Popular scaling back stateside opps, earns $86.4M in 1Q
Popular Inc. confirmed Wednesday it will be scaling back its U.S. mainland operations by divesting its branches in California, Illinois and Central Florida and centralizing certain back office operations in Puerto Rico and New York.
The bank, which does business in stateside as Popular Community Bank, will in turn concentrate its efforts on New York and South Florida.
On Wednesday, officials said the bank had entered into definitive agreements to sell 41 branches, approximately $1.8 billion in related loan portfolios, and approximately $2.1 billion in deposits, to three different buyers.
In Central Florida, Popular will sell nine branches with loans of approximately $115 million and deposits of approximately $239 million to Harbor Community Bank, a bank of approximately $629 million in total assets.
In Illinois, it will sell 12 branches with loans totaling approximately $521 million and deposits of approximately $761 million to First Midwest Bank, a bank with approximately $8.3 billion in total assets.
In California, the bank will sell 20 branches with loans totaling approximately $1.2 billion and approximately $1.1 billion in deposits to Banc of California, a bank with approximately $3.6 billion in total assets.
The transactions will result in net premium of approximately $25 million and an estimated noncash goodwill write-down of approximately $160 million.
With a more clearly defined geographical footprint and leaner operation, the new PCB will be better able to focus on its core competencies, providing a full range of financial services and products to its commercial and retail banking customers.
“Popular remains deeply committed to serving mainland U.S. customers by building on [Popular Community Bank’s] success in New York and South Florida,” said Popular Inc. Chief Richard Carrión.
“We believe there are significant opportunities for the growth of our franchise in these markets as the banking sector and overall economy continues in its recovery. Focusing our efforts on these markets will ultimately enable us to better serve and grow our customer base, while strengthening the capital position of both [Popular Community Bank] and Popular,” he said.
The reorganization also calls for Popular to relocate centralized functions to Puerto Rico, new York and South Florida. This entails closing its Rosemont, IL and Orlando, FL operations centers and transferring most of the support functions to Puerto Rico and New York. Of the 550 positions in the two current operations locations, 100 will be relocated to other offices in the U.S. and 200 will be moved to Puerto Rico, meaning that about 250 jobs will be lost.
This transition is expected to be completed by the 1st quarter of 2015. As a result of the reshuffling, the bank will take an estimated restructuring charge of approximately $53 million — consisting of severance and retention payments, operational set-up costs, and lease cancelations — and annual operating expenses will be prospectively reduced by an estimated $45 million after the reorganization is complete.
The reduction in assets and an improved risk profile of the bank is expected to reduce the amount of required capital, which, subject to regulatory approval, may be re-deployed, bank officials said.
The transactions, which are subject to regulatory approval and other closing conditions, are expected to close before the end of the year, leaving Popular Community Bank with a total of 49 branches.
RBC Capital Markets, LLC acted as financial advisor to Popular. Sullivan & Cromwell LLP, New York, NY, acted as legal counsel.
1st quarter results
In the first quarter, Popular earned net income of $86 million, ahead of adjusted results for last quarter — when the bank earned $163 million — and last year’s first quarter, when it reported $120.3 million in losses.
Overall credit quality, excluding covered loans, remained stable for the quarter, when the bank reported:
- Net charge-offs (NCOs) of 0.80% of average loans held-in-portfolio; excluding the $8.9 million in recoveries from the sale in the fourth quarter of last year of previously charged-off loans, NCOs declined by $1.0 million;
- Allowance for loan losses to loans held-in-portfolio remained stable at 2.51 percent vs. 2.49 percent in the fourth quarter of 2013;
- Non-performing loans held-in-portfolio (NPLs) increased by $37.4 million, quarter over quarter; driven by a single $51.6 million commercial credit relationship; NPLs to loans ratio at 2.9 percent vs. 2.8 percent in the fourth quarter of 2013.
“This quarter we are reporting solid financial results as well as announcing an important initiative to restructure our U.S. business,” Carrión said. “The payment of a dividend from Popular Community Bank is also an important step in more effectively managing our capital structure.”
“Although the business environment in our home market is challenging, we expect to continue to make progress in our capital management initiatives as the Puerto Rican economy stabilizes,” he said.