that process,” she said, noting that between 15 and 17 branches could be shuttered as a result.