POPULAR, INC.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ |
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2006
Commission
File Number: 000-13818
POPULAR, INC.
(Exact name of registrant as specified in its charter)
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Puerto Rico
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66-0416582 |
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(State or other jurisdiction of
incorporation or organization)
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(IRS Employer Identification Number) |
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Popular Center Building
209 Muñoz Rivera Avenue, Hato Rey
San Juan, Puerto Rico
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00918 |
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(Address of principal executive offices)
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(Zip code) |
(787) 765-9800
(Registrants telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date: Common Stock $6.00 par value, 278,362,258 shares outstanding as of
April 28, 2006.
Forward-Looking Information
The information included in this Form 10-Q contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements
may relate to the Corporations financial condition, results of operations, plans, objectives,
future performance and business, including, but not limited to, statements with respect to the
adequacy of the allowance for loan losses, market risk and the impact of interest rate changes,
capital adequacy and liquidity, and the effect of legal proceedings and new accounting standards on
the Corporations financial condition and results of operations. All statements contained herein
that are not clearly historical in nature are forward-looking, and the words anticipate,
believe, continues, expect, estimate, intend, project and similar expressions and
future or conditional verbs such as will, would, should, could, might, can, may, or
similar expressions are generally intended to identify forward-looking statements.
These statements are not guarantees of future performance and involve certain risks, uncertainties,
estimates and assumptions by management that are difficult to predict. Various factors, some of
which are beyond the Corporations control, could cause actual results to differ materially from
those expressed in, or implied by, such forward-looking statements. Factors that might cause such a
difference include, but are not limited to: the rate of growth in the economy, as well as general
business and economic conditions; changes in interest rates, as well as the magnitude of such
changes; the fiscal and monetary policies of the federal government and its agencies; the relative
strength or weakness of the consumer and commercial credit sectors and of the real estate markets;
the performance of the stock and bond markets; competition in the financial services industry;
possible legislative, tax or regulatory changes; and difficulties in combining the operations of
acquired entities.
Moreover, the outcome of legal proceedings, as discussed in Part II, Item I. Legal Proceedings,
is inherently uncertain and depends on judicial interpretations of law and the findings of
regulators, judges and juries.
All forward-looking statements included in this document are based upon information available to
the Corporation as of the date of this document, and we assume no obligation to update or revise
any such forward-looking statements to reflect occurrences or unanticipated events or circumstances
after the date of such statements.
3
ITEM 1. FINANCIAL STATEMENTS
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
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March 31, |
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December 31, |
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March 31, |
(In thousands, except share information) |
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2006 |
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2005 |
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2005 |
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ASSETS |
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Cash and due from banks |
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$ |
860,606 |
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$ |
906,397 |
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$ |
812,481 |
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Money market investments: |
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Federal funds sold |
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488,200 |
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186,000 |
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85,983 |
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Securities purchased under agreements to resell |
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491,710 |
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554,770 |
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629,606 |
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Time deposits with other banks |
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10,005 |
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8,653 |
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7,686 |
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989,915 |
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749,423 |
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723,275 |
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Investment securities available-for-sale, at fair value: |
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Pledged securities with creditors right to repledge |
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5,934,017 |
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6,110,179 |
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4,722,576 |
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Other investment securities available-for-sale |
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5,576,651 |
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5,606,407 |
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6,549,304 |
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Investment securities held-to-maturity, at amortized cost |
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344,385 |
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153,104 |
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179,073 |
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Other investment securities, at lower of cost or realizable value |
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304,609 |
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319,103 |
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308,781 |
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Trading account securities, at fair value: |
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Pledged securities with creditors right to repledge |
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365,096 |
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343,659 |
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259,153 |
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Other trading securities |
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144,516 |
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175,679 |
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111,561 |
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Loans held-for-sale, at lower of cost or market value |
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535,719 |
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699,181 |
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1,227,329 |
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Loans held-in-portfolio: |
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Loans held-in-portfolio pledged with creditors right to repledge |
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21,210 |
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208,774 |
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624,701 |
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Other loans held-in-portfolio |
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31,174,832 |
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31,099,865 |
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27,835,290 |
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Less Unearned income |
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301,376 |
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297,613 |
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259,294 |
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Allowance for loan losses |
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468,321 |
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461,707 |
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448,222 |
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30,426,345 |
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30,549,319 |
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27,752,475 |
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Premises and equipment, net |
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600,792 |
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596,571 |
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563,542 |
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Other real estate |
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82,352 |
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79,008 |
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64,775 |
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Accrued income receivable |
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274,620 |
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245,646 |
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247,169 |
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Other assets |
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1,388,662 |
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1,325,800 |
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1,079,606 |
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Goodwill |
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655,743 |
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653,984 |
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519,915 |
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Other intangible assets |
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107,675 |
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110,208 |
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46,823 |
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$ |
48,591,703 |
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$ |
48,623,668 |
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$ |
45,167,838 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Liabilities: |
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Deposits: |
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Non-interest bearing |
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$ |
4,453,965 |
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$ |
3,958,392 |
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$ |
4,257,121 |
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Interest bearing |
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18,957,847 |
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18,679,613 |
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17,471,556 |
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23,411,812 |
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22,638,005 |
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21,728,677 |
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Federal funds purchased and assets sold under agreements to repurchase |
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8,315,380 |
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8,702,461 |
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7,765,064 |
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Other short-term borrowings |
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2,645,521 |
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2,700,261 |
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2,043,391 |
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Notes payable |
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9,933,218 |
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9,893,577 |
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9,663,008 |
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Subordinated notes |
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125,000 |
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Other liabilities |
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798,102 |
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1,240,002 |
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777,596 |
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45,104,033 |
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45,174,306 |
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42,102,736 |
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Commitments and contingencies (See Note 9) |
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Minority interest in consolidated subsidiaries |
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113 |
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115 |
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102 |
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Stockholders equity: |
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Preferred stock, $25 liquidation value; 30,000,000 shares authorized;
7,475,000 shares issued and outstanding in all periods presented |
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186,875 |
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186,875 |
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186,875 |
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Common stock, $6 par value; 470,000,000 shares authorized in all periods
presented; 291,497,120 shares issued (December 31, 2005 289,407,190;
March 31, 2005 280,200,216) and 278,072,323 shares outstanding
(December 31, 2005 275,955,391; March 31, 2005 266,795,924) |
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1,748,983 |
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1,736,443 |
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1,681,201 |
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Surplus |
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486,863 |
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452,398 |
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283,419 |
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Retained earnings |
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1,526,634 |
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1,456,612 |
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1,246,999 |
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Accumulated other comprehensive loss, net of tax of ($82,657)
(December 31, 2005 ($58,292); March 31, 2005 ($37,665)) |
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(255,265 |
) |
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(176,000 |
) |
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(127,644 |
) |
Treasury stock at cost, 13,424,797 shares (December 31, 2005 13,451,799;
March 31, 2005 13,404,292) |
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(206,533 |
) |
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(207,081 |
) |
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(205,850 |
) |
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3,487,557 |
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|
3,449,247 |
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3,065,000 |
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$ |
48,591,703 |
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$ |
48,623,668 |
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$ |
45,167,838 |
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The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
POPULAR, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
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Quarter ended |
|
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March 31, |
(In thousands, except per share information) |
|
2006 |
|
2005 |
|
INTEREST INCOME: |
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Loans |
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$ |
591,835 |
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$ |
505,321 |
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Money market investments |
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7,982 |
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|
7,534 |
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Investment securities |
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133,533 |
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|
114,367 |
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Trading account securities |
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8,860 |
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6,058 |
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|
742,210 |
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633,280 |
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INTEREST EXPENSE: |
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Deposits |
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124,411 |
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|
97,056 |
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Short-term borrowings |
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124,803 |
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|
65,803 |
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Long-term debt |
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133,232 |
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|
113,135 |
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|
382,446 |
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|
275,994 |
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Net interest income |
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|
359,764 |
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|
357,286 |
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Provision for loan losses |
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48,947 |
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44,336 |
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Net interest income after provision for loan losses |
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310,817 |
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312,950 |
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Service charges on deposit accounts |
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47,469 |
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43,692 |
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Other service fees (See Note 10) |
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|
80,346 |
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|
79,015 |
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Net gain on sale and valuation adjustment of investment securities |
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12,340 |
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51,250 |
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Trading account profit |
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11,475 |
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|
3,763 |
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Gain on sale of loans |
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47,261 |
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|
9,816 |
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Other operating income |
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29,942 |
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18,053 |
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|
539,650 |
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518,539 |
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OPERATING EXPENSES: |
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Personnel costs: |
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Salaries |
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135,532 |
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115,542 |
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Pension, profit sharing and other benefits |
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|
42,520 |
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40,374 |
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|
178,052 |
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|
155,916 |
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Net occupancy expenses |
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28,638 |
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24,814 |
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Equipment expenses |
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33,197 |
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|
28,614 |
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Other taxes |
|
|
10,241 |
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|
9,255 |
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Professional fees |
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|
37,078 |
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|
27,583 |
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Communications |
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17,300 |
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|
15,677 |
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Business promotion |
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32,823 |
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|
|
20,253 |
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Printing and supplies |
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|
4,632 |
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|
|
4,537 |
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Other operating expenses |
|
|
28,831 |
|
|
|
27,943 |
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Impact of change in fiscal period of certain subsidiaries |
|
|
9,741 |
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|
|
|
|
Amortization of intangibles |
|
|
2,721 |
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|
|
2,242 |
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|
|
|
|
383,254 |
|
|
|
316,834 |
|
|
Income before income tax and cumulative effect of accounting
change |
|
|
156,396 |
|
|
|
201,705 |
|
Income tax |
|
|
37,893 |
|
|
|
42,433 |
|
|
Income before cumulative effect of accounting change |
|
|
118,503 |
|
|
|
159,272 |
|
Cumulative effect of accounting change, net of tax |
|
|
|
|
|
|
3,607 |
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NET INCOME |
|
$ |
118,503 |
|
|
$ |
162,879 |
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NET INCOME APPLICABLE TO COMMON STOCK |
|
$ |
115,525 |
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$ |
159,901 |
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BASIC EARNINGS PER COMMON SHARE (EPS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE |
|
$ |
0.42 |
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|
$ |
0.59 |
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DILUTED EPS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE |
|
$ |
0.42 |
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$ |
0.58 |
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BASIC AND DILUTED EPS AFTER CUMULATIVE EFFECT OF ACCOUNTING CHANGE |
|
$ |
0.42 |
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$ |
0.60 |
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DIVIDENDS DECLARED PER COMMON SHARE |
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$ |
0.16 |
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$ |
0.16 |
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The accompanying notes are an integral part of these unaudited consolidated financial
statements.
5
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(UNAUDITED)
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Quarter ended |
|
|
March 31, |
(In thousands) |
|
2006 |
|
2005 |
|
Preferred stock: |
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|
|
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|
Balance at beginning and end of year |
|
$ |
186,875 |
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|
$ |
186,875 |
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|
Common stock: |
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|
|
|
|
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|
Balance at beginning of year |
|
|
1,736,443 |
|
|
|
1,680,096 |
|
Common stock issued under the Dividend Reinvestment Plan |
|
|
1,184 |
|
|
|
1,079 |
|
Issuance of common stock |
|
|
11,312 |
|
|
|
|
|
Stock options exercised |
|
|
44 |
|
|
|
26 |
|
|
Balance at end of period |
|
|
1,748,983 |
|
|
|
1,681,201 |
|
|
Surplus: |
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
452,398 |
|
|
|
278,840 |
|
Common stock issued under the Dividend Reinvestment Plan |
|
|
2,789 |
|
|
|
3,775 |
|
Issuance of common stock |
|
|
28,281 |
|
|
|
|
|
Issuance cost of common stock |
|
|
1,527 |
|
|
|
|
|
Stock options expense on unexercised options |
|
|
768 |
|
|
|
724 |
|
Stock options exercised |
|
|
100 |
|
|
|
80 |
|
Transfer from retained earnings |
|
|
1,000 |
|
|
|
|
|
|
Balance at end of period |
|
|
486,863 |
|
|
|
283,419 |
|
|
Retained earnings: |
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
1,456,612 |
|
|
|
1,129,793 |
|
Net income |
|
|
118,503 |
|
|
|
162,879 |
|
Cash dividends declared on common stock |
|
|
(44,503 |
) |
|
|
(42,695 |
) |
Cash dividends declared on preferred stock |
|
|
(2,978 |
) |
|
|
(2,978 |
) |
Transfer to surplus |
|
|
(1,000 |
) |
|
|
|
|
|
Balance at end of period |
|
|
1,526,634 |
|
|
|
1,246,999 |
|
|
Accumulated other comprehensive loss: |
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
(176,000 |
) |
|
|
35,454 |
|
Other comprehensive loss, net of tax |
|
|
(79,265 |
) |
|
|
(163,098 |
) |
|
Balance at end of period |
|
|
(255,265 |
) |
|
|
(127,644 |
) |
|
Treasury stock at cost: |
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
(207,081 |
) |
|
|
(206,437 |
) |
Reissuance of common stock |
|
|
548 |
|
|
|
587 |
|
|
Balance at end of period |
|
|
(206,533 |
) |
|
|
(205,850 |
) |
|
Total stockholders equity |
|
$ |
3,487,557 |
|
|
$ |
3,065,000 |
|
|
Disclosure of changes in number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
March 31, |
|
|
2006 |
|
2005 |
|
2005 |
|
Preferred Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning and end of period |
|
|
7,475,000 |
|
|
|
7,475,000 |
|
|
|
7,475,000 |
|
|
Common Stock Issued: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
289,407,190 |
|
|
|
280,016,007 |
|
|
|
280,016,007 |
|
Issued under the Dividend Reinvestment Plan |
|
|
197,196 |
|
|
|
728,705 |
|
|
|
179,867 |
|
Issuance of common stock |
|
|
1,885,380 |
|
|
|
8,614,620 |
|
|
|
|
|
Stock options exercised |
|
|
7,354 |
|
|
|
47,858 |
|
|
|
4,342 |
|
|
Balance at end of period |
|
|
291,497,120 |
|
|
|
289,407,190 |
|
|
|
280,200,216 |
|
|
Treasury stock |
|
|
(13,424,797 |
) |
|
|
(13,451,799 |
) |
|
|
(13,404,292 |
) |
|
Common Stock Outstanding |
|
|
278,072,323 |
|
|
|
275,955,391 |
|
|
|
266,795,924 |
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
POPULAR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
March 31, |
(In thousands) |
|
2006 |
|
2005 |
|
Net income |
|
$ |
118,503 |
|
|
$ |
162,879 |
|
|
Other comprehensive loss, before tax: |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
(686 |
) |
|
|
(246 |
) |
Unrealized holding losses on securities available-for-sale
arising during
the period |
|
|
(91,965 |
) |
|
|
(159,719 |
) |
Reclassification adjustment for gains included in net income |
|
|
(12,340 |
) |
|
|
(50,727 |
) |
Net gain on cash flow hedges |
|
|
1,200 |
|
|
|
2,538 |
|
Reclassification adjustment for losses included in net income |
|
|
161 |
|
|
|
611 |
|
|
|
|
|
(103,630 |
) |
|
|
(207,543 |
) |
Income tax benefit |
|
|
24,365 |
|
|
|
44,445 |
|
|
Total other comprehensive loss, net of tax |
|
|
(79,265 |
) |
|
|
(163,098 |
) |
|
Comprehensive income (loss) |
|
$ |
39,238 |
|
|
($ |
219 |
) |
|
Disclosure of accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
March 31, |
(In thousands) |
|
2006 |
|
2005 |
|
2005 |
|
Foreign currency translation adjustment |
|
($ |
37,001 |
) |
|
($ |
36,315 |
) |
|
($ |
35,776 |
) |
|
Minimum pension liability adjustment |
|
|
(2,354 |
) |
|
|
(2,354 |
) |
|
|
|
|
Tax effect |
|
|
918 |
|
|
|
918 |
|
|
|
|
|
|
Net of tax amount |
|
|
(1,436 |
) |
|
|
(1,436 |
) |
|
|
|
|
|
Unrealized losses on securities available-for-sale |
|
|
(299,995 |
) |
|
|
(195,690 |
) |
|
|
(131,941 |
) |
Tax effect |
|
|
82,162 |
|
|
|
57,297 |
|
|
|
38,373 |
|
|
Net of tax amount |
|
|
(217,833 |
) |
|
|
(138,393 |
) |
|
|
(93,568 |
) |
|
Unrealized gains (losses) on cash flows hedges |
|
|
1,185 |
|
|
|
(176 |
) |
|
|
2,042 |
|
Tax effect |
|
|
(423 |
) |
|
|
77 |
|
|
|
(708 |
) |
|
Net of tax amount |
|
|
762 |
|
|
|
(99 |
) |
|
|
1,334 |
|
|
Cumulative effect of accounting change, net of tax |
|
|
243 |
|
|
|
243 |
|
|
|
366 |
|
|
Accumulated other comprehensive loss, net of tax |
|
($ |
255,265 |
) |
|
($ |
176,000 |
) |
|
($ |
127,644 |
) |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, |
(In thousands) |
|
2006 |
|
2005 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
118,503 |
|
|
$ |
162,879 |
|
Less: Cumulative effect of accounting change, net of tax |
|
|
|
|
|
|
3,607 |
|
Less: Impact
of change in fiscal period of certain subsidiaries, net of tax |
|
|
(6,129 |
) |
|
|
|
|
|
Net income before cumulative effect of accounting change and change in
fiscal period |
|
|
124,632 |
|
|
|
159,272 |
|
|
Adjustments to reconcile net income to net cash provided
by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization of premises and equipment |
|
|
21,437 |
|
|
|
20,010 |
|
Provision for loan losses |
|
|
48,947 |
|
|
|
44,336 |
|
Amortization of intangibles |
|
|
2,721 |
|
|
|
2,242 |
|
Amortization of servicing assets |
|
|
13,501 |
|
|
|
3,421 |
|
Net gain on sale and valuation adjustment of investment securities |
|
|
(12,340 |
) |
|
|
(51,250 |
) |
Net gain on disposition of premises and equipment |
|
|
(1,512 |
) |
|
|
(1,663 |
) |
Net gain on sale of loans |
|
|
(47,261 |
) |
|
|
(9,816 |
) |
Net amortization of premiums and accretion of discounts on investments |
|
|
7,012 |
|
|
|
10,597 |
|
Net amortization of premiums and deferred loan origination fees and costs |
|
|
31,887 |
|
|
|
28,728 |
|
Earnings from investments under the equity method |
|
|
(4,261 |
) |
|
|
(1,969 |
) |
Stock options expense |
|
|
800 |
|
|
|
746 |
|
Net disbursements on loans held-for-sale |
|
|
(2,046,227 |
) |
|
|
(800,476 |
) |
Acquisitions of loans held-for-sale |
|
|
(166,540 |
) |
|
|
(563,223 |
) |
Proceeds from sale of loans held-for-sale |
|
|
2,166,951 |
|
|
|
913,688 |
|
Net decrease in trading securities |
|
|
677,764 |
|
|
|
19,097 |
|
Net increase in accrued income receivable |
|
|
(30,589 |
) |
|
|
(32,331 |
) |
Net decrease in other assets |
|
|
19,470 |
|
|
|
46,405 |
|
Net increase in interest payable |
|
|
23,849 |
|
|
|
20,084 |
|
Net increase
in deferred income tax |
|
|
(1,751 |
) |
|
|
(4,478 |
) |
Net increase in postretirement benefit obligation |
|
|
1,585 |
|
|
|
1,414 |
|
Net increase
(decrease) in other liabilities |
|
|
3,286 |
|
|
|
(44,652 |
) |
|
Total adjustments |
|
|
708,729 |
|
|
|
(399,090 |
) |
|
Net cash provided by (used in) operating activities |
|
|
833,361 |
|
|
|
(239,818 |
) |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Net (increase) decrease in money market investments |
|
|
(240,350 |
) |
|
|
186,209 |
|
Purchases of investment securities: |
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
(175,975 |
) |
|
|
(674,022 |
) |
Held-to-maturity |
|
|
(7,747,198 |
) |
|
|
(7,671,759 |
) |
Other |
|
|
(10,580 |
) |
|
|
(28,204 |
) |
Proceeds from calls, paydowns, maturities and redemptions
of investment securities: |
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
247,055 |
|
|
|
586,877 |
|
Held-to-maturity |
|
|
7,556,192 |
|
|
|
7,851,301 |
|
Other |
|
|
25,074 |
|
|
|
21,863 |
|
Proceeds from sale of investment securities available-for-sale |
|
|
43,894 |
|
|
|
99,944 |
|
Net repayments on loans |
|
|
193,009 |
|
|
|
842,978 |
|
Proceeds from sale of loans |
|
|
73,038 |
|
|
|
80,246 |
|
Acquisition of loan portfolios |
|
|
(141,658 |
) |
|
|
(660,023 |
) |
Assets acquired, net of cash |
|
|
(218 |
) |
|
|
(173,666 |
) |
Acquisition of premises and equipment |
|
|
(38,799 |
) |
|
|
(38,770 |
) |
Proceeds from sale of premises and equipment |
|
|
14,452 |
|
|
|
10,505 |
|
|
Net cash (used in) provided investing activities |
|
|
(202,064 |
) |
|
|
433,479 |
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
769,477 |
|
|
|
465,576 |
|
Net (decrease) increase in federal funds purchased and
assets sold under agreements to repurchase |
|
|
(500,232 |
) |
|
|
1,290,492 |
|
Net decrease in other short-term borrowings |
|
|
(161,597 |
) |
|
|
(1,108,510 |
) |
Payments of notes payable |
|
|
(900,117 |
) |
|
|
(844,936 |
) |
Proceeds from issuance of notes payable |
|
|
106,252 |
|
|
|
142,009 |
|
Dividends paid |
|
|
(45,768 |
) |
|
|
(45,636 |
) |
Proceeds from issuance of common stock |
|
|
42,983 |
|
|
|
4,938 |
|
|
Net cash used in financing activities |
|
|
(689,002 |
) |
|
|
(96,067 |
) |
|
Cash effect
of change in fiscal period of certain subsidiaries and change in accounting principle |
|
|
11,914 |
|
|
|
(1,572 |
) |
|
Net (decrease) increase in cash and due from banks |
|
|
(45,791 |
) |
|
|
96,022 |
|
Cash and due from banks at beginning of period |
|
|
906,397 |
|
|
|
716,459 |
|
|
Cash and due from banks at end of period |
|
$ |
860,606 |
|
|
$ |
812,481 |
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
8
Notes to Unaudited Consolidated Financial Statements
Note 1 Nature of operations and basis of presentation
Popular, Inc. (the Corporation or Popular) is a diversified, publicly owned financial holding
company subject to the supervision and regulation of the Board of Governors of the Federal Reserve
System. The Corporation is a full service financial services provider with operations in Puerto
Rico, the United States, the Caribbean and Latin America. As the leading financial institution in
Puerto Rico, the Corporation offers retail and commercial banking services through its banking
subsidiary, Banco Popular de Puerto Rico (BPPR), as well as investment banking, auto and
equipment leasing and financing, mortgage loans, consumer lending and insurance services through
specialized subsidiaries. In the United States, the Corporation provides complete financial
solutions to all the communities it serves through branches of Banco Popular North America (BPNA)
in California, Texas, Illinois, New York, New Jersey and Florida. The Corporations consumer
finance subsidiary in the United States, Popular Financial Holdings, Inc. (PFH), offers mortgage
and personal loans, and also maintains a substantial wholesale loan brokerage network, a warehouse
lending division and a loan servicing unit. PFH, through its subsidiary E-LOAN, Inc. (E-LOAN),
provides online consumer direct lending to obtain mortgage, auto and home equity loans. The
Corporation strives to use its expertise in technology and electronic banking as a competitive
advantage in its Caribbean and Latin America expansion, as well as internally servicing many of its
subsidiaries system infrastructures and transactional processing businesses. EVERTEC, Inc.
(EVERTEC), the Corporations main subsidiary in this business segment, is the leading provider of
financial transaction processing and information technology solutions in Puerto Rico and the
Caribbean. With offices in San Juan, Caracas, Santo Domingo, and
Miami, EVERTEC has presence in 11 Latin American countries. Note 17 to the consolidated financial statements
presents further information about the Corporations business segments.
The unaudited consolidated financial statements include the accounts of Popular, Inc. and its
majority-owned subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation. These unaudited statements are, in the opinion of management, a fair
statement of the results for the periods reported and include all necessary adjustments, all of a
normal recurring nature, for a fair statement of such results. Certain reclassifications have been
made to the prior period unaudited consolidated financial statements to conform to the 2006
presentation.
In the normal course of business, except for the Corporations banks and the parent holding
company, the Corporation utilized a one-month lag in the consolidation of the financial results of
its other subsidiaries (the non-banking subsidiaries). As previously described in the
Corporations 2005 Annual Report on Form 10-K (the 2005 Annual Report) for the year ended
December 31, 2005, in that year, the Corporation commenced a two-year plan to change the reporting
period of its non-banking subsidiaries to a December 31st calendar period, primarily as
part of a strategic plan to put in place a corporate-wide integrated financial system and to
facilitate the consolidation process. In 2005, the impact of this change in net income was included
as a cumulative effect of accounting change in the Corporations consolidated financial results for
the first quarter, and corresponded to the financial results for the month of December 2004 of the
non-banking subsidiaries which implemented the change in the first reporting period of 2005. In the
first quarter of 2006, the Corporation completed the second phase of the two-year plan, as such the
financial results for the month of December 2005 of PFH (excluding E-LOAN which already had a
December 31st year-end closing), Popular FS, Popular Securities and Popular North
America (holding company only) were included in a separate line within operating expenses in the
consolidated statement of operations for the quarter ended March 31, 2006. The financial impact
amounted to a loss of $9.7 million (before tax). After tax, this change resulted in a net loss of
$6.1 million, which is included in the quarterly results for the period ended March 31, 2006. As of
the end of the first quarter of 2006, all subsidiaries of the Corporation have aligned their
year-end closings to December 31st, similar to the parent holding company. There were no
unadjusted significant intervening events resulting from the difference in fiscal periods, which
management believed could have materially affected the financial position or results of operations
of the Corporation for the periods presented.
The statement of condition data as of December 31, 2005 was derived from audited financial
statements. Certain information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles in the United States of
America have been condensed or omitted from the statements presented as of March 31, 2006,
December 31, 2005 and March 31, 2005 pursuant to the rules and regulations of the
9
Securities and
Exchange Commission. Accordingly, these financial statements should be read in conjunction with
the audited consolidated financial statements of the Corporation for the year ended December 31,
2005, included in the
Corporations 2005 Annual Report.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated to U.S. dollars using
prevailing rates of exchange at the end of the period. Revenues, expenses, gains and losses are
translated using weighted average rates for the period. The resulting foreign currency translation
adjustment from operations for which the functional currency is other than the U.S. dollar is
reported in accumulated other comprehensive (loss) income, except for highly inflationary
environments in which the effects are included in other operating income, as described below.
The Corporation conducts business in certain Latin American markets through several of its
processing and information technology services and products subsidiaries. Also, it holds interests
in Consorcio de Tarjetas Dominicanas, S.A. (CONTADO) and Centro Financiero BHD, S.A. in the
Dominican Republic. Although not significant, some of these businesses are conducted in the
countrys foreign currency. At March 31, 2006, the Corporation had approximately $37 million in an
unfavorable foreign currency translation adjustment as part of accumulated other comprehensive
(loss) income (December 31, 2005 $36 million; March 31, 2005 $36 million).
The Corporation has been monitoring the inflation levels in the Dominican Republic to evaluate
whether it still meets the highly inflationary economy test prescribed by SFAS No. 52, Foreign
Currency Translation. Such statement defines highly inflationary as a cumulative inflation of
approximately 100 percent or more over a 3-year period. In accordance with the provisions of SFAS
No. 52, the financial statements of a foreign entity in a highly inflationary economy are
remeasured as if the functional currency were the reporting currency. Accordingly, since June 2004,
the Corporations interests in the Dominican Republic have been remeasured into the U.S. dollar.
Although as of March 31, 2006, the cumulative inflation rate in the Dominican Republic over a
3-year period was below 100 percent, approximating 86% at quarter-end, the Corporation continued to
apply the remeasurement accounting as of March 31, 2006 based on the accounting guidance obtained.
The International Practices Task Force (IPTF) of the SEC Regulations Committee of the American
Institute of Certified Public Accountants had concluded that the Dominican Republic was considered
highly inflationary as of December 31, 2005, and concluded that such country would not cease being
regarded as highly inflationary for the first quarter of 2006. The Dominican pesos exchange rate
to the U.S. dollar was $45.50 at June 30, 2004, when the economy reached the highly inflationary
threshold, compared with $33.14 at December 31, 2005 and $33.50 at March 31, 2006. During the
quarter ended March 31, 2006, approximately $197 thousand in net remeasurement gains on the
investments held by the Corporation in the Dominican Republic were reflected in other operating
income instead of accumulated other comprehensive (loss) income. Net remeasurement gains totaled
$864 thousand for the quarter ended March 31, 2005. These remeasurement gains / losses will
continue to be reflected in earnings until the economy is no longer considered highly inflationary.
The unfavorable cumulative translation adjustment associated with these interests at the reporting
date in which the economy became highly inflationary approximated $32 million.
Subsequent events
In
April 2006, the Corporation issued $450 million in
medium-term notes maturing in 2009. Of the total amount issued,
$250 million bear interest at a fixed rate of 5.65% and
$200 million bear interest at floating
rates tied to the 3-month LIBOR plus a spread of 40 basis points, which reset quarterly. The Corporation simultaneously entered into
an interest swap contract to convert the floating rate notes to fixed rate notes. The cash inflows
were used to substitute short-term borrowings and finance operations.
Under the swap arrangement, the Corporation pays a fixed rate equal
to 5.58%.
On April 28, 2006, Popular, Inc. and Grupo Cuscatlán, through Corporación UBC International, S.A.
(UBCI), announced that the agreement subscribed on April 24, 2005 for the acquisition by Popular,
Inc. of a 19.99% equity participation in UBCI, Grupo Cuscatláns holding company, will not be
completed. Due to the time lapsed and changes in economic conditions, both parties could not reach
a final consensus before the deadline set in the original agreement.
On
May 1, 2006, as a result of a lack of current budgetary funds
and lack of legislative authorization for the Government of Puerto
Rico to obtain a loan, the Government closed a number of government
agencies for the remainder of its current fiscal year, which ends on
June 30, 2006. Approximately 95,000 public sector employees have
been placed on unpaid leave until the budgetary crisis is resolved.
Furthermore, on May 8, 2006, a nationally recognized rating
agency downgraded the Government of Puerto Ricos debt
obligations. Refer to Item 1A. Risk Factors included in Part II -
Other Information on this Form 10-Q for further information on these
events.
10
Note 2 Recent Accounting Developments
SFAS No. 123-R Share-Based Payments
In December 2004, the FASB issued a revision to SFAS No. 123, Accounting for Stock-Based
Compensation, SFAS No. 123-R, Share-Based Payment. SFAS No. 123-R focuses primarily on
transactions in which an entity exchanges its equity instruments for employee services and
generally establishes standards for the accounting of transactions in which an entity obtains goods
or services in share-based payment transactions. SFAS No. 123-R requires companies to (1) use fair
value to measure stock-based compensation awards and (2) cease using the intrinsic value method
of accounting, which APB 25 allowed and resulted in no expense for many awards of stock options for
which the exercise price of the option did not exceed the price of the underlying stock at the
grant date. In addition, SFAS No. 123-R retains the modified grant date model from SFAS No. 123.
Under that model, compensation cost is measured at the grant date fair value of the award and is
adjusted to reflect anticipated forfeitures and the expected outcome of certain conditions. The fair value of an
award is not remeasured after its initial estimation on the grant date, except in the case of a
liability award or if the award is modified, based on specific criteria included in SFAS No. 123-R.
Also, SFAS 123-R clarifies the financial impact of vesting and/or acceleration clauses due at
retirement. Under the revised SFAS, the expense should be fully accrued for any employee that is
eligible to retire regardless of the actual retirement experience of the employer. The Corporation
prospectively applied SFAS No. 123-R to its financial statements as of January 1, 2006. The impact
of this adoption was not significant for the results of the quarter.
Refer to Note 11 to these
consolidated financial statements for required disclosures and further information on the impact of
the adoption of this accounting pronouncement.
SFAS No. 153 Exchanges of Nonmonetary Assets
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of
APB Opinion No. 29, Accounting for Nonmonetary
Transactions. This Statement amends the principle
that exchanges of nonmonetary assets should be measured based on the fair value of the assets
exchanged and more broadly provides for exceptions regarding exchanges of nonmonetary assets that
do not have commercial substance. A nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the exchange. The
entitys future cash flows are expected to significantly change if either of the following criteria
is met: a) the configuration (risk, timing, and amount) of the future cash flows of the asset(s)
received differs significantly from the configuration of the future cash flows of the asset(s)
transferred; or b) the entity-specific value of the asset(s) received differs from the entity-specific
value of the asset(s) transferred, and the difference is significant in relation to the fair values
of the assets exchanged. A qualitative assessment will, in some cases, be conclusive in determining
that the estimated cash flows of the entity are expected to significantly change as a result of the
exchange. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. The adoption of this Statement did not have a material impact on the
Corporations financial condition, results of operations, or cash flows for the quarter ended March
31, 2006.
SFAS No. 154 Accounting Changes and Error Corrections
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, a
replacement of APB Opinion No. 20 and FASB Statement No. 3.
The Statement applies to all voluntary
changes in accounting principle, and changes the requirements for accounting and reporting of a
change in accounting principle. SFAS No. 154 requires retrospective application to prior periods
financial statements of a voluntary change in accounting principle unless it is impracticable.
Statement 154 is the result of a broader effort by the FASB to improve the comparability of
cross-border financial reporting by working with the International Accounting Standards Board
toward development of a single set of high-quality accounting standards. SFAS No. 154 requires that
a change in method of depreciation, amortization, or depletion for long-lived, nonfinancial assets
be accounted for as a change in accounting estimate that is effected by a change in accounting
principle. APB Opinion No. 20 previously required that such a change be reported as a change in
accounting principle. The Statement does not change the transition provisions of any existing
accounting pronouncements, including those that are in a transition phase as of the effective date
of this Statement. The adoption of SFAS No. 154 did not have a significant impact on the statement
of condition or results of operations for the quarter ended March 31, 2006.
11
SFAS
No. 155 Accounting for Certain Hybrid Financial Instruments an amendment of FASB
Statements No. 133 and 140
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial
Instruments an Amendment of FASB Statements No. 133 and
140. This Statement amends SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, and No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 155
resolves issues addressed in SFAS No. 133 Implementation Issue No. D1, Application of Statement
133 to Beneficial Interests in Securitized Financial Assets. SFAS No. 155:
- Permits fair value remeasurement for any hybrid financial instrument that contains an embedded
derivative that otherwise would require bifurcation;
- Clarifies which interest-only strips and principal-only strips are not subject to the
requirements of SFAS No. 133;
- Establishes a requirement to evaluate interests in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid financial instruments that contain
an embedded derivative requiring bifurcation;
- Clarifies that concentrations of credit risk in the form of subordination are not embedded
derivatives;
- Amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from
holding a derivative financial instrument that pertains to a beneficial interest other than another
derivative financial instrument.
SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of
an entitys first fiscal year that begins after September 15, 2006. The fair value election
provided for in paragraph 4(c) of this SFAS 155 may also be applied
upon adoption of this Statement
for hybrid financial instruments that had been bifurcated under paragraph 12 of SFAS No. 133 prior
to the adoption of SFAS No. 155. Earlier adoption is permitted as of the beginning of an entitys
fiscal year, provided the entity has not yet issued financial statements, including financial
statements for any interim period for that fiscal year. Provisions of
this Statement may be applied
to instruments that an entity holds at the date of adoption on an instrument-by-instrument basis.
At adoption, any difference between the total carrying amount of the individual components of the
existing bifurcated hybrid financial instrument and the fair value of the combined hybrid financial
instrument should be recognized as a cumulative-effect adjustment to beginning retained earnings.
An entity should separately disclose the gross gains and losses that make up the cumulative-effect
adjustment, determined on an instrument-by-instrument basis. Prior periods should not be restated.
The Corporation elected to adopt SFAS No. 155 commencing in January 2007.
SFAS
No. 156 Accounting for Servicing of Financial Assets
an amendment of FASB No. 140
This Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, with respect to the accounting for separately
recognized servicing assets and servicing liabilities. This Statement:
1. Requires an entity to recognize a servicing asset or servicing liability each time it undertakes
an obligation to service a financial asset by entering into a servicing contract in any of the
following situations:
a. A transfer of the servicers financial assets that meets the requirements for sale
accounting
b. A transfer of the servicers financial assets to a qualifying special-purpose entity in a
guaranteed mortgage securitization in which the transferor retains all of the resulting
securities and classifies them as either available-for-sale securities or trading securities
in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities
c. An acquisition or assumption of an obligation to service a financial asset that does not
relate to financial assets of the servicer or its consolidated affiliates.
2. Requires all separately recognized servicing assets and servicing liabilities to be initially
measured at fair value, if practicable.
3. Permits an entity to choose either of the following subsequent measurement methods for each
class of separately recognized servicing assets and servicing liabilities:
a. Amortization methodAmortize servicing assets or servicing liabilities in proportion to
and over the period of estimated net servicing income or net servicing loss and assess
servicing assets or servicing liabilities for impairment or increased obligation based on
fair value at each reporting date.
b. Fair value measurement methodMeasure servicing assets or servicing liabilities at fair
value at each reporting date and report changes in fair value in earnings in the period in
which the changes occur.
4. At its initial adoption, permits a one-time reclassification of available-for-sale securities to
trading securities by entities with recognized servicing rights, without calling into question the
treatment of other available-for-sale securities under Statement 115, provided that the
available-for-sale securities are identified in some manner as
12
offsetting the
entitys exposure to changes in fair value of servicing assets or servicing liabilities that a
servicer elects to subsequently measure at fair value.
5. Requires separate presentation of servicing assets and servicing liabilities subsequently
measured at fair value in the statement of financial position and additional disclosures for all
separately recognized servicing assets and servicing liabilities.
The Corporation elected to adopt SFAS No. 156 commencing in January 2007. The Corporation is
currently evaluating the impact that this accounting pronouncement may have in its financial
condition and results of operations, subject to the measurement methods, class definitions and
other determinations that need to be made upon adoption.
Note 3 Restrictions on cash and due from banks and highly liquid securities
The Corporations subsidiary banks are required by federal and state regulatory agencies to
maintain average reserve balances with the Federal Reserve Bank or with a correspondent bank. Those
required average reserve balances were approximately $607 million at March 31, 2006 (December 31,
2005 $584 million; March 31, 2005 $555 million). Cash and due from banks as well as other
short-term, highly liquid securities are used to cover the required average reserve balances.
In compliance with rules and regulations of the Securities and Exchange Commission, at March 31,
2006, the Corporation had securities with a market value of $446 thousand (December 31, 2005 $549
thousand; March 31, 2005 $699 thousand) segregated in a special reserve bank account for the
benefit of brokerage customers of its broker-dealer subsidiary. These securities are classified in
the consolidated statement of condition within the other trading securities category.
As required by the Puerto Rico International Banking Center Law, at March 31, 2006, the Corporation
maintained separately for its two international banking entities (IBEs), $600 thousand in time
deposits, equally split for the two IBEs, which were considered restricted assets (December 31,
2005 $600 thousand; March 31, 2005 $600 thousand).
As part of a line of credit facility with a financial institution, at March 31, 2006, the
Corporation maintained restricted cash of $1.9 million as collateral for the line of credit
(December 31, 2005 $2.4 million). The cash is being held in certificates of deposits which mature
in less than 90 days. The line of credit is used to support letters of credit.
13
Note 4 Pledged Assets
Certain securities and loans were pledged to secure public and trust deposits, assets sold under
agreements to repurchase, other borrowings and credit facilities available. The classification and
carrying amount of the Corporations pledged assets, in which the secured parties are not
permitted to sell or repledge the collateral, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
March 31, |
(In thousands) |
|
2006 |
|
2005 |
|
2005 |
|
Investment securities available-for-sale |
|
$ |
2,648,586 |
|
|
$ |
2,566,668 |
|
|
$ |
2,969,823 |
|
Investment securities held-to-maturity |
|
|
810 |
|
|
|
953 |
|
|
|
1,258 |
|
Loans |
|
|
11,368,056 |
|
|
|
11,835,842 |
|
|
|
10,464,104 |
|
|
|
|
$ |
14,017,452 |
|
|
$ |
14,403,463 |
|
|
$ |
13,435,185 |
|
|
Pledged securities and loans in which the creditor has the right by custom or contract to
repledge are presented separately in the consolidated statements of condition.
Note 5 Investment Securities Available-For-Sale
The amortized cost, gross unrealized gains and losses and approximate market value (or fair value
for certain investment securities where no market quotations are available) of investment
securities available-for-sale as of March 31, 2006, December 31, 2005 and March 31, 2005 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF MARCH 31, 2006 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
526,258 |
|
|
|
|
|
|
$ |
39,042 |
|
|
$ |
487,216 |
|
Obligations of U.S. Government sponsored entities |
|
|
7,814,649 |
|
|
|
|
|
|
|
222,747 |
|
|
|
7,591,902 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
108,047 |
|
|
$ |
499 |
|
|
|
1,892 |
|
|
|
106,654 |
|
Collateralized mortgage obligations |
|
|
1,868,088 |
|
|
|
6,944 |
|
|
|
19,374 |
|
|
|
1,855,658 |
|
Mortgage-backed securities |
|
|
1,350,993 |
|
|
|
4,510 |
|
|
|
36,249 |
|
|
|
1,319,254 |
|
Equity securities |
|
|
59,511 |
|
|
|
7,030 |
|
|
|
199 |
|
|
|
66,342 |
|
Others |
|
|
82,874 |
|
|
|
1,109 |
|
|
|
341 |
|
|
|
83,642 |
|
|
|
|
$ |
11,810,420 |
|
|
$ |
20,092 |
|
|
$ |
319,844 |
|
|
$ |
11,510,668 |
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF DECEMBER 31, 2005 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
528,378 |
|
|
$ |
14 |
|
|
$ |
24,067 |
|
|
$ |
504,325 |
|
Obligations of U.S. Government sponsored entities |
|
|
7,867,613 |
|
|
|
540 |
|
|
|
157,477 |
|
|
|
7,710,676 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
107,864 |
|
|
|
631 |
|
|
|
1,841 |
|
|
|
106,654 |
|
Collateralized mortgage obligations |
|
|
1,854,843 |
|
|
|
8,209 |
|
|
|
14,289 |
|
|
|
1,848,763 |
|
Mortgage-backed securities |
|
|
1,396,246 |
|
|
|
6,251 |
|
|
|
28,755 |
|
|
|
1,373,742 |
|
Equity securities |
|
|
68,521 |
|
|
|
15,120 |
|
|
|
1,107 |
|
|
|
82,534 |
|
Others |
|
|
88,568 |
|
|
|
1,324 |
|
|
|
|
|
|
|
89,892 |
|
|
|
|
$ |
11,912,033 |
|
|
$ |
32,089 |
|
|
$ |
227,536 |
|
|
$ |
11,716,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF MARCH 31, 2005 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
555,338 |
|
|
|
|
|
|
$ |
31,359 |
|
|
$ |
523,979 |
|
Obligations of U.S. Government sponsored entities |
|
|
7,098,780 |
|
|
$ |
3,938 |
|
|
|
121,827 |
|
|
|
6,980,891 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
172,781 |
|
|
|
4,419 |
|
|
|
1,367 |
|
|
|
175,833 |
|
Collateralized mortgage obligations |
|
|
1,676,786 |
|
|
|
8,018 |
|
|
|
11,158 |
|
|
|
1,673,646 |
|
Mortgage-backed securities |
|
|
1,746,559 |
|
|
|
15,828 |
|
|
|
21,131 |
|
|
|
1,741,256 |
|
Equity securities |
|
|
20,460 |
|
|
|
20,304 |
|
|
|
306 |
|
|
|
40,458 |
|
Others |
|
|
132,751 |
|
|
|
3,368 |
|
|
|
302 |
|
|
|
135,817 |
|
|
|
|
$ |
11,403,455 |
|
|
$ |
55,875 |
|
|
$ |
187,450 |
|
|
$ |
11,271,880 |
|
|
The following table shows the Corporations gross unrealized losses and market value of
investment securities available-for-sale, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position, at March 31, 2006,
December 31, 2005 and March 31, 2005:
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF MARCH 31, 2006 |
|
|
Less than 12 Months |
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
29,259 |
|
|
$ |
323 |
|
|
$ |
28,936 |
|
Obligations of U.S. Government sponsored entities |
|
|
4,249,522 |
|
|
|
118,785 |
|
|
|
4,130,737 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
15,572 |
|
|
|
77 |
|
|
|
15,495 |
|
Collateralized mortgage obligations |
|
|
651,405 |
|
|
|
7,333 |
|
|
|
644,072 |
|
Mortgage-backed securities |
|
|
266,027 |
|
|
|
4,734 |
|
|
|
261,293 |
|
Equity securities |
|
|
35 |
|
|
|
1 |
|
|
|
34 |
|
Others |
|
|
14,104 |
|
|
|
341 |
|
|
|
13,763 |
|
|
|
|
$ |
5,225,924 |
|
|
$ |
131,594 |
|
|
$ |
5,094,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 months or more |
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
496,999 |
|
|
$ |
38,719 |
|
|
$ |
458,280 |
|
Obligations of U.S. Government sponsored entities |
|
|
3,565,127 |
|
|
|
103,962 |
|
|
|
3,461,165 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
66,501 |
|
|
|
1,815 |
|
|
|
64,686 |
|
Collateralized mortgage obligations |
|
|
367,529 |
|
|
|
12,041 |
|
|
|
355,488 |
|
Mortgage-backed securities |
|
|
887,313 |
|
|
|
31,515 |
|
|
|
855,798 |
|
Equity securities |
|
|
300 |
|
|
|
198 |
|
|
|
102 |
|
|
|
|
$ |
5,383,769 |
|
|
$ |
188,250 |
|
|
$ |
5,195,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
526,258 |
|
|
$ |
39,042 |
|
|
$ |
487,216 |
|
Obligations of U.S. Government sponsored entities |
|
|
7,814,649 |
|
|
|
222,747 |
|
|
|
7,591,902 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
82,073 |
|
|
|
1,892 |
|
|
|
80,181 |
|
Collateralized mortgage obligations |
|
|
1,018,934 |
|
|
|
19,374 |
|
|
|
999,560 |
|
Mortgage-backed securities |
|
|
1,153,340 |
|
|
|
36,249 |
|
|
|
1,117,091 |
|
Equity securities |
|
|
335 |
|
|
|
199 |
|
|
|
136 |
|
Others |
|
|
14,104 |
|
|
|
341 |
|
|
|
13,763 |
|
|
|
|
$ |
10,609,693 |
|
|
$ |
319,844 |
|
|
$ |
10,289,849 |
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF DECEMBER 31, 2005 |
|
|
Less than 12 Months |
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
9,854 |
|
|
$ |
136 |
|
|
$ |
9,718 |
|
Obligations of U.S. Government sponsored entities |
|
|
4,401,412 |
|
|
|
69,250 |
|
|
|
4,332,162 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
18,070 |
|
|
|
33 |
|
|
|
18,037 |
|
Collateralized mortgage obligations |
|
|
672,546 |
|
|
|
6,394 |
|
|
|
666,152 |
|
Mortgage-backed securities |
|
|
486,266 |
|
|
|
9,406 |
|
|
|
476,860 |
|
Equity securities |
|
|
22,168 |
|
|
|
915 |
|
|
|
21,253 |
|
|
|
|
$ |
5,610,316 |
|
|
$ |
86,134 |
|
|
$ |
5,524,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 months or more |
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
499,148 |
|
|
$ |
23,931 |
|
|
$ |
475,217 |
|
Obligations of U.S. Government sponsored entities |
|
|
3,379,970 |
|
|
|
88,227 |
|
|
|
3,291,743 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
54,680 |
|
|
|
1,808 |
|
|
|
52,872 |
|
Collateralized mortgage obligations |
|
|
238,254 |
|
|
|
7,895 |
|
|
|
230,359 |
|
Mortgage-backed securities |
|
|
672,428 |
|
|
|
19,349 |
|
|
|
653,079 |
|
Equity securities |
|
|
3,837 |
|
|
|
192 |
|
|
|
3,645 |
|
|
|
|
$ |
4,848,317 |
|
|
$ |
141,402 |
|
|
$ |
4,706,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
509,002 |
|
|
$ |
24,067 |
|
|
$ |
484,935 |
|
Obligations of U.S. Government sponsored entities |
|
|
7,781,382 |
|
|
|
157,477 |
|
|
|
7,623,905 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
72,750 |
|
|
|
1,841 |
|
|
|
70,909 |
|
Collateralized mortgage obligations |
|
|
910,800 |
|
|
|
14,289 |
|
|
|
896,511 |
|
Mortgage-backed securities |
|
|
1,158,694 |
|
|
|
28,755 |
|
|
|
1,129,939 |
|
Equity securities |
|
|
26,005 |
|
|
|
1,107 |
|
|
|
24,898 |
|
|
|
|
$ |
10,458,633 |
|
|
$ |
227,536 |
|
|
$ |
10,231,097 |
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF MARCH 31, 2005 |
|
|
Less than 12 Months |
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
64,719 |
|
|
$ |
565 |
|
|
$ |
64,154 |
|
Obligations of U.S. Government sponsored entities |
|
|
5,407,359 |
|
|
|
90,117 |
|
|
|
5,317,242 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
64,282 |
|
|
|
103 |
|
|
|
64,179 |
|
Collateralized mortgage obligations |
|
|
482,045 |
|
|
|
4,721 |
|
|
|
477,324 |
|
Mortgage-backed securities |
|
|
860,946 |
|
|
|
16,112 |
|
|
|
844,834 |
|
Equity securities |
|
|
8,308 |
|
|
|
306 |
|
|
|
8,002 |
|
Others |
|
|
6,548 |
|
|
|
302 |
|
|
|
6,246 |
|
|
|
|
$ |
6,894,207 |
|
|
$ |
112,226 |
|
|
$ |
6,781,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 months or more |
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
490,619 |
|
|
$ |
30,794 |
|
|
$ |
459,825 |
|
Obligations of U.S. Government sponsored entities |
|
|
1,035,381 |
|
|
|
31,710 |
|
|
|
1,003,671 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
45,226 |
|
|
|
1,264 |
|
|
|
43,962 |
|
Collateralized mortgage obligations |
|
|
241,054 |
|
|
|
6,437 |
|
|
|
234,617 |
|
Mortgage-backed securities |
|
|
261,857 |
|
|
|
5,019 |
|
|
|
256,838 |
|
|
|
|
$ |
2,074,137 |
|
|
$ |
75,224 |
|
|
$ |
1,998,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
555,338 |
|
|
$ |
31,359 |
|
|
$ |
523,979 |
|
Obligations of U.S. Government sponsored entities |
|
|
6,442,740 |
|
|
|
121,827 |
|
|
|
6,320,913 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
109,508 |
|
|
|
1,367 |
|
|
|
108,141 |
|
Collateralized mortgage obligations |
|
|
723,099 |
|
|
|
11,158 |
|
|
|
711,941 |
|
Mortgage-backed securities |
|
|
1,122,803 |
|
|
|
21,131 |
|
|
|
1,101,672 |
|
Equity securities |
|
|
8,308 |
|
|
|
306 |
|
|
|
8,002 |
|
Others |
|
|
6,548 |
|
|
|
302 |
|
|
|
6,246 |
|
|
|
|
$ |
8,968,344 |
|
|
$ |
187,450 |
|
|
$ |
8,780,894 |
|
|
The unrealized loss positions of available-for-sale securities at March 31, 2006 are
primarily associated with U.S. government sponsored entities and Treasury obligations, and to a
lesser extent, U.S. Agency and government sponsored-issued mortgage-backed securities and
collateralized mortgage obligations. The vast majority of these securities are rated the equivalent
of AAA by the major rating agencies. The investment portfolio is structured primarily with highly
liquid securities which possess a large and efficient secondary market. Valuations are performed at
least on a quarterly basis using third party providers and dealer quotes. Management believes that
the unrealized losses in the available-for-sale portfolio at March 31, 2006 are substantially
related to market interest rate fluctuations and not to the deterioration in the creditworthiness
of the issuers. Also, management has the intent and ability to hold these investments for a
reasonable period of time for a forecasted recovery of fair value up to (or beyond) the cost of
these investments.
During the quarter ended March 31, 2006, the Corporation recognized through earnings
approximately $1.9 million in
18
losses in the available-for-sale portfolio that management considered
to be other than temporarily impaired. These realized losses were associated with interest only
strips.
The following table states the name of issuers, and the aggregate amortized cost and market
value of the securities of such issuer (includes available-for-sale and held-to-maturity
securities), when the aggregate amortized cost of such securities exceeds 10% of stockholders
equity. This information excludes securities of the U.S. Government agencies and corporations.
Investments in obligations issued by a state of the U.S. and its political subdivisions and
agencies which are payable and secured by the same source of revenue or taxing authority, other
than the U.S. Government, are considered securities of a single issuer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
December 31, 2005 |
|
March 31, 2005 |
(In thousands) |
|
Amortized Cost |
|
Market Value |
|
Amortized Cost |
|
Market Value |
|
Amortized Cost |
|
Market Value |
|
FNMA |
|
$ |
1,715,490 |
|
|
$ |
1,691,774 |
|
|
$ |
1,790,840 |
|
|
$ |
1,776,604 |
|
|
$ |
1,832,411 |
|
|
$ |
1,830,563 |
|
FHLB |
|
|
7,652,208 |
|
|
|
7,435,051 |
|
|
|
7,480,188 |
|
|
|
7,327,736 |
|
|
|
6,855,704 |
|
|
|
6,741,377 |
|
Freddie Mac |
|
|
1,291,314 |
|
|
|
1,271,426 |
|
|
|
1,244,044 |
|
|
|
1,228,566 |
|
|
|
1,217,131 |
|
|
|
1,206,597 |
|
|
Note 6 Investment Securities Held-to-Maturity
The amortized cost, gross unrealized gains and losses and approximate market value (or fair
value for certain investment securities where no market quotations are available) of investment
securities held-to-maturity as of March 31, 2006, December 31, 2005 and March 31, 2005 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF MARCH 31, 2006 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Value |
|
Obligations of U.S. Government sponsored entities |
|
$ |
238,520 |
|
|
$ |
57 |
|
|
$ |
2 |
|
|
$ |
238,575 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
73,045 |
|
|
|
925 |
|
|
|
216 |
|
|
|
73,754 |
|
Collateralized mortgage obligations |
|
|
456 |
|
|
|
|
|
|
|
25 |
|
|
|
431 |
|
Others |
|
|
32,364 |
|
|
|
108 |
|
|
|
15 |
|
|
|
32,457 |
|
|
|
|
$ |
344,385 |
|
|
$ |
1,090 |
|
|
$ |
258 |
|
|
$ |
345,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF DECEMBER 31, 2005 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Value |
|
Obligations of other U.S. Government sponsored entities |
|
$ |
42,011 |
|
|
|
|
|
|
$ |
25 |
|
|
$ |
41,986 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
78,248 |
|
|
$ |
2,845 |
|
|
|
134 |
|
|
|
80,959 |
|
Collateralized mortgage obligations |
|
|
497 |
|
|
|
|
|
|
|
27 |
|
|
|
470 |
|
Others |
|
|
32,348 |
|
|
|
315 |
|
|
|
10 |
|
|
|
32,653 |
|
|
|
|
$ |
153,104 |
|
|
$ |
3,160 |
|
|
$ |
196 |
|
|
$ |
156,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF MARCH 31, 2005 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Value |
|
Obligations of U.S. Government sponsored entities |
|
$ |
52,725 |
|
|
|
|
|
|
$ |
32 |
|
|
$ |
52,693 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
77,253 |
|
|
$ |
2,231 |
|
|
|
235 |
|
|
|
79,249 |
|
Collateralized mortgage obligations |
|
|
575 |
|
|
|
|
|
|
|
52 |
|
|
|
523 |
|
Others |
|
|
48,520 |
|
|
|
851 |
|
|
|
6 |
|
|
|
49,365 |
|
|
|
|
$ |
179,073 |
|
|
$ |
3,082 |
|
|
$ |
325 |
|
|
$ |
181,830 |
|
|
19
The following table shows the Corporations gross unrealized losses and fair value of
investment securities held-to-maturity, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position, at March 31, 2006,
December 31, 2005 and March 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF MARCH 31, 2006 |
|
|
Less than 12 months |
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
Obligations of U.S. Government sponsored entities |
|
$ |
13,577 |
|
|
$ |
2 |
|
|
$ |
13,575 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
11,255 |
|
|
|
102 |
|
|
|
11,153 |
|
Others |
|
|
1,250 |
|
|
|
15 |
|
|
|
1,235 |
|
|
|
|
$ |
26,082 |
|
|
$ |
119 |
|
|
$ |
25,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 months or more |
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
Obligations of Puerto Rico, States and political subdivisions |
|
$ |
22,389 |
|
|
$ |
114 |
|
|
$ |
22,275 |
|
Collateralized mortgage obligations |
|
|
456 |
|
|
|
25 |
|
|
|
431 |
|
Others |
|
|
250 |
|
|
|
|
|
|
|
250 |
|
|
|
|
$ |
23,095 |
|
|
$ |
139 |
|
|
$ |
22,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
Obligations of U.S. Government sponsored entities |
|
$ |
13,577 |
|
|
$ |
2 |
|
|
$ |
13,575 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
33,644 |
|
|
|
216 |
|
|
|
33,428 |
|
Collateralized mortgage obligations |
|
|
456 |
|
|
|
25 |
|
|
|
431 |
|
Others |
|
|
1,500 |
|
|
|
15 |
|
|
|
1,485 |
|
|
|
|
$ |
49,177 |
|
|
$ |
258 |
|
|
$ |
48,919 |
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF DECEMBER 31, 2005 |
|
|
Less than 12 months |
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
Obligations of U.S. Government sponsored entities |
|
$ |
42,011 |
|
|
$ |
25 |
|
|
$ |
41,986 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
3,605 |
|
|
|
20 |
|
|
|
3,585 |
|
Others |
|
|
1,000 |
|
|
|
10 |
|
|
|
990 |
|
|
|
|
$ |
46,616 |
|
|
$ |
55 |
|
|
$ |
46,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 months or more |
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
Obligations of Puerto Rico, States and political subdivisions |
|
$ |
22,533 |
|
|
$ |
114 |
|
|
$ |
22,419 |
|
Collateralized mortgage obligations |
|
|
497 |
|
|
|
27 |
|
|
|
470 |
|
Others |
|
|
250 |
|
|
|
|
|
|
|
250 |
|
|
|
|
$ |
23,280 |
|
|
$ |
141 |
|
|
$ |
23,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
Obligations of U.S. Government sponsored entities |
|
$ |
42,011 |
|
|
$ |
25 |
|
|
$ |
41,986 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
26,138 |
|
|
|
134 |
|
|
|
26,004 |
|
Collateralized mortgage obligations |
|
|
497 |
|
|
|
27 |
|
|
|
470 |
|
Others |
|
|
1,250 |
|
|
|
10 |
|
|
|
1,240 |
|
|
|
|
$ |
69,896 |
|
|
$ |
196 |
|
|
$ |
69,700 |
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF MARCH 31, 2005 |
|
|
Less than 12 months |
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
Obligations of U.S. Government sponsored entities |
|
$ |
47,732 |
|
|
$ |
32 |
|
|
$ |
47,700 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
24,325 |
|
|
|
227 |
|
|
|
24,098 |
|
Collateralized mortgage obligations |
|
|
575 |
|
|
|
52 |
|
|
|
523 |
|
Others |
|
|
750 |
|
|
|
6 |
|
|
|
744 |
|
|
|
|
$ |
73,382 |
|
|
$ |
317 |
|
|
$ |
73,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 months or more |
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
Obligations of Puerto Rico, States and political subdivisions |
|
$ |
958 |
|
|
$ |
8 |
|
|
$ |
950 |
|
Others |
|
|
250 |
|
|
|
|
|
|
|
250 |
|
|
|
|
$ |
1,208 |
|
|
$ |
8 |
|
|
$ |
1,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
Obligations of U.S. Government sponsored entities |
|
$ |
47,732 |
|
|
$ |
32 |
|
|
$ |
47,700 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
25,283 |
|
|
|
235 |
|
|
|
25,048 |
|
Collateralized mortgage obligations |
|
|
575 |
|
|
|
52 |
|
|
|
523 |
|
Others |
|
|
1,000 |
|
|
|
6 |
|
|
|
994 |
|
|
|
|
$ |
74,590 |
|
|
$ |
325 |
|
|
$ |
74,265 |
|
|
Management believes that the unrealized losses in the held-to-maturity portfolio at March
31, 2006 are substantially related to market interest rate fluctuations and not to deterioration in
the creditworthiness of the issuers.
22
Note 7
Derivative Instruments and Hedging Activities
Refer to Note 28 to the consolidated financial statements included in the 2005 Annual Report for a
complete description of the Corporations derivative activities. The following represents the major
changes that occurred in the Corporations derivative activities in the first quarter of 2006:
Cash
Flow Hedges
Derivative financial instruments designated as cash flow hedges outstanding as of March 31, 2006
and December 31, 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, 2006 |
(In thousands) |
|
Notional amount |
|
Derivative assets |
|
Derivative liabilities |
|
Equity OCI |
|
Ineffectiveness |
|
Asset Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward commitments |
|
$ |
75,000 |
|
|
$ |
422 |
|
|
|
|
|
|
$ |
257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
190,000 |
|
|
$ |
1,200 |
|
|
|
|
|
|
$ |
780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005 |
(In thousands) |
|
Notional amount |
|
Derivative assets |
|
Derivative liabilities |
|
Equity OCI |
|
Ineffectiveness |
|
Asset Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward commitments |
|
$ |
95,500 |
|
|
$ |
20 |
|
|
$ |
420 |
|
|
|
($244 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation utilizes forward contracts to hedge the sale of mortgage-backed
securities with terms over one month. These securities are hedging a forecasted transaction and
thus qualify for cash flow hedge accounting in accordance with SFAS No. 133, as amended. Changes in
the fair value of the derivatives are recorded in other comprehensive income. The amount included
in accumulated other comprehensive income corresponding to these forward contracts is expected to
be reclassified to earnings in the next twelve months. The contracts outstanding at March 31, 2006
have a maximum remaining maturity of 122 days.
During the first quarter of 2006, the Corporation entered into interest rate swap contracts to
convert floating rate debt to fixed rate debt with the objective of minimizing the exposure to
changes in cash flows due to higher interest rates. These interest rate swaps have a maximum
remaining maturity of 1.7 years.
Fair
Value Hedges
Derivative financial instruments designated as fair value hedges outstanding as of March 31, 2006
and December 31, 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, 2006 |
(In thousands) |
|
Notional amount |
|
Derivative assets |
|
Derivative liabilities |
|
Ineffectiveness |
|
Asset Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005 |
(In thousands) |
|
Notional amount |
|
Derivative assets |
|
Derivative liabilities |
|
Ineffectiveness |
|
Asset Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
534,623 |
|
|
$ |
3,145 |
|
|
|
|
|
|
|
($388 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
The interest rate swaps outstanding at March 31, 2006 were entered to hedge the
change in fair value of loans acquired and originated prior to securitization. The net gains
representing the hedge ineffectiveness are reported as part of interest income. There was no impact
in earnings during the first quarter of 2006.
At December 31, 2005, the Corporation had outstanding interest rate swaps designated as fair value
hedges to protect its exposure to the changes in fair value resulting from movements in the
benchmark interest rate of fixed rate assets, particularly loans and investment securities. The net
losses representing the hedge ineffectiveness is reported as part of other income. As of March 31,
2006, these interest rate swaps were terminated and a result, the Corporation recognized a net loss
of $499 thousand during the quarter.
Non-Hedging Activities
Financial instruments designated as non-hedging derivatives outstanding at March 31,
2006 and December 31, 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
|
|
|
|
|
Fair Values |
(In thousands) |
|
Notional amount |
|
Derivative assets |
|
Derivative liabilities |
|
Forward contracts |
|
$ |
677,573 |
|
|
$ |
2,263 |
|
|
$ |
5 |
|
Futures contracts |
|
|
3,000 |
|
|
|
3 |
|
|
|
|
|
Call options and put options |
|
|
25,000 |
|
|
|
13 |
|
|
|
|
|
Interest rate swaps associated with: |
|
|
|
|
|
|
|
|
|
|
|
|
- short-term borrowings |
|
|
400,000 |
|
|
|
1,411 |
|
|
|
|
|
- auto loan portfolio held-for-investment |
|
|
314,000 |
|
|
|
2,378 |
|
|
|
|
|
- auto loans approvals locked interest rates |
|
|
26,877 |
|
|
|
24 |
|
|
|
|
|
- corporate clients swaps |
|
|
336,230 |
|
|
|
6,601 |
|
|
|
6,601 |
|
Foreign currency and exchange rate commitments |
|
|
1,548 |
|
|
|
26 |
|
|
|
26 |
|
Interest rate caps |
|
|
1,445,418 |
|
|
|
9,769 |
|
|
|
|
|
Indexed options on deposits |
|
|
205,488 |
|
|
|
31,939 |
|
|
|
|
|
Index options on S&P Notes |
|
|
31,152 |
|
|
|
3,823 |
|
|
|
|
|
Embedded options |
|
|
249,531 |
|
|
|
11,652 |
|
|
|
38,020 |
|
Mortgage rate lock commitments |
|
|
272,429 |
|
|
|
|
|
|
|
1,094 |
|
|
Total |
|
$ |
3,988,246 |
|
|
$ |
69,902 |
|
|
$ |
45,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
|
|
|
|
Fair Values |
(In thousands) |
|
Notional amount |
|
Derivative assets |
|
Derivative liabilities |
|
Forward contracts |
|
$ |
486,457 |
|
|
$ |
15 |
|
|
$ |
1,691 |
|
Futures contracts |
|
|
11,500 |
|
|
|
17 |
|
|
|
|
|
Call options and put options |
|
|
47,500 |
|
|
|
114 |
|
|
|
|
|
Interest rate swaps associated with: |
|
|
|
|
|
|
|
|
|
|
|
|
- brokered CDs |
|
|
157,088 |
|
|
|
|
|
|
|
3,226 |
|
- short-term borrowings |
|
|
400,000 |
|
|
|
|
|
|
|
|
|
- auto loan portfolio held-for-investment |
|
|
209,222 |
|
|
|
851 |
|
|
|
|
|
- auto loans approvals locked interest rates |
|
|
26,297 |
|
|
|
(13 |
) |
|
|
|
|
- investment securities |
|
|
40,250 |
|
|
|
837 |
|
|
|
|
|
- corporate clients swaps |
|
|
293,331 |
|
|
|
2,361 |
|
|
|
2,361 |
|
Foreign currency and exchange rate commitments |
|
|
252 |
|
|
|
32 |
|
|
|
32 |
|
Interest rate caps |
|
|
1,650,907 |
|
|
|
12,215 |
|
|
|
|
|
Indexed options on deposits |
|
|
122,711 |
|
|
|
17,715 |
|
|
|
|
|
Index options on S&P Notes |
|
|
31,152 |
|
|
|
3,626 |
|
|
|
|
|
Embedded options |
|
|
170,121 |
|
|
|
10,593 |
|
|
|
24,398 |
|
Mortgage rate lock commitments |
|
|
234,938 |
|
|
|
330 |
|
|
|
|
|
|
Total |
|
$ |
3,881,726 |
|
|
$ |
48,693 |
|
|
$ |
31,708 |
|
|
Interest Rates Swaps
At December 31, 2005, the Corporation had outstanding interest rate swaps that economically
hedged the exposure of certain brokered certificates of deposit to changes in fair value due to
movements in the benchmark interest rate. The terms of the interest rate swaps were identical to
the terms of the callable CDs. These interest rate swap agreements
24
were terminated in the quarter
ended March 31, 2006 and, as a result, the Corporation recognized a loss of $284 thousand upon
cancellation.
Note 8
Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the quarters ended March 31, 2006 and 2005,
allocated by reportable segment, and in the case of Banco Popular de Puerto Rico, as an additional
disclosure, by business area,
were as follows (refer to Note 18 for the definition of the Corporations reportable
segments):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase |
|
|
|
|
|
|
|
|
Balance at |
|
accounting |
|
|
|
|
|
Balance at |
(In thousands) |
|
January 1, 2006 |
|
adjustments |
|
Other |
|
March 31, 2006 |
|
Banco Popular de Puerto Rico: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P.R. Commercial Banking |
|
$ |
14,674 |
|
|
|
|
|
|
|
|
|
|
$ |
14,674 |
|
P.R. Consumer and Retail Banking |
|
|
34,999 |
|
|
|
|
|
|
|
|
|
|
|
34,999 |
|
P.R. Other Financial Services |
|
|
4,110 |
|
|
|
|
|
|
|
|
|
|
|
4,110 |
|
Banco Popular North America |
|
|
404,447 |
|
|
|
|
|
|
|
($210 |
) |
|
|
404,237 |
|
Popular Financial Holdings |
|
|
152,623 |
|
|
$ |
1,969 |
|
|
|
|
|
|
|
154,592 |
|
EVERTEC |
|
|
43,131 |
|
|
|
|
|
|
|
|
|
|
|
43,131 |
|
|
Total Popular, Inc. |
|
$ |
653,984 |
|
|
$ |
1,969 |
|
|
|
($210 |
) |
|
$ |
655,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase |
|
|
|
|
Balance at |
|
Goodwill |
|
accounting |
|
Balance at |
(In thousands) |
|
January 1, 2005 |
|
acquired |
|
adjustments |
|
March 31, 2005 |
|
Banco Popular de Puerto Rico: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P.R. Commercial Banking |
|
$ |
14,674 |
|
|
|
|
|
|
|
|
|
|
$ |
14,674 |
|
P.R. Consumer and Retail Banking |
|
|
34,999 |
|
|
|
|
|
|
|
|
|
|
|
34,999 |
|
P.R. Other Financial Services |
|
|
3,322 |
|
|
$ |
513 |
|
|
|
|
|
|
|
3,835 |
|
Banco Popular North America |
|
|
309,709 |
|
|
|
109,514 |
|
|
|
($1,443 |
) |
|
|
417,780 |
|
Popular Financial Holdings |
|
|
9,514 |
|
|
|
|
|
|
|
|
|
|
|
9,514 |
|
EVERTEC |
|
|
39,090 |
|
|
|
|
|
|
|
23 |
|
|
|
39,113 |
|
|
Total Popular, Inc. |
|
$ |
411,308 |
|
|
$ |
110,027 |
|
|
|
($1,420 |
) |
|
$ |
519,915 |
|
|
Purchase accounting adjustments consist of adjustments to the value of the assets
acquired and liabilities assumed resulting from the completion of appraisals or other valuations,
adjustments to initial estimates recorded for transaction costs, if any, and contingent
consideration paid during a contractual contingency period.
The amount included in the other category for Banco Popular North America reportable segment is
related to the sale of the remaining retail outlets of Popular Cash
Express (PCE) operations to PLS Financial during the
first quarter of 2006. The increase in goodwill during the first quarter of 2005 was mostly related
to the Kislak acquisition.
No goodwill was written-down during the quarters ended March 31, 2006 and 2005.
At March 31, 2006 and December 31, 2005, other than goodwill, the Corporation had $58.9 million of
identifiable intangibles with indefinite useful lives, mostly associated with E-LOANs trademark.
At March 31, 2005, the Corporation had $65 thousand of identifiable intangibles with an indefinite
useful life related to a trademark. The following table reflects the components of other intangible
assets subject to amortization:
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
December 31, 2005 |
|
March 31, 2005 |
|
|
Gross |
|
Accumulated |
|
Gross |
|
Accumulated |
|
Gross |
|
Accumulated |
(In thousands) |
|
Amount |
|
Amortization |
|
Amount |
|
Amortization |
|
Amount |
|
Amortization |
|
Core deposits |
|
$ |
76,956 |
|
|
$ |
42,795 |
|
|
$ |
76,956 |
|
|
$ |
40,848 |
|
|
$ |
95,898 |
|
|
$ |
52,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other customer
relationships |
|
|
8,393 |
|
|
|
884 |
|
|
|
8,175 |
|
|
|
507 |
|
|
|
1,008 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangibles |
|
|
9,320 |
|
|
|
2,234 |
|
|
|
9,320 |
|
|
|
1,807 |
|
|
|
3,443 |
|
|
|
1,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
94,669 |
|
|
$ |
45,913 |
|
|
$ |
94,451 |
|
|
$ |
43,162 |
|
|
$ |
100,349 |
|
|
$ |
53,591 |
|
|
Other intangible assets subject to amortization decreased from March 31, 2005 partly due to
certain core deposits intangibles that became fully amortized during 2005 and, as such, their gross
amount and accumulated amortization were eliminated from the accounting records and the tabular
disclosure presented above.
During the quarter ended March 31, 2006, the Corporation recognized $2.7 million in amortization
expense related to other intangible assets with definite lives (March 31, 2005 $2.2 million).
The following table presents the estimated aggregate annual amortization expense of the intangible
assets with definite lives for each of the following fiscal years:
|
|
|
|
|
|
|
(In thousands) |
2006 |
|
$ |
11,173 |
|
2007 |
|
|
9,079 |
|
2008 |
|
|
7,408 |
|
2009 |
|
|
6,547 |
|
2010 |
|
|
5,712 |
|
No significant events or circumstances have occurred that would reduce the fair value of any
reporting unit below its carrying amount.
Note 9
Commitments and Contingencies
In the normal course of business, the Corporation has outstanding commercial letters of credit and
stand-by letters of credit, which contract amounts at March 31, 2006 were $23 million and $183
million, respectively (December 31, 2005 $22 million and $177 million; March 31, 2005 $26
million and $211 million). There were also other commitments outstanding and contingent
liabilities, such as commitments to extend credit and commitments to originate mortgage loans,
which were not reflected in the accompanying financial statements.
At March 31, 2006, the Corporation recorded a liability of $688 thousand (December 31, 2005 $548
thousand; March 31, 2005 $356 thousand), which represents the fair value of the obligations
undertaken in issuing the guarantees under standby letters of credit issued or modified after
December 31, 2002. The fair value approximates the fee received from the customer for issuing such
commitments. These fees are deferred and are recognized over the commitment period. The liability
was included as part of other liabilities in the consolidated statements of condition. The
standby letters of credit were issued to guarantee the performance of various customers to third
parties. The contract amounts in standby letters of credit outstanding represent the maximum
potential amount of future payments the Corporation could be required to make under the guarantees
in the event of nonperformance by the customers. These standby letters of credit are used by the
customer as a credit enhancement and typically expire without being drawn upon. The Corporations
standby letters of credit are generally secured, and in the event of nonperformance by the
customers, the Corporation has rights to the underlying collateral provided, which normally
includes cash and marketable securities, real estate, receivables and others.
26
The Corporation fully and unconditionally guarantees certain borrowing obligations issued by
certain of its wholly-owned consolidated subsidiaries which aggregated to $4.1 billion at March
31, 2006 (December 31, 2005 and March 31, 2005 $4.0 billion). In addition, at March 31, 2006,
the Corporation fully and unconditionally guaranteed $824 million of capital securities (December
31, 2005 and March 31, 2005 $824 million) issued by four wholly-owned issuing trust entities
that have been deconsolidated pursuant to FIN No. 46R. During the first quarter of 2005, Popular
North America, Inc. concluded its full and unconditional guarantee of certain borrowing
obligations issued by one of its non-banking subsidiaries.
The Corporation is a defendant in a number of legal proceedings arising in the normal course of
business. Based on the opinion of legal counsel, management believes that the final disposition of
these matters will not have a material adverse effect on the Corporations financial position or
results of operations.
Note 10 Other Service Fees
The caption of other service fees in the consolidated statements of income consists of the
following major categories:
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, |
(In thousands) |
|
2006 |
|
2005 |
|
Credit card fees and discounts |
|
$ |
22,573 |
|
|
$ |
18,525 |
|
Debit card fees |
|
|
14,919 |
|
|
|
13,022 |
|
Insurance fees |
|
|
12,141 |
|
|
|
11,673 |
|
Processing fees |
|
|
10,279 |
|
|
|
10,107 |
|
Other |
|
|
20,434 |
|
|
|
25,688 |
|
|
Total |
|
$ |
80,346 |
|
|
$ |
79,015 |
|
|
Note 11 Stock Option and Other Incentive Plans
Since 2001, the Corporation maintained a Stock Option Plan (the Stock Option Plan), which
permitted the granting of incentive awards in the form of qualified stock options, incentive stock
options, or non-statutory stock options of the Corporation. In April 2004, the Corporations
shareholders adopted the Popular, Inc. 2004 Omnibus Incentive Plan (the Incentive Plan), which
replaced and superseded the Stock Option Plan. All outstanding award grants under the Stock Option
Plan continue to remain outstanding at March 31, 2006 under the original terms of the Stock Option
Plan. The aggregate number of shares of common stock which may be issued under the Incentive Plan
is limited to 10,000,000 shares, subject to adjustments for stock splits, recapitalizations and
similar events.
In 2002, the Corporation opted to use the fair value method of recording stock-based compensation
as described in SFAS No. 123 Accounting for Stock Based Compensation. The Corporation adopted
SFAS No. 123-R Share-Based Payment on January 1, 2006 using the modified prospective transition
method. Under the modified prospective transition method, results for prior periods have not been
restated to reflect the effects of implementing SFAS No. 123-R. Accounting and reporting under SFAS
No. 123-R is generally similar to the SFAS No. 123 approach since fair value accounting has been
used by the Corporation to recognize the stock-based compensation expense since 2002.
27
Stock Option Plan
Employees and directors of the Corporation or any of its subsidiaries were eligible to participate
in the Stock Option Plan. The Board of Directors or the Compensation Committee of the Board had the
absolute discretion to determine the individuals that were eligible to participate in the Stock
Option Plan. This plan provides for the issuance of Popular, Inc.s common stock at a price equal
to its fair market value at the grant date, subject to certain plan provisions. The shares are to
be made available from authorized but unissued shares of common stock or treasury stock. The
Corporations policy has been to use authorized but unissued shares of common stock to cover each
grant. The maximum option term is ten years from the date of grant. Unless an option agreement
provides otherwise, all options granted are 20% exercisable after the first year and an additional
20% is exercisable after each subsequent year, subject to an acceleration clause at termination of
employment due to retirement.
Upon the adoption of SFAS No. 123-R during the first quarter of 2006, the compensation cost related
to the Stock Option Plan is being recognized in full for those employees that, as of quarter-end,
had attained their minimum required eligible age for retirement, since the vesting is accelerated
at retirement. The adoption of SFAS No. 123-R resulted in an additional expense for the quarter
ended March 31, 2006 of $93 thousand related to the Stock Option Plan.
The following table presents information on stock options at March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Not in thousands) |
|
|
|
|
|
|
|
Weighted Average |
|
|
Weighted Average |
|
|
Options |
|
|
Weighted Average |
|
Exercise Price |
|
Options |
|
|
Exercise Price of |
|
|
Remaining Life of |
|
|
Exercisable |
|
|
Exercise Price of |
|
Range per Share |
|
Outstanding |
|
|
Options Outstanding |
|
|
Options Outstanding |
|
|
(fully vested) |
|
|
Options Exercisable |
|
|
$14.39 - $18.50 |
|
|
1,575,639 |
|
|
$ |
15.81 |
|
|
6.48 years |
|
|
1,189,116 |
|
|
$ |
15.69 |
|
$19.25 - $27.20 |
|
|
1,640,710 |
|
|
$ |
25.29 |
|
|
8.26 years |
|
|
775,420 |
|
|
$ |
25.02 |
|
|
$14.39 - $27.20 |
|
|
3,216,349 |
|
|
$ |
20.64 |
|
|
7.39 years |
|
|
1,964,536 |
|
|
$ |
19.37 |
|
|
The following table summarizes the stock option activity and related information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
Weighted-Average |
|
(Not in thousands) |
|
Outstanding |
|
|
Exercise Price |
|
|
Outstanding at January 1, 2005 |
|
|
2,584,620 |
|
|
$ |
18.76 |
|
Granted |
|
|
707,342 |
|
|
|
27.20 |
|
Exercised |
|
|
(47,858 |
) |
|
|
16.14 |
|
Forfeited |
|
|
(20,401 |
) |
|
|
22.18 |
|
|
Outstanding at December 31, 2005 |
|
|
3,223,703 |
|
|
$ |
20.63 |
|
Granted |
|
|
|
|
|
|
|
|
Exercised |
|
|
(7,354 |
) |
|
|
15.26 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2006 |
|
|
3,216,349 |
|
|
$ |
20.64 |
|
|
The stock options exercisable at March 31, 2006 totaled 1,964,536 (March 31, 2005
1,066,126).
28
The fair value of the options was estimated on the date of the grants using the Black-Scholes
Option Pricing Model. The weighted average assumptions used for the grants issued during 2005 were:
|
|
|
|
|
|
|
2005 |
|
|
Expected dividend yield |
|
|
2.56 |
% |
Expected life of options |
|
10 years |
Expected volatility |
|
|
17.54 |
% |
Risk-free interest rate |
|
|
4.16 |
% |
Weighted average fair value of options granted (per option) |
|
$ |
5.95 |
|
|
There were no new grants issued by the Corporation under the Stock Option Plan during the
quarter ended March 31, 2006.
The cash received from the stock options exercised during the quarter ended March 31, 2006 amounted
to $112 thousand.
The Corporation recognized $0.8 million in stock option expense for the quarter ended March 31,
2006, with a tax benefit of $0.3 million (March 31, 2005 $0.7 million, with a tax benefit of
$0.3 million). The total unamortized compensation cost at March 31, 2006 related to non-vested
stock option awards was $6.3 million, and is expected to be recognized over a 1.9 weighted-average
period (in years).
Incentive Plan
The Incentive Plan permits the granting of incentive awards in the form of an Annual Incentive
Award, a Long-term Performance Unit Award, an Option, a Stock Appreciation Right, Restricted Stock,
Restricted Unit or Performance Share. Participants in the Incentive Plan are designated by the
Compensation Committee of the Board of Directors (or its delegate as determined by the Board).
Employees and directors of the Corporation and/or any of its subsidiaries are eligible to
participate in the Incentive Plan. The shares may be made available from common stock purchased by
the Corporation for such purpose, authorized but unissued shares of common stock or treasury stock.
The Corporations policy with respect to the shares of restricted stock has been to purchase such
shares in the open market to cover each grant.
The compensation cost associated with the shares of restricted stock is estimated based on a
two-prong vesting schedule, unless otherwise stated in an agreement. The first part is vested
ratably over five years commencing at the date of grant and the second part is vested at
termination of employment after attainment of 55 years of age and 10 years of service. The five-year vesting part is accelerated at
termination of employment after attaining 55 years of age and 10 years of service.
No additional compensation cost related to the Incentive Plan was recognized by the Corporation
during the quarter ended March 31, 2006 as a result of the adoption of SFAS No. 123-R.
The following table summarizes the restricted stock activity and related information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
|
Weighted-Average |
|
(Not in thousands) |
|
Stock |
|
|
Grant Date Fair Value |
|
|
Outstanding at January 1, 2005 |
|
|
|
|
|
|
|
|
Granted |
|
|
172,622 |
|
|
$ |
27.65 |
|
Exercised |
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005 |
|
|
172,622 |
|
|
$ |
27.65 |
|
Granted |
|
|
444,036 |
|
|
|
20.65 |
|
Exercised |
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2006 |
|
|
616,658 |
|
|
$ |
22.53 |
|
|
29
During the quarter ended March 31, 2006, the Corporation granted 444,036 (March 31, 2005
172,622) shares of restricted stock under the Incentive Plan for corporate executive officers.
Also, during 2006, the Compensation Committee approved incentive awards under the Incentive Plan
based on the 2006 performance, payable in the form of restricted stock. Shares of restricted stock
will be granted at the beginning of 2007 subject to the attainment of the established performance
goals for 2006.
During the quarter ended March 31, 2006, the Corporation recognized $1.3 million (March 31, 2005
$0.7 million) of restricted stock expense related to the executive officers incentive awards, with
an income tax benefit of $0.5 million (March 31, 2005 $0.3 million). The total unamortized
compensation cost related to non-vested restricted stock awards was $18.4 million and is expected
to be recognized over a 2.9 weighted-average period (in years).
During the quarter ended March 31, 2006, the Corporation granted 1,276 (March 31, 2005 1,185)
shares of restricted stock under the Incentive Plan to members of the Board of Directors of
Popular, Inc. and BPPR. During this period, the Corporation recognized $150 thousand (March 31,
2005 $166 thousand) of restricted stock expense related to these restricted stock grants.
Note
12 Pension and Other Benefits
The Corporation has noncontributory defined benefit pension plans and supplementary pension plans
for regular employees of certain of its subsidiaries.
The components of net periodic pension cost for the quarters ended March 31, 2006 and 2005 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans |
|
Benefit Restoration Plans |
|
|
Quarters ended |
|
Quarters ended |
|
|
March 31, |
|
March 31, |
(In thousands) |
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
Service cost |
|
$ |
3,135 |
|
|
$ |
3,891 |
|
|
$ |
262 |
|
|
$ |
240 |
|
Interest cost |
|
|
7,641 |
|
|
|
7,438 |
|
|
|
400 |
|
|
|
313 |
|
Expected return on plan assets |
|
|
(9,978 |
) |
|
|
(9,900 |
) |
|
|
(264 |
) |
|
|
(203 |
) |
Amortization of asset obligation |
|
|
|
|
|
|
(215 |
) |
|
|
|
|
|
|
|
|
Amortization of prior service
cost |
|
|
44 |
|
|
|
100 |
|
|
|
(13 |
) |
|
|
(27 |
) |
Amortization of net loss |
|
|
488 |
|
|
|
17 |
|
|
|
276 |
|
|
|
147 |
|
|
Total net periodic cost |
|
$ |
1,330 |
|
|
$ |
1,331 |
|
|
$ |
661 |
|
|
$ |
470 |
|
|
During the quarter ended March 31, 2006, no contributions were made to the pension and
restoration plans.
In
October 2005, the Board of Directors of BPPR adopted an
amendment to the Puerto Rico Retirement
and Tax Qualified Retirement Restoration Plans to freeze benefits for all employees under age 30 or
who had less than 10 years of credited service effective
January 1, 2006 and providing 100%
vesting to all employees in their accrued benefit as of December 31, 2005. The expense for these plans was remeasured
as of September 30, 2005 to consider this change using a discount rate of 5.50%. Curtailment costs
were considered for these plans and are included as part of the December 31, 2005 disclosures. In
connection with the amendments to the plans, these employees received a base salary increase according to
their age and years of service, effective January 1, 2006.
The Corporation also provides certain health care benefits for retired employees of certain
subsidiaries. The components of net periodic postretirement benefit cost for the quarters ended
March 31, 2006 and 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Quarters ended |
|
|
March 31, |
(In thousands) |
|
2006 |
|
2005 |
|
Service cost |
|
$ |
712 |
|
|
$ |
674 |
|
Interest cost |
|
|
1,927 |
|
|
|
2,067 |
|
Amortization of prior service cost |
|
|
(262 |
) |
|
|
(262 |
) |
Amortization of net loss |
|
|
240 |
|
|
|
423 |
|
|
Total net periodic cost |
|
$ |
2,617 |
|
|
$ |
2,902 |
|
|
As of
March 31, 2006, contributions made to the postretirement benefit plan approximated $1.6
million.
30
Note
13 Trust Preferred Securities
At March 31, 2006, the Corporation had established four trusts for the purpose of issuing trust
preferred securities (the capital securities) to the public. The proceeds from such issuances,
together with the proceeds of the related issuances of common securities of the trusts (the common
securities), were used by the trusts to purchase junior subordinated deferrable interest
debentures (the junior subordinated debentures) issued by the Corporation. The sole assets of the
trusts consisted of the junior subordinated debentures of the Corporation and the related accrued
interest receivable. These trusts are not consolidated by the Corporation under the provisions of
FIN No. 46-R.
The junior subordinated debentures are included by the Corporation as notes payable in the
consolidated statements of condition. The Corporation also recorded in the caption of other
investment securities in the consolidated statements of condition, the common securities issued by
the issuer trusts. The common securities of each trust are wholly-owned, or indirectly
wholly-owned, by the Corporation.
(In thousands, including reference notes)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular North |
|
|
|
|
BanPonce |
|
Popular Capital |
|
America Capital |
|
Popular Capital |
|
Issuer |
Trust I |
|
Trust I |
|
Trust I |
|
Trust II |
|
|
Issuance date |
February 1997 |
|
October 2003 |
|
September 2004 |
|
November 2004 |
|
Capital securities |
$ |
|
144,000 |
|
$ |
|
300,000 |
|
$ |
|
250,000 |
|
$ |
|
130,000 |
|
Distribution rate |
|
|
8.327 |
% |
|
|
6.700 |
% |
|
|
6.564 |
% |
|
|
6.125 |
% |
Common securities |
$ |
|
4,640 |
|
$ |
|
9,279 |
|
$ |
|
7,732 |
|
$ |
|
4,021 |
|
Junior subordinated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
debentures aggregate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
liquidation amount |
$ |
|
148,640 |
|
$ |
|
309,279 |
|
$ |
|
257,732 |
|
$ |
|
134,021 |
|
Stated maturity date |
February 2027 |
|
November 2033 |
|
September 2034 |
|
December 2034 |
|
Reference notes |
(a),(c),(e),(f),(g) |
|
(b),(d),(f) |
|
(a),(c),(f) |
|
|
(b),(d),(f) |
|
|
|
|
|
(a) |
|
Statutory business trust that is wholly-owned by Popular North America (PNA) and
indirectly wholly-owned by the Corporation.
|
|
(b) |
|
Statutory business trust that is wholly-owned by the Corporation.
|
|
(c) |
|
The obligations of PNA under the junior subordinated debentures and its guarantees of the
capital securities under the trust are fully and unconditionally guaranteed on a subordinated basis
by the Corporation to the extent set forth in the applicable guarantee agreement.
|
|
(d) |
|
These capital securities are fully and unconditionally guaranteed on a subordinated basis
by the Corporation to the extent set forth in the applicable guarantee agreement.
|
|
(e) |
|
The original issuance was for $150,000. In 2003, the Corporation reacquired $6,000 of the
8.327% capital securities.
|
|
(f) |
|
The Corporation has the right, subject to any required prior approval from the Federal
Reserve, to redeem the junior subordinated debentures at a redemption price equal to 100% of the
principal amount, plus accrued and unpaid interest to the date of redemption. The maturity of the
junior subordinated debentures may be shortened at the option of the Corporation prior to their
stated maturity dates (i) on or after the stated optional redemption dates stipulated in the
agreements, in whole at any time or in part from time to time, or (ii) in whole, but not in part,
at any time within 90 days following the occurrence and during the continuation of a tax event, an
investment company event or a capital treatment event as set forth in the indentures relating to
the capital securities, in each case subject to regulatory approval. A capital treatment event
would include a change in the regulatory capital treatment of the capital securities as a result of
the recent accounting changes affecting the criteria for consolidation of variable interest
entities such as the trust under FIN 46R.
|
|
(g) |
|
Same as (f) above, except that the investment company event does not apply for early
redemption.
|
The Capital Securities of Popular Capital Trust I and Popular Capital Trust II are traded on
the NASDAQ under the symbols BPOPN and BPOPM, respectively.
Under the Federal Reserve Boards risk-based capital guidelines, the capital securities are
includable in the Corporations Tier I capital.
31
Note 14 Stockholders Equity
During the fourth quarter of 2005, existing shareholders of record of the Corporations common
stock at November 7, 2005 fully subscribed to an offering of 10,500,000 newly issued shares of
Popular, Inc.s common stock at a price of $21.00 per share under a subscription rights offering. This represented approximately
$216 million in additional capital, of which approximately $175 million impacted stockholders
equity at December 31, 2005 and the remainder impacted the Corporations financial condition in the
first quarter of 2006 when 1,885,380 shares of common stock were issued. As of December 31,
2005, this subscription rights offering contributed with 8,614,620 in newly issued shares of common
stock.
The Corporation has a dividend reinvestment and stock purchase plan under which stockholders may
reinvest their quarterly dividends in shares of common stock at a 5% discount from the average
market price at the time of issuance, as well as purchase shares of common stock directly from the
Corporation by making optional cash payments at prevailing market prices.
The Corporations authorized preferred stock may be issued in one or more series, and the shares of
each series shall have such rights and preferences as shall be fixed by the Board of Directors when
authorizing the issuance of that particular series. The Corporations only outstanding class of
preferred stock is its 6.375% noncumulative monthly income preferred stock, 2003 Series A. These
shares of preferred stock are perpetual, nonconvertible and are redeemable solely at the option of
the Corporation beginning on March 31, 2008. The redemption price per share is $25.50 from March
31, 2008 through March 30, 2009, $25.25 from March 31, 2009 through March 30, 2010 and $25.00 from
March 31, 2010 and thereafter.
The Banking Act of the Commonwealth of Puerto Rico requires that a minimum of 10% of BPPRs net
income for the year be transferred to a statutory reserve account until such statutory reserve
equals the total of paid-in capital on common and preferred stock. Any losses incurred by a bank
must first be charged to retained earnings and then to the reserve fund. Amounts credited to the
reserve fund may not be used to pay dividends without the prior consent of the Puerto Rico
Commissioner of Financial Institutions. The failure to maintain sufficient statutory reserves would
preclude BPPR from paying dividends. BPPRs statutory reserve fund totaled $317 million at March
31, 2006 (December 31, 2005 $316 million; March 31, 2005 $285 million). During the quarter
ended March 31, 2006, BPPR transferred $1 million to the statutory reserve account. There were no
transfers between the statutory reserve account and the retained earnings account during the
quarter ended March 31, 2005.
32
Note 15 Earnings per Common Share
The computation of earnings per common share and diluted earnings per common share follows:
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
March 31, |
(In thousands, except share information) |
|
2006 |
|
2005 |
|
Net income |
|
$ |
118,503 |
|
|
$ |
162,879 |
|
Less: Preferred stock dividends |
|
|
2,978 |
|
|
|
2,978 |
|
|
Net income applicable to common stock after
cumulative effect of accounting change |
|
$ |
115,525 |
|
|
$ |
159,901 |
|
|
Net income applicable to common stock before
cumulative
effect of accounting change |
|
$ |
115,525 |
|
|
$ |
156,294 |
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding |
|
|
278,085,861 |
|
|
|
266,842,444 |
|
Average potential common shares |
|
|
329,676 |
|
|
|
586,535 |
|
|
Average common shares outstanding assuming dilution |
|
|
278,415,537 |
|
|
|
267,428,979 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share before cumulative
effect of accounting change |
|
$ |
0.42 |
|
|
$ |
0.59 |
|
|
Diluted earnings per common share before cumulative
effect of accounting change |
|
$ |
0.42 |
|
|
$ |
0.58 |
|
|
Basic and diluted earnings per common share after
cumulative effect of accounting change |
|
$ |
0.42 |
|
|
$ |
0.60 |
|
|
Potential common shares consist of common stock issuable under the assumed exercise of stock
options and under restricted stock awards using the treasury stock method. This method assumes that
the potential common shares are issued and the proceeds from exercise in addition to the amount of
compensation cost attributed to future services are used to purchase common stock at the exercise
date. The difference between the number of potential shares issued and the shares purchased is
added as incremental shares to the actual number of shares outstanding to compute diluted earnings
per share. Stock options that result in lower potential shares issued than shares purchased under
the treasury stock method are not included in the computation of dilutive earnings per share since
their inclusion would have an antidilutive effect in earnings per share. For the quarter ended
March 31, 2006, there were 637,128 weighted average antidilutive stock options outstanding (March
31, 2005 1,023,235). All shares of restricted stock are treated as outstanding for purposes of
this computation.
Note 16 Supplemental Disclosure on the Consolidated Statements of Cash Flows
As previously mentioned in Note 1, the Corporation commenced in 2005 a two-year plan to change the
reporting period of its non-banking subsidiaries to a December 31st calendar period. The
impact of this change corresponds to the financial results for the month of December 2004 of those
non-banking subsidiaries which implemented the change in the first reporting period of 2005 and the
month of December 2005 for those which implemented the change in the first reporting period of
2006.
The following table reflects the effect in the Consolidated Statements of Cash Flows of the change
in reporting period mentioned above.
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
March 31, |
(In thousands) |
|
2006 |
|
2005 |
|
Net cash used in operating activities |
|
($ |
80,906 |
) |
|
($ |
26,648 |
) |
Net cash
(used in)
provided by investing activities |
|
|
(104,732 |
) |
|
|
19,503 |
|
Net cash provided by financing activities |
|
|
197,552 |
|
|
|
5,573 |
|
|
Net increase
(decrease) in cash and due from banks |
|
$ |
11,914 |
|
|
($ |
1,572 |
) |
|
33
Loans receivable transferred to other real estate and other property for the quarter ended
March 31, 2006, amounted to $47 million and $7 million, respectively (March 31, 2005 $29 million
and $7 million, respectively).
During the
first quarter of 2006, $464 million in non-conforming loans
classified as held-in-portfolio was pooled into trading securities
and subsequently sold. The cash inflow from this sale was reflected
as operating activities in the consolidated statement of cash flows.
Note 17 Segment Reporting
The Corporations corporate structure consists of four reportable segments, which represent the
Corporations four principal businesses Banco Popular de Puerto Rico, Banco Popular North
America, Popular Financial Holdings and EVERTEC. Also, a corporate group has been defined to
support the reportable segments.
Management determined the reportable segments based on the internal reporting used to evaluate
performance and to assess where to allocate resources. The segments were determined based on the
organizational structure, which focuses primarily towards products
and services, as well as on the
markets the segments serve. Other factors, such as the credit risk characteristics of the loan
products, distribution channels and clientele, were also considered in the determination of
reportable segments.
Banco Popular de Puerto Rico:
Given that Banco Popular de Puerto Rico constitutes approximately 84% of the Corporations net
income for the quarter ended March 31, 2006 and 55% of its total assets as of that date, additional
disclosures are provided for the business areas included in this reportable segment, as described
below:
|
|
|
Commercial banking represents the Corporations banking operations conducted at BPPR,
which are targeted mainly to corporate, small and middle size businesses. It includes
aspects of the lending and depository businesses, as well as other finance and advisory
services. BPPR allocates funds across segments based on duration matched transfer pricing
at market rates. This area also incorporates income related with the investment of excess
funds as well as a proportionate share of the investment function of BPPR. |
|
|
|
|
Consumer and retail banking represents the branch banking operations of BPPR which
focus on retail clients. It includes the consumer lending business operations of BPPR, as
well as the lending operations of Popular Auto, Popular Finance, and Popular Mortgage.
These three subsidiaries focus respectively on auto and lease financing, small personal
loans and mortgage loan originations. This area also incorporates income related with the
investment of excess funds from the branch network, as well as a proportionate share of the
investment function of BPPR. |
|
|
|
|
Other financial services include the trust and asset management service units of BPPR,
the brokerage and investment banking operations of Popular Securities, and the insurance
agency and reinsurance businesses of Popular Insurance, Popular Insurance V.I. and Popular
Life Re. Most of the services that are provided by these subsidiaries generate profits
based on fee income. |
Banco Popular North America:
This reportable segment includes principally the activities of BPNA, including its subsidiaries
Popular Leasing, U.S.A. and Popular Insurance Agency, U.S.A. BPNA operates through a branch network
of over 135 branches in six states. Popular Insurance Agency, U.S.A. offers investment and
insurance services across the BPNA branch network. Popular Leasing, U.S.A. provides mainly small to
mid-ticket commercial and medical equipment financing. The BPNA segment also included in the
quarter ended March 31, 2005, the financial results of PCE, a fee driven business that served the
unbanked, retail customer. As stated in the 2005 Annual Report, PCE sold most of its branch
operations during the fourth quarter of 2005. The remaining four retail outlets that existed as of year-end 2005, were sold during
the first quarter of 2006.
Popular Financial Holdings:
This reportable segment corresponds to the Corporations consumer lending subsidiaries in the
United States, principally Popular Financial Holdings, Inc. and its wholly-owned subsidiaries
Equity One, Inc., E-LOAN,
34
Popular Financial Management, LLC, Popular Mortgage Servicing, Inc. and
Popular Housing Services, Inc. These
subsidiaries are primarily engaged in the business of originating mortgage and personal loans,
acquiring retail installment contracts and providing warehouse lines to small and medium-sized
mortgage companies. This segment also maintains a wholesale broker network as well as a loan
servicing unit.
EVERTEC:
This reportable segment includes the financial transaction processing and technology functions of
the Corporation, including EVERTEC with offices in Puerto Rico, Florida, the Dominican Republic and
Venezuela; and ATH Costa Rica, S.A. and CreST, S.A., located in Costa Rica. In addition, this
reportable segment includes the equity investments in CONTADO and Servicios Financieros, S.A. de
C.V. (Serfinsa), which operate in the Dominican Republic and El Salvador, respectively. This
segment provides processing and technology services to other units of the Corporation as well as to
third parties, principally other financial institutions in Puerto Rico, the Caribbean and Central
America.
Corporate:
The Corporate group consists primarily of the Holding companies: Popular, Inc., Popular North
America and Popular International Bank, excluding the equity investments in CONTADO and Serfinsa,
which due to the nature of their operations are included as part of the processing segment. The
holding companies obtain funding in the capital markets to finance the Corporations growth,
including acquisitions. The Corporate group also includes the expenses of the four administrative
corporate areas that are identified as critical for the organization: Finance, Risk Management,
Legal and People, Communications and Planning. These corporate administrative areas have the
responsibility of establishing policy, setting up controls and coordinating the activities of their
corresponding groups in each of the business circles.
The Corporation may periodically reclassify business segment results based on modifications to its
management reporting and profitability measurement methodologies and changes in organizational
alignment.
The accounting policies of the individual operating segments are the same as those of the
Corporation described in Note 1. Transactions between operating segments are primarily conducted at
market rates, resulting in profits that are eliminated for reporting consolidated results of
operations.
2006
For the quarter ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular |
|
|
|
|
|
|
|
|
|
Total |
|
|
Banco Popular |
|
Banco Popular |
|
Financial |
|
|
|
|
|
Intersegment |
|
Reportable |
(In thousands) |
|
Puerto Rico |
|
North America |
|
Holdings |
|
EVERTEC |
|
Eliminations |
|
Segments |
|
Net interest income (loss) |
|
$ |
226,303 |
|
|
$ |
93,759 |
|
|
$ |
49,420 |
|
|
($ |
427 |
) |
|
|
|
|
|
$ |
369,055 |
|
Provision for loan losses |
|
|
23,789 |
|
|
|
9,345 |
|
|
|
15,813 |
|
|
|
|
|
|
|
|
|
|
|
48,947 |
|
Other income |
|
|
115,085 |
|
|
|
25,473 |
|
|
|
48,644 |
|
|
|
54,888 |
|
|
($ |
33,930 |
) |
|
|
210,160 |
|
Amortization of intangibles |
|
|
633 |
|
|
|
1,515 |
|
|
|
468 |
|
|
|
105 |
|
|
|
|
|
|
|
2,721 |
|
Depreciation expense |
|
|
11,030 |
|
|
|
3,384 |
|
|
|
2,374 |
|
|
|
4,106 |
|
|
|
(19 |
) |
|
|
20,875 |
|
Other operating expenses |
|
|
169,225 |
|
|
|
68,745 |
|
|
|
85,802 |
|
|
|
42,457 |
|
|
|
(33,944 |
) |
|
|
332,285 |
|
Impact of change in fiscal period |
|
|
(2,072 |
) |
|
|
|
|
|
|
6,181 |
|
|
|
|
|
|
|
|
|
|
|
4,109 |
|
Income tax |
|
|
38,653 |
|
|
|
13,687 |
|
|
|
(4,719 |
) |
|
|
2,718 |
|
|
|
13 |
|
|
|
50,352 |
|
|
Net income (loss) |
|
$ |
100,130 |
|
|
$ |
22,556 |
|
|
($ |
7,855 |
) |
|
$ |
5,075 |
|
|
$ |
20 |
|
|
$ |
119,926 |
|
|
Segment Assets |
|
$ |
26,847,081 |
|
|
$ |
12,177,398 |
|
|
$ |
9,175,706 |
|
|
$ |
201,204 |
|
|
($ |
175,128 |
) |
|
$ |
48,226,261 |
|
|
35
For the quarter ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reportable |
|
|
|
|
|
|
|
|
|
Total |
(In thousands) |
|
Segments |
|
Corporate |
|
Eliminations |
|
Popular, Inc. |
|
Net interest income (loss) |
|
$ |
369,055 |
|
|
($ |
9,591 |
) |
|
$ |
300 |
|
|
$ |
359,764 |
|
Provision for loan losses |
|
|
48,947 |
|
|
|
|
|
|
|
|
|
|
|
48,947 |
|
Other income |
|
|
210,160 |
|
|
|
18,989 |
|
|
|
(316 |
) |
|
|
228,833 |
|
Amortization of intangibles |
|
|
2,721 |
|
|
|
|
|
|
|
|
|
|
|
2,721 |
|
Depreciation expense |
|
|
20,875 |
|
|
|
564 |
|
|
|
|
|
|
|
21,439 |
|
Other operating expenses |
|
|
332,285 |
|
|
|
17,225 |
|
|
|
(157 |
) |
|
|
349,353 |
|
Impact of change in fiscal period |
|
|
4,109 |
|
|
|
3,495 |
|
|
|
2,137 |
|
|
|
9,741 |
|
Income tax |
|
|
50,352 |
|
|
|
(11,592 |
) |
|
|
(867 |
) |
|
|
37,893 |
|
|
Net income (loss) |
|
$ |
119,926 |
|
|
($ |
294 |
) |
|
($ |
1,129 |
) |
|
$ |
118,503 |
|
|
Segment Assets |
|
$ |
48,226,261 |
|
|
$ |
6,432,286 |
|
|
($ |
6,066,844 |
) |
|
$ |
48,591,703 |
|
|
2005
For the quarter ended March 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular |
|
|
|
|
|
|
|
|
|
Total |
|
|
Banco Popular |
|
Banco Popular |
|
Financial |
|
|
|
|
|
Intersegment |
|
Reportable |
(In thousands) |
|
Puerto Rico |
|
North America |
|
Holdings |
|
EVERTEC |
|
Eliminations |
|
Segments |
|
Net interest income (loss) |
|
$ |
217,960 |
|
|
$ |
89,425 |
|
|
$ |
58,054 |
|
|
($ |
182 |
) |
|
|
|
|
|
$ |
365,257 |
|
Provision for loan losses |
|
|
25,464 |
|
|
|
7,243 |
|
|
|
11,629 |
|
|
|
|
|
|
|
|
|
|
|
44,336 |
|
Other income |
|
|
94,205 |
|
|
|
28,796 |
|
|
|
10,622 |
|
|
|
54,693 |
|
|
($ |
33,958 |
) |
|
|
154,358 |
|
Amortization of intangibles |
|
|
623 |
|
|
|
1,601 |
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
2,242 |
|
Depreciation expense |
|
|
10,502 |
|
|
|
3,911 |
|
|
|
1,047 |
|
|
|
4,191 |
|
|
|
(19 |
) |
|
|
19,632 |
|
Other operating expenses |
|
|
163,438 |
|
|
|
72,581 |
|
|
|
39,222 |
|
|
|
40,947 |
|
|
|
(33,539 |
) |
|
|
282,649 |
|
Income tax |
|
|
24,046 |
|
|
|
12,808 |
|
|
|
6,285 |
|
|
|
2,768 |
|
|
|
10 |
|
|
|
45,917 |
|
|
Net income before cumulative effect of accounting
change |
|
|
88,092 |
|
|
|
20,077 |
|
|
|
10,493 |
|
|
|
6,587 |
|
|
|
(410 |
) |
|
|
124,839 |
|
Cumulative effect of accounting change |
|
|
3,221 |
|
|
|
(209 |
) |
|
|
|
|
|
|
152 |
|
|
|
(247 |
) |
|
|
2,917 |
|
|
Net income after cumulative effect of accounting change |
|
$ |
91,313 |
|
|
$ |
19,868 |
|
|
$ |
10,493 |
|
|
$ |
6,739 |
|
|
($ |
657 |
) |
|
$ |
127,756 |
|
|
Segment Assets |
|
$ |
24,815,709 |
|
|
$ |
11,349,492 |
|
|
$ |
8,730,848 |
|
|
$ |
241,278 |
|
|
($ |
289,398 |
) |
|
$ |
44,847,929 |
|
|
For the quarter ended March 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reportable |
|
|
|
|
|
|
|
|
|
Total |
(In thousands) |
|
Segments |
|
Corporate |
|
Eliminations |
|
Popular, Inc. |
|
Net interest income (loss) |
|
$ |
365,257 |
|
|
($ |
8,315 |
) |
|
$ |
344 |
|
|
$ |
357,286 |
|
Provision for loan losses |
|
|
44,336 |
|
|
|
|
|
|
|
|
|
|
|
44,336 |
|
Other income |
|
|
154,358 |
|
|
|
51,250 |
|
|
|
(19 |
) |
|
|
205,589 |
|
Amortization of intangibles |
|
|
2,242 |
|
|
|
|
|
|
|
|
|
|
|
2,242 |
|
Depreciation expense |
|
|
19,632 |
|
|
|
378 |
|
|
|
|
|
|
|
20,010 |
|
Other operating expenses |
|
|
282,649 |
|
|
|
11,953 |
|
|
|
(20 |
) |
|
|
294,582 |
|
Income tax |
|
|
45,917 |
|
|
|
(3,447 |
) |
|
|
(37 |
) |
|
|
42,433 |
|
|
Net income before cumulative effect of accounting
change |
|
|
124,839 |
|
|
|
34,051 |
|
|
|
382 |
|
|
|
159,272 |
|
Cumulative effect of accounting change |
|
|
2,917 |
|
|
|
690 |
|
|
|
|
|
|
|
3,607 |
|
|
Net income after cumulative effect of accounting change |
|
$ |
127,756 |
|
|
$ |
34,741 |
|
|
$ |
382 |
|
|
$ |
162,879 |
|
|
Segment Assets |
|
$ |
44,847,929 |
|
|
$ |
5,650,332 |
|
|
($ |
5,330,423 |
) |
|
$ |
45,167,838 |
|
|
36
During the quarter ended March 31, 2006, the holding companies realized net gains on sale of
marketable equity securities (before tax) of approximately $13.5 million, compared with net gains
(before tax) of approximately $50.5 million in the first quarter
of 2005. These net gains are
included in other income within the Corporate circle.
Additional
disclosures with respect to Banco Popular de Puerto Rico reportable
segment are as follows:
2006
For the quarter ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
Consumer and |
|
Other Financial |
|
|
|
Total Banco Popular |
(In thousands) |
|
Banking |
|
Retail Banking |
|
Services |
|
Eliminations |
|
Puerto Rico |
|
Net interest income |
|
$ |
81,143 |
|
|
$ |
142,956 |
|
|
$ |
2,723 |
|
|
($ |
519 |
) |
|
$ |
226,303 |
|
Provision for loan losses |
|
|
5,655 |
|
|
|
18,134 |
|
|
|
|
|
|
|
|
|
|
|
23,789 |
|
Other income |
|
|
37,783 |
|
|
|
56,843 |
|
|
|
21,980 |
|
|
|
(1,521 |
) |
|
|
115,085 |
|
Amortization of intangibles |
|
|
221 |
|
|
|
335 |
|
|
|
77 |
|
|
|
|
|
|
|
633 |
|
Depreciation expense |
|
|
3,950 |
|
|
|
6,805 |
|
|
|
275 |
|
|
|
|
|
|
|
11,030 |
|
Other operating expenses |
|
|
56,481 |
|
|
|
97,408 |
|
|
|
15,629 |
|
|
|
(293 |
) |
|
|
169,225 |
|
Impact of change in fiscal period |
|
|
|
|
|
|
|
|
|
|
(2,072 |
) |
|
|
|
|
|
|
(2,072 |
) |
Income tax |
|
|
16,708 |
|
|
|
18,718 |
|
|
|
3,712 |
|
|
|
(485 |
) |
|
|
38,653 |
|
|
Net income |
|
$ |
35,911 |
|
|
$ |
58,399 |
|
|
$ |
7,082 |
|
|
($ |
1,262 |
) |
|
$ |
100,130 |
|
|
Segment Assets |
|
$ |
10,754,286 |
|
|
$ |
18,368,889 |
|
|
$ |
1,025,734 |
|
|
($ |
3,301,828 |
) |
|
$ |
26,847,081 |
|
|
2005
For the quarter ended March 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
Consumer and |
|
Other Financial |
|
|
|
Total Banco Popular |
(In thousands) |
|
Banking |
|
Retail Banking |
|
Services |
|
Eliminations |
|
Puerto Rico |
|
Net interest income |
|
$ |
71,698 |
|
|
$ |
142,878 |
|
|
$ |
3,384 |
|
|
|
|
|
|
$ |
217,960 |
|
Provision for loan losses |
|
|
7,462 |
|
|
|
18,002 |
|
|
|
|
|
|
|
|
|
|
|
25,464 |
|
Other income |
|
|
38,447 |
|
|
|
38,824 |
|
|
|
16,993 |
|
|
($ |
59 |
) |
|
|
94,205 |
|
Amortization of intangibles |
|
|
|
|
|
|
546 |
|
|
|
77 |
|
|
|
|
|
|
|
623 |
|
Depreciation expense |
|
|
3,867 |
|
|
|
6,257 |
|
|
|
378 |
|
|
|
|
|
|
|
10,502 |
|
Other operating expenses |
|
|
54,649 |
|
|
|
95,966 |
|
|
|
13,180 |
|
|
|
(357 |
) |
|
|
163,438 |
|
Income tax |
|
|
9,907 |
|
|
|
11,875 |
|
|
|
2,146 |
|
|
|
118 |
|
|
|
24,046 |
|
|
Net income before cumulative effect of accounting
change |
|
|
34,260 |
|
|
|
49,056 |
|
|
|
4,596 |
|
|
|
180 |
|
|
$ |
88,092 |
|
Cumulative effect of accounting change |
|
|
|
|
|
|
3,797 |
|
|
|
758 |
|
|
|
(1,334 |
) |
|
|
3,221 |
|
|
Net income after cumulative effect of accounting change |
|
$ |
34,260 |
|
|
$ |
52,853 |
|
|
$ |
5,354 |
|
|
($ |
1,154 |
) |
|
$ |
91,313 |
|
|
Segment Assets |
|
$ |
9,283,495 |
|
|
$ |
16,294,023 |
|
|
$ |
1,013,120 |
|
|
($ |
1,774,929 |
) |
|
$ |
24,815,709 |
|
|
|
|
|
|
|
|
|
|
|
INTERSEGMENT REVENUES* |
|
Quarter ended |
|
|
March 31, |
|
March 31, |
(In thousands) |
|
2006 |
|
2005 |
|
Banco Popular Puerto Rico: |
|
|
|
|
|
|
|
|
P.R. Commercial Banking |
|
($ |
304 |
) |
|
($ |
338 |
) |
P.R. Consumer and Retail Banking |
|
|
(668 |
) |
|
|
(761 |
) |
P.R. Other Financial Services |
|
|
(78 |
) |
|
|
(112 |
) |
Banco Popular North America |
|
|
164 |
|
|
|
216 |
|
Popular Financial Holdings |
|
|
770 |
|
|
|
842 |
|
EVERTEC |
|
|
(33,814 |
) |
|
|
(33,805 |
) |
|
Total reportable segments |
|
($ |
33,930 |
) |
|
($ |
33,958 |
) |
|
|
|
|
*
|
|
For purposes of the intersegment revenues disclosure,
revenues include interest income (expense) related to
internal funding and other income derived from intercompany
transactions, mainly related to gain on sales of loans and
processing/information technology services. |
37
|
|
|
|
|
|
|
|
|
Geographic Information |
|
Quarter ended |
|
|
March 31, |
|
March 31, |
(In thousands) |
|
2006 |
|
2005 |
|
Revenues** |
|
|
|
|
|
|
|
|
Puerto Rico |
|
$ |
361,582 |
|
|
$ |
364,068 |
|
United States |
|
|
206,802 |
|
|
|
181,441 |
|
Other |
|
|
20,213 |
|
|
|
17,366 |
|
|
Total consolidated revenues |
|
$ |
588,597 |
|
|
$ |
562,875 |
|
|
|
|
|
** |
|
Total revenues include net interest income, service charges on deposit accounts, other service fees, net gain (loss) on sale and
valuation adjustments of investment securities, trading account profit (loss), gain on sale of loans and other operating income. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
March 31, |
(In thousands) |
|
2006 |
|
2005 |
|
2005 |
|
Selected Balance Sheet Information: |
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
25,997,603 |
|
|
$ |
25,759,437 |
|
|
$ |
24,200,221 |
|
Loans |
|
|
14,105,008 |
|
|
|
14,130,645 |
|
|
|
12,838,815 |
|
Deposits |
|
|
13,794,832 |
|
|
|
13,093,540 |
|
|
|
12,871,489 |
|
Mainland United States |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
21,445,054 |
|
|
$ |
21,780,226 |
|
|
$ |
20,088,165 |
|
Loans |
|
|
16,737,800 |
|
|
|
17,023,443 |
|
|
|
16,110,775 |
|
Deposits |
|
|
8,447,759 |
|
|
|
8,370,150 |
|
|
|
7,786,323 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,149,046 |
|
|
$ |
1,084,005 |
|
|
$ |
879,452 |
|
Loans |
|
|
587,577 |
|
|
|
556,119 |
|
|
|
478,436 |
|
Deposits * |
|
|
1,169,221 |
|
|
|
1,174,315 |
|
|
|
1,070,865 |
|
|
|
|
* |
|
Represents deposits from BPPR operations located in the U.S. and British Virgin Islands |
Note 18 Condensed Consolidating Financial Information of Guarantor and Issuers of Registered
Guaranteed Securities:
The following condensed consolidating financial information presents the financial position of
Popular, Inc. Holding Company (PIHC) (parent only), Popular International Bank, Inc. (PIBI),
Popular North America, Inc. (PNA), and all other subsidiaries of the Corporation as of March 31,
2006, December 31, 2005 and March 31, 2005, and the results of their operations and cash flows for
the periods ended March 31, 2006 and 2005.
In 2005, the Corporation commenced a two-year plan to change its non-banking subsidiaries to a
calendar reporting year-end. As of March 31, 2005 and December 31, 2005, Popular Securities, Inc.,
Popular North America (holding company), Popular FS, LLC and Popular Financial Holdings, Inc.
(PFH), including its wholly-owned subsidiaries (except E-LOAN, which already had a December
31st year-end since its acquisition), continued to have a fiscal year that ended on
November 30. Accordingly, their financial information as of February 28, 2005 and November 30, 2005
corresponds to their financial information included in the consolidated financial statements of
Popular, Inc. as of March 31, 2005 and December 31, 2005. As of March 31, 2006, all subsidiaries
have aligned their year-end closing to that of the Corporations calendar year.
PIBI is an operating subsidiary of PIHC and is the holding company of its wholly-owned
subsidiaries, ATH Costa Rica S.A., CreST, S.A., Popular Insurance V.I., Inc. and PNA.
PNA is an operating subsidiary of PIBI and is the holding company of its wholly-owned subsidiaries:
38
|
|
|
Popular Cash Express, Inc.; |
|
|
|
|
PFH, including its wholly-owned subsidiaries Equity One, Inc., Popular Financial
Management, LLC, Popular Housing Services, Inc., Popular Mortgage Servicing, Inc. and
E-LOAN, Inc.; |
|
|
|
|
Banco Popular North America (BPNA), including its wholly-owned subsidiaries Popular
Leasing, U.S.A., Popular Insurance Agency, U.S.A. and Popular FS, LLC; and |
|
|
|
|
Banco Popular, National Association (BP, N.A.), including its wholly-owned
subsidiary Popular Insurance, Inc. |
PIHC, PIBI and PNA are authorized issuers of debt securities and preferred stock under a shelf
registration filed with the Securities and Exchange Commission.
PIHC fully and unconditionally guarantees all registered debt securities and preferred stock
issued by PIBI and PNA.
The principal source of income for PIHC consists of dividends from Banco Popular de Puerto Rico
(BPPR). As a member of the Federal Reserve System, BPPR is subject to the regulations of the
Federal Reserve Board. BPPR must obtain the approval of the Federal Reserve Board for any dividend
if the total of all dividends declared by it during the calendar year would exceed the total of its
net income for that year, as defined by the Federal Reserve Board, combined with its retained net
income for the preceding two years, less any required transfers to surplus or to a fund for the
retirement of any preferred stock. The payment of dividends by BPPR may also be affected by other
regulatory requirements and policies, such as the maintenance of certain minimum capital levels. At
March 31, 2006, BPPR could have declared a dividend of approximately $139 million without the
approval of the Federal Reserve Board (March 31, 2005 $256 million; December 31, 2005 $231
million). Refer to Popular, Inc.s Form 10-K for the year ended December 31, 2005 for further
information on dividend restrictions imposed by regulatory requirements and policies on the payment
of dividends by BPPR, BPNA and BP, N.A.
39
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CONDITION
MARCH 31, 2006
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular, Inc. |
|
PIBI |
|
PNA |
|
All other |
|
Elimination |
|
Popular, Inc. |
(In thousands) |
|
Holding Co. |
|
Holding Co. |
|
Holding Co. |
|
Subsidiaries |
|
Entries |
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
975 |
|
|
$ |
7,415 |
|
|
$ |
439 |
|
|
$ |
905,160 |
|
|
($ |
53,383 |
) |
|
$ |
860,606 |
|
Money market investments |
|
|
314,600 |
|
|
|
300 |
|
|
|
183 |
|
|
|
1,170,659 |
|
|
|
(495,827 |
) |
|
|
989,915 |
|
Investment securities available-for-sale, at fair value |
|
|
11,319 |
|
|
|
63,986 |
|
|
|
|
|
|
|
11,441,847 |
|
|
|
(6,484 |
) |
|
|
11,510,668 |
|
Investment securities held-to-maturity, at amortized cost |
|
|
430,000 |
|
|
|
2,167 |
|
|
|
|
|
|
|
342,218 |
|
|
|
(430,000 |
) |
|
|
344,385 |
|
Other investment securities, at lower of cost or realizable value |
|
|
145,039 |
|
|
|
5,001 |
|
|
|
13,142 |
|
|
|
141,427 |
|
|
|
|
|
|
|
304,609 |
|
Trading account securities, at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
510,099 |
|
|
|
(487 |
) |
|
|
509,612 |
|
Investment in subsidiaries |
|
|
3,047,205 |
|
|
|
1,166,381 |
|
|
|
2,085,191 |
|
|
|
818,175 |
|
|
|
(7,116,952 |
) |
|
|
|
|
Loans held-for-sale, at lower of cost or market |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
535,719 |
|
|
|
|
|
|
|
535,719 |
|
|
Loans held-in-portfolio |
|
|
47,465 |
|
|
|
|
|
|
|
2,712,867 |
|
|
|
34,103,750 |
|
|
|
(5,668,040 |
) |
|
|
31,196,042 |
|
Less Unearned income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
301,376 |
|
|
|
|
|
|
|
301,376 |
|
Allowance for loan losses |
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
468,281 |
|
|
|
|
|
|
|
468,321 |
|
|
|
|
|
47,425 |
|
|
|
|
|
|
|
2,712,867 |
|
|
|
33,334,093 |
|
|
|
(5,668,040 |
) |
|
|
30,426,345 |
|
|
Premises and equipment, net |
|
|
26,231 |
|
|
|
|
|
|
|
|
|
|
|
574,783 |
|
|
|
(222 |
) |
|
|
600,792 |
|
Other real estate |
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
82,253 |
|
|
|
|
|
|
|
82,352 |
|
Accrued income receivable |
|
|
416 |
|
|
|
39 |
|
|
|
11,410 |
|
|
|
284,689 |
|
|
|
(21,934 |
) |
|
|
274,620 |
|
Other assets |
|
|
56,541 |
|
|
|
43,409 |
|
|
|
28,025 |
|
|
|
1,267,580 |
|
|
|
(6,893 |
) |
|
|
1,388,662 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
655,743 |
|
|
|
|
|
|
|
655,743 |
|
Other intangible assets |
|
|
554 |
|
|
|
|
|
|
|
|
|
|
|
107,121 |
|
|
|
|
|
|
|
107,675 |
|
|
|
|
$ |
4,080,404 |
|
|
$ |
1,288,698 |
|
|
$ |
4,851,257 |
|
|
$ |
52,171,566 |
|
|
($ |
13,800,222 |
) |
|
$ |
48,591,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,507,290 |
|
|
($ |
53,325 |
) |
|
$ |
4,453,965 |
|
Interest bearing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,059,837 |
|
|
|
(101,990 |
) |
|
|
18,957,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,567,127 |
|
|
|
(155,315 |
) |
|
|
23,411,812 |
|
Federal funds purchased and assets sold under agreements
to repurchase |
|
|
|
|
|
|
|
|
|
$ |
33,000 |
|
|
|
8,662,217 |
|
|
|
(379,837 |
) |
|
|
8,315,380 |
|
Other short-term borrowings |
|
|
|
|
|
$ |
31,489 |
|
|
|
541,027 |
|
|
|
3,120,849 |
|
|
|
(1,047,844 |
) |
|
|
2,645,521 |
|
Notes payable |
|
$ |
532,736 |
|
|
|
|
|
|
|
3,057,588 |
|
|
|
10,932,175 |
|
|
|
(4,589,281 |
) |
|
|
9,933,218 |
|
Subordinated notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
430,000 |
|
|
|
(430,000 |
) |
|
|
|
|
Other liabilities |
|
|
60,111 |
|
|
|
1,188 |
|
|
|
62,859 |
|
|
|
713,895 |
|
|
|
(39,951 |
) |
|
|
798,102 |
|
|
|
|
|
592,847 |
|
|
|
32,677 |
|
|
|
3,694,474 |
|
|
|
47,426,263 |
|
|
|
(6,642,228 |
) |
|
|
45,104,033 |
|
|
Minority interest in consolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113 |
|
|
|
|
|
|
|
113 |
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
186,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186,875 |
|
Common stock |
|
|
1,748,983 |
|
|
|
3,961 |
|
|
|
2 |
|
|
|
70,385 |
|
|
|
(74,348 |
) |
|
|
1,748,983 |
|
Surplus |
|
|
484,252 |
|
|
|
815,193 |
|
|
|
734,964 |
|
|
|
3,131,508 |
|
|
|
(4,679,054 |
) |
|
|
486,863 |
|
Retained earnings |
|
|
1,529,245 |
|
|
|
498,823 |
|
|
|
452,861 |
|
|
|
1,780,841 |
|
|
|
(2,735,136 |
) |
|
|
1,526,634 |
|
Accumulated other comprehensive loss, net of tax |
|
|
(255,265 |
) |
|
|
(61,956 |
) |
|
|
(31,044 |
) |
|
|
(233,639 |
) |
|
|
326,639 |
|
|
|
(255,265 |
) |
Treasury stock, at cost |
|
|
(206,533 |
) |
|
|
|
|
|
|
|
|
|
|
(3,905 |
) |
|
|
3,905 |
|
|
|
(206,533 |
) |
|
|
|
|
3,487,557 |
|
|
|
1,256,021 |
|
|
|
1,156,783 |
|
|
|
4,745,190 |
|
|
|
(7,157,994 |
) |
|
|
3,487,557 |
|
|
|
|
$ |
4,080,404 |
|
|
$ |
1,288,698 |
|
|
$ |
4,851,257 |
|
|
$ |
52,171,566 |
|
|
($ |
13,800,222 |
) |
|
$ |
48,591,703 |
|
|
40
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CONDITION
DECEMBER 31, 2005
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular, Inc. |
|
PIBI |
|
PNA |
|
All other |
|
Elimination |
|
Popular, Inc. |
(In thousands) |
|
Holding Co. |
|
Holding Co. |
|
Holding Co. |
|
Subsidiaries |
|
Entries |
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
696 |
|
|
$ |
2,103 |
|
|
$ |
448 |
|
|
$ |
962,395 |
|
|
($ |
59,245 |
) |
|
$ |
906,397 |
|
Money market investments |
|
|
230,000 |
|
|
|
300 |
|
|
|
245 |
|
|
|
1,048,586 |
|
|
|
(529,708 |
) |
|
|
749,423 |
|
Investment securities available-for-sale, at fair value |
|
|
18,271 |
|
|
|
77,861 |
|
|
|
|
|
|
|
11,620,673 |
|
|
|
(219 |
) |
|
|
11,716,586 |
|
Investment securities held-to-maturity, at amortized cost |
|
|
430,000 |
|
|
|
2,170 |
|
|
|
|
|
|
|
150,934 |
|
|
|
(430,000 |
) |
|
|
153,104 |
|
Other investment securities, at lower of cost or
realizable value |
|
|
145,535 |
|
|
|
5,001 |
|
|
|
13,142 |
|
|
|
155,425 |
|
|
|
|
|
|
|
319,103 |
|
Trading account securities, at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
520,236 |
|
|
|
(898 |
) |
|
|
519,338 |
|
Investment in subsidiaries |
|
|
3,112,125 |
|
|
|
1,169,867 |
|
|
|
1,832,349 |
|
|
|
767,615 |
|
|
|
(6,881,956 |
) |
|
|
|
|
Loans held-for-sale, at lower of cost or market value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
699,181 |
|
|
|
|
|
|
|
699,181 |
|
|
Loans held-in-portfolio |
|
|
25,752 |
|
|
|
|
|
|
|
2,993,028 |
|
|
|
34,034,625 |
|
|
|
(5,744,766 |
) |
|
|
31,308,639 |
|
Less Unearned income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
297,613 |
|
|
|
|
|
|
|
297,613 |
|
Allowance for loan losses |
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
461,667 |
|
|
|
|
|
|
|
461,707 |
|
|
|
|
|
25,712 |
|
|
|
|
|
|
|
2,993,028 |
|
|
|
33,275,345 |
|
|
|
(5,744,766 |
) |
|
|
30,549,319 |
|
|
Premises and equipment, net |
|
|
23,026 |
|
|
|
|
|
|
|
|
|
|
|
573,786 |
|
|
|
(241 |
) |
|
|
596,571 |
|
Other real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,008 |
|
|
|
|
|
|
|
79,008 |
|
Accrued income receivable |
|
|
532 |
|
|
|
33 |
|
|
|
11,982 |
|
|
|
253,818 |
|
|
|
(20,719 |
) |
|
|
245,646 |
|
Other assets |
|
|
44,252 |
|
|
|
40,526 |
|
|
|
23,804 |
|
|
|
1,221,472 |
|
|
|
(4,254 |
) |
|
|
1,325,800 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
653,984 |
|
|
|
|
|
|
|
653,984 |
|
Other intangible assets |
|
|
554 |
|
|
|
|
|
|
|
|
|
|
|
109,654 |
|
|
|
|
|
|
|
110,208 |
|
|
|
|
$ |
4,030,703 |
|
|
$ |
1,297,861 |
|
|
$ |
4,874,998 |
|
|
$ |
52,092,112 |
|
|
($ |
13,672,006 |
) |
|
$ |
48,623,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,025,227 |
|
|
($ |
66,835 |
) |
|
$ |
3,958,392 |
|
Interest bearing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,811,225 |
|
|
|
(131,612 |
) |
|
|
18,679,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,836,452 |
|
|
|
(198,447 |
) |
|
|
22,638,005 |
|
Federal funds purchased and assets sold under
agreements to repurchase |
|
|
|
|
|
|
|
|
|
$ |
117,226 |
|
|
|
8,968,332 |
|
|
|
(383,097 |
) |
|
|
8,702,461 |
|
Other short-term borrowings |
|
|
|
|
|
$ |
46,112 |
|
|
|
721,866 |
|
|
|
3,521,486 |
|
|
|
(1,589,203 |
) |
|
|
2,700,261 |
|
Notes payable |
|
$ |
532,441 |
|
|
|
|
|
|
|
2,833,035 |
|
|
|
11,055,117 |
|
|
|
(4,527,016 |
) |
|
|
9,893,577 |
|
Subordinated notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
430,000 |
|
|
|
(430,000 |
) |
|
|
|
|
Other liabilities |
|
|
49,015 |
|
|
|
871 |
|
|
|
42,382 |
|
|
|
757,646 |
|
|
|
390,088 |
|
|
|
1,240,002 |
|
|
|
|
|
581,456 |
|
|
|
46,983 |
|
|
|
3,714,509 |
|
|
|
47,569,033 |
|
|
|
(6,737,675 |
) |
|
|
45,174,306 |
|
|
Minority interest in consolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115 |
|
|
|
|
|
|
|
115 |
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
186,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186,875 |
|
Common stock |
|
|
1,736,443 |
|
|
|
3,961 |
|
|
|
2 |
|
|
|
70,385 |
|
|
|
(74,348 |
) |
|
|
1,736,443 |
|
Surplus |
|
|
449,787 |
|
|
|
815,193 |
|
|
|
734,964 |
|
|
|
2,778,437 |
|
|
|
(4,325,983 |
) |
|
|
452,398 |
|
Retained earnings |
|
|
1,459,223 |
|
|
|
480,541 |
|
|
|
451,271 |
|
|
|
1,838,530 |
|
|
|
(2,772,953 |
) |
|
|
1,456,612 |
|
Accumulated other comprehensive loss, net of tax |
|
|
(176,000 |
) |
|
|
(48,817 |
) |
|
|
(25,748 |
) |
|
|
(159,996 |
) |
|
|
234,561 |
|
|
|
(176,000 |
) |
Treasury stock, at cost |
|
|
(207,081 |
) |
|
|
|
|
|
|
|
|
|
|
(4,392 |
) |
|
|
4,392 |
|
|
|
(207,081 |
) |
|
|
|
|
3,449,247 |
|
|
|
1,250,878 |
|
|
|
1,160,489 |
|
|
|
4,522,964 |
|
|
|
(6,934,331 |
) |
|
|
3,449,247 |
|
|
|
|
$ |
4,030,703 |
|
|
$ |
1,297,861 |
|
|
$ |
4,874,998 |
|
|
$ |
52,092,112 |
|
|
($ |
13,672,006 |
) |
|
$ |
48,623,668 |
|
|
41
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CONDITION
MARCH 31, 2005
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular, Inc. |
|
PIBI |
|
PNA |
|
All other |
|
Elimination |
|
Popular, Inc. |
(In thousands) |
|
Holding Co. |
|
Holding Co. |
|
Holding Co. |
|
Subsidiaries |
|
Entries |
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
301 |
|
|
$ |
13 |
|
|
$ |
5,290 |
|
|
$ |
847,377 |
|
|
($ |
40,500 |
) |
|
$ |
812,481 |
|
Money market investments |
|
|
147,300 |
|
|
|
300 |
|
|
|
162 |
|
|
|
1,051,647 |
|
|
|
(476,134 |
) |
|
|
723,275 |
|
Investment securities available-for-sale, at fair value |
|
|
46,663 |
|
|
|
34,259 |
|
|
|
7,249 |
|
|
|
11,199,402 |
|
|
|
(15,693 |
) |
|
|
11,271,880 |
|
Investment securities held-to-maturity, at amortized cost |
|
|
430,000 |
|
|
|
2,181 |
|
|
|
|
|
|
|
176,892 |
|
|
|
(430,000 |
) |
|
|
179,073 |
|
Other investment securities, at lower of cost or
realizable value |
|
|
145,635 |
|
|
|
5,001 |
|
|
|
12,392 |
|
|
|
145,753 |
|
|
|
|
|
|
|
308,781 |
|
Trading account securities, at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
371,396 |
|
|
|
(682 |
) |
|
|
370,714 |
|
Investment in subsidiaries |
|
|
2,917,661 |
|
|
|
1,122,683 |
|
|
|
1,564,029 |
|
|
|
297,643 |
|
|
|
(5,902,016 |
) |
|
|
|
|
Loans held-for-sale, at lower of cost or market value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,227,329 |
|
|
|
|
|
|
|
1,227,329 |
|
|
Loans held-in-portfolio |
|
|
25,905 |
|
|
|
|
|
|
|
2,840,334 |
|
|
|
31,002,398 |
|
|
|
(5,408,646 |
) |
|
|
28,459,991 |
|
Less Unearned income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259,294 |
|
|
|
|
|
|
|
259,294 |
|
Allowance for loan losses |
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
448,182 |
|
|
|
|
|
|
|
448,222 |
|
|
|
|
|
25,865 |
|
|
|
|
|
|
|
2,840,334 |
|
|
|
30,294,922 |
|
|
|
(5,408,646 |
) |
|
|
27,752,475 |
|
|
Premises and equipment, net |
|
|
24,156 |
|
|
|
|
|
|
|
|
|
|
|
539,681 |
|
|
|
(295 |
) |
|
|
563,542 |
|
Other real estate |
|
|
173 |
|
|
|
|
|
|
|
|
|
|
|
64,602 |
|
|
|
|
|
|
|
64,775 |
|
Accrued income receivable |
|
|
195 |
|
|
|
29 |
|
|
|
11,321 |
|
|
|
254,141 |
|
|
|
(18,517 |
) |
|
|
247,169 |
|
Other assets |
|
|
49,145 |
|
|
|
38,763 |
|
|
|
17,325 |
|
|
|
1,003,509 |
|
|
|
(29,136 |
) |
|
|
1,079,606 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
519,915 |
|
|
|
|
|
|
|
519,915 |
|
Other intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,823 |
|
|
|
|
|
|
|
46,823 |
|
|
|
|
$ |
3,787,094 |
|
|
$ |
1,203,229 |
|
|
$ |
4,458,102 |
|
|
$ |
48,041,032 |
|
|
($ |
12,321,619 |
) |
|
$ |
45,167,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,297,546 |
|
|
($ |
40,425 |
) |
|
$ |
4,257,121 |
|
Interest bearing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,653,793 |
|
|
|
(182,237 |
) |
|
|
17,471,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,951,339 |
|
|
|
(222,662 |
) |
|
|
21,728,677 |
|
Federal funds purchased and assets sold under
agreements to repurchase |
|
|
|
|
|
|
|
|
|
$ |
104,100 |
|
|
|
7,947,826 |
|
|
|
(286,862 |
) |
|
|
7,765,064 |
|
Other short-term borrowings |
|
|
|
|
|
$ |
7,083 |
|
|
|
349,150 |
|
|
|
2,843,687 |
|
|
|
(1,156,529 |
) |
|
|
2,043,391 |
|
Notes payable |
|
$ |
535,925 |
|
|
|
|
|
|
|
2,836,410 |
|
|
|
10,497,568 |
|
|
|
(4,206,895 |
) |
|
|
9,663,008 |
|
Subordinated notes |
|
|
125,000 |
|
|
|
|
|
|
|
|
|
|
|
430,000 |
|
|
|
(430,000 |
) |
|
|
125,000 |
|
Other liabilities |
|
|
61,169 |
|
|
|
88 |
|
|
|
54,594 |
|
|
|
726,419 |
|
|
|
(64,674 |
) |
|
|
777,596 |
|
|
|
|
|
722,094 |
|
|
|
7,171 |
|
|
|
3,344,254 |
|
|
|
44,396,839 |
|
|
|
(6,367,622 |
) |
|
|
42,102,736 |
|
|
Minority interest in consolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102 |
|
|
|
|
|
|
|
102 |
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
186,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186,875 |
|
Common stock |
|
|
1,681,201 |
|
|
|
3,962 |
|
|
|
2 |
|
|
|
70,384 |
|
|
|
(74,348 |
) |
|
|
1,681,201 |
|
Surplus |
|
|
280,808 |
|
|
|
815,193 |
|
|
|
734,964 |
|
|
|
1,985,333 |
|
|
|
(3,532,879 |
) |
|
|
283,419 |
|
Retained earnings |
|
|
1,249,610 |
|
|
|
408,905 |
|
|
|
393,964 |
|
|
|
1,705,530 |
|
|
|
(2,511,010 |
) |
|
|
1,246,999 |
|
Accumulated other comprehensive loss, net of tax |
|
|
(127,644 |
) |
|
|
(32,002 |
) |
|
|
(15,082 |
) |
|
|
(116,053 |
) |
|
|
163,137 |
|
|
|
(127,644 |
) |
Treasury stock, at cost |
|
|
(205,850 |
) |
|
|
|
|
|
|
|
|
|
|
(1,103 |
) |
|
|
1,103 |
|
|
|
(205,850 |
) |
|
|
|
|
3,065,000 |
|
|
|
1,196,058 |
|
|
|
1,113,848 |
|
|
|
3,644,091 |
|
|
|
(5,953,997 |
) |
|
|
3,065,000 |
|
|
|
|
$ |
3,787,094 |
|
|
$ |
1,203,229 |
|
|
$ |
4,458,102 |
|
|
$ |
48,041,032 |
|
|
($ |
12,321,619 |
) |
|
$ |
45,167,838 |
|
|
42
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE QUARTER ENDED MARCH 31, 2006
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular, Inc. |
|
PIBI |
|
PNA |
|
All other |
|
Elimination |
|
Popular, Inc. |
(In thousands) |
|
Holding Co. |
|
Holding Co. |
|
Holding Co. |
|
Subsidiaries |
|
Entries |
|
Consolidated |
|
INTEREST INCOME: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
2,664 |
|
|
|
|
|
|
$ |
36,901 |
|
|
$ |
620,050 |
|
|
($ |
67,780 |
) |
|
$ |
591,835 |
|
Money market investments |
|
|
1,072 |
|
|
$ |
66 |
|
|
|
38 |
|
|
|
10,416 |
|
|
|
(3,610 |
) |
|
|
7,982 |
|
Investment securities |
|
|
7,609 |
|
|
|
313 |
|
|
|
223 |
|
|
|
132,368 |
|
|
|
(6,980 |
) |
|
|
133,533 |
|
Trading account securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,860 |
|
|
|
|
|
|
|
8,860 |
|
|
|
|
|
11,345 |
|
|
|
379 |
|
|
|
37,162 |
|
|
|
771,694 |
|
|
|
(78,370 |
) |
|
|
742,210 |
|
|
INTEREST EXPENSE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,438 |
|
|
|
(1,027 |
) |
|
|
124,411 |
|
Short-term borrowings |
|
|
54 |
|
|
|
446 |
|
|
|
6,477 |
|
|
|
132,338 |
|
|
|
(14,512 |
) |
|
|
124,803 |
|
Long-term debt |
|
|
8,983 |
|
|
|
|
|
|
|
42,967 |
|
|
|
146,160 |
|
|
|
(64,878 |
) |
|
|
133,232 |
|
|
|
|
|
9,037 |
|
|
|
446 |
|
|
|
49,444 |
|
|
|
403,936 |
|
|
|
(80,417 |
) |
|
|
382,446 |
|
|
Net interest income (loss) |
|
|
2,308 |
|
|
|
(67 |
) |
|
|
(12,282 |
) |
|
|
367,758 |
|
|
|
2,047 |
|
|
|
359,764 |
|
Provision for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,947 |
|
|
|
|
|
|
|
48,947 |
|
|
Net interest income (loss) after provision for loan losses |
|
|
2,308 |
|
|
|
(67 |
) |
|
|
(12,282 |
) |
|
|
318,811 |
|
|
|
2,047 |
|
|
|
310,817 |
|
Service charges on deposit accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,469 |
|
|
|
|
|
|
|
47,469 |
|
Other service fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,064 |
|
|
|
(27,718 |
) |
|
|
80,346 |
|
Net gain (loss) on sale and valuation adjustment of investment
securities |
|
|
152 |
|
|
|
13,490 |
|
|
|
|
|
|
|
(1,714 |
) |
|
|
412 |
|
|
|
12,340 |
|
Trading account (loss) profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(647 |
) |
|
|
12,122 |
|
|
|
11,475 |
|
Gain on sale of loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,054 |
|
|
|
207 |
|
|
|
47,261 |
|
Other operating income |
|
|
2,842 |
|
|
|
2,893 |
|
|
|
|
|
|
|
32,853 |
|
|
|
(8,646 |
) |
|
|
29,942 |
|
|
|
|
|
5,302 |
|
|
|
16,316 |
|
|
|
(12,282 |
) |
|
|
551,890 |
|
|
|
(21,576 |
) |
|
|
539,650 |
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
|
5,892 |
|
|
|
93 |
|
|
|
|
|
|
|
129,818 |
|
|
|
(271 |
) |
|
|
135,532 |
|
Pension, profit sharing and other benefits |
|
|
1,629 |
|
|
|
20 |
|
|
|
|
|
|
|
40,950 |
|
|
|
(79 |
) |
|
|
42,520 |
|
|
|
|
|
7,521 |
|
|
|
113 |
|
|
|
|
|
|
|
170,768 |
|
|
|
(350 |
) |
|
|
178,052 |
|
Net occupancy expenses |
|
|
603 |
|
|
|
4 |
|
|
|
|
|
|
|
28,031 |
|
|
|
|
|
|
|
28,638 |
|
Equipment expenses |
|
|
394 |
|
|
|
1 |
|
|
|
4 |
|
|
|
32,813 |
|
|
|
(15 |
) |
|
|
33,197 |
|
Other taxes |
|
|
266 |
|
|
|
|
|
|
|
|
|
|
|
9,975 |
|
|
|
|
|
|
|
10,241 |
|
Professional fees |
|
|
4,428 |
|
|
|
11 |
|
|
|
38 |
|
|
|
66,333 |
|
|
|
(33,732 |
) |
|
|
37,078 |
|
Communications |
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
17,182 |
|
|
|
(19 |
) |
|
|
17,300 |
|
Business promotion |
|
|
2,463 |
|
|
|
|
|
|
|
|
|
|
|
30,360 |
|
|
|
|
|
|
|
32,823 |
|
Printing and supplies |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
4,605 |
|
|
|
|
|
|
|
4,632 |
|
Other operating expenses |
|
|
(14,920 |
) |
|
|
(104 |
) |
|
|
107 |
|
|
|
44,072 |
|
|
|
(324 |
) |
|
|
28,831 |
|
Impact of change in fiscal period at certain subsidiaries |
|
|
|
|
|
|
|
|
|
|
3,495 |
|
|
|
4,109 |
|
|
|
2,137 |
|
|
|
9,741 |
|
Amortization of intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,721 |
|
|
|
|
|
|
|
2,721 |
|
|
|
|
|
919 |
|
|
|
25 |
|
|
|
3,644 |
|
|
|
410,969 |
|
|
|
(32,303 |
) |
|
|
383,254 |
|
|
Income (loss) before income tax and equity in earnings of
subsidiaries |
|
|
4,383 |
|
|
|
16,291 |
|
|
|
(15,926 |
) |
|
|
140,921 |
|
|
|
10,727 |
|
|
|
156,396 |
|
Income tax |
|
|
777 |
|
|
|
|
|
|
|
(5,574 |
) |
|
|
40,617 |
|
|
|
2,073 |
|
|
|
37,893 |
|
|
Income (loss) before equity in earnings of subsidiaries |
|
|
3,606 |
|
|
|
16,291 |
|
|
|
(10,352 |
) |
|
|
100,304 |
|
|
|
8,654 |
|
|
|
118,503 |
|
Equity in earnings of subsidiaries |
|
|
114,897 |
|
|
|
1,991 |
|
|
|
11,942 |
|
|
|
7,768 |
|
|
|
(136,598 |
) |
|
|
|
|
|
NET INCOME |
|
$ |
118,503 |
|
|
$ |
18,282 |
|
|
$ |
1,590 |
|
|
$ |
108,072 |
|
|
($ |
127,944 |
) |
|
$ |
118,503 |
|
|
43
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE QUARTER ENDED MARCH 31, 2005
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular, Inc. |
|
PIBI |
|
PNA |
|
All other |
|
Elimination |
|
Popular, Inc. |
(In thousands) |
|
Holding Co. |
|
Holding Co. |
|
Holding Co. |
|
Subsidiaries |
|
Entries |
|
Consolidated |
|
INTEREST INCOME: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
538 |
|
|
|
|
|
|
$ |
35,201 |
|
|
$ |
524,529 |
|
|
($ |
54,947 |
) |
|
$ |
505,321 |
|
Money market investments |
|
|
586 |
|
|
$ |
1 |
|
|
|
6 |
|
|
|
10,111 |
|
|
|
(3,170 |
) |
|
|
7,534 |
|
Investment securities |
|
|
7,527 |
|
|
|
|
|
|
|
316 |
|
|
|
113,413 |
|
|
|
(6,889 |
) |
|
|
114,367 |
|
Trading account securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,058 |
|
|
|
|
|
|
|
6,058 |
|
|
|
|
|
8,651 |
|
|
|
1 |
|
|
|
35,523 |
|
|
|
654,111 |
|
|
|
(65,006 |
) |
|
|
633,280 |
|
|
INTEREST EXPENSE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,268 |
|
|
|
(1,212 |
) |
|
|
97,056 |
|
Short-term borrowings |
|
|
61 |
|
|
|
32 |
|
|
|
3,258 |
|
|
|
73,006 |
|
|
|
(10,554 |
) |
|
|
65,803 |
|
Long-term debt |
|
|
10,920 |
|
|
|
|
|
|
|
38,590 |
|
|
|
119,106 |
|
|
|
(55,481 |
) |
|
|
113,135 |
|
|
|
|
|
10,981 |
|
|
|
32 |
|
|
|
41,848 |
|
|
|
290,380 |
|
|
|
(67,247 |
) |
|
|
275,994 |
|
|
Net interest (loss) income |
|
|
(2,330 |
) |
|
|
(31 |
) |
|
|
(6,325 |
) |
|
|
363,731 |
|
|
|
2,241 |
|
|
|
357,286 |
|
Provision for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,336 |
|
|
|
|
|
|
|
44,336 |
|
|
Net interest (loss) income after provision for loan losses |
|
|
(2,330 |
) |
|
|
(31 |
) |
|
|
(6,325 |
) |
|
|
319,395 |
|
|
|
2,241 |
|
|
|
312,950 |
|
Service charges on deposit accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,692 |
|
|
|
|
|
|
|
43,692 |
|
Other service fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,728 |
|
|
|
(24,713 |
) |
|
|
79,015 |
|
Net gain on sale and valuation adjustment of investment
securities |
|
|
50,469 |
|
|
|
|
|
|
|
|
|
|
|
781 |
|
|
|
|
|
|
|
51,250 |
|
Trading account profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,414 |
|
|
|
349 |
|
|
|
3,763 |
|
Gain on sale of loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,045 |
|
|
|
(5,229 |
) |
|
|
9,816 |
|
Other operating income |
|
|
1,355 |
|
|
|
1,252 |
|
|
|
|
|
|
|
24,878 |
|
|
|
(9,432 |
) |
|
|
18,053 |
|
|
|
|
|
49,494 |
|
|
|
1,221 |
|
|
|
(6,325 |
) |
|
|
510,933 |
|
|
|
(36,784 |
) |
|
|
518,539 |
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
|
|
|
|
|
89 |
|
|
|
|
|
|
|
116,102 |
|
|
|
(649 |
) |
|
|
115,542 |
|
Pension, profit sharing and other benefits |
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
40,543 |
|
|
|
(187 |
) |
|
|
40,374 |
|
|
|
|
|
|
|
|
|
107 |
|
|
|
|
|
|
|
156,645 |
|
|
|
(836 |
) |
|
|
155,916 |
|
Net occupancy expenses |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
24,810 |
|
|
|
|
|
|
|
24,814 |
|
Equipment expenses |
|
|
8 |
|
|
|
|
|
|
|
2 |
|
|
|
28,619 |
|
|
|
(15 |
) |
|
|
28,614 |
|
Other taxes |
|
|
273 |
|
|
|
|
|
|
|
|
|
|
|
8,982 |
|
|
|
|
|
|
|
9,255 |
|
Professional fees |
|
|
572 |
|
|
|
3 |
|
|
|
5 |
|
|
|
60,219 |
|
|
|
(33,216 |
) |
|
|
27,583 |
|
Communications |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
15,679 |
|
|
|
(18 |
) |
|
|
15,677 |
|
Business promotion |
|
|
625 |
|
|
|
|
|
|
|
|
|
|
|
19,628 |
|
|
|
|
|
|
|
20,253 |
|
Printing and supplies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,537 |
|
|
|
|
|
|
|
4,537 |
|
Other operating expenses |
|
|
(455 |
) |
|
|
17 |
|
|
|
120 |
|
|
|
28,652 |
|
|
|
(391 |
) |
|
|
27,943 |
|
Amortization of intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,242 |
|
|
|
|
|
|
|
2,242 |
|
|
|
|
|
1,039 |
|
|
|
131 |
|
|
|
127 |
|
|
|
350,013 |
|
|
|
(34,476 |
) |
|
|
316,834 |
|
|
Income (loss) before income tax, cumulative effect of
accounting change and equity in earnings of
subsidiaries |
|
|
48,455 |
|
|
|
1,090 |
|
|
|
(6,452 |
) |
|
|
160,920 |
|
|
|
(2,308 |
) |
|
|
201,705 |
|
Income tax |
|
|
3,155 |
|
|
|
|
|
|
|
(2,273 |
) |
|
|
41,865 |
|
|
|
(314 |
) |
|
|
42,433 |
|
|
Income (loss) before cumulative effect of accounting
change and equity in earnings of subsidiaries |
|
|
45,300 |
|
|
|
1,090 |
|
|
|
(4,179 |
) |
|
|
119,055 |
|
|
|
(1,994 |
) |
|
|
159,272 |
|
Cumulative effect of accounting change, net of tax |
|
|
|
|
|
|
691 |
|
|
|
|
|
|
|
4,494 |
|
|
|
(1,578 |
) |
|
|
3,607 |
|
|
Income (loss) before equity in earnings of subsidiaries |
|
|
45,300 |
|
|
|
1,781 |
|
|
|
(4,179 |
) |
|
|
123,549 |
|
|
|
(3,572 |
) |
|
|
162,879 |
|
Equity in earnings of subsidiaries |
|
|
117,579 |
|
|
|
25,628 |
|
|
|
29,482 |
|
|
|
12,555 |
|
|
|
(185,244 |
) |
|
|
|
|
|
NET INCOME |
|
$ |
162,879 |
|
|
$ |
27,409 |
|
|
$ |
25,303 |
|
|
$ |
136,104 |
|
|
($ |
188,816 |
) |
|
$ |
162,879 |
|
|
44
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED MARCH 31, 2006
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular, Inc. |
|
PIBI |
|
PNA |
|
All other |
|
Elimination |
|
Consolidated |
(In thousands) |
|
Holding Co. |
|
Holding Co. |
|
Holding Co. |
|
Subsidiaries |
|
Entries |
|
Popular, Inc. |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
118,503 |
|
|
$ |
18,282 |
|
|
$ |
1,590 |
|
|
$ |
108,072 |
|
|
($ |
127,944 |
) |
|
$ |
118,503 |
|
Less: Impact of change in fiscal period of certain subsidiaries, net of tax |
|
|
|
|
|
|
|
|
|
|
(2,271 |
) |
|
|
(2,638 |
) |
|
|
(1,220 |
) |
|
|
(6,129 |
) |
|
Net income before impact of change in fiscal period |
|
|
118,503 |
|
|
|
18,282 |
|
|
|
3,861 |
|
|
|
110,710 |
|
|
|
(126,724 |
) |
|
|
124,632 |
|
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed earnings of subsidiaries |
|
|
(114,897 |
) |
|
|
(1,991 |
) |
|
|
(11,942 |
) |
|
|
(7,768 |
) |
|
|
136,598 |
|
|
|
|
|
Depreciation and amortization of premises and
equipment |
|
|
564 |
|
|
|
|
|
|
|
|
|
|
|
20,891 |
|
|
|
(18 |
) |
|
|
21,437 |
|
Provision for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,947 |
|
|
|
|
|
|
|
48,947 |
|
Amortization of intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,721 |
|
|
|
|
|
|
|
2,721 |
|
Amortization of servicing assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,510 |
|
|
|
(9 |
) |
|
|
13,501 |
|
Net (gain) loss on sale and valuation adjustment of
investment securities |
|
|
(152 |
) |
|
|
(13,490 |
) |
|
|
|
|
|
|
1,714 |
|
|
|
(412 |
) |
|
|
(12,340 |
) |
Net gain on disposition of premises and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,512 |
) |
|
|
|
|
|
|
(1,512 |
) |
Net gain on sale of loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,054 |
) |
|
|
(207 |
) |
|
|
(47,261 |
) |
Net amortization of premiums and accretion of
discounts
on investments |
|
|
(133 |
) |
|
|
3 |
|
|
|
|
|
|
|
7,208 |
|
|
|
(66 |
) |
|
|
7,012 |
|
Net amortization of premiums and deferred loan
origination fees and costs |
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
33,523 |
|
|
|
(1,613 |
) |
|
|
31,887 |
|
Earnings from investments under the equity method |
|
|
(792 |
) |
|
|
(2,881 |
) |
|
|
|
|
|
|
(193 |
) |
|
|
(395 |
) |
|
|
(4,261 |
) |
Stock options expense |
|
|
187 |
|
|
|
|
|
|
|
|
|
|
|
613 |
|
|
|
|
|
|
|
800 |
|
Net disbursements on loans held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,046,227 |
) |
|
|
|
|
|
|
(2,046,227 |
) |
Acquisitions of loans held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(166,540 |
) |
|
|
|
|
|
|
(166,540 |
) |
Proceeds from sale of loans held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,166,951 |
|
|
|
|
|
|
|
2,166,951 |
|
Net decrease in trading securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
677,764 |
|
|
|
|
|
|
|
677,764 |
|
Net decrease (increase) in accrued income receivable |
|
|
115 |
|
|
|
(6 |
) |
|
|
1,133 |
|
|
|
(29,449 |
) |
|
|
(2,382 |
) |
|
|
(30,589 |
) |
Net (increase) decrease in other assets |
|
|
(11,221 |
) |
|
|
(1 |
) |
|
|
551 |
|
|
|
31,428 |
|
|
|
(1,287 |
) |
|
|
19,470 |
|
Net increase in interest payable |
|
|
264 |
|
|
|
69 |
|
|
|
18,188 |
|
|
|
2,959 |
|
|
|
2,369 |
|
|
|
23,849 |
|
Net increase
in deferred income tax |
|
|
|
|
|
|
|
|
|
|
(3,075 |
) |
|
|
(3,032 |
) |
|
|
4,356 |
|
|
|
(1,751 |
) |
Net increase in postretirement benefit obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,585 |
|
|
|
|
|
|
|
1,585 |
|
Net increase (decrease) in other liabilities |
|
|
9,725 |
|
|
|
485 |
|
|
|
(1,262 |
) |
|
|
(6,827 |
) |
|
|
1,165 |
|
|
|
3,286 |
|
|
Total adjustments |
|
|
(116,363 |
) |
|
|
(17,812 |
) |
|
|
3,593 |
|
|
|
701,212 |
|
|
|
138,099 |
|
|
|
708,729 |
|
|
Net cash provided by operating activities |
|
|
2,140 |
|
|
|
470 |
|
|
|
7,454 |
|
|
|
811,922 |
|
|
|
11,375 |
|
|
|
833,361 |
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in money market investments |
|
|
(84,600 |
) |
|
|
|
|
|
|
(37 |
) |
|
|
(110,530 |
) |
|
|
(45,183 |
) |
|
|
(240,350 |
) |
Purchases of investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
|
|
|
(7,954 |
) |
|
|
|
|
|
|
(273,651 |
) |
|
|
105,630 |
|
|
|
(175,975 |
) |
Held-to-maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,747,198 |
) |
|
|
|
|
|
|
(7,747,198 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,580 |
) |
|
|
|
|
|
|
(10,580 |
) |
Proceeds from calls, paydowns, maturities and
redemptions of investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
346,354 |
|
|
|
(99,299 |
) |
|
|
247,055 |
|
Held-to-maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,556,192 |
|
|
|
|
|
|
|
7,556,192 |
|
Other |
|
|
496 |
|
|
|
|
|
|
|
|
|
|
|
24,578 |
|
|
|
|
|
|
|
25,074 |
|
Proceeds from sale of investment securities
available-for-sale |
|
|
6,655 |
|
|
|
27,924 |
|
|
|
|
|
|
|
9,315 |
|
|
|
|
|
|
|
43,894 |
|
Net (disbursements) repayments on loans |
|
|
(21,789 |
) |
|
|
|
|
|
|
119,522 |
|
|
|
81,910 |
|
|
|
13,366 |
|
|
|
193,009 |
|
Proceeds from sale of loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,038 |
|
|
|
|
|
|
|
73,038 |
|
Acquisition of loan portfolios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141,658 |
) |
|
|
|
|
|
|
(141,658 |
) |
Capital contribution to subsidiary |
|
|
|
|
|
|
(505 |
) |
|
|
(797 |
) |
|
|
(29,881 |
) |
|
|
31,183 |
|
|
|
|
|
Assets acquired, net of cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(218 |
) |
|
|
|
|
|
|
(218 |
) |
Acquisition of premises and equipment |
|
|
(3,769 |
) |
|
|
|
|
|
|
|
|
|
|
(35,030 |
) |
|
|
|
|
|
|
(38,799 |
) |
Proceeds from sale of premises and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,452 |
|
|
|
|
|
|
|
14,452 |
|
Dividends received from subsidiary |
|
|
104,000 |
|
|
|
|
|
|
|
|
|
|
|
60,763 |
|
|
|
(164,763 |
) |
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
993 |
|
|
|
19,465 |
|
|
|
118,688 |
|
|
|
(182,144 |
) |
|
|
(159,066 |
) |
|
|
(202,064 |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
726,357 |
|
|
|
43,120 |
|
|
|
769,477 |
|
Net decrease in federal funds purchased and
assets sold under agreements to repurchase |
|
|
|
|
|
|
|
|
|
|
(108,700 |
) |
|
|
(406,192 |
) |
|
|
14,660 |
|
|
|
(500,232 |
) |
Net (decrease) increase in other short-term borrowings |
|
|
|
|
|
|
(14,623 |
) |
|
|
181,925 |
|
|
|
(534,464 |
) |
|
|
205,565 |
|
|
|
(161,597 |
) |
Payments of notes payable |
|
|
|
|
|
|
|
|
|
|
(203,001 |
) |
|
|
(1,102,079 |
) |
|
|
404,963 |
|
|
|
(900,117 |
) |
Proceeds from issuance of notes payable |
|
|
98 |
|
|
|
|
|
|
|
3,547 |
|
|
|
743,373 |
|
|
|
(640,766 |
) |
|
|
106,252 |
|
Dividends paid to parent company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(164,762 |
) |
|
|
164,762 |
|
|
|
|
|
Dividends paid |
|
|
(45,768 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,768 |
) |
Proceeds from issuance of common stock |
|
|
42,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167 |
|
|
|
42,983 |
|
Capital contribution from parent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,184 |
|
|
|
(31,184 |
) |
|
|
|
|
|
Net cash used in financing activities |
|
|
(2,854 |
) |
|
|
(14,623 |
) |
|
|
(126,229 |
) |
|
|
(706,583 |
) |
|
|
161,287 |
|
|
|
(689,002 |
) |
|
Cash effect of change in fiscal period of certain subsidiaries |
|
|
|
|
|
|
|
|
|
|
78 |
|
|
|
19,570 |
|
|
|
(7,734 |
) |
|
|
11,914 |
|
|
Net increase (decrease) in cash and due from banks |
|
|
279 |
|
|
|
5,312 |
|
|
|
(9 |
) |
|
|
(57,235 |
) |
|
|
5,862 |
|
|
|
(45,791 |
) |
Cash and due from banks at beginning of period |
|
|
696 |
|
|
|
2,103 |
|
|
|
448 |
|
|
|
962,395 |
|
|
|
(59,245 |
) |
|
|
906,397 |
|
|
Cash and due from banks at end of period |
|
$ |
975 |
|
|
$ |
7,415 |
|
|
$ |
439 |
|
|
$ |
905,160 |
|
|
($ |
53,383 |
) |
|
$ |
860,606 |
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
POPULAR, INC. |
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS |
FOR THE QUARTER ENDED MARCH 31, 2005 |
(UNAUDITED) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular, Inc. |
|
PIBI |
|
PNA |
|
All other |
|
Elimination |
|
Consolidated |
(In thousands) |
|
Holding Co. |
|
Holding Co. |
|
Holding Co. |
|
Subsidiaries |
|
Entries |
|
Popular, Inc. |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
162,879 |
|
|
$ |
27,409 |
|
|
$ |
25,303 |
|
|
$ |
136,104 |
|
|
($ |
188,816 |
) |
|
$ |
162,879 |
|
Less: Cumulative effect of accounting change, net of tax |
|
|
|
|
|
|
691 |
|
|
|
|
|
|
|
4,495 |
|
|
|
(1,579 |
) |
|
|
3,607 |
|
|
Net income before cumulative effect of accounting
change |
|
|
162,879 |
|
|
|
26,718 |
|
|
|
25,303 |
|
|
|
131,609 |
|
|
|
(187,237 |
) |
|
|
159,272 |
|
|
Adjustments to reconcile net income to net cash
provided by (used in) operating
activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed earnings of subsidiaries |
|
|
(117,579 |
) |
|
|
(25,628 |
) |
|
|
(29,482 |
) |
|
|
(12,555 |
) |
|
|
185,244 |
|
|
|
|
|
Depreciation and amortization of premises and
equipment |
|
|
378 |
|
|
|
|
|
|
|
|
|
|
|
19,650 |
|
|
|
(18 |
) |
|
|
20,010 |
|
Provision for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,336 |
|
|
|
|
|
|
|
44,336 |
|
Amortization of intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,242 |
|
|
|
|
|
|
|
2,242 |
|
Amortization of servicing assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,434 |
|
|
|
(13 |
) |
|
|
3,421 |
|
Net gain on sale of investment securities |
|
|
(50,469 |
) |
|
|
|
|
|
|
|
|
|
|
(781 |
) |
|
|
|
|
|
|
(51,250 |
) |
Net gain on disposition of premises and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,663 |
) |
|
|
|
|
|
|
(1,663 |
) |
Net gain on sale of loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,046 |
) |
|
|
5,230 |
|
|
|
(9,816 |
) |
Net amortization of premiums and accretion of
discounts
on investments |
|
|
(147 |
) |
|
|
|
|
|
|
|
|
|
|
10,939 |
|
|
|
(195 |
) |
|
|
10,597 |
|
Net amortization of premiums and deferred loan
origination fees and costs |
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
30,452 |
|
|
|
(1,700 |
) |
|
|
28,728 |
|
Earnings from investments under the equity method |
|
|
(628 |
) |
|
|
(1,147 |
) |
|
|
|
|
|
|
(194 |
) |
|
|
|
|
|
|
(1,969 |
) |
Stock options expense |
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
687 |
|
|
|
(2 |
) |
|
|
746 |
|
Net disbursements on loans held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(800,476 |
) |
|
|
|
|
|
|
(800,476 |
) |
Acquisitions of loans held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(563,223 |
) |
|
|
|
|
|
|
(563,223 |
) |
Proceeds from sale of loans held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
913,688 |
|
|
|
|
|
|
|
913,688 |
|
Net decrease in trading securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,289 |
|
|
|
(1,192 |
) |
|
|
19,097 |
|
Net increase in accrued income receivable |
|
|
(10 |
) |
|
|
(29 |
) |
|
|
(485 |
) |
|
|
(32,483 |
) |
|
|
676 |
|
|
|
(32,331 |
) |
Net decrease in other assets |
|
|
5,930 |
|
|
|
5 |
|
|
|
546 |
|
|
|
40,703 |
|
|
|
(779 |
) |
|
|
46,405 |
|
Net increase in interest payable |
|
|
2,991 |
|
|
|
5 |
|
|
|
14,766 |
|
|
|
2,996 |
|
|
|
(674 |
) |
|
|
20,084 |
|
Net increase
in deferred income tax |
|
|
(181 |
) |
|
|
|
|
|
|
(2,272 |
) |
|
|
(1,549 |
) |
|
|
(476 |
) |
|
|
(4,478 |
) |
Net increase in postretirement benefit obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,414 |
|
|
|
|
|
|
|
1,414 |
|
Net increase (decrease) in other liabilities |
|
|
4,092 |
|
|
|
(13 |
) |
|
|
4,780 |
|
|
|
(48,880 |
) |
|
|
(4,631 |
) |
|
|
(44,652 |
) |
|
Total adjustments |
|
|
(155,586 |
) |
|
|
(26,807 |
) |
|
|
(12,147 |
) |
|
|
(386,020 |
) |
|
|
181,470 |
|
|
|
(399,090 |
) |
|
Net cash provided by (used in) operating activities |
|
|
7,293 |
|
|
|
(89 |
) |
|
|
13,156 |
|
|
|
(254,411 |
) |
|
|
(5,767 |
) |
|
|
(239,818 |
) |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (increase) decrease in money market investments |
|
|
(98,800 |
) |
|
|
|
|
|
|
52 |
|
|
|
206,061 |
|
|
|
78,896 |
|
|
|
186,209 |
|
Purchases of investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
(103,729 |
) |
|
|
|
|
|
|
|
|
|
|
(757,114 |
) |
|
|
186,821 |
|
|
|
(674,022 |
) |
Held-to-maturity |
|
|
|
|
|
|
(2,181 |
) |
|
|
|
|
|
|
(7,669,578 |
) |
|
|
|
|
|
|
(7,671,759 |
) |
Other |
|
|
(45 |
) |
|
|
|
|
|
|
(20 |
) |
|
|
(28,139 |
) |
|
|
|
|
|
|
(28,204 |
) |
Proceeds from calls, paydowns, maturities and
redemptions of investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
57,066 |
|
|
|
|
|
|
|
|
|
|
|
704,357 |
|
|
|
(174,546 |
) |
|
|
586,877 |
|
Held-to-maturity |
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
|
7,701,301 |
|
|
|
|
|
|
|
7,851,301 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,863 |
|
|
|
|
|
|
|
21,863 |
|
Proceeds from sale of investment securities
available-for-sale |
|
|
57,506 |
|
|
|
|
|
|
|
|
|
|
|
42,438 |
|
|
|
|
|
|
|
99,944 |
|
Net repayments (disbursements) on loans |
|
|
15,571 |
|
|
|
|
|
|
|
(3,634 |
) |
|
|
802,372 |
|
|
|
28,669 |
|
|
|
842,978 |
|
Proceeds from sale of loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,246 |
|
|
|
|
|
|
|
80,246 |
|
Acquisition of loan portfolios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(660,023 |
) |
|
|
|
|
|
|
(660,023 |
) |
Capital contribution to subsidiary |
|
|
(75,000 |
) |
|
|
(75,000 |
) |
|
|
(173,030 |
) |
|
|
(500 |
) |
|
|
323,530 |
|
|
|
|
|
Assets acquired, net of cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(173,666 |
) |
|
|
|
|
|
|
(173,666 |
) |
Acquisition of premises and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,770 |
) |
|
|
|
|
|
|
(38,770 |
) |
Proceeds from sale of premises and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,505 |
|
|
|
|
|
|
|
10,505 |
|
Dividends received from subsidiary |
|
|
42,700 |
|
|
|
|
|
|
|
50,000 |
|
|
|
50,500 |
|
|
|
(143,200 |
) |
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
45,269 |
|
|
|
(77,181 |
) |
|
|
(126,632 |
) |
|
|
291,853 |
|
|
|
300,170 |
|
|
|
433,479 |
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
380,069 |
|
|
|
85,507 |
|
|
|
465,576 |
|
Net (decrease) increase in federal funds purchased and
assets sold under agreements to repurchase |
|
|
(6,690 |
) |
|
|
|
|
|
|
32,800 |
|
|
|
1,417,941 |
|
|
|
(153,559 |
) |
|
|
1,290,492 |
|
Net (decrease) increase in other short-term borrowings |
|
|
(4,501 |
) |
|
|
2,257 |
|
|
|
9,497 |
|
|
|
(1,170,310 |
) |
|
|
54,547 |
|
|
|
(1,108,510 |
) |
Payments of notes payable |
|
|
(750 |
) |
|
|
|
|
|
|
(10,830 |
) |
|
|
(935,976 |
) |
|
|
102,620 |
|
|
|
(844,936 |
) |
Proceeds from issuance of notes payable |
|
|
95 |
|
|
|
|
|
|
|
11,915 |
|
|
|
323,052 |
|
|
|
(193,053 |
) |
|
|
142,009 |
|
Dividends paid to parent company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(143,200 |
) |
|
|
143,200 |
|
|
|
|
|
Dividends paid |
|
|
(45,636 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,636 |
) |
Proceeds from issuance of common stock |
|
|
4,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,938 |
|
Capital contribution from parent |
|
|
|
|
|
|
75,000 |
|
|
|
75,000 |
|
|
|
172,811 |
|
|
|
(322,811 |
) |
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(52,544 |
) |
|
|
77,257 |
|
|
|
118,382 |
|
|
|
44,387 |
|
|
|
(283,549 |
) |
|
|
(96,067 |
) |
|
Cash effect of change in accounting principle |
|
|
|
|
|
|
(28 |
) |
|
|
|
|
|
|
(1,544 |
) |
|
|
|
|
|
|
(1,572 |
) |
|
Net increase (decrease) in cash due from banks |
|
|
18 |
|
|
|
(41 |
) |
|
|
4,906 |
|
|
|
80,285 |
|
|
|
10,854 |
|
|
|
96,022 |
|
Cash and due from banks at beginning of period |
|
|
283 |
|
|
|
54 |
|
|
|
384 |
|
|
|
767,092 |
|
|
|
(51,354 |
) |
|
|
716,459 |
|
|
Cash and due from banks at end period |
|
$ |
301 |
|
|
$ |
13 |
|
|
$ |
5,290 |
|
|
$ |
847,377 |
|
|
($ |
40,500 |
) |
|
$ |
812,481 |
|
|
46
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This managements discussion and analysis (MD&A) contains an analysis of the consolidated financial
position and financial performance of Popular, Inc. and its subsidiaries (the Corporation or
Popular). All accompanying tables, financial statements and notes included elsewhere in this
report should be considered an integral part of this analysis.
OVERVIEW
As the leading financial institution in Puerto Rico, the Corporation offers retail and commercial
banking services through its banking subsidiary, Banco Popular de Puerto Rico (BPPR), as well as
investment banking, auto and equipment leasing and financing, mortgage loans, consumer lending,
reinsurance and insurance agency services through specialized subsidiaries. In the United States,
the Corporation has established the largest Hispanic-owned financial services franchise, Banco
Popular North America (BPNA), providing complete financial solutions to all the communities it
serves. Also, in the United States, Popular Financial Holdings, Inc. (PFH), holding company of
Equity One, Inc., offers mortgage and personal loans, and also maintains a substantial wholesale
loan brokerage network, a warehouse lending division and a loan servicing unit. PFH, through its
newly acquired subsidiary E-LOAN, Inc. (E-LOAN), also provides online consumer direct lending to
obtain mortgage, auto and home equity loans. The Corporation strives to use its expertise in
technology and electronic banking as a competitive advantage in its Caribbean and Latin America
expansion, as well as internally servicing many of its subsidiaries system infrastructures and
transactional processing businesses. EVERTEC, Inc. (EVERTEC), the Corporations main subsidiary in
this business segment, is the leading provider of financial transaction processing and information
technology solutions in Puerto Rico and the Caribbean. With offices in San Juan, Caracas, Santo
Domingo, and Miami, EVERTEC has presence in 11 Latin American countries.
Financial highlights for the quarter ended March 31, 2006, compared with the same quarter in 2005,
are included below. Also, Table A provides selected financial data for those quarters.
|
|
|
Slight growth in net interest income of $2.5 million, or less than 1%. On a
taxable equivalent basis, net interest income increased $7.1 million or 2%. The
sustained inversion of the yield curve and competitive pricing continued to put
pressure on the Corporations net interest margin. Average earning assets rose $3.1
billion or 7%, with sound growth in commercial and consumer loans. The upward
repricing of the Corporations interest bearing assets continues to lag the increase
in the cost of its interest bearing liabilities, primarily in the residential
mortgage lending business. Table B provides information on the Corporations net
interest income on a taxable equivalent basis. |
|
|
|
|
The results for the first quarter of 2006 included $12.3 million in gains on
sales of investment securities, mainly marketable equity securities, net of
valuation adjustments for other-than-temporary impairments of investment securities
available-for-sale, compared with $51.3 million in the same period of 2005. |
|
|
|
|
Non-interest income, excluding the aforementioned net gains on sales and
valuation adjustments of investment securities, rose by $62.2 million, primarily
from revenues derived from mortgage banking activities resulting from securitization
transactions and bulk sales of loans. Refer to the Non-Interest Income section of
the MD&A for further explanations, including Table C for a breakdown of other
service fees by major categories. |
|
|
|
|
Provision for loan losses increased by $4.6 million. Refer to the Credit Risk
Management and Loan Quality section, including Tables I, J and K, for a more
detailed analysis of the allowance for loan losses, net charge-offs, non-performing
assets and credit quality statistics. Credit quality statistics indicate higher
delinquencies in the consumer and mortgage portfolios and an increase in net
charge-off rates, principally in consumer loans, both in Puerto Rico and the U.S.
mainland. |
47
TABLE A
Financial Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Condition Highlights |
|
At March 31, |
|
Average for the quarter |
(In thousands) |
|
2006 |
|
2005 |
|
Variance |
|
2006 |
|
2005 |
|
Variance |
|
Money market investments |
|
$ |
989,915 |
|
|
$ |
723,275 |
|
|
$ |
266,640 |
|
|
$ |
644,978 |
|
|
$ |
859,211 |
|
|
($ |
214,233 |
) |
Investment and trading securities |
|
|
12,669,274 |
|
|
|
12,130,448 |
|
|
|
538,826 |
|
|
|
13,034,368 |
|
|
|
12,361,927 |
|
|
|
672,441 |
|
Loans* |
|
|
31,430,385 |
|
|
|
29,428,026 |
|
|
|
2,002,359 |
|
|
|
31,924,429 |
|
|
|
29,325,771 |
|
|
|
2,598,658 |
|
Total assets |
|
|
48,591,703 |
|
|
|
45,167,838 |
|
|
|
3,423,865 |
|
|
|
48,956,516 |
|
|
|
45,438,817 |
|
|
|
3,517,699 |
|
Deposits |
|
|
23,411,812 |
|
|
|
21,728,677 |
|
|
|
1,683,135 |
|
|
|
22,643,620 |
|
|
|
21,592,432 |
|
|
|
1,051,188 |
|
Borrowings |
|
|
20,894,119 |
|
|
|
19,596,463 |
|
|
|
1,297,656 |
|
|
|
21,931,525 |
|
|
|
19,951,984 |
|
|
|
1,979,541 |
|
Stockholders equity |
|
|
3,487,557 |
|
|
|
3,065,000 |
|
|
|
422,557 |
|
|
|
3,658,269 |
|
|
|
3,135,594 |
|
|
|
522,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Highlights |
|
First Quarter |
(In thousands, except per share information) |
|
2006 |
|
2005 |
|
Variance |
|
Net interest income |
|
$ |
359,764 |
|
|
$ |
357,286 |
|
|
$ |
2,478 |
|
Provision for loan losses |
|
|
48,947 |
|
|
|
44,336 |
|
|
|
4,611 |
|
Non-interest income |
|
|
228,833 |
|
|
|
205,589 |
|
|
|
23,244 |
|
Operating expenses |
|
|
383,254 |
|
|
|
316,834 |
|
|
|
66,420 |
|
Income tax |
|
|
37,893 |
|
|
|
42,433 |
|
|
|
(4,540 |
) |
Cumulative effect of accounting change, net of tax |
|
|
|
|
|
|
3,607 |
|
|
|
(3,607 |
) |
Net income |
|
$ |
118,503 |
|
|
$ |
162,879 |
|
|
($ |
44,376 |
) |
Net income applicable to common stock |
|
$ |
115,525 |
|
|
$ |
159,901 |
|
|
($ |
44,376 |
) |
Basic EPS before cumulative effect of
accounting change |
|
$ |
0.42 |
|
|
$ |
0.59 |
|
|
($ |
0.17 |
) |
Diluted EPS before cumulative effect of
accounting change |
|
$ |
0.42 |
|
|
$ |
0.58 |
|
|
($ |
0.16 |
) |
Basic and diluted EPS after cumulative effect of
accounting change |
|
$ |
0.42 |
|
|
$ |
0.60 |
|
|
($ |
0.18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
Selected Statistical Information |
|
2006 |
|
2005 |
|
Common Stock Data |
Market price |
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
21.20 |
|
|
$ |
28.03 |
|
|
|
|
|
Low |
|
|
19.54 |
|
|
|
23.80 |
|
|
|
|
|
End |
|
|
20.76 |
|
|
|
24.32 |
|
Book value per share at period end |
|
|
11.87 |
|
|
|
10.79 |
|
Dividends declared per share |
|
|
0.16 |
|
|
|
0.16 |
|
Dividend payout ratio |
|
|
35.62 |
% |
|
|
27.14 |
% |
Price/earnings ratio |
|
|
11.53 |
x |
|
|
12.41 |
x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profitability Ratios |
Return on assets |
|
|
1.02 |
% |
|
|
1.43 |
% |
|
|
|
|
Return on common equity |
|
|
14.04 |
|
|
|
21.62 |
|
|
|
|
|
Net interest spread (taxable equivalent) |
|
|
2.99 |
|
|
|
3.21 |
|
|
|
|
|
Net interest margin (taxable equivalent) |
|
|
3.40 |
|
|
|
3.58 |
|
|
|
|
|
Effective tax rate |
|
|
24.23 |
|
|
|
21.04 |
|
|
|
|
|
Overhead ratio** |
|
|
42.92 |
|
|
|
31.14 |
|
|
|
|
|
Efficiency ratio *** |
|
|
66.51 |
|
|
|
61.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization
Ratios |
Equity to assets |
|
|
7.47 |
% |
|
|
6.90 |
% |
|
|
|
|
Tangible equity to assets |
|
|
6.01 |
|
|
|
5.81 |
|
|
|
|
|
Equity to loans |
|
|
11.46 |
|
|
|
10.69 |
|
|
|
|
|
Internal capital generation |
|
|
8.27 |
|
|
|
14.61 |
|
|
|
|
|
Tier I capital to risk adjusted assets |
|
|
11.33 |
|
|
|
11.49 |
|
|
|
|
|
Total capital to risk adjusted assets |
|
|
12.59 |
|
|
|
12.77 |
|
|
|
|
|
Leverage ratio |
|
|
7.62 |
|
|
|
7.46 |
|
|
|
|
|
* |
|
Includes loans held-for-sale |
|
** |
|
Non-interest expense less non-interest income divided by net interest income |
|
*** |
|
Non-interest expense divided by net interest income plus recurring non-interest income (refer
to the Operating expenses section of this MD&A for a description of items not considered recurring) |
48
|
|
|
Higher operating expenses by $66.4 million, principally personnel costs, business
promotion, professional fees, net occupancy and equipment expenses. E-LOAN, acquired
in the fourth quarter of 2005, contributed with $38.4 million or 58% of the total
increase in operating expenses. Also, contributing to the increase in operating
expenses is the impact of the change in reporting period of certain subsidiaries
which was completed during the first quarter of 2006. As previously described in the
Corporations Form 10-K for the year ended December 31, 2005, in 2005, the
Corporation commenced a two-year plan to change the reporting period of its
non-banking subsidiaries to a December 31st calendar period, primarily as
part of a strategic plan to put in place a corporate-wide integrated financial system
and to facilitate the consolidation process. The financial results for the month of
December 2005 of PFH (excluding E-LOAN which already had a December 31st
year-end closing), Popular FS, Popular Securities and Popular North America (holding
company only) are included in a separate line within operating expenses for the
quarter ended March 31, 2006 and amounted to a loss of $9.7 million (before tax).
After tax, this change resulted in a net loss of $6.1 million that is included in the
quarterly results for the period ended March 31, 2006. As of the end of the first
quarter of 2006, all subsidiaries of the Corporation have aligned their year-end
closings to December 31st, similar to the parent holding company. |
|
|
|
|
Total earning assets at March 31, 2006 decreased slightly by less than 1%
compared with December 31, 2005. Refer to the Financial Condition section of this
MD&A for descriptive information on the composition of assets, deposits, borrowings
and capital of the Corporation. |
|
|
|
|
In the fourth quarter of 2005, the Corporation sold
substantially all the retail
outlets of Popular Cash Express (PCE). In the first quarter of 2006, the Corporation
finalized the sale of the remaining four retail outlets, as such fully divesting
this line of business. The impact of the sale of these four outlets was not
significant. |
|
|
|
|
Subsequent to quarter end, in April 2006, the Corporation issued $450 million in
medium-term notes maturing in 2009. Of the total amount issued,
$250 million bear interest at a fixed rate of 5.65% and
$200 million bear interest at floating rates tied to the
3-month LIBOR plus a spread of 40 basis points, which reset quarterly. The
Corporation simultaneously entered into an interest swap contract to convert the
floating rate notes to fixed rate notes in the rising interest rate
scenario. Under the swap arrangement, the Corporation pays a fixed
rate equal to 5.58%. The
cash inflows were used to substitute short-term borrowings and finance operations. |
|
|
|
|
On April 28, 2006, Popular, Inc. and Grupo Cuscatlán, through Corporación UBC
International, S.A. (UBCI), announced that the agreement subscribed on April 24,
2005 for the acquisition by Popular, Inc. of a 19.99% equity participation in UBCI,
Grupo Cuscatláns holding company, will not be completed. Due to the time lapsed and
changes in economic conditions, both parties could not reach a final consensus
before the deadline set in the original agreement. |
|
|
|
|
On May 1, 2006, as a result of a lack of current budgetary funds and lack of
legislative authorization for the Government of Puerto Rico to obtain a loan, the
Government closed a number of government agencies for the remainder of its current fiscal
year, which ends on June 30, 2006. Approximately 95,000 public sector employees have been
placed on unpaid leave until the budgetary crisis is resolved. Furthermore, on May 8,
2006, a nationally recognized rating agency downgraded the Government of Puerto Ricos
debt obligations. Refer to Item 1A. Risk Factors included in Part II Other Information
on this Form 10-Q for further information on these events. |
The Corporation, like other financial institutions, is subject to a number of risks, many of which
are outside of managements control. Among the risks assumed are: (1) market risk, which is the
risk that changes in market rates and prices will adversely affect the Corporations financial
condition or results of operation, (2) liquidity risk, which is the risk that the Corporation will
have insufficient cash or access to cash to meet operating needs and financial obligations, (3)
credit risk, which is the risk that loan customers or other counterparties will be unable to
perform their contractual obligations, and (4) operational risk, which is the risk of loss
resulting from inadequate or failed internal processes, people and systems, or from external
events. As a financial services company, the Corporations earnings are significantly affected by
general business and economic conditions. Lending and deposit activities and fee income generation
are influenced by the level of business spending and investment, consumer income, spending and
savings, capital market activities, competition, customer preferences, interest rate conditions and
prevailing market rates on competing products. The Corporation continuously monitors general
business and economic conditions, industry-related indicators and trends, competition, interest
rate volatility, credit quality indicators, loan and deposit demand, operational and systems
efficiencies, revenue enhancements and changes in the regulation of financial services companies.
The Corporation operates in a highly regulated environment and may be adversely affected by changes
in federal and local laws and regulations. Also, competition with other financial institutions
could adversely affect our profitability.
The description of the Corporations business contained in Item 1 of the Corporations Form 10-K
for the year ended December 31, 2005, while not all inclusive, discusses additional information
about the business of the Corporation
49
and risk factors many beyond the Corporations control that, in addition to the other
information in this report, readers should consider.
Further discussion of operating results, financial condition and credit, market and liquidity risks
is presented in the narrative and tables included herein.
The shares
of the Corporations common and preferred stock are traded on the National Association
of Securities Dealers Automated Quotation (NASDAQ) system under the symbols BPOP and BPOPO, respectively.
CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies followed by the Corporation and its subsidiaries conform to
generally accepted accounting principles in the United States and general practices within the
financial services industry. Various elements of the Corporations accounting policies, by their
nature, are inherently subject to estimation techniques, valuation assumptions and other subjective
assessments. These estimates are made under facts and circumstances at a point in time and changes
in those facts and circumstances could produce actual results that differ from those estimates.
Management has discussed the development and selection of the critical accounting policies and
estimates with the Corporations Board of Directors Audit Committee. The Corporation has
identified as critical accounting policies those related to securities classification and related
values, loans and allowance for loan losses, retained interests on transfers of financial assets
non-prime mortgage loans securitizations (valuations of interest-only strips and mortgage servicing
rights), income taxes, goodwill and other intangible assets, and pension and postretirement benefit
obligations. For a summary of the Corporations critical accounting policies, refer to that
particular section in the MD&A included in Popular, Inc.s 2005 Financial Review and Supplementary
Information to Stockholders, incorporated by reference in Popular, Inc.s Annual Report on Form
10-K for the year ended December 31, 2005 (the 2005 Annual Report). Also, refer to Note 1 to the
consolidated financial statements included in the 2005 Annual Report for a summary of the
Corporations significant accounting policies.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AND INTERPRETATIONS
The following is a list of recently issued accounting pronouncements and interpretations that are
applicable for adoption by the Corporation in 2006 or thereafter.
Refer to Note 2 to the
consolidated financial statements for a description of each statement and managements assessment
as to the impact of the adoptions.
SFAS
No. 123-R Share-Based Payments This Statement focuses primarily on transactions in which
an entity exchanges its equity instruments for employee services and generally establishes
standards for the accounting of transactions in which an entity obtains goods or services in
share-based payment transactions. The impact of the adoption of SFAS 123-R in January 2006 was not
significant for the results of the quarter. Refer to Note 11 to the consolidated financial
statements for required disclosures and further information on the impact of this accounting
pronouncement.
SFAS
No. 153 Exchanges of Nonmonetary Assets This Statement amends the principle that exchanges
of nonmonetary assets should be measured based on the fair value of the assets exchanged and more
broadly provides for exceptions regarding exchanges of nonmonetary assets that do not have
commercial substance. The adoption of this Statement did not have a material impact on the
Corporations financial condition, results of operations, or cash flows for the quarter ended March
31, 2006.
SFAS
No. 154 Accounting Changes and Error Corrections This Statement applies to all voluntary
changes in accounting principle, and changes the requirements for accounting and reporting of a
change in accounting principle. The Corporation adopted SFAS No. 154 in January 2006. The adoption
of SFAS No. 154 did not have a significant impact on the statement of condition or results of
operations for the quarter ended March 31, 2006.
SFAS
No. 155 Accounting for Certain Hybrid Financial
Instruments an amendment of FASB Statements
No. 133 and 140 This Statement amends SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities,
50
and No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. SFAS No. 155 resolves issues addressed in SFAS No. 133 Implementation Issue No. D1,
Application of Statement 133 to Beneficial Interests in Securitized Financial Assets. SFAS No.
155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded
derivative that otherwise would require bifurcation; clarifies which interest-only strips and
principal-only strips are not subject to the requirements of SFAS No. 133; establishes a
requirement to evaluate interests in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial instruments that contain an embedded
derivative requiring bifurcation; clarifies that concentrations of credit risk in the form of
subordination are not embedded derivatives; and amends SFAS No. 140 to eliminate the prohibition on
a qualifying special-purpose entity from holding a derivative financial instrument that pertains to
a beneficial interest other than another derivative financial instrument. The Corporation elected
to adopt SFAS No. 155 commencing in January 2007.
SFAS No. 156 Accounting for Servicing of Financial Assets an Amendment of FASB No. 140 This
Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, with respect to the accounting for separately
recognized servicing assets and servicing liabilities. This Statement:
1. Requires an entity to recognize a servicing asset or servicing liability each time it undertakes
an obligation to service a financial asset by entering into a servicing contract under specific
situations.
2. Requires all separately recognized servicing assets and servicing liabilities to be initially
measured at fair value, if practicable.
3. Permits an entity to choose either of the following subsequent measurement methods for each
class of separately recognized servicing assets and servicing liabilities: amortization or fair
value measurement method.
4. At its initial adoption, permits a one-time reclassification of available-for-sale securities to
trading securities by entities with recognized servicing rights, without calling into question the
treatment of other available-for-sale securities under SFAS No. 115, provided that the
available-for-sale securities are identified in some manner as offsetting the entitys exposure to
changes in fair value of servicing assets or servicing liabilities that a servicer elects to
subsequently measure at fair value.
5. Requires separate presentation of servicing assets and servicing liabilities subsequently
measured at fair value in the statement of financial position and additional disclosures for all
separately recognized servicing assets and servicing liabilities.
The Corporation elected to adopt SFAS No. 156 commencing in January 2007. The Corporation is
currently evaluating the impact that this accounting pronouncement may have in its financial
condition and results of operations, subject to the measurement methods, class definitions and
other determinations that need to be made upon adoption.
NET INTEREST INCOME
Table B presents the different components of the Corporations net interest income, on a taxable
equivalent basis, for the quarter ended March 31, 2006, as compared with the same period in 2005,
segregated by major categories of interest earning assets and interest bearing liabilities.
The interest earning assets include investment securities and loans which are exempt from income
tax, principally in Puerto Rico (P.R.). The main sources of tax-exempt interest income are
investments in obligations of some U.S. Government agencies and sponsored entities, and the P.R.
Commonwealth and its agencies, and assets held by the Corporations international banking entities,
which are tax-exempt under P.R. laws. To facilitate the comparison of all interest data related to
these assets, the interest income has been converted to a taxable equivalent basis, using the
applicable statutory income tax rates at each respective quarter end. The statutory income tax rate
considered for the Corporations P.R. operations in the first quarter of 2005 was 39%. During the
third quarter of 2005, the Government of P.R. approved a temporary, two-year additional tax of 2.5%
for corporations, which increased the marginal tax rate from a 39% to 41.5%. The impact of the
additional tax, including the retroactive amounts corresponding to the first nine months of 2005,
was included in the Corporations results of operations in the third quarter of 2005, which was not
significant. The statutory income tax rate considered for the Corporations P.R. operations in the
quarter ended March 31, 2006 was 41.5%. The taxable equivalent computation considers the interest
expense disallowance required by the P.R. tax law, also affected by the mentioned increase in tax
rate. The statutory income tax rate considered for the Corporations U.S. operations was 35%.
51
Average outstanding securities balances are based upon amortized cost excluding any unrealized
gains or losses on securities available-for-sale. Non-accrual loans have been included in the
respective average loans and leases categories. Loan fees collected and costs incurred in the
origination of loans are deferred and amortized over the term of the loan as an adjustment to
interest yield. Interest income for the quarter ended March 31, 2006 included an unfavorable impact
of $7.4 million, consisting principally of amortization of net loan origination costs (net of
fees), amortization of net premiums on loans purchased, and prepayment penalties and late payment
charges. These amounts approximated $8.7 million for the quarter ended March 31, 2005.
TABLE B
ANALYSIS OF LEVELS & YIELDS ON A TAXABLE EQUIVALENT BASIS
Quarter ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
Average Volume |
|
Average Yields / Costs |
|
|
|
Interest |
|
Attributable to |
2006 |
|
2005 |
|
Variance |
|
2006 |
|
2005 |
|
Variance |
|
|
|
2006 |
|
2005 |
|
Variance |
|
Rate |
|
Volume |
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
$ |
645 |
|
|
$ |
859 |
|
|
($ |
214 |
) |
|
|
5.29 |
% |
|
|
3.56 |
% |
|
|
1.73 |
% |
|
Money market investments |
|
$ |
8,415 |
|
|
$ |
7,534 |
|
|
$ |
881 |
|
|
$ |
3,062 |
|
|
($ |
2,181 |
) |
|
12,433 |
|
|
|
11,964 |
|
|
|
469 |
|
|
|
5.03 |
|
|
|
4.50 |
|
|
|
0.53 |
|
|
Investment securities |
|
|
156,338 |
|
|
|
134,389 |
|
|
|
21,949 |
|
|
|
17,436 |
|
|
|
4,513 |
|
|
601 |
|
|
|
398 |
|
|
|
203 |
|
|
|
6.32 |
|
|
|
6.30 |
|
|
|
0.02 |
|
|
Trading securities |
|
|
9,374 |
|
|
|
6,184 |
|
|
|
3,190 |
|
|
|
18 |
|
|
|
3,172 |
|
|
|
|
|
|
|
13,679 |
|
|
|
13,221 |
|
|
|
458 |
|
|
|
5.10 |
|
|
|
4.49 |
|
|
|
0.61 |
|
|
|
|
|
174,127 |
|
|
|
148,107 |
|
|
|
26,020 |
|
|
|
20,516 |
|
|
|
5,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,938 |
|
|
|
11,313 |
|
|
|
1,625 |
|
|
|
7.30 |
|
|
|
6.27 |
|
|
|
1.03 |
|
|
Commercial |
|
|
232,927 |
|
|
|
174,809 |
|
|
|
58,118 |
|
|
|
31,077 |
|
|
|
27,041 |
|
|
1,320 |
|
|
|
1,285 |
|
|
|
35 |
|
|
|
7.47 |
|
|
|
7.68 |
|
|
|
(0.21 |
) |
|
Leasing |
|
|
24,633 |
|
|
|
24,667 |
|
|
|
(34 |
) |
|
|
(691 |
) |
|
|
657 |
|
|
12,773 |
|
|
|
12,616 |
|
|
|
157 |
|
|
|
6.74 |
|
|
|
6.51 |
|
|
|
0.23 |
|
|
Mortgage |
|
|
215,101 |
|
|
|
205,335 |
|
|
|
9,766 |
|
|
|
7,202 |
|
|
|
2,564 |
|
|
4,894 |
|
|
|
4,112 |
|
|
|
782 |
|
|
|
10.23 |
|
|
|
10.24 |
|
|
|
(0.01 |
) |
|
Consumer |
|
|
124,052 |
|
|
|
104,359 |
|
|
|
19,693 |
|
|
|
297 |
|
|
|
19,396 |
|
|
|
|
|
|
|
31,925 |
|
|
|
29,326 |
|
|
|
2,599 |
|
|
|
7.53 |
|
|
|
6.99 |
|
|
|
0.54 |
|
|
|
|
|
596,713 |
|
|
|
509,170 |
|
|
|
87,543 |
|
|
|
37,885 |
|
|
|
49,658 |
|
|
|
|
|
|
$ |
45,604 |
|
|
$ |
42,547 |
|
|
$ |
3,057 |
|
|
|
6.80 |
% |
|
|
6.21 |
% |
|
|
0.59 |
% |
|
Total earning assets |
|
$ |
770,840 |
|
|
$ |
657,277 |
|
|
$ |
113,563 |
|
|
$ |
58,401 |
|
|
$ |
55,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,790 |
|
|
$ |
3,778 |
|
|
$ |
12 |
|
|
|
1.73 |
% |
|
|
1.39 |
% |
|
|
0.34 |
% |
|
NOW and money market* |
|
$ |
16,204 |
|
|
$ |
12,934 |
|
|
$ |
3,270 |
|
|
$ |
3,599 |
|
|
($ |
329 |
) |
|
5,519 |
|
|
|
5,622 |
|
|
|
(103 |
) |
|
|
1.28 |
|
|
|
1.19 |
|
|
|
0.09 |
|
|
Savings |
|
|
17,373 |
|
|
|
16,449 |
|
|
|
924 |
|
|
|
1,135 |
|
|
|
(211 |
) |
|
9,473 |
|
|
|
7,983 |
|
|
|
1,490 |
|
|
|
3.89 |
|
|
|
3.44 |
|
|
|
0.45 |
|
|
Time deposits |
|
|
90,834 |
|
|
|
67,673 |
|
|
|
23,161 |
|
|
|
9,475 |
|
|
|
13,686 |
|
|
|
|
|
|
|
18,782 |
|
|
|
17,383 |
|
|
|
1,399 |
|
|
|
2.69 |
|
|
|
2.26 |
|
|
|
0.43 |
|
|
|
|
|
124,411 |
|
|
|
97,056 |
|
|
|
27,355 |
|
|
|
14,209 |
|
|
|
13,146 |
|
|
|
|
|
|
|
11,477 |
|
|
|
9,698 |
|
|
|
1,779 |
|
|
|
4.41 |
|
|
|
2.75 |
|
|
|
1.66 |
|
|
Short-term borrowings |
|
|
124,803 |
|
|
|
65,803 |
|
|
|
59,000 |
|
|
|
45,227 |
|
|
|
13,773 |
|
|
10,455 |
|
|
|
10,254 |
|
|
|
201 |
|
|
|
5.16 |
|
|
|
4.46 |
|
|
|
0.70 |
|
|
Medium and long-term debt |
|
|
133,232 |
|
|
|
113,135 |
|
|
|
20,097 |
|
|
|
18,777 |
|
|
|
1,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,714 |
|
|
|
37,335 |
|
|
|
3,379 |
|
|
|
3.81 |
|
|
|
3.00 |
|
|
|
0.81 |
|
|
liabilities |
|
|
382,446 |
|
|
|
275,994 |
|
|
|
106,452 |
|
|
|
78,213 |
|
|
|
28,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,861 |
|
|
|
4,210 |
|
|
|
(349 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
demand deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,029 |
|
|
|
1,002 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other sources of funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
45,604 |
|
|
$ |
42,547 |
|
|
$ |
3,057 |
|
|
|
3.40 |
% |
|
|
2.63 |
% |
|
|
0.77 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.40 |
% |
|
|
3.58 |
% |
|
|
(0.18 |
%) |
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income on a
taxable equivalent basis |
|
|
388,394 |
|
|
|
381,283 |
|
|
|
7,111 |
|
|
($ |
19,812 |
) |
|
$ |
26,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.99 |
% |
|
|
3.21 |
% |
|
|
(0.22 |
%) |
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment |
|
|
28,630 |
|
|
|
23,997 |
|
|
|
4,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
359,764 |
|
|
$ |
357,286 |
|
|
$ |
2,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: The changes that are not due solely to volume or rate are allocated to volume and rate based
on the proportion of the change in each category.
|
|
|
* |
|
Includes interest bearing demand deposits corresponding to certain government entities in Puerto Rico. |
As shown in Table B, the increase in net interest income on a taxable equivalent basis for the
quarter ended March 31, 2006, compared with the same quarter in the previous year, was mainly due
to the increase in average earning assets,
52
primarily loans, partially offset by a decrease in the net interest margin. The increase in the
average loan portfolio was led by growth in commercial, including construction, and consumer
loans. Refer to the Financial Condition section of this MD&A for factors that contributed to this
growth and other comments on business strategy changes that have limited the increase in mortgage
loans, which in past years has been one of the greatest contributors to growth in the Corporations
earning assets. The increase in average earning assets for the quarter was funded principally with
a combination of interest bearing deposits, primarily time deposits, and short-term borrowings. The
decrease in average non-interest bearing deposits for the quarter ended March 31, 2006, compared
with the same quarter in the previous year, resulted from the conversion of non-interest bearing
demand deposits of certain government entities in P.R. to interest bearing demand deposits
commencing in the second half of 2005 as accorded by the banking association and certain financial
institutions in Puerto Rico.
The decrease in net interest margin, on a taxable equivalent basis, influenced by the Corporations
liability sensitive position (interest-sensitive liabilities repricing or maturing faster than
interest-sensitive assets), was mainly the result of the following factors:
|
|
|
Higher cost of funds, principally due to an increase in the cost of short-term
borrowings reflecting tighter Federal Reserve (FED) monetary policy. The FED raised the
federal funds target rate 200 basis points during 2005, and continued the tightening
policy during the first quarter of 2006 with an additional 50 basis points increase. |
|
|
|
|
Increase cost of long-term debt, principally resulting from secured debt derived
from mortgage loan securitization transactions done in 2005. |
|
|
|
|
Growth in average deposits has been attained principally in time deposits, a
higher-cost category, which increased cost was influenced by interest rate campaigns to
attract deposits in a very competitive environment, both in Puerto Rico and the U.S.
mainland. Also, the Corporation has experienced higher costs in money market and
savings accounts to sustain marketing campaigns and competition in the U.S. mainland.
The Corporation is striving to increase its deposit base, primarily in the U.S.
mainland, and reduce its reliance on short-term borrowings in the rising interest rate
scenario. |
|
|
|
|
Competitive pressures and a flattened yield curve which affected the ability to
raise interest rates on mortgage loans originated. |
Partially offsetting these unfavorable variances were the following contributors:
|
|
|
Higher yields in commercial loans which were favorably impacted by the rising
interest rates due to a high proportion of commercial loans with short-term repricing
terms. As of March 31, 2006, approximately 58% of the commercial and construction loans
portfolio had floating or adjustable interest rates. |
|
|
|
|
Increased yield in the investment securities portfolios, partly due to purchases of
securities in a rising rate environment and the repricing of collateralized mortgage
obligations with floating rates. Also, the yield rose as a result of a favorable change
in the taxable equivalent adjustment. |
The increase in the taxable equivalent adjustment for the quarter ended March 31, 2006, compared
with the previous year, resulted mostly from higher tax-exempt interest income and the higher
statutory tax rate in Puerto Rico, partially offset by an increase in the interest expense
disallowance resulting from the increase in the cost of funds. Average tax-exempt earning assets
approximated $10.1 billion in the quarter ended March 31, 2006, of which 88% represented tax-exempt
investment securities, compared with $7.2 billion and 90%, respectively, in the quarter ended March
31, 2005.
NON-INTEREST INCOME
Refer to Table C for a breakdown of non-interest income by major categories for the quarters ended
March 31, 2006 and 2005.
The principal contributors to the increase in non-interest income for the quarter ended March 31,
2006, compared with the same period in 2005, were higher gains on sales of loans and higher trading
account profits, primarily related with the mortgage banking business. The increase in gains on
sales of loans resulted from sales by E-LOAN, the
53
Corporations recently acquired operation, which sold approximately $1 billion in loans during
the quarter ended March 31, 2006, primarily residential mortgage loans. Also, PFH contributed to
this increase in gains mainly derived from approximately
$652 million in mortgage loans off-balance sheet
securitizations performed during the first quarter of 2006. The increase in trading account profits
was principally associated with the pooling of approximately $464 million in conforming mortgage
loans at BPPR into Fannie Mae mortgage-backed securities that were subsequently sold to investors
in the first quarter of 2006.
TABLE C
Non-interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, |
|
|
2006 |
|
2005 |
|
$ Variance |
Service charges on deposit accounts |
|
$ |
47,469 |
|
|
$ |
43,692 |
|
|
$ |
3,777 |
|
|
Other service fees: |
|
|
|
|
|
|
|
|
|
|
|
|
Credit card fees and discounts |
|
|
22,573 |
|
|
|
18,525 |
|
|
|
4,048 |
|
Debit card fees |
|
|
14,919 |
|
|
|
13,022 |
|
|
|
1,897 |
|
Insurance fees |
|
|
12,141 |
|
|
|
11,673 |
|
|
|
468 |
|
Processing fees |
|
|
10,279 |
|
|
|
10,107 |
|
|
|
172 |
|
Sale and administration of investment
products |
|
|
7,457 |
|
|
|
6,146 |
|
|
|
1,311 |
|
Mortgage servicing fees, net of amortization |
|
|
2,952 |
|
|
|
2,743 |
|
|
|
209 |
|
Trust fees |
|
|
2,331 |
|
|
|
2,115 |
|
|
|
216 |
|
Check cashing fees |
|
|
415 |
|
|
|
5,826 |
|
|
|
(5,411 |
) |
Other fees |
|
|
7,279 |
|
|
|
8,858 |
|
|
|
(1,579 |
) |
|
Total other service fees |
|
|
80,346 |
|
|
|
79,015 |
|
|
|
1,331 |
|
|
Net gain on sale and valuation adjustment of investment securities |
|
|
12,340 |
|
|
|
51,250 |
|
|
|
(38,910 |
) |
Trading account profit |
|
|
11,475 |
|
|
|
3,763 |
|
|
|
7,712 |
|
Gain on sale of loans |
|
|
47,261 |
|
|
|
9,816 |
|
|
|
37,445 |
|
Other operating income |
|
|
29,942 |
|
|
|
18,053 |
|
|
|
11,889 |
|
|
Total non-interest income |
|
$ |
228,833 |
|
|
$ |
205,589 |
|
|
$ |
23,244 |
|
|
The increase in service charges on deposit accounts for the first quarter of 2006, compared
with the same period in the previous year, was principally associated to higher volume of approvals
on checks paid in accounts with non-sufficient funds. Also, there were higher service charges from
Automated Clearing House (ACH) electronic transactions in BPPR, principally from an increase in the
volume of electronic transactions and also from revisions in the pricing structure. Furthermore,
there were increased account analysis fees on commercial accounts, principally at BPNA due to
success of its money services business in attracting new clients, benefitting in part from a major
competitor leaving this line of business.
The composition of other service fees by major categories is presented in Table C. The increase in
credit card fees was mostly associated with higher merchant business income resulting from
increased sales, higher interchange income as a result of increased transactional volume, and
higher credit card late payment fees derived from higher volume and a price change. This was
partially offset by lower credit card membership fees that resulted from promotional campaigns with
no annual fee induced by business strategies and industry competition. The increase in debit card
fees principally resulted from higher transactional volume at a higher average price. The rise in
fees derived from the sale and administration of investment products was related to an increase in
commission income from the retail securities division derived in part from the sales of bonds and the sale of
a new indexed deposit product developed by BPPR, which contributed
approximately $86 million in deposits at the offering date. These favorable variances were
partially offset by lower check cashing fees resulting from the sale of the retail outlets of PCE.
Also, there was a decrease in the other fees category as a result of many items individually not
significant, which principally include lower fees in PCE related to money transfer services and
lower revenues from the credit card referral business at BPNA, partially offset by higher revenues
from interactive electronic ticketing services in Puerto Rico (Ticketpop) and Small Business
Administration (SBA) servicing fees.
54
The rise in other operating income included higher income associated with the securitizations
performed by PFH, other income from mortgage banking activities associated with loan closing
services to mortgage brokers, and higher revenues from the Corporations investment in
Telecomunicaciones de Puerto Rico, Inc., among others.
These favorable variances in non-interest income categories were partially offset by lower net
gains on sale and valuation adjustments of investment securities as previously described in the
Overview section of this MD&A. Gains on the sale of investment securities for the quarter ended
March 31, 2006 decreased by $37.0 million, mainly from lower sales of marketable equity securities,
when compared with the results for the first quarter in 2005. Also, PFH recognized $1.9 million in
unfavorable valuation adjustments of interest-only strips in the quarter ended March 31, 2006.
OPERATING EXPENSES
Refer to the consolidated statements of income included in this Form 10-Q for a breakdown of
operating expenses by major categories.
Operating expenses for the quarter ended March 31, 2006 increased 21% compared with the same period
in 2005. Personnel costs rose by $22.1 million, or 14%. Full-time equivalent employees (FTEs) were 13,049 at March 31, 2006, an
increase of 649 from the same date in 2005. E-LOANs acquisition added 871 FTEs, and represented
approximately $14 million of the total increase in personnel costs. The sale of PCEs stores in the
fourth quarter of 2005 also impacted with a reduction in FTEs of over
370. PCEs personnel costs for the first quarter of 2006
were $2.9 million lower than the costs incurred in the first quarter of 2005. The increase in
personnel costs, besides the impact of higher headcount and E-LOANs acquisition, was driven mostly by higher salaries, related taxes, incentive accruals, medical insurance
and savings plan expenses, partially offset by lower profit sharing. As described in the paragraph below there were plan amendments in certain
employee benefits plans.
As disclosed in the 2005 Annual Report, in October 2005, the Board of Directors of BPPR adopted an
amendment to the Puerto Rico Retirement and Tax Qualified Retirement Restoration Plans to freeze
benefits for all employees under age 30 or who had less than 10 years of credited service effective
January 1, 2006 and providing 100% vesting to all employees in their accrued benefit as of December 31, 2005.
The expense for these plans was remeasured as of September 30, 2005 to consider this change using a
discount rate of 5.50%. Curtailment costs were considered for these plans and were included as part
of the December 31, 2005 disclosures. In connection with the amendments to the plans, these employees
received a base salary increase according to their age and years of service, effective January 1,
2006. Also, commencing January 1, 2006, BPPR no longer provides a deferred profit sharing plan to
all its employees. The assets and liabilities of the profit sharing plan as of December 31, 2005
are being transferred to employee savings and stock plan accounts during 2006. In connection with
this change, employees received a pre-determined increase in base salary effective January 1, 2006,
and BPPR raised its matching contribution in the savings and stock plan. The net financial impact
of the changes in the benefit plans described above for the quarter ended March 31, 2006 was not
significant.
All other operating expenses for the quarter ended March 31, 2006, excluding personnel costs,
increased $44.3 million, or 28%, compared with the first quarter of 2005. The increase in
operating expenses incorporates the aforementioned $9.7 million pre-tax loss on the impact of the
change in fiscal year of certain of the Corporations subsidiaries, as described in the Overview
section of this MD&A. The largest cost increases for the quarter
included business promotion, professional fees, net occupancy and equipment expenses, and were
associated with higher advertising expenses mainly in E-LOAN, systems and application costs to
support business processes, higher collection and other credit related costs to support the lending
business, and increased external audit fees. E-LOAN accounted for approximately $24.4 million of
the increase in operating expenses, excluding personnel costs, for the quarter ended March 31,
2006, while PCE represented a decline of approximately $5.1 million.
As presented in Table A, the Corporations efficiency ratio increased from 61.93% for the quarter
ended March 31, 2005 to 66.51% in the same quarter in 2006. The efficiency ratio measures how much
of a companys revenue is used to pay operating expenses. As stated in the Glossary of Selected
Financial Terms included in the 2005 Annual Report, in determining the efficiency ratio the
Corporation includes recurring non-interest income items, thus isolating income items that may be
considered volatile in nature. Management believes that the exclusion of those items would permit
greater comparability for analytical purposes. Amounts within non-interest income not considered
recurring in nature
55
by the Corporation amounted to $12.3 million in the quarter ended March 31, 2006, compared with
$51.3 million in the same quarter in the previous year, and corresponded principally to net gains
(losses) on the sale of investment securities and unfavorable adjustments in the valuation of
investment securities. The efficiency ratio was unfavorably impacted by the $9.7 million pre-tax
loss described above on the change in fiscal year at certain subsidiaries. In 2006, the Corporation
has taken corporate-wide steps to implement productivity improvements and expense management controls, which
in the long-run should result in efficiency improvements.
INCOME TAX
The decrease in income tax expense for the quarter ended March 31, 2006, compared with the same
quarter in the previous year, was primarily due to lower pre-tax earnings for the current period
and to higher exempt interest income net of the disallowance of expenses attributed to such exempt
income. This decrease was partially offset by a reduction in income subject to a lower preferential
tax rate on capital gains and by an additional income tax of 2.5% due to the transitory provision
approved by the Government of Puerto Rico which increased the statutory tax rate in P.R. from 39%
to 41.5%. As stated in the Net Interest Income section of this MD&A, although this tax rate change
was effective for the full-year 2005, its approval by the government did not take effect until the
third quarter of 2005 and the impact of the first nine months of 2005 was accounted in the quarter
when the amended law was enacted. A portion of the capital gains realized during the first quarter
of 2005 was subject to the transitory provision effective until June 30, 2005 that reduced the
preferential tax rate from 12.5% to 6.25%. The effective tax rate for the quarters ended March 31,
2006 and 2005 were 24.23% and 21.04%, respectively.
REPORTABLE SEGMENT RESULTS
The Corporations reportable segments for managerial reporting consist of Banco Popular de
Puerto Rico, Banco Popular North America, Popular Financial Holdings and EVERTEC. Also, a Corporate
group has been defined to support the reportable segments. For managerial reporting purposes, the
costs incurred by this latter group are not allocated to the four reportable segments.
For a more complete description of the Corporations reportable segments, including additional
financial information and the underlying management accounting
process, refer to Note 17 to the
consolidated financial statements. The Corporate group, which supports the four reportable
segments, had a net loss of $0.3 million in the first quarter of 2006, compared with a net gain of
$34.7 million in the same quarter of 2005. During the first quarter of 2005, the Corporations
holding companies within the Corporate group realized gains on the sale of marketable equity
securities approximating $50.5 million, compared with $13.5 million in the first quarter of 2006.
Highlights on the earnings results for the reportable segments are discussed below.
Banco Popular de Puerto Rico
The segment of Banco Popular de Puerto Rico reported a net income of $100.1 million for the quarter
ended March 31, 2006, an increase of $8.8 million, or 10%, compared with the same quarter in the
previous year. The main factors that contributed to the variance in results for 2006 when compared to
the first quarter of 2005 included:
Higher net interest income by $8.3 million, or 4%, which was primarily derived from the
commercial banking business, which experienced a $9.4 million, or 13%, growth. This increase in
commercial banking net interest income was primarily the result of a greater average volume of
commercial loans, coupled with a higher yield. A substantial portion of Banco Popular de Puerto
Ricos commercial portfolio has adjustable or floating rate characteristics, thus was favorably
impacted by the higher short-term interest rates experienced in 2005
and beginning of 2006. The net interest margin, however, was negatively impacted by the higher cost of funding in the rising rate
scenario.
Non-interest income grew by $20.9 million, or 22%, mainly due to higher mortgage banking revenues
from the sale of loans and mortgage-backed securities. Also, there were higher credit card fees and
discounts, debit card fees, revenues from the sale and administration of investment products, and
service charges on deposit accounts.
Operating expenses increased by $4.3 million, or 2%, in part associated with higher personnel
costs, net occupancy, professional fees and equipment expenses, partially offset by lower business
promotion expenses.
Higher income taxes by $14.6 million, or 61%, primarily due to higher taxable income and the
increase in the income tax from 39% to 41.5%, as described in the Net Interest Income section of
this MD&A.
56
Banco Popular North America
For the quarter ended March 31, 2006, net income for the reportable segment of Banco Popular North
America totaled $22.6 million, an increase of $2.7 million, or 14%, compared with the financial
results for the first quarter of 2005. Main factors that contributed to this variance included:
Net interest income grew by $4.3 million, or 5%, mostly due to an increase in the volume of
earning assets, primarily investment securities and loans, mainly in the commercial portfolio.
Earning assets growth was funded primarily through time deposits, including retail certificates of
deposits attracted by deposit gathering campaigns at attractive rates, and brokered certificates of
deposits, and short-term borrowings.
Provision for loan losses increased by $2.1 million, or 29%, primarily due to higher net
charge-offs in the consumer portfolio and growth in the commercial portfolio, partially offset by
lower net charge-offs in the lease financing portfolio due to recoveries from a particular lending
relationship that was originally charged-off in stages through 2004 and 2005.
Lower non-interest income by $3.3 million, or 12%, which was mainly due to lower service fees as
a result of lower check cashing and money transfer fees due to the sale of PCE operations,
partially offset by higher charges on deposit accounts, mainly commercial account analyses fees,
and higher gains on the sale of loans, primarily SBA loans.
Lower operating expenses by $4.4 million, or 6%, mainly due to the sale of PCE operations,
partially offset by higher expenses in business promotion and professional fees. The latter
included higher costs associated with the lending business, such as appraisals and collection
services, and computer service and processing fees.
Higher income taxes by $0.9 million, or 7%, were mainly due to higher taxable income.
Popular Financial Holdings
PFHs net loss for the quarter ended March 31, 2006, totaled $7.9 million, a decline compared with
a net income of $10.5 million for the first quarter of 2005. Factors that contributed to the
variance in these financial results included:
Net interest income declined by $8.6 million, or 15%. Profit margins in the mortgage lending
segment continued to tighten in the first quarter of 2006 as short-term rates continued to rise
while the rates on the mortgage loans originated increased at a lesser rate. Also, the average
cost of on-balance sheet securitizations rose for the quarter ended March 31, 2006 when compared to
the same quarter in the previous year. This unfavorable variance due to a lower net interest margin
was partially offset by higher average volume of earning assets, primarily related to the auto loan
portfolio acquired from E-LOAN.
The provision for loan losses increased by $4.2 million, or 36%, primarily due to higher net
charge-offs in the mortgage and consumer loan portfolios and higher consumer non-performing assets.
Higher non-interest income by $38.0 million was mainly due to higher gains on the sale of
mortgage loans, and other revenues associated with securitizations transactions and broker loan
origination services. As described in the Non-Interest Income section of this MD&A, both E-LOAN and
PFH contributed to these gains through bulk loans sales and off-balance sheet securitization
transactions. These favorable changes were partially offset by higher write-downs in the valuation
of interest-only strips as also mentioned in the Non-Interest Income section of this MD&A.
Operating expenses rose by $54.6 million, mainly as a result of $38.4 million in operating
expenses of E-LOAN, which did not exist in the first quarter of 2005, and higher personnel costs,
net occupancy and equipment expenses, among others. Also, included in operating expenses was an
unfavorable impact of the change in fiscal year in the PFH reportable
segment amounting to $6.2 million,
as described in the Overview section of this MD&A.
Income taxes decreased by $11.0 million mainly due to lower taxable income.
EVERTEC
EVERTECs net income for the quarter ended March 31, 2006 totaled $5.1 million, a decline of $1.7
million, compared with the results of the same quarter in the previous year.
The principal factors that contributed to the variance in results for 2006 when compared with the
first quarter of 2005 included:
Slight growth in non-interest income of $0.2 million was the result of higher electronic
transactions processing fees, in part due to business volume derived from Scandata, acquired in
2005. This favorable variance was offset by lower technology consulting fees, principally from
internal projects within the Corporation. Also, the remeasurement adjustment of the Corporations
investment in CONTADO in the Dominican Republic was lower in the first quarter of 2006 by
approximately $0.4 million, compared with the first quarter of 2005. This figure is impacted by the
currency exchange rate of the Dominican peso at the remeasurement date, and to the mix in the
composition of monetary and non-monetary balance sheet components of the entity being remeasured.
For further information on this subject, refer to Note 1 to the consolidated financial statements.
57
Higher operating expenses by $1.5 million, primarily equipment expenses, personnel costs, and
business promotion, partially offset by lower professional fees.
FINANCIAL CONDITION
Refer to the consolidated financial statements included in this report for the Corporations
consolidated statements of condition and to Table A for financial highlights on major line items of
the statement of condition.
A breakdown of the Corporations loan portfolio, the principal category of earning assets, at
period-end, is presented in Table D.
TABLE D
Loans Ending Balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
|
|
|
|
March 31, 2006 |
|
|
March 31, |
|
December 31, |
|
vs. |
|
March 31, |
|
vs. |
(In thousands) |
|
2006 |
|
2005 |
|
December 31, 2005 |
|
2005 |
|
March 31, 2005 |
|
Commercial, industrial and
agricultural * |
|
$ |
12,130,325 |
|
|
$ |
11,921,908 |
|
|
$ |
208,417 |
|
|
$ |
10,846,648 |
|
|
$ |
1,283,677 |
|
Construction |
|
|
1,062,659 |
|
|
|
835,978 |
|
|
|
226,681 |
|
|
|
546,610 |
|
|
|
516,049 |
|
Lease financing |
|
|
1,324,867 |
|
|
|
1,308,091 |
|
|
|
16,776 |
|
|
|
1,280,729 |
|
|
|
44,138 |
|
Mortgage * |
|
|
12,040,304 |
|
|
|
12,872,452 |
|
|
|
(832,148 |
) |
|
|
12,579,729 |
|
|
|
(539,425 |
) |
Consumer * |
|
|
4,872,230 |
|
|
|
4,771,778 |
|
|
|
100,452 |
|
|
|
4,174,310 |
|
|
|
697,920 |
|
|
Total |
|
$ |
31,430,385 |
|
|
$ |
31,710,207 |
|
|
($ |
279,822 |
) |
|
$ |
29,428,026 |
|
|
$ |
2,002,359 |
|
|
|
|
|
* |
|
Includes loans held-for-sale |
The decline in period-end loans since December 31, 2005 was mostly associated with mortgage
loans (including loans held-for-sale) and resulted principally from the pooling of $464 million in
conforming mortgage loans at BPPR into Fannie Mae mortgage-backed securities that were subsequently
sold to investors, and to the sale of $652 million in mortgage loans in off-balance sheet
securitization transactions performed by PFH in the quarter ended March 31, 2006. The Corporation
has implemented strategic changes at PFH in 2006 that should have the effect of decreasing growth
of the non-prime loan portfolio at the Corporation, primarily by eliminating non-prime mortgage
loan acquisitions and increasing origination and sale of prime mortgage loans as a result of the
acquisition of E-LOAN. The decline in mortgage loans from December 31, 2005 was offset by growth in
commercial, construction, and consumer loans as presented in Table D. The growth in commercial
loans was mainly the result of new credit facilities granted during the quarter primarily to
corporate clients and a higher volume on funds drawn under existing credit lines. Also,
construction loans increased due to new loans granted and significant progress in construction
phases at various large projects mainly in BPNA. As shown in Table E, the increase in consumer
loans was mostly in auto loans, mainly from the auto loan financing subsidiary in BPPRs reportable
segment and from the retention of auto loans originated by PFH, through its subsidiary E-LOAN. The
latter accounted for approximately $86 million of the increase in consumer loans from December 31,
2005. Similar factors influenced the increases (decreases) in the various loan categories when
compared with March 31, 2005. In addition, within the consumer loans category, the portfolios of
personal loans and credit cards experienced growth from March 31, 2005. This increase in personal
loans was associated to favorable customer response to marketing efforts, primarily in BPPR. Credit
cards also increased mostly as a result of higher sales volume and increased number of credit card
holders attracted from novel campaigns, offers of no annual membership fees, tiered pricing and new
products directed to increase Populars credit card market share in Puerto Rico.
58
TABLE E
Breakdown of Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
|
|
|
|
March 31, 2006 |
|
|
March 31, |
|
December 31, |
|
vs. |
|
March 31, |
|
vs. |
(In thousands) |
|
2006 |
|
2005 |
|
December 31, 2005 |
|
2005 |
|
March 31, 2005 |
|
Personal |
|
$ |
2,067,366 |
|
|
$ |
2,053,175 |
|
|
$ |
14,191 |
|
|
$ |
1,863,277 |
|
|
$ |
204,089 |
|
Auto |
|
|
1,667,839 |
|
|
|
1,598,634 |
|
|
|
69,205 |
|
|
|
1,328,029 |
|
|
|
339,810 |
|
Credit cards |
|
|
987,480 |
|
|
|
968,550 |
|
|
|
18,930 |
|
|
|
834,202 |
|
|
|
153,278 |
|
Other |
|
|
149,545 |
|
|
|
151,419 |
|
|
|
(1,874 |
) |
|
|
148,802 |
|
|
|
743 |
|
|
Total |
|
$ |
4,872,230 |
|
|
$ |
4,771,778 |
|
|
$ |
100,452 |
|
|
$ |
4,174,310 |
|
|
$ |
697,920 |
|
|
At March 31, 2006 and December 31, 2005, investment securities, including trading and other
securities, totaled $12.7 billion, compared with $12.1 billion at March 31, 2005. Notes 5 and 6 to
the consolidated financial statements provides additional information of the Corporations
available-for-sale and held-to-maturity investment portfolios. Commencing in the quarter ended
March 31, 2006, the interest-only strips derived from newly-issued PFHs off-balance sheet
securitizations are being accounted for as trading securities. As such, any valuation adjustment is being recorded as part of trading account profit
(loss) in the consolidated statements of income. Interest-only strips accounted for as trading
securities from PFH securitizations approximated $24 million at March 31, 2006.
The increase in goodwill and other intangible assets at March 31, 2006, compared with the same date
in the previous year was mostly related with the acquisition of E-LOAN during the last quarter of
2005. Refer to Note 8 to the consolidated financial statements for further details on the
composition of intangible assets.
Table F provides a breakdown of the Other Assets caption presented in the consolidated statements
of condition. The principal variances from December 31, 2005 to March 31, 2006 were:
|
|
|
Increase in net deferred tax assets, which was primarily associated with higher
unrealized losses in the investment securities available-for-sale portfolio. |
|
|
|
|
Increase in servicing rights, which was principally related to one on-balance sheet and
two off-balance sheet securitization transactions performed by PFH during the quarter ended
March 31, 2006, which contributed with approximately $23 million in servicing rights at
issuance date. Also, during the quarter ended March 31, 2006, PFH acquired approximately $7
million in rights to service $931 million in mortgage loans from a third-party. |
|
|
|
|
Increase in derivative assets was primarily related to index options purchased by the
Corporation from major broker-dealer companies, which returns are tied to the same stock
market indexes. These were principally associated with customers deposits offered by the
Corporation whose returns are tied to the performance of the Standard and Poors 500 (S&P
500). |
The fluctuation in other assets from March 31, 2005 to the same date in 2006 was mainly the
result of the following:
|
|
|
Increase in servicing rights primarily the result of securitization transactions
completed by PFH in 2005 and 2006. |
|
|
|
|
Increase in net deferred tax assets was also associated with higher unrealized losses in
the investment securities available-for-sale portfolio and the deferred tax assets from
E-LOAN. |
|
|
|
|
Rise in bank-owned life insurance was related to additional funding during 2005
permitted as a result of an increased salary base resulting from the acquired banking
institutions in 2004 and beginning of 2005. |
|
|
|
|
Increase in derivative assets was the result of higher volume of index options as
described in the variance above. Also, as part of the PCE sale transaction in the fourth
quarter of 2005, the Corporation obtained a subordinated convertible note from ACE, the
purchaser, in the amount of $19.4 million. Since the note is convertible into ACEs common shares, the related embedded derivative was separated and accounted for at |
59
|
|
|
fair market value. As of March 31, 2006, the fair market value of this embedded derivative
was approximately $12 million. |
|
|
|
|
Increase in securitization advances and related assets was associated with PFH
operations. |
TABLE F
Breakdown of Other Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
|
|
|
|
March 31, 2006 |
|
|
March 31, |
|
December 31, |
|
vs. December 31, |
|
March 31, |
|
vs. March 31, |
(In thousands) |
|
2006 |
|
2005 |
|
2005 |
|
2005 |
|
2005 |
|
Net deferred tax assets |
|
$ |
332,761 |
|
|
$ |
305,723 |
|
|
$ |
27,038 |
|
|
$ |
272,192 |
|
|
$ |
60,569 |
|
Securitization advances and related assets |
|
|
231,435 |
|
|
|
236,719 |
|
|
|
(5,284 |
) |
|
|
195,466 |
|
|
|
35,969 |
|
Bank-owned life insurance program |
|
|
199,362 |
|
|
|
197,202 |
|
|
|
2,160 |
|
|
|
156,915 |
|
|
|
42,447 |
|
Servicing rights |
|
|
164,384 |
|
|
|
141,489 |
|
|
|
22,895 |
|
|
|
70,041 |
|
|
|
94,343 |
|
Prepaid expenses |
|
|
151,564 |
|
|
|
153,395 |
|
|
|
(1,831 |
) |
|
|
158,474 |
|
|
|
(6,910 |
) |
Derivative assets |
|
|
69,990 |
|
|
|
50,246 |
|
|
|
19,744 |
|
|
|
33,287 |
|
|
|
36,703 |
|
Investments under the equity method |
|
|
66,623 |
|
|
|
62,745 |
|
|
|
3,878 |
|
|
|
59,771 |
|
|
|
6,852 |
|
Others |
|
|
172,543 |
|
|
|
178,281 |
|
|
|
(5,738 |
) |
|
|
133,460 |
|
|
|
39,083 |
|
|
Total |
|
$ |
1,388,662 |
|
|
$ |
1,325,800 |
|
|
$ |
62,862 |
|
|
$ |
1,079,606 |
|
|
$ |
309,056 |
|
|
A breakdown of the Corporations deposits at period-end is included in Table G:
TABLE G
Deposits ending balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
Variance |
|
|
March 31, |
|
December 31, |
|
March 31, 2006 vs. |
|
March 31, |
|
March 31, 2006 vs. |
(In thousands) |
|
2006 |
|
2005 |
|
December 31, 2005 |
|
2005 |
|
March 31, 2005 |
|
Demand deposits * |
|
$ |
4,938,702 |
|
|
$ |
4,415,972 |
|
|
$ |
522,730 |
|
|
$ |
4,257,121 |
|
|
$ |
681,581 |
|
Savings, NOW and money
market deposits |
|
|
8,837,151 |
|
|
|
8,800,047 |
|
|
|
37,104 |
|
|
|
9,213,693 |
|
|
|
(376,542 |
) |
Time deposits |
|
|
9,635,959 |
|
|
|
9,421,986 |
|
|
|
213,973 |
|
|
|
8,257,863 |
|
|
|
1,378,096 |
|
|
Total |
|
$ |
23,411,812 |
|
|
$ |
22,638,005 |
|
|
$ |
773,807 |
|
|
$ |
21,728,677 |
|
|
$ |
1,683,135 |
|
|
|
|
|
* |
|
Includes interest and non-interest bearing demand deposits. |
The increase in demand deposits at March 31, 2006 from December 31, 2005 and March 31, 2005
was primarily associated with commercial checking accounts and deposits in trust. The increase in
time deposits from March 31, 2005 was related to IRA deposits, interest rate campaigns
for retail certificates of deposit, and new products launched, including BPPRs World Equity Index
CDs, which contributed with $86 million in deposits at the offering date. Brokered certificates of
deposit, included in the category of time deposits, totaled $1.0 billion at March 31, 2006,
compared with $842 million at March 31, 2005 and $1.2 billion at December 31, 2005.
The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans was
$137 million at March 31, 2006, $119 million as of December 31, 2005 and $64 million as of March
31, 2005.
At March 31, 2006, borrowed funds totaled $20.9 billion, compared with $21.3 billion at December
31, 2005 and $19.6 billion at March 31, 2005. The Federal Home Loan Banks (FHLB) provide funding to
the Corporations banking subsidiaries through advances. At March 31, 2006 and December 31, 2005,
the Corporation had short-term and long-term borrowings under these credit facilities totaling $1.3
billion and $1.7 billion, respectively. At March 31, 2005, these borrowings totaled $2.1 billion.
Such advances are collateralized by securities and mortgages loans, do not have restrictive
covenants and in the most part do not have any callable features.
Other liabilities declined from December 31, 2005 to March 31, 2006 as reflected in the
consolidated statements of condition included in the consolidated financial statements. As
explained in the 2005 Annual Report and the Overview section of this MD&A, in 2005, certain of the
Corporations non-banking subsidiaries continued to have a fiscal year ended on November 30, 2005.
In preparing the consolidated statement of condition as of December 31, 2005, management had to
reverse an intercompany elimination in order to reinstall loans outstanding to third parties. The
impact of this reversal resulted in an increase of $429 million in the caption of other liabilities
at year-end 2005.
60
This intercompany transaction was not outstanding at March 31, 2006. As explained in the Overview
section of this MD&A, all of the Corporations subsidiaries have aligned their closing periods to
that of the Corporation; as such timing differences no longer exist.
Refer to the consolidated statements of condition and of stockholders equity included in this Form
10-Q for information on the composition of stockholders equity at March 31, 2006, December 31,
2005 and March 31, 2005. Also, the disclosures of accumulated other comprehensive loss, an integral
component of stockholders equity, are included in the consolidated statements of comprehensive
income (loss). The increase in stockholders equity since March 31, 2005 was due in part to
earnings retention and from approximately $216 million in capital derived from the issuance of new
shares of common stock under the subscription rights offering that took effect in the fourth
quarter of 2005. These favorable variances were partially offset by a higher unrealized loss
position in the valuation of the available-for-sale securities portfolio by $124 million.
The Corporation offers a dividend reinvestment and stock purchase plan for stockholders that
allows them to reinvest dividends in shares of common stock at a 5% discount from the average
market price at the time of the issuance, as well as purchase shares of common stock directly from
the Corporation by making optional cash payments.
The Corporation continues to exceed the well-capitalized guidelines under the federal banking
regulations. Ratios and amounts of total risk-based capital, Tier 1 risk-based capital and Tier 1
leverage at March 31, 2006 and 2005, and December 31, 2005 are presented on Table H. At March 31,
2006, December 31, 2005 and March 31, 2005, BPPR, BPNA and Banco Popular, National Association were
all well-capitalized.
The average tangible equity amounted to $2.9 billion at March 31, 2006, compared to $2.7 billion at
December 31, 2005 and $2.6 billion at March 31, 2005. Total tangible equity was $2.7 billion at
March 31, 2006 and December 31, 2005, and $2.5 billion at March 31, 2005. The average tangible
equity to average tangible assets ratio was 6.01% at March 31, 2006, 5.86% at December 31, 2005 and
5.81% at March 31, 2005.
TABLE H
Capital Adequacy Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
(Dollars in thousands) |
|
2006 |
|
|
2005 |
|
|
2005 |
|
|
Risk-based capital |
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital |
|
$ |
3,660,551 |
|
|
$ |
3,540,270 |
|
|
$ |
3,337,612 |
|
Supplementary (Tier II) capital |
|
|
407,638 |
|
|
|
403,355 |
|
|
|
372,923 |
|
|
Total capital |
|
$ |
4,068,189 |
|
|
$ |
3,943,625 |
|
|
$ |
3,710,535 |
|
|
Risk-weighted assets |
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet items |
|
$ |
29,963,042 |
|
|
$ |
29,557,342 |
|
|
$ |
27,406,208 |
|
Off-balance sheet items |
|
|
2,338,272 |
|
|
|
2,141,922 |
|
|
|
1,639,509 |
|
|
Total risk-weighted assets |
|
$ |
32,301,314 |
|
|
$ |
31,699,264 |
|
|
$ |
29,045,717 |
|
|
Average assets |
|
$ |
48,045,828 |
|
|
$ |
47,415,254 |
|
|
$ |
44,748,930 |
|
|
Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
Tier I
capital (minimum required 4.00%) |
|
|
11.33 |
% |
|
|
11.17 |
% |
|
|
11.49 |
% |
Total
capital (minimum required 8.00%) |
|
|
12.59 |
% |
|
|
12.44 |
% |
|
|
12.77 |
% |
Leverage ratio * |
|
|
7.62 |
% |
|
|
7.47 |
% |
|
|
7.46 |
% |
|
|
|
|
* |
|
All banks are required to have a minimum Tier I leverage ratio of 3% or 4% of adjusted quarterly
average assets, depending on the banks classification. |
At March 31, 2006, the capital adequacy minimum requirement for Popular, Inc. was: Total Capital
of $2,584,105, Tier I Capital of $1,292,053,
and a Tier I Leverage of $1,441,375 based on a 3% ratio or $1,921,833 based on a 4% ratio
according to the Banks classification.
61
OFF-BALANCE SHEET ACTIVITIES
The Corporation conducts asset securitizations that involve the transfer of mortgage loans to
qualifying special purpose entities (QSPE), which in turn transfer these assets and their titles,
to different trusts, thus isolating those loans from the Corporations assets. The off-balance
sheet mortgage loans securitizations conducted prior to 2001 and in 2005 and 2006, qualified for
sale accounting based on the provisions of SFAS No. 140 Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities, and as such, these trusts are not consolidated
in the Corporations financial statements. The investors and the securitization trusts have no
recourse to the Corporations assets or revenues. The Corporations creditors have no recourse to
any assets or revenues of the special purpose entity, or the securitization trust funds. At March
31, 2006 and 2005, these trusts held approximately $2.3 billion and $0.7 billion, respectively, in
assets in the form of mortgage loans. Their liabilities in the form of debt principal due to
investors approximated $2.2 billion and $0.7 billion at March 31, 2006 and 2005, respectively. The
Corporation retained servicing responsibilities and certain subordinated interests in these
securitizations in the form of interest-only strips. Their value is subject to credit, prepayment
and interest rate risks on the transferred financial assets. The servicing rights retained by the
Corporation are recorded in the statements of condition at the lower of cost or market value, while
the interest-only strips are recorded at fair value. Refer to the Critical Accounting Policies /
Estimates section in the 2005 Annual Report for further information.
62
CREDIT RISK MANAGEMENT AND LOAN QUALITY
Table I summarizes the movement in the allowance for loan losses and presents several loan loss
statistics for the quarters ended March 31, 2006 and 2005.
TABLE I
Allowance for Loan Losses and Selected Loan Losses Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
(Dollars in thousands) |
|
2006 |
|
2005 |
|
Variance |
|
Balance at beginning of period |
|
$ |
461,707 |
|
|
$ |
437,081 |
|
|
$ |
24,626 |
|
Allowance purchased |
|
|
|
|
|
|
3,685 |
|
|
|
(3,685 |
) |
Provision for loan losses |
|
|
48,947 |
|
|
|
44,336 |
|
|
|
4,611 |
|
Impact of change in reporting period * |
|
|
2,510 |
|
|
|
1,586 |
|
|
|
924 |
|
|
|
|
|
513,164 |
|
|
|
486,688 |
|
|
|
26,476 |
|
|
Losses charged to the allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
12,453 |
|
|
|
15,659 |
|
|
|
(3,206 |
) |
Lease financing |
|
|
5,016 |
|
|
|
5,123 |
|
|
|
(107 |
) |
Mortgage |
|
|
11,317 |
|
|
|
10,143 |
|
|
|
1,174 |
|
Consumer |
|
|
31,232 |
|
|
|
23,533 |
|
|
|
7,699 |
|
|
Subtotal |
|
|
60,018 |
|
|
|
54,458 |
|
|
|
5,560 |
|
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
4,359 |
|
|
|
5,743 |
|
|
|
(1,384 |
) |
Lease financing |
|
|
3,786 |
|
|
|
2,794 |
|
|
|
992 |
|
Mortgage |
|
|
131 |
|
|
|
133 |
|
|
|
(2 |
) |
Consumer |
|
|
6,899 |
|
|
|
7,322 |
|
|
|
(423 |
) |
|
Subtotal |
|
|
15,175 |
|
|
|
15,992 |
|
|
|
(817 |
) |
|
Net loans charged-off: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
8,094 |
|
|
|
9,916 |
|
|
|
(1,822 |
) |
Lease financing |
|
|
1,230 |
|
|
|
2,329 |
|
|
|
(1,099 |
) |
Mortgage |
|
|
11,186 |
|
|
|
10,010 |
|
|
|
1,176 |
|
Consumer |
|
|
24,333 |
|
|
|
16,211 |
|
|
|
8,122 |
|
|
Subtotal |
|
|
44,843 |
|
|
|
38,466 |
|
|
|
6,377 |
|
|
Balance at end of period |
|
$ |
468,321 |
|
|
$ |
448,222 |
|
|
$ |
20,099 |
|
|
Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs to average loans held-in-portfolio |
|
|
0.58 |
|
|
|
0.55 |
|
|
|
|
|
Provision to net charge-offs |
|
|
1.09 |
x |
|
|
1.15 |
x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Represents the net effect of provision for loan losses, less net charge-offs corresponding to
the impact of the change in fiscal period at certain subsidiaries (as described in the Overview
section and in the 2005 Annual Report). |
|
Also, Table J presents annualized net charge-offs to average loans by loan category for the
quarters ended March 31, 2006 and 2005.
63
TABLE J
Annualized Net Charge-offs to Average Loans Held-in-Portfolio
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, |
|
|
2006 |
|
2005 |
|
Commercial and construction |
|
|
0.25 |
% |
|
|
0.35 |
% |
Lease financing |
|
|
0.37 |
|
|
|
0.72 |
|
Mortgage |
|
|
0.37 |
|
|
|
0.35 |
|
Consumer |
|
|
2.02 |
|
|
|
1.58 |
|
|
|
|
|
0.58 |
% |
|
|
0.55 |
% |
|
The decline in commercial and construction loans net charge-offs to average loans
held-in-portfolio ratio in the first quarter of 2006 compared with the same quarter in the previous
year was mostly associated with portfolio growth and to the mix of the commercial loan portfolio to
include a higher proportion of real estate secured loans. The improved credit quality trend was
also the result of the continuing identification and monitoring of potential problem loans.
The decrease in lease financing net charge-offs to average loans held-in-portfolio in the quarter
ended March 31, 2006, compared with the quarter ended March 31, 2005 was related principally to
lower net charge-offs in a grown portfolio at Popular Auto in Puerto Rico, coupled with the
favorable impact of net recoveries in the first quarter of 2006 at the Corporations leasing
subsidiary in the U.S. mainland. The recoveries were primarily associated to a particular customer
lending relationship which was substantially charged-off during 2004 and 2005. This lending
relationship is related to a vendor who had filed bankruptcy in 2004.
Mortgage loans net charge-offs as a percentage of average mortgage loans held-in-portfolio for the
quarter ended March 31, 2006 remained relatively stable when compared with the same quarter in the
previous year. Although non-performing mortgage loans have increased since December 31, 2005, as
shown in Table K, historically, the Corporation has experienced low level of losses in its mortgage
portfolio as a result of adequate collateral securing the loans. The increase in delinquency levels
has been experienced in both BPPR and PFH reportable segments. Deteriorating economic conditions
have impacted the mortgage delinquency rates, primarily in P.R.
Consumer loans net charge-offs as a percentage of average consumer loans held-in-portfolio for the
first quarter of 2006 rose when compared with the similar quarter in 2005, primarily due to a
growth in the unsecured portfolio, mainly in credit cards and personal loans, higher net
charge-offs in the auto loan portfolio and deteriorating economic conditions.
NON-PERFORMING ASSETS
A summary of non-performing assets, which include past-due loans that are no longer accruing
interest, renegotiated loans and real estate property acquired through foreclosure, is presented in
Table K, along with certain credit quality ratios. For a summary of the Corporations policy for
placing loans on non-accrual status, refer to the sections of Loans and Allowance for Loan Losses
included in Note 1 to the audited consolidated financial statements included in Popular, Inc.s
2005 Annual Report.
64
TABLE K
Non-Performing Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$Variance |
|
|
|
|
|
|
|
|
|
$Variance |
|
|
|
|
|
|
As a percentage |
|
|
|
|
|
As a percentage |
|
March 31, 2006 |
|
|
|
|
|
As a percentage |
|
March 31, 2006 |
|
|
March 31, |
|
of loans HIP |
|
December 31, |
|
of loans HIP |
|
vs. |
|
March 31, |
|
of loans HIP |
|
vs. |
(Dollars in thousands) |
|
2006 |
|
by category |
|
2005 |
|
by category |
|
December 31, 2005 |
|
2005 |
|
by category |
|
March 31, 2005 |
|
Commercial and construction |
|
$ |
138,602 |
|
|
|
1.1 |
% |
|
$ |
133,746 |
|
|
|
1.1 |
% |
|
$ |
4,856 |
|
|
$ |
141,132 |
|
|
|
1.2 |
% |
|
|
($2,530 |
) |
Lease financing |
|
|
3,455 |
|
|
|
0.3 |
|
|
|
2,562 |
|
|
|
0.2 |
|
|
|
893 |
|
|
|
3,034 |
|
|
|
0.2 |
|
|
|
421 |
|
Mortgage |
|
|
407,433 |
|
|
|
3.5 |
|
|
|
371,885 |
|
|
|
3.0 |
|
|
|
35,548 |
|
|
|
401,775 |
|
|
|
3.5 |
|
|
|
5,658 |
|
Consumer |
|
|
36,170 |
|
|
|
0.7 |
|
|
|
39,316 |
|
|
|
0.8 |
|
|
|
(3,146 |
) |
|
|
28,872 |
|
|
|
0.7 |
|
|
|
7,298 |
|
|
Total non-performing loans |
|
|
585,660 |
|
|
|
1.9 |
|
|
|
547,509 |
|
|
|
1.8 |
|
|
|
38,151 |
|
|
|
574,813 |
|
|
|
2.0 |
|
|
|
10,847 |
|
Other real estate |
|
|
82,352 |
|
|
|
|
|
|
|
79,008 |
|
|
|
|
|
|
|
3,344 |
|
|
|
64,775 |
|
|
|
|
|
|
|
17,577 |
|
|
Total non-performing
assets |
|
$ |
668,012 |
|
|
|
|
|
|
$ |
626,517 |
|
|
|
|
|
|
$ |
41,495 |
|
|
$ |
639,588 |
|
|
|
|
|
|
$ |
28,424 |
|
|
Accruing loans past due 90
days or more |
|
$ |
90,770 |
|
|
|
|
|
|
$ |
86,662 |
|
|
|
|
|
|
$ |
4,108 |
|
|
$ |
61,294 |
|
|
|
|
|
|
$ |
29,476 |
|
|
Non-performing assets to
loans held-in-portfolio |
|
|
2.16 |
% |
|
|
|
|
|
|
2.02 |
% |
|
|
|
|
|
|
|
|
|
|
2.27 |
% |
|
|
|
|
|
|
|
|
Non-performing assets to
total assets |
|
|
1.37 |
|
|
|
|
|
|
|
1.29 |
|
|
|
|
|
|
|
|
|
|
|
1.42 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses to
loans
held-in-portfolio |
|
|
1.52 |
|
|
|
|
|
|
|
1.49 |
|
|
|
|
|
|
|
|
|
|
|
1.59 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses to
non-performing assets |
|
|
70.11 |
|
|
|
|
|
|
|
73.69 |
|
|
|
|
|
|
|
|
|
|
|
70.08 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses to
non-performing loans |
|
|
79.96 |
|
|
|
|
|
|
|
84.33 |
|
|
|
|
|
|
|
|
|
|
|
77.98 |
|
|
|
|
|
|
|
|
|
|
The increase in non-performing assets since December 31, 2005 was primarily in mortgage loans
as a result of higher delinquencies in both the Puerto Rico and the U.S. mainland portfolios,
mainly reflected in BPPR and PFHs mortgage loan portfolios resulting from economic
conditions.
Accruing loans past due 90 days or more are composed primarily of credit cards, FHA/VA and other
insured mortgage loans, and mortgage loans delinquent included in the Corporations financial
statements pursuant to the GNMAs buy-back option program. Under SFAS No. 140, servicers of loans
underlying Ginnie Mae mortgage-backed securities must report as their own assets defaulted loans
that they have the option to purchase, even when they elect not to exercise the option. Also,
accruing loans ninety days or more include residential conventional loans purchased from other
financial institutions that although delinquent, the Corporation has received timely payment from
the sellers / servicers, and in most instances have partial guarantees under recourse agreements.
The allowance for loan losses, which represents managements estimate of credit losses inherent in
the loan portfolio, is maintained at a sufficient level to provide for these estimated loan losses
based on evaluations of the risks in the loan portfolios. In evaluating the adequacy of
the allowance for loan losses, the Corporations management considers current economic conditions,
loan portfolio composition and risk characteristics, historical loss experience, results of
periodic credit reviews of individual loans, regulatory requirements and loan impairment
measurement, among other factors. The methodology used to establish the allowance for loan losses
is based on SFAS No. 114, Accounting by Creditors for Impairment of a Loan, and SFAS No. 5,
Accounting for Contingencies. Under SFAS No. 114, certain commercial loans are identified for
evaluation on an individual basis, and specific reserves are calculated based on impairment
analyses. SFAS No. 5 provides for the recognition of a loss allowance for a group of homogeneous
loans when it is probable that a loss has been incurred and the amount can be reasonably estimated.
As of March 31, 2006, there have been no significant changes in evaluation methods or assumptions
from December 31, 2005 that had an effect on the Corporations methodology for assessing the
adequacy of the allowance for loan losses.
The Corporation considers a commercial loan to be impaired when interest and/or principal are past
due 90 days or more, or, when based on current information and events, it is probable that the
debtor will be unable to pay all amounts due according to the contractual terms of the loan
agreement. The following table shows the Corporations recorded investment in impaired commercial
loans and the related valuation allowance calculated under SFAS No. 114 at March 31, 2006, December
31, 2005 and March 31, 2005.
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
December 31, 2005 |
|
March 31, 2005 |
|
|
Recorded |
|
Valuation |
|
Recorded |
|
Valuation |
|
Recorded |
|
Valuation |
(In millions) |
|
Investment |
|
Allowance |
|
Investment |
|
Allowance |
|
Investment |
|
Allowance |
|
Impaired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance required |
|
$ |
70.9 |
|
|
$ |
20.7 |
|
|
$ |
69.6 |
|
|
$ |
20.4 |
|
|
$ |
83.8 |
|
|
$ |
28.3 |
|
No valuation allowance required |
|
|
46.7 |
|
|
|
|
|
|
|
46.3 |
|
|
|
|
|
|
|
59.5 |
|
|
|
|
|
|
Total impaired loans |
|
$ |
117.6 |
|
|
$ |
20.7 |
|
|
$ |
115.9 |
|
|
$ |
20.4 |
|
|
$ |
143.3 |
|
|
$ |
28.3 |
|
|
Average impaired loans during the first quarter of 2006 and 2005 were $120 million and $128
million, respectively. The Corporation recognized interest income on impaired loans of $0.9 million
and $0.7 million for the quarters ended March 31, 2006 and March 31, 2005, respectively.
In addition to the non-performing loans included in Table K, there were $28 million of loans at
March 31, 2006, which in managements opinion are currently subject to potential future
classification as non-performing, and are considered impaired under SFAS No. 114. At December 31,
2005 and March 31, 2005, these potential problem loans approximated $30 million and $49 million,
respectively.
Under the standard industry practice, closed-end consumer loans are not customarily placed on
non-accrual status prior to being charged-off. Excluding the closed-end consumer loans from
non-accruing at March 31, 2006, adjusted non-performing assets would have been $632 million or
2.05% of loans held-in-portfolio and the allowance to non-performing loans ratio would have been
85.23%. At December 31, 2005, adjusted non-performing assets would have been $587 million or 1.89%
of loans held-in-portfolio and the allowance to non-performing loans ratio would have been 90.85%.
At March 31, 2005, adjusted non-performing assets would have been $611 million or 2.17% of loans
held-in-portfolio and the allowance to non-performing loans would have been 82.10%.
The Corporations management considers the allowance for loan losses to be at a level sufficient to
provide for estimated losses based on current economic conditions, the level of net loan losses,
the loan portfolio mix which includes a high proportion of real estate secured loans, and the
methodology established to evaluate the adequacy of the allowance for loan losses.
As explained in the 2005 Annual Report, the Corporation is exposed to geographical and government
risk. Popular, Inc. has diversified its geographical risk as a result of its growth strategy in
the United States and the Caribbean. Puerto Ricos share of the Corporation