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 September 30, 2007
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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66-0667416 |
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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
280,286,329 shares outstanding as of
October 31, 2007.
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 markets conditions, 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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September 30, |
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December 31, |
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September 30, |
(In thousands, except share information) |
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2007 |
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2006 |
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2006 |
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ASSETS |
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Cash and due from banks |
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$ |
709,056 |
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$ |
950,158 |
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$ |
736,669 |
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Money market investments: |
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Federal funds sold |
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430,000 |
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84,350 |
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323,980 |
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Securities purchased under agreements to resell |
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180,394 |
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202,181 |
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211,439 |
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Time deposits with other banks |
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24,703 |
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15,177 |
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9,830 |
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635,097 |
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301,708 |
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545,249 |
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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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4,742,127 |
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3,743,924 |
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4,463,023 |
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Other investment securities available-for-sale |
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4,136,368 |
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6,106,938 |
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5,695,302 |
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Investment securities held-to-maturity, at amortized cost (market value at
September 30, 2007 - $280,072; December 31, 2006 - $92,764; September
30, 2006 $358,849) |
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279,267 |
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91,340 |
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357,430 |
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Other investment securities, at lower of cost or realizable value
(realizable value at September 30, 2007 - $179,598; December 31,
2006 - $412,593; September 30, 2006 - $407,849) |
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179,376 |
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297,394 |
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297,472 |
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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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569,357 |
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193,619 |
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211,942 |
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Other trading securities |
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92,801 |
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188,706 |
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239,720 |
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Loans held-for-sale, at lower of cost or market value |
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423,303 |
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719,922 |
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447,314 |
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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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160,923 |
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306,320 |
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51,260 |
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Other loans held-in-portfolio |
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33,067,301 |
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32,019,044 |
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31,563,499 |
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Less Unearned income |
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330,723 |
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308,347 |
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305,114 |
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Allowance for loan losses |
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600,273 |
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522,232 |
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487,339 |
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32,297,228 |
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31,494,785 |
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30,822,306 |
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Premises and equipment, net |
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580,768 |
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595,140 |
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588,282 |
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Other real estate |
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133,508 |
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84,816 |
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83,636 |
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Accrued income receivable |
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290,916 |
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248,240 |
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288,342 |
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Other assets |
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1,441,681 |
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1,611,890 |
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1,374,900 |
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Goodwill |
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668,807 |
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667,853 |
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678,666 |
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Other intangible assets |
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100,471 |
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107,554 |
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104,497 |
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$ |
47,280,131 |
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$ |
47,403,987 |
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$ |
46,934,750 |
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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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$ |
3,975,383 |
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$ |
4,222,133 |
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$ |
3,822,584 |
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Interest bearing |
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22,626,132 |
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20,216,198 |
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19,314,861 |
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26,601,515 |
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24,438,331 |
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23,137,445 |
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Federal funds purchased and assets sold under agreements to repurchase |
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6,287,303 |
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5,762,445 |
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7,045,466 |
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Other short-term borrowings |
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1,414,897 |
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4,034,125 |
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2,709,511 |
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Notes payable |
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8,314,791 |
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8,737,246 |
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9,681,897 |
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Other liabilities |
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857,795 |
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811,424 |
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724,296 |
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43,476,301 |
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43,783,571 |
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43,298,615 |
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Commitments and contingencies (See Note 12) |
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Minority interest in consolidated subsidiaries |
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109 |
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110 |
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111 |
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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; 292,993,474 shares issued (December 31, 2006 292,190,924;
September 30, 2006 291,977,949) and 279,597,529 outstanding
(December 31, 2006 278,741,547; September 30, 2006 278,553,152) |
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1,757,961 |
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1,753,146 |
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1,751,868 |
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Surplus |
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536,129 |
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|
526,856 |
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|
494,398 |
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Retained earnings |
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1,689,384 |
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1,594,144 |
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1,611,103 |
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Accumulated other comprehensive loss, net of tax of ($56,551)
(December 31, 2006 ($84,143); September 30, 2006 ($61,834)) |
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(161,061 |
) |
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(233,728 |
) |
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(201,687 |
) |
Treasury stock at cost, 13,395,945 shares (December 31, 2006 13,449,377;
September 30, 2006 13,424,797) |
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(205,567 |
) |
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(206,987 |
) |
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(206,533 |
) |
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3,803,721 |
|
|
|
3,620,306 |
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3,636,024 |
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$ |
47,280,131 |
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$ |
47,403,987 |
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$ |
46,934,750 |
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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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Nine months ended |
|
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September 30, |
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September 30, |
(In thousands, except per share information) |
|
2007 |
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2006 |
|
2007 |
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2006 |
|
INTEREST INCOME: |
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Loans |
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$ |
662,973 |
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$ |
637,246 |
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$ |
1,963,572 |
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$ |
1,842,873 |
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Money market investments |
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|
6,807 |
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|
7,038 |
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|
|
17,168 |
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|
22,926 |
|
Investment securities |
|
|
109,793 |
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|
|
129,323 |
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|
|
338,347 |
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|
|
396,130 |
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Trading account securities |
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|
10,653 |
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|
7,724 |
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|
29,645 |
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23,649 |
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|
|
|
|
790,226 |
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|
781,331 |
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2,348,732 |
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2,285,578 |
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INTEREST EXPENSE: |
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Deposits |
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|
196,825 |
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|
|
151,008 |
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|
|
552,657 |
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|
411,380 |
|
Short-term borrowings |
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|
113,832 |
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|
141,727 |
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|
|
358,107 |
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|
393,604 |
|
Long-term debt |
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|
119,453 |
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|
146,558 |
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|
351,453 |
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|
413,013 |
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|
|
|
|
430,110 |
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|
|
439,293 |
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|
|
1,262,217 |
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|
|
1,217,997 |
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Net interest income |
|
|
360,116 |
|
|
|
342,038 |
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|
|
1,086,515 |
|
|
|
1,067,581 |
|
Provision for loan losses |
|
|
148,093 |
|
|
|
63,445 |
|
|
|
359,606 |
|
|
|
179,488 |
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Net interest income after provision for loan losses |
|
|
212,023 |
|
|
|
278,593 |
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|
|
726,909 |
|
|
|
888,093 |
|
Service charges on deposit accounts |
|
|
49,704 |
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|
|
47,484 |
|
|
|
146,567 |
|
|
|
142,277 |
|
Other service fees (See Note 13) |
|
|
93,364 |
|
|
|
79,637 |
|
|
|
270,803 |
|
|
|
240,000 |
|
Net (loss) gain on sale and valuation adjustments of investment
securities |
|
|
(3,089 |
) |
|
|
7,123 |
|
|
|
79,857 |
|
|
|
5,039 |
|
Trading account (loss) profit |
|
|
(2,867 |
) |
|
|
10,019 |
|
|
|
(6,654 |
) |
|
|
23,324 |
|
Gain on sale of loans and valuation adjustments on loans held-for-sale |
|
|
5,991 |
|
|
|
20,113 |
|
|
|
37,719 |
|
|
|
96,428 |
|
Other operating income |
|
|
23,902 |
|
|
|
26,973 |
|
|
|
94,264 |
|
|
|
97,100 |
|
|
|
|
|
379,028 |
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|
|
469,942 |
|
|
|
1,349,465 |
|
|
|
1,492,261 |
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OPERATING EXPENSES: |
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Personnel costs: |
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Salaries |
|
|
120,810 |
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|
130,613 |
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|
384,239 |
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|
|
392,845 |
|
Pension, profit sharing and other benefits |
|
|
31,430 |
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|
|
34,083 |
|
|
|
110,664 |
|
|
|
116,386 |
|
|
|
|
|
152,240 |
|
|
|
164,696 |
|
|
|
494,903 |
|
|
|
509,231 |
|
Net occupancy expenses |
|
|
29,436 |
|
|
|
31,573 |
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|
|
87,951 |
|
|
|
88,840 |
|
Equipment expenses |
|
|
30,688 |
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|
|
34,346 |
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|
|
95,329 |
|
|
|
101,516 |
|
Other taxes |
|
|
13,227 |
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|
|
11,770 |
|
|
|
36,909 |
|
|
|
32,940 |
|
Professional fees |
|
|
37,103 |
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|
|
29,618 |
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|
|
111,732 |
|
|
|
105,184 |
|
Communications |
|
|
16,846 |
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|
17,343 |
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|
|
50,881 |
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|
|
51,936 |
|
Business promotion |
|
|
28,560 |
|
|
|
33,855 |
|
|
|
87,301 |
|
|
|
98,669 |
|
Printing and supplies |
|
|
4,131 |
|
|
|
4,408 |
|
|
|
12,956 |
|
|
|
13,331 |
|
Other operating expenses |
|
|
32,508 |
|
|
|
28,706 |
|
|
|
97,362 |
|
|
|
85,609 |
|
Impact of change in fiscal period of certain subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,741 |
|
Amortization of intangibles |
|
|
2,234 |
|
|
|
3,608 |
|
|
|
8,030 |
|
|
|
9,160 |
|
|
|
|
|
346,973 |
|
|
|
359,923 |
|
|
|
1,083,354 |
|
|
|
1,106,157 |
|
|
Income before income tax |
|
|
32,055 |
|
|
|
110,019 |
|
|
|
266,111 |
|
|
|
386,104 |
|
Income tax |
|
|
(3,948 |
) |
|
|
27,859 |
|
|
|
36,511 |
|
|
|
88,060 |
|
|
NET INCOME |
|
$ |
36,003 |
|
|
$ |
82,160 |
|
|
$ |
229,600 |
|
|
$ |
298,044 |
|
|
NET INCOME APPLICABLE TO COMMON STOCK |
|
$ |
33,024 |
|
|
$ |
79,181 |
|
|
$ |
220,665 |
|
|
$ |
289,109 |
|
|
BASIC EARNINGS PER COMMON SHARE (EPS) |
|
$ |
0.12 |
|
|
$ |
0.28 |
|
|
$ |
0.79 |
|
|
$ |
1.04 |
|
|
DILUTED EPS |
|
$ |
0.12 |
|
|
$ |
0.28 |
|
|
$ |
0.79 |
|
|
$ |
1.04 |
|
|
DIVIDENDS DECLARED PER COMMON SHARE |
|
$ |
0.16 |
|
|
$ |
0.16 |
|
|
$ |
0.48 |
|
|
$ |
0.48 |
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
September 30, |
(In thousands) |
|
2007 |
|
2006 |
|
Preferred stock: |
|
|
|
|
|
|
|
|
Balance at beginning and end of year |
|
$ |
186,875 |
|
|
$ |
186,875 |
|
|
Common stock: |
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
1,753,146 |
|
|
|
1,736,443 |
|
Common stock issued under the Dividend Reinvestment Plan |
|
|
4,755 |
|
|
|
3,919 |
|
Issuance of common stock |
|
|
|
|
|
|
11,312 |
|
Stock options exercised |
|
|
60 |
|
|
|
194 |
|
|
Balance at end of period |
|
|
1,757,961 |
|
|
|
1,751,868 |
|
|
Surplus: |
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
526,856 |
|
|
|
452,398 |
|
Common stock issued under the Dividend Reinvestment Plan |
|
|
7,835 |
|
|
|
8,634 |
|
Issuance of common stock |
|
|
|
|
|
|
28,281 |
|
Issuance cost of common stock |
|
|
|
|
|
|
1,462 |
|
Stock options expense on unexercised options, net of forfeitures |
|
|
1,289 |
|
|
|
2,160 |
|
Stock options exercised |
|
|
149 |
|
|
|
463 |
|
Transfer from retained earnings |
|
|
|
|
|
|
1,000 |
|
|
Balance at end of period |
|
|
536,129 |
|
|
|
494,398 |
|
|
Retained earnings: |
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
1,594,144 |
|
|
|
1,456,612 |
|
Net income |
|
|
229,600 |
|
|
|
298,044 |
|
Cumulative effect of accounting change (adoption of SFAS No.
156 and EITF 06-5) |
|
|
8,667 |
|
|
|
|
|
Cash dividends declared on common stock |
|
|
(134,092 |
) |
|
|
(133,618 |
) |
Cash dividends declared on preferred stock |
|
|
(8,935 |
) |
|
|
(8,935 |
) |
Transfer to surplus |
|
|
|
|
|
|
(1,000 |
) |
|
Balance at end of period |
|
|
1,689,384 |
|
|
|
1,611,103 |
|
|
Accumulated other comprehensive loss: |
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
(233,728 |
) |
|
|
(176,000 |
) |
Other comprehensive income (loss), net of tax |
|
|
72,667 |
|
|
|
(25,687 |
) |
|
Balance at end of period |
|
|
(161,061 |
) |
|
|
(201,687 |
) |
|
Treasury stock at cost: |
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
(206,987 |
) |
|
|
(207,081 |
) |
Purchase of common stock |
|
|
(352 |
) |
|
|
|
|
Reissuance of common stock |
|
|
1,772 |
|
|
|
548 |
|
|
Balance at end of period |
|
|
(205,567 |
) |
|
|
(206,533 |
) |
|
Total stockholders equity |
|
$ |
3,803,721 |
|
|
$ |
3,636,024 |
|
|
Disclosure of changes in number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
September 30, |
|
|
2007 |
|
2006 |
|
2006 |
|
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 |
|
|
292,190,924 |
|
|
|
289,407,190 |
|
|
|
289,407,190 |
|
Issued under the Dividend Reinvestment Plan |
|
|
792,486 |
|
|
|
858,905 |
|
|
|
653,142 |
|
Issuance of common stock |
|
|
|
|
|
|
1,885,380 |
|
|
|
1,885,380 |
|
Stock options exercised |
|
|
10,064 |
|
|
|
39,449 |
|
|
|
32,237 |
|
|
Balance at end of period |
|
|
292,993,474 |
|
|
|
292,190,924 |
|
|
|
291,977,949 |
|
|
Treasury stock |
|
|
(13,395,945 |
) |
|
|
(13,449,377 |
) |
|
|
(13,424,797 |
) |
|
Common Stock outstanding |
|
|
279,597,529 |
|
|
|
278,741,547 |
|
|
|
278,553,152 |
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
POPULAR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Net income |
|
$ |
36,003 |
|
|
$ |
82,160 |
|
|
$ |
229,600 |
|
|
$ |
298,044 |
|
|
Other comprehensive income (loss), before tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
(966 |
) |
|
|
(150 |
) |
|
|
2,014 |
|
|
|
(467 |
) |
Adjustment of pension and postretirement benefit plans |
|
|
|
|
|
|
|
|
|
|
(519 |
) |
|
|
|
|
Unrealized gains (losses) on securities available-for-sale arising
during the period |
|
|
156,462 |
|
|
|
192,674 |
|
|
|
100,493 |
|
|
|
(23,150 |
) |
Reclassification adjustment for losses (gains) included in net income |
|
|
3 |
|
|
|
(7,123 |
) |
|
|
(80 |
) |
|
|
(5,039 |
) |
Unrealized net losses on cash flows hedges |
|
|
(2,065 |
) |
|
|
(4,992 |
) |
|
|
(1,117 |
) |
|
|
(1,082 |
) |
Reclassification adjustment for (gains) losses included in net income |
|
|
(164 |
) |
|
|
1,126 |
|
|
|
(289 |
) |
|
|
509 |
|
Cumulative effect of accounting change |
|
|
|
|
|
|
|
|
|
|
(243 |
) |
|
|
|
|
|
|
|
|
153,270 |
|
|
|
181,535 |
|
|
|
100,259 |
|
|
|
(29,229 |
) |
Income tax (expense) benefit |
|
|
(39,514 |
) |
|
|
(48,433 |
) |
|
|
(27,592 |
) |
|
|
3,542 |
|
|
Total other comprehensive income (loss), net of tax |
|
|
113,756 |
|
|
|
133,102 |
|
|
|
72,667 |
|
|
|
(25,687 |
) |
|
Comprehensive income |
|
$ |
149,759 |
|
|
$ |
215,262 |
|
|
$ |
302,267 |
|
|
$ |
272,357 |
|
|
Tax Effects Allocated to Each Component of Other Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
Nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
Underfunding of pension and postretirement benefit plans |
|
|
|
|
|
|
|
|
|
$ |
180 |
|
|
|
|
|
Unrealized gains (losses) on securities available-for-sale arising
during the period |
|
|
($40,302 |
) |
|
|
($49,801 |
) |
|
|
(28,280 |
) |
|
$ |
3,348 |
|
Reclassification adjustment for losses (gains) included in net income |
|
|
(1 |
) |
|
|
3 |
|
|
|
13 |
|
|
|
(3 |
) |
Unrealized net losses on cash flows hedges |
|
|
723 |
|
|
|
1,807 |
|
|
|
371 |
|
|
|
425 |
|
Reclassification adjustment for (gains) losses included in net income |
|
|
66 |
|
|
|
(442 |
) |
|
|
124 |
|
|
|
(228 |
) |
|
Income tax (expense) benefit |
|
|
($39,514 |
) |
|
|
($48,433 |
) |
|
|
($27,592 |
) |
|
$ |
3,542 |
|
|
Disclosure of accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
(In thousands) |
|
2007 |
|
|
2006 |
|
|
2006 |
|
|
Foreign currency translation adjustment |
|
|
($34,687 |
) |
|
|
($36,701 |
) |
|
|
($36,782 |
) |
|
Minimum pension liability adjustment |
|
|
|
|
|
|
(3,893 |
) |
|
|
(2,354 |
) |
Tax effect |
|
|
|
|
|
|
1,518 |
|
|
|
918 |
|
|
Adoption of SFAS No. 158 |
|
|
|
|
|
|
3,893 |
|
|
|
|
|
Tax effect |
|
|
|
|
|
|
(1,518 |
) |
|
|
|
|
|
Net of tax amount |
|
|
|
|
|
|
|
|
|
|
(1,436 |
) |
|
Underfunding of pension and postretirement benefit plans |
|
|
(69,779 |
) |
|
|
(69,260 |
) |
|
|
|
|
Tax effect |
|
|
27,214 |
|
|
|
27,034 |
|
|
|
|
|
|
Net of tax amount |
|
|
(42,565 |
) |
|
|
(42,226 |
) |
|
|
|
|
|
Unrealized losses on securities available-for-sale |
|
|
(111,830 |
) |
|
|
(212,243 |
) |
|
|
(223,879 |
) |
Tax effect |
|
|
28,879 |
|
|
|
57,146 |
|
|
|
60,642 |
|
|
Net of tax amount |
|
|
(82,951 |
) |
|
|
(155,097 |
) |
|
|
(163,237 |
) |
|
Unrealized (losses) gains on cash flows hedges |
|
|
(1,316 |
) |
|
|
90 |
|
|
|
(749 |
) |
Tax effect |
|
|
458 |
|
|
|
(37 |
) |
|
|
274 |
|
|
Net of tax amount |
|
|
(858 |
) |
|
|
53 |
|
|
|
(475 |
) |
|
Cumulative effect of accounting change, net of tax |
|
|
|
|
|
|
243 |
|
|
|
243 |
|
|
Accumulated other comprehensive loss, net of tax |
|
|
($161,061 |
) |
|
|
($233,728 |
) |
|
|
($201,687 |
) |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
POPULAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
(In thousands) |
|
2007 |
|
2006 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
229,600 |
|
|
$ |
298,044 |
|
Less: Impact of change in fiscal period of certain subsidiaries, net of tax |
|
|
|
|
|
|
(6,129 |
) |
|
Net income before change in fiscal period |
|
|
229,600 |
|
|
|
304,173 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization of premises and equipment |
|
|
59,558 |
|
|
|
63,805 |
|
Provision for loan losses |
|
|
359,606 |
|
|
|
179,488 |
|
Amortization of intangibles |
|
|
8,030 |
|
|
|
9,160 |
|
Amortization and fair value adjustments of servicing assets |
|
|
34,941 |
|
|
|
43,309 |
|
Net gain on sale and valuation adjustments of investment securities |
|
|
(79,857 |
) |
|
|
(5,039 |
) |
Net gain on disposition of premises and equipment |
|
|
(5,293 |
) |
|
|
(7,177 |
) |
Net gain on sale of loans and valuation adjustments on loans held-for-sale |
|
|
(37,719 |
) |
|
|
(96,428 |
) |
Net amortization of premiums and accretion of discounts on investments |
|
|
15,801 |
|
|
|
19,060 |
|
Net amortization of premiums and deferred loan origination fees and costs |
|
|
70,645 |
|
|
|
99,065 |
|
Earnings from investments under the equity method |
|
|
(19,514 |
) |
|
|
(9,081 |
) |
Stock options expense |
|
|
1,339 |
|
|
|
2,308 |
|
Deferred income taxes |
|
|
(94,581 |
) |
|
|
(19,630 |
) |
Net disbursements on loans held-for-sale |
|
|
(4,007,301 |
) |
|
|
(4,963,647 |
) |
Acquisitions of loans held-for-sale |
|
|
(474,269 |
) |
|
|
(1,188,844 |
) |
Proceeds from sale of loans held-for-sale |
|
|
3,475,817 |
|
|
|
5,559,968 |
|
Net decrease in trading securities |
|
|
1,003,078 |
|
|
|
1,195,639 |
|
Net increase in accrued income receivable |
|
|
(42,675 |
) |
|
|
(44,311 |
) |
Net decrease in other assets |
|
|
30,507 |
|
|
|
67,881 |
|
Net increase in interest payable |
|
|
4,586 |
|
|
|
41,257 |
|
Net increase in postretirement benefit obligation |
|
|
2,407 |
|
|
|
3,028 |
|
Net increase (decrease) in other liabilities |
|
|
18,645 |
|
|
|
(88,160 |
) |
|
Total adjustments |
|
|
323,751 |
|
|
|
861,651 |
|
|
Net cash provided by operating activities |
|
|
553,351 |
|
|
|
1,165,824 |
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Net (increase) decrease in money market investments |
|
|
(266,954 |
) |
|
|
204,322 |
|
Purchases of investment securities: |
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
(67,920 |
) |
|
|
(243,481 |
) |
Held-to-maturity |
|
|
(17,026,831 |
) |
|
|
(20,847,771 |
) |
Other |
|
|
(47,786 |
) |
|
|
(50,980 |
) |
Proceeds from calls, paydowns, maturities and redemptions of investment securities: |
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
1,066,304 |
|
|
|
1,560,612 |
|
Held-to-maturity |
|
|
16,844,551 |
|
|
|
20,644,100 |
|
Other |
|
|
17,071 |
|
|
|
72,611 |
|
Proceeds from sale of investment securities available-for-sale |
|
|
37,352 |
|
|
|
198,191 |
|
Proceeds from sale of other investment securities |
|
|
246,352 |
|
|
|
|
|
Net disbursements on loans |
|
|
(1,137,982 |
) |
|
|
(877,628 |
) |
Proceeds from sale of loans |
|
|
16,367 |
|
|
|
759,518 |
|
Acquisition of loan portfolios |
|
|
(22,312 |
) |
|
|
(291,330 |
) |
Assets acquired, net of cash |
|
|
(2,378 |
) |
|
|
(2,752 |
) |
Mortgage servicing rights purchased |
|
|
(25,596 |
) |
|
|
(18,723 |
) |
Acquisition of premises and equipment |
|
|
(69,607 |
) |
|
|
(85,415 |
) |
Proceeds from sale of premises and equipment |
|
|
29,501 |
|
|
|
39,031 |
|
Proceeds from sale of foreclosed assets |
|
|
113,776 |
|
|
|
99,928 |
|
|
Net cash (used in) provided by investing activities |
|
|
(296,092 |
) |
|
|
1,160,233 |
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
2,150,668 |
|
|
|
494,091 |
|
Net increase (decrease) in federal funds purchased and
assets sold under agreements to repurchase |
|
|
524,858 |
|
|
|
(1,770,146 |
) |
Net decrease in other short-term borrowings |
|
|
(2,619,228 |
) |
|
|
(97,642 |
) |
Payments of notes payable |
|
|
(1,245,332 |
) |
|
|
(1,822,303 |
) |
Proceeds from issuance of notes payable |
|
|
821,087 |
|
|
|
777,171 |
|
Dividends paid |
|
|
(142,898 |
) |
|
|
(140,765 |
) |
Proceeds from issuance of common stock |
|
|
12,836 |
|
|
|
51,895 |
|
Treasury stock acquired |
|
|
(352 |
) |
|
|
|
|
|
Net cash used in financing activities |
|
|
(498,361 |
) |
|
|
(2,507,699 |
) |
|
Cash effect of change in fiscal period of certain subsidiaries |
|
|
|
|
|
|
11,914 |
|
|
Net decrease in cash and due from banks |
|
|
(241,102 |
) |
|
|
(169,728 |
) |
Cash and due from banks at beginning of period |
|
|
950,158 |
|
|
|
906,397 |
|
|
Cash and due from banks at end of period |
|
$ |
709,056 |
|
|
$ |
736,669 |
|
|
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 based in Puerto Rico 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 principal banking subsidiary, Banco Popular de Puerto Rico (BPPR), as well as auto
and equipment leasing and financing, mortgage loans, consumer lending, investment banking,
broker-dealer and insurance services through specialized subsidiaries. In the United States,
the Corporation has established a community banking franchise providing a broad range of financial
services and products to the communities it serves. Banco Popular North America (BPNA) operates
branches in New York, California, Illinois, New Jersey, Florida and Texas, while E-LOAN provides
online consumer direct lending for obtaining mortgage, auto and home equity loans, and provides an
online platform to raise deposits for BPNA. Popular Financial Holdings (PFH) offers mortgage and
personal loans and provides mortgage loan servicing. The Corporation, through its transaction
processing company, EVERTEC, continues to use its expertise in technology as a competitive
advantage in its expansion throughout the United States, the Caribbean and Latin America, as well
as internally servicing many of its subsidiaries system infrastructures and transactional
processing businesses. Note 21 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. The Corporation also consolidates the variable interest entities for
which it is the primary beneficiary and, therefore, will absorb the majority of the entitys
expected losses, receive a majority of the entitys expected returns, or both. 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
consolidated financial statements to conform to the 2007 presentation.
The statement of condition data as of December 31, 2006 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 September 30, 2007,
December 31, 2006 and September 30, 2006 pursuant to the rules and regulations of the 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, 2006, included in the Corporations 2006 Annual Report. The Corporations Form 10-K filed on
March 1, 2007 incorporates by reference the 2006 Annual Report.
SUBSEQUENT EVENTS
Sale
of BPNAs Retail Bank Branches in Houston
On October 22, 2007, the Corporation announced the signing of a definitive agreement to sell the
six Houston retail bank branches of BPNA to Prosperity Bank. Prosperity Bank has agreed to pay a
premium of 10.10% for approximately $140 million in deposits, as well as purchase certain loans and
other assets attributable to the branches. Prosperity Bank also agreed to retain all branch-based
employees of BPNAs Houston locations as part of the transaction. BPNA will continue to operate its
mortgage business based in Houston as well as its franchise and small business lending activities in
Texas. BPNA will also continue to maintain a retail branch in Arlington, Texas. The agreement was
approved by the Boards of Directors of both banks and is expected to close during the fourth
quarter of 2007. The transaction is subject to certain customary closing conditions, including
receipt of regulatory approvals.
E-LOAN Restructuring Plan
On November 5, 2007, the Board of Directors of Popular adopted a Restructuring Plan for its
internet financial services subsidiary E-LOAN (the E-LOANs Restructuring Plan).
Considering
the losses in the operation of E-LOAN, market conditions and other
factors, the Board of Directors
approved a substantial reduction of marketing and personnel costs at E-LOAN. This change will
include concentrating marketing investment toward the internet and the origination of first
mortgage loans that are actually being sold to Government Sponsored
Entities (GSEs). The E-LOAN
Restructuring Plan continues to promote the expansion of the Internet deposit gathering initiative
with BPNA.
The cost-control plan initiative at the E-LOAN subsidiary will result in the elimination of
approximately 513 positions out of a total of 771 and will be
substantially accomplished in the
fourth quarter of 2007. As a result of the E-LOAN Restructuring Plan, operating expenses are
expected to be reduced by approximately $79 million for 2008. E-LOANs estimated net losses for the
year ended December 31, 2008 are expected to decline by $28 million, resulting principally from the
reduction in operating expenses, partially offset by the related tax impact and by lower volume of
loan originations in certain business channels that are impacted by this plan.
It is expected that this Plan will result in estimated restructuring charges as follows:
|
|
|
|
|
(In millions) |
|
Fourth Quarter 2007 |
|
Severance |
|
$ |
4.4 |
|
Stay and retention bonuses |
|
|
0.2 |
|
Lease terminations |
|
|
4.2 |
|
|
|
|
|
Total restructuring charges |
|
|
8.8 |
|
Impairment of long-lived assets |
|
|
12.3 |
|
Impairment
charges on definite-life intangible assets |
|
|
3.1 |
|
|
|
|
|
Total estimated charges |
|
$ |
24.2 |
|
|
|
|
|
These estimates are preliminary as management continues to work on the E-LOAN Restructuring
Plan. Further, the Corporation is currently evaluating whether this change in E-LOANs business
model could result in impairment in the value of its recorded goodwill and trademark. As of
September 30, 2007, E-LOANs accounting records reflect $164 million in goodwill and $64 million in
trademark. The impairment valuation analysis is to be completed in the fourth quarter of 2007. Any
impairment charge will not impact the regulatory capital ratios of
the Corporation or its liquidity since it would be a non-cash
transaction.
9
Note 2 Recent Accounting Developments
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. SFAS No. 155 permits companies to
elect, on a transaction-by-transaction basis, to apply a fair value measurement to hybrid financial
instruments that contain an embedded derivative that would otherwise require bifurcation under SFAS
No. 133. This statement also 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 adoption of SFAS No. 155 in 2007 did not have a material
impact on the Corporations consolidated financial statements during the nine months ended
September 30, 2007.
SFAS
No. 156 Accounting for Servicing of Financial Assets
an amendment of FASB Statement No. 140
SFAS No. 156 requires that all separately recognized servicing assets and liabilities be initially
measured at fair value, if practicable. For subsequent measurements, SFAS No. 156 permits companies
to choose between using an amortization method or a fair value measurement method for reporting
purposes by class of servicing asset or liability. The Corporation adopted SFAS No. 156 in January
2007. The Corporation elected the fair value measurement for mortgage servicing rights (MSRs).
Servicing rights associated with Small Business Administration (SBA) commercial loans will
continue to be accounted for at the lower of cost or market method. The initial impact of adoption of
the fair value measurement for MSRs during the first quarter of 2007 was included as a cumulative
effect of a change in accounting principle directly in stockholders equity and resulted in a net
increase in stockholders equity of approximately $9.6 million, net of deferred taxes. Refer to
Note 7 to the consolidated financial statements for required SFAS No. 156 disclosures.
FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes an interpretation of FASB
Statement No. 109 (FIN 48)
In 2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements in accordance with SFAS No. 109. FIN 48
prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. This
Interpretation also provides guidance on recognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition related to income taxes. The accounting
provisions of FIN 48 were effective for the Corporation beginning in the first quarter of 2007.
Based on managements assessment, there was no impact on retained earnings as of January 1, 2007
due to the initial application of the provisions of FIN 48. Also, as a result of the
implementation, the Corporation did not recognize any change in the liability for unrecognized tax
benefits. Refer to Note 14 to the consolidated financial statements for further information on the
impact of FIN 48.
EITF Issue No. 06-03 How Taxes Collected from Customers and Remitted to Governmental Authorities
Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) (EITF 06-03)
EITF 06-03 provides that the presentation of taxes assessed by a governmental authority that is
directly imposed on a revenue-producing transaction between a seller and a customer on either a
gross basis (included in revenues and costs) or on a net basis (excluded from revenues) is an
accounting policy decision that should be disclosed. The Corporation adopted the EITF 06-03
guidance in the first quarter of 2007. The Corporations accounting policy is to account on a net
basis for the taxes collected from customers and remitted to governmental authorities on a net
basis. The corresponding amounts recognized in the consolidated financial statements are not
significant.
10
EITF Issue No. 06-5 Accounting for Purchases of Life Insurance Determining the Amount That Could
Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life
Insurance (EITF 06-5)
EITF 06-5 focuses on how an entity should determine the amount that could be realized under the
insurance
contract at the balance sheet date in applying FTB 85-4, and whether the determination should be
on an individual or group policy basis. At the September 2006 meeting, the Task Force affirmed as a
final consensus that the cash surrender value and any additional amounts provided by the
contractual terms of the insurance policy that are realizable at the balance sheet date should be
considered in determining the amount that could be realized under FTB 85-4, and any amounts that
are not immediately payable in cash to the policyholder should be discounted to their present
value. Additionally, the Task Force affirmed as a final consensus the tentative conclusion that in
determining the amount that could be realized, companies should assume that policies will be
surrendered on an individual-by-individual basis, rather than surrendering the entire group policy.
Also, the Task Force reached a consensus that contractual limitations on the ability to surrender a
policy do not affect the amount to be reflected under FTB 85-4, but, if significant, the nature of
those restrictions should be disclosed. The Corporation adopted the EITF 06-5 guidance in the first
quarter of 2007 and as a result recorded a $0.9 million cumulative effect adjustment to beginning
retained earnings (reduction of capital) for the existing bank-owned life insurance arrangement.
SFAS No. 157 Fair Value Measurements
SFAS No. 157, issued in September 2006, defines fair value, establishes a framework for measuring
fair value and requires enhanced disclosures about fair value measurements. SFAS No. 157 requires
companies to disclose the fair value of their financial instruments according to a fair value
hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to
determine fair values. Financial assets carried at fair value will be classified and disclosed in
one of the three categories in accordance with the hierarchy. The three levels of the fair value
hierarchy are: (1) quoted market prices for identical assets or liabilities in active markets; (2)
observable market-based inputs or unobservable inputs that are corroborated by market data; and (3)
unobservable inputs that are not corroborated by market data. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. The Corporation will adopt the provisions of SFAS No. 157 commencing
with the first quarter of 2008. The Corporation is evaluating the impact that this accounting
pronouncement may have on its consolidated financial statements and disclosures.
SFAS No. 159 Statement of Financial Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities
In February 2007, the FASB issued SFAS No. 159, which provides companies with an option to report
selected financial assets and liabilities at fair value. The election to measure a financial asset
or liability at fair value can be made on an instrument-by-instrument basis and is irrevocable. The
difference between the carrying amount and the fair value at the election date is recorded as a
transition adjustment to opening retained earnings. Subsequent changes in fair value are recognized
in earnings. The statement also establishes presentation and disclosure requirements designed to
facilitate comparisons between companies that choose different measurement attributes for similar
types of assets and liabilities. The new statement does not eliminate disclosure requirements
included in other accounting standards, including requirements for disclosures about fair value
measurements included in FASB Statements No. 157, Fair Value Measurements, and No. 107,
Disclosures about Fair Value of Financial Instrument. SFAS No. 159 is effective as of the
beginning of an entitys first fiscal year beginning after November 15, 2007. Early adoption is
permitted as of the beginning of the previous fiscal year provided that the entity makes that
choice in the first 120 days of that fiscal year and also elects to apply the provisions of SFAS
No. 157. The Corporation will adopt the provisions of SFAS No. 159 commencing in January 2008.
Management is evaluating the impact that this accounting standard may have on its consolidated
financial statements and disclosures.
FSP FIN No. 39-1 Amendment of FASB Interpretation No. 39
In
April 2007, the FASB issued Staff Position FSP FIN No. 39-1 which defines right of setoff and
specifies what conditions must be met for a derivative contract to qualify for this right of
setoff. It also addresses the applicability of a right of setoff to derivative instruments and
clarifies the circumstances in which it is appropriate to offset amounts recognized for those
instruments in the statement of financial position. In addition, this FSP permits the offsetting of
fair value amounts recognized for multiple derivative instruments executed with the same
counterparty under a master netting arrangement and fair value amounts recognized for the right to
reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable)
arising from the same master netting arrangement as
11
the derivative instruments. This interpretation
is effective for fiscal years beginning after November 15, 2007, with early application permitted.
The adoption of FSP FIN No. 39-1 is not expected to have a material impact on the Corporations
consolidated financial statements and disclosures.
SOP 07-01Clarification of the Scope of the Audit and Accounting Guide Investment Companies and
Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies
The Statement of Position (SOP) 07-01 issued in June 2007 provides guidance for determining
whether an entity is within the scope of the American Institute of Certified Public Accountants
(AICPA) Audit and Accounting Guide for Investment Companies (the AICPA Guide). Additionally, it
provides guidance as to whether a parent company or an equity method investor can apply the
specialized industry accounting principles of the AICPA Guide. SOP 07-01 is effective for fiscal
years beginning on or after December 15, 2007. On October 17, 2007, the FASB agreed to propose an
indefinite delay of the effective dates of SOP 07-01 and, for entities that meet the definition of
an investment company in SOP 07-01, of FSP FIN 46(R)-7, Application of FASB Interpretation No.
46(R) to Investment Companies. The proposed delays, which will be exposed for comment for 30 days,
will enable the FASB to add a project to its technical agenda to address the implementation issues
that have arisen and possibly revise SOP 07-01. Until that occurs, affected entities should
continue to follow existing guidance. Nevertheless, management is evaluating the impact, if any,
that the adoption of SOP 07-01 may have on its consolidated financial statements and disclosures.
FSP FIN No. 46(R) 7 Application of FASB Interpretation No. 46(R) to Investment Companies
In May 2007, the FASB issued Staff Position FSP FIN No. 46 (R) 7 , which amends the scope of the
exception to FIN No. 46 (R) to indicate that investments accounted for at fair value in accordance with
the specialized accounting guidance in the AICPA Guide, are not subject to consolidation under FIN
No. 46 (R). This interpretation is effective for fiscal years beginning on or after December 15,
2007. Management is evaluating the impact, if any, that the adoption of this interpretation may
have on its consolidated financial statements and disclosures. Also, management is considering the
guidance of SOP 07-01 which was previously described that considers an indefinite delay on its
implementation until further notification by the FASB.
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 $588 million at September 30, 2007 (December
31, 2006 $621 million; September 30, 2006 $591 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 September
30, 2007, the Corporation had securities with a market value of $397 thousand (December 31, 2006 -
$445 thousand; September 30, 2006 $445 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 September 30, 2007, December
31, 2006, and September 30, 2006, the Corporation maintained separately for its two international
banking entities (IBEs), $600 thousand in time deposits, equally divided for the two IBEs, which
were considered restricted assets.
As part of a line of credit facility with a financial institution, at September 30, 2007, the
Corporation maintained restricted cash of $1.9 million as collateral (December 31, 2006 $1.9
million; September 30, 2006 $1.9 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.
12
Note 4 Pledged Assets
Certain securities and loans were pledged to secure public and trust deposits, assets sold under
agreements to repurchase, borrowings and other available credit facilities. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
September 30, |
(In thousands) |
|
2007 |
|
2006 |
|
2006 |
|
Investment securities available-for-sale |
|
$ |
3,222,644 |
|
|
$ |
2,645,272 |
|
|
$ |
2,882,589 |
|
Investment securities held-to-maturity |
|
|
340 |
|
|
|
658 |
|
|
|
659 |
|
Loans held-for-sale |
|
|
41,266 |
|
|
|
332,058 |
|
|
|
20,838 |
|
Loans held-in-portfolio |
|
|
11,482,585 |
|
|
|
10,260,198 |
|
|
|
10,642,884 |
|
|
|
|
$ |
14,746,835 |
|
|
$ |
13,238,186 |
|
|
$ |
13,546,970 |
|
|
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 September 30, 2007, December 31, 2006 and September 30, 2006
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF SEPTEMBER 30, 2007 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
497,893 |
|
|
$ |
41 |
|
|
$ |
22,114 |
|
|
$ |
475,820 |
|
Obligations of U.S. Government sponsored entities |
|
|
5,871,339 |
|
|
|
2,628 |
|
|
|
55,613 |
|
|
|
5,818,354 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
109,289 |
|
|
|
420 |
|
|
|
2,871 |
|
|
|
106,838 |
|
Collateralized mortgage obligations |
|
|
1,479,951 |
|
|
|
3,216 |
|
|
|
13,798 |
|
|
|
1,469,369 |
|
Mortgage-backed securities |
|
|
969,023 |
|
|
|
3,190 |
|
|
|
22,738 |
|
|
|
949,475 |
|
Equity securities |
|
|
46,100 |
|
|
|
1,780 |
|
|
|
6,598 |
|
|
|
41,282 |
|
Others |
|
|
16,730 |
|
|
|
627 |
|
|
|
|
|
|
|
17,357 |
|
|
|
|
$ |
8,990,325 |
|
|
$ |
11,902 |
|
|
$ |
123,732 |
|
|
$ |
8,878,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF DECEMBER 31, 2006 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
504,653 |
|
|
|
|
|
|
$ |
29,818 |
|
|
$ |
474,835 |
|
Obligations of U.S. Government sponsored entities |
|
|
6,603,252 |
|
|
$ |
57 |
|
|
|
147,524 |
|
|
|
6,455,785 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
118,214 |
|
|
|
265 |
|
|
|
3,537 |
|
|
|
114,942 |
|
Collateralized mortgage obligations |
|
|
1,657,613 |
|
|
|
4,904 |
|
|
|
17,191 |
|
|
|
1,645,326 |
|
Mortgage-backed securities |
|
|
1,061,850 |
|
|
|
1,458 |
|
|
|
26,492 |
|
|
|
1,036,816 |
|
Equity securities |
|
|
70,954 |
|
|
|
6,692 |
|
|
|
3,901 |
|
|
|
73,745 |
|
Others |
|
|
46,326 |
|
|
|
3,087 |
|
|
|
|
|
|
|
49,413 |
|
|
|
|
$ |
10,062,862 |
|
|
$ |
16,463 |
|
|
$ |
228,463 |
|
|
$ |
9,850,862 |
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF SEPTEMBER 30, 2006 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
521,885 |
|
|
|
|
|
|
$ |
28,418 |
|
|
$ |
493,467 |
|
Obligations of U.S. Government sponsored entities |
|
|
6,776,956 |
|
|
$ |
178 |
|
|
|
154,923 |
|
|
|
6,622,211 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
119,999 |
|
|
|
308 |
|
|
|
3,927 |
|
|
|
116,380 |
|
Collateralized mortgage obligations |
|
|
1,725,068 |
|
|
|
5,031 |
|
|
|
17,198 |
|
|
|
1,712,901 |
|
Mortgage-backed securities |
|
|
1,099,321 |
|
|
|
1,412 |
|
|
|
29,535 |
|
|
|
1,071,198 |
|
Equity securities |
|
|
70,987 |
|
|
|
4,938 |
|
|
|
3,109 |
|
|
|
72,816 |
|
Others |
|
|
67,745 |
|
|
|
2,289 |
|
|
|
682 |
|
|
|
69,352 |
|
|
|
|
$ |
10,381,961 |
|
|
$ |
14,156 |
|
|
$ |
237,792 |
|
|
$ |
10,158,325 |
|
|
The table below 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 September 30, 2007, December 31,
2006 and September 30, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF SEPTEMBER 30, 2007 |
|
|
Less than 12 Months |
|
|
|
|
|
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
Obligations of U.S. Government sponsored entities |
|
$ |
106,914 |
|
|
$ |
3,960 |
|
|
$ |
102,954 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
22,680 |
|
|
|
411 |
|
|
|
22,269 |
|
Collateralized mortgage obligations |
|
|
283,814 |
|
|
|
1,869 |
|
|
|
281,945 |
|
Mortgage-backed securities |
|
|
22,328 |
|
|
|
399 |
|
|
|
21,929 |
|
Equity securities |
|
|
22,638 |
|
|
|
6,572 |
|
|
|
16,066 |
|
|
|
|
$ |
458,374 |
|
|
$ |
13,211 |
|
|
$ |
445,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 months or more |
|
|
|
|
|
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
478,436 |
|
|
$ |
22,114 |
|
|
$ |
456,322 |
|
Obligations of U.S. Government sponsored entities |
|
|
5,212,523 |
|
|
|
51,653 |
|
|
|
5,160,870 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
50,235 |
|
|
|
2,460 |
|
|
|
47,775 |
|
Collateralized mortgage obligations |
|
|
576,852 |
|
|
|
11,929 |
|
|
|
564,923 |
|
Mortgage-backed securities |
|
|
818,782 |
|
|
|
22,339 |
|
|
|
796,443 |
|
Equity securities |
|
|
300 |
|
|
|
26 |
|
|
|
274 |
|
|
|
|
$ |
7,137,128 |
|
|
$ |
110,521 |
|
|
$ |
7,026,607 |
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
478,436 |
|
|
$ |
22,114 |
|
|
$ |
456,322 |
|
Obligations of U.S. Government sponsored entities |
|
|
5,319,437 |
|
|
|
55,613 |
|
|
|
5,263,824 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
72,915 |
|
|
|
2,871 |
|
|
|
70,044 |
|
Collateralized mortgage obligations |
|
|
860,666 |
|
|
|
13,798 |
|
|
|
846,868 |
|
Mortgage-backed securities |
|
|
841,110 |
|
|
|
22,738 |
|
|
|
818,372 |
|
Equity securities |
|
|
22,938 |
|
|
|
6,598 |
|
|
|
16,340 |
|
|
|
|
$ |
7,595,502 |
|
|
$ |
123,732 |
|
|
$ |
7,471,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF DECEMBER 31, 2006 |
|
|
Less than 12 Months |
|
|
|
|
|
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
19,421 |
|
|
$ |
134 |
|
|
$ |
19,287 |
|
Obligations of U.S. Government sponsored entities |
|
|
425,076 |
|
|
|
4,345 |
|
|
|
420,731 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
21,426 |
|
|
|
259 |
|
|
|
21,167 |
|
Collateralized mortgage obligations |
|
|
501,705 |
|
|
|
4,299 |
|
|
|
497,406 |
|
Mortgage-backed securities |
|
|
28,958 |
|
|
|
484 |
|
|
|
28,474 |
|
Equity securities |
|
|
11,180 |
|
|
|
3,699 |
|
|
|
7,481 |
|
|
|
|
$ |
1,007,766 |
|
|
$ |
13,220 |
|
|
$ |
994,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 months or more |
|
|
|
|
|
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
485,232 |
|
|
$ |
29,684 |
|
|
$ |
455,548 |
|
Obligations of U.S. Government sponsored entities |
|
|
6,097,274 |
|
|
|
143,179 |
|
|
|
5,954,095 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
55,238 |
|
|
|
3,278 |
|
|
|
51,960 |
|
Collateralized mortgage obligations |
|
|
564,217 |
|
|
|
12,892 |
|
|
|
551,325 |
|
Mortgage-backed securities |
|
|
954,293 |
|
|
|
26,008 |
|
|
|
928,285 |
|
Equity securities |
|
|
300 |
|
|
|
202 |
|
|
|
98 |
|
|
|
|
$ |
8,156,554 |
|
|
$ |
215,243 |
|
|
$ |
7,941,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
504,653 |
|
|
$ |
29,818 |
|
|
$ |
474,835 |
|
Obligations of U.S. Government sponsored entities |
|
|
6,522,350 |
|
|
|
147,524 |
|
|
|
6,374,826 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
76,664 |
|
|
|
3,537 |
|
|
|
73,127 |
|
Collateralized mortgage obligations |
|
|
1,065,922 |
|
|
|
17,191 |
|
|
|
1,048,731 |
|
Mortgage-backed securities |
|
|
983,251 |
|
|
|
26,492 |
|
|
|
956,759 |
|
Equity securities |
|
|
11,480 |
|
|
|
3,901 |
|
|
|
7,579 |
|
|
|
|
$ |
9,164,320 |
|
|
$ |
228,463 |
|
|
$ |
8,935,857 |
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF SEPTEMBER 30, 2006 |
|
|
Less than 12 Months |
|
|
|
|
|
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
19,410 |
|
|
$ |
91 |
|
|
$ |
19,319 |
|
Obligations of U.S. Government sponsored entities |
|
|
443,593 |
|
|
|
4,348 |
|
|
|
439,245 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
26,398 |
|
|
|
375 |
|
|
|
26,023 |
|
Collateralized mortgage obligations |
|
|
507,121 |
|
|
|
4,037 |
|
|
|
503,084 |
|
Mortgage-backed securities |
|
|
165,200 |
|
|
|
2,363 |
|
|
|
162,837 |
|
Equity securities |
|
|
46,811 |
|
|
|
2,811 |
|
|
|
44,000 |
|
Others |
|
|
10,360 |
|
|
|
682 |
|
|
|
9,678 |
|
|
|
|
$ |
1,218,893 |
|
|
$ |
14,707 |
|
|
$ |
1,204,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 months or more |
|
|
|
|
|
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
502,475 |
|
|
$ |
28,327 |
|
|
$ |
474,148 |
|
Obligations of U.S. Government sponsored entities |
|
|
6,254,447 |
|
|
|
150,575 |
|
|
|
6,103,872 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
53,305 |
|
|
|
3,552 |
|
|
|
49,753 |
|
Collateralized mortgage obligations |
|
|
576,660 |
|
|
|
13,161 |
|
|
|
563,499 |
|
Mortgage-backed securities |
|
|
858,717 |
|
|
|
27,172 |
|
|
|
831,545 |
|
Equity securities |
|
|
300 |
|
|
|
298 |
|
|
|
2 |
|
|
|
|
$ |
8,245,904 |
|
|
$ |
223,085 |
|
|
$ |
8,022,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
U.S. Treasury securities |
|
$ |
521,885 |
|
|
$ |
28,418 |
|
|
$ |
493,467 |
|
Obligations of U.S. Government sponsored entities |
|
|
6,698,040 |
|
|
|
154,923 |
|
|
|
6,543,117 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
79,703 |
|
|
|
3,927 |
|
|
|
75,776 |
|
Collateralized mortgage obligations |
|
|
1,083,781 |
|
|
|
17,198 |
|
|
|
1,066,583 |
|
Mortgage-backed securities |
|
|
1,023,917 |
|
|
|
29,535 |
|
|
|
994,382 |
|
Equity securities |
|
|
47,111 |
|
|
|
3,109 |
|
|
|
44,002 |
|
Others |
|
|
10,360 |
|
|
|
682 |
|
|
|
9,678 |
|
|
|
|
$ |
9,464,797 |
|
|
$ |
237,792 |
|
|
$ |
9,227,005 |
|
|
At September 30, 2007, Obligations of Puerto Rico, States and political subdivisions include
approximately $55 million in Commonwealth of Puerto Rico Appropriation Bonds (Appropriation
Bonds) the rating on which was downgraded in May 2006 by Moodys Investors Service (Moodys) to
Ba1, one notch below investment grade. Standard & Poors (S&P), another nationally-recognized
credit rating agency, rated the Appropriation Bonds BBB-, which is still considered investment
grade. As of September 30, 2007, these Appropriation Bonds represented approximately $2.2 million
in unrealized losses in the Corporations available-for-sale investment securities portfolio. The
Corporation is closely monitoring the political and economic situation of the Island as part of its
evaluation of its
available-for-sale portfolio for any declines in value that management may consider being
other-than-temporary.
16
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.
The unrealized loss positions of available-for-sale securities at September 30, 2007, except for
the obligations of the Puerto Rico government described above are primarily associated with U.S.
government sponsored entities, and to a lesser extent, U.S. Treasury obligations and 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 these
available-for-sale securities at September 30, 2007 are temporary and 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 nine months ended September 30, 2007, the Corporation recognized through earnings
approximately $32.7 million in losses on residual interests classified as available-for-sale ($2.0
million for the third quarter of 2007) and $7.6 million in losses on equity securities that
management considered to be other-than-temporarily impaired. The equity securities that generated
this other-than-temporary impairment in the first quarter of 2007 were sold in the second quarter
of 2007.
The
following table states the names 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
December 31, 2006 |
|
September 30, 2006 |
(In thousands) |
|
Amortized Cost |
|
Market Value |
|
Amortized Cost |
|
Market Value |
|
Amortized Cost |
|
Market Value |
|
FNMA |
|
$ |
1,184,225 |
|
|
$ |
1,169,857 |
|
|
$ |
1,539,651 |
|
|
$ |
1,517,525 |
|
|
$ |
1,594,165 |
|
|
$ |
1,570,842 |
|
FHLB |
|
|
5,841,614 |
|
|
|
5,788,544 |
|
|
|
6,230,841 |
|
|
|
6,086,885 |
|
|
|
6,621,836 |
|
|
|
6,470,786 |
|
Freddie Mac |
|
|
954,598 |
|
|
|
944,533 |
|
|
|
1,149,185 |
|
|
|
1,134,853 |
|
|
|
1,195,093 |
|
|
|
1,178,715 |
|
|
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 September 30, 2007, December 31, 2006 and September 30, 2006
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF SEPTEMBER 30, 2007 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Value |
|
Obligations of U.S. Government sponsored entities |
|
$ |
196,190 |
|
|
|
|
|
|
$ |
71 |
|
|
$ |
196,119 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
71,465 |
|
|
$ |
1,400 |
|
|
|
148 |
|
|
|
72,717 |
|
Collateralized mortgage obligations |
|
|
331 |
|
|
|
|
|
|
|
18 |
|
|
|
313 |
|
Others |
|
|
11,281 |
|
|
|
|
|
|
|
358 |
|
|
|
10,923 |
|
|
|
|
$ |
279,267 |
|
|
$ |
1,400 |
|
|
$ |
595 |
|
|
$ |
280,072 |
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF DECEMBER 31, 2006 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Value |
|
Obligations of U.S. Government sponsored entities |
|
$ |
3,017 |
|
|
|
|
|
|
|
|
|
|
$ |
3,017 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
72,152 |
|
|
$ |
1,559 |
|
|
$ |
161 |
|
|
|
73,550 |
|
Collateralized mortgage obligations |
|
|
381 |
|
|
|
|
|
|
|
21 |
|
|
|
360 |
|
Others |
|
|
15,790 |
|
|
|
60 |
|
|
|
13 |
|
|
|
15,837 |
|
|
|
|
$ |
91,340 |
|
|
$ |
1,619 |
|
|
$ |
195 |
|
|
$ |
92,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS
OF SEPTEMBER 30, 2006 |
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Gains |
|
Losses |
|
Value |
|
Obligations of U.S. Government sponsored entities |
|
$ |
269,683 |
|
|
|
|
|
|
$ |
34 |
|
|
$ |
269,649 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
72,154 |
|
|
$ |
1,605 |
|
|
|
158 |
|
|
|
73,601 |
|
Collateralized mortgage obligations |
|
|
409 |
|
|
|
|
|
|
|
22 |
|
|
|
387 |
|
Others |
|
|
15,184 |
|
|
|
43 |
|
|
|
15 |
|
|
|
15,212 |
|
|
|
|
$ |
357,430 |
|
|
$ |
1,648 |
|
|
$ |
229 |
|
|
$ |
358,849 |
|
|
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 September 30, 2007, December 31,
2006 and September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF SEPTEMBER 30, 2007 |
|
|
Less than 12 months |
|
|
|
|
|
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
Obligations of U.S. Government sponsored entities |
|
$ |
196,190 |
|
|
$ |
71 |
|
|
$ |
196,119 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
1,545 |
|
|
|
24 |
|
|
|
1,521 |
|
Others |
|
|
6,225 |
|
|
|
354 |
|
|
|
5,871 |
|
|
|
|
$ |
203,960 |
|
|
$ |
449 |
|
|
$ |
203,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 months or more |
|
|
|
|
|
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
Obligations of Puerto Rico, States and political subdivisions |
|
$ |
23,460 |
|
|
$ |
124 |
|
|
$ |
23,336 |
|
Collateralized mortgage obligations |
|
|
331 |
|
|
|
18 |
|
|
|
313 |
|
Others |
|
|
1,250 |
|
|
|
4 |
|
|
|
1,246 |
|
|
|
|
$ |
25,041 |
|
|
$ |
146 |
|
|
$ |
24,895 |
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Market |
|
(In thousands) |
|
Cost |
|
|
Losses |
|
|
Value |
|
|
Obligations of U.S. Government sponsored entities |
|
$ |
196,190 |
|
|
$ |
71 |
|
|
$ |
196,119 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
25,005 |
|
|
|
148 |
|
|
|
24,857 |
|
Collateralized mortgage obligations |
|
|
331 |
|
|
|
18 |
|
|
|
313 |
|
Others |
|
|
7,475 |
|
|
|
358 |
|
|
|
7,117 |
|
|
|
|
$ |
229,001 |
|
|
$ |
595 |
|
|
$ |
228,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF DECEMBER 31, 2006 |
|
|
12 months or more and Total |
|
|
|
|
|
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
Obligations of Puerto Rico, States and political subdivisions |
|
$ |
26,623 |
|
|
$ |
161 |
|
|
$ |
26,462 |
|
Collateralized mortgage obligations |
|
|
381 |
|
|
|
21 |
|
|
|
360 |
|
Others |
|
|
1,250 |
|
|
|
13 |
|
|
|
1,237 |
|
|
|
|
$ |
28,254 |
|
|
$ |
195 |
|
|
$ |
28,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF SEPTEMBER 30, 2006 |
|
|
Less than 12 months |
|
|
|
|
|
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
Obligations of U.S. Government sponsored entities |
|
$ |
269,683 |
|
|
$ |
34 |
|
|
$ |
269,649 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
2,110 |
|
|
|
3 |
|
|
|
2,107 |
|
|
|
|
$ |
271,793 |
|
|
$ |
37 |
|
|
$ |
271,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 months or more |
|
|
|
|
|
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
Obligations of Puerto Rico, States and political subdivisions |
|
$ |
2,534 |
|
|
$ |
155 |
|
|
$ |
2,379 |
|
Collateralized mortgage obligations |
|
|
409 |
|
|
|
22 |
|
|
|
387 |
|
Others |
|
|
1,250 |
|
|
|
15 |
|
|
|
1,235 |
|
|
|
|
$ |
4,193 |
|
|
$ |
192 |
|
|
$ |
4,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Gross |
|
|
|
|
Amortized |
|
Unrealized |
|
Market |
(In thousands) |
|
Cost |
|
Losses |
|
Value |
|
Obligations of U.S. Government sponsored entities |
|
$ |
269,683 |
|
|
$ |
34 |
|
|
$ |
269,649 |
|
Obligations of Puerto Rico, States and political subdivisions |
|
|
4,644 |
|
|
|
158 |
|
|
|
4,486 |
|
Collateralized mortgage obligations |
|
|
409 |
|
|
|
22 |
|
|
|
387 |
|
Others |
|
|
1,250 |
|
|
|
15 |
|
|
|
1,235 |
|
|
|
|
$ |
275,986 |
|
|
$ |
229 |
|
|
$ |
275,757 |
|
|
19
Management believes that the unrealized losses in the held-to-maturity portfolio at September 30,
2007 are temporary and are substantially related to market interest rate fluctuations and not to
deterioration in the creditworthiness of the issuers. Management has the intent and ability to hold
these investments until maturity.
Note 7 Mortgage Servicing Rights
The Corporation recognizes as assets the rights to service loans for others, whether these rights
are purchased or result from asset transfers (sales and securitizations). Commencing in 2007 and in
accordance with SFAS No. 156, the Corporation no longer records servicing rights in connection with
on-balance sheet mortgage loan securitizations.
Effective January 1, 2007, under SFAS No. 156, the Corporation identified servicing rights related
to residential mortgage loans as a class of servicing rights and elected to apply fair value
accounting to these mortgage servicing rights (MSRs). These MSRs are segregated between loans
serviced by PFH and by the Corporations banking subsidiaries. Fair value determination is
performed on a subsidiary basis, with assumptions varying in accordance with the types of assets or
markets served (i.e. PFH primarily subprime mortgage loans Vs. banking subsidiaries primarily
conforming loans). Servicing rights associated with Small Business Administration (SBA)
commercial loans, the other class of servicing assets held by the Corporation, will continue to be
accounted for at the lower of cost or market method.
Classes of servicing rights were determined based on the different markets or types of assets
served. Management also considered trends in the markets and elections by other major participants
in the industries served in determining the accounting methodology to be followed for the different
types of servicing rights.
Under the fair value accounting method of SFAS No. 156, purchased MSRs and MSRs resulting from
asset transfers are capitalized and carried at fair value. Prior to the adoption of SFAS No. 156,
the Corporation capitalized purchased residential MSRs at cost, and MSRs from asset transfers based
on the relative fair value of the servicing right and the residential mortgage loan at the time of
sale. Prior to SFAS No. 156, both purchased MSRs and MSRs from
asset transfers were accounted for at
quarter-end at the lower of cost or market value.
Effective January 1, 2007, upon the remeasurement of the MSRs at fair value in accordance with SFAS
No. 156, the Corporation recorded a cumulative effect adjustment to increase the 2007 beginning
balance of MSRs by $15.3 million, which resulted in a $9.6 million, net of tax, increase in the
retained earnings account of stockholders equity. The table below reconciles the balance of MSRs
as of December 31, 2006 and January 1, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking subsidiaries |
|
PFH |
|
Total |
(In thousands) |
|
Residential MSRs |
|
Residential MSRs |
|
|
|
|
|
Balance at December 31, 2006
|
|
$ |
77,801 |
|
|
$ |
82,338 |
|
|
$ |
160,139 |
|
Remeasurement upon adoption of
SFAS No. 156 (a)
|
|
|
13,630 |
|
|
|
1,700 |
|
|
|
15,330 |
|
|
Balance at January 1, 2007
|
|
$ |
91,431 |
|
|
$ |
84,038 |
|
|
$ |
175,469 |
|
|
|
|
|
(a) |
|
The remeasurement effect, net of deferred taxes, amounted to $9.6 million on
a consolidated basis. |
|
At the end of each quarter, the Corporation uses a discounted cash flow model to estimate the fair
value of MSRs, which is benchmarked against third party opinions of fair value. The discounted cash
flow model incorporates assumptions that market participants would use in estimating future net
servicing income, including estimates of prepayment speeds, discount rate, cost to service, escrow
account earnings, contractual servicing fee income, prepayment and late fees, among other
considerations. The Corporation uses assumptions in the model that it believes are comparable to
those used by brokers or other service providers. Refer to Note 8
Retained Interests on Sales of Mortgage Loans for information on assumptions used in the valuation model of MSRs as
of September 30, 2007.
20
The change in MSRs measured using the fair value method for the nine months ended September 30,
2007 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking |
|
|
|
|
|
|
subsidiaries |
|
PFH |
|
Total |
|
(In thousands) |
|
Residential MSRs |
|
Residential MSRs |
|
|
|
|
|
Fair value at January 1, 2007 |
|
$ |
91,431 |
|
|
$ |
84,038 |
|
|
$ |
175,469 |
|
Purchases |
|
|
3,345 |
|
|
|
22,251 |
|
|
|
25,596 |
|
Servicing from securitizations or asset transfers |
|
|
17,682 |
|
|
|
8,040 |
|
|
|
25,722 |
|
Changes due to payments on loans (1) |
|
|
(6,821 |
) |
|
|
(29,285 |
) |
|
|
(36,106 |
) |
Changes in fair value due to changes in valuation model
inputs or assumptions |
|
|
4,276 |
|
|
|
(1,636 |
) |
|
|
2,640 |
|
Other changes |
|
|
|
|
|
|
(66 |
) |
|
|
(66 |
) |
|
Fair value at September 30, 2007 |
|
$ |
109,913 |
|
|
$ |
83,342 |
|
|
$ |
193,255 |
|
|
|
|
|
(1) |
|
Represents changes due to collection / realization of expected cash flows over
time. |
The changes in amortized MSRs for the nine months ended September 30, 2006 were:
|
|
|
|
|
(In thousands) |
|
Residential MSRs |
|
Balance at January 1, 2006 |
|
$ |
137,701 |
|
Rights originated |
|
|
58,497 |
|
Rights purchased |
|
|
18,723 |
|
Amortization |
|
|
(46,842 |
) |
|
Balance at September 30, 2006 |
|
|
168,079 |
|
Less: Valuation allowance |
|
|
316 |
|
|
Balance at September 30, 2006, net of valuation allowance |
|
$ |
167,763 |
|
|
Fair value at September 30, 2006 |
|
$ |
185,923 |
|
|
Residential mortgage loans serviced for others were $18.1 billion at September 30, 2007 (December
31, 2006 $13.3 billion; September 30, 2006 $13.0 billion).
Net mortgage servicing fees, a component of other service fees in the consolidated statement of
income, include the changes from period to period in fair value of the MSRs, which may result from
changes in the valuation model inputs or assumptions (principally reflecting changes in discount
rates and prepayment speed assumptions) and other changes, representing changes due to collection /
realization of expected cash flows. Prior to the adoption of SFAS No. 156, the Corporation carried
residential MSRs at the lower of cost or market, with amortization of MSRs and changes in the MSRs
valuation allowance recognized in net mortgage servicing fees.
Note 8 Retained Interests on Sales of Mortgage Loans
Popular Financial Holdings
The Corporation, through its consumer lending subsidiary PFH, has retained mortgage servicing
rights and residual interests in connection with securitizations of subprime mortgage loans.
The Corporation accounts for the residual interests derived from PFHs off-balance sheet
securitizations that took place prior to 2006 as investment securities available-for-sale. Under
SFAS No. 140, interest-only strips, retained interests in securitizations or other financial assets
that can contractually be prepaid or otherwise settled in such a way that the holder would not
recover substantially all of its investment shall be subsequently measured like investments in debt
securities classified as available-for-sale or trading under SFAS No. 115. In 2006, as permitted by
SFAS No. 115, management determined, on a prospective basis, to begin classifying PFHs new residual
interests as trading securities and as such, account for any changes in fair value through earnings
(recorded as part of trading account profit (loss) in the consolidated statements of income).
PFHs residual interests classified as available-for-sale as of September 30, 2007 amounted to
$17 million. In the quarter and nine-month periods ended September 30, 2007, the Corporation
recognized other-than-temporary impairment losses of $2.0 million and $32.7 million,
respectively, on these residual interests.
Residual interests accounted for as trading securities from PFHs securitizations approximated
$5 million at
21
September 30, 2007. For the third quarter and nine-month periods ended September 30, 2007, the
Corporation recognized trading losses of $12.1 million and $36.4 million, respectively, on these
residual interests.
During 2007, the Corporation conducted one off-balance sheet asset securitization that involved
the transfer of mortgage loans to a qualifying special purpose entity (QSPE), which in turn
transferred these assets and their titles to a different trust, thus isolating those loans from
the Corporations assets. Approximately, $461 million in adjustable (ARM) and fixed-rate loans
were securitized and sold by PFH as part of this transaction, with a gain on sale of
approximately $13.5 million.
Key economic assumptions used in measuring the retained interests at the date of this
off-balance sheet securitization were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MSRs |
|
|
|
|
|
|
Fixed- |
|
|
|
|
|
|
|
|
rate |
|
ARM |
|
|
Residual Interests |
|
loans |
|
Loans |
|
|
|
28% (Fixed-rate loans)
|
|
|
|
|
|
|
|
|
Average prepayment speed
|
|
35% (ARM loans)
|
|
|
28 |
% |
|
|
35 |
% |
Weighted average life of collateral (in years)
|
|
4.2 years
|
|
4.8 years
|
|
2.2 years
|
Cumulative credit losses
|
|
4.75% (Fixed-rate loans)
|
|
|
|
|
|
|
|
|
|
|
8.40% (ARM loans)
|
|
|
|
|
|
|
|
|
Discount rate (annual rate)
|
|
|
25 |
% |
|
|
17 |
% |
|
|
17 |
% |
|
Key economic assumptions used to estimate the fair value of residual interests and MSRs derived
from PFHs securitizations and the sensitivity of residual cash flows to immediate changes in
those assumptions were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
|
December 31, 2006 |
|
|
|
|
|
|
MSRs |
|
|
|
|
|
|
MSRs |
|
|
Residual |
|
Fixed-rate |
|
ARM |
|
|
Residual |
|
Fixed-rate |
|
|
(In thousands) |
|
Interests |
|
loans |
|
loans |
|
|
Interests |
|
loans |
|
ARM loans |
|
|
|
|
Carrying amount of retained
interests |
|
$ |
22,469 |
|
|
$ |
32,069 |
|
|
$ |
21,343 |
|
|
|
$ |
85,965 |
|
|
$ |
38,017 |
|
|
$ |
29,838 |
|
Fair value of retained interests |
|
$ |
22,469 |
|
|
$ |
32,069 |
|
|
$ |
21,343 |
|
|
|
$ |
85,965 |
|
|
$ |
37,815 |
|
|
$ |
32,212 |
|
Weighted average life of
collateral (in years) |
|
3.0 years |
|
3.8 years |
|
2.0 years |
|
|
3.2 years |
|
3.1 years |
|
2.1 years |
Weighted average prepayment
speed (annual rate)
|
|
23% (Fixed-rate loans) |
|
|
|
|
|
|
|
|
|
|
28% (Fixed-rate loans) |
|
|
|
|
|
|
|
|
|
|
35% (ARM loans) |
|
|
23 |
% |
|
|
35 |
% |
|
|
35% (ARM loans) |
|
|
28 |
% |
|
|
35 |
% |
Impact on fair value of 10%
increase in prepayment rate |
|
($ |
563 |
) |
|
($ |
316 |
) |
|
($ |
268 |
) |
|
|
($ |
5,543 |
) |
|
$ |
210 |
|
|
($ |
149 |
) |
Impact on fair value of 20%
increase in prepayment rate |
|
($ |
1,489 |
) |
|
($ |
372 |
) |
|
($ |
493 |
) |
|
|
($ |
9,284 |
) |
|
$ |
234 |
|
|
($ |
200 |
) |
Weighted average discount rate
(annual rate) |
|
|
30 |
% |
|
|
17 |
% |
|
|
17 |
% |
|
|
|
17 |
% |
|
|
16 |
% |
|
|
16 |
% |
Impact on fair value of 10%
adverse change |
|
($ |
2,132 |
) |
|
($ |
913 |
) |
|
($ |
408 |
) |
|
|
($ |
4,172 |
) |
|
($ |
901 |
) |
|
($ |
542 |
) |
Impact on fair value of 20%
adverse change |
|
($ |
4,056 |
) |
|
($ |
1,777 |
) |
|
($ |
800 |
) |
|
|
($ |
8,081 |
) |
|
($ |
1,761 |
) |
|
($ |
1,060 |
) |
Cumulative credit losses |
|
3.17% to 8.50% |
|
|
|
|
|
|
|
|
|
|
1.28% to 3.19% |
|
|
|
|
|
|
|
|
Impact on fair value of 10%
adverse change |
|
($ |
10,268 |
) |
|
|
|
|
|
|
|
|
|
|
($ |
4,792 |
) |
|
|
|
|
|
|
|
|
Impact on fair value of 20%
adverse change |
|
($ |
18,327 |
) |
|
|
|
|
|
|
|
|
|
|
($ |
9,558 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
PFH, as servicer, collects prepayment penalties on a substantial portion of the underlying serviced
loans; as such, an adverse change in the prepayment assumptions with respect to the MSRs could be
partially offset by the benefit derived from the prepayment penalties estimated to be collected.
22
The amounts included in the tables above exclude any purchased MSRs since these assets were not
derived from securitizations or loan sales executed by the Corporation.
Banking subsidiaries
The Corporations banking subsidiaries also retain servicing responsibilities in connection with
the sale of mortgage loans to third parties. Also, servicing responsibilities are retained under
securitization arrangements of mortgage loans into mortgage-backed securities, primarily GNMA
and FNMA securities. Substantially all mortgage loans securitized by the Corporations banking
subsidiaries, in which the Corporation retains a servicing right, have fixed rates. Under the
servicing agreements, the banking subsidiaries do not earn significant prepayment penalties on
the underlying loans serviced.
Key economic assumptions used in measuring the MSRs at the date of the securitizations and whole
loan sales by the banking subsidiaries performed during the quarter ended September 30, 2007
were:
|
|
|
|
|
|
|
MSRs |
|
Prepayment speed |
|
|
8.8 |
% |
Weighted average life (in years) |
|
|
11.3 |
years |
Discount rate (annual rate) |
|
|
10.7 |
% |
|
Key economic assumptions used to estimate the fair value of MSRs derived from transactions
performed by the banking subsidiaries and the sensitivity of residual cash flows to immediate
changes in those assumptions were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
December 31, 2006 |
|
(In thousands) |
|
MSRs |
|
MSRs |
|
Fair value of retained interests |
|
$ |
86,550 |
|
|
$ |
73,332 |
|
Weighted average life (in years) |
|
|
12.4 |
years |
|
|
9.2 |
years |
Weighted average prepayment speed (annual rate) |
|
|
8.1 |
% |
|
|
14.0 |
% |
Impact on fair value of 10% adverse change |
|
($ |
2,536 |
) |
|
($ |
1,868 |
) |
Impact on fair value of 20% adverse change |
|
($ |
4,544 |
) |
|
($ |
4,151 |
) |
Weighted average discount rate (annual rate) |
|
|
10.7 |
% |
|
|
10.3 |
% |
Impact on fair value of 10% adverse change |
|
($ |
3,513 |
) |
|
($ |
2,142 |
) |
Impact on fair value of 20% adverse change |
|
($ |
6,394 |
) |
|
($ |
4,200 |
) |
|
The amounts of MSRs presented in the table above exclude purchased MSRs.
The sensitivity analyses presented above for residual interests and MSRs are hypothetical and
should be used with caution. As the figures indicate, changes in fair value based on a 10 and 20
percent variation in assumptions generally cannot be extrapolated because the relationship of
the change in assumption to the change in fair value may not be linear. Also, in the sensitivity
tables included herein, the effect of a variation in a particular assumption on the fair value
of the retained interest is calculated without changing any other assumption; in reality,
changes in one factor may result in changes in another (for example, increases in market
interest rates may result in lower prepayments and increased credit losses), which might magnify
or counteract the sensitivities.
23
Note 9 Derivative Instruments and Hedging Activities
Refer to Note 28 to the consolidated financial statements included in the 2006 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 third quarter of 2007:
Cash Flow Hedges
Derivative financial instruments designated as cash flow hedges outstanding as of September 30,
2007 and December 31, 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2007 |
|
(In thousands) |
|
Notional amount |
|
Derivative assets |
|
Derivative liabilities |
|
Equity OCI |
|
Ineffectiveness |
|
Asset Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward commitments |
|
$ |
155,000 |
|
|
$ |
181 |
|
|
$ |
105 |
|
|
$ |
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
390,000 |
|
|
$ |
439 |
|
|
$ |
1,665 |
|
|
($ |
797 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006 |
|
(In thousands) |
|
Notional amount |
|
Derivative assets |
|
Derivative liabilities |
|
Equity OCI |
|
Ineffectiveness |
|
Asset Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward commitments |
|
$ |
190,000 |
|
|
$ |
175 |
|
|
$ |
2 |
|
|
$ |
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
390,000 |
|
|
$ |
887 |
|
|
$ |
523 |
|
|
$ |
237 |
|
|
|
|
|
|
The Corporation utilizes forward contracts to hedge the sale of mortgage-backed securities with
duration terms over one month. Interest rate forward contracts are contracts for the delayed
delivery of securities which the seller agrees to deliver on a specified future date at a specified
price or yield. These forward contracts are used to hedge 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 September 30, 2007
have a maximum remaining maturity of 78 days.
The Corporation also has designated as cash flow hedges, interest rate swap contracts that convert
floating rate debt into fixed rate debt by minimizing the exposure to changes in cash flows due to
higher interest rates. These interest rate swap contracts have a maximum remaining maturity of 1.5
years.
24
Non-Hedging Activities
Financial instruments designated as non-hedging derivatives outstanding at September 30, 2007 and
December 31, 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
|
|
|
|
|
Fair Values |
(In thousands) |
|
Notional amount |
|
|
Derivative assets |
|
|
Derivative liabilities |
|
|
Forward contracts |
|
$ |
730,700 |
|
|
$ |
424 |
|
|
$ |
1,801 |
|
Call options and put options |
|
|
38,000 |
|
|
|
41 |
|
|
|
85 |
|
Interest rate swaps associated with: |
|
|
|
|
|
|
|
|
|
|
|
|
- short-term borrowings |
|
|
400,000 |
|
|
|
392 |
|
|
|
|
|
- bond certificates offered in an on-balance sheet
securitization |
|
|
406,347 |
|
|
|
|
|
|
|
2,924 |
|
- financing of auto loans held-in-portfolio |
|
|
344,066 |
|
|
|
|
|
|
|
1,485 |
|
- swaps with corporate clients |
|
|
583,744 |
|
|
|
|
|
|
|
5,039 |
|
- swaps offsetting position of corporate client
swaps |
|
|
583,744 |
|
|
|
5,039 |
|
|
|
|
|
Credit default swap |
|
|
33,463 |
|
|
|
|
|
|
|
|
|
Interest rate caps |
|
|
836,883 |
|
|
|
1,260 |
|
|
|
|
|
Interest rate caps for benefit of corporate clients |
|
|
50,000 |
|
|
|
|
|
|
|
45 |
|
Indexed options on deposits |
|
|
211,267 |
|
|
|
50,200 |
|
|
|
|
|
Indexed options on S&P Notes |
|
|
31,152 |
|
|
|
7,439 |
|
|
|
|
|
Bifurcated embedded options |
|
|
222,732 |
|
|
|
|
|
|
|
56,124 |
|
Mortgage rate lock commitments |
|
|
177,791 |
|
|
|
|
|
|
|
266 |
|
|
Total |
|
$ |
4,649,889 |
|
|
$ |
64,795 |
|
|
$ |
67,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006 |
|
|
|
|
|
|
Fair Values |
(In thousands) |
|
Notional amount |
|
|
Derivative assets |
|
|
Derivative liabilities |
|
|
Forward contracts |
|
$ |
400,572 |
|
|
$ |
1,277 |
|
|
$ |
125 |
|
Call options and put options |
|
|
37,500 |
|
|
|
83 |
|
|
|
46 |
|
Interest rate swaps associated with: |
|
|
|
|
|
|
|
|
|
|
|
|
- short-term borrowings |
|
|
400,000 |
|
|
|
2,153 |
|
|
|
|
|
- bond certificates offered in an on-balance sheet
securitization |
|
|
516,495 |
|
|
|
90 |
|
|
|
1,168 |
|
- financing of auto loans held-in-portfolio |
|
|
470,146 |
|
|
|
728 |
|
|
|
|
|
- auto loans approvals locked interest rates |
|
|
17,442 |
|
|
|
22 |
|
|
|
|
|
- swaps with corporate clients |
|
|
410,533 |
|
|
|
|
|
|
|
2,146 |
|
- swaps offsetting position of corporate client swaps |
|
|
410,533 |
|
|
|
2,146 |
|
|
|
|
|
- investment securities |
|
|
89,385 |
|
|
|
|
|
|
|
1,645 |
|
- mortgage loan portfolio prior to securitization |
|
|
75,000 |
|
|
|
302 |
|
|
|
|
|
Credit default swap |
|
|
33,463 |
|
|
|
|
|
|
|
|
|
Foreign currency and exchange rate commitments w/ clients |
|
|
103 |
|
|
|
|
|
|
|
2 |
|
Foreign currency and exchange rate commitments w/
counterparty |
|
|
103 |
|
|
|
2 |
|
|
|
|
|
Interest rate caps |
|
|
889,417 |
|
|
|
4,099 |
|
|
|
|
|
Interest rate caps for benefit of corporate clients |
|
|
50,000 |
|
|
|
|
|
|
|
90 |
|
Indexed options on deposits |
|
|
204,946 |
|
|
|
38,323 |
|
|
|
|
|
Indexed options on S&P Notes |
|
|
31,152 |
|
|
|
5,648 |
|
|
|
|
|
Bifurcated embedded options |
|
|
229,455 |
|
|
|
|
|
|
|
43,844 |
|
Mortgage rate lock commitments |
|
|
215,676 |
|
|
|
13 |
|
|
|
635 |
|
|
Total |
|
$ |
4,481,921 |
|
|
$ |
54,886 |
|
|
$ |
49,701 |
|
|
Interest Rates Swaps
The Corporation has an interest rate swap outstanding to economically hedge the payments of
certificates issued as part of a securitization. This swap is marked-to-market quarterly and
recognized as part of interest expense. The Corporation recognized losses of $3.8 million for the
third quarter and $1.8 million for the nine months ended September 30, 2007 due to changes in its
fair value. During the quarter and nine-month periods ended September 30, 2006, the Corporation
recognized losses of $2.4 million.
25
The Corporation has interest rate swaps to economically hedge the cost of short-term debt. For the
third quarter of 2007, the Corporation recognized a loss of $1.6 million, and for the nine months
ended September 30, 2007, recognized losses of $1.8 million due to changes in their fair value,
which were included as part of short-term interest expense. During the third quarter and nine
months ended September 30, 2006, the Corporation recognized losses of $3.4 million and $2.0
million, respectively, associated with changes in the fair value of these interest rate swaps.
Additionally, the Corporation entered into amortizing swap contracts to economically convert to a
fixed rate the cost of funds associated with auto loans held-in-portfolio. Losses of $3.0 million
and $2.2 million for the quarter and nine months ended September 30, 2007, respectively, were
recognized as part of long-term interest expense related to these swaps. During the quarter and
nine-month periods ended September 30, 2006, the Corporation recognized losses of $3.5 million and
$572 thousand, respectively, associated with changes in the fair value of these swaps.
Interest Rate Caps
During the quarter ended June 30, 2007, the Corporation entered into a $100 million interest rate
cap to mitigate its exposure to rising interest rates on short-term borrowings.
The Corporation has interest rate caps in conjunction with a series of mortgage loan
securitizations that are used to limit the interest rate payable to the security holders. These
interest rate caps are designated as non-hedging derivative instruments and are marked-to-market
currently in the consolidated statements of income. Losses of $1.2 million and $2.6 million for the
quarter and nine months ended September 30, 2007, respectively, were recognized as part of
long-term interest expense related to these interest rate cap contracts. For the quarter and nine
months ended September 30, 2006, losses on these contracts amounted to $3.5 million and $6.6
million, respectively.
Forward Contracts
The Corporation has loan sales commitments to economically hedge the changes in fair value of
mortgage loans held-for-sale associated with interest rate lock commitments through both mandatory
and best efforts forward sales agreements. These contracts are entered into in order to optimize
the gain on sales of loans. These contracts are recognized at fair market value with changes
directly reported in income as part of gain on sale of loans. For the quarter and nine months ended
September 30, 2007, losses of $3.7 million and $2.1 million, respectively, were recognized due to
changes in fair value of these forward sales commitments. During the third quarter and nine months
ended September 30, 2006, the Corporation recognized losses of $1.9 million and $112 thousand,
respectively, related to these forward contracts.
Mortgage Rate Lock Commitments
The Corporation has mortgage rate lock commitments to fund mortgage loans at interest rates
previously agreed for a specified period of time. These contracts are recognized at fair value with
changes directly reported in income as part of gain on sale of loans. For the quarter and nine
months ended September 30, 2007, gains of $1.9 million and $356 thousand, respectively, were
recognized due to changes in fair value of these commitments. During the third quarter and nine
months ended September 30, 2006, the Corporation recognized gains of $464 thousand and losses of
$10 thousand, respectively, related to these commitments.
Credit Default Swap
The Corporations credit default swap guarantees a third-party performance under an interest rate
swap with the counterparty. The interest rate swap was in the money
in favor of the third-party.
The credit default swap matures in April 2008. The credit
default swap is marked-to-market through
earnings. Its fair value has historically been zero because of the
credit standing of the third-party.
26
Note 10 Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the nine months ended September 30, 2007 and
2006, allocated by reportable segment, were as follows (refer to Note 21 for the definition of the
Corporations reportable segments):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
Balance at |
|
Goodwill |
|
|
|
|
|
Balance at |
(In thousands) |
|
January 1, 2007 |
|
acquired |
|
Other |
|
September 30, 2007 |
|
Banco Popular de Puerto Rico: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
$ |
14,674 |
|
|
|
|
|
|
|
|
|
|
$ |
14,674 |
|
Consumer and Retail Banking |
|
|
34,999 |
|
|
|
|
|
|
|
|
|
|
|
34,999 |
|
Other Financial Services |
|
|
4,391 |
|
|
|
|
|
|
|
|
|
|
|
4,391 |
|
Popular North America: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banco Popular North America |
|
|
568,647 |
|
|
|
|
|
|
|
|
|
|
|
568,647 |
|
Popular Financial Holdings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EVERTEC |
|
|
45,142 |
|
|
$ |
1,137 |
|
|
|
($183 |
) |
|
|
46,096 |
|
|
Total Popular, Inc. |
|
$ |
667,853 |
|
|
$ |
1,137 |
|
|
|
($183 |
) |
|
$ |
668,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
Purchase |
|
|
|
|
|
|
|
|
Balance at |
|
Goodwill |
|
accounting |
|
|
|
|
|
Balance at |
(In thousands) |
|
January 1, 2006 |
|
acquired |
|
adjustments |
|
Other |
|
September 30, 2006 |
|
Banco Popular de Puerto Rico: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
$ |
14,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,674 |
|
Consumer and Retail Banking |
|
|
34,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,999 |
|
Other Financial Services |
|
|
4,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,110 |
|
Popular North America: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banco Popular North America |
|
|
542,834 |
|
|
|
|
|
|
$ |
23,378 |
|
|
|
($210 |
) |
|
|
566,002 |
|
Popular Financial Holdings |
|
|
14,236 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
14,239 |
|
EVERTEC |
|
|
43,131 |
|
|
$ |
1,511 |
|
|
|
|
|
|
|
|
|
|
|
44,642 |
|
|
Total Popular, Inc. |
|
$ |
653,984 |
|
|
$ |
1,511 |
|
|
$ |
23,381 |
|
|
|
($210 |
) |
|
$ |
678,666 |
|
|
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 purchase accounting adjustments during the first nine months
of 2006 at the PNA reportable segment were mostly related to the E-LOAN acquisition.
The Corporation performed the annual impairment test required by SFAS No. 142, Goodwill and Other
Intangible Assets. This test did not result in impairment of the Corporations recorded goodwill.
At September 30, 2007 and December 31, 2006, other than goodwill, the Corporation had $65 million
of identifiable intangibles with indefinite useful lives, mostly associated with E-LOANs trademark
(September 30, 2006 $59 million).
27
The following table reflects the components of other intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
December 31, 2006 |
|
September 30, 2006 |
|
|
|
Gross |
|
Accumulated |
|
Gross |
|
Accumulated |
|
Gross |
|
Accumulated |
(In thousands) |
|
Amount |
|
Amortization |
|
Amount |
|
Amortization |
|
Amount |
|
Amortization |
|
Core deposits |
|
$ |
46,302 |
|
|
$ |
22,836 |
|
|
$ |
76,708 |
|
|
$ |
48,367 |
|
|
$ |
76,956 |
|
|
$ |
46,688 |
|
|
Other customer
relationships |
|
|
11,925 |
|
|
|
3,609 |
|
|
|
11,156 |
|
|
|
2,171 |
|
|
|
10,028 |
|
|
|
1,703 |
|
|
Other intangibles |
|
|
9,170 |
|
|
|
5,092 |
|
|
|
9,099 |
|
|
|
3,426 |
|
|
|
10,808 |
|
|
|
4,003 |
|
|
|
Total |
|
$ |
67,397 |
|
|
$ |
31,537 |
|
|
$ |
96,963 |
|
|
$ |
53,964 |
|
|
$ |
97,792 |
|
|
$ |
52,394 |
|
|
Certain core deposits intangibles with a gross amount of $30.4 million became fully amortized
during 2007 and, as such, their gross amount and accumulated amortization were eliminated from the
tabular disclosure presented above.
During the quarter and nine months ended September 30, 2007, the Corporation recognized $2.2
million and $8.0 million, respectively, in amortization expense related to other intangible assets
with definite lives (September 30, 2006 $3.6 million and $9.2 million, respectively).
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) |
2007 |
|
$ |
10,259 |
|
2008 |
|
|
8,454 |
|
2009 |
|
|
6,632 |
|
2010 |
|
|
5,674 |
|
2011 |
|
|
4,016 |
|
No significant events or circumstances have occurred that would reduce the fair value of any
reporting unit below its carrying amount.
Note 11 Borrowings
The composition of federal funds purchased and assets sold under agreements to repurchase was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
September 30, |
(In thousands) |
|
2007 |
|
2006 |
|
2006 |
|
Federal funds purchased |
|
$ |
690,332 |
|
|
$ |
1,276,818 |
|
|
$ |
2,056,610 |
|
Assets sold under
agreements to
repurchase |
|
|
5,596,971 |
|
|
|
4,485,627 |
|
|
|
4,988,856 |
|
|
|
|
$ |
6,287,303 |
|
|
$ |
5,762,445 |
|
|
$ |
7,045,466 |
|
|
28
Other short-term borrowings consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
September 30, |
(In thousands) |
|
2007 |
|
2006 |
|
2006 |
|
Advances with FHLB paying interest at: |
|
|
|
|
|
|
|
|
|
|
|
|
-fixed rates ranging from 5.14% to 5.17% (September 30, 2006 5.40% to 5.42%) |
|
$ |
172,000 |
|
|
$ |
230,000 |
|
|
$ |
230,000 |
|
-floating rate with a spread over the fed funds rate
(Fed funds rate at September 30, 2006 was 5.38%) |
|
|
|
|
|
|
|
|
|
|
55,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances under credit facilities with other institutions at: |
|
|
|
|
|
|
|
|
|
|
|
|
-fixed rates ranging from 5.25% to 5.96% (September 30, 2006 5.38% to 5.52%) |
|
|
210,000 |
|
|
|
386,000 |
|
|
|
23,385 |
|
-floating rates ranging from 0.45% to 0.75% over the 1-month LIBOR rate
(1-month LIBOR rate at September 30, 2006 was 5.32%) |
|
|
|
|
|
|
481,062 |
|
|
|
112,915 |
|
-a floating rate of 0.20% over the 3-month LIBOR rate (3-month LIBOR rate at
September 30, 2006 5.37%) |
|
|
|
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper at rates ranging from 5.05% to 5.92% (September 30, 2006
4.85% to 5.33%) |
|
|
249,041 |
|
|
|
193,383 |
|
|
|
97,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term funds purchased at: |
|
|
|
|
|
|
|
|
|
|
|
|
-fixed rates ranging from 5.13% to 5.82% (September 30, 2006 5.28% to 5.39%) |
|
|
749,000 |
|
|
|
2,140,900 |
|
|
|
1,487,162 |
|
-a floating rate of 0.08% over the fed funds rate (Fed funds rate at
September 30, 2006 was 5.38%) |
|
|
|
|
|
|
500,000 |
|
|
|
600,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Others |
|
|
34,856 |
|
|
|
92,780 |
|
|
|
93,877 |
|
|
|
|
$ |
1,414,897 |
|
|
$ |
4,034,125 |
|
|
$ |
2,709,511 |
|
|
Note: Refer to the Corporations Form 10-K for the year ended December 31, 2006, for rates and maturity information corresponding to
the borrowings outstanding as of such date.
29
Notes payable consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
September 30, |
(In thousands) |
|
2007 |
|
2006 |
|
2006 |
|
Advances with FHLB: |
|
|
|
|
|
|
|
|
|
|
|
|
-with maturities ranging from 2007 through 2018 paying interest at fixed rates
ranging from 2.51% to 6.98% (September 30, 2006 2.44% to 6.98%) |
|
$ |
738,099 |
|
|
$ |
289,881 |
|
|
$ |
414,403 |
|
-maturing in 2008 paying interest monthly at a floating rate of 0.0075% over the
1-month LIBOR rate (1-month LIBOR rate at September 30, 2007 was 5.12%;
September 30, 2006 5.32%) |
|
|
250,000 |
|
|
|
250,000 |
|
|
|
250,000 |
|
-maturing in 2007 paying interest monthly at the 1-month LIBOR rate plus 0.02%
(1-month LIBOR rate at September 30, 2006 5.32%) |
|
|
|
|
|
|
5,000 |
|
|
|
5,000 |
|
-maturing in 2007 paying interest quarterly at the 3-month LIBOR rate less 0.04%
(3-month LIBOR rate at September 30, 2006 was 5.37%) |
|
|
|
|
|
|
6,000 |
|
|
|
6,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances under revolving lines of credit maturing in 2008 paying interest monthly
at a floating rate of 0.75% (September 30, 2006 0.90%) over the 1-month LIBOR
rate (1-month LIBOR rate at
September 30, 2007 was 5.12%; September 30, 2006 5.32%) |
|
|
317,926 |
|
|
|
426,687 |
|
|
|
388,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances under revolving lines of credit with maturities ranging from 2007 to
2009 paying interest quarterly at a floating rate of 0.20% to 0.35% over the
3-month
LIBOR rate (3-month LIBOR rate at September 30, 2007 was 5.23%) |
|
|
154,999 |
|
|
|
69,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term notes maturing in 2030 paying interest monthly at fixed rates ranging from
3.00% to 6.00% |
|
|
3,100 |
|
|
|
3,100 |
|
|
|
3,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term notes with maturities ranging from 2008 to 2013 paying interest monthly at a
floating rate of 3.00% over the 10-year U.S. Treasury note rate (10-year U.S.
Treasury note rate at September 30, 2007 was 4.59%; September 30, 2006
4.63%) |
|
|
7,502 |
|
|
|
10,428 |
|
|
|
11,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term notes with maturities ranging from 2007 to 2009 paying interest quarterly at
floating rates ranging from 0.35% to 0.40% (September 30, 2006 0.35% to
0.45%) over the 3-month LIBOR rate (3-month LIBOR rate at September 30, 2007
was 5.23%, September 30, 2006 5.37%) |
|
|
349,610 |
|
|
|
349,295 |
|
|
|
469,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term notes with maturities ranging from 2007 through 2011 paying interest
semiannually at fixed rates ranging from 3.60% to 5.65% (September 30, 2006
3.25% to 6.39%) |
|
|
2,014,323 |
|
|
|
2,014,928 |
|
|
|
2,713,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured borrowings with maturities ranging from 2007 to 2012 paying interest
monthly at fixed rates ranging from 4.00% to 7.12% (September 30, 2006 3.05%
to 7.12%) |
|
|
2,381,081 |
|
|
|
2,695,916 |
|
|
|
2,914,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured borrowings with maturities ranging from 2007 to 2012 paying interest
monthly ranging from 0.06% to 3.51% (September 30, 2006 0.05% to 4.75%) over
the 1-month LIBOR rate (1-month LIBOR rate at September 30, 2007 was 5.12%;
September 30, 2006 5.32%) |
|
|
1,189,286 |
|
|
|
1,708,650 |
|
|
|
1,623,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes linked
to the S&P 500 Index maturing in 2008 |
|
|
37,876 |
|
|
|
36,112 |
|
|
|
34,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior subordinated deferrable interest debentures with maturities
ranging from 2027 to 2034 with fixed interest rates ranging from
6.13% to 8.33% (Refer to Note 17) |
|
|
849,672 |
|
|
|
849,672 |
|
|
|
849,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
21,317 |
|
|
|
21,583 |
|
|
|
200 |
|
|
|
|
$ |
8,314,791 |
|
|
$ |
8,737,246 |
|
|
$ |
9,681,897 |
|
|
Note: Refer to the Corporations Form 10-K for the year ended December 31, 2006, for rates and maturity information corresponding to the
borrowings outstanding as of such date.
30
Note 12 Commitments and Contingencies
Commercial letters of credit and stand-by letters of credit amounted to $18 million and $196
million, respectively, at September 30, 2007 (December 31, 2006 $21 million and $181 million;
September 30, 2006 $21 million and $169 million). There were also other commitments outstanding
and contingent liabilities, such as commitments to extend credit.
At September 30, 2007, the Corporation recorded a liability of $721 thousand (December 31, 2006 -
$658 thousand; September 30, 2006 $574 thousand), which represents the fair value of the
obligations undertaken in issuing the guarantees under stand-by letters of credit. 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 stand-by letters of credit
were issued to guarantee the performance of various customers to third parties. The contract
amounts in stand-by 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 stand-by letters of credit are used by the customer as a
credit enhancement and typically expire without being drawn upon. The Corporations stand-by
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. Management does not anticipate any
material losses related to these instruments.
Popular, Inc. Holding Company (PIHC) fully and unconditionally guarantees certain borrowing
obligations issued by certain of its wholly-owned consolidated subsidiaries, which aggregated to
$3.3 billion at September 30, 2007 (December 31, 2006 $3.3 billion and September 30, 2006 $3.9
billion). In addition, at September 30, 2007, PIHC fully and unconditionally guaranteed $824
million of capital securities (December 31, 2006 and September 30, 2006 $824 million) issued by
four wholly-owned issuing trust entities that have been deconsolidated pursuant to FIN No. 46R.
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 13 Other Service Fees
The caption of other service fees in the consolidated statements of income consists of the
following major categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
Nine months ended |
|
|
September 30, |
|
September 30, |
(In thousands) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Credit card fees and discounts |
|
$ |
25,975 |
|
|
$ |
22,035 |
|
|
$ |
74,498 |
|
|
$ |
66,979 |
|
Debit card fees |
|
|
16,228 |
|
|
|
15,345 |
|
|
|
49,184 |
|
|
|
45,349 |
|
Insurance fees |
|
|
15,024 |
|
|
|
13,327 |
|
|
|
42,693 |
|
|
|
39,879 |
|
Processing fees |
|
|
11,674 |
|
|
|
11,164 |
|
|
|
35,463 |
|
|
|
32,382 |
|
Sale and administration of investment
products |
|
|
8,043 |
|
|
|
7,345 |
|
|
|
22,614 |
|
|
|
21,451 |
|
Mortgage servicing fees, net of
amortization and fair value adjustments |
|
|
7,400 |
|
|
|
(1,756 |
) |
|
|
18,269 |
|
|
|
(2,423 |
) |
Other |
|
|
9,020 |
|
|
|
12,177 |
|
|
|
28,082 |
|
|
|
36,383 |
|
|
Total |
|
$ |
93,364 |
|
|
$ |
79,637 |
|
|
$ |
270,803 |
|
|
$ |
240,000 |
|
|
Note 14 Income Taxes
As indicated in Note 2, the Corporation adopted FIN 48 effective January 1, 2007. The initial
adoption of FIN 48 had no impact on the Corporations financial statements since management
determined that there was no need to recognize changes in the liability for unrecognized tax
benefits.
31
The reconciliation of unrecognized tax benefits, including accrued interest, was as follows:
|
|
|
|
|
(In millions) |
|
|
|
|
|
Balance as of January 1, 2007 |
|
$ |
20.4 |
|
Additions for tax positions Jan March 2007 |
|
|
1.7 |
|
|
Balance as of March 31, 2007 |
|
$ |
22.1 |
|
Additions for tax positions April June 2007 |
|
|
2.3 |
|
|
Balance as of June 30, 2007 |
|
$ |
24.4 |
|
Additions for tax positions July Sept 2007 |
|
|
2.9 |
|
|
Balance as of September 30, 2007 |
|
$ |
27.3 |
|
|
As of September 30, 2007, the related accrued interest approximated $3.2 million. Management has
determined that as of September 30, 2007 there is no need to accrue for the payment of penalties.
The Corporations policy is to report interest related to unrecognized tax benefits in income tax
expense, while the penalties, if any, are reported in other operating expenses in the consolidated statements of
income.
After consideration of the effect on U.S. federal tax of unrecognized U.S. state tax benefits, the
total amount of unrecognized tax benefits, including U.S. and Puerto Rico that, if recognized,
would affect the Corporations effective tax rate, was approximately $26 million as of September
30, 2007.
The amount of unrecognized tax benefits may increase or decrease in the future for various reasons
including adding amounts for current tax year positions, expiration of open income tax returns due
to the statutes of limitation, changes in managements judgment about the level of uncertainty,
status of examinations, litigation and legislative activity and the addition or elimination of
uncertain tax positions.
The Corporation and its subsidiaries file income tax returns in Puerto Rico, the U.S. federal
jurisdiction, various U.S. states and political subdivisions, and foreign jurisdictions. As of
September 30, 2007, the following years remain subject to examination: U.S. Federal jurisdiction
2005 and 2006 and Puerto Rico 2003 through 2006. The U.S. Internal Revenue Service (IRS)
commenced an examination of the Corporations U.S. operations tax return for 2005 that is
anticipated to be finished by the end of 2007. As of September 30, 2007, the IRS has not proposed
any adjustment as a result of the audit. Although the outcome of tax audits is uncertain, the
Corporation believes that adequate amounts of tax, interest and penalties have been provided for
any adjustments that are expected to result from open years. The Corporation does not anticipate a
significant change to the total amount of unrecognized tax benefits within the next 12 months.
Note 15 Stock-Based Compensation
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. Nevertheless, all outstanding award grants under the Stock Option
Plan continue to remain in effect at September 30, 2007 under the original terms of the Stock
Option Plan.
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
32
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.
The following table presents information on stock options outstanding as of September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Not in thousands) |
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
Remaining Life of |
|
Options |
|
Weighted Average |
Exercise Price |
|
Options |
|
Exercise Price of |
|
Options Outstanding |
|
Exercisable |
|
Exercise Price of |
Range per Share |
|
Outstanding |
|
Options Outstanding |
|
(in years) |
|
(fully vested) |
|
Options Exercisable |
|
$14.39 - $18.50 |
|
|
1,513,582 |
|
|
$ |
15.81 |
|
|
|
4.98 |
|
|
|
1,382,319 |
|
|
$ |
15.72 |
|
$19.25 - $27.20 |
|
|
1,586,035 |
|
|
$ |
25.27 |
|
|
|
6.75 |
|
|
|
1,012,839 |
|
|
$ |
25.02 |
|
|
$14.39 - $27.20 |
|
|
3,099,617 |
|
|
$ |
20.65 |
|
|
|
5.89 |
|
|
|
2,395,158 |
|
|
$ |
19.65 |
|
|
The
aggregate intrinsic value of options outstanding as of September 30, 2007 was $8.7 million.
There was no intrinsic value of options exercisable as of September 30, 2007.
The following table summarizes the stock option activity and related information:
|
|
|
|
|
|
|
|
|
|
|
Options |
|
Weighted-Average |
(Not in thousands) |
|
Outstanding |
|
Exercise Price |
|
Outstanding at January 1, 2006 |
|
|
3,223,703 |
|
|
$ |
20.63 |
|
Granted |
|
|
|
|
|
|
|
|
Exercised |
|
|
(39,449 |
) |
|
|
15.78 |
|
Forfeited |
|
|
(37,818 |
) |
|
|
23.75 |
|
Expired |
|
|
(1,637 |
) |
|
|
24.05 |
|
|
Outstanding at December 31, 2006 |
|
|
3,144,799 |
|
|
$ |
20.65 |
|
Granted |
|
|
|
|
|
|
|
|
Exercised |
|
|
(10,064 |
) |
|
|
15.83 |
|
Forfeited |
|
|
(19,063 |
) |
|
|
25.50 |
|
Expired |
|
|
(16,055 |
) |
|
|
19.14 |
|
|
Outstanding at September 30, 2007 |
|
|
3,099,617 |
|
|
$ |
20.65 |
|
|
The stock
options exercisable at September 30, 2007 totaled 2,395,158 (September 30, 2006
1,953,606). There were no stock options exercised during the quarter ended September 30, 2007. For
the nine months ended September 30, 2007, the cash received from stock options exercised amounted
to $159 thousand. The total intrinsic value of options exercised during the quarter ended September
30, 2006 was $60 thousand. The total intrinsic value of options exercised during the nine-month
period ended September 30, 2007 was $28 thousand (September 30, 2006 $127 thousand).
There were no new stock option grants issued by the Corporation under the Stock Option Plan during
2006 or the nine months ended September 30, 2007.
The Corporation recognized $432 thousand of stock option expense, with a tax benefit of $165
thousand, for the quarter ended September 30, 2007 (September 30, 2006 $724 thousand, with a tax
benefit of $293 thousand). For the nine months ended September 30, 2007, the Corporation recognized
$1.3 million of stock option expense, with a tax benefit of $515 thousand (September 30, 2006 -
$2.3 million, with a tax benefit of $899 thousand). The total unrecognized compensation cost at
September 30, 2007 related to non-vested stock option awards was $2.1 million and is expected to be
recognized over a weighted-average period of 1.3 years.
Incentive Plan
The Incentive Plan permits the granting of incentive awards in the form of Annual Incentive Awards,
Long-term
33
Performance Unit Awards, Options, Stock Appreciation Rights, Restricted Stock, Restricted Units or
Performance Shares. 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.
Under the Incentive Plan, the Corporation has issued only restricted shares, which become vested
based on the employees continued service with Popular. 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.
Beginning in 2007, the Corporation authorized the issuance of performance shares, in addition to
restricted shares, under a long-term incentive plan. The performance shares award consists of the
opportunity to receive shares of Popular, Inc.s common stock provided the Corporation achieves
certain performance goals during a 3-year performance cycle. The compensation cost associated with
the performance shares will be recorded ratably over a three-year performance period. The
performance shares will be granted at the end of the three-year period and will be vested at grant
date. As of September 30, 2007, no shares have been granted under this plan.
The following table summarizes the restricted stock activity under the Incentive Plan and related
information to members of management:
|
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
Weighted-Average |
(Not in thousands) |
|
Stock |
|
Grant Date Fair Value |
|
Non-vested at January 1, 2006 |
|
|
172,622 |
|
|
$ |
27.65 |
|
Granted |
|
|
444,036 |
|
|
|
20.54 |
|
Vested |
|
|
|
|
|
|
|
|
Forfeited |
|
|
(5,188 |
) |
|
|
19.95 |
|
|
Non-vested at December 31, 2006 |
|
|
611,470 |
|
|
$ |
22.55 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
(69,471 |
) |
|
|
20.56 |
|
Forfeited |
|
|
(3,781 |
) |
|
|
19.95 |
|
|
Non-vested at September 30, 2007 |
|
|
538,218 |
|
|
$ |
22.83 |
|
|
During the quarters ended September 30, 2007 and 2006, no shares of restricted stock were awarded
to management under the Incentive Plan. During the nine-month period ended September 30, 2007, no
shares of restricted stock were awarded to management under the Incentive Plan (September 30, 2006
444,036).
During the quarter ended September 30, 2007, the Corporation recognized $33 thousand of restricted
stock expense related to management incentive awards, with a tax benefit of $14 thousand (September
30, 2006 ($433) thousand, with a tax impact of $160 thousand). For the nine-month period ended
September 30, 2007, the Corporation recognized $1.9 million of restricted stock expense related to
management incentive awards, with a tax benefit of $718 thousand (September 30, 2006 $1.7
million, with a tax benefit of $663 thousand). The fair market value of the restricted stock vested
was $1.2 million. The total unrecognized compensation cost related to non-vested restricted stock
awards to members of management at September 30, 2007 was $4.5 million and is expected to be
recognized over a weighted-average period of 2.7 years. During the nine-month period ended
September 30, 2007, there was a vesting of restricted stock that triggered a shortfall of $194
thousand, which was recorded as an additional income tax expense.
34
The following table summarizes the restricted stock under Incentive Award and related information
to members of the Board of Directors:
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
Weighted-Average |
(Not in thousands) |
|
Stock |
|
Grant Date Fair Value |
|
Non-vested at January 1, 2006 |
|
|
46,948 |
|
|
$ |
23.61 |
|
Granted |
|
|
32,267 |
|
|
|
19.82 |
|
Vested |
|
|
(2,601 |
) |
|
|
23.54 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2006 |
|
|
76,614 |
|
|
$ |
22.02 |
|
Granted |
|
|
32,381 |
|
|
|
16.96 |
|
Vested |
|
|
(22,486 |
) |
|
|
22.03 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
Non-vested at September 30, 2007 |
|
|
86,509 |
|
|
$ |
20.12 |
|
|
During the quarter ended September 30, 2007, the Corporation granted 3,018 (September 30, 2006
1,038) shares of restricted stock to members of the Board of Directors of Popular, Inc.
During this period, the Corporation recognized $115 thousand of restricted stock expense related to
these restricted stock grants, with a tax benefit of $45 thousand (September 30, 2006 $150
thousand, with a tax benefit of $59 thousand). For the nine-month period ended September 30, 2007,
the Corporation granted 32,381 (September 30, 2006 30,897) shares of restricted stock to members
of the Board of Directors of Popular, Inc. The fair market value of the restricted stock
vested was $394 thousand. During this period, the Corporation recognized $423 thousand of
restricted stock expense related to these restricted stock grants, with a tax benefit of $165
thousand (September 30, 2006 $430 thousand, with a tax benefit of $168 thousand).
Note 16 Pension and Postretirement 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 and nine months ended September 30,
2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans |
|
Benefit Restoration Plans |
|
|
Quarters ended |
|
Nine months ended |
|
Quarters ended |
|
Nine months ended |
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
(In thousands) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Service cost |
|
$ |
2,639 |
|
|
$ |
3,135 |
|
|
$ |
8,384 |
|
|
$ |
9,405 |
|
|
$ |
221 |
|
|
$ |
262 |
|
|
$ |
678 |
|
|
$ |
786 |
|
Interest cost |
|
|
7,958 |
|
|
|
7,641 |
|
|
|
23,890 |
|
|
|
22,923 |
|
|
|
419 |
|
|
|
400 |
|
|
|
1,258 |
|
|
|
1,200 |
|
Expected return on plan assets |
|
|
(10,532 |
) |
|
|
(10,009 |
) |
|
|
(31,589 |
) |
|
|
(29,918 |
) |
|
|
(369 |
) |
|
|
(264 |
) |
|
|
(1,105 |
) |
|
|
(792 |
) |
Amortization of prior service cost |
|
|
52 |
|
|
|
44 |
|
|
|
156 |
|
|
|
132 |
|
|
|
(13 |
) |
|
|
(13 |
) |
|
|
(39 |
) |
|
|
(39 |
) |
Amortization of net loss |
|
|
|
|
|
|
488 |
|
|
|
|
|
|
|
1,464 |
|
|
|
248 |
|
|
|
276 |
|
|
|
743 |
|
|
|
828 |
|
|
Net periodic cost |
|
$ |
117 |
|
|
$ |
1,299 |
|
|
$ |
841 |
|
|
$ |
4,006 |
|
|
$ |
506 |
|
|
$ |
661 |
|
|
$ |
1,535 |
|
|
$ |
1,983 |
|
Curtailment gain |
|
|
|
|
|
|
|
|
|
|
(246 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(258 |
) |
|
|
|
|
|
Total cost |
|
$ |
117 |
|
|
$ |
1,299 |
|
|
$ |
595 |
|
|
$ |
4,006 |
|
|
$ |
506 |
|
|
$ |
661 |
|
|
$ |
1,277 |
|
|
$ |
1,983 |
|
|
During the first quarter of 2007, the Corporation adopted an amendment to freeze the benefits for
all employees under the U.S. Retirement and Restoration plans. These plans were remeasured at
January 31, 2007 to account for the freeze. The discount rate of the U.S. Retirement plan was
changed to 4.5% to reflect the expected plan termination. The remeasurement and curtailment effects
were considered for these plans in the first quarter of 2007 and are included as part of the
year-to-date disclosures.
For the nine months ended September 30, 2007, contributions made to the pension and restoration
plans approximated $1.9 million. The total contributions expected to be paid during 2007 for the
pension and restoration plans approximate $2.2 million.
35
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 and nine
months ended September 30, 2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters ended |
|
Nine months ended |
|
|
September 30, |
|
September 30, |
(In thousands) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Service cost |
|
$ |
578 |
|
|
$ |
696 |
|
|
$ |
1,734 |
|
|
$ |
2,095 |
|
Interest cost |
|
|
1,889 |
|
|
|
1,927 |
|
|
|
5,667 |
|
|
|
5,781 |
|
Amortization of prior service cost |
|
|
(261 |
) |
|
|
(262 |
) |
|
|
(784 |
) |
|
|
(786 |
) |
Amortization of net loss |
|
|
|
|
|
|
240 |
|
|
|
|
|
|
|
720 |
|
|
Total net periodic cost |
|
$ |
2,206 |
|
|
$ |
2,601 |
|
|
$ |
6,617 |
|
|
$ |
7,810 |
|
|
For the nine months ended September 30, 2007, contributions made to the postretirement benefit plan
approximated $4.9 million. The total contributions expected to be paid during 2007 for the
postretirement benefit plan approximate $6.4 million.
Note 17 Trust Preferred Securities
At September 30, 2007 and 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, while the common securities issued by the issuer trusts are
included as other investment securities. The common securities of each trust are wholly-owned, or
indirectly wholly-owned, by the Corporation.
Financial data pertaining to the trusts follows:
(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. |
36
|
|
|
(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 after certain dates or upon the occurrence of certain events mentioned below,
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 46(R). |
|
(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
included as part of the Corporations Tier I capital.
Note 18 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 offering resulted in 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. As of December 31, 2005, this
subscription rights offering resulted in 8,614,620 newly issued shares of common stock; the
remaining 1,885,380 were issued during the first quarter of 2006.
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 $346 million at
September 30, 2007 (December 31, 2006 $346 million; September 30, 2006 $317 million). During
the nine months ended September 30, 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 nine months ended September 30, 2007.
37
Note 19 Earnings per Common Share
The computation of earnings per common share (EPS) follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
Nine months ended |
|
|
September 30, |
|
September 30, |
(In thousands, except share information) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Net income |
|
$ |
36,003 |
|
|
$ |
82,160 |
|
|
$ |
229,600 |
|
|
$ |
298,044 |
|
Less: Preferred stock dividends |
|
|
2,979 |
|
|
|
2,979 |
|
|
|
8,935 |
|
|
|
8,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock |
|
$ |
33,024 |
|
|
$ |
79,181 |
|
|
$ |
220,665 |
|
|
$ |
289,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding |
|
|
279,625,715 |
|
|
|
278,602,482 |
|
|
|
279,355,496 |
|
|
|
278,349,354 |
|
Average potential common shares |
|
|
|
|
|
|
210,465 |
|
|
|
78,016 |
|
|
|
255,751 |
|
|
Average common shares outstanding assuming dilution |
|
|
279,625,715 |
|
|
|
278,812,947 |
|
|
|
279,433,512 |
|
|
|
278,605,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted EPS |
|
$ |
0.12 |
|
|
$ |
0.28 |
|
|
$ |
0.79 |
|
|
$ |
1.04 |
|
|
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 and
nine-month period ended September 30, 2007, there were 3,099,617 and 2,209,290 weighted average
antidilutive stock options outstanding, respectively (September 30, 2006 1,895,081 and
1,897,983).
Note 20 Supplemental Disclosure on the Consolidated Statements of Cash Flows
As mentioned in Note 1 of the Corporations 2006 Annual Report, as of the end of the first quarter
of 2006, all subsidiaries of the Corporation had changed the reporting period to a December
31st calendar period. The impact of this change corresponds to the financial results for
the month of December 2005 for those subsidiaries 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.
|
|
|
|
|
|
|
Nine months ended |
(In thousands) |
|
September 30, 2006 |
|
Net cash used in operating activities |
|
($ |
80,906 |
) |
Net cash used in investing activities |
|
|
(104,732 |
) |
Net cash provided by financing activities |
|
|
197,552 |
|
|
|
|
|
|
|
Net increase in cash and due from banks |
|
$ |
11,914 |
|
|
Loans receivable transferred to other real estate and other property for the nine months ended
September 30, 2007 amounted to $134 million and $27 million, respectively (September 30, 2006 $92
million and $24 million, respectively).
During the nine months ended September 30, 2006, $613 million in non-conforming loans classified as
held-in-portfolio were 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. In
addition, the consolidated statements of cash flows exclude the effect of $1 billion and $519
million in non-cash reclassifications of loans held-for-sale securitized
38
into trading securities
for the nine months ended September 30, 2007 and 2006, respectively.
The Corporation recognized mortgage servicing rights of $26 million during the nine months ended
September 30, 2007 as a result of the securitization and sale of mortgage loans with servicing
retained (nine months ended September 30, 2006 $58 million).
Note 21 Segment Reporting
Commencing in the first quarter of 2007, the Corporations corporate structure consists of three
reportable segments Banco Popular de Puerto Rico, Popular North America 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 on the markets the segments serve, as well as on
the products and services offered by the segments.
As indicated in the 2006 Annual Report, in January 2007, the Corporation announced a restructuring
and integration plan (the Restructuring Plan) for PFHs businesses. The Restructuring Plan, which
is being implemented throughout 2007, has the following four basic components:
|
o |
|
exiting the wholesale subprime mortgage origination business during the first quarter
of 2007, which entailed shutting down the wholesale broker, retail and call center business
divisions; |
|
|
o |
|
consolidating support activities at PFH (Finance, Credit Risk, Compliance, Human
Resources, Facilities) within BPNA to reduce expenses; |
|
|
o |
|
integrating PFHs existing commercial lending businesses (mortgage warehouse, mixed
use, and construction lending) into BPNAs business lending groups; and |
|
|
o |
|
focusing on the core Equity One network of 132 consumer finance branches in 15 states. |
As part of the Restructuring Plan, the Corporation also executed an internal corporate
reorganization of its U.S. subsidiaries. In January 2007, E-LOAN, as well as all of its direct and
indirect subsidiaries, with the exception of E-LOAN Insurance Services, Inc. and E-LOAN
International, Inc., became operating subsidiaries of BPNA. Prior to the consummation of this U.S.
reorganization, E-LOAN was a direct wholly-owned subsidiary of PFH. E-LOAN continues to offer its
broad range of products and conducts its direct activities through its online platform. Management
will be leveraging the E-LOAN brand, technology and internet financial services platform over the
next several years to complement BPNAs community banking growth strategy.
This reorganization and the Restructuring Plan led management to redefine its business reportable
segments. Commencing in 2007, the U.S. operations are defined as one reportable segment defined as
Popular North America. This segment includes the operations of BPNA and PFH, including all of its
wholly-owned subsidiaries.
The reportable segment disclosures for periods prior to 2007 were restated to reflect the new
segmentation.
Banco Popular de Puerto Rico:
Given that Banco Popular de Puerto Rico constitutes a significant portion of the Corporations net
income and total assets as of September 30, 2007, 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 |
39
|
|
|
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. |
Popular North America:
Popular North America, which includes the Corporations U.S. operations, consists of:
|
|
|
BPNA, including its subsidiaries E-LOAN, Popular Leasing, U.S.A. (name being changed to
Popular Equipment Finance, Inc.) and Popular Insurance Agency, U.S.A. BPNA operates through
a branch network of over 135 branches in 6 states, while E-LOAN provides online consumer
direct lending and supports BPNAs deposit gathering through its online platform. Popular
Insurance Agency, U.S.A. offers investment and insurance services across the BPNA branch
network. Popular Equipment Finance, Inc. provides mainly small to mid-ticket commercial and
medical equipment financing. The U.S. operations also include the mortgage business unit of
Banco Popular, National Association. |
|
|
|
|
PFH, which activities are described above. |
All of Populars U.S. operations now report to the same president. The PNA segment is
disaggregated for additional disclosures between BPNA and PFH. The results of E-LOAN are included
as part of BPNA for the quarters ended September 30, 2007 and 2006. PNA Holding Company only is
included as part of the Corporate group.
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; EVERTEC USA, Inc. incorporated in the United States; and ATH Costa Rica, S.A., EVERTEC
Centroamérica S.A. and T.I.I. Smart Solutions Inc. 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.
40
2007
For the quarter ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Banco Popular de |
|
Popular North |
|
|
|
|
|
Intersegment |
|
Reportable |
(In thousands) |
|
Puerto Rico |
|
America |
|
EVERTEC |
|
Eliminations |
|
Segments |
|
Net interest income (expense) |
|
$ |
241,725 |
|
|
$ |
122,467 |
|
|
($ |
74 |
) |
|
|
|
|
|
$ |
364,118 |
|
Provision for loan losses |
|
|
66,077 |
|
|
|
82,016 |
|
|
|
|
|
|
|
|
|
|
|
148,093 |
|
Non-interest income |
|
|
116,522 |
|
|
|
25,948 |
|
|
|
59,585 |
|
|
($ |
34,840 |
) |
|
|
167,215 |
|
Amortization of intangibles |
|
|
190 |
|
|
|
1,810 |
|
|
|
234 |
|
|
|
|
|
|
|
2,234 |
|
Depreciation expense |
|
|
10,290 |
|
|
|
4,678 |
|
|
|
4,035 |
|
|
|
(19 |
) |
|
|
18,984 |
|
Other operating expenses |
|
|
172,267 |
|
|
|
134,310 |
|
|
|
43,157 |
|
|
|
(34,696 |
) |
|
|
315,038 |
|
Income tax |
|
|
29,247 |
|
|
|
(29,700 |
) |
|
|
3,987 |
|
|
|
(48 |
) |
|
|
3,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
80,176 |
|
|
($ |
44,699 |
) |
|
$ |
8,098 |
|
|
($ |
77 |
) |
|
$ |
43,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Assets |
|
$ |
26,137,863 |
|
|
$ |
21,153,471 |
|
|
$ |
224,834 |
|
|
($ |
508,032 |
) |
|
$ |
47,008,136 |
|
|
For the quarter ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reportable |
|
|
|
|
|
|
|
|
|
|
Total |
|
(In thousands) |
|
Segments |
|
|
Corporate |
|
|
Eliminations |
|
|
Popular, Inc. |
|
|
Net interest income (expense) |
|
$ |
364,118 |
|
|
($ |
4,300 |
) |
|
$ |
298 |
|
|
$ |
360,116 |
|
Provision for loan losses |
|
|
148,093 |
|
|
|
|
|
|
|
|
|
|
|
148,093 |
|
Non-interest income |
|
|
167,215 |
|
|
|
945 |
|
|
|
(1,155 |
) |
|
|
167,005 |
|
Amortization of intangibles |
|
|
2,234 |
|
|
|
|
|
|
|
|
|
|
|
2,234 |
|
Depreciation expense |
|
|
18,984 |
|
|
|
601 |
|
|
|
|
|
|
|
19,585 |
|
Other operating expenses |
|
|
315,038 |
|
|
|
11,670 |
|
|
|
(1,554 |
) |
|
|
325,154 |
|
Income tax |
|
|
3,486 |
|
|
|
(7,709 |
) |
|
|
275 |
|
|
|
(3,948 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
43,498 |
|
|
($ |
7,917 |
) |
|
$ |
422 |
|
|
$ |
36,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Assets |
|
$ |
47,008,136 |
|
|
$ |
6,550,633 |
|
|
($ |
6,278,638 |
) |
|
$ |
47,280,131 |
|
|
For the nine months ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Banco Popular de |
|
|
Popular North |
|
|
|
|
|
|
Intersegment |
|
|
Reportable |
|
(In thousands) |
|
Puerto Rico |
|
|
America |
|
|
EVERTEC |
|
|
Eliminations |
|
|
Segments |
|
|
Net interest income (expense) |
|
$ |
711,103 |
|
|
$ |
394,138 |
|
|
($ |
547 |
) |
|
|
|
|
|
$ |
1,104,694 |
|
Provision for loan losses |
|
|
176,557 |
|
|
|
183,042 |
|
|
|
|
|
|
|
|
|
|
|
359,599 |
|
Non-interest income |
|
|
358,364 |
|
|
|
64,783 |
|
|
|
179,060 |
|
|
($ |
103,974 |
) |
|
|
498,233 |
|
Amortization of intangibles |
|
|
1,508 |
|
|
|
5,821 |
|
|
|
701 |
|
|
|
|
|
|
|
8,030 |
|
Depreciation expense |
|
|
31,455 |
|
|
|
14,020 |
|
|
|
12,355 |
|
|
|
(55 |
) |
|
|
57,775 |
|
Other operating expenses |
|
|
525,259 |
|
|
|
427,777 |
|
|
|
131,782 |
|
|
|
(103,892 |
) |
|
|
980,926 |
|
Income tax |
|
|
87,629 |
|
|
|
(64,016 |
) |
|
|
11,736 |
|
|
|
(10 |
) |
|
|
35,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
247,059 |
|
|
($ |
107,723 |
) |
|
$ |
21,939 |
|
|
($ |
17 |
) |
|
$ |
161,258 |
|
|
41
For the nine months ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reportable |
|
|
|
|
|
|
|
|
|
Total Popular, |
(In thousands) |
|
Segments |
|
Corporate |
|
Eliminations |
|
Inc. |
|
Net interest income (expense) |
|
$ |
1,104,694 |
|
|
($ |
19,076 |
) |
|
$ |
897 |
|
|
$ |
1,086,515 |
|
Provision for loan losses |
|
|
359,599 |
|
|
|
7 |
|
|
|
|
|
|
|
359,606 |
|
Non-interest income |
|
|
498,233 |
|
|
|
128,994 |
|
|
|
(4,671 |
) |
|
|
622,556 |
|
Amortization of intangibles |
|
|
8,030 |
|
|
|
|
|
|
|
|
|
|
|
8,030 |
|
Depreciation expense |
|
|
57,775 |
|
|
|
1,783 |
|
|
|
|
|
|
|
59,558 |
|
Other operating expenses |
|
|
980,926 |
|
|
|
39,831 |
|
|
|
(4,991 |
) |
|
|
1,015,766 |
|
Income tax |
|
|
35,339 |
|
|
|
677 |
|
|
|
495 |
|
|
|
36,511 |
|
|
Net income |
|
$ |
161,258 |
|
|
$ |
67,620 |
|
|
$ |
722 |
|
|
$ |
229,600 |
|
|
2006
For the quarter ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Banco Popular de |
|
Popular North |
|
|
|
|
|
Intersegment |
|
Reportable |
(In thousands) |
|
Puerto Rico |
|
America |
|
EVERTEC |
|
Eliminations |
|
Segments |
|
Net interest income (expense) |
|
$ |
227,245 |
|
|
$ |
124,659 |
|
|
($ |
501 |
) |
|
|
|
|
|
$ |
351,403 |
|
Provision for loan losses |
|
|
31,930 |
|
|
|
31,515 |
|
|
|
|
|
|
|
|
|
|
|
63,445 |
|
Non-interest income |
|
|
101,827 |
|
|
|
69,166 |
|
|
|
57,481 |
|
|
($ |
33,264 |
) |
|
|
195,210 |
|
Amortization of intangibles |
|
|
634 |
|
|
|
2,851 |
|
|
|
123 |
|
|
|
|
|
|
|
3,608 |
|
Depreciation expense |
|
|
10,871 |
|
|
|
5,687 |
|
|
|
4,173 |
|
|
|
(18 |
) |
|
|
20,713 |
|
Other operating expenses |
|
|
169,356 |
|
|
|
149,275 |
|
|
|
40,793 |
|
|
|
(33,277 |
) |
|
|
326,147 |
|
Income tax |
|
|
28,342 |
|
|
|
2,663 |
|
|
|
4,168 |
|
|
|
12 |
|
|
|
35,185 |
|
|
Net income |
|
$ |
87,939 |
|
|
$ |
1,834 |
|
|
$ |
7,723 |
|
|
$ |
19 |
|
|
$ |
97,515 |
|
|
Segment Assets |
|
$ |
25,124,056 |
|
|
$ |
21,029,460 |
|
|
$ |
217,658 |
|
|
($ |
121,252 |
) |
|
$ |
46,249,922 |
|
|
For the quarter ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reportable |
|
|
|
|
|
|
|
|
|
Total |
(In thousands) |
|
Segments |
|
Corporate |
|
Eliminations |
|
Popular, Inc. |
|
Net interest income (expense) |
|
$ |
351,403 |
|
|
($ |
9,664 |
) |
|
$ |
299 |
|
|
$ |
342,038 |
|
Provision for loan losses |
|
|
63,445 |
|
|
|
|
|
|
|
|
|
|
|
63,445 |
|
Non-interest income (loss) |
|
|
195,210 |
|
|
|
(1,571 |
) |
|
|
(2,290 |
) |
|
|
191,349 |
|
Amortization of intangibles |
|
|
3,608 |
|
|
|
|
|
|
|
|
|
|
|
3,608 |
|
Depreciation expense |
|
|
20,713 |
|
|
|
586 |
|
|
|
|
|
|
|
21,299 |
|
Other operating expenses |
|
|
326,147 |
|
|
|
11,481 |
|
|
|
(2,612 |
) |
|
|
335,016 |
|
Income tax |
|
|
35,185 |
|
|
|
(7,575 |
) |
|
|
249 |
|
|
|
27,859 |
|
|
Net income (loss) |
|
$ |
97,515 |
|
|
($ |
15,727 |
) |
|
$ |
372 |
|
|
$ |
82,160 |
|
|
Segment Assets |
|
$ |
46,249,922 |
|
|
$ |
6,579,170 |
|
|
($ |
5,894,342 |
) |
|
$ |
46,934,750 |
|
|
42
For the nine months ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Banco Popular de |
|
Popular North |
|
|
|
|
|
Intersegment |
|
Reportable |
(In thousands) |
|
Puerto Rico |
|
America |
|
EVERTEC |
|
Eliminations |
|
Segments |
|
Net interest income (expense) |
|
$ |
682,046 |
|
|
$ |
416,321 |
|
|
($ |
1,568 |
) |
|
|
|
|
|
$ |
1,096,799 |
|
Provision for loan losses |
|
|
89,395 |
|
|
|
90,093 |
|
|
|
|
|
|
|
|
|
|
|
179,488 |
|
Non-interest income |
|
|
318,551 |
|
|
|
189,874 |
|
|
|
169,523 |
|
|
($ |
103,731 |
) |
|
|
574,217 |
|
Amortization of intangibles |
|
|
1,900 |
|
|
|
6,915 |
|
|
|
345 |
|
|
|
|
|
|
|
9,160 |
|
Depreciation expense |
|
|
32,915 |
|
|
|
16,812 |
|
|
|
12,411 |
|
|
|
(57 |
) |
|
|
62,081 |
|
Other operating expenses |
|
|
508,032 |
|
|
|
451,496 |
|
|
|
126,515 |
|
|
|
(103,772 |
) |
|
|
982,271 |
|
Impact of change in fiscal period |
|
|
(2,072 |
) |
|
|
6,181 |
|
|
|
|
|
|
|
|
|
|
|
4,109 |
|
Income tax |
|
|
92,066 |
|
|
|
14,397 |
|
|
|
10,441 |
|
|
|
38 |
|
|
|
116,942 |
|
|
Net income |
|
$ |
278,361 |
|
|
$ |
20,301 |
|
|
$ |
18,243 |
|
|
$ |
60 |
|
|
$ |
316,965 |
|
|
For the nine months ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reportable |
|
|
|
|
|
|
|
|
|
Total Popular, |
(In thousands) |
|
Segments |
|
Corporate |
|
Eliminations |
|
Inc. |
|
Net interest income (expense) |
|
$ |
1,096,799 |
|
|
($ |
30,047 |
) |
|
$ |
829 |
|
|
$ |
1,067,581 |
|
Provision for loan losses |
|
|
179,488 |
|
|
|
|
|
|
|
|
|
|
|
179,488 |
|
Non-interest income |
|
|
574,217 |
|
|
|
33,260 |
|
|
|
(3,309 |
) |
|
|
604,168 |
|
Amortization of intangibles |
|
|
9,160 |
|
|
|
|
|
|
|
|
|
|
|
9,160 |
|
Depreciation expense |
|
|
62,081 |
|
|
|
1,724 |
|
|
|
|
|
|
|
63,805 |
|
Other operating expenses |
|
|
982,271 |
|
|
|
44,229 |
|
|
|
(3,049 |
) |
|
|
1,023,451 |
|
Impact of change in fiscal period |
|
|
4,109 |
|
|
|
3,495 |
|
|
|
2,137 |
|
|
|
9,741 |
|
Income tax |
|
|
116,942 |
|
|
|
(28,176 |
) |
|
|
(706 |
) |
|
|
88,060 |
|
|
Net income (loss) |
|
$ |
316,965 |
|
|
($ |
18,059 |
) |
|
($ |
862 |
) |
|
$ |
298,044 |
|
|
During the nine months ended September 30, 2007, the holding companies realized net gains on sale
and valuation adjustments of investment securities (before tax) of approximately $107.3 million,
compared with $14.2 million for the nine months ended September 30, 2006. These net gains are
included in non-interest income within the Corporate group.
Additional disclosures with respect to the Banco Popular de Puerto Rico reportable segment are as
follows:
2007
For the quarter ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Banco |
|
|
Commercial |
|
Consumer and |
|
Other Financial |
|
|
|
|
|
Popular de |
(In thousands) |
|
Banking |
|
Retail Banking |
|
Services |
|
Eliminations |
|
Puerto Rico |
|
Net interest income |
|
$ |
95,607 |
|
|
$ |
143,108 |
|
|
$ |
2,842 |
|
|
$ |
168 |
|
|
$ |
241,725 |
|
Provision for loan losses |
|
|
21,248 |
|
|
|
44,829 |
|
|
|
|
|
|
|
|
|
|
|
66,077 |
|
Non-interest income |
|
|
22,200 |
|
|
|
70,807 |
|
|
|
23,633 |
|
|
|
(118 |
) |
|
|
116,522 |
|
Amortization of intangibles |
|
|
30 |
|
|
|
47 |
|
|
|
113 |
|
|
|
|
|
|
|
190 |
|
Depreciation expense |
|
|
3,563 |
|
|
|
6,395 |
|
|
|
332 |
|
|
|
|
|
|
|
10,290 |
|
Other operating expenses |
|
|
42,556 |
|
|
|
113,365 |
|
|
|
16,424 |
|
|
|
(78 |
) |
|
|
172,267 |
|
Income tax |
|
|
14,728 |
|
|
|
11,061 |
|
|
|
3,403 |
|
|
|
55 |
|
|
|
29,247 |
|
|
|
Net income |
|
$ |
35,682 |
|
|
$ |
38,218 |
|
|
$ |
6,203 |
|
|
$ |
73 |
|
|
$ |
80,176 |
|
|
|
Segment Assets |
|
$ |
11,729,908 |
|
|
$ |
18,651,108 |
|
|
$ |
508,838 |
|
|
($ |
4,751,991 |
) |
|
$ |
26,137,863 |
|
|
43
For the nine months ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Banco |
|
|
Commercial |
|
Consumer and |
|
Other Financial |
|
|
|
|
|
Popular de |
(In thousands) |
|
Banking |
|
Retail Banking |
|
Services |
|
Eliminations |
|
Puerto Rico |
|
Net interest income |
|
$ |
279,789 |
|
|
$ |
422,844 |
|
|
$ |
8,022 |
|
|
$ |
448 |
|
|
$ |
711,103 |
|
Provision for loan losses |
|
|
57,070 |
|
|
|
119,487 |
|
|
|
|
|
|
|
|
|
|
|
176,557 |
|
Non-interest income |
|
|
67,307 |
|
|
|
225,382 |
|
|
|
66,440 |
|
|
|
(765 |
) |
|
|
358,364 |
|
Amortization of intangibles |
|
|
470 |
|
|
|
705 |
|
|
|
333 |
|
|
|
|
|
|
|
1,508 |
|
Depreciation expense |
|
|
10,941 |
|
|
|
19,609 |
|
|
|
905 |
|
|
|
|
|
|
|
31,455 |
|
Other operating expenses |
|
|
130,909 |
|
|
|
345,292 |
|
|
|
49,315 |
|
|
|
(257 |
) |
|
|
525,259 |
|
Income tax |
|
|
42,128 |
|
|
|
37,783 |
|
|
|
7,731 |
|
|
|
(13 |
) |
|
|
87,629 |
|
|
Net income |
|
$ |
105,578 |
|
|
$ |
125,350 |
|
|
$ |
16,178 |
|
|
($ |
47 |
) |
|
$ |
247,059 |
|
|
2006
For the quarter ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Banco |
|
|
Commercial |
|
Consumer and |
|
Other Financial |
|
|
|
|
|
Popular de |
(In thousands) |
|
Banking |
|
Retail Banking |
|
Services |
|
Eliminations |
|
Puerto Rico |
|
Net interest income |
|
$ |
86,563 |
|
|
$ |
137,998 |
|
|
$ |
2,640 |
|
|
$ |
44 |
|
|
$ |
227,245 |
|
Provision for loan losses |
|
|
9,007 |
|
|
|
22,923 |
|
|
|
|
|
|
|
|
|
|
|
31,930 |
|
Non-interest income |
|
|
26,589 |
|
|
|
48,961 |
|
|
|
26,596 |
|
|
|
(319 |
) |
|
|
101,827 |
|
Amortization of intangibles |
|
|
220 |
|
|
|
335 |
|
|
|
79 |
|
|
|
|
|
|
|
634 |
|
Depreciation expense |
|
|
3,599 |
|
|
|
6,967 |
|
|
|
305 |
|
|
|
|
|
|
|
10,871 |
|
Other operating expenses |
|
|
43,105 |
|
|
|
109,965 |
|
|
|
16,421 |
|
|
|
(135 |
) |
|
|
169,356 |
|
Income tax |
|
|
17,944 |
|
|
|
5,733 |
|
|
|
4,685 |
|
|
|
(20 |
) |
|
|
28,342 |
|
|
|
Net income |
|
$ |
39,277 |
|
|
$ |
41,036 |
|
|
$ |
7,746 |
|
|
($ |
120 |
) |
|
$ |
87,939 |
|
|
|
Segment Assets |
|
$ |
10,821,963 |
|
|
$ |
17,798,620 |
|
|
$ |
564,088 |
|
|
($ |
4,060,615 |
) |
|
$ |
25,124,056 |
|
|
For the nine months ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Banco |
|
|
Commercial |
|
Consumer and |
|
Other Financial |
|
|
|
|
|
Popular de |
(In thousands) |
|
Banking |
|
Retail Banking |
|
Services |
|
Eliminations |
|
Puerto Rico |
|
Net interest income |
|
$ |
252,786 |
|
|
$ |
421,234 |
|
|
$ |
7,695 |
|
|
$ |
331 |
|
|
$ |
682,046 |
|
Provision for loan losses |
|
|
24,210 |
|
|
|
65,185 |
|
|
|
|
|
|
|
|
|
|
|
89,395 |
|
Non-interest income |
|
|
73,100 |
|
|
|
178,143 |
|
|
|
69,237 |
|
|
|
(1,929 |
) |
|
|
318,551 |
|
Amortization of intangibles |
|
|
661 |
|
|
|
1,006 |
|
|
|
233 |
|
|
|
|
|
|
|
1,900 |
|
Depreciation expense |
|
|
10,591 |
|
|
|
21,462 |
|
|
|
862 |
|
|
|
|
|
|
|
32,915 |
|
Other operating expenses |
|
|
131,193 |
|
|
|
330,682 |
|
|
|
46,794 |
|
|
|
(637 |
) |
|
|
508,032 |
|
Impact of change in fiscal period |
|
|
|
|
|
|
|
|
|
|
(2,072 |
) |
|
|
|
|
|
|
(2,072 |
) |
Income tax |
|
|
46,054 |
|
|
|
35,265 |
|
|
|
11,149 |
|
|
|
(402 |
) |
|
|
92,066 |
|
|
Net income |
|
$ |
113,177 |
|
|
$ |
145,777 |
|
|
$ |
19,966 |
|
|
($ |
559 |
) |
|
$ |
278,361 |
|
|
44
Additional disclosures with respect to the Popular North America reportable segment are as follows:
2007
For the quarter ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular |
|
|
|
|
|
|
|
|
Banco Popular |
|
Financial |
|
|
|
|
|
Total Popular |
(In thousands) |
|
North America |
|
Holdings |
|
Eliminations |
|
North America |
|
Net interest income |
|
$ |
93,995 |
|
|
$ |
27,526 |
|
|
$ |
946 |
|
|
$ |
122,467 |
|
Provision for loan losses |
|
|
20,263 |
|
|
|
61,753 |
|
|
|
|
|
|
|
82,016 |
|
Non-interest income (loss) |
|
|
35,976 |
|
|
|
(9,202 |
) |
|
|
(826 |
) |
|
|
25,948 |
|
Amortization of intangibles |
|
|
1,810 |
|
|
|
|
|
|
|
|
|
|
|
1,810 |
|
Depreciation expense |
|
|
4,126 |
|
|
|
552 |
|
|
|
|
|
|
|
4,678 |
|
Other operating expenses |
|
|
107,568 |
|
|
|
27,568 |
|
|
|
(826 |
) |
|
|
134,310 |
|
Income tax |
|
|
(2,696 |
) |
|
|
(27,392 |
) |
|
|
388 |
|
|
|
(29,700 |
) |
|
Net loss |
|
($ |
1,100 |
) |
|
($ |
44,157 |
) |
|
$ |
558 |
|
|
($ |
44,699 |
) |
|
Segment Assets |
|
$ |
13,818,525 |
|
|
$ |
7,569,419 |
|
|
($ |
234,473 |
) |
|
$ |
21,153,471 |
|
|
For the nine months ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular |
|
|
|
|
|
|
|
|
Banco Popular |
|
Financial |
|
|
|
|
|
Total Popular |
(In thousands) |
|
North America |
|
Holdings |
|
Eliminations |
|
North America |
|
Net interest income |
|
$ |
275,733 |
|
|
$ |
115,935 |
|
|
$ |
2,470 |
|
|
$ |
394,138 |
|
Provision for loan losses |
|
|
42,913 |
|
|
|
140,129 |
|
|
|
|
|
|
|
183,042 |
|
Non-interest income (loss) |
|
|
138,585 |
|
|
|
(59,805 |
) |
|
|
(13,997 |
) |
|
|
64,783 |
|
Amortization of intangibles |
|
|
5,821 |
|
|
|
|
|
|
|
|
|
|
|
5,821 |
|
Depreciation expense |
|
|
12,208 |
|
|
|
1,812 |
|
|
|
|
|
|
|
14,020 |
|
Other operating expenses |
|
|
320,325 |
|
|
|
108,906 |
|
|
|
(1,454 |
) |
|
|
427,777 |
|
Income tax |
|
|
10,206 |
|
|
|
(70,100 |
) |
|
|
(4,122 |
) |
|
|
(64,016 |
) |
|
Net income (loss) |
|
$ |
22,845 |
|
|
($ |
124,617 |
) |
|
($ |
5,951 |
) |
|
($ |
107,723 |
) |
|
2006
For the quarter ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular |
|
|
|
|
|
|
|
|
Banco Popular |
|
Financial |
|
|
|
|
|
Total Popular |
(In thousands) |
|
North America |
|
Holdings |
|
Eliminations |
|
North America |
|
Net interest income |
|
$ |
89,774 |
|
|
$ |
34,885 |
|
|
|
|
|
|
$ |
124,659 |
|
Provision for loan losses |
|
|
11,997 |
|
|
|
19,518 |
|
|
|
|
|
|
|
31,515 |
|
Non-interest income |
|
|
52,559 |
|
|
|
17,759 |
|
|
($ |
1,152 |
) |
|
|
69,166 |
|
Amortization of intangibles |
|
|
2,763 |
|
|
|
88 |
|
|
|
|
|
|
|
2,851 |
|
Depreciation expense |
|
|
3,779 |
|
|
|
1,908 |
|
|
|
|
|
|
|
5,687 |
|
Other operating expenses |
|
|
106,023 |
|
|
|
43,890 |
|
|
|
(638 |
) |
|
|
149,275 |
|
Income tax |
|
|
7,243 |
|
|
|
(4,400 |
) |
|
|
(180 |
) |
|
|
2,663 |
|
|
Net income (loss) |
|
$ |
10,528 |
|
|
($ |
8,360 |
) |
|
($ |
334 |
) |
|
$ |
1,834 |
|
|
Segment Assets |
|
$ |
13,176,616 |
|
|
$ |
8,293,978 |
|
|
($ |
441,134 |
) |
|
$ |
21,029,460 |
|
|
45
For the nine months ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular |
|
|
|
|
|
|
|
|
Banco Popular |
|
Financial |
|
|
|
|
|
Total Popular |
(In thousands) |
|
North America |
|
Holdings |
|
Eliminations |
|
North America |
|
Net interest income |
|
$ |
284,882 |
|
|
$ |
131,439 |
|
|
|
|
|
|
$ |
416,321 |
|
Provision for loan losses |
|
|
35,442 |
|
|
|
54,651 |
|
|
|
|
|
|
|
90,093 |
|
Non-interest income |
|
|
158,007 |
|
|
|
33,780 |
|
|
($ |
1,913 |
) |
|
|
189,874 |
|
Amortization of intangibles |
|
|
6,648 |
|
|
|
267 |
|
|
|
|
|
|
|
6,915 |
|
Depreciation expense |
|
|
11,896 |
|
|
|
4,916 |
|
|
|
|
|
|
|
16,812 |
|
Other operating expenses |
|
|
318,029 |
|
|
|
134,246 |
|
|
|
(779 |
) |
|
|
451,496 |
|
Impact of change in fiscal period |
|
|
|
|
|
|
6,181 |
|
|
|
|
|
|
|
6,181 |
|
Income tax |
|
|
26,943 |
|
|
|
(12,149 |
) |
|
|
(397 |
) |
|
|
14,397 |
|
|
Net income (loss) |
|
$ |
43,931 |
|
|
($ |
22,893 |
) |
|
($ |
737 |
) |
|
$ |
20,301 |
|
|
A breakdown of intersegment eliminations, particularly revenues, by segment in which the revenues
are recorded follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTERSEGMENT REVENUES* |
|
Quarter ended |
|
Nine months ended |
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
(In thousands) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Banco Popular de Puerto Rico: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banking |
|
$ |
459 |
|
|
($ |
271 |
) |
|
$ |
401 |
|
|
($ |
886 |
) |
Consumer and Retail Banking |
|
|
997 |
|
|
|
(689 |
) |
|
|
819 |
|
|
|
(2,040 |
) |
Other Financial Services |
|
|
(83 |
) |
|
|
(86 |
) |
|
|
(314 |
) |
|
|
(241 |
) |
Popular North America: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banco Popular North America |
|
|
(1,481 |
) |
|
|
922 |
|
|
|
(1,309 |
) |
|
|
2,814 |
|
EVERTEC |
|
|
(34,732 |
) |
|
|
(33,140 |
) |
|
|
(103,571 |
) |
|
|
(103,378 |
) |
|
Total |
|
($ |
34,840 |
) |
|
($ |
33,264 |
) |
|
($ |
103,974 |
) |
|
($ |
103,731 |
) |
|
|
|
|
* |
|
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 processing / information technology services. |
46
A breakdown of revenues and selected balance sheet information by geographical area follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Information |
|
Quarter ended |
|
Nine months ended |
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
(In thousands) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Revenues** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico |
|
$ |
362,805 |
|
|
$ |
336,086 |
|
|
$ |
1,203,601 |
|
|
$ |
1,044,293 |
|
United States |
|
|
142,342 |
|
|
|
178,218 |
|
|
|
439,825 |
|
|
|
570,111 |
|
Other |
|
|
21,974 |
|
|
|
19,083 |
|
|
|
65,645 |
|
|
|
57,345 |
|
|
Total consolidated revenues |
|
$ |
527,121 |
|
|
$ |
533,387 |
|
|
$ |
1,709,071 |
|
|
$ |
1,671,749 |
|
|
|
|
|
** |
|
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 valuation adjustments on loans
held-for-sale, and other operating income. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
September 30, |
(In thousands) |
|
2007 |
|
2006 |
|
2006 |
|
Selected Balance Sheet Information: |
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
25,154,194 |
|
|
$ |
24,621,684 |
|
|
$ |
24,559,859 |
|
Loans |
|
|
15,433,933 |
|
|
|
14,735,092 |
|
|
|
14,275,223 |
|
Deposits |
|
|
14,790,442 |
|
|
|
13,504,860 |
|
|
|
13,091,696 |
|
Mainland United States |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
20,892,802 |
|
|
$ |
21,570,276 |
|
|
$ |
21,200,909 |
|
Loans |
|
|
17,194,818 |
|
|
|
17,363,382 |
|
|
|
16,870,565 |
|
Deposits |
|
|
10,535,551 |
|
|
|
9,735,264 |
|
|
|
8,880,915 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,233,135 |
|
|
$ |
1,212,027 |
|
|
$ |
1,173,982 |
|
Loans |
|
|
692,053 |
|
|
|
638,465 |
|
|
|
611,171 |
|
Deposits * |
|
|
1,275,522 |
|
|
|
1,198,207 |
|
|
|
1,164,834 |
|
|
|
|
|
* |
|
Represents deposits from BPPR operations located in the U.S. and British Virgin Islands. |
Note 22 Restructuring Costs
During the third quarter and nine months ended September 30, 2007, the Corporation recorded pre-tax
restructuring costs in the Popular North America segment related to the Restructuring Plan as
follows:
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
Nine months ended |
(In thousands) |
|
September 30, 2007 |
|
September 30, 2007 |
|
Personnel costs |
|
|
|
|
|
$ |
8,124 |
(a) |
Net occupancy expenses |
|
|
|
|
|
|
4,413 |
(b) |
Equipment expenses |
|
($ |
20 |
) |
|
|
261 |
|
Professional fees |
|
|
|
|
|
|
1,762 |
(c) |
Communications |
|
|
|
|
|
|
67 |
|
Other
operating expenses |
|
|
|
|
|
|
269 |
|
|
Total |
|
($ |
20 |
) |
|
$ |
14,896 |
|
|
|
|
|
(a) |
|
Severance, stay bonuses, related taxes, and other employee benefits |
|
(b) |
|
Lease terminations |
|
(c) |
|
Outplacement and professional service contract terminations |
47
Of the above restructuring costs, approximately $4.2 million were recognized as a liability as of
September 30, 2007.
During the fourth quarter of 2006, and as a result of the Restructuring Plan, the Corporation
recognized impairment charges on long-lived assets of $7.2 million, mainly associated with software
and leasehold improvements, and in goodwill of $14.2 million.
As of September 30, 2007, the Restructuring Plan has resulted in estimated combined charges of
$36.4 million, broken down as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments |
|
|
|
|
|
|
on goodwill |
|
|
|
|
|
|
and long-lived |
|
Restructuring |
|
|
(In thousands) |
|
assets |
|
costs |
|
Total |
|
Quarter ended: |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
$ |
21,471 |
|
|
|
|
|
|
$ |
21,471 |
|
March 31, 2007 |
|
|
|
|
|
$ |
15,135 |
|
|
|
15,135 |
|
June 30, 2007 |
|
|
|
|
|
|
(219 |
) |
|
|
(219 |
) |
September 30, 2007 |
|
|
|
|
|
|
(20 |
) |
|
|
(20 |
) |
|
Total |
|
$ |
21,471 |
|
|
$ |
14,896 |
|
|
$ |
36,367 |
|
|
The Corporation does not expect to incur additional significant restructuring costs in the
remaining quarters of 2007. Settlement amounts in lease terminations may differ and are subject
to the outcome of negotiations.
Note 23 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 September
30, 2007, December 31, 2006 and September 30, 2006, and the results of their operations and cash
flows for the periods ended September 30, 2007 and 2006.
PIBI is an operating subsidiary of PIHC and is the holding company of its wholly-owned
subsidiaries: ATH Costa Rica S.A., EVERTEC Centroamérica S.A., T.I.I. Smart Solutions Inc.,
Popular Insurance V.I., Inc. and PNA.
PNA is an operating subsidiary of PIBI and is the holding company of its wholly-owned
subsidiaries:
|
|
|
PFH, including its wholly-owned subsidiaries Equity One, Inc., Popular Financial
Management, LLC, Popular Housing Services, Inc., and Popular Mortgage Servicing, Inc.; |
|
|
|
|
Banco Popular North America (BPNA), including its wholly-owned subsidiaries Popular
Equipment Finance, Inc. (formerly Popular Leasing, U.S.A.), Popular Insurance Agency,
U.S.A., Popular FS, LLC and E-LOAN, Inc.; |
|
|
|
|
Banco Popular, National Association (BP, N.A.), including its wholly-owned subsidiary
Popular Insurance, Inc.; and |
|
|
|
|
EVERTEC USA, 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 BPPR. As a member subject to the
regulations of the Federal Reserve System, BPPR and BPNA 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
48
dividends by BPPR may also be
affected by other regulatory requirements and policies, such as the maintenance of certain minimum
capital levels. At September 30, 2007, BPPR could have declared a dividend of approximately $219
million without the approval of the Federal Reserve Board (December 31, 2006 $208 million;
September 30, 2006 $211 million) and BPNA could have declared a dividend of $194 million
(December 31, 2006- $246 million; September 30, 2006 $213 million). However, the Corporation has
never received any dividend payments from its U.S. subsidiaries. Refer to Popular, Inc.s Form 10-K
for the year ended December 31, 2006 for further information on dividend restrictions imposed by
regulatory requirements and policies on the payment of dividends by BPPR, BPNA and BP, N.A.
49
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CONDITION
SEPTEMBER 30, 2007
(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 |
|
$ |
890 |
|
|
$ |
1,079 |
|
|
$ |
15,567 |
|
|
$ |
829,306 |
|
|
($ |
137,786 |
) |
|
$ |
709,056 |
|
Money market investments |
|
|
71,000 |
|
|
|
300 |
|
|
|
195 |
|
|
|
1,261,971 |
|
|
|
(698,369 |
) |
|
|
635,097 |
|
Investment securities available-for-sale, at fair value |
|
|
|
|
|
|
38,578 |
|
|
|
|
|
|
|
8,839,932 |
|
|
|
(15 |
) |
|
|
8,878,495 |
|
Investment securities held-to-maturity, at amortized cost |
|
|
626,189 |
|
|
|
1,250 |
|
|
|
|
|
|
|
81,828 |
|
|
|
(430,000 |
) |
|
|
279,267 |
|
Other investment securities, at lower of cost or realizable value |
|
|
14,425 |
|
|
|
1 |
|
|
|
12,392 |
|
|
|
152,558 |
|
|
|
|
|
|
|
179,376 |
|
Trading account securities, at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
663,283 |
|
|
|
(1,125 |
) |
|
|
662,158 |
|
Investment in subsidiaries |
|
|
3,218,956 |
|
|
|
1,009,325 |
|
|
|
1,959,999 |
|
|
|
684,853 |
|
|
|
(6,873,133 |
) |
|
|
|
|
Loans held-for-sale, at lower of cost or market value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
423,303 |
|
|
|
|
|
|
|
423,303 |
|
|
Loans held-in-portfolio |
|
|
378,107 |
|
|
|
21,550 |
|
|
|
3,084,479 |
|
|
|
37,447,521 |
|
|
|
(7,703,433 |
) |
|
|
33,228,224 |
|
Less Unearned income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,723 |
|
|
|
|
|
|
|
330,723 |
|
Allowance for loan losses |
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
600,213 |
|
|
|
|
|
|
|
600,273 |
|
|
|
|
|
378,047 |
|
|
|
21,550 |
|
|
|
3,084,479 |
|
|
|
36,516,585 |
|
|
|
(7,703,433 |
) |
|
|
32,297,228 |
|
|
Premises and equipment, net |
|
|
24,359 |
|
|
|
|
|
|
|
132 |
|
|
|
556,390 |
|
|
|
(113 |
) |
|
|
580,768 |
|
Other real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133,508 |
|
|
|
|
|
|
|
133,508 |
|
Accrued income receivable |
|
|
742 |
|
|
|
54 |
|
|
|
14,274 |
|
|
|
306,563 |
|
|
|
(30,717 |
) |
|
|
290,916 |
|
Other assets |
|
|
42,374 |
|
|
|
60,592 |
|
|
|
59,188 |
|
|
|
1,361,010 |
|
|
|
(81,483 |
) |
|
|
1,441,681 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
668,807 |
|
|
|
|
|
|
|
668,807 |
|
Other intangible assets |
|
|
554 |
|
|
|
|
|
|
|
|
|
|
|
99,917 |
|
|
|
|
|
|
|
100,471 |
|
|
|
|
$ |
4,377,536 |
|
|
$ |
1,132,729 |
|
|
$ |
5,146,226 |
|
|
$ |
52,579,814 |
|
|
($ |
15,956,174 |
) |
|
$ |
47,280,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,113,111 |
|
|
($ |
137,728 |
) |
|
$ |
3,975,383 |
|
Interest bearing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,123,566 |
|
|
|
(497,434 |
) |
|
|
22,626,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,236,677 |
|
|
|
(635,162 |
) |
|
|
26,601,515 |
|
Federal funds purchased and assets sold under agreements
to repurchase |
|
|
|
|
|
|
|
|
|
$ |
265,332 |
|
|
|
6,211,672 |
|
|
|
(189,701 |
) |
|
|
6,287,303 |
|
Other short-term borrowings |
|
$ |
25,000 |
|
|
|
|
|
|
|
849,716 |
|
|
|
2,531,236 |
|
|
|
(1,991,055 |
) |
|
|
1,414,897 |
|
Notes payable |
|
|
486,494 |
|
|
|
|
|
|
|
2,920,305 |
|
|
|
10,584,543 |
|
|
|
(5,676,551 |
) |
|
|
8,314,791 |
|
Subordinated notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
430,000 |
|
|
|
(430,000 |
) |
|
|
|
|
Other liabilities |
|
|
62,321 |
|
|
$ |
80 |
|
|
|
119,174 |
|
|
|
800,501 |
|
|
|
(124,281 |
) |
|
|
857,795 |
|
|
|
|
|
573,815 |
|
|
|
80 |
|
|
|
4,154,527 |
|
|
|
47,794,629 |
|
|
|
(9,046,750 |
) |
|
|
43,476,301 |
|
|
Minority interest in consolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109 |
|
|
|
|
|
|
|
109 |
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
186,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186,875 |
|
Common stock |
|
|
1,757,961 |
|
|
|
3,961 |
|
|
|
2 |
|
|
|
70,421 |
|
|
|
(74,384 |
) |
|
|
1,757,961 |
|
Surplus |
|
|
531,128 |
|
|
|
851,193 |
|
|
|
734,964 |
|
|
|
3,156,701 |
|
|
|
(4,737,857 |
) |
|
|
536,129 |
|
Retained earnings |
|
|
1,694,385 |
|
|
|
330,750 |
|
|
|
269,284 |
|
|
|
1,687,153 |
|
|
|
(2,292,188 |
) |
|
|
1,689,384 |
|
Accumulated other comprehensive loss, net of tax |
|
|
(161,061 |
) |
|
|
(53,255 |
) |
|
|
(12,551 |
) |
|
|
(128,535 |
) |
|
|
194,341 |
|
|
|
(161,061 |
) |
Treasury stock, at cost |
|
|
(205,567 |
) |
|
|
|
|
|
|
|
|
|
|
(664 |
) |
|
|
664 |
|
|
|
(205,567 |
) |
|
|
|
|
3,803,721 |
|
|
|
1,132,649 |
|
|
|
991,699 |
|
|
|
4,785,076 |
|
|
|
(6,909,424 |
) |
|
|
3,803,721 |
|
|
|
|
$ |
4,377,536 |
|
|
$ |
1,132,729 |
|
|
$ |
5,146,226 |
|
|
$ |
52,579,814 |
|
|
($ |
15,956,174 |
) |
|
$ |
47,280,131 |
|
|
50
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CONDITION
DECEMBER 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 |
|
$ |
2 |
|
|
$ |
157 |
|
|
$ |
322 |
|
|
$ |
1,015,470 |
|
|
($ |
65,793 |
) |
|
$ |
950,158 |
|
Money market investments |
|
|
8,700 |
|
|
|
1,075 |
|
|
|
2,553 |
|
|
|
508,424 |
|
|
|
(219,044 |
) |
|
|
301,708 |
|
Investment securities available-for-sale, at
fair value |
|
|
|
|
|
|
71,262 |
|
|
|
|
|
|
|
9,782,815 |
|
|
|
(3,215 |
) |
|
|
9,850,862 |
|
Investment securities held-to-maturity, at
amortized cost |
|
|
430,000 |
|
|
|
2,157 |
|
|
|
|
|
|
|
89,183 |
|
|
|
(430,000 |
) |
|
|
91,340 |
|
Other
investment securities, at lower of cost or realizable value |
|
|
143,469 |
|
|
|
5,001 |
|
|
|
26,152 |
|
|
|
122,772 |
|
|
|
|
|
|
|
297,394 |
|
Trading account securities, at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
382,325 |
|
|
|
|
|
|
|
382,325 |
|
Investment in subsidiaries |
|
|
3,177,371 |
|
|
|
1,135,808 |
|
|
|
2,062,710 |
|
|
|
816,684 |
|
|
|
(7,192,573 |
) |
|
|
|
|
Loans held-for-sale, at lower of cost or
market value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
719,922 |
|
|
|
|
|
|
|
719,922 |
|
|
Loans held-in-portfolio |
|
|
467,649 |
|
|
|
|
|
|
|
2,958,559 |
|
|
|
35,467,096 |
|
|
|
(6,567,940 |
) |
|
|
32,325,364 |
|
Less Unearned income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308,347 |
|
|
|
|
|
|
|
308,347 |
|
Allowance for loan losses |
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
522,192 |
|
|
|
|
|
|
|
522,232 |
|
|
|
|
|
467,609 |
|
|
|
|
|
|
|
2,958,559 |
|
|
|
34,636,557 |
|
|
|
(6,567,940 |
) |
|
|
31,494,785 |
|
|
Premises and equipment, net |
|
|
25,628 |
|
|
|
|
|
|
|
134 |
|
|
|
569,545 |
|
|
|
(167 |
) |
|
|
595,140 |
|
Other real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,816 |
|
|
|
|
|
|
|
84,816 |
|
Accrued income receivable |
|
|
1,058 |
|
|
|
12 |
|
|
|
11,581 |
|
|
|
264,089 |
|
|
|
(28,500 |
) |
|
|
248,240 |
|
Other assets |
|
|
60,430 |
|
|
|
42,883 |
|
|
|
28,125 |
|
|
|
1,528,398 |
|
|
|
(47,946 |
) |
|
|
1,611,890 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,853 |
|
|
|
|
|
|
|
667,853 |
|
Other intangible assets |
|
|
554 |
|
|
|
|
|
|
|
|
|
|
|
107,000 |
|
|
|
|
|
|
|
107,554 |
|
|
|
|
$ |
4,314,821 |
|
|
$ |
1,258,355 |
|
|
$ |
5,090,136 |
|
|
$ |
51,295,853 |
|
|
($ |
14,555,178 |
) |
|
$ |
47,403,987 |
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,287,868 |
|
|
($ |
65,735 |
) |
|
$ |
4,222,133 |
|
Interest bearing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,283,441 |
|
|
|
(67,243 |
) |
|
|
20,216,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,571,309 |
|
|
|
(132,978 |
) |
|
|
24,438,331 |
|
Federal funds purchased and assets sold under
agreements to repurchase |
|
|
|
|
|
|
|
|
|
$ |
159,829 |
|
|
|
5,739,416 |
|
|
|
(136,800 |
) |
|
|
5,762,445 |
|
Other short-term borrowings |
|
$ |
150,787 |
|
|
|
|
|
|
|
894,959 |
|
|
|
5,297,595 |
|
|
|
(2,309,216 |
) |
|
|
4,034,125 |
|
Notes payable |
|
|
484,406 |
|
|
|
|
|
|
|
2,835,595 |
|
|
|
9,651,217 |
|
|
|
(4,233,972 |
) |
|
|
8,737,246 |
|
Subordinated notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
430,000 |
|
|
|
(430,000 |
) |
|
|
|
|
Other liabilities |
|
|
59,322 |
|
|
$ |
60 |
|
|
|
78,988 |
|
|
|
758,613 |
|
|
|
(85,559 |
) |
|
|
811,424 |
|
|
|
|
|
694,515 |
|
|
|
60 |
|
|
|
3,969,371 |
|
|
|
46,448,150 |
|
|
|
(7,328,525 |
) |
|
|
43,783,571 |
|
|
Minority interest in consolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110 |
|
|
|
|
|
|
|
110 |
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
186,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186,875 |
|
Common stock |
|
|
1,753,146 |
|
|
|
3,961 |
|
|
|
2 |
|
|
|
70,421 |
|
|
|
(74,384 |
) |
|
|
1,753,146 |
|
Surplus |
|
|
521,855 |
|
|
|
851,193 |
|
|
|
734,964 |
|
|
|
3,182,285 |
|
|
|
(4,763,441 |
) |
|
|
526,856 |
|
Retained earnings |
|
|
1,599,145 |
|
|
|
458,922 |
|
|
|
406,811 |
|
|
|
1,804,476 |
|
|
|
(2,675,210 |
) |
|
|
1,594,144 |
|
Accumulated other comprehensive loss, net of
tax |
|
|
(233,728 |
) |
|
|
(55,781 |
) |
|
|
(21,012 |
) |
|
|
(207,443 |
) |
|
|
284,236 |
|
|
|
(233,728 |
) |
Treasury stock, at cost |
|
|
(206,987 |
) |
|
|
|
|
|
|
|
|
|
|
(2,146 |
) |
|
|
2,146 |
|
|
|
(206,987 |
) |
|
|
|
|
3,620,306 |
|
|
|
1,258,295 |
|
|
|
1,120,765 |
|
|
|
4,847,593 |
|
|
|
(7,226,653 |
) |
|
|
3,620,306 |
|
|
|
|
$ |
4,314,821 |
|
|
$ |
1,258,355 |
|
|
$ |
5,090,136 |
|
|
$ |
51,295,853 |
|
|
($ |
14,555,178 |
) |
|
$ |
47,403,987 |
|
|
51
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CONDITION
SEPTEMBER 30, 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 |
|
$ |
769 |
|
|
$ |
204 |
|
|
$ |
15,019 |
|
|
$ |
777,966 |
|
|
($ |
57,289 |
) |
|
$ |
736,669 |
|
Money market investments |
|
|
60,000 |
|
|
|
300 |
|
|
|
242 |
|
|
|
678,444 |
|
|
|
(193,737 |
) |
|
|
545,249 |
|
Investment securities available-for-sale, at fair value |
|
|
8,536 |
|
|
|
70,500 |
|
|
|
9,677 |
|
|
|
10,069,659 |
|
|
|
(47 |
) |
|
|
10,158,325 |
|
Investment securities held-to-maturity, at amortized cost |
|
|
699,683 |
|
|
|
2,160 |
|
|
|
|
|
|
|
85,587 |
|
|
|
(430,000 |
) |
|
|
357,430 |
|
Other investment securities, at lower of cost or realizable value |
|
|
143,782 |
|
|
|
5,001 |
|
|
|
18,671 |
|
|
|
130,018 |
|
|
|
|
|
|
|
297,472 |
|
Trading account securities, at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
451,684 |
|
|
|
(22 |
) |
|
|
451,662 |
|
Investment in subsidiaries |
|
|
3,198,490 |
|
|
|
1,158,368 |
|
|
|
2,077,657 |
|
|
|
803,046 |
|
|
|
(7,237,561 |
) |
|
|
|
|
Loans held-for-sale, at lower of cost or market value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
447,314 |
|
|
|
|
|
|
|
447,314 |
|
|
Loans held-in-portfolio |
|
|
27,032 |
|
|
|
|
|
|
|
2,819,009 |
|
|
|
34,601,455 |
|
|
|
(5,832,737 |
) |
|
|
31,614,759 |
|
Less Unearned income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
305,114 |
|
|
|
|
|
|
|
305,114 |
|
Allowance for loan losses |
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
487,299 |
|
|
|
|
|
|
|
487,339 |
|
|
|
|
|
26,992 |
|
|
|
|
|
|
|
2,819,009 |
|
|
|
33,809,042 |
|
|
|
(5,832,737 |
) |
|
|
30,822,306 |
|
|
Premises and equipment, net |
|
|
26,217 |
|
|
|
|
|
|
|
135 |
|
|
|
562,117 |
|
|
|
(187 |
) |
|
|
588,282 |
|
Other real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,636 |
|
|
|
|
|
|
|
83,636 |
|
Accrued income receivable |
|
|
359 |
|
|
|
43 |
|
|
|
11,243 |
|
|
|
301,402 |
|
|
|
(24,705 |
) |
|
|
288,342 |
|
Other assets |
|
|
61,963 |
|
|
|
41,661 |
|
|
|
44,255 |
|
|
|
1,236,372 |
|
|
|
(9,351 |
) |
|
|
1,374,900 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
678,666 |
|
|
|
|
|
|
|
678,666 |
|
Other intangible assets |
|
|
554 |
|
|
|
|
|
|
|
|
|
|
|
103,943 |
|
|
|
|
|
|
|
104,497 |
|
|
|
|
$ |
4,227,345 |
|
|
$ |
1,278,237 |
|
|
$ |
4,995,908 |
|
|
$ |
50,218,896 |
|
|
($ |
13,785,636 |
) |
|
$ |
46,934,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,879,816 |
|
|
($ |
57,232 |
) |
|
$ |
3,822,584 |
|
Interest bearing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,408,598 |
|
|
|
(93,737 |
) |
|
|
19,314,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,288,414 |
|
|
|
(150,969 |
) |
|
|
23,137,445 |
|
Federal funds purchased and assets sold under agreements
to repurchase |
|
|
|
|
|
|
|
|
|
$ |
73,000 |
|
|
|
7,058,466 |
|
|
|
(86,000 |
) |
|
|
7,045,466 |
|
Other short-term borrowings |
|
|
|
|
|
$ |
300 |
|
|
|
130,556 |
|
|
|
3,711,662 |
|
|
|
(1,133,007 |
) |
|
|
2,709,511 |
|
Notes payable |
|
$ |
532,428 |
|
|
|
|
|
|
|
3,533,639 |
|
|
|
10,286,509 |
|
|
|
(4,670,679 |
) |
|
|
9,681,897 |
|
Subordinated notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
430,000 |
|
|
|
(430,000 |
) |
|
|
|
|
Other liabilities |
|
|
58,894 |
|
|
|
58 |
|
|
|
114,508 |
|
|
|
594,723 |
|
|
|
(43,887 |
) |
|
|
724,296 |
|
|
|
|
|
591,322 |
|
|
|
358 |
|
|
|
3,851,703 |
|
|
|
45,369,774 |
|
|
|
(6,514,542 |
) |
|
|
43,298,615 |
|
|
Minority interest in consolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111 |
|
|
|
|
|
|
|
111 |
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
186,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186,875 |
|
Common stock |
|
|
1,751,868 |
|
|
|
3,961 |
|
|
|
2 |
|
|
|
70,421 |
|
|
|
(74,384 |
) |
|
|
1,751,868 |
|
Surplus |
|
|
489,397 |
|
|
|
851,193 |
|
|
|
734,964 |
|
|
|
3,103,198 |
|
|
|
(4,684,354 |
) |
|
|
494,398 |
|
Retained earnings |
|
|
1,616,104 |
|
|
|
481,905 |
|
|
|
432,772 |
|
|
|
1,852,429 |
|
|
|
(2,772,107 |
) |
|
|
1,611,103 |
|
Accumulated other comprehensive loss, net of tax |
|
|
(201,688 |
) |
|
|
(59,180 |
) |
|
|
(23,533 |
) |
|
|
(175,251 |
) |
|
|
257,965 |
|
|
|
(201,687 |
) |
Treasury stock, at cost |
|
|
(206,533 |
) |
|
|
|
|
|
|
|
|
|
|
(1,786 |
) |
|
|
1,786 |
|
|
|
(206,533 |
) |
|
|
|
|
3,636,023 |
|
|
|
1,277,879 |
|
|
|
1,144,205 |
|
|
|
4,849,011 |
|
|
|
(7,271,094 |
) |
|
|
3,636,024 |
|
|
|
|
$ |
4,227,345 |
|
|
$ |
1,278,237 |
|
|
$ |
4,995,908 |
|
|
$ |
50,218,896 |
|
|
|
($13,785,636 |
) |
|
$ |
46,934,750 |
|
|
52
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE QUARTER ENDED SEPTEMBER 30, 2007
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular, Inc. |
|
PIBI |
|
PNA |
|
All other |
|
Elimination |
|
Popular, Inc. |
(In thousands) |
|
Holding Co. |
|
Holding Co. |
|
Holding Co. |
|
Subsidiaries |
|
Entries |
|
Consolidated |
|
INTEREST INCOME: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
4,800 |
|
|
$ |
31 |
|
|
$ |
40,827 |
|
|
$ |
713,782 |
|
|
($ |
96,467 |
) |
|
$ |
662,973 |
|
Money market investments |
|
|
176 |
|
|
|
244 |
|
|
|
3 |
|
|
|
9,719 |
|
|
|
(3,335 |
) |
|
|
6,807 |
|
Investment securities |
|
|
10,092 |
|
|
|
307 |
|
|
|
223 |
|
|
|
106,508 |
|
|
|
(7,337 |
) |
|
|
109,793 |
|
Trading account securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,653 |
|
|
|
|
|
|
|
10,653 |
|
|
|
|
|
15,068 |
|
|
|
582 |
|
|
|
41,053 |
|
|
|
840,662 |
|
|
|
(107,139 |
) |
|
|
790,226 |
|
|
INTEREST EXPENSE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199,409 |
|
|
|
(2,584 |
) |
|
|
196,825 |
|
Short-term borrowings |
|
|
382 |
|
|
|
|
|
|
|
14,635 |
|
|
|
129,035 |
|
|
|
(30,220 |
) |
|
|
113,832 |
|
Long-term debt |
|
|
8,368 |
|
|
|
|
|
|
|
38,071 |
|
|
|
150,661 |
|
|
|
(77,647 |
) |
|
|
119,453 |
|
|
|
|
|
8,750 |
|
|
|
|
|
|
|
52,706 |
|
|
|
479,105 |
|
|
|
(110,451 |
) |
|
|
430,110 |
|
|
Net interest income (expense) |
|
|
6,318 |
|
|
|
582 |
|
|
|
(11,653 |
) |
|
|
361,557 |
|
|
|
3,312 |
|
|
|
360,116 |
|
Provision for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148,093 |
|
|
|
|
|
|
|
148,093 |
|
|
Net interest income (expense) after provision for loan losses |
|
|
6,318 |
|
|
|
582 |
|
|
|
(11,653 |
) |
|
|
213,464 |
|
|
|
3,312 |
|
|
|
212,023 |
|
Service charges on deposit accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,704 |
|
|
|
|
|
|
|
49,704 |
|
Other service fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121,030 |
|
|
|
(27,666 |
) |
|
|
93,364 |
|
Net (loss) gain on sale and valuation adjustments of
investment securities |
|
|
(1,025 |
) |
|
|
258 |
|
|
|
|
|
|
|
(2,322 |
) |
|
|
|
|
|
|
(3,089 |
) |
Trading account loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,827 |
) |
|
|
(40 |
) |
|
|
(2,867 |
) |
Gain on sale
of loans and valuation adjustments on loans held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,987 |
|
|
|
4 |
|
|
|
5,991 |
|
Other operating income (loss) |
|
|
67 |
|
|
|
2,296 |
|
|
|
(94 |
) |
|
|
31,374 |
|
|
|
(9,741 |
) |
|
|
23,902 |
|
|
|
|
|
5,360 |
|
|
|
3,136 |
|
|
|
(11,747 |
) |
|
|
416,410 |
|
|
|
(34,131 |
) |
|
|
379,028 |
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
|
3,882 |
|
|
|
99 |
|
|
|
|
|
|
|
117,687 |
|
|
|
(858 |
) |
|
|
120,810 |
|
Pension, profit sharing and other benefits |
|
|
978 |
|
|
|
15 |
|
|
|
|
|
|
|
30,681 |
|
|
|
(244 |
) |
|
|
31,430 |
|
|
|
|
|
4,860 |
|
|
|
114 |
|
|
|
|
|
|
|
148,368 |
|
|
|
(1,102 |
) |
|
|
152,240 |
|
Net occupancy expenses |
|
|
541 |
|
|
|
7 |
|
|
|
1 |
|
|
|
28,887 |
|
|
|
|
|
|
|
29,436 |
|
Equipment expenses |
|
|
387 |
|
|
|
|
|
|
|
|
|
|
|
30,349 |
|
|
|
(48 |
) |
|
|
30,688 |
|
Other taxes |
|
|
438 |
|
|
|
|
|
|
|
|
|
|
|
12,789 |
|
|
|
|
|
|
|
13,227 |
|
Professional fees |
|
|
2,717 |
|
|
|
(2 |
) |
|
|
(14 |
) |
|
|
69,693 |
|
|
|
(35,291 |
) |
|
|
37,103 |
|
Communications |
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
16,772 |
|
|
|
(42 |
) |
|
|
16,846 |
|
Business promotion |
|
|
989 |
|
|
|
|
|
|
|
|
|
|
|
27,667 |
|
|
|
(96 |
) |
|
|
28,560 |
|
Printing and supplies |
|
|
15 |
|
|
|
|
|
|
|
1 |
|
|
|
4,115 |
|
|
|
|
|
|
|
4,131 |
|
Other operating expenses |
|
|
(11,547 |
) |
|
|
(100 |
) |
|
|
95 |
|
|
|
44,708 |
|
|
|
(648 |
) |
|
|
32,508 |
|
Amortization of intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,234 |
|
|
|
|
|
|
|
2,234 |
|
|
|
|
|
(1,484 |
) |
|
|
19 |
|
|
|
83 |
|
|
|
385,582 |
|
|
|
(37,227 |
) |
|
|
346,973 |
|
|
Income (loss) before income tax and equity in earnings of
subsidiaries |
|
|
6,844 |
|
|
|
3,117 |
|
|
|
(11,830 |
) |
|
|
30,828 |
|
|
|
3,096 |
|
|
|
32,055 |
|
Income tax |
|
|
1,755 |
|
|
|
|
|
|
|
(4,140 |
) |
|
|
(2,672 |
) |
|
|
1,109 |
|
|
|
(3,948 |
) |
|
Income (loss) before equity in earnings of subsidiaries |
|
|
5,089 |
|
|
|
3,117 |
|
|
|
(7,690 |
) |
|
|
33,500 |
|
|
|
1,987 |
|
|
|
36,003 |
|
Equity in earnings of subsidiaries |
|
|
30,914 |
|
|
|
(52,915 |
) |
|
|
(46,191 |
) |
|
|
(51,726 |
) |
|
|
119,918 |
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
36,003 |
|
|
($ |
49,798 |
) |
|
($ |
53,881 |
) |
|
($ |
18,226 |
) |
|
$ |
121,905 |
|
|
$ |
36,003 |
|
|
53
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE QUARTER ENDED SEPTEMBER 30, 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 |
|
$ |
694 |
|
|
|
|
|
|
$ |
37,876 |
|
|
$ |
671,409 |
|
|
($ |
72,733 |
) |
|
$ |
637,246 |
|
Money market investments |
|
|
200 |
|
|
$ |
12 |
|
|
|
2 |
|
|
|
9,234 |
|
|
|
(2,410 |
) |
|
|
7,038 |
|
Investment securities |
|
|
11,318 |
|
|
|
366 |
|
|
|
517 |
|
|
|
124,119 |
|
|
|
(6,997 |
) |
|
|
129,323 |
|
Trading account securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,724 |
|
|
|
|
|
|
|
7,724 |
|
|
|
|
|
12,212 |
|
|
|
378 |
|
|
|
38,395 |
|
|
|
812,486 |
|
|
|
(82,140 |
) |
|
|
781,331 |
|
|
INTEREST EXPENSE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152,164 |
|
|
|
(1,156 |
) |
|
|
151,008 |
|
Short-term borrowings |
|
|
71 |
|
|
|
396 |
|
|
|
3,776 |
|
|
|
152,553 |
|
|
|
(15,069 |
) |
|
|
141,727 |
|
Long-term debt |
|
|
9,134 |
|
|
|
|
|
|
|
47,722 |
|
|
|
157,288 |
|
|
|
(67,586 |
) |
|
|
146,558 |
|
|
|
|
|
9,205 |
|
|
|
396 |
|
|
|
51,498 |
|
|
|
462,005 |
|
|
|
(83,811 |
) |
|
|
439,293 |
|
|
Net interest income (expense) |
|
|
3,007 |
|
|
|
(18 |
) |
|
|
(13,103 |
) |
|
|
350,481 |
|
|
|
1,671 |
|
|
|
342,038 |
|
Provision for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,445 |
|
|
|
|
|
|
|
63,445 |
|
|
Net interest income (expense) after provision for loan losses |
|
|
3,007 |
|
|
|
(18 |
) |
|
|
(13,103 |
) |
|
|
287,036 |
|
|
|
1,671 |
|
|
|
278,593 |
|
Service charges on deposit accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,484 |
|
|
|
|
|
|
|
47,484 |
|
Other service fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106,498 |
|
|
|
(26,861 |
) |
|
|
79,637 |
|
Net (loss) gain on sale and valuation adjustments of investment
securities |
|
|
(143 |
) |
|
|
106 |
|
|
|
|
|
|
|
846 |
|
|
|
6,314 |
|
|
|
7,123 |
|
Trading account profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,221 |
|
|
|
4,798 |
|
|
|
10,019 |
|
Gain on sale of loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,421 |
|
|
|
3,692 |
|
|
|
20,113 |
|
Other operating income (loss) |
|
|
696 |
|
|
|
1,676 |
|
|
|
(3,090 |
) |
|
|
38,318 |
|
|
|
(10,627 |
) |
|
|
26,973 |
|
|
|
|
|
3,560 |
|
|
|
1,764 |
|
|
|
(16,193 |
) |
|
|
501,824 |
|
|
|
(21,013 |
) |
|
|
469,942 |
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
|
4,165 |
|
|
|
95 |
|
|
|
|
|
|
|
127,252 |
|
|
|
(899 |
) |
|
|
130,613 |
|
Pension, profit sharing and other benefits |
|
|
1,129 |
|
|
|
15 |
|
|
|
|
|
|
|
33,178 |
|
|
|
(239 |
) |
|
|
34,083 |
|
|
|
|
|
5,294 |
|
|
|
110 |
|
|
|
|
|
|
|
160,430 |
|
|
|
(1,138 |
) |
|
|
164,696 |
|
Net occupancy expenses |
|
|
594 |
|
|
|
4 |
|
|
|
1 |
|
|
|
30,974 |
|
|
|
|
|
|
|
31,573 |
|
Equipment expenses |
|
|
420 |
|
|
|
3 |
|
|
|
3 |
|
|
|
33,946 |
|
|
|
(26 |
) |
|
|
34,346 |
|
Other taxes |
|
|
353 |
|
|
|
|
|
|
|
|
|
|
|
11,417 |
|
|
|
|
|
|
|
11,770 |
|
Professional fees |
|
|
2,028 |
|
|
|
11 |
|
|
|
56 |
|
|
|
62,044 |
|
|
|
(34,521 |
) |
|
|
29,618 |
|
Communications |
|
|
152 |
|
|
|
|
|
|
|
|
|
|
|
17,221 |
|
|
|
(30 |
) |
|
|
17,343 |
|
Business promotion |
|
|
800 |
|
|
|
|
|
|
|
|
|
|
|
33,694 |
|
|
|
(639 |
) |
|
|
33,855 |
|
Printing and supplies |
|
|
26 |
|
|
|
|
|
|
|
1 |
|
|
|
4,381 |
|
|
|
|
|
|
|
4,408 |
|
Other operating expenses |
|
|
(9,309 |
) |
|
|
(100 |
) |
|
|
109 |
|
|
|
38,391 |
|
|
|
(385 |
) |
|
|
28,706 |
|
Amortization of intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,608 |
|
|
|
|
|
|
|
3,608 |
|
|
|
|
|
358 |
|
|
|
28 |
|
|
|
170 |
|
|
|
396,106 |
|
|
|
(36,739 |
) |
|
|
359,923 |
|
|
Income (loss) before income tax and equity in earnings of
subsidiaries |
|
|
3,202 |
|
|
|
1,736 |
|
|
|
(16,363 |
) |
|
|
105,718 |
|
|
|
15,726 |
|
|
|
110,019 |
|
Income tax |
|
|
(938 |
) |
|
|
|
|
|
|
(1,855 |
) |
|
|
26,845 |
|
|
|
3,807 |
|
|
|
27,859 |
|
|
Income (loss) before equity in earnings of subsidiaries |
|
|
4,140 |
|
|
|
1,736 |
|
|
|
(14,508 |
) |
|
|
78,873 |
|
|
|
11,919 |
|
|
|
82,160 |
|
Equity in earnings of subsidiaries |
|
|
78,020 |
|
|
|
(13,525 |
) |
|
|
337 |
|
|
|
1,523 |
|
|
|
(66,355 |
) |
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
82,160 |
|
|
($ |
11,789 |
) |
|
($ |
14,171 |
) |
|
$ |
80,396 |
|
|
($ |
54,436 |
) |
|
$ |
82,160 |
|
|
54
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular, Inc. |
|
PIBI |
|
PNA |
|
All other |
|
Elimination |
|
Popular, Inc. |
(In thousands) |
|
Holding Co. |
|
Holding Co. |
|
Holding Co. |
|
Subsidiaries |
|
Entries |
|
Consolidated |
|
INTEREST INCOME: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
14,339 |
|
|
$ |
31 |
|
|
$ |
117,001 |
|
|
$ |
2,097,088 |
|
|
($ |
264,887 |
) |
|
$ |
1,963,572 |
|
Money market investments |
|
|
1,116 |
|
|
|
359 |
|
|
|
13 |
|
|
|
23,128 |
|
|
|
(7,448 |
) |
|
|
17,168 |
|
Investment securities |
|
|
27,456 |
|
|
|
1,503 |
|
|
|
670 |
|
|
|
330,457 |
|
|
|
(21,739 |
) |
|
|
338,347 |
|
Trading account securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,645 |
|
|
|
|
|
|
|
29,645 |
|
|
|
|
|
42,911 |
|
|
|
1,893 |
|
|
|
117,684 |
|
|
|
2,480,318 |
|
|
|
(294,074 |
) |
|
|
2,348,732 |
|
|
INTEREST EXPENSE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
557,184 |
|
|
|
(4,527 |
) |
|
|
552,657 |
|
Short-term borrowings |
|
|
2,348 |
|
|
|
|
|
|
|
43,521 |
|
|
|
402,175 |
|
|
|
(89,937 |
) |
|
|
358,107 |
|
Long-term debt |
|
|
25,100 |
|
|
|
|
|
|
|
111,956 |
|
|
|
423,348 |
|
|
|
(208,951 |
) |
|
|
351,453 |
|
|
|
|
|
27,448 |
|
|
|
|
|
|
|
155,477 |
|
|
|
1,382,707 |
|
|
|
(303,415 |
) |
|
|
1,262,217 |
|
|
Net interest income (expense) |
|
|
15,463 |
|
|
|
1,893 |
|
|
|
(37,793 |
) |
|
|
1,097,611 |
|
|
|
9,341 |
|
|
|
1,086,515 |
|
Provision for loan losses |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
359,599 |
|
|
|
|
|
|
|
359,606 |
|
|
Net interest income (expense) after provision for loan losses |
|
|
15,456 |
|
|
|
1,893 |
|
|
|
(37,793 |
) |
|
|
738,012 |
|
|
|
9,341 |
|
|
|
726,909 |
|
Service charges on deposit accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146,567 |
|
|
|
|
|
|
|
146,567 |
|
Other service fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
354,484 |
|
|
|
(83,681 |
) |
|
|
270,803 |
|
Net gain (loss) on sale and valuation adjustments of investment
securities |
|
|
115,567 |
|
|
|
(8,249 |
) |
|
|
|
|
|
|
(27,461 |
) |
|
|
|
|
|
|
79,857 |
|
Trading account loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,614 |
) |
|
|
(40 |
) |
|
|
(6,654 |
) |
Gain on sale
of loans and valuation adjustments on loans held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,254 |
|
|
|
(12,535 |
) |
|
|
37,719 |
|
Other operating income (loss) |
|
|
9,830 |
|
|
|
13,506 |
|
|
|
(723 |
) |
|
|
100,073 |
|
|
|
(28,422 |
) |
|
|
94,264 |
|
|
|
|
|
140,853 |
|
|
|
7,150 |
|
|
|
(38,516 |
) |
|
|
1,355,315 |
|
|
|
(115,337 |
) |
|
|
1,349,465 |
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
|
15,500 |
|
|
|
293 |
|
|
|
|
|
|
|
370,402 |
|
|
|
(1,956 |
) |
|
|
384,239 |
|
Pension, profit sharing and other benefits |
|
|
4,295 |
|
|
|
52 |
|
|
|
|
|
|
|
106,881 |
|
|
|
(564 |
) |
|
|
110,664 |
|
|
|
|
|
19,795 |
|
|
|
345 |
|
|
|
|
|
|
|
477,283 |
|
|
|
(2,520 |
) |
|
|
494,903 |
|
Net occupancy expenses |
|
|
1,707 |
|
|
|
22 |
|
|
|
2 |
|
|
|
86,220 |
|
|
|
|
|
|
|
87,951 |
|
Equipment expenses |
|
|
1,061 |
|
|
|
|
|
|
|
3 |
|
|
|
94,413 |
|
|
|
(148 |
) |
|
|
95,329 |
|
Other taxes |
|
|
1,148 |
|
|
|
|
|
|
|
|
|
|
|
35,761 |
|
|
|
|
|
|
|
36,909 |
|
Professional fees |
|
|
8,495 |
|
|
|
17 |
|
|
|
107 |
|
|
|
209,030 |
|
|
|
(105,917 |
) |
|
|
111,732 |
|
Communications |
|
|
393 |
|
|
|
|
|
|
|
|
|
|
|
50,610 |
|
|
|
(122 |
) |
|
|
50,881 |
|
Business promotion |
|
|
2,152 |
|
|
|
|
|
|
|
|
|
|
|
85,853 |
|
|
|
(704 |
) |
|
|
87,301 |
|
Printing and supplies |
|
|
56 |
|
|
|
|
|
|
|
1 |
|
|
|
12,899 |
|
|
|
|
|
|
|
12,956 |
|
Other operating expenses |
|
|
(36,499 |
) |
|
|
(300 |
) |
|
|
328 |
|
|
|
135,249 |
|
|
|
(1,416 |
) |
|
|
97,362 |
|
Amortization of intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,030 |
|
|
|
|
|
|
|
8,030 |
|
|
|
|
|
(1,692 |
) |
|
|
84 |
|
|
|
441 |
|
|
|
1,195,348 |
|
|
|
(110,827 |
) |
|
|
1,083,354 |
|
|
Income (loss) before income tax and equity in earnings of
subsidiaries |
|
|
142,545 |
|
|
|
7,066 |
|
|
|
(38,957 |
) |
|
|
159,967 |
|
|
|
(4,510 |
) |
|
|
266,111 |
|
Income tax |
|
|
31,001 |
|
|
|
|
|
|
|
(13,635 |
) |
|
|
21,445 |
|
|
|
(2,300 |
) |
|
|
36,511 |
|
|
Income (loss) before equity in earnings of subsidiaries |
|
|
111,544 |
|
|
|
7,066 |
|
|
|
(25,322 |
) |
|
|
138,522 |
|
|
|
(2,210 |
) |
|
|
229,600 |
|
Equity in earnings of subsidiaries |
|
|
118,056 |
|
|
|
(135,832 |
) |
|
|
(112,800 |
) |
|
|
(140,641 |
) |
|
|
271,217 |
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
229,600 |
|
|
($ |
128,766 |
) |
|
($ |
138,122 |
) |
|
($ |
2,119 |
) |
|
$ |
269,007 |
|
|
$ |
229,600 |
|
|
55
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 |
|
$ |
6,118 |
|
|
|
|
|
|
$ |
111,043 |
|
|
$ |
1,934,965 |
|
|
($ |
209,253 |
) |
|
$ |
1,842,873 |
|
Money market investments |
|
|
1,722 |
|
|
$ |
131 |
|
|
|
439 |
|
|
|
29,389 |
|
|
|
(8,755 |
) |
|
|
22,926 |
|
Investment securities |
|
|
27,686 |
|
|
|
1,029 |
|
|
|
964 |
|
|
|
387,361 |
|
|
|
(20,910 |
) |
|
|
396,130 |
|
Trading account securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,649 |
|
|
|
|
|
|
|
23,649 |
|
|
|
|
|
35,526 |
|
|
|
1,160 |
|
|
|
112,446 |
|
|
|
2,375,364 |
|
|
|
(238,918 |
) |
|
|
2,285,578 |
|
|
INTEREST EXPENSE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
414,636 |
|
|
|
(3,256 |
) |
|
|
411,380 |
|
Short-term borrowings |
|
|
174 |
|
|
|
1,237 |
|
|
|
13,878 |
|
|
|
422,032 |
|
|
|
(43,717 |
) |
|
|
393,604 |
|
Long-term debt |
|
|
27,184 |
|
|
|
|
|
|
|
138,060 |
|
|
|
445,564 |
|
|
|
(197,795 |
) |
|
|
413,013 |
|
|
|
|
|
27,358 |
|
|
|
1,237 |
|
|
|
151,938 |
|
|
|
1,282,232 |
|
|
|
(244,768 |
) |
|
|
1,217,997 |
|
|
Net interest income (expense) |
|
|
8,168 |
|
|
|
(77 |
) |
|
|
(39,492 |
) |
|
|
1,093,132 |
|
|
|
5,850 |
|
|
|
1,067,581 |
|
Provision for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179,488 |
|
|
|
|
|
|
|
179,488 |
|
|
Net interest income (expense) after provision for loan losses |
|
|
8,168 |
|
|
|
(77 |
) |
|
|
(39,492 |
) |
|
|
913,644 |
|
|
|
5,850 |
|
|
|
888,093 |
|
Service charges on deposit accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,277 |
|
|
|
|
|
|
|
142,277 |
|
Other service fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
321,510 |
|
|
|
(81,510 |
) |
|
|
240,000 |
|
Net gain (loss) on sale and valuation adjustments of investment
securities |
|
|
589 |
|
|
|
13,595 |
|
|
|
|
|
|
|
(15,869 |
) |
|
|
6,724 |
|
|
|
5,039 |
|
Trading account profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,404 |
|
|
|
16,920 |
|
|
|
23,324 |
|
Gain on sale of loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,653 |
|
|
|
(4,225 |
) |
|
|
96,428 |
|
Other operating income (loss) |
|
|
15,169 |
|
|
|
5,177 |
|
|
|
(271 |
) |
|
|
106,845 |
|
|
|
(29,820 |
) |
|
|
97,100 |
|
|
|
|
|
23,926 |
|
|
|
18,695 |
|
|
|
(39,763 |
) |
|
|
1,575,464 |
|
|
|
(86,061 |
) |
|
|
1,492,261 |
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
|
14,823 |
|
|
|
283 |
|
|
|
|
|
|
|
380,183 |
|
|
|
(2,444 |
) |
|
|
392,845 |
|
Pension, profit sharing and other benefits |
|
|
4,149 |
|
|
|
51 |
|
|
|
|
|
|
|
112,878 |
|
|
|
(692 |
) |
|
|
116,386 |
|
|
|
|
|
18,972 |
|
|
|
334 |
|
|
|
|
|
|
|
493,061 |
|
|
|
(3,136 |
) |
|
|
509,231 |
|
Net occupancy expenses |
|
|
1,723 |
|
|
|
11 |
|
|
|
1 |
|
|
|
87,105 |
|
|
|
|
|
|
|
88,840 |
|
Equipment expenses |
|
|
1,221 |
|
|
|
6 |
|
|
|
10 |
|
|
|
100,336 |
|
|
|
(57 |
) |
|
|
101,516 |
|
Other taxes |
|
|
853 |
|
|
|
|
|
|
|
|
|
|
|
32,087 |
|
|
|
|
|
|
|
32,940 |
|
Professional fees |
|
|
12,187 |
|
|
|
34 |
|
|
|
132 |
|
|
|
196,099 |
|
|
|
(103,268 |
) |
|
|
105,184 |
|
Communications |
|
|
471 |
|
|
|
|
|
|
|
|
|
|
|
51,531 |
|
|
|
(66 |
) |
|
|
51,936 |
|
Business promotion |
|
|
3,887 |
|
|
|
|
|
|
|
|
|
|
|
95,561 |
|
|
|
(779 |
) |
|
|
98,669 |
|
Printing and supplies |
|
|
62 |
|
|
|
|
|
|
|
1 |
|
|
|
13,268 |
|
|
|
|
|
|
|
13,331 |
|
Other operating expenses |
|
|
(39,508 |
) |
|
|
(299 |
) |
|
|
327 |
|
|
|
126,182 |
|
|
|
(1,093 |
) |
|
|
85,609 |
|
Impact of change in fiscal period at certain subsidiaries |
|
|
|
|
|
|
|
|
|
|
3,495 |
|
|
|
4,109 |
|
|
|
2,137 |
|
|
|
9,741 |
|
Amortization of intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,160 |
|
|
|
|
|
|
|
9,160 |
|
|
|
|
|
(132 |
) |
|
|
86 |
|
|
|
3,966 |
|
|
|
1,208,499 |
|
|
|
(106,262 |
) |
|
|
1,106,157 |
|
|
Income (loss) before income tax and equity in earnings of
subsidiaries |
|
|
24,058 |
|
|
|
18,609 |
|
|
|
(43,729 |
) |
|
|
366,965 |
|
|
|
20,201 |
|
|
|
386,104 |
|
Income tax |
|
|
1,778 |
|
|
|
|
|
|
|
(11,015 |
) |
|
|
93,258 |
|
|
|
4,039 |
|
|
|
88,060 |
|
|
Income (loss) before equity in earnings of subsidiaries |
|
|
22,280 |
|
|
|
18,609 |
|
|
|
(32,714 |
) |
|
|
273,707 |
|
|
|
16,162 |
|
|
|
298,044 |
|
Equity in earnings of subsidiaries |
|
|
275,764 |
|
|
|
(17,246 |
) |
|
|
14,214 |
|
|
|
(9,110 |
) |
|
|
(263,622 |
) |
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
298,044 |
|
|
$ |
1,363 |
|
|
($ |
18,500 |
) |
|
$ |
264,597 |
|
|
($ |
247,460 |
) |
|
$ |
298,044 |
|
|
56
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 (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 (loss) |
|
$ |
229,600 |
|
|
|
($128,766 |
) |
|
|
($138,122 |
) |
|
|
($2,119 |
) |
|
$ |
269,007 |
|
|
$ |
229,600 |
|
|
Adjustments to reconcile net income to net cash
provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed earnings of subsidiaries |
|
|
(118,056 |
) |
|
|
135,832 |
|
|
|
112,800 |
|
|
|
140,641 |
|
|
|
(271,217 |
) |
|
|
|
|
Depreciation and amortization of premises and equipment |
|
|
1,781 |
|
|
|
|
|
|
|
2 |
|
|
|
57,830 |
|
|
|
(55 |
) |
|
|
59,558 |
|
Provision for loan losses |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
359,599 |
|
|
|
|
|
|
|
359,606 |
|
Amortization of intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,030 |
|
|
|
|
|
|
|
8,030 |
|
Amortization and fair value adjustment of servicing assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,941 |
|
|
|
|
|
|
|
34,941 |
|
Net (gain) loss on sale and valuation adjustment of investment
securities |
|
|
(115,567 |
) |
|
|
8,249 |
|
|
|
|
|
|
|
27,461 |
|
|
|
|
|
|
|
(79,857 |
) |
Net loss (gain) on disposition of premises and equipment |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
(5,294 |
) |
|
|
|
|
|
|
(5,293 |
) |
Net gain on sale of loans and valuation adjustments on loans held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,254 |
) |
|
|
12,535 |
|
|
|
(37,719 |
) |
Net amortization of premiums and accretion of discounts
on investments |
|
|
(5,525 |
) |
|
|
7 |
|
|
|
|
|
|
|
21,337 |
|
|
|
(18 |
) |
|
|
15,801 |
|
Net amortization of premiums and deferred loan origination
fees and costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,963 |
|
|
|
(7,318 |
) |
|
|
70,645 |
|
(Earnings) losses from investments under the equity method |
|
|
(4,580 |
) |
|
|
(13,506 |
) |
|
|
723 |
|
|
|
(927 |
) |
|
|
(1,224 |
) |
|
|
(19,514 |
) |
Stock options expense |
|
|
464 |
|
|
|
|
|
|
|
|
|
|
|
875 |
|
|
|
|
|
|
|
1,339 |
|
Deferred income taxes |
|
|
1,451 |
|
|
|
|
|
|
|
(13,635 |
) |
|
|
(111,812 |
) |
|
|
29,415 |
|
|
|
(94,581 |
) |
Net disbursements on loans held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,007,301 |
) |
|
|
|
|
|
|
(4,007,301 |
) |
Acquisitions of loans held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(474,269 |
) |
|
|
|
|
|
|
(474,269 |
) |
Proceeds from sale of loans held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,475,817 |
|
|
|
|
|
|
|
3,475,817 |
|
Net decrease in trading securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,001,953 |
|
|
|
1,125 |
|
|
|
1,003,078 |
|
Net decrease (increase) in accrued income receivable |
|
|
316 |
|
|
|
(43 |
) |
|
|
(2,693 |
) |
|
|
(42,473 |
) |
|
|
2,218 |
|
|
|
(42,675 |
) |
Net decrease (increase) in other assets |
|
|
23,128 |
|
|
|
2,699 |
|
|
|
(4,220 |
) |
|
|
3,556 |
|
|
|
5,344 |
|
|
|
30,507 |
|
Net increase (decrease) in interest payable |
|
|
375 |
|
|
|
|
|
|
|
6,436 |
|
|
|
(38 |
) |
|
|
(2,187 |
) |
|
|
4,586 |
|
Net increase in postretirement benefit obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,407 |
|
|
|
|
|
|
|
2,407 |
|
Net increase in other liabilities |
|
|
3,370 |
|
|
|
20 |
|
|
|
32,608 |
|
|
|
19,181 |
|
|
|
(36,534 |
) |
|
|
18,645 |
|
|
Total adjustments |
|
|
(212,835 |
) |
|
|
133,258 |
|
|
|
132,021 |
|
|
|
539,223 |
|
|
|
(267,916 |
) |
|
|
323,751 |
|
|
Net cash provided by (used in) operating activities |
|
|
16,765 |
|
|
|
4,492 |
|
|
|
(6,101 |
) |
|
|
537,104 |
|
|
|
1,091 |
|
|
|
553,351 |
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (increase) decrease in money market investments |
|
|
(62,300 |
) |
|
|
775 |
|
|
|
2,357 |
|
|
|
(687,112 |
) |
|
|
479,326 |
|
|
|
(266,954 |
) |
Purchases of investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
(6,808 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
(793,475 |
) |
|
|
732,365 |
|
|
|
(67,920 |
) |
Held-to-maturity |
|
|
(2,749,665 |
) |
|
|
|
|
|
|
|
|
|
|
(14,277,166 |
) |
|
|
|
|
|
|
(17,026,831 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
(928 |
) |
|
|
(46,858 |
) |
|
|
|
|
|
|
(47,786 |
) |
Proceeds from calls, paydowns, maturities and
redemptions of investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,801,852 |
|
|
|
(735,548 |
) |
|
|
1,066,304 |
|
Held-to-maturity |
|
|
2,559,000 |
|
|
|
900 |
|
|
|
|
|
|
|
14,284,651 |
|
|
|
|
|
|
|
16,844,551 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,071 |
|
|
|
|
|
|
|
17,071 |
|
Proceeds from sale of investment securities available-for-sale |
|
|
5,783 |
|
|
|
16,605 |
|
|
|
|
|
|
|
14,964 |
|
|
|
|
|
|
|
37,352 |
|
Proceeds from sale of other investment securities |
|
|
245,484 |
|
|
|
2 |
|
|
|
865 |
|
|
|
1 |
|
|
|
|
|
|
|
246,352 |
|
Net repayments (disbursements) on loans |
|
|
89,556 |
|
|
|
(21,550 |
) |
|
|
(125,919 |
) |
|
|
(1,883,576 |
) |
|
|
803,507 |
|
|
|
(1,137,982 |
) |
Proceeds from sale of loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,367 |
|
|
|
|
|
|
|
16,367 |
|
Acquisition of loan portfolios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,312 |
) |
|
|
|
|
|
|
(22,312 |
) |
Capital contribution to subsidiary |
|
|
|
|
|
|
(300 |
) |
|
|
|
|
|
|
(1,141 |
) |
|
|
1,441 |
|
|
|
|
|
Assets acquired, net of cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,378 |
) |
|
|
|
|
|
|
(2,378 |
) |
Mortgage servicing rights purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,596 |
) |
|
|
|
|
|
|
(25,596 |
) |
Acquisition of premises and equipment |
|
|
(513 |
) |
|
|
|
|
|
|
|
|
|
|
(69,094 |
) |
|
|
|
|
|
|
(69,607 |
) |
Proceeds from sale of premises and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,501 |
|
|
|
|
|
|
|
29,501 |
|
Proceeds from sale of foreclosed assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,776 |
|
|
|
|
|
|
|
113,776 |
|
Dividends received from subsidiary |
|
|
159,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(159,200 |
) |
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
239,737 |
|
|
|
(3,570 |
) |
|
|
(123,625 |
) |
|
|
(1,530,525 |
) |
|
|
1,121,891 |
|
|
|
(296,092 |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,652,852 |
|
|
|
(502,184 |
) |
|
|
2,150,668 |
|
Net increase in federal funds purchased and
assets sold under agreements to repurchase |
|
|
|
|
|
|
|
|
|
|
105,503 |
|
|
|
472,255 |
|
|
|
(52,900 |
) |
|
|
524,858 |
|
Net decrease in other short-term borrowings |
|
|
(125,787 |
) |
|
|
|
|
|
|
(45,242 |
) |
|
|
(2,766,359 |
) |
|
|
318,160 |
|
|
|
(2,619,228 |
) |
Payments of notes payable |
|
|
|
|
|
|
|
|
|
|
(4,583 |
) |
|
|
(2,369,207 |
) |
|
|
1,128,458 |
|
|
|
(1,245,332 |
) |
Proceeds from issuance of notes payable |
|
|
298 |
|
|
|
|
|
|
|
89,293 |
|
|
|
2,975,764 |
|
|
|
(2,244,268 |
) |
|
|
821,087 |
|
Dividends paid to parent company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(159,200 |
) |
|
|
159,200 |
|
|
|
|
|
Dividends paid |
|
|
(142,898 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(142,898 |
) |
Proceeds from issuance of common stock |
|
|
12,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,836 |
|
Treasury stock acquired |
|
|
(63 |
) |
|
|
|
|
|
|
|
|
|
|
(289 |
) |
|
|
|
|
|
|
(352 |
) |
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular, Inc. |
|
PIBI |
|
PNA |
|
All other |
|
Elimination |
|
Consolidated |
(In thousands) |
|
Holding Co. |
|
Holding Co. |
|
Holding Co. |
|
Subsidiaries |
|
Entries |
|
Popular, Inc. |
|
Capital contribution from parent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,441 |
|
|
|
(1,441 |
) |
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(255,614 |
) |
|
|
|
|
|
|
144,971 |
|
|
|
807,257 |
|
|
|
(1,194,975 |
) |
|
|
(498,361 |
) |
|
Net increase (decrease) in cash and due from banks |
|
|
888 |
|
|
|
922 |
|
|
|
15,245 |
|
|
|
(186,164 |
) |
|
|
(71,993 |
) |
|
|
(241,102 |
) |
Cash and due from banks at beginning of period |
|
|
2 |
|
|
|
157 |
|
|
|
322 |
|
|
|
1,015,470 |
|
|
|
(65,793 |
) |
|
|
950,158 |
|
|
Cash and due from banks at end of period |
|
$ |
890 |
|
|
$ |
1,079 |
|
|
$ |
15,567 |
|
|
$ |
829,306 |
|
|
|
($137,786 |
) |
|
$ |
709,056 |
|
|
58
POPULAR, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 (loss) |
|
$ |
298,044 |
|
|
$ |
1,363 |
|
|
|
($18,500 |
) |
|
$ |
264,597 |
|
|
|
($247,460 |
) |
|
$ |
298,044 |
|
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 |
|
|
298,044 |
|
|
|
1,363 |
|
|
|
(16,229 |
) |
|
|
267,235 |
|
|
|
(246,240 |
) |
|
|
304,173 |
|
|
Adjustments to reconcile net income to net cash
provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed earnings of subsidiaries |
|
|
(275,764 |
) |
|
|
17,246 |
|
|
|
(14,214 |
) |
|
|
9,110 |
|
|
|
263,622 |
|
|
|
|
|
Depreciation and amortization of premises and
equipment |
|
|
1,723 |
|
|
|
|
|
|
|
1 |
|
|
|
62,135 |
|
|
|
(54 |
) |
|
|
63,805 |
|
Provision for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179,488 |
|
|
|
|
|
|
|
179,488 |
|
Amortization of intangibles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,160 |
|
|
|
|
|
|
|
9,160 |
|
Amortization of servicing assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,333 |
|
|
|
(24 |
) |
|
|
43,309 |
|
Net (gain) loss on sale and valuation adjustment of
investment securities |
|
|
(589 |
) |
|
|
(13,595 |
) |
|
|
|
|
|
|
15,870 |
|
|
|
(6,725 |
) |
|
|
(5,039 |
) |
Net gain on disposition of premises and equipment |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
(7,181 |
) |
|
|
|
|
|
|
(7,177 |
) |
Net gain on sale of loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100,653 |
) |
|
|
4,225 |
|
|
|
(96,428 |
) |
Net amortization of premiums and accretion of
discounts
on investments |
|
|
(394 |
) |
|
|
10 |
|
|
|
(118 |
) |
|
|
19,752 |
|
|
|
(190 |
) |
|
|
19,060 |
|
Net amortization of premiums and deferred loan
origination fees and costs |
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
103,619 |
|
|
|
(4,500 |
) |
|
|
99,065 |
|
Earnings from investments under the equity method |
|
|
(1,924 |
) |
|
|
(5,165 |
) |
|
|
|
|
|
|
(894 |
) |
|
|
(1,098 |
) |
|
|
(9,081 |
) |
Stock options expense |
|
|
566 |
|
|
|
|
|
|
|
|
|
|
|
1,742 |
|
|
|
|
|
|
|
2,308 |
|
Deferred income taxes |
|
|
(480 |
) |
|
|
|
|
|
|
(11,015 |
) |
|
|
(12,174 |
) |
|
|
4,039 |
|
|
|
(19,630 |
) |
Net disbursements on loans held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,963,647 |
) |
|
|
|
|
|
|
(4,963,647 |
) |
Acquisitions of loans held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,188,844 |
) |
|
|
|
|
|
|
(1,188,844 |
) |
Proceeds from sale of loans held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,559,968 |
|
|
|
|
|
|
|
5,559,968 |
|
Net decrease in trading securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,196,104 |
|
|
|
(465 |
) |
|
|
1,195,639 |
|
Net decrease (increase) in accrued income receivable |
|
|
172 |
|
|
|
(9 |
) |
|
|
1,301 |
|
|
|
(48,925 |
) |
|
|
3,150 |
|
|
|
(44,311 |
) |
Net (increase) decrease in other assets |
|
|
(12,190 |
) |
|
|
4,644 |
|
|
|
4,338 |
|
|
|
68,882 |
|
|
|
2,207 |
|
|
|
67,881 |
|
Net increase (decrease) in interest payable |
|
|
818 |
|
|
|
(23 |
) |
|
|
27,452 |
|
|
|
16,173 |
|
|
|
(3,163 |
) |
|
|
41,257 |
|
Net increase in postretirement benefit obligation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,028 |
|
|
|
|
|
|
|
3,028 |
|
Net increase (decrease) in other liabilities |
|
|
9,014 |
|
|
|
3 |
|
|
|
40,905 |
|
|
|
(138,083 |
) |
|
|
1 |
|
|
|
(88,160 |
) |
|
Total adjustments |
|
|
(279,098 |
) |
|
|
3,111 |
|
|
|
48,650 |
|
|
|
827,963 |
|
|
|
261,025 |
|
|
|
861,651 |
|
|
Net cash provided by operating activities |
|
|
18,946 |
|
|
|
4,474 |
|
|
|
32,421 |
|
|
|
1,095,198 |
|
|
|
14,785 |
|
|
|
1,165,824 |
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease (increase) in money market investments |
|
|
170,000 |
|
|
|
|
|
|
|
(91 |
) |
|
|
381,685 |
|
|
|
(347,272 |
) |
|
|
204,322 |
|
Purchases of investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
|
|
|
(21,189 |
) |
|
|
|
|
|
|
(437,372 |
) |
|
|
215,080 |
|
|
|
(243,481 |
) |
Held-to-maturity |
|
|
(269,683 |
) |
|
|
|
|
|
|
|
|
|
|
(20,578,088 |
) |
|
|
|
|
|
|
(20,847,771 |
) |
Other |
|
|
|
|
|
|
|
|
|
|
(5,529 |
) |
|
|
(45,451 |
) |
|
|
|
|
|
|
(50,980 |
) |
Proceeds from calls, paydowns, maturities and
redemptions of investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,777,303 |
|
|
|
(216,691 |
) |
|
|
1,560,612 |
|
Held-to-maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,644,100 |
|
|
|
|
|
|
|
20,644,100 |
|
Other |
|
|
1,753 |
|
|
|
|
|
|
|
|
|
|
|
70,858 |
|
|
|
|
|
|
|
72,611 |
|
Proceeds from sale of investment securities
available for sale |
|
|
7,195 |
|
|
|
28,628 |
|
|
|
|
|
|
|
154,426 |
|
|
|
7,942 |
|
|
|
198,191 |
|
Net (disbursements) repayments on loans |
|
|
(1,325 |
) |
|
|
|
|
|
|
12,467 |
|
|
|
(1,066,200 |
) |
|
|
177,430 |
|
|
|
(877,628 |
) |
Proceeds from sale of loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
759,518 |
|
|
|
|
|
|
|
759,518 |
|
Acquisition of loan portfolios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(291,330 |
) |
|
|
|
|
|
|
(291,330 |
) |
Capital contribution to subsidiary |
|
|
(36,000 |
) |
|
|
(4,000 |
) |
|
|
(4,127 |
) |
|
|
(30,891 |
) |
|
|
75,018 |
|
|
|
|
|
Assets acquired, net of cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,752 |
) |
|
|
|
|
|
|
(2,752 |
) |
Mortgage servicing rights purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,723 |
) |
|
|
|
|
|
|
(18,723 |
) |
Acquisition of premises and equipment |
|
|
(4,919 |
) |
|
|
|
|
|
|
|
|
|
|
(80,496 |
) |
|
|
|
|
|
|
(85,415 |
) |
Proceeds from sale of premises and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,031 |
|
|
|
|
|
|
|
39,031 |
|
Proceeds from sale of foreclosed assets |
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
99,829 |
|
|
|
|
|
|
|
99,928 |
|
Dividends received from subsidiary |
|
|
203,200 |
|
|
|
|
|
|
|
|
|
|
|
60,763 |
|
|
|
(263,963 |
) |
|
|
|
|
|
Net cash provided by investing activities |
|
|
70,320 |
|
|
|
3,439 |
|
|
|
2,720 |
|
|
|
1,436,210 |
|
|
|
(352,456 |
) |
|
|
1,160,233 |
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
446,624 |
|
|
|
47,467 |
|
|
|
494,091 |
|
Net decrease in federal funds purchased and
assets sold under agreements to repurchase |
|
|
|
|
|
|
|
|
|
|
(68,700 |
) |
|
|
(2,009,943 |
) |
|
|
308,497 |
|
|
|
(1,770,146 |
) |
Net (decrease) increase in other short-term borrowings |
|
|
|
|
|
|
(45,812 |
) |
|
|
(228,545 |
) |
|
|
56,315 |
|
|
|
120,400 |
|
|
|
(97,642 |
) |
Payments of notes payable |
|
|
(450 |
) |
|
|
|
|
|
|
(205,962 |
) |
|
|
(2,363,884 |
) |
|
|
747,993 |
|
|
|
(1,822,303 |
) |
Proceeds from issuance of notes payable |
|
|
294 |
|
|
|
|
|
|
|
482,559 |
|
|
|
1,360,425 |
|
|
|
(1,066,107 |
) |
|
|
777,171 |
|
Dividends paid to parent company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(263,962 |
) |
|
|
263,962 |
|
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular, Inc. |
|
PIBI |
|
PNA |
|
All other |
|
Elimination |
|
Consolidated |
(In thousands) |
|
Holding Co. |
|
Holding Co. |
|
Holding Co. |
|
Subsidiaries |
|
Entries |
|
Popular, Inc. |
|
Dividends paid |
|
|
(140,765 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(140,765 |
) |
Proceeds from issuance of common stock |
|
|
51,728 |
|
|
|
|
|
|
|
|
|
|
|
3,300 |
|
|
|
(3,133 |
) |
|
|
51,895 |
|
Capital contribution from parent |
|
|
|
|
|
|
36,000 |
|
|
|
|
|
|
|
35,718 |
|
|
|
(71,718 |
) |
|
|
|
|
|
Net cash used in financing activities |
|
|
(89,193 |
) |
|
|
(9,812 |
) |
|
|
(20,648 |
) |
|
|
(2,735,407 |
) |
|
|
347,361 |
|
|
|
(2,507,699 |
) |
|
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 |
|
|
73 |
|
|
|
(1,899 |
) |
|
|
14,571 |
|
|
|
(184,429 |
) |
|
|
1,956 |
|
|
|
(169,728 |
) |
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 |
|
$ |
769 |
|
|
$ |
204 |
|
|
$ |
15,019 |
|
|
$ |
777,966 |
|
|
|
($57,289 |
) |
|
$ |
736,669 |
|
|
60
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report includes managements discussion and analysis (MD&A) 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
Popular, Inc. 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 based in Puerto Rico 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 principal banking subsidiary,
Banco Popular de Puerto Rico (BPPR), as well as auto and equipment leasing and financing,
mortgage loans, consumer lending, investment banking, broker-dealer and insurance services through
specialized subsidiaries. In the United States, the Corporation has established a community banking
franchise providing a broad range of financial services and products to the communities it serves.
Banco Popular North America (BPNA) operates branches in New York, California, Illinois, New
Jersey, Florida and Texas, while E-LOAN provides online consumer direct lending for obtaining
mortgage, auto and home equity loans, and provides an online platform to raise deposits for BPNA.
Popular Financial Holdings (PFH) offers mortgage and personal loans and provides mortgage loan
servicing. The Corporation, through its transaction processing company, EVERTEC, continues to use
its expertise in technology as a competitive advantage in its expansion throughout the United
States, the Caribbean and Latin America, as well as internally servicing many of its subsidiaries
system infrastructures and transactional processing businesses.
Net income for the quarter ended September 30, 2007 was $36.0 million, compared with $82.2 million
in the same quarter of 2006. The reduction in the Corporations consolidated net income for the
third quarter of 2007 was driven principally by net losses in its U.S. operations of $44.7 million
for the third quarter of 2007. The results of the third quarter continue to reflect the impact of
unprecedented market conditions, particularly on the Corporations mainland U.S. operations. The
Corporations core operations in Puerto Rico continued to perform well despite a difficult economic
environment which presents credit challenges. Table A provides selected financial data and
performance metrics for the quarters and nine months ended September 30, 2007 and 2006.
Financial results for the third quarter of 2007 were principally impacted by the following items
(on a pre-tax basis) compared with the same quarter in 2006:
|
|
|
An $84.6 million increase in the provision for loan losses for the third quarter
of 2007 as compared with the same quarter in the previous year, which was mostly
influenced by higher charge-offs due to a slowdown in the housing sector,
particularly in the U.S. mainland, and to weak economic conditions in Puerto Rico.
The provision for loans losses for the quarter ended September 30, 2007 increased by
$32.9 million compared with the second quarter of 2007. Details on credit quality
metrics are included later in this MD&A. |
|
|
|
|
A reduction in net gain on sale and valuation adjustment of loans held-for-sale of
approximately $14.1 million when compared to the third quarter of 2006, primarily
due to a reduction of $33.7 million at the Corporations U.S. mainland operations,
reflecting the lack of liquidity in the U.S. mortgage market and lower origination
volume. In the third quarter of 2006, Popular Financial Holdings (PFH), which is
part of these U.S. mainland operations, completed an off-balance sheet mortgage loan
securitization with gains approximating $7.3 million. The unfavorable variance in
gain on sale of loans described above was in part offset by a favorable change in
the Puerto Rico operations. During the third quarter of 2006, BPPR realized a loss
of $20.1 million related with $0.6 billion in mortgage loans sold in a single
transaction to a private investor. |
|
|
|
|
Unfavorable valuation adjustments in the residual interests of PFH amounting to
$14.1 million for the third quarter of 2007, compared to $0.8 million in the same
quarter of the previous year. These |
61
|
|
|
residual interests are associated with securitizations of subprime loans originated
through PFHs discontinued wholesale subprime operations. As of September 30, 2007,
the aggregate balance of PFHs residual interests was $22 million. As indicated in
the Corporations Form 10-Q filed on May 10, 2007 and in the Corporations 2006
Annual Report incorporated by reference in Popular, Inc.s Form 10-K, the Corporation
exited the wholesale nonprime mortgage loan origination business during the first
quarter of 2007. It shut down its wholesale broker, retail and call center business
divisions. |
The above were partially offset by:
|
|
|
Higher net interest income by $18.1 million, |
|
|
|
|
Lower operating expenses by $13.0 million, principally due to a decline in
personnel costs by $12.5 million mainly due to the headcount reduction at PFH due to
the Restructuring Plan, and |
|
|
|
|
Lower income tax expense by $31.8 million. |
Further details on the above items are provided later in this MD&A.
Refer to the Non-Interest Income section of this MD&A for other factors influencing the variance in
non-interest income. Also, refer to the Critical Accounting Policies / Estimates section of this
MD&A for more detailed information on the valuation of residual interests and changes in
assumptions.
|
|
|
Total earning assets at September 30, 2007 increased by less than 1% compared
with December 31, 2006 and September 30, 2006. 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. |
|
|
|
|
The Corporations financing strategy at
September 30, 2007 shows greater reliance on deposits, including brokered certificates of deposit, instead of
unsecured short-term borrowings. These funding measures were influenced by the
global credit market conditions which presented unprecedented instability and
disruption since the beginning of the third quarter of 2007, making even routine
asset sale and funding activities more challenging for financial institutions. Also,
the Corporation increased its capacity to borrow under secured lines of credit as
explained in the Liquidity and Liquidity Risk sections of this MD&A. As a result,
there was an increase in the volume of investment securities and loans that were
pledged as collateral as of September 30, 2007, compared to December 31, 2007. This
increase is depicted in the consolidated statement of condition and Note 4 to the
consolidated financial statements. Refer to the Financial Condition section of this
MD&A for further information on the composition of the Corporations financing.
Also, refer to the Liquidity section for a description of several strategies being
implemented by the Corporation with the objective of mitigating the impact of
current market conditions on liquidity risk. |
62
TABLE
A
Financial Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Condition Highlights |
|
At September 30, |
Average for the nine months |
(In thousands) |
|
2007 |
|
2006 |
|
Variance |
|
2007 |
|
2006 |
|
Variance |
|
Money market investments |
|
$ |
635,097 |
|
|
$ |
545,249 |
|
|
$ |
89,848 |
|
|
$ |
449,722 |
|
|
$ |
585,959 |
|
|
($ |
136,237 |
) |
Investment and trading securities |
|
|
9,999,296 |
|
|
|
11,264,889 |
|
|
|
(1,265,593 |
) |
|
|
10,626,834 |
|
|
|
12,613,184 |
|
|
|
(1,986,350 |
) |
Loans* |
|
|
33,320,804 |
|
|
|
31,756,959 |
|
|
|
1,563,845 |
|
|
|
32,766,924 |
|
|
|
32,047,516 |
|
|
|
719,408 |
|
Total earning assets |
|
|
43,955,197 |
|
|
|
43,567,097 |
|
|
|
388,100 |
|
|
|
43,843,480 |
|
|
|
45,246,659 |
|
|
|
(1,403,179 |
) |
Total assets |
|
|
47,280,131 |
|
|
|
46,934,750 |
|
|
|
345,381 |
|
|
|
47,168,015 |
|
|
|
48,630,196 |
|
|
|
(1,462,181 |
) |
Deposits |
|
|
26,601,515 |
|
|
|
23,137,445 |
|
|
|
3,464,070 |
|
|
|
24,972,662 |
|
|
|
22,947,394 |
|
|
|
2,025,268 |
|
Borrowings |
|
|
16,016,991 |
|
|
|
19,436,874 |
|
|
|
(3,419,883 |
) |
|
|
17,530,620 |
|
|
|
21,218,840 |
|
|
|
(3,688,220 |
) |
Stockholders equity |
|
|
3,803,721 |
|
|
|
3,636,024 |
|
|
|
167,697 |
|
|
|
3,870,770 |
|
|
|
3,718,691 |
|
|
|
152,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Highlights |
|
Third Quarter |
Nine months ended September 30, |
(In thousands, except per share information) |
|
2007 |
|
2006 |
|
Variance |
|
2007 |
|
2006 |
|
Variance |
|
Net interest income |
|
$ |
360,116 |
|
|
$ |
342,038 |
|
|
$ |
18,078 |
|
|
$ |
1,086,515 |
|
|
$ |
1,067,581 |
|
|
$ |
18,934 |
|
Provision for loan losses |
|
|
148,093 |
|
|
|
63,445 |
|
|
|
84,648 |
|
|
|
359,606 |
|
|
|
179,488 |
|
|
|
180,118 |
|
Non-interest income |
|
|
167,005 |
|
|
|
191,349 |
|
|
|
(24,344 |
) |
|
|
622,556 |
|
|
|
604,168 |
|
|
|
18,388 |
|
Operating expenses |
|
|
346,973 |
|
|
|
359,923 |
|
|
|
(12,950 |
) |
|
|
1,083,354 |
|
|
|
1,106,157 |
|
|
|
(22,803 |
) |
Income tax |
|
|
(3,948 |
) |
|
|
27,859 |
|
|
|
(31,807 |
) |
|
|
36,511 |
|
|
|
88,060 |
|
|
|
(51,549 |
) |
Net income |
|
$ |
36,003 |
|
|
$ |
82,160 |
|
|
($ |
46,157 |
) |
|
$ |
229,600 |
|
|
$ |
298,044 |
|
|
($ |
68,444 |
) |
Net income applicable to common stock |
|
$ |
33,024 |
|
|
$ |
79,181 |
|
|
($ |
46,157 |
) |
|
$ |
220,665 |
|
|
$ |
289,109 |
|
|
($ |
68,444 |
) |
Basic and diluted EPS |
|
$ |
0.12 |
|
|
$ |
0.28 |
|
|
($ |
0.16 |
) |
|
$ |
0.79 |
|
|
$ |
1.04 |
|
|
($ |
0.25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Statistical Information |
|
Third Quarter |
|
Nine months ended September 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Common Stock Data Market price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
16.18 |
|
|
$ |
20.12 |
|
|
$ |
18.94 |
|
|
$ |
21.98 |
|
Low |
|
|
11.38 |
|
|
|
17.41 |
|
|
|
11.38 |
|
|
|
17.41 |
|
End |
|
|
12.28 |
|
|
|
19.44 |
|
|
|
12.28 |
|
|
|
19.44 |
|
Book value per share at period end |
|
|
12.94 |
|
|
|
12.38 |
|
|
|
12.94 |
|
|
|
12.38 |
|
Dividends declared per share |
|
|
0.16 |
|
|
|
0.16 |
|
|
|
0.48 |
|
|
|
0.48 |
|
Dividend payout ratio |
|
|
135.35 |
% |
|
|
56.25 |
% |
|
|
60.71 |
% |
|
|
45.36 |
% |
Price/earnings ratio |
|
|
12.40 |
x |
|
|
12.79 |
x |
|
|
12.40 |
x |
|
|
12.79 |
x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profitability Ratios Return on assets |
|
|
0.30 |
% |
|
|
0.67 |
% |
|
|
0.65 |
% |
|
|
0.82 |
% |
Return on common equity |
|
|
3.52 |
|
|
|
8.75 |
|
|
|
8.01 |
|
|
|
11.00 |
|
Net interest spread (taxable equivalent) |
|
|
2.95 |
|
|
|
2.81 |
|
|
|
2.98 |
|
|
|
2.95 |
|
Net interest margin (taxable equivalent) |
|
|
3.50 |
|
|
|
3.31 |
|
|
|
3.51 |
|
|
|
3.40 |
|
Effective tax rate |
|
|
(12.32 |
) |
|
|
25.32 |
|
|
|
13.72 |
|
|
|
22.81 |
|
Overhead ratio** |
|
|
49.98 |
|
|
|
49.29 |
|
|
|
42.41 |
|
|
|
47.02 |
|
Efficiency ratio *** |
|
|
65.44 |
|
|
|
69.00 |
|
|
|
66.62 |
|
|
|
66.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization Ratios - Equity to assets |
|
|
8.29 |
% |
|
|
7.81 |
% |
|
|
8.21 |
% |
|
|
7.65 |
% |
Tangible equity to assets |
|
|
6.77 |
|
|
|
6.32 |
|
|
|
6.68 |
|
|
|
6.17 |
|
Equity to loans |
|
|
11.87 |
|
|
|
11.70 |
|
|
|
11.81 |
|
|
|
11.60 |
|
Internal capital generation |
|
|
(1.20 |
) |
|
|
3.67 |
|
|
|
2.98 |
|
|
|
5.63 |
|
Tier I capital to risk adjusted assets |
|
|
10.73 |
|
|
|
10.87 |
|
|
|
10.73 |
|
|
|
10.87 |
|
Total capital to risk adjusted assets |
|
|
11.98 |
|
|
|
12.13 |
|
|
|
11.98 |
|
|
|
12.13 |
|
Leverage ratio |
|
|
8.31 |
|
|
|
7.88 |
|
|
|
8.31 |
|
|
|
7.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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). |
The Corporation, like other financial institutions, is subject to a number of risks, many of which
are outside of managements control, though efforts are made to manage those risks while optimizing
returns. Among the risks to
which the Corporation is subject 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
operations, (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,
63
(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. In addition, the
Corporation is subject to legal, compliance and reputational risks, among others.
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 its profitability.
The description of the Corporations business contained in Item 1 of the Corporations Form 10-K
for the year ended December 31, 2006, while not all inclusive, discusses additional information
about the business of the Corporation and risk factors, many beyond the Corporations control, that
in addition to the other information in this Form 10-Q, 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.
SUBSEQUENT EVENTS
Sale
of BPNAs Retail Bank Branches in Houston
On October 22, 2007, the Corporation announced the signing of a definitive agreement to sell the
six Houston retail bank branches of BPNA to Prosperity Bank. Prosperity Bank has agreed to pay a
premium of 10.10% for approximately $140 million in deposits, as well as purchase certain loans and
other assets attributable to the branches. Prosperity Bank also agreed to retain all branch-based
employees of BPNAs Houston locations as part of the transaction. BPNA will continue to operate its
mortgage business based in Houston as well as its franchise and small business lending activities in
Texas. BPNA will also continue to maintain a retail branch in Arlington, Texas. The agreement was
approved by the Boards of Directors of both banks and is expected to close during the fourth
quarter of 2007. The transaction is subject to certain customary closing conditions, including
receipt of regulatory approvals.
E-LOAN Restructuring Plan
On November 5, 2007, the Board of Directors of Popular adopted a Restructuring Plan for its
internet financial services subsidiary E-LOAN (the E-LOANs Restructuring Plan).
Considering the
losses in the operation of E-LOAN, market conditions and other
factors, the Board of Directors approved a substantial reduction of
marketing and personnel costs at E-LOAN. This change will include concentrating marketing
investment toward the internet and the origination of first mortgage loans that are actually being
sold to Government Sponsored Entities (GSEs). The E-LOAN Restructuring Plan continues to promote the
expansion of the Internet deposit gathering initiative with BPNA.
The cost-control plan initiative at the E-LOAN subsidiary will result in the elimination of
approximately 513 positions out of a total of 771 and will be substantially accomplished in the
fourth quarter of 2007. As a result of the E-LOAN Restructuring Plan, operating expenses are
expected to be reduced by approximately $79 million for 2008. E-LOANs estimated net losses for the
year ended December 31, 2008 are expected to decline by $28 million, resulting principally from the
reduction in operating expenses, partially offset by the related tax impact and by lower volume of
loan originations in certain business channels that are impacted by this plan.
It is expected that this Plan will result in estimated restructuring charges as follows:
|
|
|
|
|
(In millions) |
|
Fourth Quarter 2007 |
|
Severance |
|
$ |
4.4 |
|
Stay and retention bonuses |
|
|
0.2 |
|
Lease terminations |
|
|
4.2 |
|
|
|
|
|
Total restructuring charges |
|
|
8.8 |
|
Impairment of long-lived assets |
|
|
12.3 |
|
Impairment
charges on definite-life intangible assets |
|
|
3.1 |
|
|
|
|
|
Total estimated charges |
|
$ |
24.2 |
|
|
|
|
|
These estimates are preliminary as management continues to work on the E-LOAN Restructuring
Plan. Further, the Corporation is currently evaluating whether this change in E-LOANs business
model could result in impairment in the value of its
recorded goodwill and trademark. As of September 30, 2007, E-LOANs accounting records reflect $164 million in goodwill
and $64 million in trademark. The impairment valuation analysis is to be completed in the fourth
quarter of 2007. Any impairment charge will not impact the regulatory capital ratios of the
Corporation or its liquidity since it would be a non-cash transaction.
CRITICAL ACCOUNTING POLICIES / ESTIMATES
The accounting and reporting policies followed by the Corporation and its subsidiaries conform to
generally accepted accounting principles in the United States of America 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 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 subprime 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 2006 Financial Review and Supplementary
Information to Stockholders, incorporated by reference in
64
Popular, Inc.s Annual Report on Form
10-K for the year ended December 31, 2006 (the 2006 Annual Report). Also, refer to Note 1 to the
consolidated financial statements included in the 2006 Annual Report for a summary of the
Corporations significant accounting policies.
As indicated in the 2006 Annual Report, one of the accounting policies / estimates considered
critical by the Corporations management is that associated with the valuation of PFHs residual
interests.
The Corporation accounts for the residual interests derived from PFHs off-balance sheet
securitizations that took place prior to 2006 as investment securities available-for-sale. Under
SFAS No. 140, interest-only strips, retained interests in securitizations, or other financial assets
that can contractually be prepaid or otherwise settled in such a way that the holder would not
recover substantially all of its investment, shall be subsequently measured like investments in
debt securities classified as available-for-sale or trading under
SFAS No. 115. In 2006, as permitted
by SFAS No. 115, management determined, on a prospective basis, to begin classifying PFHs new residual
interests as trading securities and, as such, account for any changes in fair value through
earnings.
On a quarterly basis, management performs a fair value analysis of PFHs residual interests that
are classified as investment securities available-for-sale and evaluates whether any unfavorable
change in fair value is other-than-temporary as required under SFAS No. 115. Managements basis in
determining when these securities must be written down to fair value due to other-than-temporary
impairment is based on EITF 99-20 Recognition of Interest Income and Impairment on Purchased and
Retained Interests in Securitized Financial Assets. Whenever the current fair value of the
residual interests classified as available-for-sale is lower than its current amortized cost,
management evaluates to see if an impairment charge for the deficiency is required to be taken
through earnings. If there has been an adverse change in estimated cash flows (considering both the
timing and amount of flows), then residual interest security is written-down to fair value, which
becomes the new amortized cost basis. During 2007, all declines in fair value in residual interests
classified as available-for-sale have been considered other-than-temporary.
For residual interests classified as trading securities, the fair value determinations are also
performed on a quarterly basis. SFAS No. 115 provides that changes in fair value in those securities
are reflected in earnings as they occur.
During the nine-month period ended September 30, 2007, the Corporation recognized unfavorable
valuation adjustments of $69.1 million in the fair value of PFHs residual interests. Of this
amount, $32.7 million corresponded to residual interests classified as available-for-sale and $36.4
million corresponded to residual interests classified as trading securities. As of September 30,
2007, the aggregate balance of all PFHs residual interests recognized in the Corporations statement
of financial condition was $22 million. The unpaid principal balance of mortgage loans sold in
off-balance sheet securitizations to which these residual interests are associated amounted to
approximately $2.2 billion at September 30, 2007, of which 51% are fixed-rate and 49% are
adjustable rate mortgage loans.
During the first quarter of 2007, management reviewed the critical assumptions used in the
valuation of residual interests derived from off-balance sheet securitizations performed by PFH. As
indicated in the Form 10-Q for the quarter ended March 31, 2007, during the first quarter of 2007,
adjustments were made to two critical assumptions utilized for the valuation of PFHs residual
interests, namely the discount rate and cumulative credit losses. During the third quarter of 2007,
and as a result of further deterioration in the residential mortgage market in the U.S. mainland,
management incorporated further revisions to critical assumptions used in the valuation of the
residual interests, particularly in the discount rate, prepayment speed and cumulative credit loss
assumptions, which are described below. There were no significant changes in the methodology or
models used to value the residual interests that are described in the 2006 Annual Report.
In 2007, the subprime mortgage market has continued to experience (1) deteriorating credit
performance trends, particularly in loans originated in 2005, 2006 and 2007, (2) unprecedented
turmoil with subprime lenders due to increases in losses, bankruptcies and liquidity problems, (3)
lower levels of housing activity and home price appreciation, and (4) a general tightening of
credit standards that may adversely affect subprime borrowers when trying to refinance their
mortgages. Furthermore, since the beginning of the third quarter of 2007, the U.S. credit
markets have been affected by unprecedented instability and disruption, making even routine asset
sales much more challenging. Credit spreads have widened significantly and rapidly, as many
investors have allocated their funds to only the highest-quality financial assets such as U.S.
government securities.
65
These factors led to an increase in cash flow uncertainty for investors in subprime mortgage
securities thereby causing risk premiums to increase. Given the increase in risk premiums, along
with lower liquidity for subprime mortgage securities observed in the market, in the first quarter
of 2007, the Corporation changed the discount rate utilized to discount projected residual cash
flows at the end of the first quarter of 2007 to 25% from 17% at the end of the fourth quarter in
2006. Market liquidity deteriorated further during the third quarter of 2007, as evidenced by wider
subordinate spreads on newly issued asset-backed security transactions. As a result of the
incremental market disruptions, during the third quarter of 2007, management increased again the
discount rate utilized in the valuation of the residual interests to 30%.
For the reasons described below, the prepayment assumption for fixed-rate loans was changed for the
third quarter 2007 valuation to 23% HEP (home equity prepayment curve) from the 28% HEP utilized
in the previous quarter. The HEP model assumes that prepayment speeds increase evenly over the
seasoning ramp of 12 months. The revised HEP percent reflects a change in the long-term projected
prepayment rates for the fixed-rate mortgage collateral influenced by
factors such as decreases in home
prices, slowdown in the purchases and sales of both new and existing homes, and interest rates
behavior, which impact refinance activity.
With respect to credit losses, reduction in home prices, declining demand for housing units leading
to rising inventories, housing affordability challenges and a general tightening of underwriting
standards are expected to lead to higher future cumulative credit losses. Based on an analysis by
management of PFHs historical collateral performance, risk model estimates and rating agency loss
coverage levels, the cumulative credit loss assumptions were also changed during the first and
third quarters of 2007. The changes in the first quarter of 2007 reflected an increase in the
cumulative credit loss estimate range for the nine securitization transactions completed and
accounted for as sale transactions during 2005 and 2006 of between 112 and 364 basis points. The
changes in the third quarter of 2007 considered an additional increase in the cumulative credit
loss estimate range for the four securitization deals completed in 2006 and 2007 of between 109 and
200 basis points, which reflect current conditions in the housing and credit markets and higher
delinquencies in these vintages. Furthermore, the overall industry credit performance of mortgage
collateral originated in those years is showing considerable underperformance relative to other
vintages (i.e. higher delinquency levels at the same stage of seasoning), which implies higher
cumulative losses than originally estimated.
Refer to Note 8 to the consolidated financial statements for information on key economic
assumptions used in measuring the fair value of the residual interests as of September 30, 2007.
Also, the note provides a sensitivity analysis based on immediate changes to the most critical
assumptions used in the valuations at September 30, 2007.
Another of the Corporations critical accounting policies relates to the valuation of mortgage
servicing rights. As further described in Note 2 to the consolidated financial statements and in
the Recent Accounting Pronouncements and Interpretations section included in this MD&A, in January
2007, the Corporation adopted SFAS No. 156 Accounting for Servicing of Financial Assets an
amendment of FASB No. 140. The provisions of SFAS No. 156 did not have an impact on the estimation
techniques, valuation assumptions and other subjective assessments associated with the mortgage
servicing rights computations. Refer to Note 8 to the consolidated financial statements for
information on key economic assumptions used in measuring the fair value of mortgage servicing
rights as of September 30, 2007 and to Note 7 for SFAS No. 156 required disclosures.
Also, during the quarter ended March 31, 2007, the Corporation adopted FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement 109 (FIN 48),
which also relates to one of the Corporations critical accounting policies, namely income taxes.
As indicated in the section below, the impact of the FIN 48 adoption in the first quarter of 2007
was not material to the Corporation. Refer to Note 14 to the consolidated financial statements for
information on the financial impact and required disclosures as of September 30, 2007.
66
RECENT ACCOUNTING PRONOUNCEMENTS AND INTERPRETATIONS
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. SFAS No. 155 permits companies to
elect, on a transaction-by-transaction basis, to apply a fair value measurement to hybrid financial
instruments that contain an embedded derivative that would otherwise require bifurcation under SFAS
No. 133. This statement also 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. SFAS No. 155 did not have a material impact on the Corporations
consolidated financial statements during the nine months ended September 30, 2007.
SFAS No. 156 Accounting for Servicing of Financial Assets an amendment of FASB No. 140
SFAS No. 156 requires that all separately recognized servicing assets and liabilities be initially
measured at fair value, if practicable. For subsequent measurements, SFAS No. 156 permits companies
to choose between using an amortization method or a fair value measurement method for reporting
purposes by class of servicing asset or liability. The Corporation adopted SFAS No. 156 in January
2007. The Corporation elected the fair value measurement for mortgage servicing rights (MSRs).
Servicing rights associated with Small Business Administration (SBA) commercial loans will
continue to be accounted at the lower of cost or market method. The initial impact of adoption of
the fair value measurement for MSRs during the first quarter of 2007 was included as a cumulative
effect of a change in accounting principle directly in stockholders equity and resulted in a net
increase in stockholders equity of approximately $9.6 million, net of deferred taxes. Refer to
Note 7 to the consolidated financial statements for additional information on the adoption of SFAS
No. 156 disclosures.
FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes an interpretation of FASB
Statement 109 (FIN 48)
In 2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements in accordance with SFAS No. 109. FIN 48
prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. This
Interpretation also provides guidance on recognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition related to income taxes. The accounting
provisions of FIN 48 were effective for the Corporation beginning in the first quarter of 2007.
Based on managements assessment, there was no impact on retained earnings as of January 1, 2007
due to the initial application of the provisions of FIN 48. Also, as a result of the
implementation, the Corporation did not recognize any change in the liability for unrecognized tax
benefits. Refer to Note 14 to the consolidated financial statements for further information on the
impact of FIN 48.
EITF Issue No. 06-03 How Taxes Collected from Customers and Remitted to Governmental Authorities
Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) (EITF 06-03)
EITF 06-03 provides that the presentation of taxes assessed by a governmental authority that is
directly imposed on a revenue-producing transaction between a seller and a customer on either a
gross basis (included in revenues and costs) or on a net basis (excluded from revenues) is an
accounting policy decision that should be disclosed. The Corporation adopted the EITF 06-03
guidance in the first quarter of 2007. The Corporations accounting policy is to account on a net
basis for the taxes collected from customers and remitted to governmental authorities. The
corresponding amounts recognized in the consolidated financial statements are not significant.
EITF Issue No. 06-5 Accounting for Purchases of Life Insurance Determining the Amount That Could
Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life
Insurance (EITF 06-5)
EITF 06-5 focuses on how an entity should determine the amount that could be realized under the
insurance contract at the balance sheet date in applying FTB 85-4, and whether the determination
should be on an individual or group policy basis. At the September 2006 meeting, the Task Force
affirmed as a final consensus that the cash
67
surrender value and any additional amounts provided by
the contractual terms of the insurance policy that are realizable at the balance sheet date should
be considered in determining the amount that could be realized under FTB 85-4, and any amounts that
are not immediately payable in cash to the policyholder should be discounted to their present
value. Additionally, the Task Force affirmed as a final consensus the tentative conclusion that in
determining the amount that could be realized, companies should assume that policies will be
surrendered on an individual-by-individual basis, rather than surrendering the entire group policy.
Also, the Task Force reached a consensus that contractual limitations on the ability to surrender a
policy do not affect the amount to be reflected under FTB 85-4, but, if significant, the nature of
those restrictions should be disclosed. The Corporation adopted the EITF 06-5 guidance in the first
quarter of 2007 and, as a result, recorded a $0.9 million cumulative effect adjustment to beginning
retained earnings (reduction of capital) for the existing bank-owned life insurance arrangement.
SFAS No. 157 Fair Value Measurements
SFAS No. 157, issued in September 2006, defines fair value, establishes a framework for measuring
fair value and requires enhanced
disclosures about fair value measurements. SFAS No. 157 requires companies to disclose the fair
value of their financial instruments according to a fair value hierarchy. The fair value hierarchy
ranks the quality and reliability of the information used to determine fair values. Financial
assets carried at fair value will be classified and disclosed in one of the three categories in
accordance with the hierarchy. The three levels of the fair value hierarchy are: (1) quoted market
prices for identical assets or liabilities in active markets; (2) observable market-based inputs or
unobservable inputs that are corroborated by market data; and (3) unobservable inputs that are not
corroborated by market data. SFAS No. 157 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal years. The
Corporation will adopt the provisions of SFAS No. 157 commencing with the first quarter of 2008.
The Corporation is evaluating the impact that this accounting
pronouncement may have on its
consolidated financial statements and disclosures.
SFAS No. 159 Statement of Financial Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities
In February 2007, the FASB issued SFAS No. 159, which provides companies with an option to report
selected financial assets and liabilities at fair value. The election to measure a financial asset
or liability at fair value can be made on an instrument-by-instrument basis and is irrevocable. The
difference between the carrying amount and the fair value at the election date is recorded as a
transition adjustment to opening retained earnings. Subsequent changes in fair value are recognized
in earnings. The statement also establishes presentation and disclosure requirements designed to
facilitate comparisons between companies that choose different measurement attributes for similar
types of assets and liabilities. The new statement does not eliminate disclosure requirements
included in other accounting standards, including requirements for disclosures about fair value
measurements included in FASB Statements No. 157, Fair Value Measurements, and No. 107,
Disclosures about Fair Value of Financial Instruments. SFAS No. 159 is effective as of the
beginning of an entitys first fiscal year beginning after November 15, 2007. The Corporation will
adopt the provisions of SFAS No. 159 commencing in January 2008. Management is evaluating the
impact that this accounting standard may have on its consolidated financial statements and
disclosures.
FSP FIN No. 39-1 Amendment of FASB Interpretation No. 39
In
April 2007, the FASB issued Staff Position FSP FIN No. 39-1 which defines right of setoff and
specifies what conditions must be met for a derivative contract to qualify for this right of
setoff. It also addresses the applicability of a right of setoff to derivative instruments and
clarifies the circumstances in which it is appropriate to offset amounts recognized for those
instruments in the statement of financial position. In addition, this FSP permits the offsetting of
fair value amounts recognized for multiple derivative instruments executed with the same
counterparty under a master netting arrangement and fair value amounts recognized for the right to
reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable)
arising from the same master netting arrangement as the derivative instruments. This interpretation
is effective for fiscal years beginning after November 15, 2007, with early application permitted.
The adoption of FSP FIN No. 39-1 is not expected to have a material impact on the Corporations
consolidated financial statements and disclosures.
SOP 07-01Clarification of the Scope of the Audit and Accounting Guide Investment Companies and
Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies
The Statement of Position (SOP) 07-01 issued in June 2007 provides guidance for determining
whether an entity is within the scope of the American Institute of Certified Public Accountants
(AICPA) Audit and Accounting Guide
68
for Investment Companies (the AICPA Guide). Additionally, it
provides guidance as to whether a parent company or an equity method investor can apply the
specialized industry accounting principles of the AICPA Guide. SOP 07-01 is effective for fiscal
years beginning on or after December 15, 2007. On October 17, 2007, the FASB agreed to propose an
indefinite delay of the effective dates of SOP 07-01 and, for entities that meet the definition of
an investment company in SOP 07-01, of FSP FIN 46(R)-7, Application of FASB Interpretation No.
46(R) to Investment Companies. The proposed delays, which will be exposed for comment for 30 days,
will enable the FASB to add a project to its technical agenda to address the implementation issues
that have arisen and possibly revise SOP 07-01. Until that occurs, affected entities should
continue to follow existing guidance. Nevertheless, management is evaluating the impact, if any,
that the adoption of SOP 07-01 may have on its consolidated financial statements and disclosures.
FSP FIN No. 46(R) 7 Application of FASB Interpretation No. 46(R) to Investment Companies
In May 2007, the FASB issued Staff Position FSP FIN No. 46 (R) 7, which amends the scope of the
exception to FIN No. 46 (R) to indicate that investments accounted for at fair value in accordance with
the specialized accounting guidance in the AICPA Guide, are not subject to consolidation under FIN
No. 46 (R). This interpretation is effective for fiscal years beginning on or after December 15,
2007. Management is evaluating the impact, if any, that the adoption of this interpretation may
have on its consolidated financial statements and disclosures. Also, management is considering the
guidance of SOP 07-01 which was previously described that considers an indefinite delay on its
implementation until further notification by the FASB.
NET INTEREST INCOME
Tables B and C present the different components of the Corporations net interest income, on a
taxable equivalent basis, for the quarter and nine months ended September 30, 2007, as compared
with the same periods in 2006, segregated by major categories of interest earning assets and
interest bearing liabilities.
The interest earning assets include investment securities and loans that are exempt from income
tax, principally in Puerto Rico. The main sources of tax-exempt interest income are investments in
obligations of some U.S. Government agencies and sponsored entities of the Puerto Rico Commonwealth
and its agencies, and assets held by the Corporations international banking entities, which are
tax-exempt under Puerto Rico 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 and nine-month period end. The
marginal tax rate for Puerto Rico subsidiaries in 2007 was 39%, compared to 43.5% for BPPR and
41.5% for the other Puerto Rico subsidiaries in the quarter and nine-month periods ended September
30, 2006. The marginal tax rates for the quarter and nine months ended September 30, 2006 reflected
the impact of transitory tax rate increases which expired at the end of 2006. The taxable
equivalent computation considers the interest expense disallowance required by the Puerto Rico tax
law, also affected by the mentioned increases in tax rates.
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 loan 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 and nine months ended September 30, 2007 included unfavorable
impacts of $2.1 million and $7.5 million, respectively. These balances consist principally of
amortization of net loan origination costs (net of origination fees), and the amortization of net
premiums on loans purchased, partially offset by prepayment penalties and late payment charges. The
unfavorable impacts for the quarter and nine months ended September 30, 2006 amounted to $3 million
and $14.9 million, respectively. The reduction in the unfavorable impact for the third quarter of
2007, compared with the same quarter in the previous year, was mainly the result of a lower balance
of premium amortized related to mortgage loans purchased by PFH, mainly in years prior to 2006,
due to reduced loan prepayments and to the direct impact of the maturity run-off of the purchased
mortgage loan portfolio.
Throughout 2006 and 2007 the Corporation implemented strategies to improve the net interest margin.
The strategies included selling low yielding mortgage loans and not reinvesting maturities of
securities due to unfavorable market conditions. These strategies, in addition to the growth of the
commercial and consumer portfolios and the reduction experienced in the Corporations U.S. subprime
mortgage loan originations, contributed to a change in the mix of
69
earning assets.
Refer to the Financial Condition section of this MD&A for further information on the change in the
different categories of earning assets.
The Corporations funding sources also experienced a change in its mix which contributed to the
variance attributable to change in volume shown in Table B. The reduction of low yielding assets
allowed the Corporation to reduce its levels of borrowed money while focusing on increasing its
deposit base. The E-LOAN internet deposit gathering initiative, launched in the latter part of
2006, contributed to these efforts as well as increases in non-internet certificates of deposit,
including brokered CDs and money market accounts.
The following events also influenced the increase in the taxable equivalent net interest margin:
|
|
|
Higher yields in the leasing category since the results for the third quarter of 2006
were negatively impacted by the reversal of approximately $1.3 million of interest income
on a specific commercial lease financing relationship which reached non-accrual status in
that period. |
|
|
|
|
Higher yields in the mortgage loan portfolio in part as a result of higher rates for new
loans, a reduction in the premium amortized for secured mortgage loans due to a reduction
in prepayment speeds, and the sale of low yielding mortgage loans from the Puerto Rico
operations during 2006. |
|
|
|
|
Increase in the yield of consumer loans driven in part by higher rates for the Puerto
Rico consumer loan portfolio and to a revision of the credit card uncollectible interest
reserve. |
|
|
|
|
Partially offsetting these favorable loan yield variances was a reduction in the
commercial loan yield, primarily as a result of the reversal of $1.3 million in accrued
interest associated with a $41.5 million construction loan relationship in the Puerto Rico
operations which was categorized as an impaired loan in the third quarter of 2007 based on
managements FAS 114 analysis. |
The higher cost of interest bearing deposits impacted the variance attributable to change in rates
shown in Table B. The increase in cost for this category was in part the result of savings and time
deposits raised through the E-LOAN platform, which carry higher rates than deposits from branches
due to the competitive interest rates offered. In addition, the Corporation raised a greater volume
of certificates of deposit through non-internet channels, a higher cost deposit category.
Furthermore, there was an increase in the costs of money market accounts driven by competitive
campaigns to attract and retain customers, mainly in the U.S. operations. The Corporation continues
its strategy to reduce the use of wholesale borrowings by increasing its deposit base.
70
TABLE B
Analysis of Levels & Yields on a Taxable Equivalent Basis
Quarter ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
Average Volume |
|
|
|
|
|
Average Yields / Costs |
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
Attributable to |
2007 |
|
2006 |
|
Variance |
|
2007 |
|
2006 |
|
Variance |
|
|
|
2007 |
|
2006 |
|
Variance |
|
Rate |
|
Volume |
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
$ |
538 |
|
|
$ |
508 |
|
|
$ |
30 |
|
|
|
5.27 |
% |
|
|
5.88 |
% |
|
|
(0.61 |
%) |
|
Money market investments |
|
$ |
7,155 |
|
|
$ |
7,525 |
|
|
($ |
370 |
) |
|
($ |
599 |
) |
|
$ |
229 |
|
|
9,637 |
|
|
|
11,672 |
|
|
|
(2,035 |
) |
|
|
5.23 |
|
|
|
5.23 |
|
|
|
|
|
|
Investment securities |
|
|
126,024 |
|
|
|
152,614 |
|
|
|
(26,590 |
) |
|
|
115 |
|
|
|
(26,705 |
) |
|
678 |
|
|
|
495 |
|
|
|
183 |
|
|
|
6.41 |
|
|
|
6.56 |
|
|
|
(0.15 |
) |
|
Trading securities |
|
|
10,948 |
|
|
|
8,183 |
|
|
|
2,765 |
|
|
|
(190 |
) |
|
|
2,955 |
|
|
|
|
|
|
|
10,853 |
|
|
|
12,675 |
|
|
|
(1,822 |
) |
|
|
5.31 |
|
|
|
5.31 |
|
|
|
|
|
|
|
|
|
144,127 |
|
|
|
168,322 |
|
|
|
(24,195 |
) |
|
|
(674 |
) |
|
|
(23,521 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,288 |
|
|
|
13,824 |
|
|
|
1,464 |
|
|
|
7.75 |
|
|
|
7.79 |
|
|
|
(0.04 |
) |
|
Commercial * |
|
|
298,533 |
|
|
|
271,419 |
|
|
|
27,114 |
|
|
|
(1,491 |
) |
|
|
28,605 |
|
|
1,164 |
|
|
|
1,273 |
|
|
|
(109 |
) |
|
|
7.94 |
|
|
|
7.15 |
|
|
|
0.79 |
|
|
Leasing |
|
|
23,107 |
|
|
|
22,766 |
|
|
|
341 |
|
|
|
2,379 |
|
|
|
(2,038 |
) |
|
10,804 |
|
|
|
12,053 |
|
|
|
(1,249 |
) |
|
|
7.11 |
|
|
|
6.98 |
|
|
|
0.13 |
|
|
Mortgage |
|
|
191,955 |
|
|
|
210,432 |
|
|
|
(18,477 |
) |
|
|
3,658 |
|
|
|
(22,135 |
) |
|
5,619 |
|
|
|
5,123 |
|
|
|
496 |
|
|
|
10.97 |
|
|
|
10.71 |
|
|
|
0.26 |
|
|
Consumer |
|
|
155,020 |
|
|
|
137,986 |
|
|
|
17,034 |
|
|
|
1,951 |
|
|
|
15,083 |
|
|
|
|
|
|
|
32,875 |
|
|
|
32,273 |
|
|
|
602 |
|
|
|
8.10 |
|
|
|
7.93 |
|
|
|
0.17 |
|
|
|
|
|
668,615 |
|
|
|
642,603 |
|
|
|
26,012 |
|
|
|
6,497 |
|
|
|
19,515 |
|
|
|
|
|
|
$ |
43,728 |
|
|
$ |
44,948 |
|
|
($ |
1,220 |
) |
|
|
7.40 |
% |
|
|
7.19 |
% |
|
|
0.21 |
% |
|
Total earning assets |
|
$ |
812,742 |
|
|
$ |
810,925 |
|
|
$ |
1,817 |
|
|
$ |
5,823 |
|
|
($ |
4,006 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,579 |
|
|
$ |
3,862 |
|
|
$ |
717 |
|
|
|
2.68 |
% |
|
|
2.20 |
% |
|
|
0.48 |
% |
|
NOW and money market** |
|
$ |
30,980 |
|
|
$ |
21,396 |
|
|
$ |
9,584 |
|
|
$ |
3,824 |
|
|
$ |
5,760 |
|
|
5,684 |
|
|
|
5,231 |
|
|
|
453 |
|
|
|
2.03 |
|
|
|
1.34 |
|
|
|
0.69 |
|
|
Savings |
|
|
29,028 |
|
|
|
17,735 |
|
|
|
11,293 |
|
|
|
912 |
|
|
|
10,381 |
|
|
11,403 |
|
|
|
10,154 |
|
|
|
1,249 |
|
|
|
4.76 |
|
|
|
4.37 |
|
|
|
0.39 |
|
|
Time deposits |
|
|
136,817 |
|
|
|
111,877 |
|
|
|
24,940 |
|
|
|
8,392 |
|
|
|
16,548 |
|
|
|
|
|
|
|
21,666 |
|
|
|
19,247 |
|
|
|
2,419 |
|
|
|
3.60 |
|
|
|
3.11 |
|
|
|
0.49 |
|
|
|
|
|
196,825 |
|
|
|
151,008 |
|
|
|
45,817 |
|
|
|
13,128 |
|
|
|
32,689 |
|
|
|
|
|
|
|
8,638 |
|
|
|
10,607 |
|
|
|
(1,969 |
) |
|
|
5.23 |
|
|
|
5.30 |
|
|
|
(0.07 |
) |
|
Short-term borrowings |
|
|
113,832 |
|
|
|
141,727 |
|
|
|
(27,895 |
) |
|
|
(1,643 |
) |
|
|
(26,252 |
) |
|
8,087 |
|
|
|
9,987 |
|
|
|
(1,900 |
) |
|
|
5.87 |
|
|
|
5.83 |
|
|
|
0.04 |
|
|
Medium and long-term debt |
|
|
119,453 |
|
|
|
146,558 |
|
|
|
(27,105 |
) |
|
|
213 |
|
|
|
(27,318 |
) |
|
|
|
|
|
|
38,391 |
|
|
|
39,841 |
|
|
|
(1,450 |
) |
|
|
4.45 |
|
|
|
4.38 |
|
|
|
0.07 |
|
|
Total interest bearing
liabilities |
|
|
430,110 |
|
|
|
439,293 |
|
|
|
(9,183 |
) |
|
|
11,698 |
|
|
|
(20,881 |
) |
|
3,980 |
|
|
|
3,970 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing
demand deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,357 |
|
|
|
1,137 |
|
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other sources of funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
43,728 |
|
|
$ |
44,948 |
|
|
($ |
1,220 |
) |
|
|
3.90 |
% |
|
|
3.88 |
% |
|
|
0.02 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.50 |
% |
|
|
3.31 |
% |
|
|
0.19 |
% |
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income on a taxable equivalent basis |
|
|
382,632 |
|
|
|
371,632 |
|
|
|
11,000 |
|
|
($ |
5,875 |
) |
|
$ |
16,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.95 |
% |
|
|
2.81 |
% |
|
|
0.14 |
% |
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment |
|
|
22,516 |
|
|
|
29,594 |
|
|
|
(7,078 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
360,116 |
|
|
$ |
342,038 |
|
|
$ |
18,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 commercial construction loans. |
|
** |
|
Includes interest bearing demand deposits corresponding to certain government entities in Puerto
Rico. |
As shown in Table C, for the nine-month period ended September 30, 2007 the net interest income on
a taxable equivalent basis decreased mainly as a result of a lower benefit derived from the taxable
equivalent adjustment due to the expiration of the temporary additional tax for the Puerto Rico
operations and to a lower volume of exempt assets as compared to the same period in 2006. In
addition, besides the factors previously described in the quarterly results, the following factors
also contributed to the variance in net interest income:
|
|
|
Higher yields in commercial loans, mainly in the floating rate portfolios. As of
September 30, 2007, approximately 58% of the commercial and construction loan portfolio had
floating or adjustable interest rates. In September 2007, the Federal Reserve lowered the
fed funds target rate by 50 basis points; however,
|
71
|
|
|
this reduction did not have a
significant impact in the 2007 average results because of its occurrence in the later part
of the quarter. |
|
|
|
|
Higher cost of short-term borrowings was primarily the result of the previously
mentioned tightening performed by the Federal Reserve during 2006. |
|
|
|
|
Increase in cost of long-term debt in part due to secured debt with floating rates
derived from on-balance sheet mortgage loan transactions. |
|
|
|
|
The overall increase in the Corporations cost of deposits was also affected by the
lagged impact of the Feds rate increases and competitive pressures. |
TABLE C
Analysis of Levels & Yields on a Taxable Equivalent Basis
Nine-month period ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
Average Volume |
|
Average Yields / Costs |
|
|
|
Interest |
|
Attributable to |
|
2007 |
|
2006 |
|
Variance |
|
2007 |
|
2006 |
|
Variance |
|
|
|
2007 |
|
2006 |
|
Variance |
|
Rate |
|
Volume |
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
$ |
450 |
|
|
$ |
586 |
|
|
$ |
(136 |
) |
|
|
5.38 |
% |
|
|
5.54 |
% |
|
|
(0.16 |
%) |
|
Money market investments |
|
$ |
18,104 |
|
|
$ |
24,274 |
|
|
$ |
(6,170 |
) |
|
$ |
(469 |
) |
|
$ |
(5,701 |
) |
|
9,982 |
|
|
|
12,104 |
|
|
|
(2,122 |
) |
|
|
5.17 |
|
|
|
5.13 |
|
|
|
0.04 |
|
|
Investment securities |
|
|
387,283 |
|
|
|
465,432 |
|
|
|
(78,149 |
) |
|
|
3,635 |
|
|
|
(81,784 |
) |
|
644 |
|
|
|
509 |
|
|
|
135 |
|
|
|
6.38 |
|
|
|
6.56 |
|
|
|
(0.18 |
) |
|
Trading securities |
|
|
30,726 |
|
|
|
24,979 |
|
|
|
5,747 |
|
|
|
(727 |
) |
|
|
6,474 |
|
|
|
|
|
|
|
11,076 |
|
|
|
13,199 |
|
|
|
(2,123 |
) |
|
|
5.25 |
|
|
|
5.20 |
|
|
|
0.05 |
|
|
|
|
|
436,113 |
|
|
|
514,685 |
|
|
|
(78,572 |
) |
|
|
2,439 |
|
|
|
(81,011 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,945 |
|
|
|
13,400 |
|
|
|
1,545 |
|
|
|
7.79 |
|
|
|
7.56 |
|
|
|
0.23 |
|
|
Commercial * |
|
|
870,873 |
|
|
|
757,704 |
|
|
|
113,169 |
|
|
|
22,366 |
|
|
|
90,803 |
|
|
1,185 |
|
|
|
1,299 |
|
|
|
(114 |
) |
|
|
7.88 |
|
|
|
7.37 |
|
|
|
0.51 |
|
|
Leasing |
|
|
70,055 |
|
|
|
71,752 |
|
|
|
(1,697 |
) |
|
|
4,823 |
|
|
|
(6,520 |
) |
|
11,207 |
|
|
|
12,336 |
|
|
|
(1,129 |
) |
|
|
7.12 |
|
|
|
6.86 |
|
|
|
0.26 |
|
|
Mortgage |
|
|
598,624 |
|
|
|
634,691 |
|
|
|
(36,067 |
) |
|
|
23,579 |
|
|
|
(59,646 |
) |
|
5,430 |
|
|
|
5,013 |
|
|
|
417 |
|
|
|
10.84 |
|
|
|
10.51 |
|
|
|
0.33 |
|
|
Consumer |
|
|
440,779 |
|
|
|
394,367 |
|
|
|
46,412 |
|
|
|
7,717 |
|
|
|
38,695 |
|
|
|
|
|
|
|
32,767 |
|
|
|
32,048 |
|
|
|
719 |
|
|
|
8.07 |
|
|
|
7.74 |
|
|
|
0.33 |
|
|
|
|
|
1,980,331 |
|
|
|
1,858,514 |
|
|
|
121,817 |
|
|
|
58,485 |
|
|
|
63,332 |
|
|
|
|
|
|
$ |
43,843 |
|
|
$ |
45,247 |
|
|
$ |
(1,404 |
) |
|
|
7.36 |
% |
|
|
7.00 |
% |
|
|
0.36 |
% |
|
Total earning assets |
|
$ |
2,416,444 |
|
|
$ |
2,373,199 |
|
|
$ |
43,245 |
|
|
$ |
60,924 |
|
|
$ |
(17,679 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,383 |
|
|
$ |
3,848 |
|
|
$ |
535 |
|
|
|
2.61 |
% |
|
|
1.96 |
% |
|
|
0.65 |
% |
|
NOW and money market** |
|
$ |
85,622 |
|
|
$ |
56,408 |
|
|
$ |
29,214 |
|
|
$ |
16,911 |
|
|
$ |
12,303 |
|
|
5,741 |
|
|
|
5,374 |
|
|
|
367 |
|
|
|
1.99 |
|
|
|
1.33 |
|
|
|
0.66 |
|
|
Savings |
|
|
85,481 |
|
|
|
53,286 |
|
|
|
32,195 |
|
|
|
3,481 |
|
|
|
28,714 |
|
|
10,837 |
|
|
|
9,772 |
|
|
|
1,065 |
|
|
|
4.71 |
|
|
|
4.13 |
|
|
|
0.58 |
|
|
Time deposits |
|
|
381,554 |
|
|
|
301,686 |
|
|
|
79,868 |
|
|
|
40,820 |
|
|
|
39,048 |
|
|
|
|
|
|
|
20,961 |
|
|
|
18,994 |
|
|
|
1,967 |
|
|
|
3.53 |
|
|
|
2.90 |
|
|
|
0.63 |
|
|
|
|
|
552,657 |
|
|
|
411,380 |
|
|
|
141,277 |
|
|
|
61,212 |
|
|
|
80,065 |
|
|
|
|
|
|
|
9,224 |
|
|
|
11,017 |
|
|
|
(1,793 |
) |
|
|
5.19 |
|
|
|
4.78 |
|
|
|
0.41 |
|
|
Short-term borrowings |
|
|
358,107 |
|
|
|
393,604 |
|
|
|
(35,497 |
) |
|
|
39,510 |
|
|
|
(75,007 |
) |
|
8,306 |
|
|
|
10,202 |
|
|
|
(1,896 |
) |
|
|
5.65 |
|
|
|
5.41 |
|
|
|
0.24 |
|
|
Medium and long-term debt |
|
|
351,453 |
|
|
|
413,013 |
|
|
|
(61,560 |
) |
|
|
15,452 |
|
|
|
(77,012 |
) |
|
|
|
|
|
|
38,491 |
|
|
|
40,213 |
|
|
|
(1,722 |
) |
|
|
4.38 |
|
|
|
4.05 |
|
|
|
0.33 |
|
|
Total interest bearing
liabilities |
|
|
1,262,217 |
|
|
|
1,217,997 |
|
|
|
44,220 |
|
|
|
116,174 |
|
|
|
(71,954 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,012 |
|
|
|
3,953 |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing
demand deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,340 |
|
|
|
1,081 |
|
|
|
259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other sources of funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
43,843 |
|
|
$ |
45,247 |
|
|
$ |
(1,404 |
) |
|
|
3.85 |
% |
|
|
3.60 |
% |
|
|
0.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.51 |
% |
|
|
3.40 |
% |
|
|
0.11 |
% |
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income on a
taxable equivalent basis |
|
|
1,154,227 |
|
|
|
1,155,202 |
|
|
|
(975 |
) |
|
$ |
(55,250 |
) |
|
$ |
54,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.98 |
% |
|
|
2.95 |
% |
|
|
0.03 |
% |
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent adjustment |
|
|
67,712 |
|
|
|
87,621 |
|
|
|
(19,909 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
1,086,515 |
|
|
$ |
1,067,581 |
|
|
$ |
18,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 commercial construction loans. |
|
** |
|
Includes interest bearing demand deposits corresponding to certain government entities in Puerto
Rico. |
72
NON-INTEREST INCOME
Refer to Table D for a breakdown of non-interest income by major categories for the quarters and
nine months ended September 30, 2007 and 2006.
TABLE
D
Non-Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended September 30, |
|
Nine months ended September 30, |
(In thousands) |
|
2007 |
|
2006 |
|
$ Variance |
|
2007 |
|
2006 |
|
$ Variance |
|
Service charges on deposit accounts |
|
$ |
49,704 |
|
|
$ |
47,484 |
|
|
$ |
2,220 |
|
|
$ |
146,567 |
|
|
$ |
142,277 |
|
|
$ |
4,290 |
|
|
Other service fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card fees and discounts |
|
$ |
25,975 |
|
|
$ |
22,035 |
|
|
$ |
3,940 |
|
|
$ |
74,498 |
|
|
$ |
66,979 |
|
|
$ |
7,519 |
|
Debit card fees |
|
|
16,228 |
|
|
|
15,345 |
|
|
|
883 |
|
|
|
49,184 |
|
|
|
45,349 |
|
|
|
3,835 |
|
Insurance fees |
|
|
15,024 |
|
|
|
13,327 |
|
|
|
1,697 |
|
|
|
42,693 |
|
|
|
39,879 |
|
|
|
2,814 |
|
Processing fees |
|
|
11,674 |
|
|
|
11,164 |
|
|
|
510 |
|
|
|
35,463 |
|
|
|
32,382 |
|
|
|
3,081 |
|
Sale and administration of investment
products |
|
|
8,043 |
|
|
|
7,345 |
|
|
|
698 |
|
|
|
22,614 |
|
|
|
21,451 |
|
|
|
1,163 |
|
Mortgage servicing fees, net of amortization
and fair value adjustments |
|
|
7,400 |
|
|
|
(1,756 |
) |
|
|
9,156 |
|
|
|
18,269 |
|
|
|
(2,423 |
) |
|
|
20,692 |
|
Trust fees |
|
|
2,880 |
|
|
|
2,400 |
|
|
|
480 |
|
|
|
7,806 |
|
|
|
7,044 |
|
|
|
762 |
|
Other fees |
|
|
6,140 |
|
|
|
9,777 |
|
|
|
(3,637 |
) |
|
|
20,276 |
|
|
|
29,339 |
|
|
|
(9,063 |
) |
|
Total other service fees |
|
$ |
93,364 |
|
|
$ |
79,637 |
|
|
$ |
13,727 |
|
|
$ |
270,803 |
|
|
$ |
240,000 |
|
|
$ |
30,803 |
|
|
Net (loss) gain on sale and valuation adjustment
of investment securities |
|
($ |
3,089 |
) |
|
$ |
7,123 |
|
|
($ |
10,212 |
) |
|
$ |
79,857 |
|
|
$ |
5,039 |
|
|
$ |
74,818 |
|
Trading account (loss) profit |
|
|
(2,867 |
) |
|
|
10,019 |
|
|
|
(12,886 |
) |
|
|
(6,654 |
) |
|
|
23,324 |
|
|
|
(29,978 |
) |
Gain on sale of loans and valuation adjustments on
loans held-for-sale |
|
|
5,991 |
|
|
|
20,113 |
|
|
|
(14,122 |
) |
|
|
37,719 |
|
|
|
96,428 |
|
|
|
(58,709 |
) |
Other operating income |
|
|
23,902 |
|
|
|
26,973 |
|
|
|
(3,071 |
) |
|
|
94,264 |
|
|
|
97,100 |
|
|
|
(2,836 |
) |
|
Total non-interest income |
|
$ |
167,005 |
|
|
$ |
191,349 |
|
|
($ |
24,344 |
) |
|
$ |
622,556 |
|
|
$ |
604,168 |
|
|
$ |
18,388 |
|
|
Variances in non-interest income for the quarter and nine months ended September 30, 2007, compared
with the same periods in the previous year, were mostly impacted by:
|
|
|
Higher other service fees which are detailed by category in Table D above. |
|
o |
|
The favorable variance in mortgage servicing fee income was related to
higher servicing fees due to growth in the portfolio of loans serviced for others
which rose by approximately $5.1 billion from September 30, 2006 to the same date in
2007, and higher late payment fees derived from the serviced portfolio as a result of
increased delinquencies, primarily associated with the U.S. mainland. Also, the
positive variance was impacted in part by the adoption of SFAS No. 156 in 2007, which
eliminated the monthly amortization of the mortgage servicing rights. As indicated in
the Recent Accounting Pronouncements and Interpretations section of this MD&A, the
Corporation elected the fair value measurement to account for residential mortgage
servicing rights. The residential mortgage servicing rights are no longer amortized
in proportion to and over the period of estimated net servicing income. Refer to Note
7 to the consolidated financial statements for detailed information on the adoption
of SFAS No. 156. Any fair value adjustment of MSRs is being recorded in other
service fees in the consolidated statements of operations together with the loan
servicing fees charged to third-parties on the serviced portfolio. These favorable
variances were partially offset by lower prepayment penalty fees on loans serviced
due to a slowdown in prepayments. |
|
|
o |
|
The increase in credit card fees was the result of higher merchant fees due
to increased purchase volume, and higher late payment fees due to greater volume of
credit card accounts billed at a higher average rate due to a change in contract
terms. |
|
|
o |
|
There were lower other fees primarily due to lower brokered loan fees
related to support services provided to mortgage brokers on the origination of loans
for their portfolios. These service fees were reduced as PFH discontinued the
broker-origination channel as part of the Restructuring Plan. |
73
|
|
|
Net (loss) gain on sale and valuation adjustments of investment securities for the
quarter and nine-month period in 2007 and 2006 consisted of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended September 30, |
|
Nine months ended September 30, |
(In thousands) |
|
2007 |
|
2006 |
|
$ Variance |
|
2007 |
|
2006 |
|
$ Variance |
|
Net (loss) gain on sale of investment securities |
|
($ |
776 |
) |
|
$ |
7,564 |
|
|
($ |
8,340 |
) |
|
$ |
120,443 |
|
|
$ |
22,417 |
|
|
$ |
98,026 |
|
Valuation adjustments of investment securities |
|
|
(2,313 |
) |
|
|
(441 |
) |
|
|
(1,872 |
) |
|
|
(40,586 |
) |
|
|
(17,378 |
) |
|
|
(23,208 |
) |
|
Total |
|
($ |
3,089 |
) |
|
$ |
7,123 |
|
|
($ |
10,212 |
) |
|
$ |
79,857 |
|
|
$ |
5,039 |
|
|
$ |
74,818 |
|
|
The unfavorable variance in net (loss) gain on sale of investment securities for the quarter ended
September 30, 2007, compared with the
same quarter in 2006, was principally due to the sale by BPPR during the third quarter of 2006 of
FNMA securities with a carrying value of approximately $144 million at a gain of approximately $7.6
million.
The favorable variance in net gain on sale of investment securities for the nine months ended
September 30, 2007, compared with the same period in 2006, was mainly due to $118.7 million in
gains from the sale of the Corporations interest in TELPRI during the first quarter of 2007. The
gain on sale of securities in 2006 were primarily associated with marketable equity securities and
FNMA securities.
The variance in negative valuation adjustments of investment securities were mostly associated with
PFHs residual interests classified as available-for-sale as described in the Overview and Critical
Accounting Policies / Estimates sections of this MD&A.
|
|
|
Trading account (loss) profit for the third quarter and nine-month period in 2007 and
2006 consisted of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended September 30, |
|
Nine months ended September 30, |
(In thousands) |
|
2007 |
|
2006 |
|
$ Variance |
|
2007 |
|
2006 |
|
$ Variance |
|
Mark-to-market of PFHs residual interests |
|
($ |
12,106 |
) |
|
($ |
352 |
) |
|
($ |
11,754 |
) |
|
($ |
36,419 |
) |
|
($ |
424 |
) |
|
($ |
35,995 |
) |
Other trading account profit |
|
|
9,239 |
|
|
|
10,371 |
|
|
|
(1,132 |
) |
|
|
29,765 |
|
|
|
23,748 |
|
|
|
6,017 |
|
|
Total |
|
($ |
2,867 |
) |
|
$ |
10,019 |
|
|
($ |
12,886 |
) |
|
($ |
6,654 |
) |
|
$ |
23,324 |
|
|
($ |
29,978 |
) |
|
PFHs residual interests classified as trading securities were also unfavorably impacted by the
adverse conditions in the subprime housing market and lack of liquidity which prompted the change
in certain valuation assumptions as indicated in the Overview and Critical Accounting Policies /
Estimates sections of this MD&A.
Moreover, the variance in other trading account profit for the nine months ended September 30,
2007, compared with the same period in 2006, was mainly due to favorable mark-to-market adjustments
in the valuation of mortgage-backed securities which are guaranteed by government sponsored
entities. The other trading account profit for the nine months ended September 30, 2006 included
$8.5 million in trading profits associated with the pooling of approximately $464 million in
mortgage loans at BPPR into FNMA mortgage-backed securities that were sold to investors during the
first quarter of 2006.
|
|
|
Lower gain on sales of loans and higher negative adjustments in the valuation of loans
held-for-sale, particularly mortgage loans, as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended September 30, |
|
Nine months ended September 30, |
(In thousands) |
|
2007 |
|
2006 |
|
$ Variance |
|
2007 |
|
2006 |
|
$ Variance |
|
Gain on sales of loans |
|
$ |
10,816 |
|
|
$ |
20,113 |
|
|
|
($9,297 |
) |
|
$ |
63,034 |
|
|
$ |
96,428 |
|
|
|
($33,394 |
) |
Lower of cost or
market valuation
adjustment on loans
held-for-sale |
|
|
(4,825 |
) |
|
|
|
|
|
|
(4,825 |
) |
|
|
(25,315 |
) |
|
|
|
|
|
|
(25,315 |
) |
|
Total |
|
$ |
5,991 |
|
|
$ |
20,113 |
|
|
|
($14,122 |
) |
|
$ |
37,719 |
|
|
$ |
96,428 |
|
|
|
($58,709 |
) |
|
Reduced gain on sales of loans for the third quarter of 2007, when compared to the third quarter of
2006, was primarily due to a reduction of $33.7 million at the Corporations U.S. mainland
operations, due to a lower volume of loans originated and the exiting of the wholesale subprime
mortgage business by PFH, lower origination volume
74
at E-LOAN due to weakness in the U.S. mainland
mortgage and housing market, and the lack of liquidity in the private secondary markets. This
reduction was offset in part by a favorable variance in the Corporations Puerto Rico operations.
Refer to the Overview section of this MD&A for further information.
The decrease in gain on sales of loans for the nine-month period ended September 30, 2007, compared
to the same period in 2006, was influenced by the same factors described for the quarterly results.
Furthermore, there were lower gain on the sales of SBA loans by the Corporations U.S. banking
subsidiary.
During the nine months ended September 30, 2007, PFH completed one off-balance sheet mortgage loan
securitization involving approximately $461 million in loans with realized gains of approximately
$13.5 million. The mortgage loan portfolio that was securitized consisted principally of subprime
mortgage loans originated by PFH in the latter part of 2006 and in 2007 by the business divisions
that were shut down as part of the Restructuring Plan. During the nine months ended September 30,
2006, PFH completed three off-balance sheet mortgage loan securitizations involving approximately
$1.0 billion in loans, in which the Corporation realized approximately $18.8 million in gains in
connection with these transactions.
The unfavorable valuation adjustment of mortgage loans held-for-sale indicated in the table above
resulted principally from deterioration in the U.S. subprime mortgage market experienced during
2007 and lack of liquidity in the private secondary markets.
OPERATING EXPENSES
Refer to Table E for a breakdown of operating expenses by major categories. Also, this table
identifies the categories of the statement of
income impacted by the restructuring costs related to Popular North America reportable segment.
These costs are segregated to ease the financial comparison analysis.
TABLE
E
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
|
|
|
ended |
|
|
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
September 30, |
|
Restructuring |
|
September 30, |
|
|
(In thousands) |
|
2007 |
|
2006 |
|
$ Variance |
|
2007 |
|
Costs (RC) |
|
2007 excluding RC |
|
2006 |
|
$ Variance |
|
Personnel costs |
|
$ |
152,240 |
|
|
$ |
164,696 |
|
|
|
($12,456 |
) |
|
$ |
494,903 |
|
|
$ |
8,124 |
|
|
$ |
486,779 |
|
|
$ |
509,231 |
|
|
|
($22,452 |
) |
Net occupancy expenses |
|
|
29,436 |
|
|
|
31,573 |
|
|
|
(2,137 |
) |
|
|
87,951 |
|
|
|
4,413 |
|
|
|
83,538 |
|
|
|
88,840 |
|
|
|
(5,302 |
) |
Equipment expenses |
|
|
30,688 |
|
|
|
34,346 |
|
|
|
(3,658 |
) |
|
|
95,329 |
|
|
|
261 |
|
|
|
95,068 |
|
|
|
101,516 |
|
|
|
(6,448 |
) |
Other taxes |
|
|
13,227 |
|
|
|
11,770 |
|
|
|
1,457 |
|
|
|
36,909 |
|
|
|
|
|
|
|
36,909 |
|
|
|
32,940 |
|
|
|
3,969 |
|
Professional fees |
|
|
37,103 |
|
|
|
29,618 |
|
|
|
7,485 |
|
|
|
111,732 |
|
|
|
1,762 |
|
|
|
109,970 |
|
|
|
105,184 |
|
|
|
4,786 |
|
Communications |
|
|
16,846 |
|
|
|
17,343 |
|
|
|
(497 |
) |
|
|
50,881 |
|
|
|
67 |
|
|
|
50,814 |
|
|
|
51,936 |
|
|
|
(1,122 |
) |
Business promotion |
|
|
28,560 |
|
|
|
33,855 |
|
|
|
(5,295 |
) |
|
|
87,301 |
|
|
|
|
|
|
|
87,301 |
|
|
|
98,669 |
|
|
|
(11,368 |
) |
Printing and supplies |
|
|
4,131 |
|
|
|
4,408 |
|
|
|
(277 |
) |
|
|
12,956 |
|
|
|
|
|
|
|
12,956 |
|
|
|
13,331 |
|
|
|
(375 |
) |
Other operating expenses |
|
|
32,508 |
|
|
|
28,706 |
|
|
|
3,802 |
|
|
|
97,362 |
|
|
|
269 |
|
|
|
97,093 |
|
|
|
85,609 |
|
|
|
11,484 |
|
Impact of change in fiscal
period of certain
subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,741 |
|
|
|
(9,741 |
) |
Amortization of intangibles |
|
|
2,234 |
|
|
|
3,608 |
|
|
|
(1,374 |
) |
|
|
8,030 |
|
|
|
|
|
|
|
8,030 |
|
|
|
9,160 |
|
|
|
(1,130 |
) |
|
Total |
|
$ |
346,973 |
|
|
$ |
359,923 |
|
|
|
($12,950 |
) |
|
$ |
1,083,354 |
|
|
$ |
14,896 |
|
|
$ |
1,068,458 |
|
|
$ |
1,106,157 |
|
|
|
($37,699 |
) |
|
There were no significant restructuring costs incurred in the third quarter of 2007; as such, the
breakdown is not included in Table E.
The reduction in personnel costs for the quarter ended September 30, 2007, compared with the same
quarter in the previous year, was mainly impacted by a decline in Popular North Americas
reportable segment of $11.7 million. In particular, PFH was impacted by a reduction in headcount of
579 full-time equivalent employees (FTEs) from September 30, 2006, as a result of the
Restructuring Plan. Isolating the severance costs associated with the Restructuring Plan (refer to
the Restructuring Plan section later in this MD&A for details), Popular North Americas reportable
segment experienced a decline of $29.7 million in personnel costs for the nine months ended
September
75
30, 2007,
when compared to the same period in 2006. This reduction was
partially offset by the impact of merit increases across the
corporations subsidiaries, among various factors. The Corporations FTEs were 12,181 at
September 30, 2007, a decrease of 423 FTEs from the same date in 2006.
The reduction in business promotion expenses for the quarter ended September 30, 2007, when
compared to the same quarter in the previous year, was mainly impacted by the Popular North America
reportable segment, which experienced a decrease of $5.7 million as a result of cost control
measures on marketing expenditures on the U.S. mainland operations, primarily at E-LOAN. The
decrease in net occupancy expense was related to lease contract terminations related to the closing
of certain PFH offices. The reduction in equipment expenses was due to lower equipment
depreciation, maintenance and repair expenses, as well as lower equipment requirements due to the
streamlining of PFHs operations. These reductions in operating expenses were partially offset by
an increase in professional fees, which included higher business strategy consulting, computer
service fees, temporary services, recruiting expenses, and credit collection expenses.
Similar factors influenced the variance in those operating expense categories for the nine months
ended September 30, 2007, compared to the same period in 2006. Also, operating expenses were
favorably impacted by the $9.7 million pre-tax loss related to the change in fiscal year at certain
subsidiaries in 2006. Offsetting the favorable variances on a year-to-date basis were higher costs
in the other operating expense category, consisting primarily of higher credit card interchange
expenses primarily due to higher volume at a higher average rate, higher other real estate expenses
related to the increased foreclosure costs and number of repossessed units, and a reserve for
approximately $2.1 million related to EVERTEC de Venezuela. This later reserve is explained in the
Reportable Segments section in this MD&A under the EVERTEC reporting segment.
Table A presents the Corporations efficiency ratio for the quarters and nine months ended
September 30, 2007 and 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
2006 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 by the
Corporation amounted to ($3.1) million in the quarter ended September 30, 2007, compared with $11.7
million in the same quarter of the previous year. On a year-to-date basis, the non-interest income
not considered recurring was $82.8 million for the nine months ended September 30, 2007, compared
with $9.7 million of the same period in 2006. These amounts corresponded principally to net gains
on sale and valuation adjustments of investment securities available-for-sale and gains on the sale
of real estate properties.
INCOME TAX
Income tax benefit for the quarter ended September 30, 2007 amounted to $3.9 million, compared with
income tax expense of $27.9 million in the same quarter of 2006. The tax benefit in the third
quarter of 2007 was directly associated with the taxable loss in the Corporations U.S. mainland
operations, which lowered the Corporations consolidated income before tax. Also, the decline in
income tax expense was related to the decrease in the statutory tax rate applicable to Puerto Rico
corporations from 43.5% and 41.5% in 2006 to 39% in 2007.
Income tax expense for the nine-month period ended September 30, 2007 amounted to $36.5 million, a
decrease of $51.5 million over the amount reported for the same period in 2006. The
decrease was primarily due to lower pre-tax earnings and by an increase in income subject to a
lower preferential tax rate. Also, income tax expense decreased by the reduction in the statutory
tax rate in the Puerto Rico operations. These decreases were partially offset by lower exempt
interest income net of disallowance of expenses attributed to such exempt income, and by the
reversal of several tax positions during 2006 upon the completion of various federal and Puerto
Rico tax audits. The effective tax rate for the nine months ended September 30, 2007 was 13.72%,
compared with 22.81% for the same period in 2006.
76
REPORTABLE SEGMENT RESULTS
The Corporations reportable segments for managerial reporting purposes consist of Banco Popular de
Puerto Rico, Popular North America 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 three reportable segments. For a description of the Corporations
reportable segments, including additional financial information and the underlying management
accounting process, refer to Note 21 to the consolidated financial statements. Financial
information for periods prior to 2007 was restated to conform to the 2007 presentation.
The Corporate group had a net loss of $7.9 million in the third quarter of 2007, compared with a
net loss of $15.7 million in the same quarter of 2006. The Corporate group had net income of $67.6
million for the nine months ended September 30, 2007, compared to net losses of $18.1 million in
the same period of the previous year. During the nine months ended September 30, 2007, the
Corporate group realized net gains on the sale and valuation adjustment of investment securities
approximating $107.3 million, mainly due to a gain on the sale of TELPRI shares in the first
quarter of 2007, compared with $14.2 million in the same period of 2006. This favorable variance on
the year-to-date results of the Corporate group was offset in part by higher income tax expense
in 2007, compared to tax benefits due to a taxable loss in 2006.
Highlights on the earnings results for the reportable segments are discussed below.
Banco Popular de Puerto Rico
The Banco Popular de Puerto Rico reportable segment reported net income of $80.2 million for the
quarter ended September 30, 2007, a decrease of $7.8 million, or 9%, when compared with the same
quarter in the previous year. The main factors that contributed to the variance in results for the
quarter ended September 30, 2007, when compared to the third quarter of 2006, included:
|
|
|
higher net interest income by $14.5 million, or 6%, primarily related to the commercial
banking business; |
|
|
|
|
higher provision for loan losses by $34.1 million, or 107%, primarily associated with
higher net charge-offs mainly in the consumer and commercial loan portfolios. The ratio of
allowance for loan losses to loans held-in-portfolio for the Banco Popular de Puerto Rico
reportable segment was 2.22% at September 30, 2007, compared with 2.06% at September 30,
2006. The provision for loan losses represented 136% of net charge-offs for the third
quarter of 2007, compared with 103% of net charge-offs in the same period of 2006. The net
charge-offs to average loans held-in-portfolio for the Banco Popular de Puerto Rico
operations was 1.23% for the quarter ended September 30, 2007, compared with 0.84% in the
same quarter of the previous year. The provision for the third quarter of 2007 considers
deterioration in the loan portfolio in Puerto Rico due to continued slowdown in the local
economy; |
|
|
|
|
higher non-interest income by $14.7 million, or 14%, mainly due to a favorable variance
in the caption of gain on sales of loans because of the aforementioned $20.1 million loss
on the bulk sale of mortgage loans in the third quarter of 2006. Also, there were higher
other service fees in the third quarter of 2007, principally credit cards and mortgage
servicing fees. These favorable variances in non-interest income were partially offset by
lower gains on the sale of investment securities influenced by the aforementioned gain on
the sale of the FNMA securities in 2006; |
|
|
|
|
higher operating expenses by $1.9 million, or 1%, primarily associated with higher
professional fees, partially offset by lower personnel costs and equipment expenses; and |
|
|
|
|
higher income taxes by $0.9 million, or 3%, primarily due to lower exempt interest
income net of disallowance of expenses attributed to such exempt income, partially offset
by lower pre-tax earnings and a lower statutory tax rate. |
Net income for the nine months ended September 30, 2007 totaled $247.1 million, a decrease of $31.3
million, or 11%, compared with the same period in the previous year. These results reflected:
|
|
|
higher net interest income by $29.1 million, or 4%; |
|
|
|
|
higher provision for loan losses by $87.2 million, or 98%; |
|
|
|
|
higher non-interest income by $39.8 million, or 13%; |
|
|
|
|
higher operating expenses by $17.4 million, or 3%; and |
|
|
|
|
lower income tax expense by $4.4 million. |
77
EVERTEC
EVERTECs net income for the quarter ended September 30, 2007 totaled $8.1 million, an increase of
$0.4 million, or 5%, compared with the results of the same quarter in the previous year.
The principal factors that contributed to the variance in results for the quarter ended September
30, 2007, when compared with the third quarter of 2006, included:
|
|
|
higher net interest income by $0.4 million; |
|
|
|
|
higher non-interest income by $2.1 million, or 4%, as a result of higher customer debit
accounts and higher electronic transactions processing fees related to the automated teller
machine network; |
|
|
|
|
higher operating expenses by $2.3 million, or 5%, primarily due to higher personnel
costs and to a loss reserve established related to EVERTECs Venezuela operations. As of
September 30, 2007, a reserve of approximately $2.1 million had been recorded to provide
for expected losses on the realization of accounts receivable due from EVERTEC de
Venezuela. Those accounts receivable are recorded in U.S. dollars at the official currency
exchange rate. However, due to Venezuelas uncertain political and economic market
conditions and the options available to exchange bolívares for U.S. dollars, a loss may
be realized at the time the exchange is made to pay for those accounts receivable, since
the conversion is actually being made at a more unfavorable exchange rate, based on a
parallel market. The accounts receivable from Venezuela operations amounted to
approximately $3.0 million at September 30, 2007. |
|
|
|
|
lower income tax expense by $0.1 million primarily due to a reduction in the tax rate
from 41.5% in 2006 to 39% in 2007. |
Net income for the nine months ended September 30, 2007 totaled $21.9 million, compared with net
income of $18.2 million for the same period in the previous year. These results reflected:
|
|
|
higher non-interest income by $9.5 million, or 6%; |
|
|
|
|
higher operating expenses by $5.6 million, or 4%, and |
|
|
|
|
higher income tax expense by $1.3 million. |
Popular North America
For the quarter ended September 30, 2007, net loss for the reportable segment of Popular North
America totaled $44.7 million, compared to net income of $1.8 million for the third quarter of
2006. The main factors that contributed to this quarterly variance included:
|
|
|
lower net interest income by $2.2 million, or 2%; |
|
|
|
|
higher provision for loan losses by $50.5 million, or 160%, primarily due to higher net
charge-offs in the mortgage loan portfolios, especially with respect to the subprime
mortgages. The ratio of allowance for loan losses to loans held-in-portfolio for the
Popular North America reportable segment was 1.45% at September 30, 2007, compared with
1.10% at September 30, 2006. The provision for loan losses represented 128% of net
charge-offs for the third quarter of 2007, compared with 109% of net charge-offs in the
same period of 2006. The net charge-offs to average loans held-in-portfolio for the Popular
North America operations was 1.53% for the quarter ended September 30, 2007, compared with
0.70% in the same quarter of the previous year. |
|
|
|
|
lower non-interest income by $43.2 million, or 63%, mainly due to lower gain on sale of
loans by $33.7 million mainly due to the exiting of the wholesale subprime mortgage
business by PFH and lower volume of originations in E-LOAN due to softening in the U.S.
mainland mortgage and housing market and the lack of liquidity in the private secondary
markets. Also, the reduction in non-interest income includes the impact of the unfavorable
valuation adjustments of PFHs residual interests of $14.1 million in the third quarter of
2007, compared to $0.8 million in the same quarter of 2006; partially offset by higher
other service fees, primarily mortgage servicing related fees; |
|
|
|
|
lower operating expenses by $17.0 million, or 11%, mainly due to lower personnel costs,
business promotion, net occupancy expenses, equipment expenses and amortization of
intangibles, partially offset by higher professional fees and higher operating expenses.
These variances are principally associated with PFHs Restructuring Plan and other general
variances covered in the Operating Expenses section of this MD&A; and |
|
|
|
|
income tax benefit of $29.7 million in the third quarter of 2007 due to taxable losses,
compared with income tax expense of $2.7 million in the third quarter of 2006. |
78
Net losses for the nine months ended September 30, 2007 totaled $107.7 million, compared with net
income of $20.3 million in the same period of the previous year. These results reflected:
|
|
|
lower net interest income by $22.2 million, or 5%; |
|
|
|
|
higher provision for loan losses by $93.0 million, or 103%; |
|
|
|
|
lower non-interest income by $125.1 million, or 66%, which includes lower gain on sale
of loans by $50.1 million, the unfavorable valuation adjustments of $25.3 million in the
value of mortgage loans held-for-sale and the impact of the unfavorable valuation
adjustments of residual interests held by PFH. These are generally described in the
Non-Interest section of this MD&A. The unfavorable valuation adjustments of residual
interests amounted to $69.1 million in the nine-month period ended September 30, 2007,
compared with $17.8 million in the same period of 2006. |
|
|
|
|
lower operating expenses by $33.8 million, or 7%; mainly due to lower personnel costs
due to the restructuring plan implemented at PFH, lower business promotion expenses and
last years recognition of PFHs subsidiaries impact of change in fiscal period which
amounted to $6.2 million (increased operating expenses for 2006), partially offset by
higher professional fees expenses; and |
|
|
|
|
income tax benefit of $64.0 million for the nine-month period ended September 30, 2007,
compared with income tax expense of $14.4 million in the same period in 2006. |
RESTRUCTURING PLAN
As indicated in the 2006 Annual Report, in January 2007, the Corporation announced the
Restructuring Plan of PFHs businesses. The Restructuring Plan had the following four basic
components:
|
|
|
exiting the wholesale subprime mortgage origination business during the first quarter of
2007, which entailed shutting down the wholesale broker, retail and call center business
divisions; |
|
|
|
|
consolidating support activities at PFH (Finance, Credit Risk, Compliance, Human
Resources, Facilities) within BPNA to reduce expenses; |
|
|
|
|
integrating PFHs existing commercial lending businesses (mortgage warehouse and mixed
use) into BPNAs business lending groups; and |
|
|
|
|
focusing on the core Equity One network of 132 consumer finance branches in 15 states. |
As part of the Restructuring Plan, the Corporation also executed an internal corporate
reorganization of its U.S. subsidiaries. In January 2007, E-LOAN, as well as all of its direct and
indirect subsidiaries, with the exception of E-LOAN Insurance Services, Inc. and E-LOAN
International, Inc., became operating subsidiaries of BPNA. Prior to the consummation of this U.S.
reorganization, E-LOAN was a direct wholly-owned subsidiary of PFH. E-LOAN continues to offer its
broad range of products and conducts its direct activities through its online platform. Management
will be leveraging the E-LOAN brand, technology and internet financial services platform over the
next several years to complement BPNAs community banking growth strategy.
This reorganization and the Restructuring Plan led management to redefine its business reportable
segments. Commencing in 2007, the U.S. operations are combined into a single reportable segment
defined as Popular North America. This segment includes the operations of BPNA and PFH, including
all of its wholly-owned subsidiaries.
For the nine-month period ended September 30, 2007, the Corporation recorded pre-tax restructuring
charges in the Popular North America segment related to the Restructuring Plan as follows:
|
|
|
|
|
|
|
Nine months ended |
(In thousands) |
|
September 30, 2007 |
|
Severance, stay bonuses and other benefits |
|
$ |
8,124 |
|
Outplacement costs |
|
|
1,019 |
|
Lease terminations |
|
|
4,413 |
|
Others |
|
|
1,340 |
|
|
Total restructuring costs |
|
$ |
14,896 |
|
|
79
There were no significant charges related to the Restructuring Plan recorded in the third quarter
of 2007. The above restructuring costs were recorded substantially in the first quarter of 2007.
Refer to the Operating Expenses section of this MD&A for the classification of these charges in the
consolidated statements of income. Of the above restructuring costs, approximately $4.2 million
were recognized as a liability as of September 30, 2007 and are expected to be paid out with
operating cash flows. These costs correspond primarily to lease termination costs.
During the fourth quarter of 2006, and as a result of the Restructuring Plan, the Corporation
recognized impairment charges on long-lived assets of $7.2 million, mainly associated with software
and leasehold improvements, and impairment in goodwill of $14.2 million.
As of September 30, 2007, the Restructuring Plan has resulted in estimated combined charges of
$36.4 million, broken down as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments on |
|
|
|
|
|
|
goodwill and |
|
Restructuring |
|
|
(In thousands) |
|
long-lived assets |
|
costs |
|
Total |
|
Quarter ended: |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
$ |
21,471 |
|
|
|
|
|
|
$ |
21,471 |
|
March 31, 2007 |
|
|
|
|
|
$ |
15,135 |
|
|
|
15,135 |
|
June 30, 2007 |
|
|
|
|
|
|
(219 |
) |
|
|
(219 |
) |
September 30, 2007 |
|
|
|
|
|
|
(20 |
) |
|
|
(20 |
) |
|
Total |
|
$ |
21,471 |
|
|
$ |
14,896 |
|
|
$ |
36,367 |
|
|
The Corporation does not expect to incur additional significant restructuring costs in the
remaining quarter of 2007. Settlement amounts in lease terminations may differ and are subject
to the outcome of negotiations.
It is anticipated that the cost reduction initiatives resulting from the Restructuring Plan will
result in an expense reduction of approximately $39 million on an annualized basis, related to
approximately $34 million in salary and benefits, $3 million in net occupancy expenses and $2
million in equipment expenses.
The Corporation exited PFHs wholesale broker, retail mortgage and call center origination
channels during the first quarter of 2007. In addition, the Corporation had previously exited
PFHs asset acquisition channel in early 2006. Certain mortgage loan assets originated through
these channels are expected to run-off over a time period which may
average 3 years.
Financial results for PFHs exited operations for the third quarter 2007 were an estimated loss
of $45.7 million, net of taxes. The net loss approximated $132.4 million, net of taxes, for the
nine-month period ended September 30, 2007. The net loss considers the impairments in the
valuation of the residual interests taken during 2007, the restructuring charges previously
mentioned and increased provisioning for loan losses as a result of the credit deterioration in
the subprime market.
PFH has conducted mortgage loan securitizations since 1997. Securitizations conducted prior to
2001 and certain securitizations conducted during 2005, 2006 and 2007 qualified for sale
accounting under the provisions of SFAS No. 140. Accordingly, the loans sold in these
off-balance sheet securitizations are not consolidated in the Corporations financial
statements. The unpaid principal balances (UPB) of these sold loans amounted to $2.2 billion
at September 30, 2007. The outstanding balance of residual interests and MSRs related to these
off-balance sheet securitizations was $22 million and $30 million, respectively, at September
30, 2007. As previously mentioned, during the nine months ended September 30, 2007, the
Corporation recognized other-than-temporary impairments amounting to $69.1 million related to
these residual interests.
The business channels exited also originated mortgage loans, which were used by PFH in
conducting asset securitizations that did not meet the sale criteria under SFAS No. 140;
accordingly, the transactions were treated as on-balance sheet securitizations for accounting
purposes. The loans that serve as collateral for these asset securitizations are referred to in
this MD&A as loans owned-in-trust and approximated $3.7 billion as of September 30, 2007.
80
As of September 30, 2007, the exited lines of business also had outstanding $964 million in
mortgage loans that were not sold / securitized, and are included in Table F under the column
Owned Centralized. The term centralized refers to loans originated outside PFHs branch
network, such as brokers, customer loan center and asset acquisition, among others.
Refer to Table F for a breakdown of PFHs mortgage loans held-in-portfolio between owned and
owned-in-trust. To provide a better view of the characteristics, behavior and credit exposure
of the portfolio, it is segregated between those loans originated through the exited channels
(centralized) and those originated through branches, which is the continuing business of PFH.
Of the PFHs total mortgage loans held-in-portfolio as of September 30, 2007, $3.9 billion, or
approximately 69%, had FICO® scores of 660 or below. As distinguished by coupon type,
76% of PFHs mortgage loans held-in-portfolio had fixed-rate coupons, while 24% had adjustable
rates (ARMs).
As of
September 30, 2007, $251 million in ARMs were scheduled to readjust their rate for the first
time between October 1, 2007 and December 31, 2007, and
$478 million were scheduled to readjust
their rate in 2008.
The average FICO® score for PFHs mortgage loans held-in-portfolio was 612 as of
September 30, 2007 while the average original loan-to-value ratio of the portfolio was
83.27%.
One of the characteristics of subprime loans is that their delinquency and charge-off rates tend to
be higher than for agency conforming loans and Alt-A loans. Alt-A loans are loans usually made to
borrowers who have unsteady sources of income or simply have too little documented income to
qualify for a conforming loan. For the quarter ended September 30, 2007, the ratio of
non-performing mortgage loans to mortgage loans held-in-portfolio for PFH amounted to 7.94%, while
annualized mortgage charge-offs to average loans for the quarter amounted to 2.73%.
Also, refer to the Mortgage Loan Exposure section for additional information on PFHs mortgage
loan portfolio, maximum credit exposure in the owned-in-trust portfolio and certain
sensitivity analyses with respect to hypothetical credit losses.
81
Table
F
PFH Mortgage Loan Portfolio Performance Trends (excludes loans held-for-sale)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned Centralized (a) |
|
|
Owned - Branches (a) |
($ in millions) |
|
9-30-07 |
|
6-30-07 |
|
12-31-06 |
|
|
9-30-07 |
|
6-30-07 |
|
12-31-06 |
|
|
|
Current Balance (c)
($ in millions) |
|
$ |
964 |
|
|
$ |
971 |
|
|
$ |
1,174 |
|
|
|
$ |
1,122 |
|
|
$ |
1,081 |
|
|
$ |
1,017 |
|
First Liens |
|
$ |
808 |
|
|
$ |
790 |
|
|
$ |
977 |
|
|
|
$ |
986 |
|
|
$ |
948 |
|
|
$ |
891 |
|
Second Liens |
|
$ |
156 |
|
|
$ |
180 |
|
|
$ |
197 |
|
|
|
$ |
136 |
|
|
$ |
134 |
|
|
$ |
126 |
|
Weighted-average coupon (WAC) |
|
|
8.92 |
% |
|
|
8.92 |
% |
|
|
8.78 |
% |
|
|
|
9.00 |
% |
|
|
9.02 |
% |
|
|
8.98 |
% |
Avg. Loan-to-Value (LTV) (d) |
|
|
86.47 |
% |
|
|
86.26 |
% |
|
|
85.50 |
% |
|
|
|
79.38 |
% |
|
|
79.29 |
% |
|
|
79.09 |
% |
Avg. Loan Balance
($ in thousands) |
|
$ |
96 |
|
|
$ |
93 |
|
|
$ |
96 |
|
|
|
$ |
55 |
|
|
$ |
54 |
|
|
$ |
52 |
|
Avg. FICO® score (e) |
|
|
598 |
|
|
|
598 |
|
|
|
604 |
|
|
|
|
610 |
|
|
|
610 |
|
|
|
609 |
|
Bankruptcy (% of $ ) |
|
|
3.32 |
% |
|
|
3.44 |
% |
|
|
2.45 |
% |
|
|
|
3.04 |
% |
|
|
3.22 |
% |
|
|
3.52 |
% |
Total Delinquency |
|
|
17.73 |
% |
|
|
17.72 |
% |
|
|
12.57 |
% |
|
|
|
3.80 |
% |
|
|
3.46 |
% |
|
|
4.17 |
% |
30 Days (% of $ ) |
|
|
4.11 |
% |
|
|
3.89 |
% |
|
|
3.29 |
% |
|
|
|
1.31 |
% |
|
|
0.97 |
% |
|
|
1.67 |
% |
60 Days (% of $ ) |
|
|
1.85 |
% |
|
|
1.88 |
% |
|
|
1.31 |
% |
|
|
|
0.59 |
% |
|
|
0.48 |
% |
|
|
0.42 |
% |
90+ Days (% of $ ) |
|
|
5.00 |
% |
|
|
4.82 |
% |
|
|
3.43 |
% |
|
|
|
1.26 |
% |
|
|
1.19 |
% |
|
|
1.39 |
% |
Foreclosure (% of $) |
|
|
6.77 |
% |
|
|
7.13 |
% |
|
|
4.54 |
% |
|
|
|
0.64 |
% |
|
|
0.82 |
% |
|
|
0.69 |
% |
Business Channel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker |
|
|
35 |
% |
|
|
37 |
% |
|
|
41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Acquisition |
|
|
30 |
% |
|
|
32 |
% |
|
|
32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Mortgage (call centers) |
|
|
8 |
% |
|
|
7 |
% |
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Loan Center (CLC) (f) |
|
|
24 |
% |
|
|
16 |
% |
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Decentralized (branches) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
Other |
|
|
3 |
% |
|
|
8 |
% |
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate |
|
|
54 |
% |
|
|
45 |
% |
|
|
42 |
% |
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
ARM (Adjustable rate mortgage) |
|
|
25 |
% |
|
|
31 |
% |
|
|
37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balloon |
|
|
19 |
% |
|
|
22 |
% |
|
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest only - Fixed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest only - ARM |
|
|
2 |
% |
|
|
2 |
% |
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Owned portfolio represents mortgage loans originated / acquired, but not sold / securitized. |
|
(b) |
|
Owned-in-trust represents mortgage loans securitized in on-balance sheet securitizations, as such, are part of PFHs portfolio under SFAS No. 140. |
|
(c) |
|
Excluding deferred fees, origination costs, net premiums and other items. |
|
(d) |
|
LTV a lending risk ratio calculated by dividing the
total amount of the mortgage or loan by the fair value of the
property. The LTV presented is based on amounts at loan origination
date. |
|
(e) |
|
FICO® the Corporation uses external credit scores as a useful measure for assessing the credit quality of a borrower. These scores are numbers
supplied by credit information providers, based on statistical models that summarize an individuals credit record. FICO® scores, developed by Fair
Isaac Corporation, are the most commonly used credit scores. |
|
(f) |
|
CLC unit that anticipates possible refinancing needs of the customer and makes efforts to retain the customer by offering the companys products. |
82
Table
F (Continued)
PFH Mortgage Loan Portfolio Performance Trends (excludes loans held-for-sale)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Owned (a) |
|
|
Owned-in-Trust (b) |
($ in millions) |
|
9-30-07 |
|
6-30-07 |
|
12-31-06 |
|
|
9-30-07 |
|
6-30-07 |
|
12-31-06 |
|
|
|
Current Balance (c)
($ in millions) |
|
$ |
2,086 |
|
|
$ |
2,052 |
|
|
$ |
2,191 |
|
|
|
$ |
3,641 |
|
|
$ |
3,947 |
|
|
$ |
4,543 |
|
First Liens |
|
$ |
1,794 |
|
|
$ |
1,738 |
|
|
$ |
1,868 |
|
|
|
$ |
3,618 |
|
|
$ |
3,922 |
|
|
$ |
4,511 |
|
Second Liens |
|
$ |
292 |
|
|
$ |
314 |
|
|
$ |
323 |
|
|
|
$ |
23 |
|
|
$ |
25 |
|
|
$ |
32 |
|
Weighted-average coupon (WAC) |
|
|
8.96 |
% |
|
|
8.97 |
% |
|
|
8.87 |
% |
|
|
|
7.67 |
% |
|
|
7.56 |
% |
|
|
7.55 |
% |
Avg. Loan-to-Value (LTV) (d) |
|
|
82.55 |
% |
|
|
82.64 |
% |
|
|
82.66 |
% |
|
|
|
83.88 |
% |
|
|
83.93 |
% |
|
|
83.39 |
% |
Avg. Loan Balance
($ in thousands) |
|
$ |
68 |
|
|
$ |
67 |
|
|
$ |
69 |
|
|
|
$ |
137 |
|
|
$ |
139 |
|
|
$ |
140 |
|
Avg. FICO® score (e) |
|
|
606 |
|
|
|
606 |
|
|
|
607 |
|
|
|
|
618 |
|
|
|
617 |
|
|
|
620 |
|
Bankruptcy (% of $ ) |
|
|
3.17 |
% |
|
|
3.32 |
% |
|
|
2.95 |
% |
|
|
|
3.15 |
% |
|
|
2.80 |
% |
|
|
2.18 |
% |
Total Delinquency |
|
|
10.26 |
% |
|
|
10.21 |
% |
|
|
8.66 |
% |
|
|
|
14.73 |
% |
|
|
11.94 |
% |
|
|
10.93 |
% |
30 Days (% of $ ) |
|
|
2.61 |
% |
|
|
2.35 |
% |
|
|
2.54 |
% |
|
|
|
4.01 |
% |
|
|
3.09 |
% |
|
|
3.48 |
% |
60 Days (% of $ ) |
|
|
1.18 |
% |
|
|
1.14 |
% |
|
|
0.89 |
% |
|
|
|
1.69 |
% |
|
|
1.31 |
% |
|
|
1.30 |
% |
90+ Days (% of $ ) |
|
|
2.99 |
% |
|
|
2.91 |
% |
|
|
2.48 |
% |
|
|
|
2.33 |
% |
|
|
2.09 |
% |
|
|
1.84 |
% |
Foreclosure (% of $) |
|
|
3.48 |
% |
|
|
3.81 |
% |
|
|
2.75 |
% |
|
|
|
6.70 |
% |
|
|
5.45 |
% |
|
|
4.31 |
% |
Business Channel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker |
|
|
16 |
% |
|
|
17 |
% |
|
|
22 |
% |
|
|
|
16 |
% |
|
|
16 |
% |
|
|
17 |
% |
Asset Acquisition |
|
|
14 |
% |
|
|
15 |
% |
|
|
17 |
% |
|
|
|
72 |
% |
|
|
72 |
% |
|
|
72 |
% |
Retail Mortgage (call centers) |
|
|
4 |
% |
|
|
4 |
% |
|
|
4 |
% |
|
|
|
6 |
% |
|
|
6 |
% |
|
|
6 |
% |
Customer Loan Center (CLC) (f) |
|
|
11 |
% |
|
|
7 |
% |
|
|
6 |
% |
|
|
|
5 |
% |
|
|
5 |
% |
|
|
4 |
% |
Decentralized (branches) |
|
|
54 |
% |
|
|
53 |
% |
|
|
46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
1 |
% |
|
|
4 |
% |
|
|
3 |
% |
|
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
Product Type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate |
|
|
78 |
% |
|
|
74 |
% |
|
|
69 |
% |
|
|
|
65 |
% |
|
|
63 |
% |
|
|
60 |
% |
ARM (Adjustable rate mortgage) |
|
|
12 |
% |
|
|
15 |
% |
|
|
20 |
% |
|
|
|
25 |
% |
|
|
26 |
% |
|
|
29 |
% |
Balloon |
|
|
9 |
% |
|
|
10 |
% |
|
|
10 |
% |
|
|
|
4 |
% |
|
|
4 |
% |
|
|
4 |
% |
Interest
only - Fixed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
Interest only - ARM |
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
|
5 |
% |
|
|
6 |
% |
|
|
6 |
% |
|
|
|
(a) |
|
Owned portfolio represents mortgage loans originated / acquired, but not sold / securitized. |
|
(b) |
|
Owned-in-trust represents mortgage loans securitized in on-balance sheet securitizations, as such, are part of PFHs portfolio under SFAS No. 140. |
|
(c) |
|
Excluding deferred fees, origination costs, net premiums and other items. |
|
(d) |
|
LTV a lending risk ratio calculated by dividing the
total amount of the mortgage or loan by the fair value of the property. The LTV presented is based on amounts at loan origination
date. |
|
(e) |
|
FICO® the Corporation uses external credit scores as a useful measure for assessing the credit quality of a borrower. These scores are numbers
supplied by credit information providers, based on statistical models that summarize an individuals credit record. FICO® scores, developed by Fair
Isaac Corporation, are the most commonly used credit scores. |
|
(f) |
|
CLC unit that anticipates possible refinancing needs of the customer and makes efforts to retain the customer by offering the companys products. |
83
FINANCIAL CONDITION
Refer to the consolidated financial statements included in this Form 10-Q for the Corporations
consolidated statements of condition as of September 30, 2007, December 31, 2006 and September 30,
2006. Also, refer to Table A for financial highlights on major line items of the consolidated
statements of condition.
When compared to December 31, 2006, total assets as of September 30, 2007 remained stable,
reflecting a slight decrease of less than 1%. When compared to September 30, 2006, total assets as
of September 30, 2007 increased by less than 1%.
A breakdown at period-end of the Corporations loan portfolio, its principal category of earning
assets, is presented in Table G below.
TABLE
G
Loans Ending Balances (including Loans Held-for-Sale)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
|
|
|
|
September 30, 2007 |
|
|
September 30, |
|
December 31, |
|
Vs. |
|
September 30, |
|
Vs. |
(In thousands) |
|
2007 |
|
2006 |
|
December 31, 2006 |
|
2006 |
|
September 30, 2006 |
|
Commercial * |
|
$ |
15,527,062 |
|
|
$ |
14,536,837 |
|
|
$ |
990,225 |
|
|
$ |
14,071,713 |
|
|
$ |
1,455,349 |
|
Lease financing |
|
|
1,156,773 |
|
|
|
1,226,490 |
|
|
|
(69,717 |
) |
|
|
1,265,843 |
|
|
|
(109,070 |
) |
Mortgage ** |
|
|
10,840,576 |
|
|
|
11,695,156 |
|
|
|
(854,580 |
) |
|
|
11,252,771 |
|
|
|
(412,195 |
) |
Consumer |
|
|
5,796,393 |
|
|
|
5,278,456 |
|
|
|
517,937 |
|
|
|
5,166,632 |
|
|
|
629,761 |
|
|
Total |
|
$ |
33,320,804 |
|
|
$ |
32,736,939 |
|
|
$ |
583,865 |
|
|
$ |
31,756,959 |
|
|
$ |
1,563,845 |
|
|
|
|
|
* |
|
Includes commercial construction |
|
** |
|
Includes residential construction |
The increase in commercial loans from December 31, 2006 to September 30, 2007 included growth in
commercial mortgage, construction and SBA loans. The increase in commercial loans from September
30, 2006 to September 30, 2007 also reflected growth in those areas. Commercial construction loans,
which are included within the commercial category in Table G, amounted to $1.8 billion at September
30, 2007, compared with $1.4 billion at December 31, 2006 and $1.3 billion at September 30, 2006.
The decline in mortgage loans from December 31, 2006 to September 30, 2007 was mostly due to the
off-balance sheet securitization completed by PFH in the second quarter of 2007 as described in the
Non-Interest Income section of this MD&A, which involved approximately $461 million in unpaid
principal balance of subprime mortgage loans. Also, the reduction was in part due to lower
origination volume resulting from exiting certain loan origination channels of the PFH operations
and the impact of the softening in the housing market which also influenced E-LOANs originations.
The decline in mortgage loans from September 30, 2006 to the same date in 2007 was also affected by
those factors.
84
A breakdown of the consumer loan portfolio is presented in Table H.
TABLE
H
Breakdown of Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
|
|
|
|
September 30, 2007 |
|
|
September 30, |
|
December 31, |
|
Vs. |
|
September 30, |
|
Vs. |
(In thousands) |
|
2007 |
|
2006 |
|
December 31, 2006 |
|
2006 |
|
September 30, 2006 |
|
Personal |
|
$ |
2,974,405 |
|
|
$ |
2,457,619 |
|
|
$ |
516,786 |
|
|
$ |
2,331,814 |
|
|
$ |
642,591 |
|
Auto |
|
|
1,515,548 |
|
|
|
1,570,308 |
|
|
|
(54,760 |
) |
|
|
1,601,944 |
|
|
|
(86,396 |
) |
Credit cards |
|
|
1,087,587 |
|
|
|
1,032,546 |
|
|
|
55,041 |
|
|
|
1,020,108 |
|
|
|
67,479 |
|
Other |
|
|
218,853 |
|
|
|
217,983 |
|
|
|
870 |
|
|
|
212,766 |
|
|
|
6,087 |
|
|
Total |
|
$ |
5,796,393 |
|
|
$ |
5,278,456 |
|
|
$ |
517,937 |
|
|
$ |
5,166,632 |
|
|
$ |
629,761 |
|
|
The increase in personal loans from December 31, 2006 to September 30, 2007 was principally
attributed to higher volume of home equity lines of credit in the Popular North America operations.
The increase from September 30, 2006 to the same date in 2007 was also attributed to higher volume
of home equity lines. The reduction in auto loans from December 31, 2006 and September 30, 2006 to
September 30, 2007 was twofold. First, there was a decline in the auto loan portfolio of the
Popular North America reportable segment as BPNAs auto loans portfolio continues to runoff because
of managements decision to cease auto loan originations through dealer channels and instead focus
on originating auto loans through the E-LOAN channel. Second, the economic slowdown in the Puerto
Rico market has reduced automobile sales, which has decreased the size of the overall Puerto Rico
auto loan market.
Investment securities available-for-sale (AFS) and held-to-maturity (HTM) totaled $9.2 billion
at September 30, 2007, compared with $9.9 billion at December 31, 2006 and $10.5 billion at
September 30, 2006.
A breakdown of the Corporations investment securities available-for-sale and held-to-maturity is
provided in Table I.
TABLE
I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
|
|
|
September 30, |
|
|
(In millions) |
|
2007 |
|
2006 |
|
Variance |
|
2006 |
|
Variance |
|
U.S Treasury securities |
|
$ |
475.8 |
|
|
$ |
474.8 |
|
|
$ |
1.0 |
|
|
$ |
493.5 |
|
|
($ |
17.7 |
) |
Obligations of U.S. government sponsored entities |
|
|
6,014.6 |
|
|
|
6,458.8 |
|
|
|
(444.2 |
) |
|
|
6,891.9 |
|
|
|
(877.3 |
) |
Obligations of Puerto Rico, states and political
subdivisions |
|
|
178.3 |
|
|
|
187.1 |
|
|
|
(8.8 |
) |
|
|
188.5 |
|
|
|
(10.2 |
) |
Collateralized mortgage obligations |
|
|
1,469.7 |
|
|
|
1,645.7 |
|
|
|
(176.0 |
) |
|
|
1,713.3 |
|
|
|
(243.6 |
) |
Mortgage-backed securities |
|
|
949.5 |
|
|
|
1,036.8 |
|
|
|
(87.3 |
) |
|
|
1,071.2 |
|
|
|
(121.7 |
) |
Equity securities |
|
|
41.3 |
|
|
|
73.8 |
|
|
|
(32.5 |
) |
|
|
72.8 |
|
|
|
(31.5 |
) |
Other |
|
|
28.6 |
|
|
|
65.2 |
|
|
|
(36.6 |
) |
|
|
84.6 |
|
|
|
(56.0 |
) |
|
Total |
|
$ |
9,157.8 |
|
|
$ |
9,942.2 |
|
|
($ |
784.4 |
) |
|
$ |
10,515.8 |
|
|
($ |
1,358.0 |
) |
|
The vast majority of these investment securities, or approximately 99%, are rated the equivalent of
AAA by the major rating agencies. The mortgage-backed securities (MBS) and collateralized
mortgage obligations (CMOs) are investment grade securities, all of which are rated AAA by at
least one of the three major rating agencies as of September 30, 2007. All MBS held by the
Corporation and approximately 83% of the CMOs held as of September 30, 2007 are guaranteed by
government sponsored entities.
The decrease in the Corporations AFS and HTM investment securities portfolio from September 30,
2006 to the same date in 2007 was mainly due to maturities of U.S. agency securities with low
rates, which were not replaced, in part because the interest spread was not favorable, and also as
part of the Corporations strategy to deleverage the balance sheet and reduce lower yielding
assets. Notes 5 and 6 to the consolidated financial statements provide additional information of
the Corporations available-for-sale and held-to-maturity investment portfolios.
85
Refer to Note 10 of the consolidated financial statements for details on the composition of
intangible assets.
Table J provides a breakdown of the Other Assets caption presented in the consolidated statements
of condition.
TABLE J
Breakdown of Other Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Vs. |
|
|
|
|
|
Vs. |
|
|
September 30, |
|
December 31, |
|
December 31, |
|
September 30, |
|
September 30, |
(In thousands) |
|
2007 |
|
2006 |
|
2006 |
|
2006 |
|
2006 |
|
Net deferred tax assets |
|
$ |
420,288 |
|
|
$ |
359,433 |
|
|
$ |
60,855 |
|
|
$ |
305,943 |
|
|
$ |
114,345 |
|
Bank-owned life insurance program |
|
|
212,698 |
|
|
|
206,331 |
|
|
|
6,367 |
|
|
|
203,967 |
|
|
|
8,731 |
|
Servicing rights |
|
|
196,992 |
|
|
|
164,999 |
|
|
|
31,993 |
|
|
|
172,323 |
|
|
|
24,669 |
|
Prepaid expenses |
|
|
187,725 |
|
|
|
168,717 |
|
|
|
19,008 |
|
|
|
179,102 |
|
|
|
8,623 |
|
Investments under the equity method |
|
|
85,806 |
|
|
|
66,794 |
|
|
|
19,012 |
|
|
|
65,760 |
|
|
|
20,046 |
|
Securitization advances and related assets |
|
|
82,980 |
|
|
|
181,387 |
|
|
|
(98,407 |
) |
|
|
139,914 |
|
|
|
(56,934 |
) |
Derivative assets |
|
|
64,981 |
|
|
|
55,413 |
|
|
|
9,568 |
|
|
|
58,427 |
|
|
|
6,554 |
|
Others |
|
|
190,211 |
|
|
|
408,816 |
|
|
|
(218,605 |
) |
|
|
249,464 |
|
|
|
(59,253 |
) |
|
Total |
|
$ |
1,441,681 |
|
|
$ |
1,611,890 |
|
|
($ |
170,209 |
) |
|
$ |
1,374,900 |
|
|
$ |
66,781 |
|
|
Explanations for the principal variances from December 31, 2006 to September 30, 2007 were:
|
|
|
Increase in net deferred tax assets was mainly associated with the increase in the
allowance for loan losses and the increase in net operating loss carryforwards, partially
offset by lower unrealized losses on securities available-for-sale. |
|
|
|
|
Increase in servicing rights was mainly due to purchased mortgage servicing rights in
the Popular North America and BPPR reportable segments resulting from new servicing
contracts, mortgage servicing rights derived from the off-balance sheet securitization
executed by PFH in 2007, and from sales and securitizations of originated loans by the
Puerto Rico operations. Also, the increase was due in part to the adoption of SFAS No. 156
during 2007, pursuant to which the Corporation elected to account for residential mortgage
servicing rights at fair value. Notes 2 and 7 provide further information on the
implementation impact of this accounting pronouncement. |
|
|
|
|
The decrease in securitization advances and related assets was primarily associated to
PFHs on-balance sheet securitization performed in December 2006, which required a
pre-funded amount of $66 million to be held in trust. As disclosed in the 2006 Annual
Report, this pre-funded amount was classified as other asset in the consolidated statements
of condition. In early 2007, PFH delivered additional loans to the securitization trust and
received back the pre-funded amount. |
|
|
|
|
Decrease in the others caption was mainly due to lower trade receivables. At December
31, 2006, there were securities trade receivables of $232 million for mortgage-backed
securities sold prior to year-end, with a settlement date in January 2007. |
Principal variances in other assets from September 30, 2006 to the same date in 2007 were mostly
due to similar factors as described above.
86
The composition of the Corporations financing to total assets at September 30, 2007 and December
31, 2006 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% increase (decrease) |
|
|
|
|
|
|
|
|
from |
|
% of total assets |
|
|
September 30, |
|
December 31, |
|
December 31, 2006 to |
|
September 30, |
|
December 31, |
(Dollars in millions) |
|
2007 |
|
2006 |
|
September 30, 2007 |
|
2007 |
|
2006 |
|
Non-interest bearing
deposits |
|
$ |
3,975 |
|
|
$ |
4,222 |
|
|
|
(5.9 |
%) |
|
|
8.4 |
% |
|
|
8.9 |
% |
Interest-bearing core
deposits |
|
|
15,206 |
|
|
|
14,923 |
|
|
|
1.9 |
% |
|
|
32.2 |
% |
|
|
31.5 |
% |
Other interest-bearing
deposits |
|
|
7,420 |
|
|
|
5,293 |
|
|
|
40.2 |
% |
|
|
15.7 |
% |
|
|
11.2 |
% |
Federal funds and
repurchase agreements |
|
|
6,287 |
|
|
|
5,762 |
|
|
|
9.1 |
% |
|
|
13.3 |
% |
|
|
12.2 |
% |
Other short-term
borrowings |
|
|
1,415 |
|
|
|
4,034 |
|
|
|
(64.9 |
%) |
|
|
3.0 |
% |
|
|
8.5 |
% |
Notes payable |
|
|
8,315 |
|
|
|
8,737 |
|
|
|
(4.8 |
%) |
|
|
17.6 |
% |
|
|
18.4 |
% |
Others |
|
|
858 |
|
|
|
813 |
|
|
|
5.5 |
% |
|
|
1.8 |
% |
|
|
1.7 |
% |
Stockholders equity |
|
|
3,804 |
|
|
|
3,620 |
|
|
|
5.1 |
% |
|
|
8.0 |
% |
|
|
7.6 |
% |
|
A breakdown of the Corporations deposits at period-end is included in Table K.
TABLE
K
Deposits Ending Balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
Variance |
|
|
September 30, |
|
December 31, |
|
September 30, 2007 Vs. |
|
September 30, |
|
September 30, 2007 Vs. |
(In thousands) |
|
2007 |
|
2006 |
|
December 31, 2006 |
|
2006 |
|
September 30, 2006 |
|
Demand deposits * |
|
$ |
4,641,736 |
|
|
$ |
4,910,848 |
|
|
($ |
269,112 |
) |
|
$ |
4,324,476 |
|
|
$ |
317,260 |
|
Savings, NOW and money
market deposits |
|
|
9,328,094 |
|
|
|
9,200,732 |
|
|
|
127,362 |
|
|
|
8,397,040 |
|
|
|
931,054 |
|
Time deposits |
|
|
12,631,685 |
|
|
|
10,326,751 |
|
|
|
2,304,934 |
|
|
|
10,415,929 |
|
|
|
2,215,756 |
|
|
Total |
|
$ |
26,601,515 |
|
|
$ |
24,438,331 |
|
|
$ |
2,163,184 |
|
|
$ |
23,137,445 |
|
|
$ |
3,464,070 |
|
|
|
|
|
* |
|
Includes interest and non-interest bearing demand deposits. |
|
The growth in time deposits was principally in brokered certificates of deposit which increased
from $968 million at September 30, 2006 and $866 million at December 31, 2006 to $2.1 billion at
September 30, 2007. This increase in brokered certificates of deposit is directly related to the
Corporations decision to substitute short-term borrowings with deposits as a result of continued
instability in the global financial and capital markets. Refer to the Liquidity section later in
this MD&A for further information on the Corporations banking subsidiaries and holding companies
liquidity position. Also, the increase in time deposits from December 31, 2006 to September 30,
2007 was due to competitive interest rate campaigns by BPPR focused on certificates of deposit to
individuals, growth in public fund deposits and increased volume of time deposits gathered through
the E-LOAN internet platform. Similar factors influenced the variance in time deposits from
September 30, 2006. The time deposits gathered through E-LOANs internet platform approximated $866
million at September 30, 2007, compared with $426 million at December 31, 2006 and $10 million at
September 30, 2006.
The increase in savings deposits from September 30, 2006 to the same date in 2007 was mainly
derived from the U.S. mainland operations as a result of deposits captured through E-LOANs online
platform. The savings deposits gathered through E-LOAN approximated $882 million at September 30,
2007, compared with $17 million at September 30, 2006, and $842 million at December 31, 2006.
The Corporations core deposits, which consist of demand, savings, money markets, and time
deposits under $100 thousand, constituted 72% of total deposits at September 30, 2007.
Certificates of deposit with denominations of $100 thousand and over at September 30, 2007
represented 28% of total deposits. The distribution of these certificates of deposit by maturity
was as follows:
|
|
|
|
|
(In millions) |
|
|
|
|
|
3 months or less |
|
$ |
2,648 |
|
3 to 6 months |
|
|
1,705 |
|
6 to 12 months |
|
|
1,272 |
|
Over 12 months |
|
|
1,795 |
|
|
|
|
$ |
7,420 |
|
|
The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans was
$135 million as of September 30, 2007, $136 million as of December 31, 2006 and $101 million as of
September 30, 2006.
At September 30, 2007, borrowed funds totaled $16.0 billion, compared with $18.5 billion at
December 31, 2006 and $19.4 billion at September 30, 2006. Refer to Note 11 to the consolidated
financial statements for additional information on the Corporations borrowings as of such dates.
87
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 September 30, 2007, December 31,
2006 and September 30, 2006. Also, the disclosures of accumulated other comprehensive income
(loss), an integral component of stockholders equity, are included in the consolidated statements
of comprehensive income (loss).
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 September 30, 2007, December 31, 2006, and September 30, 2006 are presented on Table L.
As of such dates, BPPR, BPNA and Banco Popular, National Association were all well-capitalized.
The average tangible equity amounted to $3.1 billion at September 30, 2007, $3.0 billion at
December 31, 2006, and $3.0 billion at September 30, 2006. Total tangible equity was $3.0 billion
at September 30, 2007, $2.8 billion at December 31, 2006, and $2.9 billion at September 30, 2006.
TABLE L
Capital Adequacy Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
September 30, |
(Dollars in thousands) |
|
2007 |
|
2006 |
|
2006 |
|
Risk-based capital |
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital |
|
$ |
3,833,675 |
|
|
$ |
3,727,860 |
|
|
$ |
3,738,641 |
|
Supplementary (Tier II) capital |
|
|
448,673 |
|
|
|
441,591 |
|
|
|
431,443 |
|
|
Total capital |
|
$ |
4,282,348 |
|
|
$ |
4,169,451 |
|
|
$ |
4,170,084 |
|
|
Risk-weighted assets |
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet items |
|
$ |
32,849,909 |
|
|
$ |
32,519,457 |
|
|
$ |
31,816,193 |
|
Off-balance sheet items |
|
|
2,890,083 |
|
|
|
2,623,264 |
|
|
|
2,574,095 |
|
|
Total risk-weighted assets |
|
$ |
35,739,992 |
|
|
$ |
35,142,721 |
|
|
$ |
34,390,288 |
|
|
Average assets |
|
$ |
46,129,283 |
|
|
$ |
46,330,505 |
|
|
$ |
47,445,563 |
|
|
Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital (minimum required 4.00%) |
|
|
10.73 |
% |
|
|
10.61 |
% |
|
|
10.87 |
% |
Total capital (minimum required 8.00%) |
|
|
11.98 |
% |
|
|
11.86 |
% |
|
|
12.13 |
% |
Leverage ratio * |
|
|
8.31 |
% |
|
|
8.05 |
% |
|
|
7.88 |
% |
|
|
|
|
* |
|
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 September 30, 2007, the capital adequacy minimum requirement for Popular, Inc. was (in
thousands): Total Capital of $2,859,199, Tier I Capital of $1,429,600, and Tier I Leverage of $1,383,878 based on a 3% ratio or $1,845,171 based on a 4%
ratio according to the Banks classification.
OFF-BALANCE SHEET SECURITIZATION ACTIVITIES
In connection with PFHs securitization transactions, the Corporation is a party to pooling and
servicing agreements pursuant to each of which the Corporation transfers (on a servicing retained
basis) certain of the Corporations loans to a special purpose entity, which in turn transfers the
loans to a securitization trust fund that has elected to be treated as one or more Real Estate
Mortgage Investment Conduits (REMICs). The two-step transfer of loans by the Corporation to a
securitization trust fund, in which the Company surrenders control over the loans, is accounted for
as a sale to the extent that consideration other than beneficial interests is received in exchange.
SFAS No. 140 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities sets forth the criteria that must be met for control over transferred assets to be
considered to have been surrendered. When the Corporation transfers financial assets and the
transfer does not comply with any one of the SFAS No. 140 criteria, the Corporation is then
prevented from derecognizing the transferred financial assets and the transaction is accounted
for
as a secured borrowing.
88
The trusts created as part of off-balance sheet mortgage loans securitizations, conducted prior to
2001, in 2005, 2006 and 2007, are not consolidated in the Corporations financial statements since
the transactions qualified for sale accounting based on the provisions of SFAS No. 140. 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 September 30, 2007 and 2006, these trusts held
approximately $2.2 billion and $2.6 billion, respectively, in assets in the form of mortgage loans
and repossessed properties. Their liabilities in the form of debt principal due to investors
approximated $2.2 billion at September 30, 2007 and $2.5 billion at September 30, 2006. The
Corporation retained servicing responsibilities and certain subordinated interests in these
securitizations in the form of interest-only securities. Their value is subject to credit,
prepayment and interest rate risks on the transferred financial assets. The servicing rights and
interest-only securities retained by the Corporation are recorded in the statements of condition at
fair value.
CREDIT RISK MANAGEMENT AND LOAN QUALITY
Table M summarizes the movement in the allowance for loan losses and presents several loan loss
statistics for the quarters and nine months ended September 30, 2007 and 2006.
TABLE M
Allowance for Loan Losses and Selected Loan Losses Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
Nine months ended September 30, |
(Dollars in thousands) |
|
2007 |
|
2006 |
|
Variance |
|
2007 |
|
2006 |
|
Variance |
|
Balance at beginning of period |
|
$ |
564,847 |
|
|
$ |
483,815 |
|
|
$ |
81,032 |
|
|
$ |
522,232 |
|
|
$ |
461,707 |
|
|
$ |
60,525 |
|
Provision for loan losses |
|
|
148,093 |
|
|
|
63,445 |
|
|
|
84,648 |
|
|
|
359,606 |
|
|
|
179,488 |
|
|
|
180,118 |
|
Impact of change in reporting period * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,510 |
|
|
|
(2,510 |
) |
|
|
|
|
712,940 |
|
|
|
547,260 |
|
|
|
165,680 |
|
|
|
881,838 |
|
|
|
643,705 |
|
|
|
238,133 |
|
|
Losses charged to the allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial (including construction) |
|
|
23,615 |
|
|
|
12,606 |
|
|
|
11,009 |
|
|
|
62,475 |
|
|
|
38,031 |
|
|
|
24,444 |
|
Lease financing |
|
|
5,670 |
|
|
|
6,599 |
|
|
|
(929 |
) |
|
|
18,278 |
|
|
|
18,622 |
|
|
|
(344 |
) |
Mortgage |
|
|
44,755 |
|
|
|
15,515 |
|
|
|
29,240 |
|
|
|
88,855 |
|
|
|
40,898 |
|
|
|
47,957 |
|
Consumer |
|
|
54,247 |
|
|
|
39,862 |
|
|
|
14,385 |
|
|
|
156,935 |
|
|
|
104,141 |
|
|
|
52,794 |
|
|
Subtotal |
|
|
128,287 |
|
|
|
74,582 |
|
|
|
53,705 |
|
|
|
326,543 |
|
|
|
201,692 |
|
|
|
124,851 |
|
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial (including construction) |
|
|
6,101 |
|
|
|
4,048 |
|
|
|
2,053 |
|
|
|
13,070 |
|
|
|
12,776 |
|
|
|
294 |
|
Lease financing |
|
|
1,503 |
|
|
|
3,190 |
|
|
|
(1,687 |
) |
|
|
6,011 |
|
|
|
9,263 |
|
|
|
(3,252 |
) |
Mortgage |
|
|
188 |
|
|
|
186 |
|
|
|
2 |
|
|
|
1,039 |
|
|
|
612 |
|
|
|
427 |
|
Consumer |
|
|
7,828 |
|
|
|
7,237 |
|
|
|
591 |
|
|
|
24,858 |
|
|
|
22,675 |
|
|
|
2,183 |
|
|
Subtotal |
|
|
15,620 |
|
|
|
14,661 |
|
|
|
959 |
|
|
|
44,978 |
|
|
|
45,326 |
|
|
|
(348 |
) |
|
Net loans charged-off: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
17,514 |
|
|
|
8,558 |
|
|
|
8,956 |
|
|
|
49,405 |
|
|
|
25,255 |
|
|
|
24,150 |
|
Lease financing |
|
|
4,167 |
|
|
|
3,409 |
|
|
|
758 |
|
|
|
12,267 |
|
|
|
9,359 |
|
|
|
2,908 |
|
Mortgage |
|
|
44,567 |
|
|
|
15,329 |
|
|
|
29,238 |
|
|
|
87,816 |
|
|
|
40,286 |
|
|
|
47,530 |
|
Consumer |
|
|
46,419 |
|
|
|
32,625 |
|
|
|
13,794 |
|
|
|
132,077 |
|
|
|
81,466 |
|
|
|
50,611 |
|
|
Subtotal |
|
|
112,667 |
|
|
|
59,921 |
|
|
|
52,746 |
|
|
|
281,565 |
|
|
|
156,366 |
|
|
|
125,199 |
|
|
Balance at end of period |
|
$ |
600,273 |
|
|
$ |
487,339 |
|
|
$ |
112,934 |
|
|
$ |
600,273 |
|
|
$ |
487,339 |
|
|
$ |
112,934 |
|
|
Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs to average loans
held-in-portfolio |
|
|
1.39 |
% |
|
|
0.77 |
% |
|
|
|
|
|
|
1.17 |
% |
|
|
0.67 |
% |
|
|
|
|
Provision to net charge-offs |
|
|
1.31 |
x |
|
|
1.06 |
x |
|
|
|
|
|
|
1.28 |
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 2006 Annual Report). |
89
Also, Table N presents annualized net charge-offs to average loans by loan category for the
quarters and nine-month periods ended September 30, 2007 and 2006.
TABLE N
Annualized Net Charge-offs to Average Loans Held-in-Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended September 30, |
|
Nine months ended September 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Commercial (including construction) |
|
|
0.46 |
% |
|
|
0.25 |
% |
|
|
0.44 |
% |
|
|
0.25 |
% |
Lease financing |
|
|
1.43 |
|
|
|
1.07 |
|
|
|
1.38 |
|
|
|
0.96 |
|
Mortgage |
|
|
1.70 |
|
|
|
0.55 |
|
|
|
1.09 |
|
|
|
0.46 |
|
Consumer |
|
|
3.32 |
|
|
|
2.58 |
|
|
|
3.29 |
|
|
|
2.20 |
|
|
|
|
|
1.39 |
% |
|
|
0.77 |
% |
|
|
1.17 |
% |
|
|
0.67 |
% |
|
The increase in the ratio of commercial loans net charge-offs to average loans held-in-portfolio
for the quarter and nine-month period was mostly associated with deterioration in the economic
conditions in Puerto Rico, triggered in part by the local governments budgetary imbalance, the new
sales tax implemented at the end of 2006 and higher cost of living which has impacted consumer
spending and, therefore, has negatively impacted certain industries and commercial businesses. The
ratio of commercial loans net charge-offs to average commercial loans
held-in-portfolio in the Banco Popular de Puerto Rico
reportable segment was 0.52% for the quarter ended September 30, 2007, compared to 0.28% for the
third quarter of 2006. Also, an increase was experienced in the Popular North America reportable
segment, whose ratio was 0.38% for the third quarter of 2007, compared with 0.20% for the same
quarter in the previous year.
The increase in net charge-offs to average loans held-in-portfolio in the lease financing portfolio
during the quarter and nine-month periods was the result of higher
delinquencies in the Banco Popular
de Puerto Rico reportable segment. This was partially offset by a decrease in net charge-offs to
average loans held-in-portfolio in the lease financing portfolio of the Popular North America
operations. There was a large amount of charge-offs in the U.S. leasing subsidiary during 2006
related to a particular customer lending relationship.
Mortgage loans net charge-offs as a percentage of average mortgage loans held-in-portfolio
increased primarily due to the slowdown in the housing sector and higher delinquency levels
experienced in the U.S. mainland, primarily in the Corporations subprime mortgage loan
portfolio. This increase also reflects the impact of the reduction in the mortgage loan portfolio
at PFH. The increase in net charge-offs on mortgage loans for the quarter ended September 30, 2007,
compared with the third quarter in 2006, included an increase of $16.1 million in net charge-offs
on second liens mortgages at PFH. Refer to the Overview of Mortgage Loan Exposure section in this
MD&A for information on PFHs mortgage loan portfolio, including credit statistics. Deteriorating
economic conditions have impacted the mortgage delinquency rates in Puerto Rico increasing the
levels of non-accruing mortgage loans. However, no significant increase in losses has occurred. The
mortgage loans net charge-off to average mortgage loans held-in-portfolio ratio in the Puerto Rico
operations was 0.05% for the nine months ended September 30,
2007. Historically, the Corporation has
experienced a low level of losses in its Puerto Rico mortgage loan portfolio.
Consumer loans net charge-offs as a percentage of average consumer loans held-in-portfolio rose
primarily due to higher delinquencies in the Puerto Rico operations. This primarily reflects the
impact of a slowdown in the Puerto Rico economy. The ratio of consumer loans net charge-offs to
average consumer loans held-in-portfolio in the Banco Popular de Puerto Rico reportable segment was 4.07% for the quarter
ended September 30, 2007, compared to 2.80% for the third quarter of 2006.
90
NON-PERFORMING ASSETS
A summary of non-performing assets, which includes past-due loans that are no longer accruing
interest, renegotiated loans and real estate property acquired through foreclosure, is presented in
Table O, along with certain credit quality metrics. 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
2006 Annual Report.
TABLE O
Non-Performing Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ Variance |
|
|
|
|
|
|
|
|
|
$ Variance |
|
|
|
|
|
|
As a |
|
|
|
|
|
As a |
|
September 30, |
|
|
|
|
|
As a |
|
September 30, |
|
|
|
|
|
|
percentage |
|
|
|
|
|
percentage |
|
2007 |
|
|
|
|
|
percentage |
|
2007 |
|
|
|
|
|
|
of loans |
|
|
|
|
|
of loans |
|
Vs. |
|
|
|
|
|
of loans |
|
Vs. |
|
|
September 30, |
|
HIP* |
|
December 31, |
|
HIP* |
|
December 31, |
|
September 30, |
|
HIP* |
|
September 30, |
(Dollars in thousands) |
|
2007 |
|
by category |
|
2006 |
|
by category |
|
2006 |
|
2006 |
|
by category |
|
2006 |
|
Commercial (including
construction) |
|
$ |
328,253 |
|
|
|
2.1 |
% |
|
$ |
158,214 |
|
|
|
1.1 |
% |
|
$ |
170,039 |
|
|
$ |
156,242 |
|
|
|
1.1 |
% |
|
$ |
172,011 |
|
Lease financing |
|
|
12,954 |
|
|
|
1.1 |
|
|
|
11,898 |
|
|
|
1.0 |
|
|
|
1,056 |
|
|
|
14,569 |
|
|
|
1.2 |
|
|
|
(1,615 |
) |
Mortgage |
|
|
614,596 |
|
|
|
5.9 |
|
|
|
499,402 |
|
|
|
4.5 |
|
|
|
115,194 |
|
|
|
438,684 |
|
|
|
4.1 |
|
|
|
175,912 |
|
Consumer |
|
|
52,630 |
|
|
|
0.9 |
|
|
|
48,074 |
|
|
|
0.9 |
|
|
|
4,556 |
|
|
|
44,666 |
|
|
|
0.9 |
|
|
|
7,964 |
|
|
Total non-performing
loans |
|
|
1,008,433 |
|
|
|
3.1 |
|
|
|
717,588 |
|
|
|
2.2 |
|
|
|
290,845 |
|
|
|
654,161 |
|
|
|
2.1 |
|
|
|
354,272 |
|
Other real estate |
|
|
133,508 |
|
|
|
|
|
|
|
84,816 |
|
|
|
|
|
|
|
48,692 |
|
|
|
83,636 |
|
|
|
|
|
|
|
49,872 |
|
|
Total non-performing
assets |
|
$ |
1,141,941 |
|
|
|
3.47 |
% |
|
$ |
802,404 |
|
|
|
2.51 |
% |
|
$ |
339,537 |
|
|
$ |
737,797 |
|
|
|
2.36 |
% |
|
$ |
404,144 |
|
|
Accruing loans past due 90
days or more |
|
$ |
108,841 |
|
|
|
|
|
|
$ |
99,996 |
|
|
|
|
|
|
$ |
8,845 |
|
|
$ |
92,201 |
|
|
|
|
|
|
$ |
16,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing assets to
total assets |
|
|
2.42 |
% |
|
|
|
|
|
|
1.69 |
% |
|
|
|
|
|
|
|
|
|
|
1.57 |
% |
|
|
|
|
|
|
|
|
Allowance for loan losses
to loans
held-in-portfolio |
|
|
1.82 |
|
|
|
|
|
|
|
1.63 |
|
|
|
|
|
|
|
|
|
|
|
1.56 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses to
non-performing assets |
|
|
52.57 |
|
|
|
|
|
|
|
65.08 |
|
|
|
|
|
|
|
|
|
|
|
66.05 |
|
|
|
|
|
|
|
|
|
Allowance for loan losses to
non-performing loans |
|
|
59.53 |
|
|
|
|
|
|
|
72.78 |
|
|
|
|
|
|
|
|
|
|
|
74.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
HIP = held-in-portfolio |
The increase in non-performing mortgage loans was mainly due to the continued deterioration in the
subprime market in the U.S. mainland as well as higher delinquencies triggered by deteriorating
economic conditions in Puerto Rico. Refer to the Overview of Mortgage Loan Exposure section in this
MD&A for information on the Corporations subprime mortgage loan portfolio for Puerto Rico
operations (BPPR reportable segment), BPNA and PFHs mortgage loan portfolio.
The rise in non-performing commercial loans reflected principally the current economic conditions,
primarily in Puerto Rico. Refer to Part II Other Information, Item 1A. Risk Factors, included in
this Form 10-Q for further information on Puerto Ricos current economic condition. Also, there was
an increase in non-performing commercial loans in the Corporations U.S. operations. Non-performing
loans as of September 30, 2007 included 85% secured by real estate. As indicated in the Net
Interest Income section of this MD&A, during the third quarter of 2007, the Corporation classified
a $41.5 million construction loan in impaired status under FAS 114 and reversed $1.3 million in
interest income.
Other real estate owned, representing real estate property acquired through foreclosure, increased
principally in the Popular North America reportable segment. This increase is directly related to
higher delinquencies in the mortgage sector and a higher volume of properties being foreclosed.
Furthermore, with the slowdown in the U.S. housing market, there is a continued economic
deterioration in certain geographic areas, which also has a softening effect on the market for
resale of repossessed real estate properties.
Accruing loans past due 90 days or more are composed primarily of credit cards, FHA / VA and other
insured mortgage loans, and delinquent mortgage loans included in the Corporations financial
statements pursuant to
91
GNMAs buy-back option program. Under SFAS No. 140, servicers of loans underlying Ginnie Mae
mortgage-backed securities must report as their own assets the defaulted loans that they have the
option to purchase, even when they elect not to exercise that option. Also, accruing loans past due
90 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 some 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 inherent risks in the loan portfolios. The Corporations management
evaluates the adequacy of the allowance for loan losses on a monthly basis. In this evaluation,
management considers current economic conditions and the resulting impact on Populars loan
portfolio, the composition of the portfolio by loan type and risk characteristics, historical loss
experience, loss volatility, results of periodic credit reviews of individual loans, regulatory
requirements and loan impairment measurement, among other factors. The increase in the
Corporations allowance level as of September 30, 2007 reflects the prevailing negative economic
outlook, particularly in the non-prime mortgage business, and the deterioration in Puerto Ricos
economy.
The Corporations methodology to determine its allowance for loan losses is based on SFAS No. 114,
Accounting by Creditors for Impairment of a Loan (as amended by SFAS No. 118) and SFAS No. 5,
Accounting for Contingencies. Under SFAS No. 114, commercial loans over a predetermined amount
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 contingency for a group of
homogeneous loans, which are not individually evaluated under SFAS No. 114, when it is probable
that a loss has been incurred and the amount can be reasonably estimated. To determine the
allowance for loan losses under SFAS No. 5, the Corporation uses historical net charge-offs and
volatility experience segregated by loan type and legal entity. Refer to the 2006 Annual Report for
additional information on the Corporations methodology for assessing the adequacy of the allowance
for loan losses.
Under SFAS No. 114, the Corporation considers a commercial loan to be impaired when the loan
amounts to $250,000 or more and interest and / or principal is past due 90 days or more, or, when
the loan amounts to $500,000 or more and based on current information and events, management
considers that the debtor will be unable to pay all amounts due according to the contractual terms
of the loan agreement.
The Corporations recorded investment in impaired commercial loans and the related valuation
allowance calculated under SFAS No. 114 at September 30, 2007, December 31, 2006 and September 30,
2006 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
December 31, 2006 |
|
September 30, 2006 |
|
|
Recorded |
|
Valuation |
|
Recorded |
|
Valuation |
|
Recorded |
|
Valuation |
(In millions) |
|
Investment |
|
Allowance |
|
Investment |
|
Allowance |
|
Investment |
|
Allowance |
|
Impaired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance required |
|
$ |
196.5 |
|
|
$ |
56.4 |
|
|
$ |
125.7 |
|
|
$ |
37.0 |
|
|
$ |
94.0 |
|
|
$ |
25.4 |
|
No valuation allowance required |
|
|
121.7 |
|
|
|
|
|
|
|
82.5 |
|
|
|
|
|
|
|
74.5 |
|
|
|
|
|
|
Total impaired loans |
|
$ |
318.2 |
|
|
$ |
56.4 |
|
|
$ |
208.2 |
|
|
$ |
37.0 |
|
|
$ |
168.5 |
|
|
$ |
25.4 |
|
|
With
respect to the $121.7 million portfolio of impaired commercial loans for which no allowance
for loan losses was required at September 30, 2007, management followed SFAS 114 guidance. As
prescribed by SFAS 114, when a loan is impaired, the measurement of the impairment may be based on:
(1) the present value of the expected future cash flows of the impaired loan discounted at the
loans original effective interest rate; (2) the observable market price of the impaired loan; or
(3) the fair value of the collateral if the loan is collateral dependent. A loan is collateral
dependent if the repayment of the loan is expected to be provided solely by the underlying
collateral. The $121.7 million impaired commercial loans were collateral dependent loans.
Management performed a detailed analysis based on the fair value of the collateral less estimated
costs to sell, which was deemed adequate to cover any losses at September 30, 2007.
92
Average
impaired loans during the third quarter of 2007 and 2006 were $297 million and $148
million, respectively. The Corporation recognized interest income on
impaired loans of $2.1 million
and $0.7 million for the quarters ended
September 30, 2007 and September 30, 2006, respectively,
and $6.3 million and $2.4 million for the
nine months ended on those same dates, respectively.
In
addition to the non-performing loans included in Table N, there were
$65 million of loans at
September 30, 2007, 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,
2006 and September 30, 2006, these potential problem loans approximated $103 million and $54
million, respectively.
Under 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 September 30, 2007, adjusted non-performing
assets would have been $1.1 billion,
or 3.31% of loans held-in-portfolio and the allowance to non-performing loans ratio would have
been 62.80%. At December 31, 2006, adjusted non-performing assets would have been $754 million, or
2.36%, of loans held-in-portfolio and the allowance to non-performing loans ratio would have been
78.00%. At September 30, 2006, adjusted non-performing assets would have been $693 million, or
2.21%, of loans held-in-portfolio and the allowance to non-performing loans would have been 79.96%.
As explained in the 2006 Annual Report, the Corporation is exposed to geographical and government
risk. Popular, Inc. has partly diversified its geographical risk as a result of its growth
strategy in the United States and the Caribbean. The Corporations assets and revenue composition
by geographical area and by business segment reporting are presented in Note 21 to the
consolidated financial statements.
Refer to Part II Other Information, Item 1A. Risk Factors, included in this Form 10-Q, for
further information on Puerto Ricos current economic condition.
At September 30, 2007, the Corporation had $889 million of credit facilities granted to or
guaranteed by the Puerto Rico Government and its political subdivisions, of which $50 million are
uncommitted lines of credit. Of these total credit facilities granted, $773 million in loans were
outstanding at September 30, 2007. A substantial portion of the Corporations credit exposure to
the Government of Puerto Rico is either collateralized loans or obligations that have a specific
source of income or revenues identified for their repayment. Some of these obligations consist of
senior and subordinated loans to public corporations that obtain revenues from rates charged for
services or products, such as water and electric power utilities. Public corporations have varying
degrees of independence from the central Government and many receive appropriations or other
payments from the central Government. The Corporation also has loans to various municipalities for
which the good faith, credit and unlimited taxing power of the applicable municipality has been
pledged to their repayment. These municipalities are required by law to levy special property taxes
in such amounts as shall be required for the payment of all of its general obligation bonds and
loans. Another portion of these loans consists of special obligations of various municipalities
that are payable from the basic real and personal property taxes collected within such
municipalities. The full faith and credit obligations of the municipalities have a first lien on
the basic property taxes.
Furthermore, as of September 30, 2007, the Corporation had outstanding $178 million in Obligations
of Puerto Rico, States and Political Subdivisions as part of its investment portfolio. Refer to
Notes 5 and 6 to the consolidated financial statements for additional information. Of that total,
$155 million is exposed to the creditworthiness of the Puerto Rico Government and its
municipalities. Of that portfolio, $55 million are in the form of Puerto Rico Commonwealth
Appropriation Bonds, which are currently rated Ba1, one notch below investment grade, by Moodys
and BBB-, the lowest investment grade rating, by Standard & Poors Rating Services (S&P), another
nationally-recognized credit rating agency.
93
OVERVIEW OF MORTGAGE LOAN EXPOSURE
The following Table P provides information on the Corporations mortgage loan exposure (for loans
held-in-portfolio, thus excludes loans held-for-sale) at September 30, 2007. Subprime mortgage
loans refer to mortgage loans made to individuals with a FICO® score of 660 or below.
FICO® scores are used as an indicator of the probability of default for loans.
Table P
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
Prime loans |
|
Subprime loans |
|
Total |
|
Banco Popular de Puerto Rico |
|
$ |
1,128 |
|
|
$ |
1,197 |
|
|
$ |
2,325 |
|
Popular North America: |
|
|
|
|
|
|
|
|
|
|
|
|
Banco Popular North America |
|
|
534 |
|
|
|
1,169 |
|
|
|
1,703 |
|
Popular Financial Holdings: |
|
|
|
|
|
|
|
|
|
|
|
|
- Owned-in-trust |
|
|
1,275 |
|
|
|
2,365 |
|
|
|
3,640 |
|
- Owned - originated through wholesale channels (centralized) |
|
|
217 |
|
|
|
747 |
|
|
|
964 |
|
- Owned - originated through consumer branches |
|
|
305 |
|
|
|
814 |
|
|
|
1,119 |
|
|
Sub-total |
|
$ |
3,459 |
|
|
$ |
6,292 |
|
|
$ |
9,751 |
|
Other not classified as prime or subprime loans |
|
|
|
|
|
|
|
|
|
|
729 |
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
10,480 |
|
|
BPPRs mortgage loans held-in-portfolio that are considered subprime under the above definition
approximated 51% of its total mortgage loans held-in-portfolio as of September 30, 2007 based on
amounts presented on the table above. The Corporation, however, believes that the particular
characteristics of this subprime portfolio limit its exposure under current market conditions.
BPPRs loans are fixed-rate fully amortizing, full-documentation loans that do not have the level
of layered risk associated with subprime loans offered by certain major U.S. mortgage loan
originators. Deteriorating economic conditions have impacted the mortgage delinquency rates in
Puerto Rico increasing the levels of non-accruing mortgage loans. However, BPPR has not to date
experienced significant increases in losses. The annualized ratio of mortgage loans net charge-offs
to average mortgage loans held-in-portfolio for this subprime portfolio was 0.11% for the nine
months ended September 30, 2007.
BPNAs mortgage loans held-in-portfolio considered subprime under the above definition approximated
69% of its total mortgage loans held-in-portfolio as of September 30, 2007. This portfolio has
principally two products either 7/1 ARMs (fixed-rate interest until end of year seven in which
interest rate begins to reset annually until maturity) or fixed-rate mortgages. Deteriorating economic conditions in the U.S.
mainland housing market have impacted the mortgage industry delinquency rates, however, the levels
of non-accruing mortgage loans in BPNAs subprime mortgage portfolio have performed much better
than the Corporations subprime portfolio at PFH. The non-accruing loans to loans held-in-portfolio ratio for BPNAs
subprime mortgage loans was 2.65% at September 30, 2007. The annualized ratio of mortgage loans net
charge-offs to average mortgage loans held-in-portfolio for this subprime portfolio was 0.94% for
the nine months ended September 30, 2007.
In the past, PFH originated mortgage loans through various channels including bulk acquisitions,
mortgage loan brokers and its retail branch network. As part of the 2007 Restructuring Plan, PFH
ceased originating loans through all channels except for loans originated directly through its
consumer finance branches and the customer loan center. This has resulted in a significant
reduction in total origination of mortgage loans at PFH. Table Q provides information on PFHs
mortgage loans held-in-portfolio segregated between owned and owned-in-trust, prime and subprime,
first and second liens, and by origination channel (centralized Vs. branches as defined in the
Restructuring Plan section of this MD&A). To assist investors in analyzing the trend in PFHs
mortgage loan exposure, Tables R and S include information as of June 30, 2007 and December 31,
2006, respectively.
94
Table Q
Mortgage Loan Exposure at Popular Financial Holdings (excludes mortgage
loans held for sale)
As of September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Vintage |
|
Vintage |
|
Vintage |
|
Vintage |
|
Vintage |
(Dollars in thousands) |
|
Vintages |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 & prior |
Prime mortgage loans Owned portfolio Centralized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Liens |
|
$ |
177,127 |
|
|
$ |
35,485 |
|
|
$ |
43,635 |
|
|
$ |
38,353 |
|
|
$ |
25,667 |
|
|
$ |
33,987 |
|
Average FICO® Score |
|
|
711 |
|
|
|
697 |
|
|
|
706 |
|
|
|
708 |
|
|
|
716 |
|
|
|
720 |
|
Loan-to-value Average |
|
|
78.41 |
% |
|
|
83.35 |
% |
|
|
77.63 |
% |
|
|
83.34 |
% |
|
|
78.70 |
% |
|
|
74.20 |
% |
% Fixed-rate |
|
|
72 |
% |
|
|
87 |
% |
|
|
47 |
% |
|
|
50 |
% |
|
|
94 |
% |
|
|
94 |
% |
% ARM |
|
|
28 |
% |
|
|
13 |
% |
|
|
53 |
% |
|
|
50 |
% |
|
|
6 |
% |
|
|
6 |
% |
Delinquencies % |
|
|
5.09 |
% |
|
|
3.60 |
% |
|
|
11.62 |
% |
|
|
0.00 |
% |
|
|
1.00 |
% |
|
|
7.09 |
% |
Non-performing % |
|
|
3.98 |
% |
|
|
3.58 |
% |
|
|
10.42 |
% |
|
|
0.00 |
% |
|
|
1.00 |
% |
|
|
2.87 |
% |
Charge-offs % Third Quarter 2007 (a) |
|
|
0.82 |
% |
|
|
0.00 |
% |
|
|
2.97 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.25 |
% |
|
Prime mortgage loans Owned portfolio Centralized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Liens |
|
$ |
40,192 |
|
|
$ |
1,509 |
|
|
$ |
6,480 |
|
|
$ |
26,550 |
|
|
$ |
3,133 |
|
|
$ |
2,520 |
|
Average FICO® Score |
|
|
702 |
|
|
|
697 |
|
|
|
701 |
|
|
|
701 |
|
|
|
704 |
|
|
|
709 |
|
Loan-to-value Average |
|
|
92.95 |
% |
|
|
95.92 |
% |
|
|
93.08 |
% |
|
|
97.08 |
% |
|
|
95.94 |
% |
|
|
69.99 |
% |
% Fixed-rate |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
4.01 |
% |
|
|
4.22 |
% |
|
|
13.93 |
% |
|
|
2.01 |
% |
|
|
3.02 |
% |
|
|
0.62 |
% |
Non-performing % |
|
|
2.10 |
% |
|
|
4.22 |
% |
|
|
8.24 |
% |
|
|
0.92 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
Charge-offs % Third Quarter 2007 (a) |
|
|
0.28 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
5.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime mortgage loans Owned portfolio Branches |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Liens |
|
$ |
270,834 |
|
|
$ |
69,984 |
|
|
$ |
82,418 |
|
|
$ |
42,461 |
|
|
$ |
24,703 |
|
|
$ |
51,268 |
|
Average FICO® Score |
|
|
713 |
|
|
|
704 |
|
|
|
710 |
|
|
|
712 |
|
|
|
716 |
|
|
|
721 |
|
Loan-to-value Average (c) |
|
|
75.27 |
% |
|
|
75.80 |
% |
|
|
75.38 |
% |
|
|
74.04 |
% |
|
Not available |
|
Not available |
% Fixed-rate |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
0.17 |
% |
|
|
0.06 |
% |
|
|
0.08 |
% |
|
|
0.11 |
% |
|
|
0.54 |
% |
|
|
0.32 |
% |
Non-performing % |
|
|
0.03 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.16 |
% |
Charge-offs % Third Quarter 2007 (a) |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime mortgage loans Owned portfolio Branches |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Liens |
|
$ |
33,972 |
|
|
$ |
13,267 |
|
|
$ |
11,779 |
|
|
$ |
4,501 |
|
|
$ |
1,840 |
|
|
$ |
2,585 |
|
Average FICO® Score |
|
|
696 |
|
|
|
688 |
|
|
|
694 |
|
|
|
702 |
|
|
|
706 |
|
|
|
708 |
|
Loan-to-value Average (c) |
|
|
83.72 |
% |
|
|
83.91 |
% |
|
|
84.14 |
% |
|
|
81.67 |
% |
|
Not available |
|
Not available |
% Fixed-rate |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
0.24 |
% |
|
|
0.11 |
% |
|
|
0.22 |
% |
|
|
0.54 |
% |
|
|
0.00 |
% |
|
|
0.68 |
% |
Non-performing % |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
Charge-offs % Third Quarter 2007 (a) |
|
|
2.19 |
% |
|
|
0.00 |
% |
|
|
2.32 |
% |
|
|
7.78 |
% |
|
|
2.97 |
% |
|
|
0.09 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL Prime mortgage loans Owned portfolio |
|
$ |
522,125 |
|
|
$ |
120,245 |
|
|
$ |
144,312 |
|
|
$ |
111,865 |
|
|
$ |
55,343 |
|
|
$ |
90,360 |
|
Average FICO® Score |
|
|
708 |
|
|
|
697 |
|
|
|
704 |
|
|
|
706 |
|
|
|
713 |
|
|
|
719 |
|
Loan-to-value Average |
|
|
81.05 |
% |
|
|
80.45 |
% |
|
|
79.55 |
% |
|
|
86.43 |
% |
|
|
84.82 |
% |
|
|
73.35 |
% |
% Fixed-rate |
|
|
90 |
% |
|
|
96 |
% |
|
|
84 |
% |
|
|
83 |
% |
|
|
97 |
% |
|
|
98 |
% |
% ARM |
|
|
10 |
% |
|
|
4 |
% |
|
|
16 |
% |
|
|
17 |
% |
|
|
3 |
% |
|
|
2 |
% |
Delinquencies % |
|
|
2.14 |
% |
|
|
1.16 |
% |
|
|
4.21 |
% |
|
|
0.54 |
% |
|
|
0.87 |
% |
|
|
2.88 |
% |
Non-performing % |
|
|
1.53 |
% |
|
|
1.11 |
% |
|
|
3.52 |
% |
|
|
0.22 |
% |
|
|
0.46 |
% |
|
|
1.17 |
% |
Charge-offs % Third Quarter 2007 (a) |
|
|
0.45 |
% |
|
|
0.00 |
% |
|
|
1.13 |
% |
|
|
0.32 |
% |
|
|
0.10 |
% |
|
|
0.22 |
% |
95
Table Q (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2007 |
|
Total |
|
Vintage |
|
Vintage |
|
Vintage |
|
Vintage |
|
Vintage |
(Dollars in thousands) |
|
Vintages |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 & prior |
Prime mortgage loans Owned-in-Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Liens |
|
$ |
1,268,586 |
|
|
$ |
0 |
|
|
$ |
74,972 |
|
|
$ |
388,829 |
|
|
$ |
420,305 |
|
|
$ |
384,480 |
|
Average FICO® Score |
|
|
713 |
|
|
|
|
|
|
|
696 |
|
|
|
705 |
|
|
|
717 |
|
|
|
717 |
|
Loan-to-value Average |
|
|
83.23 |
% |
|
|
|
|
|
|
83.44 |
% |
|
|
84.69 |
% |
|
|
80.59 |
% |
|
|
84.27 |
% |
% Fixed-rate |
|
|
84 |
% |
|
|
|
|
|
|
45 |
% |
|
|
64 |
% |
|
|
96 |
% |
|
|
98 |
% |
% ARM |
|
|
16 |
% |
|
|
|
|
|
|
55 |
% |
|
|
36 |
% |
|
|
4 |
% |
|
|
2 |
% |
Delinquencies % |
|
|
1.58 |
% |
|
|
|
|
|
|
2.81 |
% |
|
|
2.38 |
% |
|
|
0.95 |
% |
|
|
1.21 |
% |
Non-performing % |
|
|
0.75 |
% |
|
|
|
|
|
|
0.79 |
% |
|
|
1.09 |
% |
|
|
0.52 |
% |
|
|
0.65 |
% |
Charge-offs % Third Quarter 2007 (a) |
|
|
0.23 |
% |
|
|
|
|
|
|
1.61 |
% |
|
|
0.16 |
% |
|
|
0.06 |
% |
|
|
0.19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime mortgage loans Owned-in-Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Liens |
|
$ |
6,727 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
104 |
|
|
$ |
225 |
|
|
$ |
6,398 |
|
Average FICO® Score |
|
|
712 |
|
|
|
|
|
|
|
|
|
|
|
687 |
|
|
|
684 |
|
|
|
713 |
|
Loan-to-value Average |
|
|
92.49 |
% |
|
|
|
|
|
|
|
|
|
|
100.00 |
% |
|
|
89.71 |
% |
|
|
92.49 |
% |
% Fixed-rate |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
0.40 |
% |
|
|
|
|
|
|
|
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.42 |
% |
Non-performing % |
|
|
0.40 |
% |
|
|
|
|
|
|
|
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.42 |
% |
Charge-offs % Third Quarter 2007 (a) |
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL Prime mortgage loans Owned-in-Trust |
|
$ |
1,275,313 |
|
|
$ |
0 |
|
|
$ |
74,972 |
|
|
$ |
388,933 |
|
|
$ |
420,530 |
|
|
$ |
390,878 |
|
Average FICO® Score |
|
|
713 |
|
|
|
|
|
|
|
696 |
|
|
|
705 |
|
|
|
717 |
|
|
|
717 |
|
Loan-to-value Average |
|
|
83.48 |
% |
|
|
|
|
|
|
83.44 |
% |
|
|
84.71 |
% |
|
|
80.62 |
% |
|
|
84.78 |
% |
% Fixed-rate |
|
|
84 |
% |
|
|
|
|
|
|
45 |
% |
|
|
64 |
% |
|
|
96 |
% |
|
|
98 |
% |
% ARM |
|
|
16 |
% |
|
|
|
|
|
|
55 |
% |
|
|
36 |
% |
|
|
4 |
% |
|
|
2 |
% |
Delinquencies % |
|
|
1.57 |
% |
|
|
|
|
|
|
2.81 |
% |
|
|
2.38 |
% |
|
|
0.95 |
% |
|
|
1.19 |
% |
Non-performing % |
|
|
0.75 |
% |
|
|
|
|
|
|
0.79 |
% |
|
|
1.09 |
% |
|
|
0.52 |
% |
|
|
0.65 |
% |
Charge-offs % Third Quarter 2007 (a) |
|
|
0.23 |
% |
|
|
|
|
|
|
1.60 |
% |
|
|
0.16 |
% |
|
|
0.06 |
% |
|
|
0.19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime mortgage loans Owned portfolio Centralized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Liens |
|
$ |
630,869 |
|
|
$ |
186,129 |
|
|
$ |
152,020 |
|
|
$ |
137,291 |
|
|
$ |
47,589 |
|
|
$ |
107,840 |
|
Average FICO® Score |
|
|
565 |
|
|
|
565 |
|
|
|
567 |
|
|
|
566 |
|
|
|
563 |
|
|
|
564 |
|
Loan-to-value Average |
|
|
83.11 |
% |
|
|
89.63 |
% |
|
|
81.76 |
% |
|
|
86.29 |
% |
|
|
85.11 |
% |
|
|
76.86 |
% |
% Fixed-rate |
|
|
66 |
% |
|
|
86 |
% |
|
|
53 |
% |
|
|
39 |
% |
|
|
79 |
% |
|
|
80 |
% |
% ARM |
|
|
34 |
% |
|
|
14 |
% |
|
|
47 |
% |
|
|
61 |
% |
|
|
21 |
% |
|
|
20 |
% |
Delinquencies % |
|
|
21.64 |
% |
|
|
6.01 |
% |
|
|
25.51 |
% |
|
|
26.40 |
% |
|
|
25.56 |
% |
|
|
35.37 |
% |
Non-performing % |
|
|
14.59 |
% |
|
|
2.64 |
% |
|
|
17.85 |
% |
|
|
18.21 |
% |
|
|
18.88 |
% |
|
|
24.12 |
% |
Charge-offs % Third Quarter 2007 (a) |
|
|
2.50 |
% |
|
|
0.00 |
% |
|
|
2.59 |
% |
|
|
4.56 |
% |
|
|
2.41 |
% |
|
|
2.77 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime mortgage loans Owned portfolio Centralized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Liens |
|
$ |
115,740 |
|
|
$ |
4,616 |
|
|
$ |
18,044 |
|
|
$ |
78,174 |
|
|
$ |
5,962 |
|
|
$ |
8,944 |
|
Average FICO® Score |
|
|
569 |
|
|
|
597 |
|
|
|
583 |
|
|
|
565 |
|
|
|
573 |
|
|
|
560 |
|
Loan-to-value Average |
|
|
93.27 |
% |
|
|
94.77 |
% |
|
|
94.08 |
% |
|
|
97.80 |
% |
|
|
98.29 |
% |
|
|
70.85 |
% |
% Fixed-rate |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
20.44 |
% |
|
|
6.39 |
% |
|
|
16.27 |
% |
|
|
22.26 |
% |
|
|
12.80 |
% |
|
|
25.30 |
% |
Non-performing % |
|
|
11.53 |
% |
|
|
6.08 |
% |
|
|
9.62 |
% |
|
|
12.39 |
% |
|
|
5.90 |
% |
|
|
14.35 |
% |
Charge-offs % Third Quarter 2007 (a) |
|
|
45.82 |
% |
|
|
0.00 |
% |
|
|
27.62 |
% |
|
|
48.72 |
% |
|
|
63.25 |
% |
|
|
62.67 |
% |
96
Table Q (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2007 |
|
Total |
|
Vintage |
|
Vintage |
|
Vintage |
|
Vintage |
|
Vintage |
(Dollars in thousands) |
|
Vintages |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 & prior |
Subprime mortgage loans Owned portfolio Branches |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Liens |
|
$ |
711,667 |
|
|
$ |
234,358 |
|
|
$ |
217,369 |
|
|
$ |
92,064 |
|
|
$ |
56,030 |
|
|
$ |
111,846 |
|
Average FICO® Score |
|
|
573 |
|
|
|
587 |
|
|
|
566 |
|
|
|
566 |
|
|
|
568 |
|
|
|
571 |
|
Loan-to-value Average (c) |
|
|
76.66 |
% |
|
|
75.21 |
% |
|
|
77.63 |
% |
|
|
77.94 |
% |
|
Not available |
|
Not available |
% Fixed-rate |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
4.98 |
% |
|
|
1.86 |
% |
|
|
5.37 |
% |
|
|
8.14 |
% |
|
|
9.46 |
% |
|
|
5.90 |
% |
Non-performing % |
|
|
2.61 |
% |
|
|
0.40 |
% |
|
|
2.82 |
% |
|
|
4.77 |
% |
|
|
5.93 |
% |
|
|
3.40 |
% |
Charge-offs % Third Quarter 2007 (a) |
|
|
0.51 |
% |
|
|
0.00 |
% |
|
|
0.27 |
% |
|
|
0.84 |
% |
|
|
1.31 |
% |
|
|
1.18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime mortgage loans Owned portfolio Branches |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Liens |
|
$ |
102,029 |
|
|
$ |
41,250 |
|
|
$ |
35,777 |
|
|
$ |
11,706 |
|
|
$ |
6,535 |
|
|
$ |
6,761 |
|
Average FICO® Score |
|
|
579 |
|
|
|
603 |
|
|
|
571 |
|
|
|
555 |
|
|
|
558 |
|
|
|
565 |
|
Loan-to-value Average (c) |
|
|
83.58 |
% |
|
|
83.07 |
% |
|
|
83.86 |
% |
|
|
84.67 |
% |
|
Not available |
|
Not available |
% Fixed-rate |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
6.59 |
% |
|
|
2.18 |
% |
|
|
8.52 |
% |
|
|
11.50 |
% |
|
|
13.06 |
% |
|
|
8.55 |
% |
Non-performing % |
|
|
2.63 |
% |
|
|
0.60 |
% |
|
|
3.36 |
% |
|
|
5.66 |
% |
|
|
5.43 |
% |
|
|
3.13 |
% |
Charge-offs % Third Quarter 2007 (a) |
|
|
9.82 |
% |
|
|
1.36 |
% |
|
|
7.06 |
% |
|
|
33.53 |
% |
|
|
19.37 |
% |
|
|
13.35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL Subprime mortgage loans Owned portfolio |
|
$ |
1,560,305 |
|
|
$ |
466,353 |
|
|
$ |
423,210 |
|
|
$ |
319,235 |
|
|
$ |
116,116 |
|
|
$ |
235,391 |
|
Average FICO® Score |
|
|
572 |
|
|
|
588 |
|
|
|
569 |
|
|
|
564 |
|
|
|
565 |
|
|
|
567 |
|
Loan-to-value Average |
|
|
83.05 |
% |
|
|
81.35 |
% |
|
|
81.69 |
% |
|
|
90.00 |
% |
|
|
89.77 |
% |
|
|
75.47 |
% |
% Fixed-rate |
|
|
86 |
% |
|
|
94 |
% |
|
|
83 |
% |
|
|
74 |
% |
|
|
91 |
% |
|
|
91 |
% |
% ARM |
|
|
14 |
% |
|
|
6 |
% |
|
|
17 |
% |
|
|
26 |
% |
|
|
9 |
% |
|
|
9 |
% |
Delinquencies % |
|
|
12.97 |
% |
|
|
3.59 |
% |
|
|
13.34 |
% |
|
|
19.58 |
% |
|
|
16.43 |
% |
|
|
20.21 |
% |
Non-performing % |
|
|
8.12 |
% |
|
|
1.37 |
% |
|
|
8.56 |
% |
|
|
12.45 |
% |
|
|
11.21 |
% |
|
|
13.30 |
% |
Charge-offs % Third Quarter 2007 (a) |
|
|
5.62 |
% |
|
|
0.13 |
% |
|
|
2.81 |
% |
|
|
15.62 |
% |
|
|
6.17 |
% |
|
|
4.84 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime mortgage loans Owned-in-Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Liens |
|
$ |
2,349,009 |
|
|
$ |
0 |
|
|
$ |
361,136 |
|
|
$ |
915,538 |
|
|
$ |
449,400 |
|
|
$ |
622,935 |
|
Average FICO® Score |
|
|
572 |
|
|
|
|
|
|
|
575 |
|
|
|
569 |
|
|
|
576 |
|
|
|
571 |
|
Loan-to-value Average |
|
|
83.72 |
% |
|
|
|
|
|
|
84.65 |
% |
|
|
83.38 |
% |
|
|
83.25 |
% |
|
|
83.94 |
% |
% Fixed-rate |
|
|
63 |
% |
|
|
|
|
|
|
29 |
% |
|
|
50 |
% |
|
|
86 |
% |
|
|
84 |
% |
% ARM |
|
|
37 |
% |
|
|
|
|
|
|
71 |
% |
|
|
50 |
% |
|
|
14 |
% |
|
|
16 |
% |
Delinquencies % |
|
|
21.76 |
% |
|
|
|
|
|
|
17.62 |
% |
|
|
24.82 |
% |
|
|
17.18 |
% |
|
|
22.96 |
% |
Non-performing % |
|
|
13.44 |
% |
|
|
|
|
|
|
10.90 |
% |
|
|
15.34 |
% |
|
|
10.07 |
% |
|
|
14.54 |
% |
Charge-offs % Third Quarter 2007 (a) |
|
|
2.68 |
% |
|
|
|
|
|
|
2.38 |
% |
|
|
3.04 |
% |
|
|
2.13 |
% |
|
|
2.71 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime mortgage loans Owned-in-Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Liens |
|
$ |
16,321 |
|
|
$ |
0 |
|
|
$ |
55 |
|
|
$ |
609 |
|
|
$ |
526 |
|
|
$ |
15,131 |
|
Average FICO® Score |
|
|
568 |
|
|
|
|
|
|
|
609 |
|
|
|
594 |
|
|
|
560 |
|
|
|
568 |
|
Loan-to-value Average |
|
|
94.60 |
% |
|
|
|
|
|
|
100.00 |
% |
|
|
98.73 |
% |
|
|
95.91 |
% |
|
|
94.44 |
% |
% Fixed-rate |
|
|
100 |
% |
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
30.24 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
5.89 |
% |
|
|
33.78 |
% |
|
|
31.20 |
% |
Non-performing % |
|
|
21.70 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
33.78 |
% |
|
|
22.24 |
% |
Charge-offs % Third Quarter 2007 (a) |
|
|
10.48 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
36.21 |
% |
|
|
0.00 |
% |
|
|
9.79 |
% |
97
Table Q (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2007 |
|
Total |
|
|
Vintage |
|
|
Vintage |
|
|
Vintage |
|
|
Vintage |
|
|
Vintage |
|
(Dollars in thousands) |
|
Vintages |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 & prior |
|
TOTAL Subprime mortgage loans Owned-in-Trust |
|
$ |
2,365,330 |
|
|
$ |
0 |
|
|
$ |
361,191 |
|
|
$ |
916,147 |
|
|
$ |
449,926 |
|
|
$ |
638,066 |
|
Average FICO® Score |
|
|
572 |
|
|
|
|
|
|
|
575 |
|
|
|
569 |
|
|
|
576 |
|
|
|
571 |
|
Loan-to-value Average |
|
|
84.09 |
% |
|
|
|
|
|
|
84.66 |
% |
|
|
83.42 |
% |
|
|
83.31 |
% |
|
|
84.80 |
% |
% Fixed-rate |
|
|
63 |
% |
|
|
|
|
|
|
29 |
% |
|
|
50 |
% |
|
|
86 |
% |
|
|
85 |
% |
% ARM |
|
|
37 |
% |
|
|
|
|
|
|
71 |
% |
|
|
50 |
% |
|
|
14 |
% |
|
|
15 |
% |
Delinquencies % |
|
|
21.82 |
% |
|
|
|
|
|
|
17.62 |
% |
|
|
24.81 |
% |
|
|
17.20 |
% |
|
|
23.16 |
% |
Non-performing % |
|
|
13.50 |
% |
|
|
|
|
|
|
10.90 |
% |
|
|
15.33 |
% |
|
|
10.10 |
% |
|
|
14.72 |
% |
Charge-offs % Third Quarter 2007 (a) |
|
|
2.74 |
% |
|
|
|
|
|
|
2.38 |
% |
|
|
3.07 |
% |
|
|
2.12 |
% |
|
|
2.88 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans without FICO scores |
|
$ |
4,064 |
|
|
$ |
3,441 |
|
|
$ |
232 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL PFH Mortgage Loans (b) |
|
$ |
5,727,137 |
|
|
$ |
590,039 |
|
|
$ |
1,003,917 |
|
|
$ |
1,736,180 |
|
|
$ |
1,041,915 |
|
|
$ |
1,355,086 |
|
Average FICO® Score |
|
|
612 |
|
|
|
611 |
|
|
|
600 |
|
|
|
604 |
|
|
|
629 |
|
|
|
617 |
|
Loan-to-value Average |
|
|
83.27 |
% |
|
|
81.13 |
% |
|
|
82.04 |
% |
|
|
85.95 |
% |
|
|
82.86 |
% |
|
|
82.89 |
% |
% Fixed-rate |
|
|
76 |
% |
|
|
95 |
% |
|
|
61 |
% |
|
|
60 |
% |
|
|
91 |
% |
|
|
90 |
% |
% ARM |
|
|
24 |
% |
|
|
5 |
% |
|
|
39 |
% |
|
|
40 |
% |
|
|
9 |
% |
|
|
10 |
% |
Delinquencies % |
|
|
13.09 |
% |
|
|
3.07 |
% |
|
|
12.79 |
% |
|
|
17.26 |
% |
|
|
9.69 |
% |
|
|
14.96 |
% |
Non-performing % |
|
|
7.94 |
% |
|
|
1.31 |
% |
|
|
8.11 |
% |
|
|
10.64 |
% |
|
|
5.84 |
% |
|
|
9.51 |
% |
Charge-offs % Third Quarter 2007 |
|
|
2.73 |
% |
|
|
0.10 |
% |
|
|
2.32 |
% |
|
|
4.59 |
% |
|
|
1.66 |
% |
|
|
2.29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred fees, origination costs, net premiums and other items |
|
|
115,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PFH Total Mortgage Loans HIP |
|
$ |
5,842,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The average balances used to calculate these net charge-offs to average loans ratios were calculated using the ending balances
as of June 30, 2007 and September 30, 2007 for these business areas. |
|
(b) |
|
Includes loans without FICO® scores. |
|
(c) |
|
Average LTV for total vintages in "owned portfolio-branches"
considers only the vintages for which the average LTV is available. |
98
Table R
Mortgage Loan Exposure at Popular Financial Holdings (excludes
mortgage loans held for sale)
As of June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Vintage |
|
Vintage |
|
Vintage |
|
Vintage |
|
Vintage |
(In thousands) |
|
Vintages |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 & prior |
Prime mortgage loans Owned portfolio Centralized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Liens |
|
$ |
186,663 |
|
|
$ |
24,702 |
|
|
$ |
50,623 |
|
|
$ |
44,957 |
|
|
$ |
28,358 |
|
|
$ |
38,023 |
|
Average FICO® Score |
|
|
711 |
|
|
|
698 |
|
|
|
703 |
|
|
|
708 |
|
|
|
713 |
|
|
|
720 |
|
Loan-to-value Average |
|
|
77.08 |
% |
|
|
76.68 |
% |
|
|
78.29 |
% |
|
|
82.45 |
% |
|
|
78.60 |
% |
|
|
72.90 |
% |
% Fixed-rate |
|
|
67 |
% |
|
|
77 |
% |
|
|
40 |
% |
|
|
50 |
% |
|
|
92 |
% |
|
|
95 |
% |
% ARM |
|
|
33 |
% |
|
|
23 |
% |
|
|
60 |
% |
|
|
50 |
% |
|
|
8 |
% |
|
|
5 |
% |
Delinquencies % |
|
|
4.03 |
% |
|
|
0.70 |
% |
|
|
10.50 |
% |
|
|
0.21 |
% |
|
|
1.35 |
% |
|
|
4.08 |
% |
Non-performing % |
|
|
3.26 |
% |
|
|
0.00 |
% |
|
|
9.98 |
% |
|
|
0.00 |
% |
|
|
0.91 |
% |
|
|
2.04 |
% |
Charge-offs % Second Quarter 2007 (a) |
|
|
0.04 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime mortgage loans Owned portfolio Centralized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Liens |
|
$ |
45,018 |
|
|
$ |
1,366 |
|
|
$ |
6,538 |
|
|
$ |
31,748 |
|
|
$ |
3,155 |
|
|
$ |
2,211 |
|
Average FICO® Score |
|
|
702 |
|
|
|
697 |
|
|
|
698 |
|
|
|
702 |
|
|
|
707 |
|
|
|
709 |
|
Loan-to-value Average |
|
|
93.72 |
% |
|
|
92.76 |
% |
|
|
92.88 |
% |
|
|
97.15 |
% |
|
|
96.61 |
% |
|
|
72.30 |
% |
% Fixed-rate |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
3.97 |
% |
|
|
0.00 |
% |
|
|
15.59 |
% |
|
|
2.28 |
% |
|
|
0.00 |
% |
|
|
1.82 |
% |
Non-performing % |
|
|
1.81 |
% |
|
|
0.00 |
% |
|
|
10.16 |
% |
|
|
0.39 |
% |
|
|
0.00 |
% |
|
|
1.30 |
% |
Charge-offs % Second Quarter 2007 (a) |
|
|
0.81 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.90 |
% |
|
|
2.04 |
% |
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime mortgage loans Owned portfolio Branches |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Liens |
|
$ |
251,993 |
|
|
$ |
39,883 |
|
|
$ |
86,279 |
|
|
$ |
44,515 |
|
|
$ |
26,818 |
|
|
$ |
54,498 |
|
Average FICO® Score |
|
|
713 |
|
|
|
698 |
|
|
|
710 |
|
|
|
711 |
|
|
|
716 |
|
|
|
721 |
|
Loan-to-value Average (c) |
|
|
74.63 |
% |
|
|
74.26 |
% |
|
|
75.21 |
% |
|
|
73.62 |
% |
|
Not available |
|
Not available |
% Fixed-rate |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
0.24 |
% |
|
|
0.23 |
% |
|
|
0.00 |
% |
|
|
0.18 |
% |
|
|
1.04 |
% |
|
|
0.27 |
% |
Non-performing % |
|
|
0.02 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.08 |
% |
|
|
0.00 |
% |
|
|
0.03 |
% |
Charge-offs % Second Quarter 2007 (a) |
|
|
0.20 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.85 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime mortgage loans Owned portfolio Branches |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Liens |
|
$ |
34,143 |
|
|
$ |
9,560 |
|
|
$ |
14,785 |
|
|
$ |
5,201 |
|
|
$ |
2,053 |
|
|
$ |
2,544 |
|
Average FICO® Score |
|
|
696 |
|
|
|
690 |
|
|
|
693 |
|
|
|
700 |
|
|
|
704 |
|
|
|
709 |
|
Loan-to-value Average (c) |
|
|
84.31 |
% |
|
|
84.60 |
% |
|
|
84.56 |
% |
|
|
82.86 |
% |
|
Not available |
|
Not available |
% Fixed-rate |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
0.41 |
% |
|
|
0.16 |
% |
|
|
0.15 |
% |
|
|
0.96 |
% |
|
|
1.51 |
% |
|
|
0.93 |
% |
Non-performing % |
|
|
0.03 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.46 |
% |
Charge-offs % Second Quarter 2007 (a) |
|
|
0.04 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL Prime mortgage loans Owned portfolio |
|
$ |
517,817 |
|
|
$ |
75,511 |
|
|
$ |
158,225 |
|
|
$ |
126,421 |
|
|
$ |
60,384 |
|
|
$ |
97,276 |
|
Average FICO® Score |
|
|
707 |
|
|
|
694 |
|
|
|
702 |
|
|
|
705 |
|
|
|
712 |
|
|
|
719 |
|
Loan-to-value Average |
|
|
81.24 |
% |
|
|
79.43 |
% |
|
|
79.92 |
% |
|
|
86.88 |
% |
|
|
84.74 |
% |
|
|
72.79 |
% |
% Fixed-rate |
|
|
88 |
% |
|
|
93 |
% |
|
|
81 |
% |
|
|
82 |
% |
|
|
96 |
% |
|
|
98 |
% |
% ARM |
|
|
12 |
% |
|
|
7 |
% |
|
|
19 |
% |
|
|
18 |
% |
|
|
4 |
% |
|
|
2 |
% |
Delinquencies % |
|
|
1.94 |
% |
|
|
0.37 |
% |
|
|
4.02 |
% |
|
|
0.75 |
% |
|
|
1.14 |
% |
|
|
1.81 |
% |
Non-performing % |
|
|
1.34 |
% |
|
|
0.00 |
% |
|
|
3.61 |
% |
|
|
0.13 |
% |
|
|
0.43 |
% |
|
|
0.86 |
% |
Charge-offs % Second Quarter 2007 (a) |
|
|
0.19 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.23 |
% |
|
|
0.10 |
% |
|
|
0.56 |
% |
99
Table R (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2007 |
|
Total |
|
Vintage |
|
Vintage |
|
Vintage |
|
Vintage |
|
Vintage |
(Dollars in thousands) |
|
Vintages |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 & prior |
Prime mortgage loans Owned-in-Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Liens |
|
$ |
1,348,823 |
|
|
$ |
0 |
|
|
$ |
84,719 |
|
|
$ |
427,445 |
|
|
$ |
439,743 |
|
|
$ |
396,916 |
|
Average FICO® Score |
|
|
712 |
|
|
|
|
|
|
|
693 |
|
|
|
705 |
|
|
|
716 |
|
|
|
717 |
|
Loan-to-value Average |
|
|
83.12 |
% |
|
|
|
|
|
|
83.42 |
% |
|
|
84.92 |
% |
|
|
80.54 |
% |
|
|
83.84 |
% |
% Fixed-rate |
|
|
81 |
% |
|
|
|
|
|
|
42 |
% |
|
|
59 |
% |
|
|
95 |
% |
|
|
97 |
% |
% ARM |
|
|
19 |
% |
|
|
|
|
|
|
58 |
% |
|
|
41 |
% |
|
|
5 |
% |
|
|
3 |
% |
Delinquencies % |
|
|
1.19 |
% |
|
|
|
|
|
|
2.25 |
% |
|
|
1.55 |
% |
|
|
0.72 |
% |
|
|
1.09 |
% |
Non-performing % |
|
|
0.68 |
% |
|
|
|
|
|
|
1.44 |
% |
|
|
0.84 |
% |
|
|
0.31 |
% |
|
|
0.77 |
% |
Charge-offs % Second Quarter 2007 (a) |
|
|
0.09 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.01 |
% |
|
|
0.08 |
% |
|
|
0.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime mortgage loans Owned-in-Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Liens |
|
$ |
7,140 |
|
|
$ |
0 |
|
|
$ |
55 |
|
|
$ |
101 |
|
|
$ |
386 |
|
|
$ |
6,598 |
|
Average FICO® Score |
|
|
710 |
|
|
|
|
|
|
|
684 |
|
|
|
671 |
|
|
|
704 |
|
|
|
710 |
|
Loan-to-value Average |
|
|
92.17 |
% |
|
|
|
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
93.42 |
% |
|
|
92.01 |
% |
% Fixed-rate |
|
|
100 |
% |
|
|
|
|
|
|
0 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
|
|
|
|
100 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
0.60 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.65 |
% |
Non-performing % |
|
|
0.60 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.65 |
% |
Charge-offs % Second Quarter 2007 (a) |
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL Prime mortgage loans Owned-in-Trust |
|
$ |
1,355,963 |
|
|
$ |
0 |
|
|
$ |
84,774 |
|
|
$ |
427,546 |
|
|
$ |
440,129 |
|
|
$ |
403,514 |
|
Average FICO® Score |
|
|
712 |
|
|
|
|
|
|
|
693 |
|
|
|
705 |
|
|
|
716 |
|
|
|
716 |
|
Loan-to-value Average |
|
|
83.36 |
% |
|
|
|
|
|
|
83.46 |
% |
|
|
84.93 |
% |
|
|
80.59 |
% |
|
|
84.35 |
% |
% Fixed-rate |
|
|
81 |
% |
|
|
|
|
|
|
42 |
% |
|
|
59 |
% |
|
|
95 |
% |
|
|
98 |
% |
% ARM |
|
|
19 |
% |
|
|
|
|
|
|
58 |
% |
|
|
41 |
% |
|
|
5 |
% |
|
|
2 |
% |
Delinquencies % |
|
|
1.19 |
% |
|
|
|
|
|
|
2.25 |
% |
|
|
1.55 |
% |
|
|
0.72 |
% |
|
|
1.09 |
% |
Non-performing % |
|
|
0.68 |
% |
|
|
|
|
|
|
1.44 |
% |
|
|
0.84 |
% |
|
|
0.31 |
% |
|
|
0.76 |
% |
Charge-offs % Second Quarter 2007 (a) |
|
|
0.09 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.01 |
% |
|
|
0.08 |
% |
|
|
0.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime mortgage loans Owned portfolio Centralized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Liens |
|
$ |
601,363 |
|
|
$ |
90,879 |
|
|
$ |
168,742 |
|
|
$ |
160,375 |
|
|
$ |
57,753 |
|
|
$ |
123,614 |
|
Average FICO® Score |
|
|
566 |
|
|
|
576 |
|
|
|
572 |
|
|
|
565 |
|
|
|
563 |
|
|
|
561 |
|
Loan-to-value Average |
|
|
82.18 |
% |
|
|
83.95 |
% |
|
|
81.03 |
% |
|
|
85.77 |
% |
|
|
84.49 |
% |
|
|
79.63 |
% |
% Fixed-rate |
|
|
58 |
% |
|
|
76 |
% |
|
|
48 |
% |
|
|
33 |
% |
|
|
73 |
% |
|
|
81 |
% |
% ARM |
|
|
42 |
% |
|
|
24 |
% |
|
|
52 |
% |
|
|
67 |
% |
|
|
27 |
% |
|
|
19 |
% |
Delinquencies % |
|
|
22.02 |
% |
|
|
2.80 |
% |
|
|
22.21 |
% |
|
|
24.46 |
% |
|
|
25.21 |
% |
|
|
31.23 |
% |
Non-performing % |
|
|
14.65 |
% |
|
|
1.11 |
% |
|
|
13.78 |
% |
|
|
15.59 |
% |
|
|
18.25 |
% |
|
|
22.88 |
% |
Charge-offs % Second Quarter 2007 (a) |
|
|
2.03 |
% |
|
|
0.00 |
% |
|
|
1.58 |
% |
|
|
2.34 |
% |
|
|
3.33 |
% |
|
|
2.51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime mortgage loans Owned portfolio Centralized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Liens |
|
$ |
135,084 |
|
|
$ |
4,418 |
|
|
$ |
18,681 |
|
|
$ |
92,613 |
|
|
$ |
7,630 |
|
|
$ |
11,742 |
|
Average FICO® Score |
|
|
567 |
|
|
|
608 |
|
|
|
592 |
|
|
|
563 |
|
|
|
569 |
|
|
|
558 |
|
Loan-to-value Average |
|
|
92.97 |
% |
|
|
94.65 |
% |
|
|
93.96 |
% |
|
|
97.89 |
% |
|
|
97.67 |
% |
|
|
70.00 |
% |
% Fixed-rate |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
99 |
% |
% ARM |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
1 |
% |
Delinquencies % |
|
|
22.25 |
% |
|
|
5.78 |
% |
|
|
12.46 |
% |
|
|
23.40 |
% |
|
|
22.81 |
% |
|
|
34.55 |
% |
Non-performing % |
|
|
15.36 |
% |
|
|
0.48 |
% |
|
|
7.77 |
% |
|
|
16.21 |
% |
|
|
18.85 |
% |
|
|
24.08 |
% |
Charge-offs % Second Quarter 2007 (a) |
|
|
9.07 |
% |
|
|
0.00 |
% |
|
|
1.06 |
% |
|
|
10.74 |
% |
|
|
5.88 |
% |
|
|
14.17 |
% |
100
Table R (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2007 |
|
Total |
|
Vintage |
|
Vintage |
|
Vintage |
|
Vintage |
|
Vintage |
(Dollars in thousands) |
|
Vintages |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 & prior |
Subprime mortgage loans Owned portfolio Branches |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Liens |
|
$ |
673,028 |
|
|
$ |
154,096 |
|
|
$ |
240,121 |
|
|
$ |
99,148 |
|
|
$ |
60,676 |
|
|
$ |
118,987 |
|
Average FICO® Score |
|
|
573 |
|
|
|
588 |
|
|
|
571 |
|
|
|
565 |
|
|
|
568 |
|
|
|
569 |
|
Loan-to-value Average (c) |
|
|
76.57 |
% |
|
|
75.51 |
% |
|
|
76.82 |
% |
|
|
77.78 |
% |
|
Not available |
|
Not available |
% Fixed-rate |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
4.41 |
% |
|
|
1.00 |
% |
|
|
4.02 |
% |
|
|
6.14 |
% |
|
|
8.87 |
% |
|
|
5.88 |
% |
Non-performing % |
|
|
2.63 |
% |
|
|
0.00 |
% |
|
|
2.39 |
% |
|
|
4.02 |
% |
|
|
5.90 |
% |
|
|
3.73 |
% |
Charge-offs % Second Quarter 2007 (a) |
|
|
0.39 |
% |
|
|
0.00 |
% |
|
|
0.12 |
% |
|
|
0.73 |
% |
|
|
0.61 |
% |
|
|
0.94 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime mortgage loans Owned portfolio Branches |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Liens |
|
$ |
98,965 |
|
|
$ |
28,883 |
|
|
$ |
40,098 |
|
|
$ |
14,215 |
|
|
$ |
7,777 |
|
|
$ |
7,992 |
|
Average FICO® Score |
|
|
579 |
|
|
|
609 |
|
|
|
578 |
|
|
|
557 |
|
|
|
558 |
|
|
|
563 |
|
Loan-to-value Average (c) |
|
|
83.44 |
% |
|
|
82.75 |
% |
|
|
83.50 |
% |
|
|
84.99 |
% |
|
Not available |
|
Not available |
% Fixed-rate |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
6.98 |
% |
|
|
0.79 |
% |
|
|
6.20 |
% |
|
|
15.67 |
% |
|
|
14.50 |
% |
|
|
10.52 |
% |
Non-performing % |
|
|
3.87 |
% |
|
|
0.31 |
% |
|
|
3.35 |
% |
|
|
9.58 |
% |
|
|
7.18 |
% |
|
|
5.97 |
% |
Charge-offs % Second Quarter 2007 (a) |
|
|
2.27 |
% |
|
|
0.00 |
% |
|
|
1.33 |
% |
|
|
3.89 |
% |
|
|
6.54 |
% |
|
|
6.24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL Subprime mortgage loans Owned portfolio |
|
$ |
1,508,440 |
|
|
$ |
278,276 |
|
|
$ |
467,642 |
|
|
$ |
366,351 |
|
|
$ |
133,836 |
|
|
$ |
262,335 |
|
Average FICO® Score |
|
|
572 |
|
|
|
595 |
|
|
|
575 |
|
|
|
563 |
|
|
|
564 |
|
|
|
565 |
|
Loan-to-value Average |
|
|
83.15 |
% |
|
|
80.09 |
% |
|
|
81.01 |
% |
|
|
90.25 |
% |
|
|
89.28 |
% |
|
|
77.21 |
% |
% Fixed-rate |
|
|
83 |
% |
|
|
92 |
% |
|
|
81 |
% |
|
|
71 |
% |
|
|
88 |
% |
|
|
91 |
% |
% ARM |
|
|
17 |
% |
|
|
8 |
% |
|
|
19 |
% |
|
|
29 |
% |
|
|
12 |
% |
|
|
9 |
% |
Delinquencies % |
|
|
13.20 |
% |
|
|
1.64 |
% |
|
|
11.11 |
% |
|
|
18.89 |
% |
|
|
17.04 |
% |
|
|
19.25 |
% |
Non-performing % |
|
|
8.64 |
% |
|
|
0.40 |
% |
|
|
6.80 |
% |
|
|
12.38 |
% |
|
|
12.04 |
% |
|
|
13.73 |
% |
Charge-offs % Second Quarter 2007 (a) |
|
|
2.00 |
% |
|
|
0.00 |
% |
|
|
0.80 |
% |
|
|
4.04 |
% |
|
|
2.43 |
% |
|
|
2.46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime mortgage loans Owned-in-Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Liens |
|
$ |
2,572,809 |
|
|
$ |
0 |
|
|
$ |
382,924 |
|
|
$ |
1,015,981 |
|
|
$ |
489,560 |
|
|
$ |
684,344 |
|
Average FICO® Score |
|
|
572 |
|
|
|
|
|
|
|
579 |
|
|
|
570 |
|
|
|
575 |
|
|
|
569 |
|
Loan-to-value Average |
|
|
83.83 |
% |
|
|
|
|
|
|
84.41 |
% |
|
|
83.25 |
% |
|
|
84.28 |
% |
|
|
83.91 |
% |
% Fixed-rate |
|
|
61 |
% |
|
|
|
|
|
|
29 |
% |
|
|
47 |
% |
|
|
84 |
% |
|
|
83 |
% |
% ARM |
|
|
39 |
% |
|
|
|
|
|
|
71 |
% |
|
|
53 |
% |
|
|
16 |
% |
|
|
17 |
% |
Delinquencies % |
|
|
17.49 |
% |
|
|
|
|
|
|
12.54 |
% |
|
|
18.60 |
% |
|
|
14.51 |
% |
|
|
20.75 |
% |
Non-performing % |
|
|
11.01 |
% |
|
|
|
|
|
|
7.74 |
% |
|
|
11.51 |
% |
|
|
9.29 |
% |
|
|
13.34 |
% |
Charge-offs % Second Quarter 2007 (a) |
|
|
1.66 |
% |
|
|
|
|
|
|
0.84 |
% |
|
|
1.88 |
% |
|
|
1.18 |
% |
|
|
2.13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime mortgage loans Owned-in-Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Liens |
|
$ |
18,257 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
713 |
|
|
$ |
546 |
|
|
$ |
16,998 |
|
Average FICO® Score |
|
|
568 |
|
|
|
|
|
|
|
|
|
|
|
588 |
|
|
|
571 |
|
|
|
567 |
|
Loan-to-value Average |
|
|
94.67 |
% |
|
|
|
|
|
|
|
|
|
|
97.98 |
% |
|
|
96.17 |
% |
|
|
94.53 |
% |
% Fixed-rate |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
28.58 |
% |
|
|
|
|
|
|
|
|
|
|
8.40 |
% |
|
|
32.53 |
% |
|
|
29.30 |
% |
Non-performing % |
|
|
21.09 |
% |
|
|
|
|
|
|
|
|
|
|
8.40 |
% |
|
|
24.19 |
% |
|
|
21.52 |
% |
Charge-offs % Second Quarter 2007 (a) |
|
|
12.56 |
% |
|
|
|
|
|
|
|
|
|
|
0.00 |
% |
|
|
2.95 |
% |
|
|
13.45 |
% |
101
Table R (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2007 |
|
Total |
|
|
Vintage |
|
|
Vintage |
|
|
Vintage |
|
|
Vintage |
|
|
Vintage |
|
(Dollars in thousands) |
|
Vintages |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 & prior |
|
TOTAL Subprime mortgage loans Owned-in-Trust |
|
$ |
2,591,066 |
|
|
$ |
0 |
|
|
$ |
382,924 |
|
|
$ |
1,016,694 |
|
|
$ |
490,106 |
|
|
$ |
701,342 |
|
Average FICO® Score |
|
|
572 |
|
|
|
|
|
|
|
579 |
|
|
|
570 |
|
|
|
575 |
|
|
|
569 |
|
Loan-to-value Average |
|
|
84.20 |
% |
|
|
|
|
|
|
84.41 |
% |
|
|
83.29 |
% |
|
|
84.33 |
% |
|
|
84.81 |
% |
% Fixed-rate |
|
|
61 |
% |
|
|
|
|
|
|
29 |
% |
|
|
47 |
% |
|
|
84 |
% |
|
|
84 |
% |
% ARM |
|
|
39 |
% |
|
|
|
|
|
|
71 |
% |
|
|
53 |
% |
|
|
16 |
% |
|
|
16 |
% |
Delinquencies % |
|
|
17.57 |
% |
|
|
|
|
|
|
12.54 |
% |
|
|
18.59 |
% |
|
|
14.53 |
% |
|
|
20.95 |
% |
Non-performing % |
|
|
11.08 |
% |
|
|
|
|
|
|
7.74 |
% |
|
|
11.51 |
% |
|
|
9.31 |
% |
|
|
13.53 |
% |
Charge-offs % Second Quarter 2007 (a) |
|
|
1.74 |
% |
|
|
|
|
|
|
0.84 |
% |
|
|
1.88 |
% |
|
|
1.19 |
% |
|
|
2.40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans without FICO scores |
|
$ |
26,124 |
|
|
$ |
20,679 |
|
|
$ |
3,701 |
|
|
$ |
239 |
|
|
$ |
51 |
|
|
$ |
1,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL PFH Mortgage Loans (b) |
|
$ |
5,999,410 |
|
|
$ |
374,466 |
|
|
$ |
1,097,266 |
|
|
$ |
1,937,251 |
|
|
$ |
1,124,506 |
|
|
$ |
1,465,921 |
|
Average FICO® Score |
|
|
611 |
|
|
|
616 |
|
|
|
603 |
|
|
|
604 |
|
|
|
626 |
|
|
|
614 |
|
Loan-to-value Average |
|
|
83.37 |
% |
|
|
79.90 |
% |
|
|
81.67 |
% |
|
|
86.09 |
% |
|
|
83.40 |
% |
|
|
82.98 |
% |
% Fixed-rate |
|
|
74 |
% |
|
|
92 |
% |
|
|
60 |
% |
|
|
57 |
% |
|
|
89 |
% |
|
|
90 |
% |
% ARM |
|
|
26 |
% |
|
|
8 |
% |
|
|
40 |
% |
|
|
43 |
% |
|
|
11 |
% |
|
|
10 |
% |
Delinquencies % |
|
|
11.35 |
% |
|
|
1.30 |
% |
|
|
9.88 |
% |
|
|
13.72 |
% |
|
|
8.70 |
% |
|
|
13.91 |
% |
Non-performing % |
|
|
7.15 |
% |
|
|
0.30 |
% |
|
|
6.23 |
% |
|
|
8.58 |
% |
|
|
5.63 |
% |
|
|
9.22 |
% |
Charge-offs % Second Quarter 2007 |
|
|
1.29 |
% |
|
|
0.00 |
% |
|
|
0.63 |
% |
|
|
1.78 |
% |
|
|
0.87 |
% |
|
|
1.73 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred fees, origination costs, net premiums and other items |
|
|
48,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PFH Total Mortgage Loans HIP |
|
$ |
6,047,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The average balances used to calculate these net charge-offs to average loans ratios were calculated using the ending balances
as of March 31, 2007 and June 30, 2007 for these business areas. |
|
(b) |
|
Includes loans without FICO® scores. |
|
(c) |
|
Average LTV for total vintages in "owned portfolio-branches" considers only the vintages for which the average LTV is available. |
102
Table S
Mortgage Loan Exposure at Popular Financial Holdings (excludes mortgage loans held for sale)
As of December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Vintage |
|
Vintage |
|
Vintage |
|
Vintage |
|
Vintage |
(In thousands) |
|
Vintages |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 & prior |
Prime mortgage loans Owned portfolio Centralized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Liens |
|
$ |
231,252 |
|
|
|
|
|
|
$ |
82,515 |
|
|
$ |
63,263 |
|
|
$ |
37,770 |
|
|
$ |
47,704 |
|
Average FICO® Score |
|
|
709 |
|
|
|
|
|
|
|
698 |
|
|
|
703 |
|
|
|
710 |
|
|
|
719 |
|
Loan-to-value Average |
|
|
77.56 |
% |
|
|
|
|
|
|
79.62 |
% |
|
|
83.67 |
% |
|
|
78.91 |
% |
|
|
71.83 |
% |
% Fixed-rate |
|
|
59 |
% |
|
|
|
|
|
|
43 |
% |
|
|
42 |
% |
|
|
78 |
% |
|
|
95 |
% |
% ARM |
|
|
41 |
% |
|
|
|
|
|
|
57 |
% |
|
|
58 |
% |
|
|
22 |
% |
|
|
5 |
% |
Delinquencies % |
|
|
1.32 |
% |
|
|
|
|
|
|
0.86 |
% |
|
|
0.68 |
% |
|
|
0.95 |
% |
|
|
3.26 |
% |
Non-performing % |
|
|
0.47 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.11 |
% |
|
|
0.63 |
% |
|
|
1.66 |
% |
Charge-offs % Fourth Quarter 2007 (a) |
|
|
0.35 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.48 |
% |
|
|
0.18 |
% |
|
|
0.74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime mortgage loans Owned portfolio Centralized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Liens |
|
$ |
51,469 |
|
|
|
|
|
|
$ |
5,479 |
|
|
$ |
39,271 |
|
|
$ |
4,173 |
|
|
$ |
2,546 |
|
Average FICO® Score |
|
|
700 |
|
|
|
|
|
|
|
695 |
|
|
|
699 |
|
|
|
703 |
|
|
|
708 |
|
Loan-to-value Average |
|
|
93.28 |
% |
|
|
|
|
|
|
92.12 |
% |
|
|
97.30 |
% |
|
|
94.25 |
% |
|
|
68.44 |
% |
% Fixed-rate |
|
|
100 |
% |
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
1.56 |
% |
|
|
|
|
|
|
1.75 |
% |
|
|
1.31 |
% |
|
|
0.00 |
% |
|
|
7.65 |
% |
Non-performing % |
|
|
0.82 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.73 |
% |
|
|
0.00 |
% |
|
|
5.25 |
% |
Charge-offs % Fourth Quarter 2007 (a) |
|
|
0.76 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.63 |
% |
|
|
0.00 |
% |
|
|
5.37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime mortgage loans Owned portfolio Branches |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Liens |
|
$ |
244,702 |
|
|
|
|
|
|
$ |
98,259 |
|
|
$ |
51,908 |
|
|
$ |
32,008 |
|
|
$ |
62,527 |
|
Average FICO® Score |
|
|
714 |
|
|
|
|
|
|
|
709 |
|
|
|
709 |
|
|
|
714 |
|
|
|
721 |
|
Loan-to-value Average (c) |
|
|
74.26 |
% |
|
|
|
|
|
|
74.71 |
% |
|
|
73.18 |
% |
|
Not available |
|
Not available |
% Fixed-rate |
|
|
100 |
% |
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
0.25 |
% |
|
|
|
|
|
|
0.21 |
% |
|
|
0.62 |
% |
|
|
0.00 |
% |
|
|
0.15 |
% |
Non-performing % |
|
|
0.14 |
% |
|
|
|
|
|
|
0.21 |
% |
|
|
0.10 |
% |
|
|
0.00 |
% |
|
|
0.12 |
% |
Charge-offs % Fourth Quarter 2007 (a) |
|
|
0.22 |
% |
|
|
|
|
|
|
0.06 |
% |
|
|
0.22 |
% |
|
|
0.51 |
% |
|
|
0.27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime mortgage loans Owned portfolio Branches |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Liens |
|
$ |
31,648 |
|
|
|
|
|
|
$ |
19,021 |
|
|
$ |
6,567 |
|
|
$ |
2,969 |
|
|
$ |
3,091 |
|
Average FICO® Score |
|
|
697 |
|
|
|
|
|
|
|
691 |
|
|
|
699 |
|
|
|
703 |
|
|
|
707 |
|
Loan-to-value Average (c) |
|
|
83.79 |
% |
|
|
|
|
|
|
84.14 |
% |
|
|
82.64 |
% |
|
Not available |
|
Not available |
% Fixed-rate |
|
|
100 |
% |
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
0.34 |
% |
|
|
|
|
|
|
0.08 |
% |
|
|
0.26 |
% |
|
|
0.31 |
% |
|
|
2.19 |
% |
Non-performing % |
|
|
0.15 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.26 |
% |
|
|
0.31 |
% |
|
|
0.71 |
% |
Charge-offs % Fourth Quarter 2007 (a) |
|
|
0.90 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.38 |
% |
|
|
4.82 |
% |
|
|
2.47 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL Prime mortgage loans Owned portfolio |
|
$ |
559,071 |
|
|
|
|
|
|
$ |
205,274 |
|
|
$ |
161,009 |
|
|
$ |
76,920 |
|
|
$ |
115,868 |
|
Average FICO® Score |
|
|
707 |
|
|
|
|
|
|
|
700 |
|
|
|
703 |
|
|
|
710 |
|
|
|
718 |
|
Loan-to-value Average |
|
|
81.36 |
% |
|
|
|
|
|
|
79.74 |
% |
|
|
86.99 |
% |
|
|
84.16 |
% |
|
|
71.24 |
% |
% Fixed-rate |
|
|
83 |
% |
|
|
|
|
|
|
77 |
% |
|
|
77 |
% |
|
|
89 |
% |
|
|
98 |
% |
% ARM |
|
|
17 |
% |
|
|
|
|
|
|
23 |
% |
|
|
23 |
% |
|
|
11 |
% |
|
|
2 |
% |
Delinquencies % |
|
|
0.82 |
% |
|
|
|
|
|
|
0.50 |
% |
|
|
0.80 |
% |
|
|
0.48 |
% |
|
|
1.65 |
% |
Non-performing % |
|
|
0.34 |
% |
|
|
|
|
|
|
0.10 |
% |
|
|
0.26 |
% |
|
|
0.32 |
% |
|
|
0.88 |
% |
Charge-offs % Fourth Quarter 2007 (a) |
|
|
0.36 |
% |
|
|
|
|
|
|
0.03 |
% |
|
|
0.43 |
% |
|
|
0.51 |
% |
|
|
0.63 |
% |
103
Table S (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006 |
|
Total |
|
Vintage |
|
Vintage |
|
Vintage |
|
Vintage |
|
Vintage |
(Dollars in thousands) |
|
Vintages |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 & prior |
Prime mortgage loans Owned-in-Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Liens |
|
$ |
1,573,576 |
|
|
|
|
|
|
$ |
96,449 |
|
|
$ |
533,787 |
|
|
$ |
498,320 |
|
|
$ |
445,020 |
|
Average FICO® Score |
|
|
711 |
|
|
|
|
|
|
|
692 |
|
|
|
704 |
|
|
|
715 |
|
|
|
716 |
|
Loan-to-value Average |
|
|
83.26 |
% |
|
|
|
|
|
|
83.33 |
% |
|
|
84.88 |
% |
|
|
80.64 |
% |
|
|
84.08 |
% |
% Fixed-rate |
|
|
78 |
% |
|
|
|
|
|
|
42 |
% |
|
|
56 |
% |
|
|
92 |
% |
|
|
96 |
% |
% ARM |
|
|
22 |
% |
|
|
|
|
|
|
58 |
% |
|
|
44 |
% |
|
|
8 |
% |
|
|
4 |
% |
Delinquencies % |
|
|
0.82 |
% |
|
|
|
|
|
|
1.35 |
% |
|
|
0.93 |
% |
|
|
0.43 |
% |
|
|
0.99 |
% |
Non-performing % |
|
|
0.39 |
% |
|
|
|
|
|
|
0.78 |
% |
|
|
0.26 |
% |
|
|
0.25 |
% |
|
|
0.62 |
% |
Charge-offs % Fourth Quarter 2007 (a) |
|
|
0.34 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.39 |
% |
|
|
0.19 |
% |
|
|
0.49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime mortgage loans Owned-in-Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Liens |
|
$ |
8,897 |
|
|
|
|
|
|
$ |
55 |
|
|
$ |
350 |
|
|
$ |
527 |
|
|
$ |
7,965 |
|
Average FICO® Score |
|
|
709 |
|
|
|
|
|
|
|
691 |
|
|
|
687 |
|
|
|
695 |
|
|
|
710 |
|
Loan-to-value Average |
|
|
93.21 |
% |
|
|
|
|
|
|
100.00 |
% |
|
|
99.22 |
% |
|
|
94.81 |
% |
|
|
92.92 |
% |
% Fixed-rate |
|
|
100 |
% |
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
1.83 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
2.04 |
% |
Non-performing % |
|
|
1.25 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
1.40 |
% |
Charge-offs % Fourth Quarter 2007 (a) |
|
|
3.73 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
4.10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL Prime mortgage loans Owned-in-Trust |
|
$ |
1,582,473 |
|
|
|
|
|
|
$ |
96,504 |
|
|
$ |
534,137 |
|
|
$ |
498,847 |
|
|
$ |
452,985 |
|
Average FICO® Score |
|
|
711 |
|
|
|
|
|
|
|
692 |
|
|
|
704 |
|
|
|
715 |
|
|
|
715 |
|
Loan-to-value Average |
|
|
83.53 |
% |
|
|
|
|
|
|
83.36 |
% |
|
|
84.92 |
% |
|
|
80.70 |
% |
|
|
84.65 |
% |
% Fixed-rate |
|
|
78 |
% |
|
|
|
|
|
|
42 |
% |
|
|
56 |
% |
|
|
92 |
% |
|
|
96 |
% |
% ARM |
|
|
22 |
% |
|
|
|
|
|
|
58 |
% |
|
|
44 |
% |
|
|
8 |
% |
|
|
4 |
% |
Delinquencies % |
|
|
0.82 |
% |
|
|
|
|
|
|
1.35 |
% |
|
|
0.93 |
% |
|
|
0.43 |
% |
|
|
1.01 |
% |
Non-performing % |
|
|
0.40 |
% |
|
|
|
|
|
|
0.78 |
% |
|
|
0.26 |
% |
|
|
0.25 |
% |
|
|
0.63 |
% |
Charge-offs % Fourth Quarter 2007 (a) |
|
|
0.36 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.39 |
% |
|
|
0.19 |
% |
|
|
0.56 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime mortgage loans Owned portfolio Centralized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Liens |
|
$ |
745,075 |
|
|
|
|
|
|
$ |
352,849 |
|
|
$ |
187,794 |
|
|
$ |
65,819 |
|
|
$ |
138,613 |
|
Average FICO® Score |
|
|
574 |
|
|
|
|
|
|
|
586 |
|
|
|
570 |
|
|
|
565 |
|
|
|
564 |
|
Loan-to-value Average |
|
|
81.56 |
% |
|
|
|
|
|
|
82.44 |
% |
|
|
85.48 |
% |
|
|
84.73 |
% |
|
|
77.11 |
% |
% Fixed-rate |
|
|
51 |
% |
|
|
|
|
|
|
45 |
% |
|
|
33 |
% |
|
|
72 |
% |
|
|
84 |
% |
% ARM |
|
|
49 |
% |
|
|
|
|
|
|
55 |
% |
|
|
67 |
% |
|
|
28 |
% |
|
|
16 |
% |
Delinquencies % |
|
|
15.57 |
% |
|
|
|
|
|
|
4.44 |
% |
|
|
19.26 |
% |
|
|
26.20 |
% |
|
|
33.84 |
% |
Non-performing % |
|
|
9.87 |
% |
|
|
|
|
|
|
1.97 |
% |
|
|
12.21 |
% |
|
|
16.43 |
% |
|
|
23.72 |
% |
Charge-offs % Fourth Quarter 2007 (a) |
|
|
2.25 |
% |
|
|
|
|
|
|
0.04 |
% |
|
|
2.32 |
% |
|
|
2.23 |
% |
|
|
6.01 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime mortgage loans Owned portfolio Centralized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Liens |
|
$ |
145,792 |
|
|
|
|
|
|
$ |
18,506 |
|
|
$ |
103,162 |
|
|
$ |
8,664 |
|
|
$ |
15,460 |
|
Average FICO® Score |
|
|
574 |
|
|
|
|
|
|
|
600 |
|
|
|
573 |
|
|
|
575 |
|
|
|
561 |
|
Loan-to-value Average |
|
|
92.28 |
% |
|
|
|
|
|
|
93.64 |
% |
|
|
97.83 |
% |
|
|
97.28 |
% |
|
|
70.64 |
% |
% Fixed-rate |
|
|
100 |
% |
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
99 |
% |
% ARM |
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
1 |
% |
Delinquencies % |
|
|
18.91 |
% |
|
|
|
|
|
|
4.04 |
% |
|
|
18.42 |
% |
|
|
23.25 |
% |
|
|
37.59 |
% |
Non-performing % |
|
|
12.17 |
% |
|
|
|
|
|
|
2.63 |
% |
|
|
10.96 |
% |
|
|
17.22 |
% |
|
|
28.85 |
% |
Charge-offs % Fourth Quarter 2007 (a) |
|
|
1.41 |
% |
|
|
|
|
|
|
0.08 |
% |
|
|
1.00 |
% |
|
|
1.24 |
% |
|
|
5.65 |
% |
104
Table S (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006 |
|
Total |
|
|
Vintage |
|
|
Vintage |
|
|
Vintage |
|
|
Vintage |
|
|
Vintage 2003 & |
|
(Dollars in thousands) |
|
Vintages |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
prior |
|
|
Subprime mortgage loans Owned portfolio Branches |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Liens |
|
$ |
629,856 |
|
|
|
|
|
|
$ |
285,784 |
|
|
$ |
128,571 |
|
|
$ |
75,758 |
|
|
$ |
139,743 |
|
Average FICO® Score |
|
|
571 |
|
|
|
|
|
|
|
573 |
|
|
|
569 |
|
|
|
570 |
|
|
|
570 |
|
Loan-to-value Average (c) |
|
|
76.30 |
% |
|
|
|
|
|
|
75.92 |
% |
|
|
77.42 |
% |
|
Not available |
|
Not available |
% Fixed-rate |
|
|
100 |
% |
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
5.41 |
% |
|
|
|
|
|
|
2.92 |
% |
|
|
7.18 |
% |
|
|
10.57 |
% |
|
|
6.08 |
% |
Non-performing % |
|
|
2.73 |
% |
|
|
|
|
|
|
0.81 |
% |
|
|
3.98 |
% |
|
|
6.55 |
% |
|
|
3.42 |
% |
Charge-offs % Fourth Quarter 2007 (a) |
|
|
0.36 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.38 |
% |
|
|
0.74 |
% |
|
|
0.79 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime mortgage loans Owned portfolio Branches |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Liens |
|
$ |
94,385 |
|
|
|
|
|
|
$ |
54,294 |
|
|
$ |
19,985 |
|
|
$ |
9,950 |
|
|
$ |
10,156 |
|
Average FICO® Score |
|
|
575 |
|
|
|
|
|
|
|
584 |
|
|
|
566 |
|
|
|
564 |
|
|
|
565 |
|
Loan-to-value Average (c) |
|
|
83.35 |
% |
|
|
|
|
|
|
82.96 |
% |
|
|
84.70 |
% |
|
Not available |
|
Not available |
% Fixed-rate |
|
|
100 |
% |
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
7.57 |
% |
|
|
|
|
|
|
3.64 |
% |
|
|
12.43 |
% |
|
|
14.11 |
% |
|
|
12.62 |
% |
Non-performing % |
|
|
3.41 |
% |
|
|
|
|
|
|
1.06 |
% |
|
|
6.14 |
% |
|
|
7.23 |
% |
|
|
6.85 |
% |
Charge-offs % Fourth Quarter 2007 (a) |
|
|
1.65 |
% |
|
|
|
|
|
|
-0.03 |
% |
|
|
2.56 |
% |
|
|
2.72 |
% |
|
|
6.72 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL Subprime mortgage loans Owned portfolio |
|
$ |
1,615,108 |
|
|
|
|
|
|
$ |
711,433 |
|
|
$ |
439,512 |
|
|
$ |
160,191 |
|
|
$ |
303,972 |
|
Average FICO® Score |
|
|
573 |
|
|
|
|
|
|
|
581 |
|
|
|
570 |
|
|
|
568 |
|
|
|
567 |
|
Loan-to-value Average |
|
|
83.11 |
% |
|
|
|
|
|
|
80.84 |
% |
|
|
89.48 |
% |
|
|
89.25 |
% |
|
|
75.26 |
% |
% Fixed-rate |
|
|
78 |
% |
|
|
|
|
|
|
72 |
% |
|
|
71 |
% |
|
|
88 |
% |
|
|
93 |
% |
% ARM |
|
|
22 |
% |
|
|
|
|
|
|
28 |
% |
|
|
29 |
% |
|
|
12 |
% |
|
|
7 |
% |
Delinquencies % |
|
|
11.44 |
% |
|
|
|
|
|
|
3.76 |
% |
|
|
15.22 |
% |
|
|
17.90 |
% |
|
|
20.56 |
% |
Non-performing % |
|
|
6.92 |
% |
|
|
|
|
|
|
1.45 |
% |
|
|
9.23 |
% |
|
|
11.23 |
% |
|
|
14.08 |
% |
Charge-offs % Fourth Quarter 2007 (a) |
|
|
1.35 |
% |
|
|
|
|
|
|
0.02 |
% |
|
|
1.46 |
% |
|
|
1.51 |
% |
|
|
3.52 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime mortgage loans Owned-in-Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Liens |
|
$ |
2,937,806 |
|
|
|
|
|
|
$ |
429,266 |
|
|
$ |
1,139,317 |
|
|
$ |
566,281 |
|
|
$ |
802,942 |
|
Average FICO® Score |
|
|
577 |
|
|
|
|
|
|
|
589 |
|
|
|
578 |
|
|
|
580 |
|
|
|
571 |
|
Loan-to-value Average |
|
|
83.46 |
% |
|
|
|
|
|
|
83.99 |
% |
|
|
83.03 |
% |
|
|
83.30 |
% |
|
|
83.73 |
% |
% Fixed-rate |
|
|
59 |
% |
|
|
|
|
|
|
28 |
% |
|
|
45 |
% |
|
|
81 |
% |
|
|
80 |
% |
% ARM |
|
|
41 |
% |
|
|
|
|
|
|
72 |
% |
|
|
55 |
% |
|
|
19 |
% |
|
|
20 |
% |
Delinquencies % |
|
|
16.22 |
% |
|
|
|
|
|
|
5.58 |
% |
|
|
16.57 |
% |
|
|
14.41 |
% |
|
|
22.68 |
% |
Non-performing % |
|
|
9.09 |
% |
|
|
|
|
|
|
2.13 |
% |
|
|
8.76 |
% |
|
|
7.95 |
% |
|
|
14.07 |
% |
Charge-offs % Fourth Quarter 2007 (a) |
|
|
1.31 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.65 |
% |
|
|
1.53 |
% |
|
|
2.61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime mortgage loans Owned-in-Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Liens |
|
$ |
23,209 |
|
|
|
|
|
|
$ |
0 |
|
|
$ |
630 |
|
|
$ |
686 |
|
|
$ |
21,893 |
|
Average FICO® Score |
|
|
571 |
|
|
|
|
|
|
|
|
|
|
|
574 |
|
|
|
581 |
|
|
|
570 |
|
Loan-to-value Average |
|
|
94.46 |
% |
|
|
|
|
|
|
|
|
|
|
93.72 |
% |
|
|
91.27 |
% |
|
|
94.55 |
% |
% Fixed-rate |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
% ARM |
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Delinquencies % |
|
|
30.57 |
% |
|
|
|
|
|
|
|
|
|
|
20.30 |
% |
|
|
19.69 |
% |
|
|
31.20 |
% |
Non-performing % |
|
|
23.27 |
% |
|
|
|
|
|
|
|
|
|
|
20.30 |
% |
|
|
19.69 |
% |
|
|
23.47 |
% |
Charge-offs % Fourth Quarter 2007 (a) |
|
|
4.29 |
% |
|
|
|
|
|
|
|
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
4.55 |
% |
105
Table S (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006 |
|
Total |
|
|
Vintage |
|
|
Vintage |
|
|
Vintage |
|
|
Vintage |
|
|
Vintage 2003 & |
|
(Dollars in thousands) |
|
Vintages |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
prior |
|
|
TOTAL Subprime mortgage loans Owned-in-Trust |
|
$ |
2,961,015 |
|
|
|
|
|
|
$ |
429,266 |
|
|
$ |
1,139,947 |
|
|
$ |
566,967 |
|
|
$ |
824,835 |
|
Average FICO® Score |
|
|
577 |
|
|
|
|
|
|
|
589 |
|
|
|
578 |
|
|
|
580 |
|
|
|
571 |
|
Loan-to-value Average |
|
|
83.87 |
% |
|
|
|
|
|
|
83.99 |
% |
|
|
83.06 |
% |
|
|
83.33 |
% |
|
|
84.71 |
% |
% Fixed-rate |
|
|
59 |
% |
|
|
|
|
|
|
28 |
% |
|
|
45 |
% |
|
|
81 |
% |
|
|
81 |
% |
% ARM |
|
|
41 |
% |
|
|
|
|
|
|
72 |
% |
|
|
55 |
% |
|
|
19 |
% |
|
|
19 |
% |
Delinquencies % |
|
|
16.33 |
% |
|
|
|
|
|
|
5.58 |
% |
|
|
16.57 |
% |
|
|
14.41 |
% |
|
|
22.90 |
% |
Non-performing % |
|
|
9.20 |
% |
|
|
|
|
|
|
2.13 |
% |
|
|
8.77 |
% |
|
|
7.97 |
% |
|
|
14.32 |
% |
Charge-offs % Fourth Quarter 2007 (a) |
|
|
1.33 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
0.65 |
% |
|
|
1.53 |
% |
|
|
2.66 |
% |
|
Loans without FICO scores |
|
$ |
16,955 |
|
|
|
|
|
|
$ |
13,785 |
|
|
$ |
1,042 |
|
|
$ |
66 |
|
|
$ |
2,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL PFH Mortgage Loans (b) |
|
$ |
6,734,622 |
|
|
|
|
|
|
$ |
1,456,262 |
|
|
$ |
2,275,647 |
|
|
$ |
1,302,991 |
|
|
$ |
1,699,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average FICO® Score |
|
|
614 |
|
|
|
|
|
|
|
607 |
|
|
|
610 |
|
|
|
628 |
|
|
|
614 |
|
Loan-to-value Average |
|
|
83.32 |
% |
|
|
|
|
|
|
81.33 |
% |
|
|
85.83 |
% |
|
|
82.92 |
% |
|
|
82.61 |
% |
% Fixed-rate |
|
|
70 |
% |
|
|
|
|
|
|
58 |
% |
|
|
55 |
% |
|
|
86 |
% |
|
|
88 |
% |
% ARM |
|
|
30 |
% |
|
|
|
|
|
|
42 |
% |
|
|
45 |
% |
|
|
14 |
% |
|
|
12 |
% |
Delinquencies % |
|
|
10.19 |
% |
|
|
|
|
|
|
3.64 |
% |
|
|
11.52 |
% |
|
|
8.67 |
% |
|
|
15.19 |
% |
Non-performing % |
|
|
5.72 |
% |
|
|
|
|
|
|
1.40 |
% |
|
|
6.26 |
% |
|
|
4.96 |
% |
|
|
9.72 |
% |
Charge-offs % Fourth Quarter 2007 |
|
|
1.01 |
% |
|
|
|
|
|
|
0.01 |
% |
|
|
0.74 |
% |
|
|
0.97 |
% |
|
|
2.11 |
% |
Deferred fees, origination costs, net premiums and other items |
|
|
144,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PFH Total Mortgage Loans HIP |
|
$ |
6,879,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The average balances used to calculate these net charge-offs to average loans ratios were calculated using the ending
balances
as of September 30, 2006 and December 31, 2006 for these business areas. |
|
(b) |
|
Includes loans without FICO® scores. |
|
(c) |
|
Average LTV for total vintages in owned
portfolio-branches considers only the vintages for which the
average LTV is available. |
|
Approximately $3.7 billion of the loans held-in-portfolio by PFH as of September 30, 2007 is
pledged as collateral for asset-backed securities issued by the Corporation (in the form of bond
certificates) as a financing vehicle through on-balance sheet securitization transactions. These
loan securitizations conducted by the Corporation did not meet the sale criteria under SFAS No.
140; accordingly, the transactions were treated as on-balance sheet securitizations for accounting
purposes. These loans are identified as owned-in-trust for purposes of these disclosures. These
owned-in-trust loans do not pose the same magnitude of risk to the Corporation as those loans
owned outright because the potential losses related to owned-in-trust loans above
overcollaterization levels will be borne by the bondholders and not the Corporation.
Overcollateralization is defined as a type of credit enhancement by which an issuer of bond
certificates pledges mortgage loans as collateral in excess of the principal amount of bond
certificates issued to cover possible losses.
106
The table below presents the outstanding balance of loans owned-in-trust at September 30, 2007,
the excess of trust assets over securitized debt in the form of bond certificates due to investors
(overcollateralization), as well as the related unamortized net premiums/FAS 91 on loans and the
allowance for loan losses attributable to the owned-in-trust portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
June 30, |
|
March 31, |
|
December 31, |
(In millions) |
|
2007 |
|
2007 |
|
2007 |
|
2006 |
|
Loans (a) |
|
$ |
3,666 |
|
|
$ |
3,947 |
|
|
$ |
4,240 |
|
|
$ |
4,543 |
|
Other real estate |
|
|
100 |
|
|
|
83 |
|
|
|
63 |
|
|
|
59 |
|
Securitization advances |
|
|
15 |
|
|
|
37 |
|
|
|
43 |
|
|
|
56 |
|
Delinquency advances |
|
|
15 |
|
|
|
11 |
|
|
|
11 |
|
|
|
9 |
|
Escrow advances |
|
|
19 |
|
|
|
17 |
|
|
|
18 |
|
|
|
17 |
|
|
Total trust assets |
|
|
3,815 |
|
|
|
4,095 |
|
|
|
4,375 |
|
|
|
4,684 |
|
Less: Balance of bond certificates |
|
|
(3,570 |
) |
|
|
(3,842 |
) |
|
|
(4,106 |
) |
|
|
(4,391 |
) |
|
Excess of trust assets (overcollateralization) |
|
|
245 |
|
|
|
253 |
|
|
|
269 |
|
|
|
293 |
|
Unamortized net premiums and
net deferred origination fees / costs |
|
|
91 |
|
|
|
99 |
|
|
|
108 |
|
|
|
117 |
|
Allowance for loan losses |
|
|
(68 |
) |
|
|
(67 |
) |
|
|
(66 |
) |
|
|
(55 |
) |
|
Total exposure |
|
$ |
268 |
|
|
$ |
285 |
|
|
$ |
311 |
|
|
$ |
355 |
|
|
(a) |
|
Includes mixed-used loans which are categorized as commercial loans. These loans totaled $25 million at September 30, 2007. |
|
As of September 30, 2007, PFH also had $2.1 billion in mortgage loans held-in-portfolio
originated through the exited channels and through the branch network which are identified as
owned for purposes of the Table F and Table Q disclosures.
Given market concerns associated with the subprime mortgage loan exposure, included below are
sensitivity analyses demonstrating the Corporations subprime credit loss exposure under three
hypothetical scenarios. These are not predictions, but mathematical calculations based on certain
assumptions.
|
o |
|
Scenario 1 This scenario is based on actual net charge-offs for the third quarter of
2007 for the subprime mortgage loans times 3.5 years or 42 months (assumed average
remaining life). |
|
|
o |
|
Scenario 2 This is a half-way point between Scenario 1 and Scenario 3. |
|
|
o |
|
Scenario 3 This scenario assumes an increase in foreclosure rates with varying
expected loss and severity ratios as follows: |
|
§ |
|
BPPR Assumed hypothetical foreclosure rate of 15% with loss severity of 25% |
|
|
§ |
|
BPNA Assumed hypothetical foreclosure rate of 25% with loss severity of 40% |
|
|
§ |
|
PFH: |
|
- |
|
ARMs Assumed hypothetical foreclosure rate of 75% with loss severity of 50% |
|
|
- |
|
Fixed-rate originated through wholesale Assumed
hypothetical foreclosure rate of 25% with loss severity of 50% |
|
|
- |
|
Fixed-rate originated through branches Assumed
hypothetical foreclosure rate of 20% with loss severity of 25% |
107
The assumed hypothetical losses under the different scenarios are as follows:
Hypothetical losses in subprime mortgage loans held-in-portfolio for the next 3.5 years:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Scenario 1 |
|
|
Scenario 2 |
|
|
Scenario 3 |
|
|
Banco Popular de Puerto Rico |
|
$ |
4,607 |
|
|
$ |
24,740 |
|
|
$ |
44,872 |
|
Popular North America: |
|
|
|
|
|
|
|
|
|
|
|
|
BPNA |
|
|
60,152 |
|
|
|
88,532 |
|
|
|
116,913 |
|
PFH: |
|
|
|
|
|
|
|
|
|
|
|
|
- $0.8 billion owned branches |
|
|
14,629 |
|
|
|
27,657 |
|
|
|
40,685 |
|
- $0.8 billion owned centralized |
|
|
113,430 |
|
|
|
130,190 |
|
|
|
146,950 |
|
- $2.4 billion owned-in-trust * |
|
|
219,600 |
|
|
|
219,600 |
|
|
|
219,600 |
|
|
Total cumulative hypothetical credit losses for next
3.5 years |
|
$ |
412,418 |
|
|
$ |
490,719 |
|
|
$ |
569,020 |
|
|
* |
|
In the three scenarios, the total estimated economic losses for PFHs subprime portfolio classified as owned-in-trust is
limited to the overcollaterization balance assigned to the subprime portfolio ($219.6 million of the $245 million
described earlier in this MD&A). |
|
The following table presents the resulting cumulative loss percentage (42 months) under the three
hypothetical scenarios described above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative hypothetical credit losses as a percentage of |
|
|
|
|
|
|
subprime mortgage loan portfolio: |
|
Scenario 1 |
|
Scenario 2 |
|
Scenario 3 |
|
Banco Popular de Puerto Rico |
|
|
0.39 |
% |
|
|
2.07 |
% |
|
|
3.75 |
% |
Popular North America: |
|
|
|
|
|
|
|
|
|
|
|
|
BPNA |
|
|
5.15 |
|
|
|
7.57 |
|
|
|
10.00 |
|
PFH: |
|
|
|
|
|
|
|
|
|
|
|
|
- $0.8 billion owned branches |
|
|
1.80 |
|
|
|
3.40 |
|
|
|
5.00 |
|
- $0.8 billion owned centralized |
|
|
15.19 |
|
|
|
17.44 |
|
|
|
19.68 |
|
- $2.4 billion owned-in-trust |
|
|
9.28 |
|
|
|
9.28 |
|
|
|
9.28 |
|
|
Total hypothetical credit losses for next 3.5 years |
|
|
6.56 |
% |
|
|
7.80 |
% |
|
|
9.04 |
% |
|
These sensitivity analyses do not represent managements expectations of the level or increases in
loss rates, but are provided as hypothetical scenarios. However, even in the worst scenario
presented, the total estimated credit losses over a period of 42 months would be manageable and the
Corporation would remain well-capitalized.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
MARKET RISK
Market risk is the risk of loss arising from adverse changes in the fair value of financial
instruments or other assets due to changes in interest rates, currency exchange rates or equity
prices. Interest rate risk, a component of market risk, is the exposure to adverse changes in net
interest income due to changes in interest rates, which can be affected by the shape and the slope
of the yield curves to which the financial products of the Corporation are related. Management
considers interest rate risk a prominent market risk in terms of its potential impact on earnings.
Interest rate risk may occur for one or more reasons, such as the maturity or repricing of assets
and liabilities at different times, changes in credit spreads, changes in short and long-term
market interest rates, or the maturity of assets or liabilities may be shortened or lengthened as
interest rates change. Depending on the duration and repricing characteristics of the Corporations
assets, liabilities and off-balance sheet items, changes in interest rates could either increase or
decrease the level of net interest income.
The techniques for measuring the potential impact of the Corporations exposure to market risk from
changing interest rates, which were described in the 2006 Annual Report, have remained
substantially constant from the end of 2006. Due to the importance of critical assumptions in
measuring market risk, the risk models currently incorporate
108
third-party developed data for critical assumptions such as prepayment speeds on mortgage-related
products, estimates on the duration of the Corporations deposits, and interest rate scenarios.
The Corporation maintains a formal asset and liability management process to quantify, monitor and
control interest rate risk and to assist management in maintaining stability in the net interest
margin under varying interest rate environments. Management employs a variety of measurement
techniques including the use of an earnings simulation model to analyze the net interest income
sensitivity to changing interest rates. Sensitivity analysis is calculated on a monthly basis using
a simulation model which incorporates actual balance sheet figures detailed by maturity and
interest yields or costs. It also incorporates assumptions on balance sheet growth and possible
changes in its composition, estimated prepayments in accordance with projected interest rates,
pricing and maturity expectations on new volumes and other non-interest related data. Simulations
are processed using various interest rate scenarios to determine potential changes to the future
earnings of the Corporation. The asset and liability management group also performs validation
procedures on various assumptions used as part of the sensitivity analysis as well as validations
of results on a monthly basis. In addition, third-party validation reports are received for the
mortgage related prepayment assumptions.
Computations of the prospective effects of hypothetical interest rate changes are based on many
assumptions, including relative levels of market interest rates, interest rate spreads, loan
prepayments and deposit decay. Thus, they should not be relied upon as indicative of actual
results. Furthermore, the computations do not contemplate actions that management could take to
respond to changes in interest rates. By their nature, these forward-looking computations are only
estimates and may be different from what actually may occur in the future.
Based on the results of the sensitivity analyses as of September 30, 2007, the Corporations net
interest income for the next twelve months is estimated to increase by $14.6 million in a
hypothetical 200 basis points rising rate scenario, and the change for the same period, utilizing a
similar hypothetical decline in the rate scenario, is an estimated decrease of $20.8 million. Both
hypothetical rate scenarios consider the gradual change to be achieved during a twelve-month period
from the prevailing rates at September 30, 2007.
The Corporation maintains an overall interest rate risk management strategy that incorporates the
use of derivative instruments to minimize significant unplanned fluctuations in net interest income
that are caused by interest rate volatility. The market value of these derivatives is subject to
interest rate fluctuations and, as a result, could have a positive or negative effect in the
Corporations net interest income. Refer to Note 9 to the consolidated financial statements for
further information on the Corporations derivative instruments.
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. (BHD) in
the Dominican Republic. Although not significant, some of these businesses are conducted in the
countrys foreign currency. 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 in the consolidated statements of condition, except for highly-inflationary
environments in which the effects are included in other operating income in the consolidated
statements of income. At September 30, 2007, the Corporation had approximately $35 million in an
unfavorable foreign currency translation adjustment as part of accumulated other comprehensive
loss, compared with $37 million, also unfavorable, at December 31, 2006 and September 30, 2006.
LIQUIDITY
Liquidity risk may arise whenever the Corporations ability to raise cash to pay the runoff of its
liabilities, its commitments to fund loans, meet customer deposit withdrawals and other cash
commitments, may be affected by market conditions. The Corporation has established policies and
procedures to assist it in remaining sufficiently liquid to meet all of its financial obligations,
finance expected future growth and maintain a reasonable safety margin for cash commitments under
both normal operating conditions and unsettled market environments.
Global credit markets have been marked by unprecedented instability and disruption since the
beginning of the third quarter of 2007, making even routine asset sale and funding activities more
challenging for financial institutions. Credit spreads have widened significantly and rapidly, as
investors have allocated their funds to only the highest-
109
quality financial assets such as U.S. government securities. The result of these actions by market
participants is that it is more difficult for borrowers to raise financing in the credit markets
and credit spreads have widened, which has decreased the value of many financial assets as compared
to risk-free government obligations.
Two
sectors that have been noticeably impacted is the money market sector, where companies raise
short-term financing, and the corporate and asset-backed markets where longer-term debt funding is
raised. A primary catalyst of the market disruptions has been an abrupt shift by investors away
from non-government mortgage-backed securities and asset-backed securities, primarily those backed
by subprime mortgage loans.
The Corporation usually finances a portion of its business in the money and corporate bond markets,
both of which have been affected by recent financial market developments. Even though it has become
more challenging to raise financing in the credit markets, we believe that the challenges are
manageable and we have various initiatives underway to ensure our access to stable sources of
liquidity.
The Corporations liquidity position is closely monitored on an ongoing basis. Management believes
that sources of liquidity are adequate to meet the funding needs in the normal course of business.
Sources of liquidity include both those internally available with affiliates and those expected to
be available with third party providers. The latter include credit lines and anticipated debt
offerings in the public markets. In addition to these, asset sales
can be a source of liquidity to
the Corporation. Even if some of these alternatives may not be available temporarily, it is
expected that in the normal course of business, our funding sources are adequate.
The consolidated statements of cash flows in the accompanying consolidated financial statements
provide information on the Corporations cash inflows and outflows.
Refer to Note 11 to the consolidated financial statements for the composition of the Corporations
borrowings at September 30, 2007. Also, refer to Note 12 to the consolidated financial statements
for the Corporations involvement in certain commitments at September 30, 2007.
Banking Subsidiaries
The Corporations banking subsidiaries (BPPR and BPNA, or the banking subsidiaries) have multiple
channels and sources of liquidity. To mitigate exposure to funding risk in the current environment,
concrete steps have been taken to reduce the need to access the money markets for financing.
The Corporations banking subsidiaries are primarily funded with deposits. As of September 30,
2007, the ending balances deposits were $16.1 billion for BPPR and $10.6 billion for BPNA,
excluding intercompany balances between these two entities (December 31, 2006 $14.8 billion for
BPPR and $9.8 billion for BPNA).
Borrowings at the banking subsidiaries, excluding intercompany balances between the two entities,
amounted to $6.9 billion as of September 30, 2007 (December 31, 2006 $8.1 billion). This includes
$1.4 billion in short-term unsecured borrowings as of September 30, 2007 (December 31, 2006 $3.8
billion).
Several strategies are in place with the objective of mitigating the impact of current market
conditions on liquidity risk. Total deposits at the Corporation increased from $25.4 billion as of
June 30, 2007 to $26.6 billion as of September 30, 2007, an increase of $1.2 billion or 5%. Total
deposits for the Corporation were $24.4 billion at December 31, 2006.
Other strategies implemented included the utilization of unpledged liquid assets to raise financing
in the repo markets, the proceeds of which were also used to pay off unsecured borrowings.
Short-term unsecured borrowings at the banking subsidiaries was reduced from $3.8 billion as of
June 30, 2007 to $1.4 billion as of September 30, 2007, which represents a decrease of $2.4 billion
or 63%.
Outstanding repurchase agreements at the banking subsidiaries were $4.3 billion as of September 30,
2007, an increase of $1.2 billion or 40%, when compared to June 30, 2007 (December 31, 2006 $3.4
billion). As of September 30, 2007, the borrowing capacity at the Federal Reserve Bank of New York
discount window was $3.0 billion at
110
BPPR (December 31, 2006 $2.9 billion), and both banks had available a combined amount of $1.1
billion in borrowing capacity at the FHLB of New York (December 31, 2006 $0.1 billion).
The Corporation expects to complete the previously announced acquisition of Citibanks retail
banking business in Puerto Rico during the fourth quarter of 2007. The closing of the acquisition
is expected to provide BPPR with over approximately $735 million in cash which will further
strengthen BPPRs liquidity position.
Bank Holding Companies
The Corporations bank holding companies (BHCs, Popular, Inc. and Popular North America) borrow
in the money markets and the corporate debt market primarily to finance their non-banking
subsidiaries. However, current conditions have made market access more uncertain. As an alternative
to raise capital markets financing, the Corporation is working on several initiatives to ensure
adequate funding sources are available notwithstanding potential market conditions.
As of September 30, 2007, the BHCs had borrowings (excluding intercompany balances) maturing as
indicated in the table below:
|
|
|
|
|
(In millions) |
|
|
|
|
|
Year of maturity: |
|
|
|
|
2007 |
|
$ |
1,010 |
|
2008 |
|
|
1,187 |
|
2009 |
|
|
915 |
|
2010 and thereafter |
|
|
853 |
|
|
Total |
|
$ |
3,965 |
|
|
The Corporation is in the process of negotiating committed financing facilities with two leading
global banking institutions. These are intended to serve as a contingent source of
readily-available liquidity, in the event that the Corporation chooses not to pursue a capital
markets-based financing. Subject to market conditions, management intends to offer senior debt in the capital markets during the
fourth quarter of 2007.
The maturities scheduled for 2007 and 2008 are intended to be met by utilizing several sources of
liquidity. These include sources available to the BHCs from affiliates within the Corporation, as
well as those expected to be available to the Corporation through external parties. These include
committed and uncommitted credit facilities with financial
institutions, the proceeds from securities offerings (subject to
market conditions) in the public markets and the sales of assets. The
Corporation expects these sources to provide enough liquidity to meet the obligations coming due.
The BHCs have additional sources of liquidity available, in the form of credit facilities available
from affiliate banking subsidiaries and third party providers, as well as dividends that
can be paid by the subsidiaries.
The BHCs renewed a revolving credit agreement in October 2007. This facility is used as backup for
the Corporations commercial paper program, which is a source of short-term funding. Due to adverse
market conditions, the size of the facility was reduced from $555 million to $235 million. The
facility is provided by a group of global banks and matures in September 2008.
Risks to Liquidity
Maintaining adequate credit ratings on Populars debt obligations is an important factor for
liquidity because credit ratings influence the Corporations ability to borrow, the cost at which
it can raise financing and its access to funding sources. The credit ratings are based on the
financial strength, credit quality and concentrations in the loan portfolio, the level and
volatility of earnings, capital adequacy, the quality of management, the liquidity of the balance
sheet, the availability of a significant base of core retail and commercial deposits, and the
Corporations ability to access a broad array of wholesale funding sources, among other factors.
Changes in the credit rating of the Corporation or any of its subsidiaries to a level
below investment grade may affect the Corporations ability to raise funds in the
111
capital markets. The Corporations counterparties are sensitive to the risk of a rating downgrade.
In the event of a downgrade, it may be expected that the cost of borrowing funds in the
institutional market would increase. In addition, the ability of the Corporation to raise new funds
or renew maturing debt may be more difficult.
In May 2007, Fitch Ratings changed the Corporations senior debt rating to A- from A, while the
outlook was revised to stable from negative. The primary drivers behind the changes were recent
trends in the Corporations credit quality and changes in core profitability as compared to a peer
group of A- rated institutions. The rating for short-term obligations was maintained at F-1.
After the end of the third quarter of 2007, Fitch Ratings reduced the short-term rating of the BHCs
to F-2 from F-1, and placed the long-term senior rating on negative watch. The rating is
currently A-. Fitch Ratings mentioned that the rating actions reflected credit quality pressures
from the companys subprime loan exposure as well as a more difficult environment for BHC funding.
In both cases, Fitch Ratings maintained that it believes that both situations are challenging but
manageable.
In August 2007, Moodys Investors Service changed the ratings outlook for Popular Inc.s
subsidiaries to negative, from stable. The current ratings for the holding company are A2 for
long-term debt and P-1 for short-term debt. According to Moodys, the change in ratings outlook
reflects the potential for heightened credit costs from the Corporations subprime mortgage
exposure at a time when its financial flexibility has been reduced by profitability and asset
quality pressures in the core Puerto Rico business.
In October 2007, Moodys updated their assessment by stating that the ratings outlook continued
negative, which reflects the companys exposure to subprime mortgage loans and a weaker than
average liquidity position at the bank holding company. Although it expects additional
subprime-related credit charges in the future, it did point out Populars comparatively robust
capital position which enables the company to absorb significant charges. Regarding liquidity, it
mentioned that its current ratings anticipate that Popular will be successful in securing the
funding needed in a timely fashion. To the extent that the financing is not secured within the
expected time frame, there is an increased probability of a ratings decrease.
Standard
and Poors currently has the Corporations debt rated BBB+ for long-term debt and A-2
for short-term obligations. The current rating outlook is stable.
Credit ratings are an important factor in accessing the credit markets. Even though the Corporation
is currently several notches above the investment grade threshold with each of the rating agencies,
the possibility of ratings downgrades can affect our ability to raise unsecured financing at
competitive rates.
The Corporation and BPPRs debt ratings at September 30, 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular, Inc. |
|
BPPR |
|
|
Short-term |
|
Long-term |
|
Short-term |
|
Long-term |
|
|
debt |
|
debt |
|
debt |
|
debt |
|
Fitch Ratings |
|
|
F-2 |
|
|
|
A- |
|
|
|
F-1 |
|
|
|
A- |
|
Moodys |
|
|
P-1 |
|
|
|
A2 |
|
|
|
P-1 |
|
|
|
A1 |
|
S&P |
|
|
A-2 |
|
|
BBB+ |
|
|
A-2 |
|
|
|
A- |
|
|
The ratings above are subject to revisions or withdrawal at any time by the assigning rating
agency. Each rating should be evaluated independently of any other rating.
Some of the Corporations borrowings and deposits are subject to rating triggers, contractual
provisions that accelerate the maturity of the underlying obligations in the case of a change in
rating. Therefore, the need for the Corporation to raise funding in the marketplace could increase
more than usual in the case of a rating downgrade. The amount of obligations subject to rating
triggers that could accelerate the maturity of the underlying obligations was $19 million at
September 30, 2007.
In the course of borrowing from institutional lenders, the Corporation has entered into contractual
agreements to maintain certain levels of debt, capital and asset quality, among other financial
covenants. If the Corporation were to
112
fail to comply with those agreements, it may result in an event of default. Such failure may
accelerate the repayment of the related obligations. An event of default could also affect the
ability of the Corporation to raise new funds or renew maturing borrowings. At September 30, 2007,
the Corporation had $0.8 billion in outstanding obligations subject to covenants, including those
which are subject to rating triggers and those outstanding under the commercial paper program. At
September 30, 2007, one of the Corporations U.S.
subsidiaries was not complying with a particular
covenant related to the volume of loan originations with respect to one credit facility. A written
waiver was obtained. Obligations outstanding under this credit facility approximated $0.3 billion
at September 30, 2007.
OTHER
MATTERS
Transactions with Doral Financial Corporation
Doral
Announcements. In April 2005, Doral Financial Corporation
(Doral) announced that its previously filed financial statements for periods from January 1, 2000 through
December 31, 2004 should no longer be relied on and that the financial statements for some or all of the periods included
therein should be restated because of issues relating to the methodology used to calculate the fair value of its portfolio
of floating rate interest-only strips (IOs). On February 27, 2006, Doral filed a Form 10-K/A
(Amendment No. 1) for the year ended December 31, 2004 (the Amended Doral 2004 10-K).
In the Amended Doral 2004 10-K, Doral stated that it was reducing its retained earnings through December 31,
2004 by $921 million on a pre-tax basis and that $596 million of the $921 million reduction was attributable
to recharacterization of mortgage loan sales transactions as secured borrowings and $283 million was
attributable to valuation of IOs.
In September 2006, Doral announced that the Securities and
Exchange Commission had approved a final settlement with Doral, which resolved the SECs investigation of Doral.
Doral has also stated that the U.S. Attorneys Office for the Southern District of New York is conducting
an investigation of these matters. Actions have been brought by or on behalf of securities holders of Doral in
relation to these matters. In one action that remains pending with respect to parties other than Doral, in April
2007, Doral agreed to a settlement in which Doral and its insurers
agreed to pay an aggregate of $129 million.
Estimates
of Value Provided by Popular Securities. Between October 2002 and December 2004, Popular Securities, Inc., a wholly-owned subsidiary of the Corporation,
provided quarterly estimates of the value of portfolios of IOs on behalf of Doral. In accordance with its understanding
regarding the engagement, in providing those estimates of value, Popular Securities utilized assumptions provided by
Doral that may not have been consistent with the actual terms of the IO portfolios. As originally filed on March 15,
2005, Dorals Form 10-K for the year ended December 31, 2004 stated that to determine the fair value of its
IO portfolio, Doral engaged a party to provide an external valuation that consists of a
cash flow valuation model in which all economic and portfolio assumptions are determined by the preparer.
Popular Securities believes that this characterization is not appropriate if it was meant to apply to Popular
Securities work.
In the Amended Doral 2004 10-K, Doral stated that counsel
for its Audit Committee and independent directors had investigated the process it used to obtain third-party IO
valuations, that the investigation had concluded that the process was flawed, that Doral
representatives may have improperly provided inaccurate information concerning the IO portfolio to the
parties performing the third-party valuation, and that the counsel conducting the investigation had limited
access to the third parties who performed the IO valuation. The Corporation believes that Doral considers
Popular Securities to be one of the parties that provided Doral
withthird-party IO valuations.
Transactions
with Doral Relating to Mortgage Loans and IOs. Between 1996 and 2004, BPPR purchased mortgage loans from
Doral for an aggregate purchase price of approximately $1.6 billion. The remaining balance of these mortgage
loans recorded on the Corporations consolidated statement of
condition at September 30, 2007 was $387 million.
In the first six months of 2000, the Corporation sold mortgage
loans to Doral Bank, a subsidiary of Doral, in two transactions, each for an aggregate sale price of $100 million,
and entered into two agreements, contemporaneously with the sale agreements, to purchase mortgage loans from Doral,
each for an aggregate purchase price of $100 million. The Corporation recorded a gain of $2.2 million in the first
quarter of 2000 and of $1.9 million in the second quarter of 2000
from the sales of mortgages to Doral Bank.
The purchases of mortgage loans from Doral for an aggregate
price of $1.6 billion were often accompanied by separate recourse and other financial arrangements. The sale of mortgages
to Doral Bank for an aggregate purchase price of $200 million were
accompanied by separate recourse arrangements.
On December 15, 2005, Doral announced that it was reversing
a number of transactions involving the generally contemporaneous purchase and sale of mortgage loans from
and to local financial institutions, including transactions covering the purchase and sale of approximately
$200 million in mortgages with a local financial institution during 2000 because Dorals Audit Committee
determined that there was insufficient contemporaneous documentation regarding the business purpose for these
transactions in light of the timing and similarity of the purchase and sale amounts and the other terms of the
transactions.
In the December 15, 2005 release, Doral stated that it
was treating the sales of mortgage loans by it as loans payable secured by mortgage loans.
The Corporation believes that the contemporaneous purchases and sales of mortgage loans entered into
by the Corporation were the ones reversed by Doral.
The Corporation has reviewed the foregoing mortgage
loan purchase and sale transactions, as well as the public statements by Doral, and believes that the transactions
qualify for sale (or in the case of purchases, purchase) treatment under the financial accounting standard at that
time. Accordingly, it has not reversed any of these
transactions.
Between 1996 and 2004, the Corporation purchased IOs from
Doral for an aggregate purchase price of $110 million. Over the same period Doral repurchased IOs it had previously
sold to the Corporation for an aggregate purchase price of $54 million. The remaining balance of these IOs recorded
on the Corporations consolidated statement of condition at September 30, 2007 was $38 million.
These IOs have been reclassified from investments available-for-sale to loans to Doral because they are accompanied
by 100% guarantees from Doral of the principal and the fixed yield and because of the source of the cash flow for
payments on the IOs.
In the Amended Doral 2004 10-K, Doral stated that Doral had
failed to detect, document and communicate certain side agreements entered into by Dorals former treasurer
guaranteeing a fixed yield to a purchaser of its IOs and that
this failure resulted in the improper accounting for these transactions as sales and the associated improper
recognition of gains on sales. Doral stated that it reversed the sales of the IOs and recorded the transaction as a
secured borrowing. It also stated that gains on sales of trading securities accounted for at the time
of the sales of the IOs were reversed.
Transactions
with R&G Financial Corporation
R&G Announcements. In April 2005, R&G Financial Corporation (R&G) announced that its previously filed
financial statements for periods from January 1, 2003 through December 31, 2004 needed to be restated and should no
longer be relied upon because of issues relating to the methodology used in valuing its portfolio of residual interests
retained in certain mortgage loan transfers. In July 2005, R&G further announced that its previously filed financial
statements for period from January 1, 2002 through December 31, 2002 needed to be restated and should no longer be
relied upon. On November 2, 2007, R&G filed a Form 10-K/A (Amendment No. 1) for the year ended December 31,
2004 (the Amended R&G 2004 10-K). In the Amended R&G 2004 10-K, R&G stated that it was reducing its
retained earnings and capital reserves through December 31, 2004 by $345 million on a pre-tax basis and that $237
million of the $345 million reduction was attributable to recharacterization of certain mortgage loan transfers
as secured borrowings.
R&G has announced that the Securities and Exchange
Commission is conducting a formal investigation of this matter, and that the U.S. Attorneys Office for the
Southern District of New York is also conducting an informal inquiry into these matters. Actions have been brought
by or on behalf of securities holders of R&G in relation to these
matters.
Purchases
of Mortgage Loans from R&G. Between 2003 and 2004,
BPPR entered into various mortgage loan purchase transactions with R&G in the amount of $176 million. These mortgage
loan purchase transactions had recourse provisions and other financial arrangements. In the Amended R&G 2004 10-K,
R&G disclosed that it had determined, after a review of all of its transactions that it had previously characterized
as mortgage loan sales, to recharacterize certain of those transactions as secured borrowings collateralized by real
estate mortgage loans, including, as of December 31, 2004, $155 million of transactions with BPPR. At September 30,
2007, the remaining balance of the mortgage loans purchased from R&G recorded on the Corporations consolidated statement
of condition was $99 million. The Corporation has concluded that its previously filed financial statements are fairly
stated and that no restatement is necessary.
Cooperation
with Investigations; Possible Consequences
The Corporation and its employees have provided information
in connection with certain of the above-mentioned investigations by the Securities and Exchange Commission and the U.S.
Attorneys Office for the Southern District of New York and are continuing to cooperate in connection with the
investigations of these matters. Although neither the Corporation nor BPPR is a party to the civil litigation involving
Doral or R&G, the Corporation is unable to predict what adverse consequences, if any, or other effects the Corporations
dealings with Doral or R&G, the civil litigation related to Doral or R&G or the related investigations could have on the
Corporation or BPPR.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Corporations management, with the participation of the Corporations Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of the Corporations disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the
Corporations Chief Executive Officer and Chief Financial Officer have concluded that, as of the
end of such period, the Corporations disclosure controls and procedures are effective in
recording, processing, summarizing and reporting, on a timely basis, information required to be
disclosed by the Corporation in the reports that it files or submits under the Exchange Act and
such information is accumulated and communicated to management, as appropriate, to allow timely
decisions regarding required disclosures.
Internal Control Over Financial Reporting
There have been no changes in the Corporations internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the
quarter ended on September 30, 2007 that have materially affected, or are reasonably likely to
materially affect, the Corporations internal control over financial reporting.
Part II Other Information
Item 1. Legal Proceedings
The Corporation and its subsidiaries are defendants in various lawsuits arising in the ordinary
course of business. Management believes, based on the opinion of legal counsel, that the aggregate
liabilities, if any, arising from such actions will not have a material adverse effect on the
financial position and results of operations of the Corporation.
Item 1A. Risk Factors
Except as noted below, there have been no material changes to the risk factors as previously
disclosed under Item 1A. in the Corporations Annual Report on Form 10-K for the year ended
December 31, 2006.
The Corporation is exposed to greater risk because a significant portion of the business is concentrated in Puerto Rico, which has experienced an economic slowdown.
A significant portion of the Corporations financial activities and credit exposure is concentrated in Puerto Rico (the Island). Consequently, its financial condition and results of operations are dependent on the Islands economic conditions. An extended economic slowdown, adverse political or economic developments in Puerto Rico or natural disasters, such as hurricanes affecting the Island, could result in a
downturn in loan originations, an increase in the level of non-performing assets, an increase in the rate of foreclosure loss on mortgage loans and a reduction in the value of the Corporations loans and loan servicing portfolio, all of which would adversely affect the Corporations profitability.
113
For the
fiscal year ended June 30, 2007, Puerto Ricos economy contracted by 1.4%.
The Commonwealth Government is projecting a slight recovery of Puerto
Ricos economy for
fiscal year ending June 30, 2008. The Puerto Rico Planning Board, the public agency in charge
of economic analysis for the Commonwealth, projects real growth of 0.8% for fiscal year 2008,
which began July 1, 2007. However, monthly economic data suggests that the current
cycle has been steeper than in 2001 and 2002. In its monthly Index of Economic Activity,
the Puerto Rico Planning Board registered a 0.22% decrease on a monthly basis in June 2007
to mark the 10th monthly reduction in the last 13 months. Other recent Puerto Rico economic
data includes:
|
|
Retail sales registered a nominal growth rate of 0.3% in July 2007 (the most recent month for which government data is available) when compared with the same month the previous year. For the first seven months of 2007, retail sales increased at a nominal rate of 1.5%, when compared with the same period in the previous year, according to data released by the Commonwealth. In 2006, retail sales fell 3.0% when compared with 2005. |
|
|
|
Though the pace of construction, as measured by the value of permits, increased during the first two months of fiscal year 2008 (July and August 2007, the most recent months for which government data is available), the sector continues to reflect weakness in both public and private sectors. The value of building permits increased 13.7% to $350 million for the first two months of fiscal year 2008 when compared with the same period in the previous year. The value of public permits issued increased $60 million, or 159% during the same two months, compared with the same period in the previous year. The value of private permits fell $12 million, or 4%, over the same period. The value of building permits issued by the government fell in fiscal year 2007 by approximately $626 million, or 22.2%, when compared with the same period in fiscal 2006. |
|
|
|
Unemployment remains high in Puerto Rico, reaching 11.1% in September 2007, according to estimates by the Puerto Rico Labor Department. Total non-farm payrolls, which excludes self-employed, reached 1,013,500 jobs in August, a decrease of 17,500 jobs when compared with the same month in the previous year, according to the latest data provided by the Puerto Rico Labor Department. |
|
|
|
Data on tourist activity shows fewer visitors during the first ten months of fiscal year 2007 (July 2006 to April 2007, the latest period for which data is available). The tourist registry at hotels in Puerto Rico for the ten-month period amounted to 1,702,018, as registered by the Puerto Rico Tourism Co., a decrease of 5.4% when compared with the same period of the previous fiscal year. |
|
|
|
Sustained highs in crude oil prices have also negatively impacted the economy of Puerto Rico, where energy production runs close to 70% on imported oil. |
|
|
|
The newly revised Consumer Price Index (CPI) calculated by the Puerto Rico Labor Department stood at 103.1 points in June of 2007, an increase of 3.1% over the previous six months. The CPI suggests that the rate of inflation was slightly more than 6% over the previous 12 months. |
Though consumers finances continue to be
under stress, the Commonwealth Government avoided a repeat this year of the partial government shutdown in May 2006 that upset consumption trends and overall confidence. The Governor of Puerto Rico signed on June 30, 2007 the General Budget for the Commonwealth for fiscal year 2008 totaling $9.2 billion, which was approved by the Legislative Assembly. However, the Commonwealths fiscal situation still poses a challenge for growth. In general terms, general fund revenue
and sales tax receipts have been running below government projections, which increase the risk that revenues will not be sufficient to meet government spending in the current fiscal year, requiring measures to balance the deficit, which could adversely impact business and consumer confidence. In October 2007, the Commonwealth refinanced $1.0 billion in General Obligation bonds in the U.S. municipal securities market. The Commonwealth also placed in
October 2007 over $1 billion in Tax and Revenue Anticipation Notes (TRANs) to finance operations in anticipation of tax revenues in the second half of the fiscal year. The bond offering will reduce the cost of financing outstanding government debt and is expected to increase the liquidity in the financial system of the Island.
The current state of the economy and uncertainty in the private and public sectors has had an adverse effect on the credit quality of the Corporations loan portfolios. The continuation of the economic slowdown could cause those adverse effects to continue, as delinquency rates may increase in the short-term, until more sustainable growth resumes. Also, a potential reduction in consumer spending may also impact growth in other interest and non-interest revenue sources of the Corporation.
114
A prolonged economic slowdown, a decline in the real estate market in the U.S mainland, and
disruption in the capital markets could harm the results of operations of one of the Corporations
business segments.
The residential mortgage loan origination business has historically been cyclical, enjoying periods
of strong growth and profitability followed by periods of shrinking volumes and industry-wide
losses. Any decline in residential mortgage loan originations in the market could also reduce the
level of mortgage loans the Corporation may produce in the future and adversely impact its
business. During periods of rising interest rates, refinancing originations for many mortgage
products tend to decrease as the economic incentives for borrowers to refinance their existing
mortgage loans are reduced. In addition, the residential mortgage loan origination business is
impacted by home values. Over the past several years, residential real estate values in some areas
of the U.S. mainland have increased greatly, which has contributed to the recent rapid growth in
the residential mortgage industry, particularly with respect to re-financings. If residential real
estate values decline, this could lead to lower volumes and higher losses across the industry,
adversely impacting the Corporations business.
An additional risk factor related to the residential mortgage loan sector is the repricing of
adjustable rate mortgage loans (ARMs). In the U.S.
mortgage market, a substantial amount of ARMs
were originated in recent years. These loans typically have a low fixed rate for an initial period
(two or three years) and afterwards the rate floats or adjusts periodically based on a market
rate of interest, such as LIBOR. Many of the ARMs currently outstanding are set to float before the
end of 2008. It is possible that in some of these loans, when rates
start floating, there will be a substantial increase in the underlying
loan payment, possibly enough to pressure the cash
flow of the underlying debtor.
Because the Corporation makes loans to borrowers that have FICO scores below 660 through its
subsidiary PFH, the actual rates of delinquencies, foreclosures and losses on these loans could be
higher during economic slowdowns. Rising unemployment, higher interest rates, declines in housing
prices and an overall tightening of credit standards by lenders tend to have a greater negative
effect on the ability of such borrowers to repay their mortgage loans.
As
of September 30, 2007, approximately 69% of PFHs mortgage loan portfolio was subprime, meaning
that they have a credit score of 660 or below. This represented
approximately 37% of the
Corporations mortgage loans held-in-portfolio as of such date. Of the subprime mortage loans
held-in-portfolio at PFH, $1.1 billion or 28% were ARMs. Any sustained period of increased
delinquencies, foreclosures or losses could harm the Corporations ability to sell loans, the
prices it receives for its loans, the values of its mortgage loans held-for-sale or its residual
interests in securitizations, which could harm the Corporations financial condition and results of
operations. In addition, any material decline in real estate values would weaken the Corporations
collateral loan-to-value ratios and increase the possibility of loss if a borrower defaults. In
such event, the Corporation will be subject to the risk of loss on such mortgage assets arising
from borrower defaults, to the extent not covered by third-party credit enhancement.
A significant portion of the loan portfolio at PFH is owned-in-trust, which refers to mortgage
loans that have been securitized and sold to third parties, but continue to be reflected in the
Corporations financial statements. Of the total mortgage loans held-in-portfolio at PFH, $3.6
billion or 62% was owned-in-trust. Although the loans are not the legal property of the
Corporation, under generally accepted accounting principles they must remain included in its
financial statements. The implication is that these loans represent to the Corporation limited
exposure to losses, which is subject to a maximum amount, and any excess losses are borne by the
holders of the bonds issued when the underlying loans were securitized.
Refer to the Managements Discussion and Analysis on this Form 10-Q for further information on
PFHs credit exposure associated with its subprime mortgage loan portfolio and the Restructuring
Plan executed in 2007, which has reduced the Corporations exposure in this industry sector.
115
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Corporation previously filed two registration statements covering the offering of the
Corporations common stock, at market prices, as an investment option for employee and employer
contributions under the Banco Popular de Puerto Rico Employees Stock Plan (Puerto Rico) (the BPPR
Plan) and the Popular, Inc. Puerto Rico Savings and Investment Plan (the Puerto Rico Surviving
Plan). Effective July 1, 2006, the BPPR Plan was merged with and into the Puerto Rico Surviving
Plan. When the plans were merged, the shares previously registered with respect to the BPPR Plan
were not carried over to the registration statement related to the Puerto Rico Surviving Plan. As a
result, subsequent offers of shares to participants in the Puerto Rico Surviving Plan caused the
number of shares offered to those participants to exceed the amount of the shares registered with
respect to the Puerto Rico Surviving Plan. During the quarter ended September 30, 2007,
168,073 unregistered shares were sold to participants of the Puerto Rico Surviving Plan. Absent an
exemption, the offer or sale of securities in an amount in excess of that registered under an
effective registration would be an unregistered offering of securities under the Securities Act of
1933 (the Securities Act). The Corporation, however, believes that the offer and sale of the
Corporations common stock and interests in the Puerto Rico Surviving Plan are covered by the
exemption for intrastate offers and sales contained in Section 3(a)(11) of the Securities Act since
participation in the Puerto Rico Surviving Plan is limited to Puerto Rico employees. On August 9,
2007, the Corporation registered 6,000,000 shares of common stock and related interests in the
Puerto Rico Surviving Plan for offer to plan participants.
The Corporation also previously filed two registration statements covering the offering of the
Corporations common stock, at market prices, as an investment option for employee and employer
contributions under the following plans for its U.S.-based employees: the Popular Financial
Holdings, Inc. Savings and Retirement Plan (formerly known as the Equity One, Inc. Savings and
Retirement Plan (the PFH Plan)) and the Popular, Inc. USA 401(k) Savings and Investment Plan (the
U.S. Surviving Plan). Effective April 1, 2006, the PFH Plan was merged with and into the U.S.
Surviving Plan. As a result of an error in recordkeeping and the merger of the PFH Plan with and
into the U.S. Surviving Plan and the participation of E-LOAN employees in the Plan starting January
1, 2007, the latter two of which had the effect of significantly increasing the number of
participants in the U.S. Surviving Plan, the amount of shares issued under the U.S. Surviving Plan
has exceeded the amount of shares registered. For the quarter ended September 30, 2007, the number
of unregistered shares sold under the U.S. Surviving Plan was 76,236 shares. The Corporation has
determined that the offer and sale of the shares and interests in the U.S. Surviving Plan above the
amount registered were not exempt from registration under the Securities Act, and that such sale
should have been registered under the Securities Act. Under the applicable provisions of the
federal securities laws, plan participants that purchased unregistered shares of common stock may
seek to rescind the transaction within one year following the date of purchase. Approximately
686,487 unregistered shares were sold to plan participants under the U.S. Surviving Plan from
August 9, 2006 to August 8, 2007 which covers the one year period (the Rescission Period) prior
to the filing of the registration statement referred to in the first sentence of this paragraph.
During that period, the Corporations common stock price ranged from a low of $12.47 per share to a
high of $20.12 per share. The closing price of the
Corporations common stock on November 7, 2007
was $9.22 per share. On August 9, 2007, the Corporation registered 5,000,000 shares of common stock
and related interests in the U.S. Surviving Plan for offer to plan participants.
On
October 22, 2007, the Corporation filed a registration statement pursuant to which the
Corporation offers to repurchase from participants in the U.S. Surviving Plan any unregistered
shares purchased on behalf of plan participants during the Rescission Period. The Corporation does
not expect that the exercise of rescission rights by plan participants will have a material impact
on the financial condition or liquidity of the Corporation.
All shares of common stock under all the above-referenced Plans were purchased on the open market.
Issuer Purchases of Equity Securities
In April 2004, the Corporations shareholders adopted the Popular, Inc. 2004 Omnibus Incentive
Plan. The maximum number of shares of common stock issuable under this Plan is 10,000,000.
The following table sets forth the details of purchases of common stock during the quarter ended
September 30, 2007 under the 2004 Omnibus Incentive Plan.
116
Not in thousands
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Total Number of |
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Maximum Number of |
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Shares Purchased as |
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Shares that May Yet |
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Part of Publicly |
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be Purchased Under |
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Total Number of |
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Average Price Paid |
|
Announced Plans or |
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the Plans or |
Period |
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Shares Purchased |
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per Share |
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Programs |
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Programs (a) |
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July 1 July 31 |
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|
|
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|
|
|
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8,575,626 |
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August 1 August 31 |
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3,018 |
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|
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13.25 |
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|
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3,018 |
|
|
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8,572,608 |
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September 1 September 30 |
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|
|
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|
|
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8,572,608 |
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|
Total September 30, 2007 |
|
|
3,018 |
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|
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13.25 |
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|
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3,018 |
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|
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8,572,608 |
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(a) |
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Includes shares forfeited. |
Item 6. Exhibits
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Exhibit No. |
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Exhibit Description |
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3.1 |
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Bylaws of the Corporation, as amended. |
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12.1 |
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Computation of the ratios of earnings to fixed charges and preferred stock
dividends. |
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31.1 |
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1 |
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Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2 |
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Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
117
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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POPULAR, INC.
(Registrant)
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Date: November 8, 2007 |
By: |
/s/ Jorge A. Junquera
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Jorge A. Junquera |
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Senior Executive Vice President
&
Chief Financial Officer |
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Date: November 8, 2007 |
By: |
/s/ Ileana González Quevedo
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|
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Ileana González Quevedo |
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|
Senior Vice President & Corporate Comptroller |
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118