SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended December 31, 2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission
File No. 001-34084
POPULAR, INC.
Incorporated in the Commonwealth of Puerto Rico
IRS Employer Identification No. 66-0667416
Principal Executive Offices:
209 Muñoz Rivera Avenue
Hato Rey, Puerto Rico 00918
Telephone Number: (787) 765-9800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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Name of Each Exchange
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Title of Each Class
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on which Registered
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Common Stock ($0.01 par value)
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Nasdaq Stock Market
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6.375% Noncumulative Monthly Income Preferred Stock, 2003 Series A
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Nasdaq Stock Market
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8.25% Noncumulative Monthly Income Preferred Stock, 2008 Series B
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Nasdaq Stock Market
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6.70% Cumulative Monthly Income Trust Preferred Securities
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Nasdaq Stock Market
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6.125% Cumulative Monthly Income Trust Preferred Securities
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Nasdaq Stock Market
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes
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No
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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. Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
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Indicate by check mark whether the Registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the Registrant was required to submit and post such files).
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes
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No
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As of June 30, 2009, the aggregate market value of the common stock held by non-affiliates of
Popular, Inc. was approximately $561,000,000 based upon the reported closing price of $2.20 on the
NASDAQ National Market System on that date.
As of February 26, 2010, there were 639,540,105 shares of Popular, Inc.s common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of Popular, Inc.s Annual Report to Stockholders for the fiscal year ended
December 31, 2009 ( the Annual Report) are incorporated herein by reference in response to Item 1
of Part I, Items 5 through 8 of Part II and Item 15 (a)(1) of Part IV.
(2) Portions of Popular, Inc.s definitive proxy statement relating to the 2010 Annual Meeting
of Stockholders of Popular, Inc. (the Proxy Statement) are incorporated herein by reference in
response to Items 10 through 14 of Part III. The Proxy Statement will be filed with the Securities
and Exchange Commission (the SEC) on or about March 15, 2010.
Forward-Looking Statements
The information included in this Form 10-K contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking
statements may relate to Popular, Inc.s (Popular, we, us, our ) 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 Populars 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 our 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:
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the rate of growth in the economy and employment, as well as general business and
economic conditions;
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changes in interest rates, as well as the magnitude of such changes;
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the fiscal and monetary policies of the federal government and its agencies;
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changes in federal bank regulatory and supervisory policies, including required levels
of capital;
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the relative strength or weakness of the consumer and commercial credit sectors and of
the real estate markets in Puerto Rico and the other markets in which borrowers are
located;
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the performance of the stock and bond markets;
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competition in the financial services industry;
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additional Federal Deposit Insurance Corporation (FDIC) assessments;
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possible legislative, tax or regulatory changes; and
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difficulties in combining the operations of acquired entities.
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Moreover, the outcome of legal proceedings, as discussed in Part I, Item 3. 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 Popular as of the date of this document, and other than as required by law, including the
requirements of applicable securities laws. 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.
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PART I
POPULAR, INC.
ITEM 1. BUSINESS
Popular is a diversified, publicly owned bank holding company, registered under the Bank
Holding Company Act of 1956, as amended (the BHC Act) and, accordingly, subject to the
supervision and regulation of the Board of Governors of the Federal Reserve System (the Federal
Reserve Board). Popular was incorporated in 1984 under the laws of the Commonwealth of Puerto Rico
and is the largest financial institution based in Puerto Rico, with consolidated assets of $34.7
billion, total deposits of $25.9 billion and stockholders equity of $2.5 billion at December 31,
2009. At December 31, 2009, we ranked 38th among bank holding companies based on total assets
according to information gathered and disclosed by the Federal Reserve System.
We
operate in three target markets: Puerto Rico, the United States
mainland and providing
processing and other technology services in Puerto Rico, Florida, Venezuela, the Dominican
Republic, El Salvador and Costa Rica.
Puerto Rico
We offer in Puerto Rico a complete array of retail and commercial banking services through our
principal bank subsidiary, Banco Popular de Puerto Rico (Banco Popular or the Bank). Banco
Popular was organized in 1893 and is Puerto Ricos largest bank with consolidated total assets of
$23.3 billion, deposits of $17.8 billion and stockholders equity of $1.9 billion at December 31,
2009. The Bank accounted for 67% of our total consolidated assets at December 31, 2009. Banco
Popular has the largest retail franchise in Puerto Rico, with 173
branches and over 580 automated
teller machines. The Bank also operates seven branches in the U.S. Virgin Islands, one branch in
the British Virgin Islands and one branch in New York. Banco Populars deposits are insured under
the Deposit Insurance Fund (DIF) of the Federal Deposit Insurance Corporation (the FDIC).
Banco Popular has three subsidiaries: Popular Auto, Inc., a vehicle financing, leasing and
daily rental company, Popular Mortgage, Inc., a mortgage loan company with over 30 offices in
Puerto Rico and BP Sirenusa International, LLC, a limited liability company holding certain assets
acquired in satisfaction of debts previously contracted by Banco Popular relating to a real estate
development property in the U.S. Virgin Islands.
Our Puerto Rico operations also provide financial advisory, investment and securities
brokerage services for institutional and retail customers through Popular Securities, Inc., a
wholly-owned subsidiary of Popular. Popular Securities, Inc. is a securities broker-dealer with
operations in Puerto Rico. As of December 31, 2009, Popular Securities had $272 million in total
assets and over $4.0 billion in assets under management.
We offer insurance services through Popular Insurance, Inc. Popular Insurance is a general
insurance agency and Popular Life RE, a reinsurance company, with total revenues of $20 million and
$21 million, respectively, for the year ended December 31, 2009. Also, Popular owns in Puerto Rico
Popular Risk Services, Inc., an insurance broker. Insurance services are also provided through
Popular Insurance V.I., Inc., a wholly-owned subsidiary of Popular International Bank, Inc. (PIB)
and an insurance agency.
We have four other wholly-owned subsidiaries. The first, PIB was organized in 1992 and
operates as an international banking entity under the International Banking Center Regulatory Act
of Puerto Rico (the IBC Act). PIB is a registered bank holding company under the BHC Act and is
principally engaged in providing managerial services to its subsidiaries. The other three
subsidiaries are Popular Capital Trust I, Popular Capital Trust II and Popular Capital Trust III,
statutory business trusts.
United
States Mainland
Popular North America, Inc. (PNA) functions as a holding company for Populars operations in
the United States mainland. PNA, a wholly owned subsidiary of PIB and an indirect wholly-owned
subsidiary of Popular, was organized in 1991 under the laws of the State of Delaware and is a
registered bank holding company under the BHC Act. As of December 31, 2009, PNA had two direct
subsidiaries all of which were wholly-owned:
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Banco Popular North America (BPNA), a full service commercial bank incorporated in the state of New York;
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Popular Financial Holdings, Inc. (PFH), a consumer finance company;
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The
banking operations of BPNA in the United States mainland are based in five states. The
following table contains information of BPNAs operations:
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Aggregate Assets
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Total Deposits
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State
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Branches
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($ in billions)
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($ in billions)
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New York
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33
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$
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2.9
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$
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2.7
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California
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24
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3.2
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1.9
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Florida
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20
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1.8
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1.4
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Illinois
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16
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1.9
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1.8
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New Jersey
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0.5
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0.5
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In addition, BPNA has a mortgage operation with $1.2 billion in assets at December 31, 2009, in
Houston, Texas. In the last quarter of 2009, BPNA sold six bank branches in New Jersey with
approximately $225 million in deposits. No loans were sold in this transaction.
BPNA
also owns all of the outstanding stock of E-LOAN, Inc. (E-LOAN), Popular
Equipment Finance, Inc., and Popular Insurance Agency USA, Inc. E-LOAN provides an online platform
to raise deposits for BPNA. All direct lending activities at E-LOAN were ceased during the fourth
quarter of 2008. At December 31, 2009, E-LOANs total assets amounted to $561 million. Popular
Equipment Finance, Inc. sold a substantial portion of its lease financing portfolio during the
quarter ended March 31, 2009 and also ceased originations as part of the BPNA restructuring plan
implemented in late 2008. As a result of these initiatives the total assets of Popular Equipment
Finance, Inc. were reduced to $58 million at December 31, 2009. Popular Insurance Agency USA, Inc.
acts as an insurance agent or broker for issuing insurance across the BPNA branch network. Revenues
of Popular Insurance Agency USA, Inc. for the year ended December 31, 2009 totaled $6 million.
PFH
has two direct subsidiaries: Equity One, Inc. (Equity One) and Popular Mortgage
Servicing, Inc. During the third quarter of 2008, Popular discontinued the operations of PFH. As of
December 31, 2009, PFH had total remaining assets of $19 million.
Processing and Other Technology Services
Our financial transaction processing and technology services are provided through EVERTEC,
Inc., ATH Costa Rica, S.A., EVERTEC LATINOAMÉRICA, SOCIEDAD ANÓNIMA and T.I.I. Smart Solutions Inc.
(EVERTEC reportable segment). EVERTEC, Inc., a wholly-owned subsidiary of Popular uses its expertise in technology to provide
services in the United States, the Caribbean, Latin America, and
internally servicing many of our subsidiaries system infrastructures and transactional
processing businesses. ATH Costa Rica, S.A. and EVERTEC LATINOAMÉRICA, SOCIEDAD ANÓNIMA, wholly- owned subsidiaries of
PIB, provide ATM switching and driving services in San José, Costa Rica. T.I.I. Smart Solutions
Inc., also a wholly-owned subsidiary of PIB, is a technology company based also in Costa Rica that
develops financial processing software applications and sells hardware products (ATM, POS and
communication products). For the year ended December 31, 2009,
revenues of EVERTEC reportable segment totaled $257 million and its
net income totaled $50 million.
In addition, PIB, a wholly owned subsidiary of Popular, has equity investments in Consorcio de
Tarjetas Dominicanas (CONTADO), the largest merchant acquirer and ATM network in the Dominican
Republic and in Servicios Financieros, S.A. (Serfinsa), one of the largest ATM
network in El Salvador, which are part of EVERTEC reportable segment.
PIB also has an equity investment in Banco Hipotecario Dominicano (BHD) in the Dominican Republic.
Significant Events During 2009
During 2009, we carried out a series of actions designed to improve our U.S. operations,
address credit quality, contain controllable costs, maintain well-capitalized ratios and improve
capital and liquidity positions. These actions included the following:
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Sale or closing, throughout the year, of unprofitable businesses and the consolidation of branches in the United
States and Puerto Rico markets resulting in a net reduction of 46 branches. The latter includes the sale in October 2009 of six New
Jersey bank branches of BPNA with approximately $225 million in deposits;
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Implementation of cost-cutting measures such as the hiring and pension plan freezes and the suspension of matching
contributions to retirement plans;
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Restructuring our credit divisions, working with clients to find
individual solutions and heightening our focus on collection processes;
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Suspension of dividends on Populars common stock (common stock) and Series A and B preferred stock in June 2009;
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Completion in August 2009 of the exchange offer, which resulted in the issuance of over 357 million in new
shares of common stock and increased our Tier 1 common equity by $1.4 billion. For further details please refer
to Part II, Item 5 Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities;
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Completion, also in connection with the exchange offer, of an agreement with the Department of Treasury (U.S.
Treasury) to exchange all $935 million of our outstanding shares of Series C preferred stock of Popular for $935
million of newly issued trust preferred securities. For further details please refer to Part II, Item 5 Market
for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
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Please refer to Part II, Item 7 Management Discussion and Analysis (MD&A), for further
details about the above initiatives.
Restructuring
Plans in the United States Mainland
As mentioned on the 2008 Form 10-K, our Board of Directors approved during 2008 various
restructurings plan for our operations in the U.S. mainland. The
objectives of these plans were to
discontinue the operations of PFH, improve profitability at BPNA and E-LOAN in the short
term, increase liquidity, lower credit costs, and, over time, achieve a greater integration with corporate
functions in Puerto Rico. Most of these plans were successfully completed at the end of 2009. For
further information about these plans, refer to Notes 3 and 4 to the Audited Financial Statements.
REGULATION AND SUPERVISION
Described below are the material elements of selected laws and regulations applicable to
Popular, PIB, PNA and their respective subsidiaries. The descriptions are not intended to be
complete and are qualified in their entirety by reference to the full text of the statutes and
regulations described. Changes in applicable law or regulation, and in their application by
regulatory agencies, cannot be predicted, but they may have a material effect on the business and
results of Popular, PIB, PNA and their respective subsidiaries.
General
Popular, PIB and PNA are bank holding companies subject to consolidated supervision and
regulation by the Federal Reserve Board under the BHC Act. Under the BHC Act, prior to the adoption
of the Gramm-Leach-Bliley Act in 1999, the activities of bank holding companies and their
non-banking subsidiaries were limited to the business of banking and activities closely related to
banking, and no bank holding company could directly or indirectly acquire ownership or control of
more than 5% of any class of voting shares or substantially all of the assets of any company in the
United States, including a bank, without the prior approval of the Federal Reserve Board. In
addition, bank holding companies generally have been prohibited under the BHC Act from engaging in
non-banking activities, unless they were found by the Federal Reserve Board to be closely related
to banking. The Gramm-Leach-Bliley Act authorizes bank holding companies that qualify as financial
holding companies to engage in a substantially broader range of non-banking activities, subject to
certain conditions. Popular has elected to be treated as a financial holding company under the
provisions of the Gramm-Leach-Bliley Act. See The Gramm-Leach-Bliley Act below for information
regarding these rules. The BHC Act, as amended by the Gramm-Leach-Bliley
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Act, provides generally for umbrella regulation of financial holding companies and their
non-banking subsidiaries by the Federal Reserve Board, and for functional regulation of banking
activities by bank regulators, securities activities by securities regulators, and insurance
activities by insurance regulators.
Banco Popular and BPNA are subject to supervision and examination by applicable federal and
state banking agencies including, in the case of Banco Popular, the Federal Reserve Board and the
Office of the Commissioner of Financial Institutions of Puerto Rico (the Office of the
Commissioner), and in the case of BPNA, the Federal Reserve Board and the New York State Banking
Department. Banco Popular and BPNA are subject to requirements and restrictions under federal and
state law, including requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged thereon, and
limitations on the other types of investments that may be made and the types of services that may
be offered. Various consumer laws and regulations also affect the operations of Banco Popular and
BPNA. See The Gramm-Leach-Bliley Act below for information about these rules. In addition to the
impact of regulations, commercial banks are affected significantly by the actions of the Federal
Reserve Board as it attempts to control the money supply and credit availability in order to
influence the economy.
Prompt Corrective Action
The Federal Deposit Insurance Act (the FDIA) requires, among other things, the federal
banking agencies to take prompt corrective action in respect of insured depository institutions
that do not meet minimum capital requirements. The FDIA establishes five capital tiers: well
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized. The relevant capital measures are the total risk-based capital
ratio, the Tier 1 risk-based capital ratio and the leverage ratio.
Rules adopted by the federal banking agencies provide that an insured depository institution
will be deemed to be (1) well capitalized if it maintains a leverage ratio of at least 5%, a Tier 1
risk-based capital ratio of at least 6% and a total risk-based capital ratio of at least 10% and is
not subject to any written agreement or directive to meet a specific capital level; (2) adequately
capitalized, if it is not well capitalized, but maintains a leverage ratio of at least 4% (or at
least 3% if given the highest regulatory rating in its most recent report of examination and not
experiencing or anticipating significant growth), a Tier 1 risk-based capital ratio of at least 4%
and a total risk-based capital ratio of at least 8%; (3) undercapitalized if it fails to meet the
standards for adequately capitalized institutions (unless it is deemed significantly or critically
undercapitalized); (4) significantly undercapitalized if it has a leverage ratio of less than 3%, a
Tier 1 risk-based capital ratio of less than 3% or a total risk-based capital ratio of less than
6%; and (5) critically undercapitalized if it has tangible equity equal to 2% or less of total
assets.
At December 31, 2009, Banco Popular and BPNA were both well-capitalized. An institutions
capital category, as determined by applying the prompt corrective action provisions of law, may not
constitute an accurate representation of the overall financial condition or prospects of the
institution, and the capital condition of our banking subsidiaries should be considered in
conjunction with other available information regarding our financial condition and results of
operations.
The appropriate federal banking agency may, under certain circumstances, reclassify a well
capitalized insured depository institution as adequately capitalized. The appropriate agency is
also permitted to require an adequately capitalized or undercapitalized institution to comply with
the supervisory provisions as if the institution were in the next lower category (but not treat a
significantly undercapitalized institution as critically undercapitalized) based on supervisory
information other than the capital levels of the institution.
The FDIA provides that an institution may be reclassified, if the appropriate federal banking
agency determines (after notice and opportunity for hearing) that the institution is in an unsafe
or unsound condition or deems the institution to be engaging in an unsafe or unsound practice.
The FDIA generally prohibits an insured depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to its holding company,
if the depository institution would thereafter be undercapitalized. Undercapitalized depository
institutions are subject to restrictions on borrowing from the Federal Reserve System. In addition,
undercapitalized depository institutions are subject to growth limitations and are required to
submit capital restoration plans. A depository institutions holding company must guarantee the
capital plan, up to an amount equal to the lesser of 5% of the depository institutions assets at
the time it becomes undercapitalized or the amount of the capital deficiency when the institution
fails to comply with the plan. The federal banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic assumptions and is likely to
succeed in restoring the depository institutions capital. If a depository institution fails to
submit an acceptable plan, it is treated as if it is significantly undercapitalized. Significantly
undercapitalized depository institutions may be subject to a number of requirements and
restrictions, including orders to sell sufficient voting stock to become adequately capitalized,
requirements to reduce total assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment of a receiver or
conservator.
The capital-based prompt corrective action provisions of the FDIA apply to the
FDIC -insured depository institutions such as Banco Popular and BPNA, but
they are not directly applicable to holding companies such as Popular, PIB and PNA, which control
such institutions. However, the federal banking agencies have indicated that, in regulating holding
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companies, they may take appropriate action at the holding company level based on their
assessment of the effectiveness of supervisory actions imposed upon subsidiary insured depository
institutions pursuant to such provisions and regulations.
Holding Company Structure
Banco Popular and BPNA are subject to restrictions under federal law that limit the transfer
of funds by any of them to Popular, PIB, PNA, or any of our other non-banking subsidiaries, whether
in the form of loans, other extensions of credit, investments or asset purchases. Such transfers by
Banco Popular and BPNA to any of Popular, PIB, PNA, or any of our other non-banking subsidiaries
are limited in amount to 10% of the transferring institutions capital stock and surplus and, with
respect to Popular and all of our non-banking subsidiaries, to an aggregate of 20% of the
transferring institutions capital stock and surplus. For these purposes an institutions capital
stock and surplus includes its total risk-based capital plus (1) the balance of its allowance for
loan losses not included therein and (2) the amount of certain investments made by the institution
in financial subsidiaries that is subject to these limits and is required to be deducted from the
institutions capital for regulatory capital purposes. Furthermore, any such loans and extensions
of credit are required to be secured in specified amounts. In addition, federal law requires that
any transaction between Banco Popular or BPNA, on the one hand, and Popular, PIB, PNA or any of our
other non-banking subsidiaries, on the other hand, be carried out on an arms length basis.
Under Federal Reserve Board policy, a bank holding company such as Popular, PIB or PNA is
expected to act as a source of financial strength to each of its subsidiary banks and to commit
resources to support each subsidiary bank. This support may be required at times when, absent such
policy, the bank holding company might not otherwise provide such support. In addition, any capital
loans by a bank holding company to any of its subsidiary depository institutions are subordinated
in right of payment to deposits and to certain other indebtedness of such subsidiary depository
institution. In the event of a bank holding companys bankruptcy, any commitment by the bank
holding company to a federal banking agency to maintain the capital of a subsidiary depository
institution will be assumed by the bankruptcy trustee and entitled to a priority of payment. Banco
Popular and BPNA are currently the only insured depository institution subsidiaries of Popular, PIB
and PNA.
Because Popular, PIB and PNA are holding companies, their right to participate in the assets
of any subsidiary upon the latters liquidation or reorganization will be subject to the prior
claims of the subsidiarys creditors (including depositors in the case of subsidiary depository
institutions) except to the extent that Popular, PIB or PNA, as the case may be, may itself be a
creditor with recognized claims against the subsidiary.
Under the FDIA, a depository institution, the deposits of which are insured by the FDIC, can
be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured depository institution or
(ii) any assistance provided by the FDIC to any commonly controlled FDIC-insured depository
institution in danger of default. Default is defined generally as the appointment of a
conservator or a receiver, and in danger of default is defined generally as the existence of
certain conditions indicating that a default is likely to occur in the absence of regulatory
assistance. Banco Popular and BPNA are currently FDIC-insured depository institution subsidiaries
of Popular and are subject to this cross-guarantee liability. In some circumstances (depending upon
the amount of the loss or anticipated loss suffered by the FDIC), cross-guarantee liability may
result in the ultimate failure or insolvency of one or more insured depository institutions in a
holding company structure. Any obligation or liability owed by a subsidiary depository institution
to its parent company and other affiliates is subordinated to the subsidiary depository
institutions cross-guarantee liability with respect to commonly controlled FDIC-insured depository
institutions.
Dividend Restrictions
The principal sources of funding for the holding companies have included dividends received
from its banking and non-banking subsidiaries, asset sales and proceeds from the issuance of
medium-term notes, junior subordinated debentures and equity. Various statutory provisions limit
the amount of dividends Banco Popular may pay to Popular without regulatory approval. As a member
bank subject to the regulation of the Federal Reserve Board, Banco Popular must obtain the approval
of the Federal Reserve Board for any dividend, if the total of all dividends declared by the member
bank during the calendar year would exceed the total of its net income (as reportable in its Report
of Condition and Income) for that year, combined with its retained net income (as defined by
regulation) for the preceding two years, less any required transfers to surplus or to a fund for
the retirement of any preferred stock. In addition, a member bank may not declare or pay a dividend
in an amount greater than its undivided profits as reported in its Report of Condition and Income,
unless the member bank has received the approval of the Federal Reserve Board. A member bank also
may not permit any portion of its permanent capital to be withdrawn unless the withdrawal has been
approved by the Federal Reserve Board. For this purpose, permanent capital means the total of the
banks perpetual preferred stock and related surplus, common stock and surplus and minority
interests in consolidated subsidiaries, as reportable in the Report of Condition and Income. At
December 31, 2009, Banco Popular and BPNA could not declare any dividends without the approval of
the Federal Reserve Board.
The payment of dividends by Banco Popular and BPNA may also be affected by other regulatory
requirements and policies, such as the maintenance of adequate capital. If, in the opinion of the
applicable regulatory authority, a depository institution under its jurisdiction is engaged in, or
is about to engage in, an unsafe or unsound practice (that, depending on the financial condition of
the depository institution, could include the payment of dividends), such authority may require,
after notice and hearing, that such depository institution cease and desist from such practice. The
FDIC has indicated that the payment of dividends would constitute an unsafe and unsound
8
practice if the payment would deplete a depository institutions capital base to an inadequate
level. Under the FDIA, an insured institution may not pay any dividend if payment would cause it to
become undercapitalized or if it already is undercapitalized. See Prompt Corrective Action above.
Moreover, the Federal Reserve Board and the FDIC have issued policy statements stating that the
bank holding companies and insured banks should generally pay dividends only out of current
operating earnings.
It is Federal Reserve Board policy that bank holding companies generally should pay dividends
on common stock only out of net income available to common shareholders over the past year and only
if the prospective rate of earnings retention appears consistent with the organizations current
and expected future capital needs, asset quality and overall financial condition. Moreover, under
Federal Reserve Board policy, bank holding companies should not maintain dividend levels that place
undue pressure on the capital of depository institution subsidiaries or that may undermine the bank
holding companys ability to be a source of strength to its banking subsidiaries. The Federal
Reserve Board could prohibit a dividend by Popular, PIB or PNA that would constitute an unsafe or
unsound banking practice in light of the financial condition of the banking organization. In the
current financial and economic environment, the Federal Reserve Board has indicated that bank
holding companies should carefully review their dividend policy and has discouraged dividend
pay-out ratios that are at the 100% or higher level unless both asset quality and capital are very
strong. Popular is also subject to dividend restrictions because of
our participation in the TARP
Capital Purchase Program. For further information please refer to Part II, Item 5, Market for
Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Under the American Jobs Creation Act of 2004, subject to compliance with certain conditions,
distributions of U.S. sourced dividends to a corporation organized under the laws of the
Commonwealth of Puerto Rico are subject to a withholding tax of 10% instead of the 30% applied to
other foreign corporations. This 2004 law lowering the withholding tax rate to 10% is not expected
to have a material impact on Popular in the foreseeable future.
See Puerto Rico Regulation-General below for a description of certain restrictions on
Banco Populars ability to pay dividends under Puerto Rico law.
FDIC Insurance
Banco Popular and BPNA are subject to FDIC deposit insurance assessments. In 2006 the
President signed the Federal Deposit Insurance Reform Act of 2005 (the Reform Act). The Reform
Act provided for the merger of the Bank Insurance Fund (BIF) and Savings Association Insurance
Fund (SAIF) into a single Deposit Insurance Fund, an increase in the maximum amount of FDIC
insurance coverage for certain retirement accounts, and possible inflation adjustments in the
maximum amount of coverage available with respect to other insured accounts.
The deposits of Banco Popular, excluding the deposits of the branch located in the British
Virgin Islands, and BPNA are insured up to the applicable limits by the DIF of the FDIC and are
subject to deposit insurance assessments to maintain the DIF.
Under the Reform Act, the FDIC made significant changes to its risk-based assessment system so
that effective January 1, 2007 the FDIC imposes insurance premiums based upon a matrix that is
designed to more closely tie what banks pay for deposit insurance to the risks they pose.
On October 3, 2008, President George W. Bush signed into law the Emergency Economic
Stabilization Act of 2008 (EESA), which temporarily raised the basic limit on federal deposit
insurance coverage from $100,000 to $250,000 per depositor. The temporary increase in deposit
insurance coverage became effective upon the Presidents signature. The legislation provides, that
the basic deposit insurance limit returned to $100,000 after December 31, 2009, however on May
2009, the FDIC extended the $250,000 coverage per depositor until December 31, 2013. The
legislation did not increase coverage for retirement accounts, which continues to be $250,000.
On December 16, 2008, the Board of Directors of the FDIC voted to adopt a final rule
increasing risk-based assessment rates uniformly by seven basis points, on an annual basis, for the
first quarter of 2009.
On February 27, 2009, the Board of Directors of the FDIC voted to adopt a final rule to alter
the way in which the FDICs risk-based assessment system differentiates for risk, change deposit
insurance assessment rates, and make technical and other changes to the rules governing the
risk-based assessment system. Under this final rule, risk-based rates are ranging between 12 and 45
cents per $100 of domestic deposits (annualized) and between 7 and 77.5 cents per $100 of domestic
deposits after adjustments. Most institutions are being charged between 7 and 24 cents per $100 of
deposits, after adjustments. Also, in May 2009, the FDIC adopted
a final rule, effective June 30, 2009, that imposed a special assessment of 5 cents for every $100
on each insured depository institutions assets minus its Tier 1 Capital as of June 30, 2009,
subject to a cap equal to 10 cents per $100 of assessable deposits for the second quarter 2009
risk-based capital assessment. The special assessment was collected on September 30, 2009. For us
this special assessment represented an expense of $16.7 million,
in the second quarter of 2009. In 2009 the FDIC assessment premiums of
our insured depository institutions totaled $76.8 million,
including the previously mentioned special assessment paid in
September 2009 of $16.7 million.
Also, on November 2009, the Board of Directors of the FDIC voted to require insured
institutions to prepay their estimated quarterly assessments for the fourth quarter of 2009, as
well as, for all 2010, 2011, and 2012. Each quarter, the FDIC will bill insured institutions for
9
the actual risk-based premium for that quarter. Such amounts will reduce the prepaid asset.
Once the asset is exhausted, banks will resume paying and accounting for quarterly deposit
insurance assessments as they did prior to the implementation of this rule. The FDIC decided that
if the prepayment is not exhausted by June 30, 2013, any remaining amount will be returned to the
insured institutions. The prepayment allows the FDIC to strengthen the cash position of the DIF
immediately, without immediately impacting earnings of the industry. In December 30, 2009, Popular
prepaid $221 million, which includes all of our quarterly assessments, typically paid one quarter
in arrears, for the calendar quarters ending December 31, 2009
through December 31, 2012.
Additionally, in January 2010, the FDIC issued an Advance Notice of Proposed Rulemaking
seeking comment on ways that the FDICs risk-based deposit insurance assessment system could be
changed to account for the risks posed by certain employee compensation programs. Rulemaking as a
result of this review could result in further assessments.
On November 21, 2008, the Board of Directors of the FDIC approved the Temporary Liquidity Guarantee Program ( TLGP) to strengthen
confidence and encourage liquidity in the banking system. The TLGP is comprised of the Debt
Guarantee Program (DGP) and the Transaction Account Guarantee Program (TAGP). We opted to
become a participating entity on both of these programs. However, no debt was issued by Popular
under the DGP, and no new FDIC-guaranteed debt can be issued under the DGP after October 31, 2009.
The TAGP offers a full guarantee for non-interest-bearing transaction deposit accounts held by
Popular. The unlimited deposit coverage is in addition to the $250,000 FDIC deposit insurance per
depositor that was included as part of the EESA. As a result of our participation in the TAGP, we
are required to pay quarterly, additional insurance premiums to the FDIC in an amount equal to an
annualized 10 cents per $100 fee on balances in non-interest-bearing transaction accounts that
exceed the existing deposit insurance limit of $250,000. The TAGP deposit coverage is available
until June 30, 2010.
The Deposit Insurance Funds Act of 1996 separated the Financing Corporation (FICO)
assessment to service the interest on its bond obligations from the DIF assessment. The amount
assessed on individual institutions by the FICO is in addition to the amount paid for deposit
insurance according to the FDICs risk-related assessment rate schedules. The FICO assessment rate
for the fourth quarter of 2009 was 1.02 cents per $100 of deposits.
As of December 31, 2009, we had a DIF deposit assessment base of approximately $26 billion and
a TAGP deposit assessment base of approximately $1.2 billion.
Brokered Deposits
FDIA governs the receipt of brokered deposits. Section 29 of FDIA and the regulations adopted
thereunder restrict the use of brokered deposits and the rate of interest payable on deposits for
institutions that are less than well capitalized. There are no such restrictions on a bank that is
well capitalized. Popular does not believe the brokered deposits regulation has had or will have a
material effect on the funding or liquidity of Banco Popular and BPNA.
Capital Adequacy
Information about our capital composition as of December 31, 2009 and for the four
previous years is presented in Table I Capital Adequacy Data on page 43 in the MD&A.
Under the Federal Reserve Boards risk-based capital guidelines for bank holding companies and
member banks, the minimum ratio of qualifying total capital (Total Capital) to risk-weighted
assets (including certain off-balance sheet items, such as standby letters of credit) is 8%. Under
the capital guidelines, a banking organizations Total Capital is divided into tiers. Tier 1
Capital consists of common equity, retained earnings, minority interests in equity accounts of
consolidated subsidiaries, (including for bank holding companies but not banks, trust preferred
securities), qualifying non-cumulative perpetual preferred stock and for bank holding companies
(but not banks) a limited amount of qualifying cumulative perpetual preferred stock less goodwill
(net of any associated deferred tax liability) and certain other intangible assets. Banking
organizations are expected to maintain at least 50 percent of their Tier 1 Capital as common
equity. Not more than 25% of qualifying Tier 1 Capital may consist of non-cumulative perpetual
preferred stock, trust preferred securities or other so-called restricted core capital elements.
In addition, effective October 17, 2008, the Federal Reserve Board approved an interim rule to
allow the inclusion of the senior perpetual preferred stock issued to the U.S. Treasury under the
Troubled Asset Relief Program (TARP) Capital Purchase Program, without limit, as Tier 1 Capital. Tier 2 Capital consists of,
among other things, a limited amount of subordinated debt, other preferred stock, certain other
instruments and a limited amount of loan and lease loss reserves.
In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for
bank holding companies and member banks. These guidelines provide for a minimum ratio of Tier 1
Capital to total assets, less goodwill and certain other intangible assets (the
leverage ratio) of 3% for bank holding companies and member banks that have the highest
regulatory rating or have implemented the Federal Reserve Boards market risk capital measure. All
other bank holding companies and member banks are required to maintain a minimum leverage ratio of
4%. The guidelines also provide that banking organizations experiencing internal growth or making
acquisitions are expected to maintain strong capital positions substantially above the minimum
supervisory levels, without significant reliance on intangible assets.
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Banco Popular and BPNA are subject to the risk-based and leverage capital requirements adopted
by the Federal Reserve Board. See Consolidated Financial Statements, Note 25 Regulatory Capital
Requirements on page 138 and 139 for the capital ratios of Popular, Banco Popular and BPNA.
Failure to meet capital guidelines could subject Popular and our depository institution
subsidiaries to a variety of enforcement remedies, including the termination of deposit insurance
by the FDIC and to certain restrictions on our business. See - Prompt Corrective Action.
At December 31, 2009, our restricted core capital elements would have exceeded the 25%
limitation and, as such, $7 million of the outstanding trust preferred securities were disallowed
as Tier 1 Capital. Amounts of restricted core capital elements in excess of this limit generally
may be included in Tier 2 capital, subject to further limitations. The Federal Reserve Boards
risk-based capital guidelines revised the quantitative limit which would limit restricted core
capital elements included in the Tier 1 Capital of a bank holding company to 25% of the sum of core
capital elements (including restricted core capital elements), net of goodwill less any associated
deferred tax liability. These new quantitative limits were scheduled to become effective on March
31, 2009. However, on March 23, 2009, the Federal Reserve Board adopted a rule extending the
compliance date for the tighter limits to March 31, 2011 in light of the stressful financial
conditions and the severely constrained ability of bank holding companies to raise additional
capital in the markets. As of December 31, 2009, $842 million in trust preferred securities that
Popular treated as Tier 1 Capital under existing Federal Reserve Board guidelines were outstanding.
As part of the U.S. Governments Financial Stability Plan, on February 25, 2009, the U.S.
Treasury announced preliminary details of its Capital Assistance Program, or the CAP. To
implement the CAP, the Federal Reserve Board, the Federal Reserve Banks, the FDIC and the Office of
the Comptroller of the Currency commenced a review, referred to as the Supervisory Capital
Assessment Program (the SCAP), of the capital of the 19 largest U.S. banking institutions.
Popular was not included in the group of 19 banking institutions reviewed under the SCAP. On May 7,
2009, Federal banking regulators announced the results of the SCAP and determined that 10 of the 19
banking institutions were required to raise additional capital and to submit a capital plan to
their Federal banking regulators by June 8, 2009 for their review.
Even though we were not one of the banking institutions included in the SCAP, we have closely
assessed the announced SCAP results, particularly noting that (1) the SCAP credit loss assumptions
applied to regional banking institutions included in the SCAP are based on a more adverse economic
and credit scenario and (2) Federal banking regulators are focused on the composition of regulatory
capital. Specifically, the regulators have indicated that voting common equity should be the
dominant element of Tier 1 capital and have established a 4% Tier 1 common/risk-weighted assets
ratio as a threshold for determining capital needs. Although the SCAP results are not applicable to
us, they do express general regulatory expectations.
While Popular has been well capitalized based on a ratio of Tier 1 capital to risk-weighted
assets, we believe that an improvement in the composition of our regulatory capital, including Tier
1 common equity, will better position us in a more adverse economic and credit scenario. As a
result, during the third quarter of 2009 we completed the exchange offer in order to increase our
common equity capital to accommodate the more adverse economic and credit scenarios assumed under
the SCAP as applied to regional banking institutions. With the exchange offer we increased our
Tier 1 common equity by $1.4 billion. For more information about the exchange please refer to Part
II, Item 5, Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .
In 2004, the Basel Committee on Banking Supervision (the Basel Committee) published a new
set of risk-based capital standards (Basel II) in order to update the original international
capital standards that had been put in place in 1988 (Basel I). Basel II presents a three-pillar
framework for determining risk-based capital requirements for credit risk, market risk and
operational risk (Pillar 1); supervisory review of capital adequacy (Pillar 2); and market
discipline through enhanced public disclosure (Pillar 3). A definitive final rule for implementing
the advanced approaches of Basel II in the United States, which applies only to certain large or
internationally active or core banking organizations (defined as those with consolidated total
assets of $250 billion or more or consolidated on-balance sheet foreign exposures of $10 billion or
more) became effective on April 1, 2008. Other U.S. banking organizations may elect to adopt the
requirements of this rule (if they meet applicable qualification requirements), but are not
required to comply. The rule also allows a banking organizations primary Federal supervisor to
determine that application of the rule would not be appropriate in light of the banks asset size,
level of complexity, risk profile or scope of operations.
To correct differences between core and non-core banking organizations, Basel IA was proposed
in late 2006 presenting modifications to the general risk-based capital rules for non-core banking
organizations that do not adopt the advanced approaches. After considering the comments on both the
Basel IA and the advanced approaches, in July 2008, the agencies proposed a new rule that would
provide all non-core banking organizations with an option to adopt the standardized approach under
Basel II. This alternative provides a more risk sensitive capital framework to institutions not
adopting the advanced approaches without unduly increasing regulatory burden. Comments on the
proposed rule were due to the agencies by October 27, 2008, but a definitive final rule has not
been issued.
Although Popular is a non-core banking organization, we understand that the new capital
adequacy guidelines provide a framework which more closely aligns regulatory capital requirements
with actual risks, thus enhancing risk management practices.
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In December 2009, the Basel Committee issued two consultative documents proposing reforms to
bank capital and liquidity regulation. The Basel Committees capital proposals would significantly
revise the definitions of Tier 1 capital and Tier 2 capital. Among other things, they would: (i)
re-emphasize that common equity is the predominant component of Tier 1 capital by (a) adding a
minimum common equity to risk-weighted assets ratio, with the ratio itself to be determined based
on the outcome of an impact study that the Basel Committee is conducting, and (b) requiring that
goodwill, general intangibles and certain other items that currently must be deducted from Tier 1
capital instead be deducted from common equity as a component of Tier 1 capital; (ii) disqualify
innovative capital instruments including U.S.-style trust preferred securities and other
instruments that effectively pay cumulative dividends from Tier 1 capital status; (iii)
strengthen the risk coverage of the capital framework, particularly with respect to counterparty
credit risk exposures arising from derivatives, repos and securities financing activities; (iv)
introduce a leverage ratio requirement as an international standard; and (v) implement measures to
promote the build-up of capital buffers in good times that can be drawn upon during periods of
stress, introducing a countercyclical component designed to address the concern that existing
capital requirements are procyclical that is, they encourage reducing capital buffers in good
times, when capital could more easily be raised, and increasing capital buffers in times of
distress, when access to capital markets may be limited or they may effectively be closed. The
capital proposals do not specify a percentage for the new ratio of common equity to risk-weighted
assets or changes in the current minimum Tier 1 capital and total capital risk-based capital
requirements, which currently are 4% and 8%, respectively. Instead, they state that the minimum
percentage requirements for the new ratio of common equity to risk-weighted assets and the other
capital ratios including Tier 1 capital to risk-weighted assets, total capital to risk-weighted
assets and the new leverage ratio will be included in a fully calibrated, comprehensive set of
capital and liquidity proposals to be released by December 31, 2010. Independently, in September
2009, the Department of the Treasury issued a policy statement titled Principles for Reforming the
U.S. and International Regulatory Capital Framework for Banking Firms setting forth core
principles intended to address many of the same substantive items as the Basel Committee capital
proposals and specifically calling for increased capital requirements for financial institutions,
and substantially heightened capital requirements for large financial institutions.
If implemented, the Basel Committees liquidity proposals, although apparently similar in many
respects to tests historically applied by banking organizations and regulators for management and
supervisory purposes, would for the first time be formulaic and required by regulation. They would
impose two measures of liquidity risk exposure, one based on a 30-day time horizon and the other
addressing longer-term structural liquidity mismatches over a one-year time period.
The Basel Committee indicated that it expects final provisions responsive to the proposals to
be implemented by December 31, 2012. Ultimate implementation in individual countries, including the
United States, is subject to the discretion of the bank regulators in those countries. The Basel
Committees final proposals may differ from the proposals released in December 2009, and the
regulations and guidelines adopted by regulatory authorities having jurisdiction over Popular and
our subsidiaries may differ from the final accord of the Basel Committee. Moreover, although some
aspects of the Basel Committee proposals were quite specific (e.g., the definition of the
components of capital), others were merely conceptual (e.g., the description of the leverage test)
and others not specifically addressed (e.g., the minimum percentages for required capital ratios).
We are not able to predict at this time the content of guidelines or regulations that will
ultimately be adopted by regulatory agencies having authority over Popular and our subsidiaries or
the impact of changes in capital and liquidity regulation upon us. However, a requirement that
Popular and our depository institution subsidiaries maintain more capital, with common equity as a
more predominant component, or manage the configuration of their assets and liabilities in order to
comply with formulaic liquidity requirements, could significantly impact our financial condition,
operations, capital position and ability to pursue business opportunities.
Interstate Banking Legislation
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, as amended (the
Interstate Banking Act), generally permits a bank holding company, with Federal Reserve Board
approval, to acquire banks located in states other than the holding companys home state without
regard to whether the transaction is prohibited under state law. In addition, national and state
banks with different home states are permitted to merge across state lines, with approval of the
appropriate federal banking agency. States are also allowed to permit de novo interstate branching.
Once a bank has established branches in a state through an interstate merger transaction, the bank
may establish or acquire additional branches at any location in the state where any bank involved
in the interstate merger transaction could have established or acquired branches under applicable
federal or state law. A bank that has established a branch in a state through de novo branching (if
permitted under state laws) may establish and acquire additional branches in such state in the same
manner and to the same extent as a bank having a branch in such state as a result of an interstate
merger. If a state opted out of interstate branching within the specified time period, no bank in
any other state may establish a branch in the state that has opted out, whether through an
acquisition or de novo. For purposes of the Interstate Banking Act, Banco Popular is treated as a
state bank and is subject to the same restrictions on interstate branching as other state banks.
However, for purposes of the International Banking Act (the IBA), Banco Popular is considered to
be a foreign bank and may branch interstate by merger or de novo to the same extent as a domestic
bank in Banco Populars home state, which is New York for purposes of the IBA.
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The Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley Act was enacted on November 12, 1999. Among other things, the
Gramm-Leach-Bliley Act: (i) allows bank holding companies whose subsidiary depository institutions
meet management, capital and Community Reinvestment Act standards to engage in a substantially
broader range of nonbanking financial activities than what was previously permissible, including
securities underwriting and dealing, insurance underwriting and making merchant banking investments
in nonfinancial companies; (ii) allows insurers and other financial services companies to acquire
banks; (iii) removes various restrictions that previously applied to bank holding company ownership
of securities firms and mutual fund advisory companies; and (iv) establishes the overall regulatory
structure applicable to bank holding companies that also engage in insurance and securities
operations.
In order for a bank holding company to engage in the broader range of activities that are
permitted by the Gramm-Leach-Bliley Act (i) all of its depository institution subsidiaries must be
well capitalized (as described above), and well managed and (ii) it must file a declaration with
the Federal Reserve Board that it elects to be a financial holding company. Popular, PIB and PNA
have elected to be treated as financial holding companies. A depository institution is deemed to be
well managed if at its most recent inspection, examination or subsequent review by the
appropriate federal banking agency (or the appropriate state banking agency), the depository
institution received at least a satisfactory composite rating and at least a satisfactory
rating for management. In addition, to commence any new activity permitted by the
Gramm-Leach-Bliley Act and to acquire any company engaged in any new activities permitted by the
Gramm-Leach-Bliley Act, each insured depository institution subsidiary of the financial holding
company must have received at least a satisfactory rating in its most recent examination under
the Community Reinvestment Act. If, after becoming a financial holding company and undertaking
activities not permissible for a bank holding company that is not a financial holding company, the
company fails to continue to meet any of the capital or managerial requirements for financial
holding company status, the company must enter into an agreement with the Federal Reserve Board to
comply with all applicable capital and management requirements. If the company does not return to
compliance within 180 days, the Federal Reserve Board may order the company to divest its
subsidiary banks or the company may discontinue, or divest investments in companies engaged in,
activities permissible only for a bank holding company that has elected to be treated as a
financial holding company.
The Federal Reserve Board has the power to order any bank holding company or its subsidiaries
to terminate any activity or to terminate its ownership or control of any subsidiary when the
Federal Reserve Board has reasonable grounds to believe that continuation of such activity or such
ownership or control constitutes a serious risk to the financial soundness, safety or stability of
any bank subsidiary of the bank holding company.
The Gramm-Leach-Bliley Act also modified other laws, including laws related to financial
privacy and community reinvestment. These financial privacy provisions generally prohibit financial
institutions, including our bank subsidiaries, from disclosing nonpublic personal financial
information to third parties unless customers have the opportunity to opt out of the disclosure.
Anti-Money Laundering Initiative and the USA PATRIOT Act
A major focus of governmental policy relating to financial institutions in recent years has
been aimed at combating money laundering and terrorist financing. The USA PATRIOT Act of 2001 (the
USA PATRIOT Act) broadened the application of U.S. anti-money laundering regulations to apply to
additional types of financial institutions such as broker-dealers, investment advisors and
insurance companies, and strengthened the ability of the U.S. government to help prevent, detect
and prosecute international money laundering and the financing of terrorism.
Title III of the USA PATRIOT Act imposed significant new compliance and due diligence
obligations, created new crimes and penalties and expanded the extra-territorial jurisdiction of
the United States. The principal provisions of Title III and regulations issued by the U.S.
Treasury thereunder impose obligations on financial institutions, including Populars bank and
broker-dealer subsidiaries, to maintain appropriate policies, procedures and controls to detect,
prevent and report money laundering and terrorist financing and to verify the identity of
customers. Certain of those regulations impose specific due diligence requirements on financial
institutions that maintain correspondent or private banking relationships with non-U.S. financial
institutions or persons. Failure of a financial institution to comply with the USA PATRIOT Acts
requirements could have serious legal and reputational consequences for the institution.
Community Reinvestment Act
The Community Reinvestment Act requires banks to help serve the credit needs of their
communities, including credit to low and moderate-income individuals and geographies. Should
Popular or our bank subsidiaries fail to serve adequately the community, potential penalties may
include regulatory denials of applications to expand branches, relocate, add subsidiaries and
affiliates, expand into new financial activities and merge with or purchase other financial
institutions.
Office of Foreign Assets Control Regulation
The United States has imposed economic sanctions that affect transactions with designated
foreign countries, nationals and others. These are typically known as the OFAC rules based on
their administration by the U.S. Treasury Department Office of Foreign Assets
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Control (OFAC). The
OFAC-administered sanctions targeting countries take many different forms. Generally, however, they
contain one or more of the following elements: (i) restrictions on trade with or investment in a
sanctioned country, including prohibitions against direct or indirect imports from and exports to a
sanctioned country and prohibitions on U.S. persons engaging in financial transactions relating
to making investments in, or providing investment-related advice or assistance to a sanctioned
country; and (ii) a blocking of assets in which the government or specially designated nationals of
the sanctioned country have an interest, by prohibiting transfers of property subject to U.S.
jurisdiction (including property in the possession or control of U.S. persons). Blocked assets
(e.g., property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any
manner without a license from OFAC. Failure to comply with these sanctions could have serious legal
and reputational consequences.
Legislative Initiatives
Various other legislative proposals, including proposals to limit the investments that a
depository institution may make with FDIC insured funds to restrict certain practices in connection
with lending activities, to require lenders to forego certain contractual rights, to amend
bankruptcy laws or to restrict executive compensation, are from time to time introduced in
Congress. We cannot determine the ultimate effect that such potential legislation, if enacted, or
implementing regulations would have upon our financial condition or results of operations.
Puerto Rico Regulation
General.
As a commercial bank organized under the laws of Puerto Rico, Banco Popular is
subject to supervision, examination and regulation by the Office of the Commissioner, pursuant to
the Puerto Rico Banking Act of 1933, as amended (the Banking Law).
Section 27 of the Banking Law requires that at least ten percent (10%) of the yearly net
income of Banco Popular be credited annually to a reserve fund. This apportionment must be done
every year until the reserve fund is equal to the total of paid-in capital on common and preferred
stock. During 2009, Banco Popular transferred $10 million to the reserve fund in order to comply
with this requirement.
Section 27 of the Banking Law also provides that when the expenditures of a bank are greater
than its receipts, the excess of the former over the latter must be charged against the
undistributed profits of the bank, and the balance, if any, must be charged against the reserve
fund. If the reserve fund is not sufficient to cover such balance in whole or in part, the
outstanding amount must be charged against the capital account and no dividend may be declared
until capital has been restored to its original amount and the reserve fund to 20% of the original
capital.
Section 16 of the Banking Law requires every bank to maintain a legal reserve that, except as
otherwise provided by the Office of the Commissioner, may not be less than 20% of its demand
liabilities, excluding government deposits (federal, state and municipal) which are secured by
collateral. If a bank is authorized to establish one or more bank branches in a state of the United
States or in a foreign country, where such branches are subject to the reserve requirements of that
state or country, the Office of the Commissioner may exempt said branch or branches from the
reserve requirements of Section 16. Pursuant to an order of the Federal Reserve Board dated
November 24, 1982, Banco Popular has been exempted from the reserve requirements of the Federal
Reserve System with respect to deposits payable in Puerto Rico. Accordingly, Banco Popular is
subject to the reserve requirements prescribed by the Banking Law.
Section 17 of the Banking Law permits a bank to make loans to any one person, firm,
partnership or corporation, up to an aggregate amount of fifteen percent (15%) of the paid-in
capital and reserve fund of the bank. As of December 31, 2009, the legal lending limit for the Bank
under this provision was approximately $124 million. In the case of loans which are secured by
collateral worth at least 25% more than the amount of the loan the maximum aggregate amount is
increased to one third of the paid-in capital of the bank, plus its reserve fund. If the
institution is well capitalized and had been rated 1 in the last examination performed by the
Office of the Commissioner or any regulatory agency, its legal lending limit shall also include 15%
of 50% of its undivided profits and for loans secured by collateral worth at least 25% more than
the amount of the loan, the capital of the bank shall also include 33 1/3% of 50% of its undivided
profits. Institutions rated 2 in their last regulatory examination may include this additional
component in their legal lending limit only with the previous authorization of the Office of the
Commissioner. There are no restrictions under Section 17 on the amount of loans that are wholly
secured by bonds, securities and other evidence of indebtedness of the Government of the United
States or Puerto Rico, or by current debt bonds, not in default, of municipalities or
instrumentalities of Puerto Rico.
Section 14 of the Banking Law authorizes a bank to conduct certain financial and related
activities directly or through subsidiaries, including finance leasing of personal property and
originating and servicing mortgage loans. Banco Popular engages in these activities through its
wholly-owned subsidiaries, Popular Auto, Inc. and Popular Mortgage, Inc., respectively, both
companies are organized and operate in Puerto Rico.
The Finance Board is composed of nine members, including the Commissioner of Financial
Institutions, the Secretary of the Treasury, the Secretary of Economic and Commercial Development,
the Secretary of Consumer Affairs, the President of the Economic Development Bank, the President of
the Planning Board, the President of the Government Development Bank for Puerto Rico, the Executive
President of the Public Corporation for the Supervision and Insurance of Cooperatives and the
Insurance Commissioner. The
14
Finance Board has the authority to regulate the maximum interest rates
and finance charges that may be charged on loans to individuals
and unincorporated businesses in Puerto Rico. The current regulations of the Finance Board
provide that the applicable interest rate on loans to individuals and unincorporated businesses
(including real estate development loans but excluding certain other personal and commercial loans
secured by mortgages on real estate properties and finance charges on retail installment sales and
for credit card purchases) is to be determined by free competition.
IBC Act.
Under the IBC Act, without the prior approval of the Office of the Commissioner, PIB
may not amend its articles of incorporation or issue additional shares of capital stock or other
securities convertible into additional shares of capital stock unless such shares are issued
directly to the shareholders of PIB previously identified in the application to organize the
international banking entity, in which case notification to the Office of the Commissioner must be
given within ten business days following the date of the issue. Pursuant to the IBC Act, without
the prior approval of the Office of the Commissioner, PIB may not initiate the sale, encumbrance,
assignment, merger or other transfer of shares if by such transaction a person or persons acting in
concert could acquire direct or indirect control of 10% or more of any class of PIBs stock. Such
authorization must be requested at least 30 days prior to the transaction.
PIB must submit to the Office of the Commissioner a report of its condition and results of
operation on a quarterly basis and its annual audited financial statements at the close of its
fiscal year. Under the IBC Act, PIB may not deal with domestic persons as such term is defined in
the IBC Act. Also, it may only engage in those activities authorized in the IBC Act, the
regulations adopted thereunder and its license.
The IBC Act empowers the Office of the Commissioner to revoke or suspend, after a hearing, the
license of an international banking entity (IBE) if, among other things, it fails to comply with
the IBC Act, regulations issued by the Office of the Commissioner or the terms of its license or if
the Office of the Commissioner finds that the business of the IBE is conducted in a manner not
consistent with the public interest.
An IBE that operates as a division or branch of a bank in Puerto Rico is subject to income tax
in Puerto Rico if its net taxable income exceeds 20% of the net taxable income of the bank as a
whole. If these thresholds are exceeded, the IBE will be taxed at regular tax rates on its net
taxable income that exceeds the applicable threshold. In March 2009, the Government of Puerto Rico
approved a legislation that imposed a 5% income tax on the net income of the IBE that operates as
separate entity, even though do not exceed the 20% threshold.
Employees
At
December 31, 2009, Popular employed directly 9,407 persons. None
of our employees are
represented by a collective bargaining group.
Segment Disclosure
Note 39 to the Financial Statements, Segment Reporting on pages 165 through 168 of the
Annual Report is incorporated by reference herein.
Our corporate structure consists of three reportable segments Banco Popular, BPNA and
EVERTEC. These reportable segments pertain only to the continuing operations of Popular. The
operations of PFH which were considered a reportable segment prior to 2008 were classified as
discontinued operations in 2008 through September 30, 2009. A corporate group has been defined to
support the reportable segments. Popular retrospectively adjusted the 2007 information in the
statements of operations to exclude the results from discontinued operations to conform to the 2008
and 2009 presentation.
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.
15
The following table presents our long-lived assets by geographical area, other than financial
instruments, long-term customer relationships, mortgage and other servicing rights and deferred tax
assets. Long-lived assets located in foreign countries represent the investments under the equity
method in the Dominican Republic and El Salvador and other long-lived assets located in Costa Rica,
Venezuela and the Dominican Republic.
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets
|
|
2009
|
|
2008
(1)
|
|
2007
|
Puerto Rico
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment
|
|
$
|
510,942,979
|
|
|
$
|
536,537,661
|
|
|
$
|
477,681,159
|
|
Goodwill
|
|
|
198,198,643
|
|
|
|
197,482,201
|
|
|
|
222,438,229
|
|
Other intangible assets
|
|
|
21,625,346
|
|
|
|
27,200,260
|
|
|
|
24,557,452
|
|
Investments under the equity method
|
|
|
20,880,882
|
|
|
|
20,637,865
|
|
|
|
16,530,392
|
|
|
|
|
|
|
$
|
751,647,850
|
|
|
$
|
781,857,987
|
|
|
$
|
741,207,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment
|
|
$
|
67,256,684
|
|
|
$
|
77,480,869
|
|
|
$
|
103,439,003
|
|
Goodwill
|
|
|
402,076,816
|
|
|
|
404,236,423
|
|
|
|
404,249,194
|
|
Other intangible assets
|
|
|
18,985,694
|
|
|
|
22,626,573
|
|
|
|
38,673,692
|
|
Investments under the equity method
|
|
|
16,965,759
|
|
|
|
17,372,488
|
|
|
|
24,148,846
|
|
|
|
|
|
|
$
|
505,284,953
|
|
|
$
|
521,716,353
|
|
|
$
|
570,510,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Countries
|
|
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment
|
|
$
|
6,654,245
|
|
|
$
|
6,788,371
|
|
|
$
|
7,042,695
|
|
Goodwill
|
|
|
4,073,110
|
|
|
|
4,073,107
|
|
|
|
4,073,107
|
|
Other intangible assets
|
|
|
179,924
|
|
|
|
220,301
|
|
|
|
1,325,230
|
|
Investments under the equity method
|
|
|
61,925,135
|
|
|
|
54,401,304
|
|
|
|
49,190,174
|
|
|
|
|
|
|
$
|
72,832,414
|
|
|
$
|
65,483,083
|
|
|
$
|
61,631,206
|
|
|
|
|
|
|
|
(1)
|
|
Does not include long-lived assets of the discontinued operations as of December 31, 2008.
|
Availability on website
We make available free of charge, through our investor relations section at our website,
www.popular.com, our Form 10-K, Form 10-Q and Form 8-K reports and all amendments to those reports
as soon as reasonably practicable after such material is electronically filed with or furnished to
the SEC.
The public may read and copy any materials Popular files with the SEC at the SECs Public
Reference Room at 100 F Street, N.E., Washington, DC 20549-0213. In addition, the public may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains an Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC at its web site
(
www.sec.gov
).
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 SEC 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 were brought by or on behalf of securities holders of Doral
in relation to these matters. 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 Popular, 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
16
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. We believe that Doral
considers Popular Securities to be one of the parties that provided Doral with third-party IO
valuations.
Transactions with Doral Relating to Mortgage Loans and IOs.
Between 1996 and 2004, Banco Popular
purchased mortgage loans from Doral for an aggregate purchase price of approximately $1.6 billion.
The remaining balance of these mortgage loans recorded on our consolidated statement of condition
at December 31, 2009 was $284 million.
In the first six months of 2000, Popular 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. We 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 was 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. We believe that the contemporaneous
purchases and sales of mortgage loans entered into by us were the ones reversed by Doral.
Popular 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, we purchased IOs from Doral for an aggregate purchase price of $110
million. Over the same period Doral repurchased IOs it had previously sold to us for an aggregate
purchase price of $54 million. The remaining balance of these IOs recorded on our consolidated
statement of condition at December 31, 2009 was $27 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.
In February 2008, R&G announced that the SEC had approved a
final settlement with R&G, which resolved the SECs investigation of R&G. R&G has announced that
the U.S. Attorneys Office for the Southern District of New York is
17
also conducting an informal
inquiry into these matters. Actions were brought by or on behalf of securities holders of R&G in
relation to these matters. In May 2008, R&G agreed to a settlement in which R&G and its insurers
agreed to pay an aggregate of $32 million.
Purchases of Mortgage Loans from R&G.
Between 2003 and 2004, Banco Popular 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 Banco Popular. At December 31, 2009, the remaining
balance of the mortgage loans purchased from R&G recorded on our consolidated statement of
condition was $74 million. Popular has concluded that our previously filed financial statements are
fairly stated and that no restatement is necessary.
Cooperation with Investigations; Possible Consequences
Popular
and our employees have provided information in connection with certain of the
above-mentioned investigations by the SEC and the U.S. Attorneys
Office for the Southern District of New York and is continuing to cooperate in connection with the
investigations of these matters. We are unable to predict what adverse consequences, if any, or
other effects our dealings with Doral or R&G or the related investigations could have on us or
Banco Popular.
ITEM 1A. RISK FACTORS
Popular, like other financial companies, faces a number of risks inherent to our business,
financial condition, liquidity, results of operations and capital position. These risks could cause
our actual results to differ materially from our historical results or the results contemplated by
the forward-looking statements contained in this report.
The risks described in this report are not the only risks facing us. Additional risks and
uncertainties not currently known by us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition or results of operations.
RISKS RELATING TO THE BUSINESS ENVIRONMENT AND OUR INDUSTRY
Weakness in the economy and in the real estate market in the geographic footprint of Popular has
adversely impacted and may continue to adversely impact Popular.
A significant portion of our financial activities and credit exposure is concentrated in the
Commonwealth of Puerto Rico (the Island) and the Islands economy continues to deteriorate.
Since 2006, the Puerto Rico economy has been experiencing recessionary conditions. Based on
information published by the Puerto Rico Planning Board, the Puerto Rico real gross national
product decreased 3.7% during the fiscal year ended June 30, 2009.
The Commonwealth of Puerto Rico government is currently addressing a fiscal deficit which has
been estimated at approximately $3.2 billion or over 30% of its annual budget. It is implementing a
multi-year budget plan for reducing the deficit, as its access to the municipal bond market and its
credit ratings depend, in part, on achieving a balanced budget. Some of the measures implemented by
the government include reducing expenses, including public-sector employment through employee
layoffs. Since the government is an
important source of employment on the Island, these measures could have the effect of intensifying
the current recessionary cycle. The Puerto Rico Labor Department reported an unemployment rate of
14.3% for December 2009, compared with an unemployment rate of 13.1% for December 2008.
This decline in the Islands economy has resulted in, among other things, a downturn in our
loan originations; an increase in the level of our non-performing assets, loan loss provisions and
charge-offs, particularly in our construction and commercial loan portfolios; an increase in the
rate of foreclosure loss on mortgage loans; and a reduction in the value of our loans and loan
servicing portfolio, all of which have adversely affected our profitability. If the decline in
economic activity continues, there could be further adverse effects on our profitability.
The economy of Puerto Rico is very sensitive to the price of oil in the global market. The
Island does not have significant mass transit available to the public and most of its electricity
is powered by oil, making it highly sensitive to fluctuations in oil prices. A substantial increase
in its price could impact adversely the economy of Puerto Rico by reducing disposable income and
increasing the operating costs of most businesses and government. Consumer spending is particularly
sensitive to wide fluctuations in oil prices.
18
The level of real estate prices in Puerto Rico had been more stable than in other U.S.
markets, but the current economic environment has accelerated the devaluation of properties and has
increased portfolio delinquency when compared with previous periods. Additional economic weakness
in Puerto Rico and the U.S. mainland could further pressure residential property values, loan
delinquencies,
foreclosures and the cost of repossessing and disposing of real estate collateral. The housing
market has suffered a substantial slowdown in sales activity in recent quarters, as reflected in
the low absorption rates of projects financed in our construction loan portfolio.
The current state of the economy and uncertainty in the private and public sectors has had an
adverse effect on the credit quality of our loan portfolios. The persistent economic slowdown is
expected to cause those adverse effects to continue, as delinquency rates may increase in the
short-term, until sustainable growth resumes. Also, a potential reduction in consumer spending may
also impact growth in our other interest and non-interest revenues.
However,
in 2010, the Puerto Rico economy should benefit from the disbursement
of approximately $2.5 billion from the American Recovery and
Reinvestment Act of 2009 (ARRA) and $280.3 million
from the Commonwealth's local stimulus package.
Difficult market conditions have adversely affected the financial industry and our results of
operations and financial condition.
Market instability and lack of investor confidence have led many lenders and institutional
investors to reduce or cease providing funding to borrowers, including other financial
institutions. This has led to an increased level of commercial and consumer delinquencies, lack of
consumer confidence, increased market volatility and widespread reduction of business activity in
general. The resulting economic pressures on consumers and uncertainty about the financial markets
have adversely affected our industry and our business, results of operations and financial
condition. We do not expect a material improvement in the financial environment in the near future.
A worsening of these difficult conditions would exacerbate the economic challenges facing us and
others in the financial industry. In particular, we face the following risks in connection with
these events:
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|
|
We expect to face increased regulation of our industry, including as a
result of the EESA. Compliance with these regulations may increase our costs and limit our
ability to pursue business opportunities.
|
|
|
|
|
Our ability to assess the creditworthiness of our customers may be
impaired if the models and approaches we use to select, manage and
underwrite our customers become less predictive of future behavior.
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|
|
The processes we use to estimate losses inherent in our credit
exposure requires difficult, subjective, and complex judgments,
including forecasts of economic conditions and how these economic
conditions might impair the ability of our borrowers to repay their
loans. The reliability of these processes might be compromised if
these variables are no longer capable of accurate estimation.
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|
|
Competition in our industry could intensify as a result of increasing
consolidation of financial services companies in connection with
current market conditions.
|
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|
|
The FDIC increased the assessments that we have to pay on our insured
deposits during 2009 because market developments have led to a
substantial increase in bank failures and an increase in FDIC loss
reserves, which in turn has led to a depletion of the FDIC insurance
fund reserves. We may be required to pay in the future significantly
higher FDIC assessments on our deposits if market conditions do not
improve or continue to deteriorate.
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|
|
We may suffer higher credit losses because of federal or state
legislation or other regulatory action that either (i) reduces the
amount that our borrowers are required to pay us, or (ii) limits our
ability to foreclose on properties or collateral or makes foreclosures
less economically viable.
|
Legislative and regulatory actions taken now or in the future to address market conditions in the
financial industry may significantly affect our financial condition, results of operations,
liquidity or stock price.
Current economic conditions, particularly in the financial markets, have resulted in
government regulatory agencies and political bodies placing increased focus and scrutiny on the
financial services industry. The U.S. Government has intervened on an unprecedented scale,
responding to what has been commonly referred to as the financial crisis. Several funding and
capital programs by the Federal Reserve Board and the U.S. Treasury were launched in 2008 and 2009,
with the objective of enhancing financial institutions ability to raise liquidity. It is expected
that these programs may have the effect of increasing the degree or nature of regulatory
supervision to which we are subjected. Furthermore, recent economic and market events have led to
numerous proposals for legislative and regulatory reform that could substantially intensify the
regulation of the financial services industry and that may significantly impact us. The proposals
include the following:
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Establishing a federal consumer financial protection agency that would have, among other things, broad authority to regulate,
and take enforcement actions against, providers of credit, savings, payment and other consumer financial products and services.
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|
Requiring heightened scrutiny and stricter regulation of any financial institution whose combination of size, leverage and
interconnectedness could pose a threat to financial stability if it failed, restricting the activities of such institutions, and
allowing regulators to dismantle large or systemically important banks and financial institutions, even healthy ones, if they
are considered a grave risk to the economy.
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19
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|
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Requiring large financial institutions to contribute to a fund that would be used to recover the cost of dismantling a bank or
financial institution that is dismantled because it poses a grave risk to the economy.
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Changing requirements for the securitization market, including requiring sponsors of securitizations to retain a material
economic interest in the credit risk associated with the underlying securitization, as well as enhanced disclosure requirements
for asset securitizations
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Tightening controls on the ability of banking institutions to engage in transactions with affiliates.
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Assessing financial institutions with over $50 billion in consolidated assets with a financial crisis responsibility fee
assessed at approximately 15 basis points of total assets (less Tier 1 capital and less FDIC-assessed deposits). The fee as
proposed would last for at least the next ten years and has been proposed for the purpose of recovering projected losses from
the TARP.
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|
Limiting the size and activities of financial institutions, including proposals to repeal portions of the Gramm-Leach-Bliley Act.
Amending regulatory capital standards, and increasing regulatory capital requirements, for banks and other financial
institutions and establishing new formulaic liquidity requirements applicable to financial institutions, [including those
proposals described above under Regulation and SupervisionCapital Adequacy].
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Establishing heightened standards for and increased scrutiny of compensation policies at financial institutions.
|
Lawmakers and regulators in the United States and worldwide continue to consider these and a
number of other wide-ranging and comprehensive proposals for altering the structure, regulation and
competitive relationships of financial institutions. For example, separate comprehensive financial
reform plans could, if enacted, further substantially increase regulation of the financial services
industry and impose restrictions on the operations and general ability of firms within the industry
to conduct business consistent with historical practices. Federal and state regulatory agencies
also frequently adopt changes to their regulations or change the manner in which existing
regulations are applied. Bills were introduced in both houses of Congress in the second half of
2009, and the U.S. House of Representatives passed a financial reform bill in December of 2009, but
similar action has not been taken by the U.S. Senate. We cannot predict the substance final form,
or impact effects on Popular, of these pending or future legislation, regulation or
the application thereof. These and other potential regulation and scrutiny mayor proposed
legislative and regulatory changes could significantly increase our costs, impede the efficiency of
our internal business processes, require us to increase our regulatory capital and, limit our
ability to pursue business opportunities in an efficient manner or otherwise adversely affect our
results of operations or earnings.
The imposition of additional property tax payments in Puerto Rico may further deteriorate our
commercial, consumer and mortgage loan portfolios.
On March 9, 2009, the Governor of Puerto Rico signed into law the Special Act Declaring a
State of Fiscal Emergency and Establishing an Integral Plan of Fiscal Stabilization to Save Puerto
Ricos Credit, Act No. 7. The Act imposes a series of temporary and permanent measures, including
the imposition of a 0.591% special tax applicable to properties used for residential (excluding
those exempt as detailed in the Act) and commercial purposes, and payable to the Puerto Rico
Treasury Department. This temporary measure is effective for tax years that commenced after June
30, 2009 and before July 1, 2012. The imposition of this special property tax could adversely
affect the disposable income of borrowers from the commercial, consumer and mortgage loan
portfolios and may cause an increase in our delinquency and foreclosure rates.
Financial results are constantly exposed to market risk.
Market risk refers to the probability of variations in the net interest income or the market
value of assets and liabilities due to interest rate volatility. Despite the varied nature of
market risks, the primary source of this risk to us is the impact of changes in interest rates on
net interest income.
Net interest income is the difference between the revenue generated on earning assets and the
interest cost of funding those assets. Depending on the duration and repricing characteristics of
the assets, liabilities and off-balance sheet items, changes in interest rates could either
increase or decrease the level of net interest income. For any given period, the pricing structure
of the assets and liabilities is matched when an equal amount of such assets and liabilities mature
or reprice in that period. Any mismatch of interest-earning assets and interest-bearing liabilities
is known as a gap position. A positive gap denotes asset sensitivity, which means that an increase
in interest rates could have a positive effect on net interest income, while a decrease in interest
rates could have a negative effect on net interest income. As of December 31, 2009, we had a
positive gap position.
20
The Federal Reserve Board lowered the federal funds target rate from 4.25% at the beginning of
2008 to between 0% and 0.25% at December 31, 2008. This was one of various measures implemented by
the Federal Reserve Board to improve the flow of credit throughout the financial system. Given that
the level of short-term rates is close to zero, a concern in the markets has been when may
monetary policy be tightened again and the possible impact on the financial markets. The
future outlook on interest rates and their impact on Populars interest income, interest expense
and net interest income is uncertain. The federal funds target rate stayed between 0% to 0.25%
throughout 2009.
We usually run our net interest income simulations under interest rate scenarios in which the
yield curve is assumed to rise and decline gradually by the same amount, usually 200 basis points.
Given the fact that as of year-end 2009, some short-term rates were close to zero and some term
interest rates were below 2.0%, management has decided to focus measuring the risk of net interest
income in rising rate scenarios. The rising rate scenarios used in
our market risk disclosure reflect gradual parallel changes of
200 and 400 basis points during the twelve-month period ending December 31, 2010. Projected net
interest income under the 200 basis points rising rate scenario
increases by $59.8 million
while the 400 basis points simulation increases by $103.2 million. These scenarios were compared
against our flat interest rates forecast.
The market disruptions has led us to reduce substantially the use
of unsecured short-term borrowings. They have been largely replaced with deposits and long-term
secured borrowings, and to a lesser extent, long-term unsecured debt. Therefore, the cost of the
liabilities of Popular does not respond as quickly to changes in the levels of interest rates. Our
Asset Liability Management Committee (ALCO) committee regularly reviews our interest rate risk
and initiates any action necessary to maintain our potential volatility within limits.
The hedging transactions that we enter into may not be effective in managing the exposure to market
risk, including interest rate risk.
We use derivatives, to a limited extent, to manage part of the exposure to market risk caused
by changes in interest rates or basis risk. The derivative instruments that we may utilize also
have their own risks, which include: (1) basis risk, which is the risk of loss associated with
variations in the spread between the asset yield and funding and/or hedge cost; (2) credit or
default risk, which is the risk of insolvency or other inability of the counterparty to a
particular transaction to perform its obligations there under; and (3) legal risk, which is the
risk that Popular is unable to enforce certain terms of such instruments. All or any of such risks
could expose Popular to losses.
Higher market volatility in the capital markets could impact the performance of our hedging
transactions. Most hedging activity is related to protecting the market value of mortgage loans
that are segregated for future sale and derivatives positions to hedge the cost of liabilities
issued or derivative positions with banking clients.
RISKS RELATING TO OUR BUSINESS
The soundness of other financial institutions could adversely affect us.
Financial services institutions are interrelated as a result of trading, clearing,
counterparty, or other relationships. We have exposure to many different industries and
counterparties, and we routinely execute transactions with counterparties in the financial services
industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge
funds, and other institutional clients. Many of these transactions expose us to credit risk in the
event of default of our counterparty or client. In addition, our credit risk may be exacerbated
when the collateral held by us cannot be realized or is liquidated at prices not sufficient to
recover the full amount of the loan or derivative exposure due to us. There can be no assurance
that any such losses would not materially and adversely affect our results of operations or
earnings.
We have procedures in place to mitigate the impact of a default among our counterparties. We
request collateral for most credit exposures with other financial institutions and monitor these on
a regular basis. Nonetheless, market volatility could impact the valuation of collateral held by us
and results in losses.
Our ability to raise financing is dependent in part on market confidence. In times when market
confidence is affected by events related to well-known financial institutions, risk aversion among
participants increases substantially and makes it more difficult to borrow in the credit markets.
Our credit ratings have been reduced substantially during the past year, and our senior unsecured
ratings are now non-investment grade with the three major rating agencies. This may make it more
difficult for Popular to borrow in the capital markets and at much higher cost.
Prolonged economic weakness, a continuing decline in the real estate market in the U.S. mainland,
and disruptions in the capital markets have harmed and could continue to harm the results of
operations of Popular.
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. Bust cycles in the housing sector affect our business by decreasing the
volume of loans originated and increasing the level of credit losses related to our mortgage loans.
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The housing market in the U.S. is undergoing a correction of historic proportions. After a
period of several years of booming housing markets, fueled by liberal credit conditions and rapidly
rising property values, since early 2007 the sector has been in the midst of a
substantial dislocation. This dislocation has had a significant impact on some of our
U.S.-based business segments and has affected our ongoing financial results and condition. The
general level of property values in the U.S., as measured by several indices widely followed by the
market, has declined significantly. These declines are the result of ongoing market adjustments
that are aligning property values with income levels and home inventories. The supply of homes in
the market increased substantially, and property value decreases were required to clear the
overhang of excess inventory in the U.S. market. Recent indicators suggest that after a material
price correction, the U.S. real estate market may be entering a period of relative stability.
Nonetheless, further declines in property values could impact the credit quality of our U.S.
mortgage loan portfolio because the value of the homes underlying the loans is a primary source of
repayment in the event of foreclosure. In the event of foreclosure in a loan from this portfolio,
the current market value of the underlying collateral could be insufficient to cover the loan
amount owed.
Any sustained period of increased delinquencies, foreclosures or losses harms our ability to
sell loans, the prices it receives for loans sold, and the values of our mortgage loans
held-for-sale. In addition, any material decline in real estate values would weaken Populars
collateral loan-to-value ratios and increase the possibility of loss if a borrower defaults. In
such event, we will be subject to the risk of loss on such mortgage assets arising from borrower
defaults.
We maintain exposure in our U.S. loan portfolio to the housing sector. As of December 31,
2009, we had $4.6 billion in residential mortgage loans in portfolio, of which $1.5 billion was
located in the continental U.S. Further housing value declines in the U.S. would impact the level
of losses in this portfolio. Also, we have exposure to individuals in the form of home equity
loans, home equity lines of credit or HELOCs, and second mortgages, which because of declining
home values have become in effect unsecured consumer loans. As of December 31, 2009, these U.S.
portfolios amounted to $870 million. These portfolios are sensitive to the economic cycle in the
U.S., and a further deterioration of the economy and employment conditions in the mainland would
affect the level of losses from this exposure.
Popular operates in a highly regulated environment and may be adversely affected by changes in
federal and local laws and regulations.
Popular is subject to extensive regulation, supervision and examination by federal and Puerto
Rico banking authorities. Any change in applicable federal or Puerto Rico laws or regulations could
have a substantial impact on our operations. Additional laws and regulations may be enacted or
adopted in the future that could significantly affect Populars powers, authority and operations,
which could have a material adverse effect on Populars financial condition and results of
operations. Further, regulators in the performance of their supervisory and enforcement duties,
have significant discretion and power to prevent or remedy unsafe and unsound practices or
violations of laws by banks and bank holding companies. The exercise of this regulatory discretion
and power may have a negative impact on Popular.
Competition with other financial institutions could adversely affect our profitability.
We face substantial competition in originating loans and in attracting deposits. The
competition in originating loans comes principally from other U.S., Puerto Rico and foreign banks,
mortgage banking companies, consumer finance companies, insurance companies and other institutional
lenders and purchasers of loans.
In Puerto Rico, competition is primarily from other local depository institutions and from
the local operations of several global foreign and domestic banks. As a group they compete in all
segments of the market and present a formidable source of competition for Popular. Competition is
particularly acute in the market for deposits, where pricing is very aggressive.
In the U.S., competition is primarily from community banks operating in our footprint together
with the national banking institutions. These include institutions with much more resources than we
have and can exert substantial competitive pressure.
Increased competition could require that we increase the rates offered on deposits or lower
the rates charged on loans, which could adversely affect our profitability.
The banking market in Puerto Rico experienced some consolidations on the past two decades, as
a result of bank failures and voluntary intramarket transactions. Even though some institutions are
no longer in existence as a result of the consolidation process, there remain six publicly-traded
local banking institutions, as well as a non-public local banking
institution, three foreign global banks and a major domestic institution
competing in the Puerto Rico market. Some industry experts have commented that further
consolidation in the Puerto Rico banking industry may be necessary or imminent. Although management
may decide that our involvement in the consolidation of the Puerto Rico banking industry may be in
our best interest, there can be no assurances that we could successfully complete a transaction, or
if we did, that we could successfully integrate the operations of another banking institution into
our own operations without incurring substantial disruptions to our business.
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We may engage in FDIC-assisted transactions, which could present additional risks to our business.
We may have opportunities to acquire the assets and liabilities of failed banks in
FDIC-assisted transactions. Although these transactions typically provide for FDIC assistance to an
acquirer to mitigate certain risks, such as sharing exposure to loan losses and providing
indemnification against certain liabilities of the failed institution, we would still be subject to
many of the same risks we would face in acquiring another bank in negotiated transactions,
including risks associated with maintaining customer relationships and failure to realize the
anticipated acquisition benefits in the amounts and within the timeframes we expect. In addition,
because these acquisitions are structured in a manner that would not allow us the time and access
to information normally associated with preparing for and evaluating a negotiated acquisition, we
may face additional risk in FDIC-assisted transactions. These risks include additional strain on management
resources, management of problem loans, problems related to integration of personnel and operating
systems and impact to our capital resources requiring us to raise additional capital. We cannot
assure you, that we will be successful in overcoming these risks or any other problems encountered
in connection with FDIC-assisted transactions. Our inability to overcome these risks could have a
material adverse effect on our business, financial condition, capital, liquidity and results from
operations.
We are subject to default risk in our loan portfolio.
We are subject to the risk of loss from loan defaults and foreclosures with respect to the
loans originated or acquired. We establish provisions for loan losses, which lead to reductions in
the income from operations, in order to maintain the allowance for loan losses at a level which is
deemed appropriate by management based upon an assessment of the quality of the loan portfolio in
accordance with established procedures and guidelines. This process, which is critical to our
financial results and condition, requires difficult, subjective and complex judgments about the
future, including forecasts of economic and market conditions that might impair the ability of our
borrowers to repay the loans. There can be no assurance that management has accurately estimated
the level of future loan losses or that Popular will not have to increase the provision for loan
losses in the future as a result of future increases in non-performing loans or for other reasons
beyond our control. Any such increases in our provisions for loan losses or any loan losses in
excess of our provisions for loan losses would have an adverse effect on our future financial
condition and result of operations. We will continue to evaluate our allowance for loan losses and
may be required to increase such amounts, perhaps substantially.
We may have more credit risk and higher credit losses due to our construction and commercial loans
portfolios.
We have a significant portfolio in construction and commercial loans, mostly secured by
commercial and residential real estate properties. Due to their nature, these loans entail a higher
credit risk than consumer and residential mortgage loans, since they are larger in size, may have
less collateral coverage, concentrate more risk in a single borrower and are generally more
sensitive to economic downturns. Rapidly changing collateral values, general economic conditions
and numerous other factors continue to create volatility in the housing markets and have increased
the possibility that additional losses may have to be recognized with respect to our current
non-performing assets. Furthermore, given the current slowdown in the real estate market, the
properties securing these loans may be difficult to dispose of, if foreclosed.
We depend on the accuracy and completeness of information about customers and counterparties, and
inaccurate or incomplete information could negatively impact our financial condition and results of
operations.
In deciding whether to extend credit or enter into other transactions with customers and
counterparties, we may rely on information provided to us by customers and counterparties,
including financial statements and other financial information. We may also rely on representations
of customers and counterparties as to the accuracy and completeness of that information and, with
respect to financial statements, on reports of independent auditors. For example, in deciding
whether to extend credit to a business, we may assume that the customers audited financial
statements conform to Generally Accepted Accounting Principles (GAAP) and present fairly, in all
material respects, the financial condition, results of operations and cash flows of the customer.
We may also rely on the audit report covering those financial statements. Populars financial
conditions and results of operations could be negatively impacted to the extent we rely on
financial statements that do not comply with GAAP or are materially misleading.
Rating downgrades on the Government of Puerto Ricos debt obligations could affect the value of our
loans to the Government and our portfolio of Puerto Rico Government securities.
Even though Puerto Ricos economy is closely integrated to that of the U.S. mainland and its
government and many of its instrumentalities are investment grade-rated borrowers in the U.S.
capital markets, the fiscal situation of the Government of Puerto Rico has led nationally
recognized rating agencies to downgrade its debt obligations.
As a result of the Central Governments fiscal challenges in 2006,
Moodys and S&P then downgraded the rating of its obligations,
maintaining them within investment-grade levels. Since then, actions by the Government have
improved the credit outlook. As of December 31, 2007, S&P rated the Governments general
obligations at BBB-, while Moodys rated them at Baa3- both in the lowest notch of investment grade.
In November 2007, Moodys upgraded the outlook of the Commonwealths credit ratings to stable
from negative, recognizing the progress that the Commonwealth has made in addressing the fiscal
challenges it had faced in recent years. The Commonwealth is currently implementing a multi-year
budget plan to address the deficit.
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While Moodys Baa3 rating and S&Ps BBB-minus take into
consideration Puerto Ricos fiscal challenges both ratings stand one notch above non-investment
grade other factors could trigger an outlook change, such as the inability to successfully
complete the
implementation of the multiyear fiscal plan to bring the Central Governments budget back into
balance, pursuant to Act No. 7 of the Commonwealth of P.R.
Factors such as the governments ability to implement meaningful steps to control operating
expenditures and maintain the integrity of the tax base will be key determinants of future ratings
stability. Also, the inability to agree on future fiscal year Commonwealth budgets could result in
ratings pressure from the rating agencies.
It is uncertain how the financial markets may react to any potential future ratings downgrade
in Puerto Ricos debt obligations. However, deterioration in the fiscal situation with possible
negative ratings implications, could adversely affect the value of Puerto Ricos Government
obligations.
At December 31, 2009, we had $1.1 billion of credit facilities granted to or guaranteed by the
Puerto Rico Government and its political subdivisions, of which $215 million were uncommitted lines
of credit. Of these total credit facilities granted, $994 million were outstanding at
December 31, 2009. A substantial portion of our 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 its 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 it. We also have 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 good faith and credit obligations of the
municipalities have a first lien on the basic property taxes.
Furthermore,
as of December 31, 2009, we had outstanding $263 million in Obligations of Puerto
Rico, States and Political Subdivisions as part of our investment portfolio. Of that total, $258
million was 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, of which $45 million are rated Ba1, one notch below investment grade, by Moodys, while S&P rates them as investment grade. As of December 31, 2009, the Puerto Rico
Commonwealth Appropriation Bonds represented approximately $0.6 million in unrealized losses in the
investment securities available-for-sale and held-to-maturity portfolios. We continue to closely
monitor the political and economic situation of the Island and evaluates the portfolio for any
declines in value that management may consider being other-than-temporary.
We are exposed to credit risk from mortgage loans that have been sold subject to recourse
arrangements.
Popular is generally at risk for mortgage loan defaults from the time it funds a loan until
the time the loan is sold or securitized into a mortgage-backed security. In the past, we have
retained, through recourse arrangements, part of the credit risk on sales of mortgage loans, and we
also service certain mortgage loan portfolios with recourse. Consequently, we may suffer losses on
these loans when the proceeds from a foreclosure sale of the property underlying a defaulted
mortgage loan are less than the outstanding principal balance of the
loan plus any uncollected interest advanced and the costs of holding
and disposing of the related property.
Defective and repurchased loans may harm our business and financial condition.
In connection with the sale and securitization of loans, we are required to make a variety of
customary representations and warranties regarding Popular and the loans being sold or securitized.
Our obligations with respect to these representations and warranties are generally outstanding for
the life of the loan, and they relate to, among other things:
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compliance with laws and regulations;
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underwriting standards;
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the accuracy of information in the loan documents and loan file; and
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the characteristics and enforceability of the loan.
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A loan that does not comply with these representations and warranties may take longer to sell,
may impact our ability to obtain third-party financing for the loan, and be unsaleable or saleable
only at a significant discount. If such a loan is sold before we detect non-compliance, we may be
obligated to repurchase the loan and bear any associated loss directly, or we may be obligated to
indemnify the purchaser against any loss, either of which could reduce our cash available for
operations and liquidity. Management believes that it has
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established controls to ensure that loans
are originated in accordance with the secondary markets requirements, but mistakes may be made, or
certain employees may deliberately violate our lending policies. We seek to minimize repurchases
and losses from defective
loans by correcting flaws, if possible, and selling or re-selling such loans. We have
established specific reserves for possible losses related to repurchases resulting from
representation and warranty violations on specific portfolios. Nonetheless, we do not expect any
such losses to be significant, although if they were to occur, they could adversely impact our
results of operations or financial condition.
The economic recession could reduce demand for our products and services and lead to lower revenue
and lower earnings.
Popular earns revenue from the interest and fees we charge on the loans and other products and
services we sell. As the economy worsens and consumer and business spending decreases and
unemployment rises, the demand for those products and services can fall, reducing our interest and
fee income and our earnings. These same conditions can also hurt the ability of our borrowers to
repay their loans, causing us to incur higher credit losses.
Increases in FDIC insurance premiums may have a material adverse effect on our earnings.
During 2008 and continuing in 2009, higher levels of bank failures have dramatically increased
resolution costs of the FDIC and depleted the DIF. In addition, the FDIC
instituted two temporary programs, to further insure customer deposits at FDIC-member banks:
deposit accounts are now insured up to $250,000 per customer (up from $100,000) and
non-interest-bearing transaction accounts are fully insured (unlimited coverage) as a result of our
participation in the TAGP. These programs have placed additional stress on the Deposit Insurance
Fund.
In order to maintain a strong funding position and restore reserve ratios of the
DIF, the FDIC increased assessment rates of insured institutions uniformly by 7 cents
for every $100 of deposits beginning with the first quarter of 2009, with additional changes in
April 1, 2009, which required riskier institutions to pay a larger share of premiums by factoring
in rate adjustments based on, among other things, secured liabilities and unsecured debt levels. In
May 2009, the FDIC adopted a final rule, effective June 30, 2009, that imposed a special assessment
of 5 cents for every $100 on each insured depository institutions assets minus its Tier 1 Capital
as of June 30, 2009, subject to a cap equal to 10 cents per $100 of assessable deposits for the
second quarter 2009 risk-based capital assessment. This special assessment applied to us and
resulted in a $16.7 million expense in our second quarter of 2009. On November 12, 2009, the FDIC
adopted a rule requiring banks to prepay three years worth of premiums to replenish its depleted
insurance fund. In December 30, 2009, Popular prepaid $221 million and reduced our year-end
liquidity at our banking subsidiaries.
We are generally unable to control the amount of premiums that we are required to pay for FDIC
insurance. If there are additional bank or financial institution failures or our capital position
is further impaired, we may be required to pay even higher FDIC premiums than the recently
increased levels. Our expenses for 2009 were significantly and adversely affected by these
increased premiums. These announced increases and any future increases or special assessments
may materially adversely affect our results of
operations.
Popular income tax provision and other tax liabilities may be insufficient if taxing authorities
are successful in asserting tax positions that are contrary to our position.
From time to time, we are audited by various federal, state and local authorities regarding
income tax matters. Significant judgment is required to determine Populars provision for income
taxes and our liabilities for federal, state, local and other taxes. Populars audits are in
various stages of completion; however, no outcome for a particular audit can be determined with
certainty prior to the conclusion of the audit, appeal and, in some cases, litigation process.
Although we believe our approach to determine the appropriate tax treatment is supportable and in
accordance with ASC Topic 740 Income taxes, it is possible that the final tax authority may take
a tax position that is materially different than that which is reflected in Populars income tax
provision and other tax reserves. As each audit is conducted, adjustments, if any, are
appropriately recorded in our Consolidated Financial Statements in the period determined. Such
differences could have a material adverse effect on Populars income tax provision or benefit, or
other tax reserves, in the reporting period in which such determination is made and, consequently,
on the results of operations, financial position and/or cash flows for such period.
Goodwill impairment could have a material adverse effect on our financial condition and future
results of operations
We performed our annual goodwill impairment evaluation for the entire organization during the
third quarter of 2009 using July 31, 2009 as the annual evaluation date. Based on the results of
the analysis, we concluded that there was no goodwill impairment as of that date. The fair value
determination for each reporting unit performed to determine if potential goodwill impairment
exists requires management to make estimates and assumptions. Critical assumptions that are used as
part of these evaluations include:
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selection of comparable publicly traded companies, based on nature of business, location and size;
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selection of comparable acquisition and capital raising transactions;
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the discount rate applied to future earnings, based on an estimate of the cost of equity;
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the potential future earnings of the reporting unit; and
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market growth and new business assumptions.
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In addition, as part of the monitoring process, management performed an assessment for BPNA at
December 31, 2009. The results of the assessment at December 31, 2009 indicated that the implied
fair value of goodwill exceeded the goodwill carrying amount, resulting in no goodwill impairment.
The results obtained in the December 31, 2009 assessment were consistent with the results of the
annual impairment test performed in the third quarter of 2009. It is possible that the assumptions and conclusions
regarding the valuation of our reporting units could change adversely and could result in the
recognition of goodwill impairment. Such impairment could have a material adverse effect on our
future results of operations. As of December 31, 2009, we had approximately $604 million of
goodwill remaining on our balance sheet, of which $402 million was related to BPNA. Declines in our
market capitalization would increase the risk of goodwill impairment in 2010.
Popular may face significant operational risk.
Popular is exposed to many types of operational risk, including reputational risk, legal and
compliance risk, the risk of fraud or theft by employees or outsiders, unauthorized transactions by
employees or operational errors, including clerical or record-keeping errors or those resulting
from faulty or disabled computer or telecommunications systems. Negative public opinion can result
from Populars actual or alleged conduct in any number of activities, including lending practices,
corporate governance and acquisitions and from actions taken by government regulators and community
organizations in response to those activities. Negative public opinion can adversely affect our
ability to attract and keep customers and can expose us to litigation and regulatory action.
We establish and maintain systems of internal operational controls that provide us with timely
and accurate information about our level of operational risk. While not foolproof, these systems
have been designed to manage operational risk at appropriate, cost-effective levels. Procedures
exist that are designed to ensure that policies relating to conduct, ethics, and business practices
are followed. While we continually monitor and improve the system of internal controls, data
processing systems, and corporate-wide processes and procedures, there can be no assurance that
future losses will not occur.
Failure to maintain effective internal controls over financial reporting in the future could impair
our ability to accurately and timely report our financial results or prevent fraud, resulting in
loss of investor confidence and adversely affecting our business and stock price.
Effective internal controls over financial reporting are necessary to provide reliable
financial reports and prevent fraud. As a financial holding company, we are subject to regulation
that focuses on effective internal controls and procedures. Management continually seeks to improve
these controls and procedures.
Management believes that our key internal controls over financial reporting are currently
effective; however, such controls and procedures will be modified, supplemented, and changed from
time to time as necessitated by our growth and in reaction to external events and developments.
While Management will continue to assess our controls and procedures and take immediate action to
remediate any future perceived gaps, there can be no guarantee of the effectiveness of these
controls and procedures on an on-going basis. Any failure to maintain in the future an effective
internal control environment could impact our ability to report our financial results on an
accurate and timely basis, which could result in regulatory actions, loss of investor confidence,
and adversely impact our business and stock price.
Popular uses insurance to manage a number of risks, however not all risks might be insured or
insurance may be inadequate to cover all losses.
We use insurance to manage a number of risks, including damage or destruction of property,
legal and other liability, and certain types of credit risks. Not all such risks are insured, in
any given insured situation our insurance may be inadequate to cover all loss, and many risks we
face are uninsurable. For those risks that are insured, we also face the risks that the insurer may
default on its obligations or that the insurer may refuse to honor them. We treat the former risk
by conducting due diligence reviews on the insurers that we use and by striving to use more than
one insurer when feasible and practical. The risk of refusal, whether due to honest disagreement or
bad faith, is inherent in any contractual situation.
A portion of our retail loan portfolio involves mortgage default insurance. If a default
insurer were to experience a significant credit downgrade or were to become insolvent, that could
adversely affect the carrying value of loans insured by that company, which could result in an
immediate increase in our loan loss provision or write-down of the carrying value of those loans on
our balance sheet and, in either case, a corresponding impact on our financial results. If many
default insurers were to experience downgrades or insolvency at the same time, the risk of a
financial impact would be amplified and the disruption to the default insurance industry could
curtail our ability to originate new loans that need such insurance, which would result in a loss
of business for us.
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We rely on our systems, employees and certain counterparties, and certain failures could materially
adversely affect our operations.
Our businesses are dependent on our ability to process, record and monitor a large number of
transactions. If any of our financial, accounting, or other data processing systems fail or have
other significant shortcomings, we could be materially adversely affected. We are similarly
dependent on our employees. We could be materially adversely affected if one of our employees
causes a significant operational break-down or failure, either as a result of human error or where
an individual purposefully sabotages or fraudulently manipulates our operations or systems. Third
parties with which we do business could also be sources of operational risk to us, including
relating to breakdowns or failures of such parties own systems or employees. Any of these
occurrences could diminish our ability to operate one or more of our businesses, or result in
potential liability to clients, reputational damage and regulatory intervention, any of which could
materially adversely affect us.
If personal, confidential or proprietary information of customers or clients in our possession
were to be mishandled or misused, we could suffer significant regulatory consequences, reputational
damage and financial loss. Such mishandling or misuse could include, for example, if such
information were erroneously provided to parties who are not permitted to have the information,
either by fault of our systems, employees, or counterparties, or where such information is
intercepted or otherwise inappropriately taken by third parties.
We may be subject to disruptions of our operating systems arising from events that are wholly
or partially beyond our control, which may include, for example, computer viruses or electrical or
telecommunications outages, natural disasters, disease pandemics or other damage to property or
physical assets. Such disruptions may give rise to losses in service to customers and loss or
liability to us. In addition, there is the risk that our controls and procedures as well as
business continuity and data security systems prove to be inadequate. Any such failure could affect
our operations and could materially adversely affect our results of operations by requiring us to
expend significant resources to correct the defect, as well as by exposing us to litigation,
regulatory fines or penalties or losses not covered by insurance.
Our risk management policies and procedures may leave us exposed to unidentified or unanticipated
risk, which could negatively affect us.
Management of risk requires, among other things, policies and procedures to record properly
and verify a large number of transactions and events. We have devoted resources to develop our risk
management policies and procedures and expect to continue to do so in the future. Nonetheless, our
policies and procedures may not be comprehensive enough given current market conditions. Some of
our methods for managing risk and exposures are based upon the use of observed historical market
behavior or statistically based on historical models. As a result, these methods may not fully
predict future exposures, which could be significantly greater than our historical measures
indicate. Other risk management methods depend on the evaluation of information regarding markets,
clients or other matters that are publicly available or otherwise accessible to us. This information
may not always be accurate, complete, up-to-date or properly evaluated.
Our business could suffer if we are unable to attract, retain and motivate skilled senior leaders
Our success depends, in large part, on our ability to retain key senior leaders, and
competition for such senior leaders can be intense in most areas of our business. The executive
compensation provisions of the EESA, including amendments to such provisions implemented under the
American Recovery and Reinvestment Act of 2009, are expected to limit the types of compensation
arrangements that Popular may enter into with our most senior leaders upon adoption of implementing
standards by the U. S. Treasury. Our compensation practices are subject to review and oversight by the Federal Reserve
Board. We also may be subject to limitations on compensation practices by the FDIC or other regulators, which may or may not affect our
competitors. Limitations on our
compensation practices could have a negative impact on our ability to attract and retain talented
leaders in support of our long term strategy.
Our compensation practices are subject to oversight by the Federal Reserve Board. Any deficiencies
in our compensation practices may be incorporated into our supervisory ratings, which can affect
our ability to make acquisitions or perform other actions.
Our compensation practices are subject to oversight by the Federal Reserve Board. In October
2009, the Federal Reserve Board issued a comprehensive proposal on incentive compensation policies
that applies to all banking organizations supervised by the Federal Reserve Board, including
Popular and our banking subsidiaries. The proposal sets forth three key principles for incentive
compensation arrangements that are designed to help ensure that incentive compensation plans do not
encourage excessive risk-taking and are consistent with the safety and soundness of banking
organizations. The three principles provide that a banking organizations incentive compensation
arrangements should provide incentives that do not encourage risk-taking beyond the organizations
ability to effectively identify and manage risks, be compatible with effective internal controls
and risk management, and be supported by strong corporate governance. The proposal also
contemplates a detailed review by the Federal Reserve Board of the incentive compensation policies and
practices of a number of large, complex banking organizations. Any deficiencies in compensation
practices that are identified may be incorporated into the organizations supervisory ratings,
which can affect its ability to make acquisitions or perform other actions. The proposal provides
that enforcement actions may be taken against a banking organization if its incentive compensation
arrangements or related risk-management control or governance processes pose a risk to the
organizations safety and soundness and the organization is not taking prompt and
27
effective measures to correct the deficiencies. Separately, the FDIC has solicited comments
on whether to amend its risk-based deposit insurance assessment system to potentially increase
assessment rates on financial institutions with compensation programs that put the FDIC deposit
insurance fund at risk, and proposed legislation would subject compensation practices at financial
institutions to heightened standards and increased scrutiny.
The scope and content of the U.S. banking regulators policies on executive compensation are
continuing to develop and are likely to continue evolving in the near future. It cannot be
determined at this time whether compliance with such policies will adversely affect the ability of
Popular and our subsidiaries to hire, retain and motivate our and their key employees.
Adverse credit market conditions may continue to affect our ability to meet our liquidity needs.
We may need additional capital resources in the future and these capital resources may not be
available when needed or at all.
The credit markets, although recovering, continue to experience extreme volatility and
disruption. General credit market conditions remain challenging for most issuers, particularly for
non-investment grade issuers like us. We need liquidity to, among other things, pay our operating
expenses, interest on our debt, maintain our lending activities and repay or replace our maturing
liabilities. Without sufficient liquidity, we may be forced to curtail our operations. The
availability of additional financing will depend on a variety of factors such as market conditions,
the general availability of credit and our creditworthiness. Our cash flows and financial condition
could be materially affected by continued disruptions in the financial markets.
We may need to raise additional debt or equity financing in the future to maintain adequate
liquidity and capital resources or to finance future growth, investments or strategic acquisitions.
We cannot assure you, that such financing will be available on acceptable terms or at all. If we are
unable to obtain additional financing, we may not be able to maintain adequate liquidity and
capital resources or to grow, make strategic acquisitions or investments.
Our funding sources may prove insufficient to replace deposits and support future growth.
Our banking subsidiaries rely on customer deposits, brokered deposits and repurchase
agreements to fund their operations. In addition, Populars banking subsidiaries maintain borrowing
facilities with the Federal Home Loan Banks (FHLB) and at the discount window of the Federal Reserve Bank
of New York, and have a considerable amount of collateral pledged that can be used to quickly raise
funds under these facilities. Borrowings from the FHLB or the Fed discount window require Popular
to pledge securities or whole loans as collateral. Although those banking subsidiaries have
historically been able to replace maturing deposits and advances if desired, no assurance can be
given that they would be able to replace those funds in the future if our financial condition or
general market conditions were to change. Our financial flexibility will be severely constrained if
our banking subsidiaries are unable to maintain access to funding or if adequate financing is not
available to accommodate future growth at acceptable interest rates. Finally, if we are required to
rely more heavily on more expensive funding sources to support future growth, revenues may not
increase proportionately to cover costs. In this case, profitability would be adversely affected.
However, management believes that these risks are mitigated by our banking subsidiaries status as
FDIC-insured depository institutions.
Although we consider such sources of funds adequate for our liquidity needs, we may seek
additional debt financing in the future to achieve our long-term business objectives. There can be
no assurance additional borrowings, if sought, would be available to us or, on what terms. If
additional financing sources are unavailable or are not available on reasonable terms, our growth
and future prospects could be adversely affected.
As
mentioned above, under the section FDIC Insurance, the FDIC extended its TAGP through June 30, 2010. This program provides
depositors with unlimited coverage for non-interest-bearing transaction accounts at participating
FDIC-insured institutions. The FDICs failure to extend its
TAGP beyond June 2010, may result in a reduction of non-interest-bearing deposits
at our insured banking subsidiaries. The standard insurance amount of
$250,000 per depositor remains in effect through December 31, 2013.
As a holding company, we depend on dividends and distributions from our subsidiaries for liquidity.
We are a bank holding company and depend primarily on dividends from our banking and other
operating subsidiaries to fund our cash needs. These obligations and needs include capitalizing
subsidiaries, repaying maturing debt and paying debt service on outstanding debt. Our banking
subsidiaries, Banco Popular and BPNA, are limited by law in their ability to make dividend payments and
other distributions to us based on their earnings and capital position. A failure by our banking
subsidiaries to generate sufficient cash flow to make dividend payments to us may have a negative
impact on our results of operation and financial position. Also, a failure by the bank holding
company to access sufficient liquidity resources to meet all projected cash needs in the ordinary
course of business, may have a detrimental impact on our financial condition and ability to compete
in the market.
Unforeseen disruptions in the brokered deposits market could compromise our liquidity position.
As of December 31, 2009, 8% of our assets were financed by brokered deposits. Our total
brokered deposits as of December 31, 2009 were $2.7 billion or 10% of total deposits. An unforeseen
disruption in the brokered deposits market, or in our ability to seek or accept
28
brokered deposits, stemming from factors such as legal, regulatory or financial risks, could
adversely affect our ability to fund a portion of our operations and/or meet obligations.
We have a substantial amount of indebtedness, which could limit financing and other options
We have indebtedness that is substantial in relation to our stockholders equity. As of
December 31, 2009, we had consolidated notes payable of approximately $2.6 billion and had
stockholders equity of approximately $2.5 billion. Our substantial indebtedness could have
important consequences, including:
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our ability to obtain additional financing for funding our business or general corporate
purposes may be impaired, given our non-investment grade ratings;
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restricting our flexibility in responding to changing market conditions or making us
more vulnerable to financial distress in the event of a further downturn in economic
conditions or our business;
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a substantial portion of our cash flow from operations must be dedicated to the payment
of principal and interest on our debt, reducing the funds available to us for other
purposes including expansion through acquisition, marketing and expansion of our product
offerings; and
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we may be more leveraged than some of our competitors, which may place us at a
competitive disadvantage.
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Actions by the rating agencies or having capital levels below well-capitalized could raise the cost
of our obligations, which could affect our ability to borrow or to enter into hedging agreements in
the future and may have other adverse effects on our business.
Actions by the rating agencies have raised the cost of our borrowings. Borrowings amounting to
$350 million have ratings triggers that call for an increase in their interest rate in the event
of a ratings downgrade. For example, as a result of rating downgrades effected by the major rating
agencies in January, April, June and December 2009, the cost of servicing $350 million of our
senior debt increased by an additional 500 basis points.
Populars senior debt and preferred stock ratings are currently rated non-investment grade
by the three major rating agencies. The market for non-investment grade securities is much smaller
and less liquid than for investment grade securities. Therefore, if we were to attempt to issue
preferred stock or debt securities into the capital markets, it is possible that there would not be
sufficient demand to complete a transaction and the cost could be substantially higher than for
more highly rated securities.
In addition, changes in our ratings and capital levels below well-capitalized could affect our
relationships with some creditors and business counterparties. For example, a portion of our
hedging transactions include ratings triggers or well-capitalized language that permit
counterparties to either request additional collateral or terminate our agreements with them based
on our below investment grade ratings. Although we have been able to meet any additional collateral
requirements thus far and expect that we would be able to enter into agreements with substitute
counterparties if any of our existing agreements were terminated, changes in our ratings or capital
levels below well capitalized could create additional costs for our businesses. In addition,
servicing, licensing and custodial agreements that we are party to with third parties, include ratings covenants. Servicing rights represent a
contractual right and not a beneficial ownership interest in the
underlying mortgage loans. Failure to maintain the required credit
ratings, the third parties could have the right to require Popular to
engage a substitute fund custodian and/or increase collateral levels
securing the recourse obligations. Popular services residential
mortgage loans subject to credit recourse provisions. Certain
contractual agreements require us to post collateral to secure such
recourse obligations if our required credit ratings are not
maintained. Collateral pledged by us to secure recourse obligations
approximated $54 million at December 31, 2009. We could be required
to post additional collateral under the agreements. Management expects that we would be able to meet
additional collateral requirements if and when needed. The
requirements to post collateral under certain agreements or the loss
of custodian funds could reduce Popular's liquidity resources and
impact its operating results. The termination of those
agreements or the inability to realize servicing income for our businesses could have an adverse
effect on those businesses. Other counterparties are also sensitive to the risk of a ratings
downgrade and the implications for our businesses and may be less likely to engage in transactions
with us, or may only engage in them at a substantially higher cost, if our ratings remain below
investment grade.
We are subject to regulatory capital adequacy guidelines, and if we fail to meet these guidelines
our business and financial condition will be adversely affected.
Under regulatory capital adequacy guidelines, and other regulatory requirements, Popular
and our banking subsidiaries must meet guidelines that include quantitative measures of assets,
liabilities and certain off balance sheet items, subject to qualitative judgments by regulators
regarding components, risk weightings and other factors. If we fail to meet these minimum capital
guidelines and other regulatory requirements, our business and financial condition will be
materially and adversely affected. If we fail to maintain well-capitalized status under the
regulatory framework, or are deemed not well managed under regulatory exam procedures, or if we
experience certain regulatory violations, our status as a financial holding company and our related
eligibility for a streamlined review process for acquisition proposals, and our ability to offer
certain financial products will be compromised and our financial condition and results of
operations could be adversely affected.
29
We may not have enough authorized shares of common stock if we are required to raise additional
equity capital in the future to satisfy liquidity and regulatory needs.
As a result of ongoing challenging recessionary conditions, credit losses have depleted our
tangible common equity. Given the focus on tangible common equity by regulatory authorities, rating
agencies and the market, we may be required to raise additional capital through the issuance of
additional common stock in future periods to replace that common
equity. We issued over 357 million shares of common stock in the exchange offer that was conducted in the third quarter of
2009, which left us with only a limited number of authorized and unreserved shares of common stock
to issue in the future. As a result, we will need to obtain stockholder consent to amend our
certificate of incorporation to increase the amount of authorized capital stock if we intend to
issue significant amounts of common stock in the future. We cannot be assured that our stockholders
will approve such an increase.
Certain of the provisions contained in our Certificate of Incorporation have the effect of making
it more difficult to change the Board of Directors, and may make the Board of Directors less
responsive to stockholder control.
Our certificate of incorporation provides that the members of the Board of Directors are
divided into three classes as nearly equal as possible. At each annual meeting of stockholders,
one-third of the members of the Board of Directors will be elected for a three-year term, and the
other directors will remain in office until their three-year terms expire. Therefore, control of
the Board of Directors cannot be changed in one year, and at least two annual meetings must be held
before a majority of the members of the Board of Directors can be changed. Our certificate of
incorporation also provides that a director, or the entire Board of Directors, may be removed by
the stockholders only for cause by a vote of at least two-thirds of the combined voting power of
the outstanding capital stock entitled to vote for the election of directors. These provisions have
the effect of making it more difficult to change the Board of Directors, and may make the Board of
Directors less responsive to stockholder control. These provisions also may tend to discourage
attempts by third parties to acquire Popular because of the additional time and expense involved
and a greater possibility of failure, and, as a result, may adversely affect the price that a
potential purchaser would be willing to pay for the capital stock, thereby reducing the amount a
stockholder might realize in, for example, a tender offer for our capital stock.
The resolution of significant pending litigation, if unfavorable, could have material adverse
financial effects or cause significant reputational harm to us, which in turn could seriously harm
our business prospects.
We face legal risks in our businesses, and the volume of claims and amount of damages and
penalties claimed in litigation and regulatory proceedings against financial institutions remain
high. Substantial legal liability or significant regulatory action against us could have material
adverse financial effects or cause significant reputational harm to us, which in turn could
seriously harm our business prospects. As more fully described in Item 3, Legal Proceedings, five
putative class actions and one derivative claim have been filed in the United States District Court
for the District of Puerto Rico and another derivative suit was filed in the Puerto Rico Court of
First Instance but later removed to the U.S. District Court for the District of Puerto Rico,
against Popular, certain of our directors and officers and others. Although at this early
stage, it is not possible for management to assess the probability of an adverse outcome, or
reasonably estimate the amount of any potential loss, it is possible that the ultimate resolution
of these matters, if unfavorable, may be material to our results of operations.
RISKS RELATING TO AN INVESTMENT IN OUR SECURITIES
Our share price may continue to fluctuate.
Stock markets, in general, and our common stock, in particular, have over the past year
experienced, and continue to experience, increased volatility and decreases in price. The market
price of our common stock may continue to be subject to significant fluctuations due to the market
sentiment regarding our operations or business prospects, as well as to market fluctuations and
decreases in price that may be unrelated to our operating performance or prospects. Increased
volatility could result in a further decline in the market price of our common stock.
Factors that may affect such fluctuations include the following:
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operating results that may be worse than the expectations of management, securities analysts
and investors;
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the level of Populars regulatory and common equity;
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developments in our business or in the financial sector generally;
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regulatory changes affecting our industry generally or our business and operations;
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the operating and securities price performance of companies that investors consider to be
comparable to us;
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announcements of strategic developments, acquisitions and other material events by us or our
competitors;
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changes in the credit, mortgage and real estate markets, including the markets for
mortgage-related securities; and
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changes in global financial markets, global economies and general market conditions, such
as interest or foreign exchange rates, stock, commodity, credit or asset valuations or
volatility.
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Additional assistance from the U.S. Government may further dilute existing holders of our common
stock.
There may be new regulatory requirements or standards, or additional U.S. Government programs
or requirements or we could incur losses in the future that could result in, or require, additional
equity issuances. Such further equity issuances would further dilute the existing holders of our
common stock perhaps significantly.
The potential issuance of additional shares of our common stock or common equivalent
securities in future equity offerings, or as a result of the exercise of the warrant the U.S.
Treasury holds, would dilute the ownership interest of our existing common stockholders and could
also involve U.S. Government constraints on our operations.
Dividends on our common stock and preferred stock have been suspended and stockholders may not
receive funds in connection with their investment in our common stock or preferred stock without
selling their shares.
Holders of our common stock and preferred stock are only entitled to receive such dividends as
our Board of Directors may declare out of funds legally available for such payments. During 2009,
we suspended dividend payments on our common stock and preferred stock. Furthermore, unless we have
redeemed all of the trust preferred securities issued to the U.S. Treasury or the U.S. Treasury has
transferred all of its trust preferred securities to third parties, the consent of the U.S.
Treasury will be required for us to, among other things, increase the dividend rate per share of
common stock above $0.08 per share or to repurchase or redeem equity securities, including our
common stock, subject to certain limited exceptions. Popular has also granted registration rights
and offering facilitation rights to the U.S. Treasury pursuant to which we have agreed to lock-up
periods during which it would be unable to issue equity securities.
This could adversely affect the market price of our common stock. Also, we are a bank holding
company and our ability to declare and pay dividends is dependent on certain Federal regulatory
considerations, including the guidelines of the Federal Reserve Board regarding capital adequacy and
dividends. Moreover, the Federal Reserve Board and the FDIC have issued policy statements stating that
the bank holding companies and insured banks should generally pay dividends only out of current
operating earnings. In the current financial and economic environment, the Federal Reserve Board has
indicated that bank holding companies should carefully review their dividend policy and has
discouraged dividend pay-out ratios that are at the 100% or higher level unless both asset quality
and capital are very strong.
In addition, the terms of our outstanding junior subordinated debt securities held by each
trust that has issued trust preferred securities, prohibit us from declaring or paying any dividends
or distributions on our capital stock, including our common stock and preferred stock. The terms also prohibit us from purchasing, acquiring, or making a liquidation payment on such stock, if we have given notice of
our election to defer interest payments but the related deferral period has not yet commenced or a
deferral period is continuing.
Accordingly, you may have to sell some or all of your shares of our common stock or preferred
stock in order to generate cash flow from your investment. You may not realize a gain on your
investment when you sell the common stock or preferred stock and may lose the entire amount of your
investment.
Offerings of debt, which would be senior to our common stock in the event of liquidation, and/or
preferred equity securities, which may be senior to our common stock for purposes of dividend
distributions or in the event of liquidation, may adversely affect the market price of our common
stock.
We may seek to increase our liquidity and/or capital resources by offering debt or preferred
equity securities, including medium-term notes, trust preferred securities, senior or subordinated
notes and preferred stock. In the event of liquidation, holders of our debt securities and shares
of preferred stock and lenders with respect to other borrowings may receive distributions of our
available assets prior to the holders of our common stock. Additional equity offerings may dilute
the holdings of our existing stockholders or reduce the market price of our common stock, or both.
Our Board of Directors is authorized to issue one or more classes or series of preferred stock
from time to time without any action on the part of the stockholders. Our Board of Directors also
has the power, without stockholder approval, to set the terms of any such classes or series of
preferred stock that may be issued, including voting rights, dividend rights, and preferences over
our common stock with respect to dividends or upon our dissolution, winding up and liquidation and
other terms. If we issue preferred shares in the future that has a preference over our common stock
with respect to the payment of dividends or upon liquidation, or if we issue preferred shares with
voting rights that dilute the voting power of the common stock, the rights of holders of our common
stock or the market price of our common stock could be adversely affected.
For further information of other risks faced by Popular please refer to the MD&A section of
the Annual Report.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2.
PROPERTIES
As of December 31, 2009, Banco Popular owned and wholly or partially occupied approximately 94
branch premises and other facilities throughout Puerto Rico. It also owned 7 parking garage
buildings and approximately 35 lots held for future development or for parking facilities also in
Puerto Rico, one building in the U.S. Virgin Islands and one in the British Virgin Islands. In
addition, as of such date, Banco Popular leased properties mainly for branch operations in
approximately 107 locations in Puerto Rico and 6 locations in the U.S. Virgin Islands. At December
31, 2009, BPNA had 121 offices (principally bank branches) of which 20 were owned and 101 were
leased. These offices were located in New York, Illinois, New Jersey, California, Florida and
Texas. Included in this figure is a leased six story office building in Rosemont, Illinois that is
the site of BPNAs headquarters. Our management believes that each of our facilities are well
maintained and suitable for its purpose. The principal properties owned by Popular for banking
operations and other services are described below:
Popular Center
, the twenty-story Banco Popular headquarters building, located at 209
Muñoz Rivera Avenue, Hato Rey, Puerto Rico. In addition, it has an adjacent parking garage with
capacity for approximately 1,095 cars. As of December 31, 2009, a major re-development at the
ground and promenade levels was substantially completed and contract negotiations were underway to
establish retail businesses including sit-down restaurants and other food vendors. Approximately
48% of the office space is leased to outside tenants.
Popular Center North Building
, a five-story building, on the same block as Popular
Center. These facilities are connected to the main building by the parking garage and to the
Popular Street building by a pedestrian bridge. It provides additional office space and parking for
100 cars. It also houses six movie theatres with stadium type seating for approximately 600 persons
total.
Popular Street Building
, a parking and office building located at Ponce de León Avenue
and Popular Street, Hato Rey, Puerto Rico. The six stories of office space and the basement are
occupied by Banco Popular units and the Corporate Risk Area. At the ground level, retail type
spaces are leased or available for leasing to outside tenants. It has parking facilities for
approximately 1,165 cars.
Cupey Center Complex
, one building, three stories high, and three buildings, two
stories high each, located in Cupey, Río Piedras, Puerto Rico. The computer center operations and
other operational and support services are some of the main activities housed at these facilities.
The facilities are almost fully occupied by EVERTECs personnel. Banco Popular maintains a full
service branch and some support services in these facilities. The Complex also includes a parking
garage building with capacity for approximately 1,000 cars and houses a recreational center for
employees.
Stop 22 Building
, a twelve story structure located in Santurce, Puerto Rico. A Banco
Popular branch, the Comptroller Division, the People Division, the Asset Protection Division, the
Auditing Division, the International Branch and the International Service Department are the main
occupants of this facility, which is 87% occupied by Banco Popular personnel and the Corporate
Group personnel.
Centro Europa Building
, a seven-story office and retail building in Santurce, Puerto
Rico. The Banks training center occupies approximately 27% of this building. The remaining space
is leased or available for leasing to outside tenants. The building also includes a parking garage
with capacity for approximately 613 cars.
Old San Juan Building
, a twelve-story structure located at Old San Juan, Puerto Rico.
Banco Popular occupies approximately 26% of the building for a branch operation, an exhibition room
and other facilities. In addition, approximately 11%, mainly office space, is occupied by Fundación
Banco Popular, Inc. and a reception center. The rest of the building is leased or available for
leasing to outside tenants.
Guaynabo Corporate Office Park Building,
a two-story building located in Guaynabo,
Puerto Rico. This building is fully occupied by Popular Insurance, Inc. as its headquarters. The
property also includes a new adjacent four-level parking garage with capacity for approximately 300
cars, a potable water cistern and a diesel storage tank.
Altamira Building
, a new nine-story office building located in Guaynabo, Puerto Rico.
A seven-level parking garage with capacity for approximately 550 cars is also part of this property
that houses the centralized offices of Popular Mortgage, Inc. and Popular Auto, Inc. It also
includes a full service branch and the Mortgage Servicing Division of Banco Popular.
El Señorial Center
, a four-story office building and a two-story branch building
located in Río Piedras, Puerto Rico. The property also includes a four-level parking garage
building with capacity for approximately 774 cars. As of December 31, 2009, a Banco Popular branch
and the Rio Piedras regional office of the Bank were operating in the branch building and various support units
of Banco Popular had moved into the newly remodeled main building. The Customer Contact Center and
the Operations, Retail Credit Products and Services, and Card Products divisions are some of its
new occupants.
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Banco Popular Virgin Islands Center
, a three-story building located in St. Thomas,
U.S. Virgin Islands housing a Banco Popular branch and centralized offices. The building is fully
occupied by Banco Popular personnel.
Popular Center -Tortola
, a four-story building located in Tortola, British Virgin
Islands. A Banco Popular branch is located in the first story while the commercial credit
department occupies the second story. The third and fourth floors are available for outside
tenants.
In addition, in September 2008 Popular sold a building in New York located at 7 West 51st
Street. Subsequently BPNA entered into a two year leaseback contract with the owner.
ITEM 3
.
LEGAL PROCEEDINGS
Popular
and our subsidiaries are defendants in a number of legal proceedings arising in the
ordinary course of business. Based on the opinion of legal counsel, management believes that the
final disposition of these matters, except for the matters described below which are in very early
stages and management cannot currently predict their outcome, will not have a material adverse
effect on our business, results of operations, financial condition and liquidity.
Between May 14, 2009 and March 1, 2010
,
five putative class actions and two derivative claims
were filed in the United States District Court for the District of Puerto Rico and the Puerto Rico
Court of First Instance, San Juan Part, against Popular, Inc. and
certain of our directors and
officers, among others. The five class actions have now been consolidated into two separate
actions: a securities class action captioned
Hoff v. Popular, Inc., et al.
(consolidated with
Otero
v. Popular, Inc., et al
.) and an ERISA class action entitled
In re Popular, Inc. ERISA Litigation
(comprised of the consolidated cases of
Walsh v. Popular, Inc. et al
.;
Montañez v. Popular, Inc.,
et al
.; and
Dougan v. Popular, Inc., et al
.). On October 19, 2009, plaintiffs in the
Hoff
case
filed a consolidated class action complaint which includes as defendants the underwriters in the May
2008 offering of Series B Preferred Stock. The consolidated action purports to be on behalf of
purchasers of Populars securities between January 24, 2008 and February 19, 2009 and alleges that the
defendants violated Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder, and
Section 20(a) of the Exchange Act by issuing a series of allegedly false and/or misleading
statements and/or omitting to disclose material facts necessary to make statements made by us not
false and misleading. The consolidated action also alleges that the defendants violated Section 11,
Section 12(a)(2) and Section 15 of the Securities Act by making allegedly untrue statements and/or
omitting to disclose material facts necessary to make statements made by us not false and
misleading in connection with the May 2008 offering of Series B Preferred Stock. The consolidated
securities class action complaint seeks class certification, an award of compensatory damages and
reasonable costs and expenses, including counsel fees. On January 11, 2010, Popular and the
individual defendants moved to dismiss the consolidated securities class action complaint. On
November 30, 2009, plaintiffs in the ERISA case filed a
consolidated class action complaint. The consolidated
complaint purports to be on behalf of employees participating in the Popular, Inc. U.S.A. 401(k)
Savings and Investment Plan and the Popular, Inc. Puerto Rico Savings and Investment Plan from
January 24, 2008 to the date of the Complaint to recover losses pursuant to Sections 409
and 502(a)(2) of the Employee Retirement Income Security Act (ERISA) against Popular,
certain directors, officers and members of plan committees, each of whom is alleged to be a plan
fiduciary. The consolidated complaint alleges that the defendants breached their alleged fiduciary obligations
by, among other things, failing to eliminate Popular stock as an investment alternative in the
plans. The complaint seeks to recover alleged losses to the plans and equitable relief, including
injunctive relief and a constructive trust, along with costs and attorneys fees. On December 21,
2009, and in compliance with a scheduling order issued by the Court, Popular and the individual
defendants submitted an answer to the amended complaint. Shortly thereafter, on December 31, 2009,
Popular and the individual defendants filed a motion to dismiss the consolidated class action
complaint or, in the alternative, for judgment on the pleadings. The derivative actions (
Garcia v.
Carrión, et al
. and
Diaz v. Carrión, et al
.) have been brought purportedly for the benefit of
nominal defendant Popular, Inc. against certain executive officers and directors and allege
breaches of fiduciary duty, waste of assets and abuse of control in connection with our issuance of
allegedly false and misleading financial statements and financial reports and the offering of the
Series B Preferred Stock. The derivative complaints seek a judgment that the action is a proper
derivative action, an award of damages and restitution, and costs and disbursements, including
reasonable attorneys fees, costs and expenses. On October 9, 2009, the Court coordinated for purposes of discovery
the
Garcia
action and the consolidated securities class action. On October
15, 2009, Popular and the individual defendants moved to dismiss the
Garcia
complaint for failure
to make a demand on the Board of Directors prior to initiating litigation. On November 20, 2009,
and pursuant to a stipulation among the parties, plaintiffs filed an amended complaint, and on
December 21, 2009, Popular and the individual defendants moved to dismiss the
García
amended
complaint. The
Diaz
case, filed in the Puerto Rico Court of First Instance, San Juan, has been removed to the U.S. District Court for the
District of Puerto Rico. On October 13, 2009, Popular and the individual defendants moved to
consolidate the
Garcia
and
Diaz
actions. On October 26, 2009, plaintiff moved to remand the
Diaz
case to the Puerto Rico Court of First Instance and to stay defendants consolidation motion
pending the outcome of the remand proceedings. At a scheduling conference held on January 14,
2010, the Court stayed discovery in both the
Hoff
and
García
matters pending resolution of their respective
motions to dismiss.
At this early stage, it is not possible for management to assess the probability of an adverse
outcome, or reasonably estimate the amount of any potential loss. It is possible that the ultimate
resolution of these matters, if unfavorable, may be material to our results of operations.
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ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5.
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Populars common stock is traded on the National Association of Securities Dealers Automated
Quotation System (NASDAQ) National Market System under the symbol BPOP. Information concerning
the range of high and low sales prices for our common shares for each quarterly period during 2009
and the previous four years, as well as cash dividends declared is contained under Table J, Common
Stock Performance, on page 45 in the MD&A in the Annual Report, and is incorporated herein by
reference.
As
of February 26, 2010, Popular had 10,562 stockholders of record
of our common stock, not
including beneficial owners whose shares are held in record names of brokers or other nominees. The
last sales price for our common stock on such date, as quoted on the NASDAQ National Market System
was $1.93 per share.
In
June 2009, Popular commenced an offer to issue shares of our common stock in exchange for
our Series A preferred stock and Series B preferred stock and for trust preferred securities (also
referred as capital securities). On August 25, 2009, we completed the settlement of the exchange
offer and issued 357,510,076 new shares of common stock.
The exchange by holders of shares of the Series A and B non-cumulative preferred stock for
shares of common stock resulted in the extinguishment of such shares of preferred stock and an
issuance of 171,748,872 new shares of common stock. The Series A and B non-cumulative preferred
stock converted totaled 21,468,609 shares out of the 23,475,000 shares outstanding prior to the
exchange. The exchange of shares of preferred stock for shares of common stock resulted in a
decrease in accumulated deficit of $230.4 million, which is also considered as part of
earnings applicable to common stockholders in the earnings (losses) per common share (EPS)
computations.
Also, during the third quarter of 2009, Popular exchanged trust preferred securities issued by
different trusts for 185,761,204 new shares of common stock of Popular. The trust preferred
securities converted totaled 6,166,044 capital securities out of the 17,594,000 capital securities
outstanding prior to the exchange. The trust preferred securities were delivered to the trusts in
return for the junior subordinated debentures (recorded as notes payable in our financial
statements) that had been issued by Popular to the trusts in the past. The junior subordinated
debentures were submitted for cancellation by the indenture trustee under the applicable indenture.
We recognized a pre-tax gain of $80.3 million on the extinguishment of the applicable junior
subordinated debentures that was included in the consolidated statement of operations for the third
quarter of 2009. This transaction was accounted as an early extinguishment of debt. The increase in
stockholders equity related to the exchange of trust preferred securities for shares of common
stock was approximately $390 million, net of issuance costs, and including the aforementioned gain
on the early extinguishment of debt.
In addition, on August 21, 2009, Popular, Inc. and Popular Capital Trust III entered into an
exchange agreement with the U.S. Treasury pursuant to which the U.S. Treasury agreed with Popular
that the U.S. Treasury would exchange all 935,000 shares of Populars outstanding Fixed Rate
Cumulative Perpetual Preferred Stock, Series C, $1,000 liquidation preference per share (the
Series C Preferred Stock), owned by the U.S Treasury for 935,000 newly issued trust preferred
securities, $1,000 liquidation amount per capital security. The trust preferred securities were
issued to the U.S. Treasury on August 24, 2009. In connection with this exchange, the trust used
the Series C preferred stock, together with the proceeds of the issuance and sale by the trust to
Popular of $1 million aggregate liquidation amount of its fixed rate common securities, to purchase
$936 million aggregate principal amount of the junior subordinated debentures issued by Popular.
The trust preferred securities issued to the U.S. Treasury have a distribution rate of 5%
until, but excluding December 5, 2013 and 9% thereafter (which is the same as the dividend rate on
the previously outstanding Series C Preferred Stock). The common securities of the trust, in the
amount of $1 million, are held by Popular.
The sole asset and only source of funds to make payments on the trust preferred securities and
the common securities of the trust is $936 million of Populars Fixed Rate Perpetual Junior
Subordinated Debentures, Series A, issued by Popular to the trust. These debentures have an
interest rate of 5% until, but excluding December 5, 2013 and 9% thereafter. The debentures are
perpetual and may be redeemed by Popular at any time, subject to the consent of the
Federal Reserve Board.
Under the guarantee agreement dated as of August 24, 2009, Popular irrevocably and
unconditionally agrees to pay in full to the holders of the trust preferred securities the
guaranteed payments, as and when due. Under the guarantee agreement, Popular has guaranteed the
payment of the liquidation amount of the trust preferred securities upon liquidation of the trust,
but only to the extent that the trust has funds available to make such payments. Our obligation to
make the guaranteed payment may be satisfied by direct payment of the required amounts to the
holders of the trust preferred securities or by causing the issuer trust to pay such amounts to the
holders. The obligations of Popular under the guarantee agreement constitute unsecured obligations
and rank subordinate and junior in right of payment to all senior debt. The obligations of Popular
under the guarantee agreement rank
pari passu
with the obligations of Popular under any similar
34
guarantee agreements issued by us on behalf of the holders of preferred or capital securities
issued by any statutory trust, among others stated in the guarantee agreement.
Under the exchange agreement, Popular agreed that, without the consent of the U.S. Treasury,
it would not increase our dividend rate per share of common stock above that in effect as of
October 14, 2008, $0.08 per share, or repurchase shares of our common stock until, in each case,
the earlier of December 5, 2011 or such time as all of the new trust preferred securities have been
redeemed or transferred by the U.S. Treasury.
The warrant to purchase 20,932,836 shares of our common stock at an exercise price of $6.70
per share that was initially issued to the U.S Treasury in connection with the issuance of the
Series C preferred stock on December 5, 2008 remains outstanding without amendment.
The trust preferred securities issued to the U.S. Treasury continue to qualify as Tier 1
regulatory capital. The trust preferred securities are subject to the 25% limitation on Tier 1
Capital.
Popular paid an exchange fee of $13 million to the U.S. Treasury in connection with the
exchange of outstanding shares of Series C preferred stock for the new trust preferred securities.
This exchange fee will be amortized through interest expense using the interest yield method over
the estimated life of the junior subordinated debentures.
For the accounting treatment and further information about the exchange offer please refer to
Note 21, Exchange offers and Note 24 Net income (loss) per common share on our Audited Financial
Statements.
In June 2009, Popular announced the suspension of dividends on our common stock and Series A
and B preferred stock.
The dividends paid to holders of our preferred stock must be declared by our Board of
Directors. On a regular basis, the Board of Directors reviews various factors when considering the payment of
dividends on our outstanding preferred stock, including our capital levels, recent and projected
financial results and liquidity. The Board of Directors is not obligated to declare dividends and dividends do
not accumulate in the event they are not paid.
Our common stock ranks junior to all series of preferred stock as to dividend rights and/or as
to rights on liquidation, dissolution or winding up of Popular. All series of preferred stock are
pari passu. Dividends on each series of preferred stock are payable if declared. Our ability to
declare or pay dividends on, or purchase, redeem or otherwise acquire, our common stock is subject
to certain restrictions in the event that Popular fails to pay or set aside full dividends on the
preferred stock for the latest dividend period. The ability of Popular to pay dividends in the
future is limited by regulatory requirements, legal availability of funds, recent and projected
financial results, capital levels and liquidity, general business conditions and other
factors deemed relevant by our Board of Directors.
On February 19, 2009, the Board of Directors of Popular resolved to retire 13,597,261 shares
of our common stock that were held by Popular as treasury shares. It is our accounting policy to
account, at retirement, for the excess of the cost of the treasury stock over its par value
entirely to surplus.
Additional information concerning legal or regulatory restrictions on the payment of dividends
by Popular, Banco Popular and BPNA is contained under the caption Regulation and Supervision in
Item 1 herein.
Popular
offers a dividend reinvestment and stock purchase plan for our stockholders that
allows them to reinvest their 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
Popular by making optional cash payments at prevailing market prices. No shares will be sold
directly by us to participants in the dividend reinvestment and stock purchase plan at less than
the par value of our common stock. Since during the first months of 2009 our common stock price
was below $6 per share (the par value of our common stock until May 1, 2009) and in June 2009
Popular suspended dividends on our common stock, no additional shares were issued under the
dividend reinvestment during 2009.
For information about the securities authorized for issuance under our equity based plans,
refer to Part III, Item 11.
In April 2004, our 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.
35
The following table sets forth the details of purchases of common stock during the quarter
ended December 31, 2009 by Popular in the open market to satisfy awards made under its 2004 Omnibus
Incentive Plan.
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not in thousands
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
Maximum Number of
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
Shares that May Yet
|
|
|
Total Number of
|
|
Average
|
|
Part of Publicly
|
|
be Purchased Under
|
|
|
Shares
|
|
Price Paid per
|
|
Announced Plans or
|
|
the Plans or Programs
|
Period
|
|
Purchased
|
|
Share
|
|
Programs
|
|
(a)
|
|
October 1 October 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,396,315
|
|
November 1 November 30
|
|
|
18,522
|
|
|
$
|
2.21
|
|
|
|
18,522
|
|
|
|
8,377,793
|
|
December 1 December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,377,793
|
|
|
Total December 31, 2009
|
|
|
18,522
|
|
|
$
|
2.21
|
|
|
|
18,522
|
|
|
|
8,377,793
|
|
|
|
|
|
(a)
|
|
Includes shares forfeited.
|
Stock Performance Graph (1)
The graph below compares the cumulative total stockholder return during the measurement period
with the cumulative total return, assuming reinvestment of dividends, of the Nasdaq Bank Index and
the Nasdaq Composite Index.
The cumulative total stockholder return was obtained by dividing (i) the cumulative amount of
dividends per share, assuming dividend reinvestment since the measurement point, December 31, 2004,
plus (ii) the change in the per share price since the measurement date, by the share price at the
measurement date.
Comparison of Five Year Cumulative Total Return
Total Return as of December 31
(December 31, 2004=100)
|
|
|
(1)
|
|
Unless Popular specifically states otherwise, this Stock
Performance Graph shall not be deemed to be incorporated by
reference and shall not constitute soliciting material or
otherwise be considered filed under the Securities Act of 1933 or
the Securities Exchange Act of 1934.
|
36
ITEM 6.
SELECTED FINANCIAL DATA
The information required by this item appears in Table C, Selected Financial Data, on page 8
and the text under the caption Statement of Operations Analysis on page 20 in the MD&A, and is
incorporated herein by reference.
Our ratio of earnings to fixed charges and of earnings to fixed charges and preferred stock
dividends on a consolidated basis for each of the last five years is as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2009 (1)
|
|
2008 (1)
|
|
2007(1)
|
|
2006 (1)
|
|
2005(1)
|
Ratio of Earnings to Fixed Charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including Interest on Deposits
|
|
|
(A
|
)
|
|
|
(A
|
)
|
|
|
1.2
|
|
|
|
1.5
|
|
|
|
1.8
|
|
Excluding Interest on Deposits
|
|
|
(A
|
)
|
|
|
(A
|
)
|
|
|
1.5
|
|
|
|
1.9
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Including Interest on Deposits
|
|
|
(A
|
)
|
|
|
(A
|
)
|
|
|
1.2
|
|
|
|
1.4
|
|
|
|
1.7
|
|
Excluding Interest on Deposits
|
|
|
(A
|
)
|
|
|
(A
|
)
|
|
|
1.5
|
|
|
|
1.8
|
|
|
|
2.4
|
|
|
|
|
(1)
|
|
On November 3, 2008, Popular sold residual interests and
servicing related assets of PFH and Popular, FS to Goldman Sachs
Mortgage Company, Goldman, Sachs & Co. and Litton Loan Servicing,
LP. In addition, on September 18, 2008, Popular announced the
consummation of the sale of manufactured housing loans of PFH to
21st Mortgage Corp. and Vanderbilt Mortgage and Finance, Inc. The
above transactions and past sales and restructuring plans
executed at PFH in the past two years have resulted in the
discontinuance of our PFH operations and PFHs results are
reflected as such in our Consolidated Statements of Operations.
The computation of earnings to fixed charges and preferred stock
dividends excludes discontinued operations. Prior periods have
been retrospectively adjusted on a comparable basis.
|
|
(A)
|
|
During 2008 and 2009, earnings were not sufficient to cover fixed
charges or preferred dividends and the ratios were less than 1:1.
Popular would have had to generate additional earnings of
approximately $235 million and $625 million to achieve ratios of
1:1 in 2008 and 2009, respectively.
|
For purposes of computing these consolidated ratios, earnings represent income before income
taxes, plus fixed charges. Fixed charges represent all interest
expense and capitalized (ratios are presented both
excluding and including interest on deposits), the portion of net rental expense, which is deemed
representative of the interest factor and the amortization of debt issuance expense. The interest
expense includes changes in the fair value of the non-hedging derivatives.
Our long-term senior debt and preferred stock on a consolidated basis as of December 31 of
each of the last five years is:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
Long term obligations
|
|
$
|
2,648,632
|
|
|
$
|
3,386,763
|
|
|
$
|
4,621,352
|
|
|
$
|
8,737,246
|
|
|
$
|
9,893,577
|
|
Non-cumulative preferred stock
|
|
|
50,160
|
|
|
|
586,875
|
|
|
|
186,875
|
|
|
|
186,875
|
|
|
|
186,875
|
|
Fixed rate cumulative perpetual preferred stock
|
|
|
|
|
|
|
896,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The information required by this item appears on page 3 through 81 in the Annual Report under
the caption MD&A, and is incorporated herein by reference.
Table L, Maturity Distribution of Earning Assets, on page 50 in the MD&A, takes into
consideration prepayment assumptions as determined by management based on the expected interest
rate scenario.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
information regarding the market risk of our investments appears on page 46 through 57 in
the MD&A in the Annual Report, and is incorporated herein by reference.
37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item appears on pages 82 through 85, in the Annual Report and
on page 86 under the caption Statistical Summary 2008-2009 Quarterly Financial Data in the
Annual Report and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not Applicable.
ITEM 9A.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of our 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, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of such period, our disclosure controls and procedures
are effective in recording, processing, summarizing and reporting, on a timely basis, information
required to be disclosed by Popular in the reports that we file or submit under the Exchange Act
and such information is accumulated and communicated to management, as appropriate, to allow timely
decisions regarding required disclosures.
Assessment on Internal Control Over Financial Reporting
Managements Assessment of Internal Control over Financial Reporting and the Report of
Independent Registered Public Accounting Firm are on pages 87 through 89 of our Annual Report and
are incorporated by reference herein.
Changes in Internal Control over Financial Reporting
There have been no changes in our 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 December 31, 2009, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
ITEM 9A(T).
CONTROLS AND PROCEDURES
Not Applicable.
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information contained under the captions Shares Beneficially Owned by Directors and
Executive Officers of the Corporation, Section 16 (A) Beneficial Ownership Reporting Compliance,
Corporate Governance, Nominees for Election as Directors and Other Directors and Executive
Officers in the Proxy Statement are incorporated herein by reference.
The Board has adopted a Code of Ethics to be followed by our employees, officers (including
the Chief Executive Officer, Chief Financial Officer and Corporate Comptroller) and directors to
achieve conduct that reflects our ethical principles. The Code of Ethics is available on our
website at www.popular.com. We will post on our website any amendments to the Code of Ethics or any
waivers to the Chief Executive Officer, Chief Financial Officer, Corporate Comptroller or
directors.
ITEM 11.
EXECUTIVE COMPENSATION
The information under
the captions Compensation of Directors, Compensation Committee
Interlocks and Insider Participation and Executive Compensation
Program, including the Compensation Discussion and Analysis in the Proxy Statement is incorporated herein by reference.
38
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDERS MATTERS
The information under the captions Principal Stockholders and Shares Beneficially Owned by
Directors and Executive Officers of the Corporation in the Proxy Statement is incorporated herein
by reference.
The following table set forth information as of December 31, 2009 regarding securities issued
and issuable to directors and eligible employees under our equity based compensation plans.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Issuance
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Under Equity
|
|
|
|
|
|
|
|
Securities
|
|
|
Weighted-
|
|
|
Compensation
|
|
|
|
|
|
|
|
to be Issued
|
|
|
Average
|
|
|
Plans
|
|
|
|
|
|
|
|
Upon
|
|
|
Exercise Price
|
|
|
(Excluding
|
|
|
|
|
|
|
|
Exercise of
|
|
|
of
|
|
|
Securities Reflected
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
in the
|
|
Plan Category
|
|
Plan
|
|
|
Options
|
|
|
Options
|
|
|
First Column)
|
|
Equity compensation
plans
|
|
2001 Stock Option Plan
|
|
|
1,999,663
|
|
|
$
|
18.89
|
|
|
|
0
|
|
approved by security
holders
|
|
2004 Omnibus Incentive Plan
|
|
|
553,000
|
|
|
|
26.99
|
|
|
|
8,377,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans
not approved by
security
holder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
2,552,663
|
|
|
$
|
20.64
|
|
|
|
8,377,793
|
|
|
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information under the caption
Board of Directors Independence, Family Relationships and Other Relationships,
Transactions and Events in the Proxy Statement is incorporated herein by reference.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Information regarding principal accounting fees and services is set forth under Disclosure of
Auditors Fees in the Proxy Statement, which is incorporated herein by reference.
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a).
The following financial statements and reports included on pages 88 through 178 of the
Financial Review and Supplementary Information of Populars Annual Report to Shareholders are incorporated herein by
reference:
|
(1)
|
|
Financial Statements:
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
|
|
Consolidated Statements of Condition as of December 31, 2009 and 2008
|
|
|
|
|
Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 2009
|
|
|
|
|
Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2009
|
|
|
|
|
Consolidated Statements of Changes in Stockholders Equity for each of the years in the three-year period ended December 31,
2009
|
|
|
|
|
Consolidated Statements of Comprehensive (Loss) Income for each of the years in the three-year period ended December 31, 2009
|
39
|
|
|
Notes to Consolidated Financial Statements
|
|
|
(2)
|
|
Financial Statement Schedules: No schedules are presented because the information is not applicable or is included in the
Consolidated Financial Statements described in (a).1 above or in the notes thereto.
|
|
|
(3)
|
|
Exhibits
|
|
|
|
|
The exhibits listed on the Exhibits Index on page 42 of this report are filed herewith or are incorporated herein by reference
|
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
|
|
|
|
|
|
|
|
POPULAR, INC.
(Registrant)
|
|
|
By:
|
/s/ RICHARD L. CARRIÓN
|
|
|
|
Richard L. Carrión
|
|
|
|
Chairman of the Board and
Chief Executive Officer
|
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
/s/ RICHARD L. CARRIÓN
Richard L. Carrión
|
|
Chairman of the Board, Chief Executive Officer and
Principal Executive Officer
|
|
03-01-10
|
|
|
|
|
|
/s/ JORGE A. JUNQUERA
Jorge A. Junquera
|
|
Principal Financial Officer
|
|
03-01-10
|
Senior Executive Vice President
|
|
|
|
|
|
|
|
|
|
/s/ ILEANA GONZÁLEZ
Ileana González
|
|
Principal Accounting Officer
|
|
03-01-10
|
Senior Vice President
|
|
|
|
|
|
|
|
|
|
/s/ ALEJANDRO M. BALLESTER
Alejandro M. Ballester
|
|
Director
|
|
03-01-10
|
|
|
|
|
|
/s/ MARÍA LUISA FERRÉ
María Luisa Ferré
|
|
Director
|
|
03-01-10
|
|
|
|
|
|
/s/ MICHAEL MASIN
Michael Masin
|
|
Director
|
|
03-01-10
|
|
|
|
|
|
/s/ MANUEL MORALES
Manuel Morales Jr.
|
|
Director
|
|
03-01-10
|
|
|
|
|
|
/s/ FREDERIC V. SALERNO
Frederic V. Salerno
|
|
Director
|
|
03-01-10
|
|
|
|
|
|
/s/ WILLIAM J. TEUBER
William J. Teuber Jr.
|
|
Director
|
|
03-01-10
|
|
|
|
|
|
/s/ CARLOS A. UNANUE
Carlos A. Unanue
|
|
Director
|
|
03-01-10
|
|
|
|
|
|
/s/ JOSÉ R. VIZCARRONDO
José R. Vizcarrondo
|
|
Director
|
|
03-01-10
|
41
EXHIBIT INDEX
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
3.1
|
|
|
Restated Certificate of Incorporation of the Corporation (incorporated
by reference to Exhibit 3.1 of the Corporations Quarterly Report on
Form 10-Q for the quarter ended September 30, 2009).
|
|
|
|
|
|
|
3.2
|
|
|
Bylaws of the Corporation, as amended (incorporated by reference to
Exhibit 3.1 of the Corporations Current Report on Form 8-K, dated
December 17, 2008 and filed on December 23, 2008).
|
|
|
|
|
|
|
4.1
|
|
|
Specimen of Common Stock Certificate of the Corporation (incorporated
by reference to Exhibit 4.5 of the Corporations Current Report on Form
8-K dated August 21, 2009 and filed on August 26, 2009).
|
|
|
|
|
|
|
4.2
|
|
|
Senior Indenture of the Corporation, dated as of February 15, 1995, as
supplemented by the First Supplemental Indenture thereto, dated as of
May 8, 1997, each between the Corporation and JP Morgan Chase Bank
(formerly known as The First National Bank of Chicago), as trustee
(incorporated by reference to Exhibit 4(d) to the Registration
Statement No. 333-26941 of the Corporation, Popular International Bank,
Inc., and Popular North America, Inc., as filed with the SEC on May 12,
1997).
|
|
|
|
|
|
|
4.3
|
|
|
Second Supplemental Indenture of the Corporation, dated as of August 5,
1999, between the Corporation and JP Morgan Chase Bank (formerly known
as The First National Bank of Chicago), as trustee (incorporated by
reference to Exhibit 4(e) to the Corporations Current Report on Form
8-K (File No. 002-96018), dated August 5, 1999, as filed with the SEC
on August 17, 1999).
|
|
|
|
|
|
|
4.4
|
|
|
Subordinated Indenture dated as of November 30, 1995, between the
Corporation and JP Morgan Chase Bank (formerly known as The First
National Bank of Chicago), as trustee (incorporated by reference to
Exhibit 4(e) of the Corporations Registration Statement No. 333-26941,
dated May 12, 1997).
|
|
|
|
|
|
|
4.5
|
|
|
Senior Indenture of Popular North America, Inc., dated as of October 1,
1991, as supplemented by the First Supplemental Indenture thereto,
dated as of February 28, 1995, and the Second Supplemental Indenture
thereto, dated as of May 8, 1997, each among Popular North America,
Inc., the Corporation, as guarantor, and JP Morgan Chase Bank (formerly
known as The First National Bank of Chicago), as trustee, (incorporated
by reference to Exhibit 4(f) to the Registration Statement No.
333-26941 of the Corporation, Popular International Bank, Inc. and
Popular North America, Inc., as filed with the SEC on May 12, 1997).
|
|
|
|
|
|
|
4.6
|
|
|
Third Supplemental Indenture of Popular North America, Inc., dated as
of August 5, 1999, among Popular North America, Inc., the Corporation,
as guarantor, and
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
|
JP Morgan Chase Bank (formerly known as The First
National Bank of Chicago), as trustee (incorporated by reference to
Exhibit 4(h) to the Corporations Current Report on Form 8-K (File No.
002-96018), dated August 5, 1999, as filed with the SEC on August 17,
1999).
|
|
|
|
|
|
|
4.7
|
|
|
Form of Fixed Rate Medium-Term Note, Series F, of Popular North
America, Inc., endorsed with the guarantee of the Corporation
(incorporated by reference to Exhibit 4(g) of the Corporations Current
Report on Form 8-K (File No. 000- 13818), dated June 23, 2004 and filed
on July 2, 2004).
|
|
|
|
|
|
|
4.8
|
|
|
Form of Floating Rate Medium-Term Note, Series F, of Popular North
America, Inc., endorsed with the guarantee of the Corporation
(incorporated by reference to Exhibit 4(h) of the Corporations Current
Report on Form 8-K (File No. 000- 13818), dated June 23, 2004 and filed
on July 2, 2004).
|
|
|
|
|
|
|
4.9
|
|
|
Administrative Procedures governing Medium-Term Notes, Series F, of
Popular North America, Inc., guaranteed by the Corporation
(incorporated by reference to Exhibit 10(b) of the Corporations
Current Report on Form 8-K (File No. 000- 13818), dated June 23, 2004
and filed on July 2, 2004).
|
|
|
|
|
|
|
4.10
|
|
|
Junior Subordinated Indenture, among BanPonce Financial Corp., (Popular
North America, Inc.) BanPonce Corporation (Popular, Inc.) and JP Morgan
Chase Bank (formerly known as The First National Bank of Chicago), as
Debenture Trustee (incorporated by reference to Exhibit (4)(a) of the
Corporations Current Report on Form 8-K (File No. 000-13818), dated
and filed on February 19, 1997).
|
|
|
|
|
|
|
4.11
|
|
|
Supplemental Indenture, dated as of August 31, 2009, among Popular
North America, Inc., as Issuer, Popular, Inc., as Guarantor, and The
Bank of New York Mellon, with respect to the Debentures held by
BanPonce Trust I (incorporated by reference to Exhibit 4.1 of the
Corporations Current Report on Form 8-K dated August 31, 2009, and
filed on September 3, 2009).
|
|
|
|
|
|
|
4.12
|
|
|
Amended and Restated Trust Agreement of BanPonce Trust I, dated as of
August 31, 2009, among Popular North America, Inc., as Depositor,
Popular, Inc., as Guarantor, The Bank of New York Mellon, as Property
Trustee, BNY Mellon Trust of Delaware, as Delaware trustee, the
Administrative Trustees named therein, and the several Holders, as
defined therein (incorporated by reference to Exhibit 4.5 of the
Corporations Current Report on Form 8-K dated August 31, 2009, and
filed on September 3, 2009).
|
|
|
|
|
|
|
4.13
|
|
|
Certificate of Trust of New BanPonce Trust I (incorporated by reference
to Exhibit 4.5 of the Corporations Current Report on Form 8-K dated
August 31, 2009 and filed on September 3, 2009, included as Exhibit A
of the Amended and Restated Trust Agreement).
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
4.14
|
|
|
Form of Capital Securities Certificate for BanPonce Trust I
(incorporated by reference to Exhibit (4)(g) of the Corporations
Current Report on Form 8-K (File No. 000-13818), dated and filed on
February 19, 1997).
|
|
|
|
|
|
|
4.15
|
|
|
Guarantee Agreement, dated as of August 31, 2009, by and among Popular
North America, Inc., as Guarantor, Popular, Inc., as Additional
Guarantor and The Bank of New York Mellon, as Guarantee Trustee,
relating to BanPonce Trust I (incorporated by reference to Exhibit 4.9
of the Corporations Current Report on Form 8-K dated August 31, 2009,
and filed on September 3, 2009).
|
|
|
|
|
|
|
4.16
|
|
|
Form of Junior Subordinated Deferrable Interest Debenture for BanPonce
Financial Corp. (Popular North America, Inc.) (incorporated by
reference to Exhibit (4)(i) of the Corporations Current Report on Form
8-K (File No. 000- 13818), dated and filed on February 19, 1997).
|
|
|
|
|
|
|
4.17
|
|
|
Form of Certificate representing the Corporations 6.375%
Non-Cumulative Monthly Income Preferred Stock, 2003 Series A.
(incorporated by reference to Exhibit 99.1 of the Corporations Current
Report on Form 8-K dated and filed on February 26, 2003).
|
|
|
|
|
|
|
4.18
|
|
|
Certificate of Designation, Preference and Rights of the Corporations
6.375% Non-Cumulative Monthly Income Preferred Stock, 2003 Series A
(incorporated by reference to Exhibit 99.1 of the Corporations Current
Report on Form 8-K dated and filed on February 26, 2003).
|
|
|
|
|
|
|
4.19
|
|
|
Form
of Certificate of Trust of Popular Capital Trust III and Popular Capital Trust IV dated
September 5, 2003 (incorporated by reference to Exhibit 4.3 to the
Registration Statement on Form S-3 filed with the SEC on September 5,
2003).
|
|
|
|
|
|
|
4.20
|
|
|
Supplemental Indenture, dated as of August 31, 2009, between Popular,
Inc., as Issuer, and The Bank of New York Mellon with respect to the
Debentures held by Popular Capital Trust I (incorporated by reference
to Exhibit 4.3 of the Corporations Current Report on Form 8-K dated
August 31, 2009, and filed on September 3, 2009).
|
|
|
|
|
|
|
4.21
|
|
|
Amended and Restated Declaration of Trust and Trust Agreement of
Popular Capital Trust I, dated as of August 31, 2009, among Popular,
Inc., as Depositor, The Bank of New York Mellon, as Property Trustee,
BNY Mellon Trust of Delaware, as Delaware trustee, the Administrative
Trustees named therein, and the several Holders, as defined therein
(incorporated by reference to Exhibit 4.7 of the Corporations Current
Report on Form 8-K dated August 31, 2009, and filed on September 3,
2009).
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
4.22
|
|
|
Certificate of Trust of New Popular Capital Trust I (incorporated by
reference to Exhibit 4.7 of the Corporations Current Report on Form
8-K dated August 31, 2009 and filed on September 3, 2009, included as
Exhibit A of the Amended and Restated Declaration of Trust and Trust
Agreement).
|
|
|
|
|
|
|
4.23
|
|
|
Form of Global Capital Securities Certificate for Popular Capital Trust
I (incorporated by reference to Exhibit 4.7 of the Corporations
Current Report on Form 8-K dated August 31, 2009 and filed on September
3, 2009, included as Exhibit C of the Amended and Restated Declaration
of Trust and Trust Agreement).
|
|
|
|
|
|
|
4.24
|
|
|
Guarantee Agreement, dated as of August 31, 2009, between Popular,
Inc., as Guarantor and The Bank of New York Mellon, as Guarantee
Trustee, relating to Popular Capital Trust I (incorporated by reference
to Exhibit 4.11 of the Corporations Current Report on Form 8-K dated
August 31, 2009, and filed on September 3, 2009).
|
|
|
|
|
|
|
4.25
|
|
|
Certificate of Junior Subordinated Debenture relating to the
Corporations 6.70% Junior Subordinated Debentures, Series A Due
November 1, 2033 (incorporated by reference to Exhibit 4.6 of the
Corporations Current Report on Form 8-K dated October 31, 2003, as
filed with the SEC on November 4, 2003).
|
|
|
|
|
|
|
4.26
|
|
|
Indenture dated as of October 31, 2003, between the Corporation and JP
Morgan Chase Institutional Services (formerly Bank One Trust Company,
N.A.) Debenture (incorporated by reference to Exhibit 4.2 of the
Corporations Current Report on Form 8-K dated October 31, 2003, as
filed with the SEC on November 4, 2003).
|
|
|
|
|
|
|
4.27
|
|
|
First Supplemental Indenture, dated as of October 31, 2003, between the
Corporation and JP Morgan Chase Institutional Services (formerly Bank
One Trust Company, N.A.) (incorporated by reference to Exhibit 4.3 of
the Corporations Current Report on Form 8-K dated October 31, 2003, as
filed with the SEC on November 4, 2003).
|
|
|
|
|
|
|
4.28
|
|
|
Form of Junior Subordinated Indenture between Popular North America,
Inc., the Corporation and J.P. Morgan Trust Company, National
Association (incorporated by reference to Exhibit 4(a) to the
Registration Statement on Form S-3/A (Registration No. 333-118197)
filed with the SEC on September 9, 2004).
|
|
|
|
|
|
|
4.29
|
|
|
Supplemental Indenture, dated as of August 31, 2009, among Popular
North America, Inc., as Issuer, Popular, Inc., as Guarantor, and The
Bank of New York Mellon with respect to the Debentures held by Popular
North America Capital Trust I (incorporated by reference to Exhibit 4.2
of the Corporations Current Report on Form 8-K dated August 31, 2009,
and filed on September 3, 2009).
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
4.30
|
|
|
Amended and Restated Trust Agreement of Popular North America Capital
Trust I, dated as of August 31, 2009, among Popular North America,
Inc., as Depositor, Popular, Inc., as Guarantor, The Bank of New York
Mellon, as Property Trustee, BNY Mellon Trust of Delaware, as Delaware
trustee, the Administrative Trustees named therein, and the several
Holders, as defined therein (incorporated by reference to Exhibit 4.6
of the Corporations Current Report on Form 8-K dated August 31, 2009,
and filed on September 3, 2009).
|
|
|
|
|
|
|
4.31
|
|
|
Certificate of Trust of New Popular North America Capital Trust I
(incorporated by reference to Exhibit 4.6 of the Corporations Current
Report on Form 8-K dated August 31, 2009 and filed on September 3,
2009, included as Exhibit A of the Amended and Restated Trust
Agreement).
|
|
|
|
|
|
|
4.32
|
|
|
Form of Capital Securities Certificate for Popular North America
Capital Trust I (incorporated by reference to Exhibit 4.6 of the
Corporations Current Report on Form 8-K dated August 31, 2009 and
filed on September 3, 2009 included as Exhibit E of the Amended and
Restated Trust Agreement.
|
|
|
|
|
|
|
4.33
|
|
|
Guarantee Agreement, dated as of August 31, 2009, by and among Popular
North America, Inc., as Guarantor, Popular, Inc., as Additional
Guarantor and The Bank of New York Mellon, as Guarantee Trustee,
relating to Popular North America Capital Trust I (incorporated by
reference to Exhibit 4.10 of the Corporations Current Report on Form
8-K dated August 31, 2009, and filed on September 3, 2009).
|
|
|
|
|
|
|
4.34
|
|
|
Certificate of Junior Subordinated Debenture relating to the
Corporations 6.125% Junior Subordinated Debentures, Series A due
December 1, 2034 (incorporated by reference to Exhibit 4.6 of the
Corporations Current Report on Form 8-K dated December 3, 2004, as
filed with the SEC on December 3, 2004).
|
|
|
|
|
|
|
4.35
|
|
|
Second Supplemental Indenture, dated as of November 30, 2004, between
the Corporation and JP Morgan Trust Company, National Association
(formerly Bank One Trust Company, N.A.) (incorporated by reference to
Exhibit 4.3 of the Corporations Current Report on Form 8-K dated
December 3, 2004, as filed with the SEC on December 3, 2004).
|
|
|
|
|
|
|
4.36
|
|
|
Supplemental Indenture, dated as of August 31, 2009, between Popular,
Inc., as Issuer, and The Bank of New York Mellon with respect to the
Debentures held by Popular Capital Trust II (incorporated by reference
to Exhibit 4.4 of the Corporations Current Report on Form 8-K dated
August 31, 2009, and filed on September 3, 2009).
|
|
|
|
|
|
|
4.37
|
|
|
Amended and Restated Declaration of Trust and Trust Agreement of
Popular Capital Trust II, dated as of August 31, 2009, among Popular,
Inc., as Depositor, The Bank of New York Mellon, as Property Trustee,
BNY Mellon Trust of Delaware, as Delaware trustee, the Administrative
Trustees named therein, and
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
|
the several Holders, as defined therein
(incorporated by reference to Exhibit 4.8 of the Corporations Current
Report on Form 8-K dated August 31, 2009, and filed on September 3,
2009).
|
|
|
|
|
|
|
4.38
|
|
|
Certificate of Trust of New Popular Capital Trust II (incorporated by
reference to Exhibit 4.8 of the Corporations Current Report on Form
8-K dated August 31, 2009 and filed on September 3, 2009, included as
Exhibit A of the Amended and Restated Declaration of Trust and Trust
Agreement).
|
|
|
|
|
|
|
4.39
|
|
|
Form of Global Capital Securities Certificate for Popular Capital Trust
II (incorporated by reference to Exhibit 4.8 of the Corporations
Current Report on Form 8-K dated August 31, 2009 and filed on September
3, 2009, included as Exhibit C of the Amended and Restated Declaration
of Trust and Trust Agreement).
|
|
|
|
|
|
|
4.40
|
|
|
Guarantee Agreement, dated as of August 31, 2009, between Popular,
Inc., as Guarantor and The Bank of New York Mellon, as Guarantee
Trustee, relating to Popular Capital Trust II (incorporated by
reference to Exhibit 4.12 of the Corporations Current Report on Form
8-K dated August 31, 2009, and filed on September 3, 2009).
|
|
|
|
|
|
|
4.41
|
|
|
Popular North America, Inc. 6.85% Senior Note due on 2012 (incorporated
by reference to Exhibit 4.41 of the Corporations Annual Report on Form
10-K for the fiscal year ended December 31, 2007).
|
|
|
|
|
|
|
4.42
|
|
|
Certificate of Designation of the Series B Preferred Stock
(incorporated by reference to Exhibit 2.3 to the Corporations Current
Report on Form 8-A filed with the SEC on May 28, 2008 (related to
Registration No. 333-135093).
|
|
|
|
|
|
|
4.43
|
|
|
Form of certificate representing the Series B Preferred Stock
(incorporated by reference to Exhibit 2.4 to the Corporations Current
Report on Form 8-A filed with the SEC on May 28, 2008 (related to
Registration No. 333-135093).
|
|
|
|
|
|
|
4.44
|
|
|
Warrant dated December 5, 2008 to purchase shares of Common Stock of
Popular, Inc. (incorporated by reference to Exhibit 4.1 of the
Corporations Current Report on Form 8-K dated December 5, 2008, as
filed with the SEC on December 8, 2008).
|
|
|
|
|
|
|
4.45
|
|
|
Indenture between Popular, Inc. and the Bank of New York Mellon, dated
August 24, 2009 (incorporated by reference to Exhibit 4.2 of the
Corporations Current Report of Form 8-K dated August 21, 2009 and
filed on August 26, 2009).
|
|
|
|
|
|
|
4.46
|
|
|
First Supplemental Indenture between Popular, Inc. and Bank of New York
Mellon, dated August 24, 2009 (incorporated by reference to Exhibit 4.3
of the Corporations Current Report of Form 8-K dated August 21, 2009
and filed on August 26, 2009).
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
4.47
|
|
|
Amended and Restated Declaration of Trust and Trust Agreement among
Popular, Inc., the Bank of New York Mellon, BNY Mellon Trust of
Delaware, and the several holders of the Trust Securities, dated as of
August 24, 2009, with respect to Popular Capital Trust III
(incorporated by reference to Exhibit 4.1 of the Corporations Current
Report of Form 8-K dated August 21, 2009 and filed on August 26, 2009).
|
|
|
|
|
|
|
4.49
|
|
|
Form of Capital Securities Certificate (incorporated by reference to
Exhibit 4.1 of the Corporations Current Report on form 8-K dated
August 21, 2009 and filed on August 26, 2009, included as Exhibit C of
the Amended and Restated Declaration of Trust and Trust Agreement).
|
|
|
|
|
|
|
4.50
|
|
|
Guarantee Agreement by and between Popular, Inc. the Bank of New York
Mellon, and Popular Capital Trust III, dated as of August 24, 2009
(incorporated by reference to Exhibit 4.4 of the Corporations Current
Report of Form 8-K dated August 21, 2009 and filed on August 26, 2009).
|
|
|
|
|
|
|
10.1
|
|
|
Amendment to Popular, Inc. Senior Executive Long-Term Incentive Plan,
dated April 23, 1998 (incorporated by reference to Exhibit 10.8.2. of
the Corporations Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 (File No. 033-61601).
|
|
|
|
|
|
|
10.2
|
|
|
Popular, Inc. 2001 Stock Option Plan (incorporated by reference to
Exhibit 4.4 of the Corporations Registration Statement on Form S-8,
dated May 10, 2001).
|
|
|
|
|
|
|
10.3
|
|
|
Popular, Inc. 2004 Omnibus Incentive Plan (incorporated by reference to
Exhibit 10.21 of the Corporations Annual Report on Form 10-K for the
fiscal year ended December 31, 2005).
|
|
|
|
|
|
|
10.4
|
|
|
Form of Compensation Agreement for Directors Elected Chairman of a
Committee (incorporated by reference to Exhibit 10.1 of the
Corporations Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004).
|
|
|
|
|
|
|
10.5
|
|
|
Form of Compensation Agreement for Directors not Elected Chairman of a
Committee (incorporated by reference to Exhibit 10.2 of the
Corporations Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004).
|
|
|
|
|
|
|
10.6
|
|
|
Compensation Agreement for Federic V. Salerno as director of Popular,
Inc. (incorporated by reference to Exhibit 10.3 of the Corporations
Quarterly Report on Form 10-Q for the quarter ended September 30,
2004).
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
10.7
|
|
|
Compensation Agreement for William J. Teuber as director of Popular,
Inc. (incorporated by reference to Exhibit 10.4 of the Corporations
Quarterly Report on Form 10-Q for the quarter ended September 30,
2004).
|
|
|
|
|
|
|
10.8
|
|
|
Compensation agreement for Michael Masin as director of the
Corporation, dated January 25, 2007, (incorporated by reference to
Exhibit 10.20 of the Corporations Annual Report on Form 10-K for the
fiscal year ended December 31, 2007).
|
|
|
|
|
|
|
10.9
|
|
|
Compensation agreement for Alejandro M. Ballester as director of the
Corporation dated January 28, 2010.
|
|
|
|
|
|
|
10.10
|
|
|
Compensation agreement for Carlos A. Unanue as director of the
Corporation dated January 28, 2010.
|
|
|
|
|
|
|
10.11
|
|
|
Asset Purchase Agreement by and among Goldman Sachs Mortgage Company,
Goldman, Sachs & Co., Litton Loan Servicing, LP, as Purchasers and
Popular Mortgage Servicing, Inc., Equity One, Inc., Equity One,
Incorporated, Equity One Consumer Loan Company, Inc., E-Loan Auto Fund
Two, LLC, Popular Financial Services, LLC, Popular FS, LLC, as Sellers,
and Popular, Inc. and Popular North America, Inc. (incorporated by
reference to Exhibit 10.2 of the Corporations Quarterly Report in Form
10-Q for the quarter ended September 30, 2008).
|
|
|
|
|
|
|
10.12
|
|
|
Resignation and Transition Agreement dated as of November 6, 2008 by
and among Popular, Inc., Banco Popular de Puerto Rico, Banco Popular
North America, and Roberto Herencia (incorporated by reference to
Exhibit 10.1 of the Corporations Quarterly Report in Form 10-Q for the
quarter ended September 30, 2008).
|
|
|
|
|
|
|
10.13
|
|
|
Form of Letter Agreement Regarding Standards for Incentive Compensation
to Executive Officers under the TARP Capital Purchase Program
(incorporated by reference to the Corporations Annual Report of Form
10-K for the fiscal year ended December 31, 2008).
|
|
|
|
|
|
|
10.14
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|
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Purchase Agreement dated as of December 5, 2008 between Popular, Inc.
and the United States Department of the Treasury (incorporated by
reference to Exhibit 10.1 of the Corporations Current Report on Form
8-K dated December 5, 2008, as filed with the SEC on December 8, 2008).
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10.15
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Exchange Agreement by and among Popular, Inc., Popular Capital Trust
III and the United States Department of Treasury, dated as of August
21, 2009 (incorporated by reference to Exhibit 10.1 of the
Corporations Current Report on Form 8-K dated August 31, 2009 and
filed on August 26, 2009).
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Exhibit No.
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Description
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12.1
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The Corporations Computation of Ratio of Earnings to Fixed Charges.
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13.1
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The Corporations Annual Report to Shareholders for the year ended
December 31, 2009.
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21.1
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Schedule of Subsidiaries of the Corporation
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23.1
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Consent of Independent Registered Public Accounting Firm.
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31.1
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Certification
of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2
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Certification
of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification of Principal Executive Officer 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
of Principal Financial Officer 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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99.1
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Certification
of Principal Executive Officer Pursuant to 31 C.F.R. § 30.15
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99.2
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Certification
of Principal Financial Officer Pursuant to 31 C.F.R. § 30.15
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Popular, Inc. has not filed as exhibits certain instruments defining the rights of holders of debt
of Popular, Inc. not exceeding 10% of the total assets of Popular, Inc. and its consolidated
subsidiaries. Popular, Inc. hereby agrees to furnish upon request to the Commission a copy of each
instrument defining the rights of holders of senior and subordinated debt of Popular, Inc., or of
any of its consolidated subsidiaries.
Exhibit 13.1
2009
Annual Report | Informe Annual
2009
Annual Report | Informe Anual
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1
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Letter to Shareholders
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2
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Institutional Values
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5
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2009 Highlights, Key Facts and Figures
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6
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Fundación Banco Popular 30 Years
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8
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25-Year Historical Financial Summary
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10
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Our People / Our Creed / Board of Directors Executive Officers / Corporate Information
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21
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Financial Review and Supplementary Information
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Founded in 1893, Popular, Inc. (NASDAQ:
BPOP) is the No. 1 banking institution by both
assets and deposits in Puerto Rico and ranks 38th
by assets among U.S. banks. In the United States,
Popular has established a community-banking
franchise providing a broad range of financial
services and products with branches in New York,
New Jersey, Illinois, Florida and California.
Popular also continues to expand its expertise in
processing technology through its subsidiary
EVERTEC, which processes approximately 1.1 billion
transactions annually in the Caribbean and Latin
America.
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11
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Carta a Nuestros Accionistas
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12
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Valores Institucionales
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15
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Puntos Principales, Cifras y Datos Clave de 2009
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16
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Fundación Banco Popular 30 Años
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18
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Resumen Financiero Histórico
25 Años
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20
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Nuestra Gente / Nuestro Credo / Junta de Directores Oficiales Ejecutivos / Información Corporativa
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Popular, Inc. (NASDAQ: BPOP) se fundó en
1893; es la principal institución bancaria en
Puerto Rico, tanto en activos y depósitos, y es el
trigésimo octavo banco en activos en los Estados
Unidos. En Estados Unidos Popular tiene una
franquicia bancaria de base comunitaria que provee
una amplia gama de servicios y productos
financieros en sucursales en Nueva York, Nueva
Jersey, Illinois, Florida y California.
Popular también continúa expandiendo su
capacidad en la tecnología de procesamiento de
datos a través de su subsidiaria EVERTEC, que
procesa aproximadamente 1,100 millones de
transacciones anualmente en el Caribe y en
América Latina.
LETTER TO
Shareholders
Financial institutions again faced significant
challenges in 2009 amid deep economic recession,
continued deterioration in credit quality, and new
regulatory requirements for bank capital
structures.
Reflecting this difficult economic
and credit environment, Popular reported a net loss
of $574 million in 2009, compared with a net loss of
$1.2 billion in 2008. Our share price was negatively
impacted, closing the year at $2.26, compared with
$5.16 in 2008.
DESPITE THESE CHALLENGES, WE REGISTERED A
NUMBER OF NOTABLE ACCOMPLISHMENTS IN 2009 AS WE
CONTINUED TO FOCUS ON EXECUTING THE TOUGH BUT
NECESSARY ACTIONS TO POSITION POPULAR FOR A
RETURN TO PROFITABILITY AND DELIVER VALUE TO OUR
SHAREHOLDERS OVER THE LONG TERM.
Notable actions taken in 2009 include a
significant increase in the Corporations Tier 1
common equity ratio to well above regulatory
guidelines; improved credit risk management; and
substantial downsizing of our operations in the
continental United States, where we continued to
reduce both our assets and U.S. footprint.
These actions were accompanied by aggressive
efforts to reduce our expense base. Our efforts
included, among other measures, a freeze in the
pension plan and the suspension of matching
contributions to all savings plans. Personnel
expenses declined 12% and the number of employees
fell 11% during the year.
ECONOMIC AND CREDIT ENVIRONMENT
The Puerto Rico
economy contracted 3.7% during fiscal year
2009.
The unemployment rate fluctuates around
15% and the real estate market remains under
pressure due to oversupply in the housing sector and
decreased economic activity. While the recession is
expected to continue in 2010, some indices are showing signs of
stabilization. The unemployment rate has improved
slightly in recent months, and the influx of U.S.
government stimulus funds could help reverse
negative trends.
In the United States, the unemployment rate
remains close to 10% and real estate prices
continue to decline, albeit at slower rates in some
markets. Despite early signs of an economic
recovery in the U.S. in the second half of 2009,
we are unlikely to see significant changes in
credit quality until the employment market
improves.
The economic environment continued to
impact credit quality throughout the financial
services industry. Net charge-off and non-current
loan rates stand at their highest level since
insured institutions began reporting them to the
FDIC in 1984. Given the mixed signals in both
Puerto Rico and the United States, our outlook
remains cautious until we see clearer signs that
an economic recovery is under way.
Non-performing assets were $2.4 billion or
6.91% of total assets, compared with $1.3 billion
and 3.32%, respectively, in 2008. Net charge-offs
increased from $600 million in 2008 to $1.0 billion
in 2009. As a result, the provision for loan losses
was $1.4 billion in 2009, up 42% from 2008.
CAPITAL STRUCTURE
Given the widespread turmoil in the credit and
financial markets, and the erosion of capital
resulting from the large losses sustained by many
banks, the Federal reserve conducted its Supervisory
Capital Assessment Program (SCAP) in 2009 to
determine the amount of capital needed by the
largest bank holding companies to provide a buffer
against larger than expected losses in a more
adverse credit scenario.
Regulators identified
voting common equity as the dominant element of
Tier 1 capital and established a guideline of a
minimum 4% Tier 1 common/risk-weighted assets ratio
for determining capital needs.
Even though we were not one of the institutions
included in SCAP, we executed several actions to
increase common equity capital above the new
guideline. As a result, the Corporations Tier 1
common equity ratio, which stood at 2.45% before
these actions, was raised to 6.39% as of December 31,
2009. All other capital ratios also remain above the regulatory
minimum well-capitalized levels.
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POPULAR,
INC. 2009 ANNUAL REPORT
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1
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LETTER TO
Shareholders
We made the difficult decision to suspend
dividends on shares of common stock and Series A and
B Preferred Stock. We also launched an offer to
exchange outstanding Series A Preferred Stock,
Series B Preferred Stock, and the outstanding Trust
Preferred Securities for newly issued common stock.
Tendered securities amounted to $934 million, and
approximately 357.5 million shares were issued.
Finally, we completed the exchange of all $935
million of outstanding shares of Series C Preferred
Stock owned by the U.S. Treasury for $935 million of
newly issued trust preferred securities (the New
Trust Preferred Securities). These actions
generated more than $1.4 billion of Tier 1 common
equity, comprised of approximately $920 million as
a result of the Exchange Offer and $485 million
from the exchange of the U.S. Treasurys shares,
representing the difference between the book value
of the preferred stock and the estimated fair value
of the New Trust Preferred Securities.
BANCO POPULAR PUERTO RICO
Banco
Popular Puerto Rico, which includes the
operations of the bank and its specialized mortgage,
auto loan, securities and insurance subsidiaries,
reported net income of $170 million in 2009, compared
with $239 million in 2008.
Results were
impacted by an increase of $105 million in the
provision for loan losses, and a decrease of $92
million in net interest income due to a lower yield
on earning assets resulting from an increase in
non-performing loans and a low interest rate
environment. Average earning assets declined mainly
due to a lower volume of investments and loans, in
part due to a slowdown in loan originations and
increased levels of charge-offs. These negative
factors were partially offset by an increase of $157
million in gains on the sale of securities. Our
continued focus on cost reduction resulted in lower
expenses in the areas of personnel, business
promotion and technology. However, higher FDIC
insurance assessments on deposits resulted in higher
total expenses in 2009 than in the previous year.
CREDIT QUALITY REMAINS THE CRITICAL ISSUE
IMPACTING THE PROFITABILITY OF OUR FINANCIAL
SERVICES OPERATIONS IN PUERTO RICO. NET CHARGE-OFFS
WERE $512 MILLION IN 2009, AN INCREASE OF 46% FROM
THE PREVIOUS YEAR. REFLECTING THE GENERAL ECONOMIC
ENVIRONMENT AND CONTINUED OVERSUPPLY IN THE
RESIDENTIAL HOUSING MARKET, LOSSES WERE CONCENTRATED
IN THE CONSTRUCTION AND COMMERCIAL CREDIT PORTFOLIOS,
WHERE BANCO POPULAR PUERTO RICO TOOK FURTHER STEPS TO
MANAGE CREDIT QUALITY PROACTIVELY AND INTENSIVELY.
In the Commercial Banking Group, all credit
functions were transferred from the relationship
officers to a group of analysts responsible for
evaluating loans and making recommendations to credit
officers. We also introduced monthly portfolio
reviews for larger commercial and construction loans
in order to identify potential problems early in the
process and manage them accordingly.
In the
construction portfolio, we have focused on working
with developers to provide them with market
intelligence and marketing and sales support. In
July, Popular Mortgage launched a special offer for
housing units in projects financed by Banco Popular.
As a result of these efforts, the sale of housing
units in our projects increased by 40% between the
first and second half of the year.
The consumer
credit area continued to manage its underwriting
processes to minimize risks and implemented more
sophisticated tools to prioritize collection efforts.
We intensified our efforts to work with clients in
financial distress, doubling our loss mitigation
production.
In an effort to support not only our customers
but the general population as well, Banco Popular
launched a financial education program. Seminars were
conducted at Banco Popular branches and several
shopping centers throughout the island
Institutional values
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Social Commitment
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Customer
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We are committed to work
actively in promoting the
social and economic well-being
of the communities we serve.
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We achieve satisfaction for
our customers and earn their
loyalty by adding value to each
interaction. Our relationship
with the customer takes
precedence over any particular
transaction.
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2 POPULAR,
INC. 2009 ANNUAL REPORT
WITH APPROXIMATELY 1.4 MILLION
CUSTOMERS, BANCO POPULAR PUERTO RICO IS BY FAR THE STRONGEST PLAYER ON THE ISLAND, WHERE 80% OF
BANKED INDIVIDUALS HAVE A RELATIONSHIP WITH POPULAR. IT HAS THREE TIMES AS MANY CUSTOMERS,
BRANCHES, ATMS AND SHARE OF DEPOSITS THAN ITS CLOSEST COMPETITOR IN EACH OF THESE CATEGORIES.
on topics such as household budgeting,
managing savings and credit, communicating with
creditors and managing a possible bankruptcy.
Despite the current challenges, Banco Populars
ability to generate top line revenue continues to be
strong, which bodes well for profitability once
credit costs in our home market normalize. With
approximately 1.4 million customers, Banco Popular
Puerto Rico is by far the strongest player on the
island, where 80% of banked individuals have a
relationship with Popular. It has three times as
many customers, branches, ATMs and share of
deposits than its closest competitor in each of
these categories. Its powerful brand recognition is
substantially greater than that of the next bank and
surpasses that of all local brands.
Our goal remains
to work with our customers to find mutually
beneficial alternatives to navigate this difficult
economy and to offer quality products
and services to our vast customer base, as we have done for well over a century.
BANCO POPULAR NORTH AMERICA
In the United States,
high credit costs continued to drive losses at Banco
Popular North America (BPNA), which includes
E-LOANs remaining portfolio and deposit
operations.
BPNA reported a net loss of $726
million compared with a net loss of $525 million in
2008. The provision expense totaled $782 million, an
increase of 66% from the previous year. Net
charge-offs were $515 million, compared with $248
million in 2008. The commercial, construction,
mortgage and E-LOAN home equity loan portfolios
suffered the most from the U.S. economic recession
and the turmoil in the real estate market.
Management successfully pursued significant restructuring
efforts in 2009 under the comprehensive plan we
announced in late 2008 to refocus BPNA on its core
business. As President of BPNA and Chief Operating
Officer of Popular, Inc., David H. Chafey, Jr.
assumed responsibility for integrating the bank in
Puerto Rico and the bank in the United States under a
single management group to achieve efficiencies and
greater control of the U.S. restructuring efforts.
In 2009, consistent with our plan, we exited or
downsized asset-generating businesses that were not
relationship-based or whose profitability was being
severely impacted by market conditions. As part of
this effort, we sold the assets of Popular Equipment
Finance, our leasing unit in the U.S. These
initiatives, combined, resulted in an estimated
reduction of approximately $1.3 billion in loan
balances when compared to 2008. We closed, sold or
consolidated a total of 38 underperforming branches,
leaving BPNA with a network of 101 branches. We
successfully transferred all of E-LOANs remaining
operations, which consist of the gathering of
online deposits for BPNA and the transfer of loan
applications to third parties, to BPNA and EVERTEC.
Headcount in our U.S. operations decreased by close
to 900 employees or 40% of the workforce.
THE RESTRUCTURING EFFORTS UNDERTAKEN IN 2009
ARE PART OF A LARGER PROCESS WE BEGAN IN 2007 TO
REDUCE THE SIZE OF OUR U.S. OPERATIONS.
This process includes major actions such as
the discontinuance of wholesale subprime lending
operations, the sale of Equity One assets to
American General Financial, the sale of Popular
Financial Holding (PFH) assets to Goldman Sachs
affiliates, the discontinuance of E-LOANs lending
operations, and the substantial reduction of BPNAs
support areas by leveraging the infrastructure
available in Puerto Rico. The number of employees in
our U.S. operations, including PFH, has fallen from
4,800 at the peak in 2005 to 1,400 in 2009, a
reduction of 71%, and the number of offices has been
cut to approximately one third. Assets in the U.S.
have decreased from $22 billion at the close of 2006
to $11 billion at the close of 2009, and their
share of Populars overall assets has declined from
46% in 2006 to 32% in 2009.
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Integrity
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Excellence
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Innovation
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Our People
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Shareholder Value
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We are guided by the
highest standards of ethics,
integrity and morality.
Our customers trust is
of utmost importance
to our institution.
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We believe there is only
one way to do things:
the right way.
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We foster a constant
search for new solutions as
a strategy to enhance our
competitive advantage.
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We strive to attract,
develop, compensate
and retain the most
qualified people in a
work environment
characterized by discipline
and affection.
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Our goal is to produce
high and consistent
financial returns for our
shareholders, based on
a long-term view.
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3
LETTER TO
Shareholders
As a result of these painful but necessary
actions, BPNA is now a community bank, with locations
in Florida, New York, New Jersey, Illinois and
California focused on serving individual and
commercial customers through quality products and
services. We will continue to work tirelessly to
maximize the potential of these operations and reach
appropriate levels of profitability. Our goal
continues to be to capture the value of our operation
on the U.S. mainland to Popular as an additional and
diversified source of revenue.
EVERTEC
EVERTEC, our processing and information
technology company, reported net income of $50
million in 2009, compared with $44 million in
2008.
While EVERTEC was not immune to the
effects of the economic recession in Puerto Rico, the
companys main market, it succeeded in maintaining a
similar level of revenues to 2008. This, combined
with a significant reduction in operational expenses,
increased its net contribution to Popular in 2009.
THE ATH NETWORK HAD AN EXCELLENT YEAR,
INCLUDING HIGH TRANSACTION VOLUMES AND
DEVELOPMENT OF SEVERAL INNOVATIVE PRODUCTS.
Latin America is an increasingly important
part of EVERTECs business. In 2009, we continued
our expansion in Mexico, where we launched
operations in 2008, and entered the Panama market.
We also are expanding our product offering in
these countries, leveraging the wide variety of
services we provide in Puerto Rico.
These services, which include business process
outsourcing, network services, human resources
solutions, software development and consulting,
make EVERTEC a complete information technology
provider. With offices in nine countries servicing
customers in 16 countries, EVERTEC continues to
provide Popular with a solid and diversified
revenue stream.
OUR PEOPLE
Our accomplishments in 2009 are
significant in light of the current environment,
and would not have been possible without the
dedication and resolve of our senior management
team, our employees and the support and guidance of
our Board of Directors.
After more than two decades of service,
Juan J. Bermúdez and Francisco J. Rexach, Jr.
retired from our Board. Their insight and counsel
will be missed. We are pleased to welcome two new
directors, Alejandro M. Ballester and Carlos A.
Unanue. Mr. Ballester is President of Ballester
Hermanos, a major food, wine and spirits distributor
in Puerto Rico, and Mr. Unanue is President of Goya
of Puerto Rico, part of Goya Foods, the largest
Hispanic-owned food company in the United States.
Both are accomplished professionals and will bring
great value and expertise to our Board and help
lead this great organization into the future.
Popular boasts 9,400 highly committed employees,
with an employee satisfaction level comparable to or
higher than organizations recognized as the best
places to work. To them, I extend my most heartfelt
gratitude. I would like to recognize the work of
Emilio E. Piñero who, after dedicating 39 years to
our organization, decided to enjoy a well-deserved
retirement. I thank Emilio dearly for his enthusiasm
and unwavering commitment throughout his many years
at Popular. I also want to express my gratitude to
Brunilda Santos de Alvarez, our General Counsel, who
has retired after more than two
decades of service to Popular. Bruni has always
been an invaluable source of guidance and support, an
extraordinary mentor to many, and a great friend to
all of us who had the privilege of working close to
her. Her professionalism and wise demeanor will be
greatly missed, and we all wish her the best.
Our organization has a 116-year history, and
each time it has faced challenges as difficult, if
not more so than those we face now, it has emerged
stronger. I am confident that with the same spirit
that has guided us throughout our history and the
continued commitment of everyone in our organization
we will once again overcome the challenges and set
Popular firmly on a path to profitability for the
future.
Thank you for your continued support.
Richard L. Carrión
Chairman and Chief Executive Officer
4
POPULAR, INC. 2009 ANNUAL REPORT
2009
HIGHLIGHTS
Key Facts and Figures
1
As of
12/31/09
2
As of 9/30/09
POPULAR, INC.
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38th largest bank holding company in the U.S. with $34.7 billion in assets and 9,400 employees
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2009 Highlights
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Generated more than $1.4 billion of Tier 1 Common Equity in a series of exchange transactions
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Continued the restructuring of our operations in the United States, selling or closing
unprofitable businesses and reducing the number of branches from 139 to 101
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Restructured the Corporations credit divisions by relocating the most experienced credit
officers and transferring credit functions from relationship officers to a special group of
analysts responsible for evaluating loans and making recommendations
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BANCO POPULAR PUERTO RICO
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Approximately 1.4 million clients
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181 branches and 51 offices throughout Puerto Rico and the
Virgin Islands
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6,066 FTEs
1
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588 ATMs and 26,508 POS throughout Puerto Rico and the
Virgin Islands
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No. 1 market share in total deposits (35.0%)
2
and total loans (21.8%)
2
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$23.6 billion in assets, $15.1 billion in loans and $17.8 billion in deposits
1
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BANCO POPULAR NORTH AMERICA
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Approximately 422,000 clients
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101 branches throughout five states: 41 in New York and New
Jersey, 16 in Illinois, 20 in Florida and 24 in California
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1,410 FTEs
1
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E-LOAN captured $850 million in deposits
1
and has approximately 39,400
clients
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$10.8 billion in assets, $8.7 billion in loans and $8.3 billion in total
deposits
1
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EVERTEC
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Leading ATM/POS processor in the Caribbean and Central America
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9 offices servicing customers in 16 countries
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1,767 FTEs
1
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Processed over 1.1 billion transactions
1
, of which more than 565 million corresponded
to the ATH
®
Network
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5,069 ATMs and over 133,461 POS throughout the United States and Latin America
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5
FUNDACIÓN BANCO POPULAR
30 Years
Banco Popular is proud of its 116-year legacy of
community involvement.
Fundación Banco
Popular, the philanthropic arm of Popular, is devoted
to improving the quality of life in the communities
we are privileged to serve.
We challenge ourselves
every day to achieve the highest levels of corporate
social responsibility through our actions and values.
We remain steadfast in our commitment to education
and community development through our philanthropic
efforts and through active employee participation.
Thirty years after its creation, Fundación Banco
Popular continues to cultivate long-term
relationships with grassroots and community
organizations, while inspiring positive change
through education and community development
initiatives. We have proudly supported more than 250
organizations and contributed $21,147,866 from
1982-2009.
EDUCATION
We believe that education is the cornerstone of a
communitys future.
Fundación Banco
Popular focuses on programs that emphasize school
transformation, alternative education and
after-school programs. We support:
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Teacher Development
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School Desertion Prevention
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After-School Programs
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Arts Education
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Special Education
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Leadership Development
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Community Library Services
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Mentoring
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Vocational Education
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THROUGHOUT ITS 30 YEARS, FUNDACIÓN BANCO
POPULAR HAS CREATED SEVEN ENDOWED SCHOLARSHIP
FUNDS AT UNIVERSITIES THAT PROVIDE OPPORTUNITIES
FOR PUERTO RICAN STUDENTS. TWO HUNDRED AND
SIXTY ONE STUDENTS HAVE BENEFITED FROM THESE
SCHOLARSHIPS. THE RAFAEL CARRIÓN, JR. SCHOLARSHIP
FUND FOR THE CHILDREN OF POPULAR EMPLOYEES
HAS AWARDED 1,826 SCHOLARSHIPS FOR A TOTAL
INVESTMENT OF $2,678,841.
The past few years have brought great challenges and
economic difficulty. Now more than ever, we passionately
work hand-in-hand with our communities to stimulate
growth, support education and encourage cultural expression.
COMMUNITY DEVELOPMENT
Fundación Banco Popular focuses its resources on
empowering communities and individuals to help
spur local economic growth.
Through its efforts,
Fundación Banco Popular supports:
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Community Self-Management
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Entrepreneurship Development
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Community Support for Schools
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Controlled Substance Use Prevention
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Teen Pregnancy Prevention and Support
for Single Teen Mothers
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6
POPULAR, INC. 2009 ANNUAL REPORT
THE PAST FEW YEARS HAVE BROUGHT
GREAT CHALLENGES AND ECONOMIC DIFFICULTY. NOW MORE THAN EVER, WE PASSIONATELY WORK HAND-IN-HAND
WITH OUR COMMUNITIES TO STIMULATE GROWTH, SUPPORT EDUCATION, AND ENCOURAGE CULTURAL EXPRESSION.
Our social commitment was expanded in 2004 to
include Populars operations in the United States
through Banco Popular Foundation. The
employee-sponsored organizations focus their
efforts on education, affordable housing, small
business and community development. During the last
five years, the foundation has awarded $1,607,200
in 152 grants to organizations in the communities
we serve in the United States.
EMPLOYEES VOLUNTARY SERVICE
Our employees
invest thousands of hours of community service in
local and national initiatives each year.
Over 95% of the non-profit
organizations we support have a Popular employee
serving as an active member.
Last year, more than 3,000 employees of
Banco Popular from Puerto Rico, California,
Florida, Illinois, New Jersey, New York and the
Virgin Islands joined their families and friends
to volunteer with local organizations and
initiatives for
Make a Difference Day
.
POPULAR EMPLOYEES ALSO MAKE ECONOMIC
CONTRIBUTIONS TO BOTH FUNDACIÓN BANCO POPULAR AND THE
BANCO POPULAR FOUNDATION. IN 2009, EMPLOYEES
CONTRIBUTED $692,759. SINCE 2000, EMPLOYEES HAVE
CONTRIBUTED OVER $4.5 MILLION TO BOTH FOUNDATIONS.
The bank emphasizes service as an
important element of our culture and what we
offer to our communities. Much has changed over
the years, except our unwavering dedication to
service.
BE A VOICE IN OUR CITYS FUTURE
The Rafael Carrión Pacheco Exhibit Hall, a unique
cultural space organized by Banco Popular in
its historic old San Juan building, has
served to enrich Puerto Ricos cultural life
for over 20 years. We have organized 16
exhibits focusing on initiatives that improve
Puerto Ricos urban landscape, illustrate our
rich musical and sports heritage, and discuss
key environmental issues. Our current exhibit
On Rails
, enjoyed by over 41,000 visitors,
demonstrates commuting access to Old San
Juan, transportation challenges and proposes
viable solutions by using an interactive,
38-foot scale model. The project has garnered
strong dialogue and a public plan to develop
a tram option for the city is being advanced.
7
POPULAR, INC.
25-YEAR
Historical Financial Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions, except per share data)
|
|
1985
|
|
|
1986
|
|
|
1987
|
|
|
1988
|
|
|
1989
|
|
|
1990
|
|
|
1991
|
|
|
1992
|
|
|
1993
|
|
|
1994
|
|
|
1995
|
|
Selected Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
32.9
|
|
|
$
|
38.3
|
|
|
$
|
38.3
|
|
|
$
|
47.4
|
|
|
$
|
56.3
|
|
|
$
|
63.4
|
|
|
$
|
64.6
|
|
|
$
|
85.1
|
|
|
$
|
109.4
|
|
|
$
|
124.7
|
|
|
$
|
146.4
|
|
Assets
|
|
|
4,141.7
|
|
|
|
4,531.8
|
|
|
|
5,389.6
|
|
|
|
5,706.5
|
|
|
|
5,972.7
|
|
|
|
8,983.6
|
|
|
|
8,780.3
|
|
|
|
10,002.3
|
|
|
|
11,513.4
|
|
|
|
12,778.4
|
|
|
|
15,675.5
|
|
Net Loans
|
|
|
1,715.7
|
|
|
|
2,271.0
|
|
|
|
2,768.5
|
|
|
|
3,096.3
|
|
|
|
3,320.6
|
|
|
|
5,373.3
|
|
|
|
5,195.6
|
|
|
|
5,252.1
|
|
|
|
6,346.9
|
|
|
|
7,781.3
|
|
|
|
8,677.5
|
|
Deposits
|
|
|
3,365.3
|
|
|
|
3,820.2
|
|
|
|
4,491.6
|
|
|
|
4,715.8
|
|
|
|
4,926.3
|
|
|
|
7,422.7
|
|
|
|
7,207.1
|
|
|
|
8,038.7
|
|
|
|
8,522.7
|
|
|
|
9,012.4
|
|
|
|
9,876.7
|
|
Stockholders Equity
|
|
|
226.4
|
|
|
|
283.1
|
|
|
|
308.2
|
|
|
|
341.9
|
|
|
|
383.0
|
|
|
|
588.9
|
|
|
|
631.8
|
|
|
|
752.1
|
|
|
|
834.2
|
|
|
|
1,002.4
|
|
|
|
1,141.7
|
|
|
Market Capitalization
|
|
$
|
216.0
|
|
|
$
|
304.0
|
|
|
$
|
260.0
|
|
|
$
|
355.0
|
|
|
$
|
430.1
|
|
|
$
|
479.1
|
|
|
$
|
579.0
|
|
|
$
|
987.8
|
|
|
$
|
1,014.7
|
|
|
$
|
923.7
|
|
|
$
|
1,276.8
|
|
Return on Assets (ROA)
|
|
|
0.89
|
%
|
|
|
0.88
|
%
|
|
|
0.76
|
%
|
|
|
0.85
|
%
|
|
|
0.99
|
%
|
|
|
1.09
|
%
|
|
|
0.72
|
%
|
|
|
0.89
|
%
|
|
|
1.02
|
%
|
|
|
1.02
|
%
|
|
|
1.04
|
%
|
Return on Equity (ROE)
|
|
|
15.59
|
%
|
|
|
15.12
|
%
|
|
|
13.09
|
%
|
|
|
14.87
|
%
|
|
|
15.87
|
%
|
|
|
15.55
|
%
|
|
|
10.57
|
%
|
|
|
12.72
|
%
|
|
|
13.80
|
%
|
|
|
13.80
|
%
|
|
|
14.22
|
%
|
Per Common Share
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Basic
|
|
$
|
0.23
|
|
|
$
|
0.25
|
|
|
$
|
0.24
|
|
|
$
|
0.30
|
|
|
$
|
0.35
|
|
|
$
|
0.40
|
|
|
$
|
0.27
|
|
|
$
|
0.35
|
|
|
$
|
0.42
|
|
|
$
|
0.46
|
|
|
$
|
0.53
|
|
Net Income (Loss) Diluted
|
|
$
|
0.23
|
|
|
$
|
0.25
|
|
|
$
|
0.24
|
|
|
$
|
0.30
|
|
|
$
|
0.35
|
|
|
$
|
0.40
|
|
|
$
|
0.27
|
|
|
$
|
0.35
|
|
|
$
|
0.42
|
|
|
$
|
0.46
|
|
|
$
|
0.53
|
|
Dividends (Declared)
|
|
|
0.07
|
|
|
|
0.08
|
|
|
|
0.09
|
|
|
|
0.09
|
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
0.12
|
|
|
|
0.13
|
|
|
|
0.15
|
|
Book Value
|
|
|
1.54
|
|
|
|
1.73
|
|
|
|
1.89
|
|
|
|
2.10
|
|
|
|
2.35
|
|
|
|
2.46
|
|
|
|
2.63
|
|
|
|
2.88
|
|
|
|
3.19
|
|
|
|
3.44
|
|
|
|
3.96
|
|
Market Price
|
|
$
|
1.50
|
|
|
$
|
2.00
|
|
|
$
|
1.67
|
|
|
$
|
2.22
|
|
|
$
|
2.69
|
|
|
$
|
2.00
|
|
|
$
|
2.41
|
|
|
$
|
3.78
|
|
|
$
|
3.88
|
|
|
$
|
3.52
|
|
|
$
|
4.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets by Geographical Area
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico
|
|
|
92
|
%
|
|
|
92
|
%
|
|
|
94
|
%
|
|
|
93
|
%
|
|
|
92
|
%
|
|
|
89
|
%
|
|
|
87
|
%
|
|
|
87
|
%
|
|
|
79
|
%
|
|
|
76
|
%
|
|
|
75
|
%
|
United States
|
|
|
7
|
%
|
|
|
7
|
%
|
|
|
5
|
%
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
9
|
%
|
|
|
11
|
%
|
|
|
10
|
%
|
|
|
16
|
%
|
|
|
20
|
%
|
|
|
21
|
%
|
Caribbean and Latin America
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
3
|
%
|
|
|
5
|
%
|
|
|
4
|
%
|
|
|
4
|
%
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional Delivery System
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking Branches
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico
|
|
|
115
|
|
|
|
124
|
|
|
|
126
|
|
|
|
126
|
|
|
|
128
|
|
|
|
173
|
|
|
|
161
|
|
|
|
162
|
|
|
|
165
|
|
|
|
166
|
|
|
|
166
|
|
Virgin Islands
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
United States
|
|
|
9
|
|
|
|
9
|
|
|
|
9
|
|
|
|
10
|
|
|
|
10
|
|
|
|
24
|
|
|
|
24
|
|
|
|
30
|
|
|
|
32
|
|
|
|
34
|
|
|
|
40
|
|
|
Subtotal
|
|
|
127
|
|
|
|
136
|
|
|
|
138
|
|
|
|
139
|
|
|
|
141
|
|
|
|
200
|
|
|
|
188
|
|
|
|
195
|
|
|
|
205
|
|
|
|
208
|
|
|
|
214
|
|
Non-Banking Offices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular Financial Holdings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
41
|
|
|
|
58
|
|
|
|
73
|
|
|
|
91
|
|
Popular Cash Express
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular Finance
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
17
|
|
|
|
18
|
|
|
|
26
|
|
|
|
26
|
|
|
|
26
|
|
|
|
26
|
|
|
|
28
|
|
|
|
31
|
|
Popular Auto
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
9
|
|
|
|
9
|
|
|
|
9
|
|
|
|
8
|
|
|
|
10
|
|
|
|
9
|
|
Popular Leasing, U.S.A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Popular Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular Insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular Insurance Agency U.S.A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Popular Insurance, V.I.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E-LOAN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EVERTEC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
17
|
|
|
|
22
|
|
|
|
35
|
|
|
|
62
|
|
|
|
76
|
|
|
|
92
|
|
|
|
111
|
|
|
|
134
|
|
|
Total
|
|
|
127
|
|
|
|
136
|
|
|
|
152
|
|
|
|
156
|
|
|
|
163
|
|
|
|
235
|
|
|
|
250
|
|
|
|
271
|
|
|
|
297
|
|
|
|
319
|
|
|
|
348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Delivery System
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATMs
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned and Driven
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico
|
|
|
94
|
|
|
|
113
|
|
|
|
136
|
|
|
|
153
|
|
|
|
151
|
|
|
|
211
|
|
|
|
206
|
|
|
|
211
|
|
|
|
234
|
|
|
|
262
|
|
|
|
281
|
|
Caribbean
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
11
|
|
|
|
26
|
|
|
|
38
|
|
Subtotal
|
|
|
94
|
|
|
|
113
|
|
|
|
139
|
|
|
|
156
|
|
|
|
154
|
|
|
|
214
|
|
|
|
209
|
|
|
|
220
|
|
|
|
253
|
|
|
|
296
|
|
|
|
327
|
|
|
Driven
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico
|
|
|
36
|
|
|
|
51
|
|
|
|
55
|
|
|
|
68
|
|
|
|
65
|
|
|
|
54
|
|
|
|
73
|
|
|
|
81
|
|
|
|
86
|
|
|
|
88
|
|
|
|
120
|
|
Caribbean
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
36
|
|
|
|
51
|
|
|
|
55
|
|
|
|
68
|
|
|
|
65
|
|
|
|
54
|
|
|
|
73
|
|
|
|
81
|
|
|
|
86
|
|
|
|
88
|
|
|
|
120
|
|
|
Total
|
|
|
130
|
|
|
|
164
|
|
|
|
194
|
|
|
|
224
|
|
|
|
219
|
|
|
|
268
|
|
|
|
282
|
|
|
|
301
|
|
|
|
339
|
|
|
|
384
|
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Transactions
3
|
|
|
7.0
|
|
|
|
8.3
|
|
|
|
12.7
|
|
|
|
14.9
|
|
|
|
16.1
|
|
|
|
18.0
|
|
|
|
23.9
|
|
|
|
28.6
|
|
|
|
33.2
|
|
|
|
43.0
|
|
|
|
56.6
|
|
Items Processed
|
|
|
123.8
|
|
|
|
134.0
|
|
|
|
139.1
|
|
|
|
159.8
|
|
|
|
161.9
|
|
|
|
164.0
|
|
|
|
166.1
|
|
|
|
170.4
|
|
|
|
171.8
|
|
|
|
174.5
|
|
|
|
175.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees (full-time equivalent)
|
|
|
4,314
|
|
|
|
4,400
|
|
|
|
4,699
|
|
|
|
5,131
|
|
|
|
5,213
|
|
|
|
7,023
|
|
|
|
7,006
|
|
|
|
7,024
|
|
|
|
7,533
|
|
|
|
7,606
|
|
|
|
7,815
|
|
|
|
|
1
|
|
Per common share data adjusted for stock splits.
|
|
2
|
|
Does not include host-to-host ATMs (2,478 in 2009) which are neither owned nor driven, but are part of the ATH
®
Network.
|
|
3
|
|
From 1981 to 2003, electronic transactions include ACH, Direct Payment, TelePago, Internet Banking and ATH
®
Network
transactions in Puerto Rico. Since 2004, these numbers were adjusted to include ATH
®
Network
transactions in the Dominican Republic, Costa Rica, El Salvador and United States, health care transactions, wire transfers, and
other electronic payment transactions in addition to those previously stated.
|
8 POPULAR,
INC. 2009 ANNUAL REPORT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1996
|
|
|
1997
|
|
|
1998
|
|
|
1999
|
|
|
2000
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
$
|
185.2
|
|
|
$
|
209.6
|
|
|
$
|
232.3
|
|
|
$
|
257.6
|
|
|
$
|
276.1
|
|
|
$
|
304.5
|
|
|
$
|
351.9
|
|
|
$
|
470.9
|
|
|
$
|
489.9
|
|
|
$
|
540.7
|
|
|
$
|
357.7
|
|
|
$
|
(64.5
|
)
|
|
$
|
(1,243.9
|
)
|
|
$
|
(573.9
|
)
|
|
|
|
16,764.1
|
|
|
|
19,300.5
|
|
|
|
23,160.4
|
|
|
|
25,460.5
|
|
|
|
28,057.1
|
|
|
|
30,744.7
|
|
|
|
33,660.4
|
|
|
|
36,434.7
|
|
|
|
44,401.6
|
|
|
|
48,623.7
|
|
|
|
47,404.0
|
|
|
|
44,411.4
|
|
|
|
38,882.8
|
|
|
|
34,736.3
|
|
|
|
|
9,779.0
|
|
|
|
11,376.6
|
|
|
|
13,078.8
|
|
|
|
14,907.8
|
|
|
|
16,057.1
|
|
|
|
18,168.6
|
|
|
|
19,582.1
|
|
|
|
22,602.2
|
|
|
|
28,742.3
|
|
|
|
31,710.2
|
|
|
|
32,736.9
|
|
|
|
29,911.0
|
|
|
|
26,276.1
|
|
|
|
23,803.9
|
|
|
|
|
10,763.3
|
|
|
|
11,749.6
|
|
|
|
13,672.2
|
|
|
|
14,173.7
|
|
|
|
14,804.9
|
|
|
|
16,370.0
|
|
|
|
17,614.17
|
|
|
|
18,097.8
|
|
|
|
20,593.2
|
|
|
|
22,638.0
|
|
|
|
24,438.3
|
|
|
|
28,334.4
|
|
|
|
27,550.2
|
|
|
|
25,924.9
|
|
|
|
|
1,262.5
|
|
|
|
1,503.1
|
|
|
|
1,709.1
|
|
|
|
1,661.0
|
|
|
|
1,993.6
|
|
|
|
2,272.8
|
|
|
|
2,410.9
|
|
|
|
2,754.4
|
|
|
|
3,104.6
|
|
|
|
3,449.2
|
|
|
|
3,620.3
|
|
|
|
3,581.9
|
|
|
|
3,268.4
|
|
|
|
2,538.8
|
|
|
|
|
$
|
2,230.5
|
|
|
$
|
3,350.3
|
|
|
$
|
4,611.7
|
|
|
$
|
3,790.2
|
|
|
$
|
3,578.1
|
|
|
$
|
3,965.4
|
|
|
$
|
4,476.4
|
|
|
$
|
5,960.2
|
|
|
$
|
7,685.6
|
|
|
$
|
5,836.5
|
|
|
$
|
5,003.4
|
|
|
$
|
2,968.3
|
|
|
$
|
1,455.1
|
|
|
$
|
1,445.4
|
|
|
|
|
1.14
|
%
|
|
|
1.14
|
%
|
|
|
1.14
|
%
|
|
|
1.08
|
%
|
|
|
1.04
|
%
|
|
|
1.09
|
%
|
|
|
1.11
|
%
|
|
|
1.36
|
%
|
|
|
1.23
|
%
|
|
|
1.17
|
%
|
|
|
0.74
|
%
|
|
|
-0.14
|
%
|
|
|
-3.04
|
%
|
|
|
-1.57
|
%
|
|
|
|
16.17
|
%
|
|
|
15.83
|
%
|
|
|
15.41
|
%
|
|
|
15.45
|
%
|
|
|
15.00
|
%
|
|
|
14.84
|
%
|
|
|
16.29
|
%
|
|
|
19.30
|
%
|
|
|
17.60
|
%
|
|
|
17.12
|
%
|
|
|
9.73
|
%
|
|
|
-2.08
|
%
|
|
|
-44.47
|
%
|
|
|
-32.95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.67
|
|
|
$
|
0.75
|
|
|
$
|
0.83
|
|
|
$
|
0.92
|
|
|
$
|
0.99
|
|
|
$
|
1.09
|
|
|
$
|
1.31
|
|
|
$
|
1.74
|
|
|
$
|
1.79
|
|
|
$
|
1.98
|
|
|
$
|
1.24
|
|
|
$
|
(0.27
|
)
|
|
$
|
(4.55
|
)
|
|
$
|
0.24
|
|
|
|
$
|
0.67
|
|
|
$
|
0.75
|
|
|
$
|
0.83
|
|
|
$
|
0.92
|
|
|
$
|
0.99
|
|
|
$
|
1.09
|
|
|
$
|
1.31
|
|
|
$
|
1.74
|
|
|
$
|
1.79
|
|
|
$
|
1.97
|
|
|
$
|
1.24
|
|
|
$
|
(0.27
|
)
|
|
$
|
(4.55
|
)
|
|
$
|
0.24
|
|
|
|
|
0.18
|
|
|
|
0.20
|
|
|
|
0.25
|
|
|
|
0.30
|
|
|
|
0.32
|
|
|
|
0.38
|
|
|
|
0.40
|
|
|
|
0.51
|
|
|
|
0.62
|
|
|
|
0.64
|
|
|
|
0.64
|
|
|
|
0.64
|
|
|
|
0.48
|
|
|
|
0.02
|
|
|
|
|
4.40
|
|
|
|
5.19
|
|
|
|
5.93
|
|
|
|
5.76
|
|
|
|
6.96
|
|
|
|
7.97
|
|
|
|
9.10
|
|
|
|
9.66
|
|
|
|
10.95
|
|
|
|
11.82
|
|
|
|
12.32
|
|
|
|
12.12
|
|
|
|
6.33
|
|
|
|
3.89
|
|
|
|
$
|
8.44
|
|
|
$
|
12.38
|
|
|
$
|
17.00
|
|
|
$
|
13.97
|
|
|
$
|
13.16
|
|
|
$
|
14.54
|
|
|
$
|
16.90
|
|
|
$
|
22.43
|
|
|
$
|
28.83
|
|
|
$
|
21.15
|
|
|
$
|
17.95
|
|
|
$
|
10.60
|
|
|
$
|
5.16
|
|
|
$
|
2.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
|
%
|
|
|
74
|
%
|
|
|
71
|
%
|
|
|
71
|
%
|
|
|
72
|
%
|
|
|
68
|
%
|
|
|
66
|
%
|
|
|
62
|
%
|
|
|
55
|
%
|
|
|
53
|
%
|
|
|
52
|
%
|
|
|
59
|
%
|
|
|
64
|
%
|
|
|
65
|
%
|
|
|
|
22
|
%
|
|
|
23
|
%
|
|
|
25
|
%
|
|
|
25
|
%
|
|
|
36
|
%
|
|
|
30
|
%
|
|
|
32
|
%
|
|
|
36
|
%
|
|
|
43
|
%
|
|
|
45
|
%
|
|
|
45
|
%
|
|
|
38
|
%
|
|
|
33
|
%
|
|
|
32
|
%
|
|
|
|
4
|
%
|
|
|
3
|
%
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
3
|
%
|
|
|
3
|
%
|
|
|
3
|
%
|
|
|
3
|
%
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178
|
|
|
|
201
|
|
|
|
198
|
|
|
|
199
|
|
|
|
199
|
|
|
|
196
|
|
|
|
195
|
|
|
|
193
|
|
|
|
192
|
|
|
|
194
|
|
|
|
191
|
|
|
|
196
|
|
|
|
179
|
|
|
|
173
|
|
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
44
|
|
|
|
63
|
|
|
|
89
|
|
|
|
91
|
|
|
|
95
|
|
|
|
96
|
|
|
|
96
|
|
|
|
97
|
|
|
|
128
|
|
|
|
136
|
|
|
|
142
|
|
|
|
147
|
|
|
|
139
|
|
|
|
101
|
|
|
|
|
|
230
|
|
|
|
272
|
|
|
|
295
|
|
|
|
298
|
|
|
|
302
|
|
|
|
300
|
|
|
|
299
|
|
|
|
298
|
|
|
|
328
|
|
|
|
338
|
|
|
|
341
|
|
|
|
351
|
|
|
|
326
|
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
|
|
|
|
117
|
|
|
|
128
|
|
|
|
137
|
|
|
|
136
|
|
|
|
149
|
|
|
|
153
|
|
|
|
181
|
|
|
|
183
|
|
|
|
212
|
|
|
|
158
|
|
|
|
134
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
102
|
|
|
|
132
|
|
|
|
154
|
|
|
|
195
|
|
|
|
129
|
|
|
|
114
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
44
|
|
|
|
48
|
|
|
|
47
|
|
|
|
61
|
|
|
|
55
|
|
|
|
36
|
|
|
|
43
|
|
|
|
43
|
|
|
|
49
|
|
|
|
52
|
|
|
|
51
|
|
|
|
9
|
|
|
|
|
|
|
|
|
8
|
|
|
|
10
|
|
|
|
10
|
|
|
|
12
|
|
|
|
12
|
|
|
|
20
|
|
|
|
18
|
|
|
|
18
|
|
|
|
18
|
|
|
|
17
|
|
|
|
15
|
|
|
|
12
|
|
|
|
12
|
|
|
|
10
|
|
|
|
|
|
|
|
|
7
|
|
|
|
8
|
|
|
|
10
|
|
|
|
11
|
|
|
|
13
|
|
|
|
13
|
|
|
|
11
|
|
|
|
15
|
|
|
|
14
|
|
|
|
11
|
|
|
|
24
|
|
|
|
22
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
11
|
|
|
|
13
|
|
|
|
21
|
|
|
|
25
|
|
|
|
29
|
|
|
|
32
|
|
|
|
30
|
|
|
|
33
|
|
|
|
32
|
|
|
|
32
|
|
|
|
32
|
|
|
|
33
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
4
|
|
|
|
7
|
|
|
|
8
|
|
|
|
9
|
|
|
|
12
|
|
|
|
12
|
|
|
|
13
|
|
|
|
7
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
|
7
|
|
|
|
9
|
|
|
|
9
|
|
|
|
9
|
|
|
|
|
153
|
|
|
|
183
|
|
|
|
258
|
|
|
|
327
|
|
|
|
382
|
|
|
|
427
|
|
|
|
460
|
|
|
|
431
|
|
|
|
421
|
|
|
|
351
|
|
|
|
292
|
|
|
|
280
|
|
|
|
97
|
|
|
|
61
|
|
|
|
|
|
383
|
|
|
|
455
|
|
|
|
553
|
|
|
|
625
|
|
|
|
684
|
|
|
|
727
|
|
|
|
759
|
|
|
|
729
|
|
|
|
749
|
|
|
|
689
|
|
|
|
633
|
|
|
|
631
|
|
|
|
423
|
|
|
|
343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
327
|
|
|
|
391
|
|
|
|
421
|
|
|
|
442
|
|
|
|
478
|
|
|
|
524
|
|
|
|
539
|
|
|
|
557
|
|
|
|
568
|
|
|
|
583
|
|
|
|
605
|
|
|
|
615
|
|
|
|
605
|
|
|
|
571
|
|
|
|
|
9
|
|
|
|
17
|
|
|
|
59
|
|
|
|
68
|
|
|
|
37
|
|
|
|
39
|
|
|
|
53
|
|
|
|
57
|
|
|
|
59
|
|
|
|
61
|
|
|
|
65
|
|
|
|
69
|
|
|
|
74
|
|
|
|
77
|
|
|
|
|
53
|
|
|
|
71
|
|
|
|
94
|
|
|
|
99
|
|
|
|
109
|
|
|
|
118
|
|
|
|
131
|
|
|
|
129
|
|
|
|
163
|
|
|
|
181
|
|
|
|
192
|
|
|
|
187
|
|
|
|
176
|
|
|
|
138
|
|
|
|
|
389
|
|
|
|
479
|
|
|
|
574
|
|
|
|
609
|
|
|
|
624
|
|
|
|
681
|
|
|
|
723
|
|
|
|
743
|
|
|
|
790
|
|
|
|
825
|
|
|
|
862
|
|
|
|
871
|
|
|
|
855
|
|
|
|
786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162
|
|
|
|
170
|
|
|
|
187
|
|
|
|
102
|
|
|
|
118
|
|
|
|
155
|
|
|
|
174
|
|
|
|
176
|
|
|
|
167
|
|
|
|
212
|
|
|
|
226
|
|
|
|
433
|
|
|
|
462
|
|
|
|
443
|
|
|
|
|
97
|
|
|
|
192
|
|
|
|
265
|
|
|
|
851
|
|
|
|
920
|
|
|
|
823
|
|
|
|
926
|
|
|
|
1,110
|
|
|
|
1,216
|
|
|
|
1,726
|
|
|
|
1,360
|
|
|
|
1,454
|
|
|
|
1,560
|
|
|
|
1,604
|
|
|
|
|
259
|
|
|
|
362
|
|
|
|
452
|
|
|
|
953
|
|
|
|
1,038
|
|
|
|
978
|
|
|
|
1,100
|
|
|
|
1,286
|
|
|
|
1,383
|
|
|
|
1,938
|
|
|
|
1,586
|
|
|
|
1,887
|
|
|
|
2,022
|
|
|
|
2,047
|
|
|
|
|
|
648
|
|
|
|
841
|
|
|
|
1,026
|
|
|
|
1,562
|
|
|
|
1,662
|
|
|
|
1,659
|
|
|
|
1,823
|
|
|
|
2,029
|
|
|
|
2,173
|
|
|
|
2,763
|
|
|
|
2,448
|
|
|
|
2,758
|
|
|
|
2,877
|
|
|
|
2,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78.0
|
|
|
|
111.2
|
|
|
|
130.5
|
|
|
|
159.4
|
|
|
|
199.5
|
|
|
|
206.0
|
|
|
|
236.6
|
|
|
|
255.7
|
|
|
|
568.5
|
|
|
|
625.9
|
|
|
|
690.2
|
|
|
|
772.7
|
|
|
|
849.4
|
|
|
|
804.1
|
|
|
|
|
173.7
|
|
|
|
171.9
|
|
|
|
170.9
|
|
|
|
171.0
|
|
|
|
160.2
|
|
|
|
149.9
|
|
|
|
145.3
|
|
|
|
138.5
|
|
|
|
133.9
|
|
|
|
140.3
|
|
|
|
150.0
|
|
|
|
175.2
|
|
|
|
202.2
|
|
|
|
191.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,996
|
|
|
|
8,854
|
|
|
|
10,549
|
|
|
|
11,501
|
|
|
|
10,651
|
|
|
|
11,334
|
|
|
|
11,037
|
|
|
|
11,474
|
|
|
|
12,139
|
|
|
|
13,210
|
|
|
|
12,508
|
|
|
|
12,303
|
|
|
|
10,587
|
|
|
|
9,407
|
|
9
CORPORATE
Information
OUR PEOPLE
The men and women who
work for our institution,
from the highest executive
to the employees who handle
the most routine tasks,
feel a special pride in
serving our customers with
care and dedication. All of
them feel the personal
satisfaction of belonging
to the Banco Popular
Family, which fosters
affection and understanding
among its members, and
which at the same time
firmly complies with the
highest ethical and moral
standards of behavior.
These words by Don
Rafael Carrión Jr.,
President and Chairman of
the Board (19561991), were
written in 1988 to
commemorate the 95th
anniversary of Banco
Popular de Puerto Rico, and
reflect our commitment to
human resources.
OUR CREED
Banco Popular is a
local institution dedicating
its efforts exclusively to
the enhancement of the social and
economic conditions in Puerto
Rico and inspired by the most
sound principles and
fundamental practices of good
banking.
Banco Popular pledges its
efforts and resources to the
development of a banking
service for Puerto Rico
within strict commercial
practices and so efficient
that it could meet the
requirements of the most
progressive community of the
world.
These words, written in
1928 by Don Rafael Carrión
Pacheco, Executive Vice
President and President
(19271956), embody the
philosophy of Popular, Inc.
in all its markets.
BOARD OF DIRECTORS
Richard L. Carrión
Chairman
Chief Executive Officer
Popular, Inc.
Alejandro M. Ballester
President
Ballester Hermanos, Inc.
María Luisa Ferré
President and Chief Executive Officer
Grupo Ferré Rangel
Michael Masin
Private Investor
Manuel Morales Jr.
President
Parkview Realty, Inc.
Frederic V. Salerno
Private Investor
William J. Teuber Jr.
Vice Chairman
EMC Corporation
Carlos A. Unanue
President
Goya de Puerto Rico, Inc.
José R. Vizcarrondo
President and Chief Executive Officer
Desarrollos Metropolitanos, S.E.
Samuel T. Céspedes, Esq.
Secretary of the Board of Directors
Popular, Inc.
EXECUTIVE OFFICERS
Richard L. Carrión
Chairman
Chief Executive Officer
Popular, Inc.
David H. Chafey Jr.
President
Chief Operating Officer
Popular, Inc.
Jorge A. Junquera
Senior Executive Vice President
Chief Financial Officer
Popular, Inc.
Brunilda Santos De Álvarez, Esq.
Executive Vice President
Chief Legal Officer
Popular, Inc.
Amílcar Jordán
Executive Vice President
Risk Management
Popular, Inc.
Carlos
J. Vázquez
Executive Vice President
Individual Credit, U.S. Community Banking
Popular, Inc.
Elí Sepúlveda
Executive Vice President
Commercial Credit
Popular, Inc.
CORPORATE INFORMATION
Independent Registered Public Accounting
Firm
PricewaterhouseCoopers LLP
Annual Meeting
The 2010
Annual Stockholders Meeting of Popular, Inc. will be held on Tuesday,
May 4, at 9:00 A.M. at Centro Europa Building
in San Juan, Puerto Rico.
Additional Information
The Annual Report to the Securities and Exchange Commission on Form 10-K
and any other financial information may also be viewed by
visiting our website:
www.popular.com
10
POPULAR, INC. 2009 ANNUAL REPORT
P.O. Box 362708
San Juan, Puerto Rico
00936-2708
Financial Review and
Supplementary
Information
|
|
|
|
|
Managements Discussion and Analysis of
Financial Condition and Results of Operations
|
|
|
3
|
|
|
Statistical Summaries
|
|
|
82
|
|
|
Financial Statements
|
|
|
|
|
|
Managements Report to Stockholders
|
|
|
87
|
|
|
Report of Independent Registered
Public Accounting Firm
|
|
|
88
|
|
|
Consolidated Statements of Condition
as of December 31, 2009 and 2008
|
|
|
90
|
|
|
Consolidated Statements of Operations
for the years ended December 31, 2009,
2008 and 2007
|
|
|
91
|
|
|
Consolidated Statements of Cash Flows
for the years ended December 31, 2009,
2008 and 2007
|
|
|
92
|
|
|
Consolidated Statements of Changes in
Stockholders Equity for the years ended
December 31, 2009, 2008 and 2007
|
|
|
93
|
|
|
Consolidated Statements of Comprehensive
(Loss) Income for the years ended December
31, 2009, 2008 and 2007
|
|
|
94
|
|
|
Notes to Consolidated Financial Statements
|
|
|
95
|
|
2
|
|
POPULAR, INC. 2009 ANNUAL REPORT
|
Managements Discussion and Analysis of
Financial
Condition and Results of
Operations
|
|
|
|
|
Forward-Looking Statements
|
|
|
3
|
|
|
|
|
|
|
Overview
|
|
|
3
|
|
|
Legislative and Regulatory Developments
|
|
|
6
|
|
|
|
|
|
|
Subsequent Events
|
|
|
10
|
|
|
Critical Accounting Policies / Estimates
|
|
|
10
|
|
|
Statement of Operations Analysis
|
|
|
|
|
Net Interest Income
|
|
|
20
|
|
Provision for Loan Losses
|
|
|
21
|
|
Non-Interest Income
|
|
|
24
|
|
Operating Expenses
|
|
|
26
|
|
Income Taxes
|
|
|
29
|
|
Fourth Quarter Results
|
|
|
30
|
|
|
Reportable Segment Results
|
|
|
31
|
|
|
Discontinued Operations
|
|
|
35
|
|
|
Statement of Condition Analysis
|
|
|
|
|
Assets
|
|
|
36
|
|
Deposits and Borrowings
|
|
|
39
|
|
Stockholders Equity
|
|
|
40
|
|
|
Exchange Offers
|
|
|
40
|
|
|
Regulatory Capital
|
|
|
42
|
|
|
Risk Management
|
|
|
44
|
|
Market / Interest Rate Risk
|
|
|
46
|
|
Liquidity
|
|
|
52
|
|
Credit Risk Management and Loan Quality
|
|
|
61
|
|
Operational Risk Management
|
|
|
73
|
|
Legal Proceedings
|
|
|
73
|
|
|
Adoption of New Accounting Standards
and Issued But Not Yet Effective
Accounting Standards
|
|
|
74
|
|
|
Glossary of Selected Financial Terms
|
|
|
79
|
|
|
Statistical Summaries
|
|
|
|
|
Statements of Condition
|
|
|
82
|
|
Statements of Operations
|
|
|
83
|
|
Average Balance Sheet and
Summary of Net Interest Income
|
|
|
84
|
|
Quarterly Financial Data
|
|
|
86
|
|
3
Managements Discussion and Analysis of
Financial
Condition and Results of
Operations
The following Managements Discussion and Analysis
(MD&A) provides information which management believes
necessary for understanding the financial performance
of Popular, Inc. and its subsidiaries (the
Corporation or Popular). All accompanying tables,
consolidated financial statements and corresponding
notes included in this Financial Review and
Supplementary Information 2009 Annual Report (the
report) should be considered an integral part of this
MD&A.
Forward-looking Statements
The information included in this report may contain
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, delinquency trends,
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.
Forward-looking statements are not guarantees of
future performance and, by their nature, 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 and employment levels, 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; changes in federal
bank regulatory and supervisory policies, including
required levels of capital; 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; additional Federal Deposit Insurance Corporation
(FDIC) assessments;
possible legislative, tax or regulatory changes; and
difficulties in combining the operations of acquired
entities. Other possible events or factors that could
cause results or performance to differ materially from
those expressed in these forward-looking statements
include the following: negative economic conditions
that adversely affect the general economy, housing
prices, the job market, consumer confidence and
spending habits which may affect, among other things,
the level of non-performing assets, charge-offs and
provision expense; changes in interest rates and market
liquidity which may reduce interest margins, impact
funding sources and affect the ability to originate and
distribute financial products in the primary and
secondary markets; adverse movements and volatility in
debt and equity capital markets; changes in market
rates and prices which may adversely impact the value
of financial assets and liabilities; liabilities
resulting from litigation and regulatory
investigations; changes in accounting standards, rules
and interpretations; increased competition; the
Corporations ability to grow its core businesses;
decisions to downsize, sell or close units or otherwise
change the business mix of the Corporation; and
managements ability to identify and manage these and
other risks. Moreover, the outcome of 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
report are based upon information available to the
Corporation as of the date of this report, and other
than as required by law, including the requirements of
applicable securities laws, management assumes 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.
The description of the Corporations business and
risk factors contained in Item 1 and 1A of its Form
10-K for the year ended December 31, 2009, while not
all inclusive, discusses additional information about
the business of the Corporation and the material risk
factors that, in addition to the other information in
this report, readers should consider.
Overview
The Corporation is a financial holding company, which
is subject to the supervision and regulation of the
Board of Governors of the Federal Reserve System. The
Corporation has operations in Puerto Rico, the United
States, the Caribbean and Latin America. 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, investment banking, broker-dealer and
insurance services through specialized subsidiaries. In
the United States, Popular has established a
community-banking franchise, Banco Popular North
America (BPNA) providing a broad range of financial
services and products with branches in New York, New
Jersey, Illinois, Florida and California. Popular also
offers processing technology services through its
subsidiary EVERTEC, Inc. This subsidiary provides
transaction processing services throughout the
Caribbean and Latin America, as well as internally
services many of the Corporations subsidiaries system
infrastructures and transactional processing
businesses.
4
|
|
POPULAR, INC. 2009 ANNUAL REPORT
|
Note 39 to the consolidated financial statements, as
well as the Reportable Segments Results section in this
MD&A, present further information about the
Corporations business segments.
The Corporation reported a net loss of $573.9
million for the year ended December 31, 2009, compared
with a net loss of $1.2 billion for the year ended
December 31, 2008 and a net loss of $64.5 million for the
year ended December 31, 2007. During 2008, the
Corporation discontinued the operations of its consumer
and mortgage lending subsidiary in the United States mainland. The
Corporations net loss from continuing operations
amounted to $553.9 million for the year ended December
31, 2009, compared with a net loss of $680.5 million in
2008 and net income of $202.5 million in 2007.
The discussions that follow pertain to Popular,
Inc.s continuing operations, unless otherwise
indicated. Refer to the Discontinued Operations section
in this MD&A for details on the financial results and
major events of Popular Financial Holdings (PFH) for the years 2009, 2008 and 2007.
Financial results for 2009 continued to reflect
high levels in the provision for loan losses to
maintain adequate reserve levels in a deteriorated
credit environment. The provision for loan losses from
continuing operations in 2009 totaled $1.4 billion,
compared with $991 million in 2008 and $341 million in
2007. The allowance for loan losses to loans
held-in-portfolio ratio was 5.32% at December 31, 2009,
compared with 3.43% at December 31, 2008 and 1.96% at
December 31, 2007. The higher provision for loan losses
was driven mostly by depressed economic conditions in
Puerto Rico and the United States which has resulted in
higher loan net charge-offs, non-performing loans and
foreclosures, and a real estate market impacted by
declining property values, oversupply in certain areas,
and reduced absorption rates. The higher net loss in
2009 was also driven by a reduction of $178.0 million
in net interest income, principally as a result of
lower average volume of loans, elevated levels of
non-performing loans, declining asset yields in a lower
interest rate scenario and higher cost of long-term
debt.
Furthermore, financial results for 2009 were
favorably impacted by a $469.8 million reduction in
income tax expense when compared with 2008, principally
as a result of the valuation allowance on the Corporations
deferred tax assets related to the U.S. operations
recorded during the previous year. Refer to the Income Taxes section
in this MD&A for further information. Also, operating
expenses declined by $182.5 million, principally
reflecting a favorable impact of $80.3 million
resulting from the gain on the early extinguishment of
debt related to the exchange of trust preferred
securities for common stock recognized in the third
quarter of 2009, lower restructuring costs and the
impact of cost-cutting measures, which include
headcount reduction, partially offset by higher FDIC
insurance assessments. Non-interest income amounted to
$896.5 million for the year ended December 31, 2009,
compared with $830.0 million for the year ended
December 31, 2008. The increase in non-interest income
was principally due to higher gains on the sale of
investment securities in 2009.
During 2009, the Corporations financial
performance continued to be under pressure as a result
of continued recessionary conditions in Puerto Rico and
the United States. The economic pressure, capital and
credit markets turmoil, and tightening of credit have
led to an increased level of commercial and consumer
delinquencies, lack of consumer confidence, increased
market volatility and widespread reduction of business
activity in general. The resulting economic pressure on
consumers and lack of confidence in the financial
markets has adversely affected the financial services
industry and the Corporations financial condition and
results of operations, as well as its capital position.
Disrupted market conditions have also increased the
Corporations liquidity risk exposure due primarily to
increased risk aversion on the part of traditional
credit providers, as well as the material declines in
the Corporations credit ratings that occurred during 2009.
Refer to the Risk Management section in this MD&A for
further information.
During 2009, the Corporation carried out a series
of actions designed to improve its U.S. operations,
address credit quality, contain controllable costs,
maintain well-capitalized ratios and improve capital
and liquidity positions. These actions included the
following:
|
|
|
Sale or closing of unprofitable businesses and the
consolidation of branches in the United States and
Puerto Rico markets, resulting in a net reduction
of 44 branches. During 2009, the Corporation
continued to make progress in the restructuring of
its U.S. operations. As part of the BPNA
Restructuring Plan, the Corporation determined to
exit certain businesses including, among the
principal ones, those related to the origination
of non-conventional mortgages, equipment lease
financing, business loans to professionals,
multifamily lending, mixed-used commercial loans
and credit cards. The Corporation holds the
existing portfolios of the exited businesses in a
run-off mode. Also, the Corporation downsized the
following businesses related to its U.S. mainland
banking operations: business banking, Small Business Administration
(SBA) lending,
and consumer / mortgage lending. Furthermore, the
Corporation divested its U.S. equipment finance
business (Popular Equipment Finance) to reduce
risk exposure. In the United States, the
Corporation also exited subprime mortgage lending
and shut-down the E-LOAN and home equity lines of
credit origination channels. These efforts began
in late 2008. The Corporation completed the
integration of both banking subsidiaries, BPPR and
BPNA, under one management structure. As a result, the divisions of retail banking and commercial
banking, in addition to administrative and
operational personnel, at BPNA, are now reporting
to management in Puerto Rico. Also, in October 2009,
BPNA sold six of its New Jersey branches.
|
|
|
|
|
Implementation of cost-cutting measures such as the hiring
|
5
|
|
|
and pension plan freezes and the suspension of
matching contributions to retirement plans.
|
|
|
|
Restructuring of the Corporations credit
divisions, working with clients to find
individual solutions and heightening the focus on
collection processes.
|
|
|
|
|
Suspension of dividends on its common stock and
preferred stock.
|
|
|
|
|
Restructuring of the investment securities
portfolio by selling $3.4 billion of its
investment securities available-for-sale
portfolio, principally of U.S. agency securities
(FHLB notes), and invested
$2.9 billion of the proceeds, primarily in Government National
Mortgage Association (GNMA) mortgage-backed securities.
This sale resulted in
a gain of $182.7 million. Other positive impacts
of the sale were the strengthening of common
equity by realizing an unrealized gain that was
subject to market risk, if bond prices were to
decline; increase the Corporations regulatory
capital ratios; redeploy most of the proceeds in
securities with a risk weighting of 0% for
regulatory capital purposes, as compared to the
20% risk-weighting which applied to the FHLB
notes sold; and mitigate the impact of the
portfolios restructuring on net interest income,
by reinvesting most of the sale proceeds in a
higher-yielding asset class.
|
|
|
|
|
Completion of an exchange offer which resulted in
the issuance of over 357 million in new shares of
common stock in exchange for preferred stock and
trust preferred securities during the third
quarter of 2009. This exchange contributed with
an increase in common stockholders equity of
$923 million, which included $612.4 million in
newly issued common stock and surplus and $310.6
million favorable impact to accumulated deficit,
including $80.3 million in gains on the early
extinguishment of junior subordinated debentures
that were related to the trust preferred
securities. In connection with the above mentioned
exchange offer, the Corporation also agreed with
the U.S. Treasury to exchange all $935 million of
its outstanding shares of Series C preferred
stock of the Corporation for $935 million of
newly issued trust preferred securities. The
transaction with the U.S. Treasury settled on
August 24, 2009 and resulted in a favorable impact
to accumulated deficit of $485.3 million.
|
|
|
|
|
The aforementioned exchanges resulted in total additions of $1.4 billion to Tier 1 common
equity. The Corporations Tier 1 common to risk-weighted assets ratio increased from 2.45% at June
30, 2009 to 6.39% at December 31, 2009. See the Regulatory
Capital section in this MD&A for a reconciliation of Tier 1 common to common stockholders equity and a discussion of the use of this
non-GAAP financial measure in this report. Refer to the Exchange Offer section in this MD&A for a more detailed description of the above
transactions.
|
The following table provides a reconciliation of
net income (loss) per common share (EPS) for the year
ended December 31, 2009 and depicts the favorable
impact that the exchanges had on EPS.
Table Net Income per Common Share
|
|
|
|
|
(In thousands, except per share information)
|
|
2009
|
|
|
Net loss from continuing operations
|
|
$
|
(553,947
|
)
|
Net loss from discontinued operations
|
|
|
(19,972
|
)
|
Preferred stock dividends
|
|
|
(39,857
|
)
|
Preferred stock discount accretion
|
|
|
(4,515
|
)
|
Favorable impact from exchange of shares of
Series A and B preferred stock for common
stock, net of issuance costs
|
|
|
230,388
|
|
Favorable impact from exchange of Series C
preferred stock for trust preferred securities
|
|
|
485,280
|
|
|
Net income applicable to common stock
|
|
$
|
97,377
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
|
408,229,498
|
|
Average potential common shares
|
|
|
|
|
|
Average common shares outstanding
assuming dilution
|
|
|
408,229,498
|
|
|
|
|
|
|
|
Basic and diluted EPS from continuing
operations
|
|
$
|
0.29
|
|
Basic and diluted EPS from discontinued
operations
|
|
|
(0.05
|
)
|
|
Total basic and diluted income per common share
|
|
$
|
0.24
|
|
|
Table A presents a five-year summary of the
components of net income (loss) as a percentage of
average total assets. Table B presents the changes in
net income (loss) applicable to common stock and income
(loss) per common share for the last three years. In
addition, Table C provides selected financial data for
the past five years. A glossary of selected financial
terms has been included at the end of this MD&A.
Total assets at December 31, 2009 amounted to
$34.7 billion, a decrease of $4.1 billion, or 11%,
compared with December 31, 2008. Total earning assets
at December 31, 2009 decreased by $3.8 billion, or 11%,
compared with December 31, 2008. The decline in total
assets, when compared to the previous year, was
principally due to a decrease in loans
held-in-portfolio of $2.0 billion, or 8%, and a
decrease in the portfolio of investment securities
available-for-sale and held-to-maturity of $1.3
billion, or 16%. The Corporation has strengthened its
underwriting standards and ensured appropriate pricing
for its loans. As a result of this challenging
financial environment and managements decision to exit
selected businesses on the United States mainland, the
Corporation has experienced a reduction in the volume
of loans. The decline in the Corporations investment
securities available-for-sale and held-to-maturity portfolios,
when compared to the previous year, was mainly driven
by the sale and maturities of investment securities.
The related proceeds were not fully reinvested as part
of a strategy to deleverage the balance sheet. For
detailed information on lending and investing
activities, refer to the Statement of Condition
Analysis and the Credit Risk Management and Loan Quality
sections of this MD&A.
6
|
|
POPULAR, INC. 2009 ANNUAL REPORT
|
Table A
Components of Net (Loss) Income as a Percentage of Average Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Net interest income
|
|
|
3.01
|
%
|
|
|
3.13
|
%
|
|
|
2.77
|
%
|
|
|
2.60
|
%
|
|
|
2.64
|
%
|
Provision for loan losses
|
|
|
(3.84
|
)
|
|
|
(2.42
|
)
|
|
|
(0.72
|
)
|
|
|
(0.39
|
)
|
|
|
(0.26
|
)
|
Sales and valuation adjustments of investment securities
|
|
|
0.60
|
|
|
|
0.17
|
|
|
|
0.21
|
|
|
|
0.04
|
|
|
|
0.14
|
|
(Loss) gain on sale of loans, including adjustments
to indemnity reserves, and valuation
adjustments on loans held-for-sale
|
|
|
(0.10
|
)
|
|
|
0.01
|
|
|
|
0.13
|
|
|
|
0.16
|
|
|
|
0.08
|
|
Trading account profit
|
|
|
0.11
|
|
|
|
0.11
|
|
|
|
0.08
|
|
|
|
0.08
|
|
|
|
0.07
|
|
Other non-interest income
|
|
|
1.84
|
|
|
|
1.74
|
|
|
|
1.43
|
|
|
|
1.32
|
|
|
|
1.29
|
|
|
|
|
|
1.62
|
|
|
|
2.74
|
|
|
|
3.90
|
|
|
|
3.81
|
|
|
|
3.96
|
|
Operating expenses
|
|
|
(3.16
|
)
|
|
|
(3.27
|
)
|
|
|
(3.28
|
)
|
|
|
(2.65
|
)
|
|
|
(2.51
|
)
|
|
(Loss) income from continuing operations before income tax and
cumulative effect of accounting change
|
|
|
(1.54
|
)
|
|
|
(0.53
|
)
|
|
|
0.62
|
|
|
|
1.16
|
|
|
|
1.45
|
|
Income tax benefit (expense)
|
|
|
0.02
|
|
|
|
(1.13
|
)
|
|
|
(0.19
|
)
|
|
|
(0.29
|
)
|
|
|
(0.31
|
)
|
Cumulative effect of accounting change, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
(Loss) income from continuing operations
|
|
|
(1.52
|
)
|
|
|
(1.66
|
)
|
|
|
0.43
|
|
|
|
0.87
|
|
|
|
1.15
|
|
(Loss) income from discontinued operations, net of tax
|
|
|
(0.05
|
)
|
|
|
(1.38
|
)
|
|
|
(0.57
|
)
|
|
|
(0.13
|
)
|
|
|
0.02
|
|
|
Net (loss) income
|
|
|
(1.57
|
%)
|
|
|
(3.04
|
%)
|
|
|
(0.14
|
%)
|
|
|
0.74
|
%
|
|
|
1.17
|
%
|
|
At December 31, 2009, assets were funded
principally through deposits, primarily time deposits;
supporting approximately 75% of the asset base; while
borrowings, other liabilities and stockholders equity
accounted for approximately 25%. This compares to 71%
and 29% at December 31, 2008, respectively. For
additional data on funding sources, refer to the
Statement of Condition Analysis and Liquidity sections of this MD&A.
Stockholders equity totaled $2.5 billion at December 31, 2009, compared with $3.3 billion at
December 31, 2008. The reduction in stockholders equity from the end of 2008 to December 31, 2009
was principally due to the net loss for the current year of $573.9 million. At December 31, 2009,
the Corporation was well-capitalized under the regulatory framework. Refer to Table I of this
report for information on capital adequacy data, including regulatory capital ratios.
The shares of the Corporations common stock are
traded on the National Association of Securities
Dealers Automated Quotations (NASDAQ) system under
the symbol BPOP. Table J shows the Corporations common
stock performance on a quarterly basis during the last
five years, including market prices and cash dividends
declared.
Further
discussions of operating results, financial
condition and business risks are presented in the
narrative and tables included herein.
Legislative and Regulatory Developments
FDIC Rule Regarding Assessments
Market developments have significantly depleted the
insurance fund of the FDIC and reduced the ratio of reserves to
insured deposits. As a result, we may be required to
pay significantly increased premiums or additional
special assessments. In 2009, we paid $16.7 million for
a special industry-wide FDIC deposit insurance
assessment. Also, on November 12, 2009, the FDIC Board
approved a final rule requiring banks to prepay their
estimated quarterly assessments for the fourth quarter
of 2009, as well as, for the years 2010, 2011, and 2012. In
December 2009, the Corporation prepaid $221 million,
which includes all of its quarterly assessments,
typically paid one quarter in arrears, for the calendar
quarters ending December 31, 2009 through December 31,
2012. Each quarter, the FDIC will bill banks for the
actual risk-based premium for that quarter; such
amounts will reduce the prepaid asset. Once the asset
is exhausted, banks will resume paying and accounting
for quarterly deposit insurance assessments as they did
prior to the implementation of this rule. The FDIC
decided that if the prepayment is not exhausted by June
30, 2013, any remaining amount will be returned to the
banks. Additionally, in January 2010, the FDIC issued
an Advance Notice of Proposed Rulemaking seeking
comment on ways that the FDICs risk-based deposit
insurance assessment system could be changed to account
for the risks posed by certain employee
7
Table B
Changes in
Net Income (Loss) Applicable to Common Stock and Net Income (Loss) per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
(In thousands, except per common share amounts)
|
|
Dollars
|
|
Per share
|
|
Dollars
|
|
Per share
|
|
Dollars
|
|
Per share
|
|
Net (loss) income applicable to common stock
for prior year
|
|
$
|
(1,279,200
|
)
|
|
$
|
(4.55
|
)
|
|
$
|
(76,406
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
345,763
|
|
|
$
|
1.24
|
|
Favorable (unfavorable) changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
(177,951
|
)
|
|
|
(0.63
|
)
|
|
|
(26,454
|
)
|
|
|
(0.10
|
)
|
|
|
50,927
|
|
|
|
0.18
|
|
Provision for loan losses
|
|
|
(414,423
|
)
|
|
|
(1.47
|
)
|
|
|
(650,165
|
)
|
|
|
(2.33
|
)
|
|
|
(153,663
|
)
|
|
|
(0.55
|
)
|
Sales and valuation adjustments of investment
securities
|
|
|
149,830
|
|
|
|
0.53
|
|
|
|
(31,153
|
)
|
|
|
(0.11
|
)
|
|
|
78,749
|
|
|
|
0.28
|
|
Trading account profit
|
|
|
(3,905
|
)
|
|
|
(0.01
|
)
|
|
|
6,448
|
|
|
|
0.02
|
|
|
|
939
|
|
|
|
|
|
Sales of loans, including adjustments to
indemnity reserves, and valuation
adjustments on loans held-for-sale
|
|
|
(41,078
|
)
|
|
|
(0.15
|
)
|
|
|
(54,028
|
)
|
|
|
(0.19
|
)
|
|
|
(16,291
|
)
|
|
|
(0.06
|
)
|
Other non-interest income
|
|
|
(38,320
|
)
|
|
|
(0.14
|
)
|
|
|
35,012
|
|
|
|
0.13
|
|
|
|
39,789
|
|
|
|
0.14
|
|
Gain on early extinguishment of debt
|
|
|
78,300
|
|
|
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses on long-lived assets
|
|
|
11,946
|
|
|
|
0.04
|
|
|
|
(3,013
|
)
|
|
|
(0.01
|
)
|
|
|
(10,478
|
)
|
|
|
(0.04
|
)
|
Goodwill and trademark impairment losses
|
|
|
12,480
|
|
|
|
0.04
|
|
|
|
199,270
|
|
|
|
0.71
|
|
|
|
(211,750
|
)
|
|
|
(0.76
|
)
|
Amortization of intangibles
|
|
|
2,027
|
|
|
|
0.01
|
|
|
|
(1,064
|
)
|
|
|
|
|
|
|
1,576
|
|
|
|
0.01
|
|
All other operating expenses
|
|
|
77,779
|
|
|
|
0.28
|
|
|
|
13,541
|
|
|
|
0.05
|
|
|
|
(46,579
|
)
|
|
|
(0.16
|
)
|
Income tax
|
|
|
469,836
|
|
|
|
1.67
|
|
|
|
(371,370
|
)
|
|
|
(1.33
|
)
|
|
|
49,530
|
|
|
|
0.18
|
|
|
Change in (loss) income from continuing operations
|
|
|
(1,152,679
|
)
|
|
|
(4.10
|
)
|
|
|
(959,382
|
)
|
|
|
(3.43
|
)
|
|
|
128,512
|
|
|
|
0.46
|
|
Change in loss from discontinued operations, net of
income tax
|
|
|
543,463
|
|
|
|
1.93
|
|
|
|
(296,434
|
)
|
|
|
(1.06
|
)
|
|
|
(204,918
|
)
|
|
|
(0.73
|
)
|
|
Net loss before preferred stock dividends,
TARP preferred stock discount accretion,
favorable impact from exchange of shares
of Series A, B, and C preferred stock, and
change in average common shares
|
|
|
(609,216
|
)
|
|
|
(2.17
|
)
|
|
|
(1,255,816
|
)
|
|
|
(4.49
|
)
|
|
|
(76,406
|
)
|
|
|
(0.27
|
)
|
Change in preferred stock dividends and in
TARP preferred stock discount accretion
|
|
|
(9,075
|
)
|
|
|
(0.03
|
)
|
|
|
(23,384
|
)
|
|
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
Change in favorable impact from exchange of
shares of Series A and B preferred stock for
common stock, net of issuance costs (Refer
to Note 21)
|
|
|
230,388
|
|
|
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in favorable impact from exchange of
shares of Series C preferred stock to trust
preferred securities (Refer to Note 21)
|
|
|
485,280
|
|
|
|
1.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in average common shares**
|
|
|
|
|
|
|
(0.11
|
)
|
|
|
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stock
|
|
$
|
97,377
|
|
|
$
|
0.24
|
|
|
$
|
(1,279,200
|
)
|
|
$
|
(4.55
|
)
|
|
$
|
(76,406
|
)
|
|
$
|
(0.27
|
)
|
|
|
|
|
**
|
|
Reflects the effect of the shares repurchased, plus the shares issued through the Dividend
Reinvestment Plan and the subscription rights offering, and the effect of stock options exercised
in the years presented. The year 2009 reflects the effect of the issuance of 357,510,076 shares of
common stock in exchange for its Series A and B preferred stock and for the trust preferred
securities.
|
8
|
|
POPULAR, INC. 2009 ANNUAL REPORT
|
Table C
Selected Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
(Dollars in thousands, except per share data)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
CONDENSED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
1,854,997
|
|
|
$
|
2,274,123
|
|
|
$
|
2,552,235
|
|
|
$
|
2,455,239
|
|
|
$
|
2,081,940
|
|
Interest expense
|
|
|
753,744
|
|
|
|
994,919
|
|
|
|
1,246,577
|
|
|
|
1,200,508
|
|
|
|
859,075
|
|
|
Net interest income
|
|
|
1,101,253
|
|
|
|
1,279,204
|
|
|
|
1,305,658
|
|
|
|
1,254,731
|
|
|
|
1,222,865
|
|
|
Provision for loan losses
|
|
|
1,405,807
|
|
|
|
991,384
|
|
|
|
341,219
|
|
|
|
187,556
|
|
|
|
121,985
|
|
Net gain on sale and valuation adjustment of investment securities
|
|
|
219,546
|
|
|
|
69,716
|
|
|
|
100,869
|
|
|
|
22,120
|
|
|
|
66,512
|
|
Trading account profit
|
|
|
39,740
|
|
|
|
43,645
|
|
|
|
37,197
|
|
|
|
36,258
|
|
|
|
30,051
|
|
(Loss) gain on sale of loans, including adjustments to indemnity
reserves, and valuation adjustments on loans held-for-sale
|
|
|
(35,060
|
)
|
|
|
6,018
|
|
|
|
60,046
|
|
|
|
76,337
|
|
|
|
37,342
|
|
Other non-interest income
|
|
|
672,275
|
|
|
|
710,595
|
|
|
|
675,583
|
|
|
|
635,794
|
|
|
|
598,707
|
|
Operating expenses
|
|
|
1,154,196
|
|
|
|
1,336,728
|
|
|
|
1,545,462
|
|
|
|
1,278,231
|
|
|
|
1,164,168
|
|
Income tax (benefit) expense
|
|
|
(8,302
|
)
|
|
|
461,534
|
|
|
|
90,164
|
|
|
|
139,694
|
|
|
|
142,710
|
|
Cumulative effect of accounting change, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,607
|
|
|
(Loss) income from continuing operations
|
|
|
(553,947
|
)
|
|
|
(680,468
|
)
|
|
|
202,508
|
|
|
|
419,759
|
|
|
|
530,221
|
|
(Loss) income from discontinued operations, net of tax
|
|
|
(19,972
|
)
|
|
|
(563,435
|
)
|
|
|
(267,001
|
)
|
|
|
(62,083
|
)
|
|
|
10,481
|
|
|
Net (loss) income
|
|
$
|
(573,919
|
)
|
|
$
|
(1,243,903
|
)
|
|
$
|
(64,493
|
)
|
|
$
|
357,676
|
|
|
$
|
540,702
|
|
|
Net income (loss) applicable to common stock
|
|
$
|
97,377
|
|
|
$
|
(1,279,200
|
)
|
|
$
|
(76,406
|
)
|
|
$
|
345,763
|
|
|
$
|
528,789
|
|
|
PER COMMON SHARE DATA
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic before cumulative effect of accounting change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
0.29
|
|
|
$
|
(2.55
|
)
|
|
$
|
0.68
|
|
|
$
|
1.46
|
|
|
$
|
1.93
|
|
From discontinued operations
|
|
|
(0.05
|
)
|
|
|
(2.00
|
)
|
|
|
(0.95
|
)
|
|
|
(0.22
|
)
|
|
|
0.04
|
|
|
Total
|
|
$
|
0.24
|
|
|
$
|
(4.55
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
1.24
|
|
|
$
|
1.97
|
|
|
Diluted before cumulative effect of accounting change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
0.29
|
|
|
$
|
(2.55
|
)
|
|
$
|
0.68
|
|
|
$
|
1.46
|
|
|
$
|
1.92
|
|
From discontinued operations
|
|
|
(0.05
|
)
|
|
|
(2.00
|
)
|
|
|
(0.95
|
)
|
|
|
(0.22
|
)
|
|
|
0.04
|
|
|
Total
|
|
$
|
0.24
|
|
|
$
|
(4.55
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
1.24
|
|
|
$
|
1.96
|
|
|
Basic after cumulative effect of accounting change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
0.29
|
|
|
$
|
(2.55
|
)
|
|
$
|
0.68
|
|
|
$
|
1.46
|
|
|
$
|
1.94
|
|
From discontinued operations
|
|
|
(0.05
|
)
|
|
|
(2.00
|
)
|
|
|
(0.95
|
)
|
|
|
(0.22
|
)
|
|
|
0.04
|
|
|
Total
|
|
$
|
0.24
|
|
|
$
|
(4.55
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
1.24
|
|
|
$
|
1.98
|
|
|
Diluted after cumulative effect of accounting change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
0.29
|
|
|
$
|
(2.55
|
)
|
|
$
|
0.68
|
|
|
$
|
1.46
|
|
|
$
|
1.93
|
|
From discontinued operations
|
|
|
(0.05
|
)
|
|
|
(2.00
|
)
|
|
|
(0.95
|
)
|
|
|
(0.22
|
)
|
|
|
0.04
|
|
|
Total
|
|
$
|
0.24
|
|
|
$
|
(4.55
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
1.24
|
|
|
$
|
1.97
|
|
|
Dividends declared
|
|
$
|
0.02
|
|
|
$
|
0.48
|
|
|
$
|
0.64
|
|
|
$
|
0.64
|
|
|
$
|
0.64
|
|
Book value
|
|
|
3.89
|
|
|
|
6.33
|
|
|
|
12.12
|
|
|
|
12.32
|
|
|
|
11.82
|
|
Market price
|
|
|
2.26
|
|
|
|
5.16
|
|
|
|
10.60
|
|
|
|
17.95
|
|
|
|
21.15
|
|
Outstanding shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average basic
|
|
|
408,229,498
|
|
|
|
281,079,201
|
|
|
|
279,494,150
|
|
|
|
278,468,552
|
|
|
|
267,334,606
|
|
Average diluted
|
|
|
408,229,498
|
|
|
|
281,079,201
|
|
|
|
279,494,150
|
|
|
|
278,703,924
|
|
|
|
267,839,018
|
|
End of period
|
|
|
639,540,105
|
|
|
|
282,004,713
|
|
|
|
280,029,215
|
|
|
|
278,741,547
|
|
|
|
275,955,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE BALANCES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
**
|
|
$
|
24,836,067
|
|
|
$
|
26,471,616
|
|
|
$
|
25,380,548
|
|
|
$
|
24,123,315
|
|
|
$
|
21,533,294
|
|
Earning assets
|
|
|
34,083,406
|
|
|
|
36,026,077
|
|
|
|
36,374,143
|
|
|
|
36,895,536
|
|
|
|
35,001,974
|
|
Total assets
|
|
|
36,569,370
|
|
|
|
40,924,017
|
|
|
|
47,104,935
|
|
|
|
48,294,566
|
|
|
|
46,362,329
|
|
Deposits
|
|
|
26,828,209
|
|
|
|
27,464,279
|
|
|
|
25,569,100
|
|
|
|
23,264,132
|
|
|
|
22,253,069
|
|
Borrowings
|
|
|
5,832,896
|
|
|
|
7,378,438
|
|
|
|
9,356,912
|
|
|
|
12,498,004
|
|
|
|
11,702,472
|
|
Total stockholders equity
|
|
|
2,852,065
|
|
|
|
3,358,295
|
|
|
|
3,861,426
|
|
|
|
3,741,273
|
|
|
|
3,274,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PERIOD END BALANCES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
**
|
|
$
|
23,803,909
|
|
|
$
|
26,268,931
|
|
|
$
|
29,911,002
|
|
|
$
|
32,736,939
|
|
|
$
|
31,710,207
|
|
Allowance for loan losses
|
|
|
1,261,204
|
|
|
|
882,807
|
|
|
|
548,832
|
|
|
|
522,232
|
|
|
|
461,707
|
|
Earning assets
|
|
|
32,340,967
|
|
|
|
36,146,389
|
|
|
|
40,901,854
|
|
|
|
43,660,568
|
|
|
|
45,167,761
|
|
Total assets
|
|
|
34,736,325
|
|
|
|
38,882,769
|
|
|
|
44,411,437
|
|
|
|
47,403,987
|
|
|
|
48,623,668
|
|
Deposits
|
|
|
25,924,894
|
|
|
|
27,550,205
|
|
|
|
28,334,478
|
|
|
|
24,438,331
|
|
|
|
22,638,005
|
|
Borrowings
|
|
|
5,288,748
|
|
|
|
6,943,305
|
|
|
|
11,560,596
|
|
|
|
18,533,816
|
|
|
|
21,296,299
|
|
Total stockholders equity
|
|
|
2,538,817
|
|
|
|
3,268,364
|
|
|
|
3,581,882
|
|
|
|
3,620,306
|
|
|
|
3,449,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SELECTED RATIOS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (taxable equivalent basis)
|
|
|
3.47
|
%
|
|
|
3.81
|
%
|
|
|
3.83
|
%
|
|
|
3.72
|
%
|
|
|
3.86
|
%
|
Return on average total assets
|
|
|
(1.57
|
)
|
|
|
(3.04
|
)
|
|
|
(0.14
|
)
|
|
|
0.74
|
|
|
|
1.17
|
|
Return on average common stockholders equity
|
|
|
(32.95
|
)
|
|
|
(44.47
|
)
|
|
|
(2.08
|
)
|
|
|
9.73
|
|
|
|
17.12
|
|
Tier I capital to risk-adjusted assets
|
|
|
9.81
|
|
|
|
10.81
|
|
|
|
10.12
|
|
|
|
10.61
|
|
|
|
11.17
|
|
Total capital to risk-adjusted assets
|
|
|
11.13
|
|
|
|
12.08
|
|
|
|
11.38
|
|
|
|
11.86
|
|
|
|
12.44
|
|
|
|
|
|
*
|
|
Per share data is based on the average number of shares outstanding during the periods,
except for the book value and market price which are based on the information at the end of
the periods.
|
|
**
|
|
Includes loans held-for-sale.
|
9
compensation programs. Rulemaking as a result of this
review could result in further assessments.
Financial Regulatory Reform
Reacting to the financial crisis and proposals from the
Administration, Congress is considering extensive
changes to the laws regulating financial services firms. In December 2009, the House of Representatives
approved the Wall Street Reform and Consumer
Protection Act. The Senate Banking Committee plans to
consider a version of financial regulatory reform
legislation in February 2010.
The proposed legislation addresses risks to the economy and the payments system, especially
those posed by large systemically significant financial firms, through a variety of measures,
including regulatory oversight of nonbanking entities, increased capital requirements, enhanced
authority to limit activities and growth, changes in supervisory authority, resolution authority
for failed financial firms, enhanced regulation of derivatives and asset-backed securities (e.g.,
requiring loan originators to retain at least 5% of the credit risk of securitized exposures),
restrictions on executive compensation, and oversight of credit rating agencies. The House bill
would establish a new independent Consumer Financial Protection Agency (CFPA) that would regulate
consumer financial services and products, including credit, savings and payment products to prevent
unfair, deceptive or abusive practices, promote product simplicity and ensure equal access to
financial products. The CFPA would have sole rulemaking and interpretive authority under existing
and future consumer financial services laws and supervisory, examination and enforcement authority
over institutions subject to its regulations. Proposals have also been put forward that would limit
the ability of federal laws to preempt state and local law. The President has made the enactment of
financial reform legislation a priority, although there is significant opposition to several
components, including the creation of a CFPA. Passage of the House bill in its present form would
have an adverse impact on the Corporation, but prospects for approval of the legislation, and the
content of a final bill are unclear.
Additionally, in January 2010, the Administration announced
plans to propose a Financial Crisis Responsibility Fee over a ten-year period on large financial
firms to offset the cost of the U.S. Treasurys Troubled Asset Relief Program. As currently
outlined, the Corporation would not be subject to the fee because the size of the Corporations
balance sheet does not exceed the $50 billion threshold established by the proposal. As proposed,
beginning June 30, 2010 qualifying institutions would pay 15 basis points on total assets less Tier
1 capital and deposits. Whether the fee will be implemented, and how is uncertain.
Legislation Addressing Overdraft Programs and Credit
Card Practices
In November 2009, the Board of Governors of the Federal
Reserve System promulgated a final rule (the Final
Rule), amending Regulation E, to require financial
institutions to obtain an accountholders consent
prior to assessing any fees or charges in connection
with the payment of any consumer overdraft for any ATM
or one-time debit transaction. This move represents the
latest in a series of actions by federal banking
regulators and Congress to provide greater consumer
protections (such as those provided by the recently
enacted Credit Card Accountability Responsibility and
Disclosure Act of 2009, referred herein as the Credit
CARD Act). The Final Rule applies to all accounts
subject to Regulation E, including payroll cards, and
must be implemented no later than July 1, 2010. Under
the Final Rule, a financial institution may not assess
a fee or charge on a consumers account for paying an
ATM withdrawal or one-time debit card transaction
pursuant to the institutions overdraft service unless
the institution: (i) provides the consumer with a
notice explaining the overdraft service; (ii) provides
a reasonable opportunity for the consumer to
affirmatively consent (opt-in) to the service for such
transactions; (iii) obtains the consumers affirmative
consent, or opt-in, to the institutions payment of ATM
withdrawals or one-time debit card transactions
pursuant to the institutions overdraft service; and
(iv) provides the consumer with written confirmation of
the consumers consent.
However, some members of Congress apparently
understood that these requirements did not adequately
address the issues associated with overdraft programs,
thus leading to the introduction by the U.S. House and
Senate of two substantially similar overdraft coverage
bills intended to amend the Truth in Lending Act
(collectively, the Overdraft Acts), which are
currently pending in committee and, as further
discussed below, contain provisions which are notably
more restrictive than those of the Final Rule.
While the proposed Overdraft Acts contain initial
notice and opt-in requirements which are substantially
similar to those contained in the Final Rule, they go
far beyond the scope of the Final Rule by imposing
requirements such as the following: (i) limitation on
the number of overdraft fees; (ii) limitation on the
amount of overdraft fees; (iii) prohibition on
processing manipulation (requires an institution to
post transactions to a consumers account in such a
manner which does not cause the consumer to incur
otherwise avoidable overdraft fees); (iv) elimination
of overdraft fees caused by holds (prohibits an
institution from assessing an overdraft fee for paying
an overdraft if the overdraft would not have occurred
but for a hold placed on funds in the consumers
account in connection with a debit card transaction
which exceeds the actual dollar amount of the
overdraft); (v) consumer warning prior to overdraft;
and (vi) consumer notification following overdraft.
10
|
|
POPULAR, INC. 2009 ANNUAL REPORT
|
If adopted in their current form, the Overdraft
Acts would negatively impact the Corporations net
interest income, service charges on deposit accounts
and other credit and debit card fees.
In May 2009, the Credit CARD Act was enacted. The
Credit CARD Act makes numerous changes to the Truth in
Lending Act, affecting the marketing, underwriting,
pricing, billing and other aspects of the consumer
credit card business. Several provisions of the Credit
CARD Act became effective in August 2009, but most of
the requirements became effective in February 2010 and
others will become effective in August 2010.
Legislation has been proposed to accelerate the
effective date of all of the Credit CARD Act provisions as soon as the legislation is enacted, but
prospects for enactment are uncertain. The Credit CARD
Act establishes certain provisions, such as those
addressing limitations on interest rate increases, late
and over-limit fees and payment allocation. The Credit
CARD Act will negatively impact the Corporations net
interest income, service charges on deposit accounts
and other credit and debit card service fees.
Subsequent Events
Management has evaluated the effects of subsequent
events that have occurred subsequent to December 31,
2009. There are no material events
that would require recognition or disclosure in the
consolidated financial statements for the year ended
December 31, 2009.
Critical Accounting Policies / Estimates
The accounting and reporting policies followed by the
Corporation and its subsidiaries conform with generally
accepted accounting principles (GAAP) in the United
States of America and general practices within the
financial services industry. The Corporations
significant accounting policies are described in detail
in Note 1 to the consolidated financial statements and
should be read in conjunction with this section.
Critical accounting policies require management to
make estimates and assumptions, which involve
significant judgment about the effect of matters that
are inherently uncertain and that involve a high degree
of subjectivity. 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. The following
MD&A section is a summary of what management considers
the Corporations critical accounting policies /
estimates.
Fair Value Measurement of Financial Instruments
The Corporation measures fair value as required by ASC
Subtopic 820-10 Fair Value Measurements and
Disclosures; which defines fair value as the exchange
price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability
in an orderly transaction between market participants
on the measurement date. The Corporation currently
measures at fair value on a recurring basis its trading
assets, available-for-sale securities, derivatives and
mortgage servicing rights. Occasionally, the Corporation
may be required to record at fair value other assets on
a nonrecurring basis, such as loans held-for-sale,
impaired loans held-in-portfolio that are collateral
dependent and certain other assets. These nonrecurring
fair value adjustments typically result from the
application of lower of cost or fair value accounting
or write-downs of individual assets.
As required by ASC Subtopic 820-10, the
Corporation categorizes its assets and liabilities
measured at fair value under the three-level hierarchy.
The level within the hierarchy is based on whether the
inputs to the valuation methodology used for the fair
value measurement are observable.
Observable inputs reflect the assumptions market
participants would use in pricing the asset or
liability based on market data obtained from external
sources. Unobservable inputs reflect the Corporations
estimates about assumptions that market participants
would use in pricing the asset or liability based on
the best information available. The hierarchy is broken
down into three-levels based on the reliability of
inputs as follows:
|
|
|
Level 1
Unadjusted quoted prices in active
markets for identical assets or liabilities that
the Corporation has the ability to access at the
measurement date. No significant degree of
judgment for these valuations is needed, as they
are based on quoted prices that are readily
available in an active market.
|
|
|
|
|
Level 2
Quoted prices other than those included
in Level 1 that are observable either directly or
indirectly. Level 2 inputs include quoted prices
for similar assets or liabilities in active
markets, quoted prices for identical or similar
assets or liabilities in markets that are not
active, and other inputs that are observable or
that can be corroborated by observable market data
for substantially the full term of the financial
instrument.
|
|
|
|
|
Level 3
Unobservable inputs that are supported by
little or no market activity and that are
significant to the fair value measurement of the
financial asset or liability. Unobservable inputs
reflect the Corporations own assumptions about
what market participants would use to price the
asset or liability, including assumptions about
risk. The inputs are developed based on the best
available information, which might include the
Corporations own data, such as
internally-developed models and discounted cash
flow analyses.
|
The Corporation requires the use of observable
inputs when available, in order to minimize the use of
unobservable inputs
11
to determine fair value. The amount of judgment
involved in estimating the fair value of a financial
instrument depends upon the availability of quoted
market prices or observable market parameters. In
addition, it may be affected by other factors such as
the type of instrument, the liquidity of the market for
the instrument, transparency around the inputs to the
valuation, as well as the contractual characteristics
of the instrument.
If listed prices or quotes are not available, the
Corporation employs valuation models that primarily use
market-based inputs including yield curves, interest
rate curves, volatilities, credit curves, and discount,
prepayment and delinquency rates, among other
considerations. When market observable data is not
available, the valuation of financial instruments
becomes more subjective and involves substantial
judgment. The need to use unobservable inputs generally
results from diminished observability of both actual
trades and assumptions resulting from the lack of
market liquidity for those types of loans or
securities. When fair values are estimated based on
modeling techniques such as discounted cash flow
models, the Corporation uses assumptions such as
interest rates, prepayment speeds, default rates, loss
severity rates and discount rates. Valuation
adjustments are limited to those necessary to ensure
that the financial instruments fair value is
adequately representative of the price that would be
received or paid in the marketplace.
Management believes that fair values are
reasonable and consistent with the fair value
measurement guidance based on the Corporations
internal validation procedure and consistency of the
processes followed, which include obtaining market
quotes when possible or using valuation techniques that
incorporate market-based inputs.
Refer to Note 36 to the consolidated financial
statements for information on the Corporations fair
value measurement disclosures required by the standard.
At December 31, 2009, approximately $7.0 billion, or
94%, of the assets measured
at fair value on a recurring basis, used market-based
or market-derived valuation inputs in their valuation
methodology and, therefore, were classified as Level 1
or Level 2. The majority of instruments measured at
fair value are classified as Level 2, including U.S.
Treasury securities, obligations of U.S. Government
sponsored entities, obligations of Puerto Rico, States
and political subdivisions, most mortgage-backed
securities (MBS) and collateralized mortgage obligations
(CMOs), and
derivative instruments. U.S. Treasury securities are
valued based on yields that are interpolated from the
constant maturity treasury curve. Obligations of U.S.
Government sponsored entities are priced based on an
active exchange market and on quoted prices for similar
securities. Obligations of Puerto Rico, States and
political subdivisions are valued based on trades, bid
price or spread, two sided markets, quotes, benchmark
curves, market data feeds, discount and capital rates
and trustee reports. MBS and CMOs are priced based on a
bonds theoretical value from similar bonds defined by
credit quality and market sector. Refer to the
Derivatives section below for a description of the
valuation techniques used to value these instruments.
The Corporation uses prices from third-party pricing
sources to measure the fair value of most of these
financial instruments. These prices are compared for
reasonability with other sources and differences that
exceed a pre-established threshold are further
validated to ensure compliance with the fair value
measurement guidance. Validations may include
comparisons with secondary pricing services, as well as
corroborations with secondary broker quotes and
relevant benchmark indices. Furthermore, the
Corporation also reviews the fair value documentation
provided by the third-party pricing services and
validates an indicative sample of the inputs utilized
by the third-party pricing services.
At December 31, 2009, the remaining 6% of assets measured at fair
value on a recurring basis were classified as Level 3 since their valuation methodology considered
significant unobservable inputs. The financial assets measured as Level 3 mostly include tax exempt
mortgage-backed securities guaranteed by GNMA and Federal National
Mortgage Association (FNMA), and mortgage servicing rights
(MSRs). Agency tax exempt mortgage-backed
securities are priced using a local demand price matrix prepared from local dealer quotes and other
local investments such as corporate securities, and local mutual funds priced by local dealers.
MSRs, on the other hand, are priced internally using a discounted cash flow model which considers
servicing fees, portfolio characteristics, prepayment assumptions, delinquency rates, late charges,
other ancillary revenues, cost to service and other economic factors. Additionally, the Corporation
reported $877 million of financial assets that were measured at fair value on a nonrecurring basis
at December 31, 2009, all of which were classified as Level 3 in the hierarchy.
Commencing in
January 2009, the Corporation adopted the provisions of fair value measurements and disclosures for
nonfinancial assets, particularly impacting other real estate. Nonfinancial assets reported under the guidelines of ASC 820-10 amounted to
$65 million at December 31,
2009.
The fair value measurements and disclosures
guidance in ASC Subtopic 820-10 also addresses
measuring fair value in situations where markets are
inactive and transactions are not orderly. Transactions
or quoted prices for assets and liabilities may not be
determinative of fair value when transactions are not
orderly and thus may require adjustments to estimate
fair value. Price quotes based on transactions that are
not orderly should be given little, if any, weight in
measuring fair value. Price quotes based upon
transactions that are orderly shall be considered in
determining fair value and the weight given is based on
facts and circumstances. If sufficient information is
not available to determine if price quotes are based
upon orderly transactions, less weight should be given
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to the price quote relative to other transactions that
are known to be orderly.
The lack of liquidity is incorporated into the
fair value measurement based on the type of asset
measured and the valuation methodology used. An
illiquid market is one in which little or no observable
activity has occurred or one that lacks willing buyers
or willing sellers. Discounted cash flow techniques
incorporate forecasting of expected cash flows
discounted at appropriate market discount rates to
reflect the lack of liquidity in the market which a
market participant would consider. Broker quotes used
for fair value measurements inherently reflect any lack
of liquidity in the market since they represent an exit
price for the perspective of the market participants.
Financial assets that were fair valued using
broker quotes amounted to $271 million at December 31,
2009, from which $264 million were Level 3 assets and
$7 million were Level 2 assets. These assets consisted
principally of tax-exempt agency mortgage-backed
securities. Fair value for these securities is based on
an internally-prepared matrix derived from an average
of two indicative local broker quotes, and adjusted for
additional inputs obtained from industry sources for
FNMA tax-exempt mortgage-backed securities. The main
input used in the matrix pricing is non-binding local
broker quotes obtained from limited trade activity.
Therefore, these securities are classified as Level 3.
To ensure fair value is consistent with ASC Subtopic
820-10, these prices are validated by reviewing the
prices provided by the brokers to verify any
discrepancies between quotes, testing matrix prices
using the weighted average against the total pool price
provided by the broker, assessing the spread between
local tax-exempt mortgage-backed securities and the
price of U.S. mortgage-backed securities for
reasonability and validating inputs with external
pricing service providers.
There were no significant changes in the
Corporations valuation methodologies at December 31,
2009 when compared with December 31, 2008. Refer to
Note 36 to the consolidated financial statements for a
description of the Corporations valuation
methodologies used for the assets and liabilities
measured at fair value at December 31, 2009.
Trading Account Securities and Investment Securities
Available-for-Sale
The majority of the values for trading account
securities and investment securities available-for-sale
are obtained from third-party pricing service providers
and, as indicated earlier, are validated with alternate
pricing sources when available. Securities not priced
by a secondary pricing source are documented and
validated internally according to their significance to
the Corporations financial statements. Management has
established materiality thresholds according to the
investment class to monitor and investigate material
deviations in prices obtained from the primary pricing
service provider and the secondary pricing source used
as support for the valuation results. During the year
ended December 31, 2009, the Corporation did not adjust
any prices obtained from pricing service providers or
broker dealers.
Inputs
are evaluated to ascertain that they consider
current market conditions, including the relative
liquidity of the market. When a market quote for a specific security
is not available, the pricing service provider
generally uses observable data to derive an exit price
for the instrument, such as benchmark yield curves and
trade data for similar products. To the extent trading
data is not available, the pricing service provider relies on
specific information including dialogue with brokers,
buy side clients, credit ratings, spreads to
established benchmarks and transactions on similar
securities, to draw correlations based on the
characteristics of the evaluated instrument. If for any
reason the pricing service provider cannot observe data
required to feed its model, it discontinues pricing the
instrument. During the year ended December 31, 2009,
none of the Corporations investment securities were
subject to pricing discontinuance by the pricing
service providers. The pricing methodology and approach
of our primary pricing service providers is concluded
to be consistent with the fair value measurement
guidance.
Furthermore, management assesses the fair value of
its portfolio of investment securities at least on a
quarterly basis, which includes analyzing changes in
fair value that have resulted in losses that may be
considered other-than-temporary. Factors considered
include, for example, the nature of the investment,
severity and duration of possible impairments, industry
reports, sector credit ratings, economic environment,
creditworthiness of the issuers and any guarantees.
Securities are classified in the fair value
hierarchy according to product type, characteristics
and market liquidity. At the end of each quarter,
management assesses the valuation hierarchy for each
asset or liability measured. The fair value measurement
analysis performed by the Corporation
includes validation procedures and review of market
changes, pricing methodology, assumption and level
hierarchy changes, and evaluation of distressed
transactions.
At December 31, 2009, the Corporations portfolio
of trading and investment securities available-for-sale
amounted to $7.2 billion and represented 97% of the
Corporations assets from continuing operations
measured at fair value on a recurring basis. As of
December 31, 2009, net unrealized gains on the trading
and available-for-sale investment securities portfolios
approximated $20 million and $104 million,
respectively. Fair values for most of the Corporations
trading and investment securities available-for-sale
are classified as Level 2. Trading and investment
securities available-for-sale classified as Level 3,
which are the securities that
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involved the highest degree of judgment, represent only
4% of the Corporations total portfolio of trading and
investment securities available-for-sale.
Derivatives
Derivatives, such as interest rate swaps, interest rate
caps and index options, are traded in over-the-counter
active markets. These derivatives are indexed to an
observable interest rate benchmark, such as LIBOR or
equity indexes, and are priced using an income approach
based on present value and option pricing models using
observable inputs. Other derivatives are liquid and
have quoted prices, such as forward contracts or to be
announced securities (TBAs). All of these
derivatives held by the Corporation are classified as
Level 2. Valuations of derivative assets and
liabilities reflect the values associated with
counterparty risk and nonperformance risk,
respectively. The non-performance risk, which measures
the Corporations own credit risk, is determined using
internally-developed models that consider the net
realizable value of the collateral posted, remaining
term, and the creditworthiness or credit standing of
the Corporation. The counterparty risk is also
determined using internally-developed models which
incorporate the creditworthiness of the entity that
bears the risk, net realizable value of the collateral
received, and available public data or
internally-developed data to determine their
probability of default. To manage the level of credit
risk, the Corporation employs procedures for credit
approval and credit limits, monitors the
counterparty credit condition, enters into master
netting agreements whenever possible and, when
appropriate, request additional collateral. The
Corporation assessed that the maximum exposure to a
deterioration of the counterpartys credit is equal to
the amount reported on the balance sheet as derivative
asset reduced by the net realizable value of the
collateral received. At December 31, 2009, this exposure
is estimated to be $38 million. During the year ended
December 31, 2009, inclusion of the credit risk in the
fair value of the derivatives resulted in a net loss of
$4.8 million recorded in the other operating income
caption of the consolidated statement of operations,
which consisted of a loss of $6.8 million resulting
from the Corporations own credit standing adjustment
and a gain of $2.0 million from the assessment of the
counterparties credit risk.
Mortgage Servicing Rights
Mortgage servicing rights (MSRs), which amounted to
$170 million at December 31, 2009, do not trade in an
active, open market with readily observable prices.
Fair value is estimated based upon discounted net cash
flows calculated from a combination of loan level data
and market assumptions. The valuation model combines
loans with common characteristics that impact servicing
cash flows (e.g., investor, remittance cycle, interest
rate, product type, etc.) in order to project net cash
flows. Market valuation assumptions include prepayment
speeds, discount rate, cost to service, escrow account
earnings, and contractual servicing fee income, among
other considerations. Prepayment speeds are derived
from market data that is more relevant to U.S. mainland
loan portfolios and, thus, are adjusted for the
Corporations loan characteristics and portfolio
behavior since prepayment rates in Puerto Rico have
been historically lower. Other assumptions are, in the
most part, directly obtained from third-party
providers. Disclosure of two of the key economic
assumptions used to measure MSRs, which are prepayment
speed and discount rate, and a sensitivity analysis to
adverse changes to these assumptions, is included in
Note 13 to the consolidated financial statements.
Loans held-in-portfolio considered impaired under ASC
Subsection 310-10-35 that are collateral dependent
The impairment is measured based on the fair value of
the collateral, which is derived from appraisals that
take into consideration prices in observed transactions
involving similar assets in similar locations, size and
supply and demand. Continued deterioration of the
housing markets and the economy in general have
adversely impacted and continue to affect the market
activity related to real estate properties. These
collateral dependent impaired loans are classified as
Level 3 and are reported as a nonrecurring fair value
measurement.
Loans and Allowance for Loan Losses
Interest on loans is accrued and recorded as interest
income based upon the principal amount outstanding.
Recognition of interest income on commercial and
construction loans is discontinued when the loans are
90 days or more in arrears on payments of principal or
interest or when other factors indicate that the
collection of principal and interest is doubtful. The
impaired portions on these loans are charged-off at no
longer than 365 days past due. Recognition of interest
income on mortgage loans is discontinued when 90 days
or more in arrears on payments of principal or
interest. The impaired portions on mortgage loans are
charged-off at 180 days past due. Recognition of
interest income on closed-end consumer loans and home
equity lines of credit is discontinued when the loans
are 90 days or more in arrears on payments of principal
or interest. Income is generally recognized on open-end
consumer loans, except for home equity lines of credit,
until the loans are charged-off. Recognition of
interest income for lease financing is ceased when
loans are 90 days or more in arrears. Closed-end
consumer loans and leases are charged-off when they are
120 days in arrears. Open-end (revolving credit)
consumer loans are charged-off when 180 days in
arrears.
Certain loans which would be treated as
non-accrual loans pursuant to the foregoing policy are
treated as accruing loans if they are considered
well-secured and in the process of collection. Also,
unsecured retail loans to borrowers who declare
bankruptcy
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POPULAR, INC. 2009 ANNUAL REPORT
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are charged-off within 60 days of receipt of
notification of filing from the bankruptcy court.
Once a loan is placed on non-accrual status, the
interest previously accrued and uncollected is charged
against current earnings and thereafter income is
recorded only to the extent of any interest collected.
Loans designated as non-accruing are not returned to an
accrual status until interest is received on a current
basis and those factors indicative of doubtful
collection cease to exist. Special guidelines exist for
troubled-debt restructurings.
One of the most critical and complex accounting
estimates is associated with the determination of the
allowance for loan losses. The provision for loan
losses charged to current operations is based on this
determination. The Corporations assessment of the
allowance for loan losses is determined in accordance
with accounting guidance, specifically guidance of loss
contingencies in ASC Subtopic 450-20 and loan
impairment guidance in ASC Section 310-10-35.
The accounting guidance provides for the
recognition of a loss allowance for groups of
homogeneous loans. During 2009, the Corporation
enhanced the reserve assessment of homogeneous loans by
establishing a more granular segmentation of loans with
similar risk characteristics, reducing the historical
base loss periods employed, and strengthening the
analysis pertaining to the environmental factors
considered. The revised segmentation considers business
segments and product types, which are further
segregated based on their secured or unsecured status.
The determination for general reserves of the allowance
for loan losses is based on historical net loss rates
(including losses from impaired loans) by loan type and
by legal entity adjusted for recent net charge-off
trends and environmental factors. The base net loss
rates are based on the moving average of annualized net
charge-offs computed over a 3-year historical loss
window for commercial and construction loan portfolios,
and an 18-month period for consumer loan portfolios.
The net charge-off trend factors are applied to adjust
the base loss rates based on recent loss trends. The
environmental factors, which include credit and
macroeconomic indicators, are assessed to account for
current market conditions that are likely to cause
estimated credit losses to differ from historical loss
experience. The Corporation reflects the effect of
these environmental factors on each loan group as an
adjustment that, as appropriate, increases or decreases
the historical loss rate applied to each group.
Correlation and regression analyses are used to select
and weight these indicators. For subprime mortgage
loans, the allowance for loan losses is established to
cover at least one year of projected losses which are
inherent in these portfolios.
According
to the accounting guidance criteria for specific
impairment of a loan, up to December 31, 2008, the
Corporation defined as impaired loans those commercial
and construction borrowers with outstanding debt of
$250,000 or more and with interest and /or principal 90
days or more past due. Also, specific commercial and
construction borrowers with outstanding debt of
$500,000 and over were deemed impaired when, based on
current information and events, management considered
that it was probable that the debtor would be unable to
pay all amounts due according to the contractual terms
of the loan agreement. Effective January 1, 2009, the
Corporation continues to apply the same definition
except that it prospectively increased the threshold of
outstanding debt to $1,000,000 for the identification
of newly impaired loans. Although the accounting codification guidance
for specific impairment of a loan excludes large groups
of smaller balance homogeneous loans that are
collectively evaluated for impairment (e.g., mortgage
loans), it specifically requires that loan
modifications considered troubled debt restructurings
(TDRs) be analyzed under its provisions. An allowance
for loan impairment is recognized to the extent that
the carrying value of an impaired loan exceeds the
present value of the expected future cash flows
discounted at the loans effective rate, the observable
market price of the loan, if available, or the fair
value of the collateral if the loan is collateral
dependent. The fair value of the collateral is
generally obtained from appraisals. The Corporation
requests updated appraisal reports for loans that are
considered impaired following a corporate reappraisal
policy. This policy requires updated appraisals for
loans secured by real estate (including construction
loans) either annually, every two years or every three
years depending on the total exposure of the borrower.
As a general procedure, the Corporation internally
reviews appraisals as part of the underwriting and
approval process and also for credits considered
impaired.
TDRs represent loans where concessions have been
granted to borrowers experiencing financial
difficulties that the creditor would not otherwise
consider. These concessions could include a reduction
in the interest rate on the loan, payment extensions,
forgiveness of principal, forbearance or other actions
intended to maximize collection. These concessions stem
from an agreement between the creditor and the debtor
or are imposed by law or a court. Classification of
loan modifications as TDRs involves a degree of
judgment. Indicators that the debtor is experiencing
financial difficulties include, for example: (i) the
debtor is currently in default on any of its debt; (ii)
the debtor has declared or is in the process of
declaring bankruptcy; (iii) there is significant doubt
as to whether the debtor will continue to be a going
concern; (iv) currently, the debtor has securities that
have been delisted, are in the process of being
delisted, or are under threat of being delisted from an
exchange; and (v) based on estimates and projections that
only encompass the current business capabilities, the
debtor forecasts that its entity-specific cash flows
will be insufficient to service the debt (both interest
and principal) in accordance with the contractual terms
of the existing agreement through maturity; and absent
the current modification, the debtor cannot obtain
funds from sources other than the existing creditors at
an effective interest rate equal to the current market
interest rate for similar debt for
15
a nontroubled debtor. The identification of TDRs is
critical in the determination of the adequacy of the
allowance for loan losses. Loans classified as TDRs are
reported in non-accrual status if the loan was in
non-accruing status at the time of the modification. The TDR loan
should continue in non-accrual status until the borrower has
demonstrated a willingness and ability to make the restructured loan
payments (at least six months of sustained performance after
classified as TDR). Loans classified as TDRs are excluded from
TDR status if performance under the restructured terms
exists for a reasonable period (at least twelve
months of sustained performance after classified) and the loan yields a market
rate.
The Corporations management evaluates the
adequacy of the allowance for loan losses on a
quarterly basis following a systematic methodology in
order to provide for known and inherent risks in the
loan portfolio. In developing its assessment of the
adequacy of the allowance for loan losses, the
Corporation must rely on estimates and exercise
judgment regarding matters where the ultimate outcome
is unknown such as economic developments affecting
specific customers, industries or markets. Other
factors that can affect managements estimates are the
years of historical data to include when estimating
losses, the level of volatility of losses in a specific
portfolio, changes in underwriting standards, financial
accounting standards and loan impairment measurement,
among others. Changes in the financial condition of
individual borrowers, in economic conditions, in
historical loss experience and in the condition of the
various markets in which collateral may be sold may all
affect the required level of the allowance for loan
losses. Consequently, the business, financial
condition, liquidity, capital and results of operations
could also be affected.
A discussion about the process used to estimate
the allowance for loan losses is presented in the
Credit Risk Management and Loan Quality section of this
MD&A.
Income Taxes
Income taxes are accounted for using the asset and
liability method. Under this method, deferred tax
assets and liabilities are recognized based on the
future tax consequences attributable to temporary
differences between the financial statement carrying
amounts of existing assets and liabilities and their
respective tax basis, and attributable to operating
loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates
expected to apply in the years in which the temporary
differences are expected to be recovered or paid. The
effect on deferred tax assets and liabilities of a
change in tax rates is recognized in earnings in the
period when the changes are enacted.
The calculation of periodic income taxes is
complex and requires the use of estimates and
judgments. The Corporation has recorded two accruals
for income taxes: (1) the net estimated amount
currently due or to be received from taxing
jurisdictions, including any reserve for potential
examination issues, and (2) a deferred income tax that
represents the estimated impact of temporary
differences between how the Corporation recognizes
assets and liabilities under GAAP, and how such assets
and liabilities are recognized under the tax code.
Differences in the actual outcome of these future tax
consequences could impact the Corporations financial
position or its results of operations. In estimating
taxes, management assesses the relative merits and
risks of the appropriate tax treatment of transactions
taking into consideration statutory, judicial and
regulatory guidance.
A deferred tax asset should be reduced by a
valuation allowance if based on the weight of all
available evidence, it is more likely than not (a
likelihood of more than 50%) that some portion or the
entire deferred tax asset will not be realized. The
valuation allowance should be sufficient to reduce the
deferred tax asset to the amount that is more likely
than not to be realized. The determination of whether a
deferred tax asset is realizable is based on weighting
all available evidence, including both positive and
negative evidence. The realization of deferred tax
assets, including carryforwards and deductible
temporary differences, depends upon the existence of
sufficient taxable income of the same character during
the carryback or carryforward period. The realization
of deferred tax assets requires the consideration of
all sources of taxable income available to realize the
deferred tax asset, including the future reversal of
existing temporary differences, future taxable income
exclusive of reversing temporary differences and
carryforwards, taxable income in carryback years and
tax-planning strategies.
The Corporations U.S. mainland operations are in
a cumulative loss position for the three-year period
ended December 31, 2009. For purposes of assessing the
realization of the deferred tax assets in the U.S.
mainland, this cumulative taxable loss position is
considered significant negative evidence and has caused
the Corporation to conclude that it will not be able to
realize the deferred tax assets in the future. At
December 31, 2009, the Corporation recorded a full
valuation allowance of $1.1 billion on the deferred tax
assets of the Corporations U.S. operations. At
December 31, 2009, the Corporation had deferred tax
assets related to its Puerto Rico operations amounting
to $382 million. The Corporation has assessed the
realization of the Puerto Rico portion of the net
deferred tax assets and based on the weighting of all
available evidence has concluded that it is more likely
than not that such net deferred tax assets will be
realized. Management will reassess the realization of
the deferred tax assets based on the criteria of the
applicable accounting pronouncement each reporting
period.
Changes in the Corporations estimates can occur
due to changes in tax rates, new business strategies,
newly enacted guidance, and resolution of issues with
taxing authorities regarding previously taken tax
positions. Such changes could affect the amount of
accrued taxes. The current income tax payable for 2009
has been paid during the year in accordance with
estimated tax payments rules. Any remaining payment
will not have any significant impact on liquidity and
capital resources.
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The valuation of deferred tax assets requires
judgment in assessing the likely future tax
consequences of events that have been recognized in the
financial statements or tax returns and future
profitability. The accounting for deferred tax
consequences represents managements best estimate of
those future events. Changes in managements current
estimates, due to unanticipated events, could have a
material impact on the Corporations financial
condition and results of operations.
The Corporation establishes tax liabilities or
reduces tax assets for uncertain tax positions when,
despite its assessment that its tax return positions
are appropriate and supportable under local tax law,
the Corporation believes it may not succeed in
realizing the tax benefit of certain positions if
challenged. In evaluating a tax position, the
Corporation determines whether it is more likely than
not that the position will be sustained upon
examination, including resolution of any related
appeals or litigation processes, based on the technical
merits of the position. The Corporations estimate of
the ultimate tax liability contains assumptions based
on past experiences, and judgments about potential
actions by taxing jurisdictions as well as judgments
about the likely outcome of issues that have been
raised by taxing jurisdictions. The tax position is
measured as the largest amount of benefit that is
greater than 50% likely of being realized upon ultimate
settlement. The Corporation evaluates these uncertain
tax positions each quarter and adjusts the related tax
liabilities or assets in light of changing facts and
circumstances, such as the progress of a tax audit or
the expiration of a statute of limitations. The
Corporation believes the estimates and assumptions used
to support its evaluation of uncertain tax positions
are reasonable.
The amount of unrecognized tax benefits, including
accrued interest, as of December 31, 2009 amounted to
$49 million. Refer to Note 30 to the consolidated
financial statements for further information on this
subject matter. As a result of examinations, the
Corporation anticipates a reduction in the total amount
of unrecognized tax benefits within the next 12 months,
which could amount to approximately $15 million.
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.
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. From time to time, the Corporation is audited by
various federal, state and local authorities regarding
income tax matters. Although management believes its
approach in determining the appropriate tax treatment
is supportable and in accordance with the accounting
standards, it is possible that the final tax authority
will take a tax position that is different than the tax position reflected in the Corporations income tax
provision and other tax reserves. As each audit is
conducted, adjustments, if any, are appropriately
recorded in the consolidated financial statement in the
period determined. Such differences could have an
adverse effect on the Corporations income tax
provision or benefit, or other tax reserves, in the
reporting period in which such determination is made
and, consequently, on the Corporations results of
operations, financial position and / or cash flows for
such period.
Goodwill
The Corporations goodwill and other identifiable
intangible assets having an indefinite useful life are
tested for impairment. Intangibles with indefinite
lives are evaluated for impairment at least annually
and on a more frequent basis if events or circumstances
indicate impairment could have taken place. Such events
could include, among others, a significant adverse
change in the business climate, an adverse action by a
regulator, an unanticipated change in the competitive
environment and a decision to change the operations or
dispose of a reporting unit.
Under applicable accounting standards, goodwill
impairment analysis is a two-step test. The first step
of the goodwill impairment test involves comparing the
fair value of the reporting unit with its carrying
amount, including goodwill. If the fair value of the
reporting unit exceeds its carrying amount, goodwill of
the reporting unit is considered not impaired; however,
if the carrying amount of the reporting unit exceeds
its fair value, the second step must be performed. The
second step involves calculating an implied fair value
of goodwill for each reporting unit for which the first
step indicated possible impairment. The implied fair
value of goodwill is determined in the same manner as
the amount of goodwill recognized in a business
combination, which is the excess of the fair value of
the reporting unit, as determined in the first step,
over the aggregate fair values of the individual
assets, liabilities and identifiable intangibles
(including any unrecognized intangible assets, such as
unrecognized core deposits and trademark) as if the
reporting unit was being acquired in a business
combination and the fair value of the reporting unit
was the price paid to acquire the reporting unit. The
Corporation estimates the fair values of the assets and
liabilities of a reporting unit, consistent with the
requirements of the fair value measurements accounting
standard, which defines fair value as the price that
would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market
participants at the measurement date. The fair value of
the assets and liabilities reflects market conditions,
thus volatility in prices could have a material impact
on the determination of the implied fair value of the
reporting unit goodwill at the impairment test date.
The adjustments to measure the assets, liabilities and
intangibles at fair value are for the purpose of
measuring the implied fair value of goodwill and
17
such adjustments are not reflected in the consolidated
statement of condition. If the implied fair value of
goodwill exceeds the goodwill assigned to the reporting
unit, there is no impairment. If the goodwill assigned
to a reporting unit exceeds the implied fair value of
the goodwill, an impairment charge is recorded for the
excess. An impairment loss recognized cannot exceed the
amount of goodwill assigned to a reporting unit, and
the loss establishes a new basis in the goodwill.
Subsequent reversal of goodwill impairment losses is
not permitted under applicable accounting standards.
At December 31, 2009, goodwill totaled $604
million. Note 14 to the consolidated financial
statements provide an allocation of goodwill by
business segment. In October 2009, the Corporation
recorded a goodwill write-off amounting to $2.2 million
as a result of the sale of the six New Jersey branches
pertaining to BPNA.
The Corporation performed the annual goodwill
impairment evaluation for the entire organization
during the third quarter of 2009 using July 31, 2009 as
the annual evaluation date. The reporting units
utilized for this evaluation were those that are one
level below the business segments, which basically are
the legal entities that compose the reportable segment.
The Corporation follows push-down accounting, as such
all goodwill is assigned to the reporting units when
carrying out a business combination.
In determining the fair value of a reporting unit,
the Corporation generally uses a combination of
methods, including market price multiples of comparable
companies and transactions, as well as discounted cash
flow analysis. Management evaluates the particular
circumstances of each reporting unit in order to
determine the most appropriate valuation methodology.
The Corporation evaluates the results obtained under
each valuation methodology to identify and understand
the key value drivers in order to ascertain that the
results obtained are reasonable and appropriate under
the circumstances. Elements considered include current
market and economic conditions, developments in
specific lines of business, and any particular features
in the individual reporting units.
The computations require management to make estimates and assumptions. Critical assumptions
that are used as part of these evaluations include:
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a selection of comparable publicly traded companies, based on nature of business,
location and size;
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a selection of comparable acquisition and capital raising transactions;
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the discount rate applied to future earnings, based on an estimate of the cost of equity;
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the potential future earnings of the reporting unit; and
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the market growth and new business assumptions.
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For purposes of the market comparable approach,
valuations were determined by calculating average price
multiples of relevant value drivers from a group of
companies that are comparable to the reporting unit
being analyzed and applying those price multiples to
the value drivers of the reporting unit. Multiples used
are minority based multiples and thus, no control
premium adjustment is made to the comparable companies
market multiples. While the market price multiple is
not an assumption, a presumption that it provides an
indicator of the value of the reporting unit is
inherent in the valuation. The determination of the
market comparables also involves a degree of judgment.
For purposes of the discounted cash flows (DCF)
approach, the valuation is based on estimated future
cash flows. The financial projections used in the DCF
valuation analysis for each reporting unit are based on
the most recent (as of the valuation date) financial
projections presented to the Corporations Asset /
Liability Management Committee (ALCO). The growth
assumptions included in these projections are based on
managements expectations for each reporting units
financial prospects considering economic and industry
conditions as well as particular plans of each entity
(i.e. restructuring plans, de-leveraging, etc.) The
cost of equity used to discount the cash flows was
calculated using the Ibbotson Build-Up Method and
ranged from 11.24% to 17.78% for the 2009 analysis. The
Ibbottson Build-Up Model builds up a cost of equity
starting with the rate of return of a risk less asset
(10 year U.S. Treasury note) and adds to it additional
risk elements such as equity risk premium, size
premium, and industry risk premium. The resulting
discount rates were analyzed in terms of reasonability
given the current market conditions and adjustments
were made when necessary.
For BPNA, the only reporting unit that failed Step
1, the Corporation determined the fair value of Step 1
utilizing a market value approach based on a
combination of price multiples from comparable
companies and multiples from capital raising
transactions of comparable companies. The market
multiples used included price to book and price to
tangible book. Additionally, the Corporation
determined the reporting unit fair value using a DCF
analysis based on BPNAs financial projections, but
assigned no weight to it given that the current market
approaches provide a more meaningful measure of fair
value considering the reporting units financial
performance and current market conditions. The Step 1
fair value for BPNA under both valuation approaches
(market and DCF) was below the carrying amount of its
equity book value as of the valuation date (July 31),
requiring the completion of Step 2. In accordance with
accounting standards, the Corporation performed a
valuation of all assets and liabilities of BPNA,
including any recognized and unrecognized intangible
assets, to determine the fair value of BPNAs net
assets. To complete Step 2, the Corporation subtracted
from BPNAs Step 1 fair value the determined fair value
of the net assets to arrive at the implied fair value
of goodwill. The results of the Step 2 indicated that
the implied fair value of goodwill exceeded the
goodwill carrying value of $404 million at July 31,
2009, resulting in no goodwill impairment. The
reduction
18
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|
POPULAR, INC. 2009 ANNUAL REPORT
|
in BPNAs Step 1 fair value was offset by a reduction
in the fair value of its net assets, resulting in an
implied fair value of goodwill that exceeds the
recorded book value of goodwill.
The analysis of the results for Step 2 indicates that the reduction in the fair value of the
reporting unit was mainly attributed to the deteriorated fair value of the loan portfolios and not
to the fair value of the reporting unit as a going concern entity. The current negative performance
of the reporting unit is principally related to deteriorated credit quality in its loan portfolio,
which agrees with the results of the Step 2 analysis. The fair value determined for BPNAs loan
portfolio in the July 31, 2009 annual test represented a discount of 21.7%, compared with 41.6% at
December 31, 2008. The discount is mainly attributed to market participants expected rate of
returns, which affected the market discount on the commercial and construction loan portfolios and
deteriorated credit quality of the consumer and mortgage loan portfolios of BPNA. Refer to the
Reportable Segments Results section of this MD&A, which provides highlights of BPNAs reportable
segment financial performance for the year ended December 31, 2009. BPNAs provision for loan
losses, as a stand-alone legal entity, which is the reporting unit level used for the goodwill
impairment analysis, amounted to $633.4 million for the year ended December 31, 2009, which
represented 115% of BPNA legal entitys net loss of
$552.0 million for that period.
If the Step 1
fair value of BPNA declines further in the future without a corresponding decrease in the fair
value of its net assets or if loan discounts improve without a corresponding increase in the Step 1
fair value, the Corporation may be required to record a goodwill impairment charge. The Corporation
engaged a third-party valuator to assist management in the annual evaluation of BPNAs goodwill
(including Step 1 and Step 2) as well as BPNAs loan portfolios
as of the July 31, 2009 valuation date.
Management discussed the methodologies, assumptions and results supporting the relevant values for
conclusions and determined they were reasonable.
For the BPPR reporting unit, had the average
reporting unit estimated fair value calculated in Step
1 using all valuation methodologies been approximately
25% lower, there would still be no requirement to
perform a Step 2 analysis, thus there would be no
indication of impairment on the goodwill recorded in
BPPR at July 31, 2009. For the BPNA reporting unit, had
the estimated implied fair value of goodwill calculated
in Step 2 been approximately 67% lower, there would
still be no impairment of the goodwill recorded in BPNA
at July 31, 2009. The goodwill balance of BPPR and
BPNA, as legal entities, represented approximately 89%
of the Corporations total goodwill balance as of the
July 31, 2009 valuation date.
Furthermore, as part of the analyses, management
performed a reconciliation of the aggregate fair values
determined for the reporting units to the market
capitalization of Popular, Inc. concluding that the
fair value results determined for the reporting units
in the July 31, 2009 annual assessment were reasonable.
The goodwill impairment evaluation process
requires the Corporation to make estimates and
assumptions with regard to the fair value of the
reporting units. Actual values may differ significantly
from these estimates. Such differences could result in
future impairment of goodwill that would, in turn,
negatively impact the Corporations results of
operations and the reporting units where the goodwill
is recorded. Declines in the Corporations market
capitalization increase the risk of goodwill impairment
in the future.
Management monitors events or changes in
circumstances between annual tests to determine if
these events or changes in circumstances would more
likely than not reduce the fair value of a reporting
unit below its carrying amount. As indicated in this
MD&A, the economic situation in the United States and
Puerto Rico, including deterioration in the housing
market and credit market, continued to negatively
impact the financial results of the Corporation during
2009.
Accordingly, management continued monitoring the
fair value of the reporting units, particularly the
unit that failed the Step 1 test in the annual goodwill
impairment evaluation. As part of the monitoring
process, management performed an assessment for BPNA at
December 31, 2009. The Corporation determined BPNAs
fair value utilizing the same valuation approaches
(market and DCF) used in the annual goodwill impairment
test. The determined fair value for BPNA at December
31, 2009 continued to be below its carrying amount
under all valuation approaches. The fair value
determination of BPNAs assets and liabilities was
updated at December 31, 2009 utilizing valuation
methodologies consistent with the July 31, 2009 test.
The results of the assessment at December 31, 2009
indicated that the implied fair value of goodwill
exceeded the goodwill carrying amount, resulting in no
goodwill impairment. The results obtained in the
December 31, 2009 assessment were consistent with the
results of the annual impairment test in that the
reduction in the fair value of BPNA was mainly
attributable to a significant reduction in the fair
value of BPNAs loan portfolio. The discount on BPNAs
loan portfolio was approximately 20% at December 31,
2009.
Pension and Postretirement Benefit Obligations
The Corporation provides pension and restoration
benefit plans for certain employees of various
subsidiaries. The Corporation also provides certain
health care benefits for retired employees of BPPR.
In
February 2009, BPPRs non-contributory defined pension
and benefit restoration plans (the Plans) were frozen
with regards to all future benefit accruals after April
30, 2009. This action was taken by the Corporation to
generate significant cost savings in light of the
severe economic downturn and the decline in the
Corporations financial performance. This measure will
be reviewed periodically
19
as economic conditions and the Corporations financial situation improve. The pension obligation
and the assets were remeasured as of February 28, 2009. The Plans had been closed to new hires and
were frozen as of December 31, 2005 to employees who were under 30 years of age or were credited
with less than 10 years of benefit service.
The estimated benefit costs and obligations of the
pension and postretirement benefit plans are impacted by the use of subjective assumptions, which
can materially affect recorded amounts, including expected returns on plan assets, discount rates,
rates of compensation increase and health care trend rates. Management applies judgment in the
determination of these factors, which normally undergo evaluation against current industry practice
and the actual experience of the Corporation. The Corporation uses an independent actuarial firm
for assistance in the determination of the pension and postretirement benefit costs and
obligations. Detailed information on the plans and related valuation assumptions are included in
Note 27 to the consolidated financial statements.
The Corporation periodically reviews its
assumption for the long-term expected return on pension plan assets in the Banco Popular de Puerto
Rico Retirement Plan, which is the Corporations largest pension plan with assets with a fair value
of $401.4 million at December 31, 2009 (2008 $361.5 million). The expected return on plan
assets is determined by considering various factors, including a total fund return estimate based
on a weighted average of estimated returns for each asset class in the plan. Asset class returns
are estimated using current and projected economic and market factors such as real rates of return,
inflation, credit spreads, equity risk premiums and excess return expectations.
As part of the review, the Corporations
independent consulting actuaries performed an analysis
of expected returns based on the plans asset
allocation at January 1, 2010. This analysis is
reviewed by the Corporation and used as a tool to
develop expected rates of return, together with other
data. This forecast reflects the actuarial firms view
of expected long-term rates of return for each
significant asset class or economic indicator; for
example, 8.6% for large / mid-cap stocks, 4.5% for
fixed income, 9.3% for small cap stocks and 2.3%
inflation at January 1, 2010. A range of expected
investment returns is developed, and this range relies
both on forecasts and on broad-market historical
benchmarks for expected returns, correlations, and
volatilities for each asset class.
As a consequence of recent reviews, the
Corporation left unchanged its expected return on plan
assets for year 2010 at 8.0%, similar to the expected
rate assumed in 2009 and 2008. The Corporation uses a
long-term inflation estimate of 2.8% to determine the
pension benefit cost, which is higher than the 2.3%
rate used in the actuarys expected return forecast
model. Since the expected return assumption is on a
long-term basis, it is not materially impacted by the
yearly fluctuations (either positive or negative) in
the actual return on assets. However, if the actual
return on assets performs below managements
expectations for a continued period of time, this could
eventually result in the reduction of the expected
return on assets percentage assumption.
Pension expense for the Banco Popular de Puerto
Rico Retirement Plan in 2009 amounted to $24.6 million
(includes a curtailment charge of $0.8 million). This
included a credit of $25.1 million for the expected
return on assets.
Pension expense is sensitive to changes in the
expected return on assets. For example, decreasing the
expected rate of return for 2010 from 8.00% to 7.50%
would increase the projected 2010 expense for the Banco
Popular de Puerto Rico Retirement Plan by approximately
$1.9 million.
The Corporation accounts for the
underfunded
status of its pension and postretirement benefit plans
as a liability, with an offset, net of tax, in
accumulated other comprehensive income or loss. The
determination of the fair value of pension plan
obligations involves judgment, and any changes in those
estimates could impact the Corporations consolidated
statement of financial condition. The valuation of
pension plan obligations is discussed above. Management
believes that the fair value estimates of the pension
plan assets are reasonable given that the plan assets
are managed, in the most part, by the fiduciary
division of BPPR, which is subject to periodic audit
verifications. Also, the composition of the plan
assets, as disclosed in Note 27 of the consolidated
financial statements, is primarily in equity and debt
securities, which have readily determinable quoted
market prices.
The Corporation uses the Citigroup Yield Curve to
discount the expected program cash flows of the plans
as a guide in the selection of the discount rate, as
well as the Citigroup Pension Liability Index. The
Corporation decided to use a discount rate of 5.90% to
determine the benefit obligation at December 31, 2009,
compared with 6.10% at December 31, 2008.
A 50 basis point decrease in the assumed discount
rate of 5.90% as of the beginning of 2010 would
increase the projected 2010 expense for the Banco
Popular de Puerto Rico Retirement Plan by approximately
$2.4 million. The change would not affect the minimum
required contribution to the Plan.
The Corporation also provides a postretirement
health care benefit plan for certain employees of BPPR.
This plan was unfunded (no assets were held by the
plan) at December 31, 2009. The Corporation had an
accrual for postretirement benefit costs of $111.6
million at December 31, 2009. Assumed health care trend
rates may have significant effects on the amounts
reported for the health care plan. Note 27 to the
consolidated financial statements provides information
on the assumed rates considered by the Corporation and
on the sensitivity that a one-percentage point change
in the assumed rate may have on specified cost
components and postretirement benefit obligation of the
Corporation.
20
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POPULAR, INC. 2009 ANNUAL REPORT
|
Statement of Operations Analysis
Net Interest Income
Net interest income, the Corporations primary source
of earnings, represented 55% of top line income
(defined as net interest income plus non-interest
income) for 2009 and 61% for 2008. This source of
earnings is subject to volatility derived from several
risk factors which include market driven events as well
as strategic decisions made by the Corporations
management.
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. Assets held by the Corporations
international banking entities, which previously were
tax-exempt under Puerto Rico law, are currently subject
to a temporary 5% tax. 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.
The taxable equivalent computation considers the
interest expense disallowance required by the Puerto
Rico tax law.
Average outstanding securities balances are based
on amortized cost excluding any unrealized gains or
losses on securities available-for-sale. Non-performing
loans have been included in their respective average
loans and leases categories. Loan fees collected and
costs incurred in the origination of loans are deferred
and amortized over the term of the loan as an
adjustment to interest yield. Prepayment penalties,
late fees collected and the amortization of premiums /
discounts on purchased loans are also included as part
of the loan yield. Interest income for the year ended
December 31, 2009 included a favorable impact of $21.7
million related to these items, primarily in the
commercial and mortgage loans portfolios. In addition,
these amounts approximated favorable impacts of $17.4
million and $25.3 million, respectively, for the years
ended December 31, 2008 and 2007. The $4.3 million
increase from 2008 to 2009 was in part influenced by
higher late payment fees in the Puerto Rico mortgage
loan portfolio.
Table D presents the different components of the
Corporations net interest income, on a taxable
equivalent basis, for the year ended December 31, 2009,
as compared with the same period in 2008, segregated by
major categories of interest earning assets and
interest bearing liabilities.
The decrease in average earning assets was in part
due to the impact of recessions in both the U.S.
mainland and Puerto Rico, and to strategic decisions
made by the Corporations management. The BPPR
reportable segment accounted for 77% of the decrease in
the combined caption of commercial and construction
loans. The decrease is in part the result of current
economic conditions on the island, which have generated
a higher balance of charge-offs, as well as a reduction
in the loan origination activity. The decrease in the
lease financing portfolio was mainly the result of the
Corporations decision to exit the equipment lease
financing business in the U.S. mainland operations. The
majority of the Popular Equipment Finance lease
financing portfolio was sold during the first quarter
of 2009. The decrease in the mortgage loans category
was in part the result of strategic decisions in
response to current economic conditions, which included
exiting the non-conventional mortgage market in the
U.S. mainland and discontinuing the E-LOAN loan
origination platform. Consumer loans continue to
decrease as the remaining closed-end second mortgages
and home equity lines of credit (HELOCs) originated through the
E-LOAN platform continue to amortize, in addition to a
reduction in the loan origination activity. Further
contributing to the decrease in the consumer loan
portfolio was the sale of the E-LOAN auto portfolio
during the latter part of the second quarter of 2008.
In addition to the decrease in the average loan
portfolio, during the first quarter of 2009, the
Corporation sold approximately $3.4 billion in
available-for-sale securities, mostly FHLB notes. The
Corporation subsequently reinvested $2.9 billion of the
proceeds in GNMA mortgage-backed securities. The
remaining proceeds were used to repay borrowings,
contributing to the balance sheet deleveraging.
The net interest margin, while remaining
relatively steady from 2007 to 2008, decreased by 34
basis points during 2009. The following factors
contributed to the reduction in the net interest
margin:
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The Federal Reserve (Fed) lowered the federal
funds target rate from 4.25% at the beginning of
2008 to a target range of 0% 0.25% at December
31, 2008; which prevailed throughout 2009. The low
rate environment impacted the yield of several of
the Corporations earning assets. These assets
included commercial and construction loans, of
which 68% have floating or adjustable rates,
floating rate collateralized mortgage obligations
and HELOCs, as well as the origination of loans in
a low interest rate environment.
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A higher balance of non-performing loans across
the different loan categories, which is discussed
in the Credit Risk and Loan Quality section of
this MD&A, also challenged the net interest margin.
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|
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Liquidity strategies maintained throughout the
year generated a higher balance of short-term
investments at lower rates. The negative margin
generated by these short-term investments
pressured the net interest margin.
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During the latter part of the third quarter of 2009 the
Corporation exchanged $935 million of Series C
preferred stock for junior subordinated debenture
securities. The junior subordinated debentures
were recorded at fair value, generating a
discount. The impact of both the contractual
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21
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interest payments and the discount accretion
generated additional interest expense of $23.5
million for 2009. Prior to the conversion, the
payments to holders of Series C preferred stock
were accounted for as dividends. The negative
effect of this additional interest expense was
partially offset by the conversion of trust
preferred securities into common stock, which
resulted in a reduction in interest expense of
$11.9 million for 2009, when compared with the
previous year.
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Rating downgrades that occurred during 2009 also
contributed to an increase in the average cost of
$350 million of unsecured senior notes of the
Corporation by approximately $6.6 million during
2009. Refer to the Liquidity Risk section of this
MD&A for further information on the Corporations
credit rating downgrades by major rating agencies.
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A lower cost of short-term borrowings and interest
bearing deposits had a positive effect in the net
interest margin. The Corporations management lowered
the rates paid on certain non-maturity deposits and
certificates of deposit during the year. Also, management is
actively monitoring the impact that the rate reductions
may have in the Corporations liquidity.
The average key index rates for the years 2007
through 2009 were as follows:
Table Key Index Rates
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|
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|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Prime rate
|
|
|
3.25
|
%
|
|
|
5.08
|
%
|
|
|
8.05
|
%
|
Fed funds rate
|
|
|
0.17
|
|
|
|
2.08
|
|
|
|
5.05
|
|
3-month LIBOR
|
|
|
0.69
|
|
|
|
2.93
|
|
|
|
5.30
|
|
3-month Treasury Bill
|
|
|
0.14
|
|
|
|
1.45
|
|
|
|
4.46
|
|
10-year Treasury
|
|
|
3.24
|
|
|
|
3.64
|
|
|
|
4.63
|
|
FNMA 30-year
|
|
|
4.68
|
|
|
|
5.79
|
|
|
|
6.24
|
|
|
The Corporations taxable equivalent adjustment
presented a decrease when compared to 2008. Part of
this decrease is the result of the aforementioned sale
of FHLB notes, which are tax-exempt in Puerto Rico, and
the subsequent reinvestment of the proceeds in taxable
GNMA securities. Average tax-exempt earning assets
approximated $3.8 billion in 2009, of which 89%
represented tax-exempt investment securities, compared
with $7.9 billion and 80% in 2008, and $8.9 billion and
83% in 2007, respectively.
In 2008, the Corporation was able to maintain a
steady net interest margin when compared to 2007.
However, the year presented various challenges as the
liquidity concerns that began in the second half of
2007 continued during 2008. As shown in Table D,
the decrease in net interest income for the year ended
December 31, 2008, compared with the previous year, was
mainly attributed to the impact that reductions in
market rates had in the Corporations yield on earning
assets. The Corporation was able to maintain a
consistent net interest margin by implementing
strategies that reduced low yielding assets; including
not reinvesting maturities of low yield investments.
Similar to 2009, reductions in the average cost of
non-maturity deposits and certificates of deposits also
served as mitigating factors that contributed to a
stable margin.
Provision for Loan Losses
The provision for loan losses totaled $1.4 billion, or
137% of net charge-offs, for the year ended December
31, 2009, compared with $991.4 million, or 165%,
respectively, for 2008, and $341.2 million, or 136%,
respectively, for 2007.
The provision for loan losses for the year ended
December 31, 2009, when compared with the previous
year, reflects an increase in the level of the
allowance for loan losses and higher net charge-offs by
$427.4 million, mainly in construction loans by $189.5
million, commercial loans by $93.9 million, consumer
loans by $77.7 million, and mortgage loans by $67.7
million. During the year ended December 31, 2009, the
Corporation recorded $566.0 million in provision for
loan losses for loans individually evaluated for
impairment, compared with $316.5 million for 2008.
The Corporations allowance for loan losses
increased to $1.3 billion at December 31, 2009, an
increase of $378 million from December 31, 2008,
despite the decrease of $2.0 billion in loans
held-in-portfolio. The Corporations allowance for loan
losses represented 5.32% of loans held-in-portfolio at
December 31, 2009, compared with 3.43% at December 31,
2008. During 2009, the Corporation increased the
allowance for loan losses across all its major loan
portfolios, excluding the lease financing portfolio. As
indicated in the Overview section, during 2009, the
Corporation exited the business of originating lease
equipment financing in its U.S. mainland operations.
Refer to Table P for the allocation of the allowance
for loan losses by loan type.
The increase in the provision for loan losses for
2009, compared with 2008, was principally the result of
higher general reserve requirements for commercial
loans, construction loans, U.S. mainland
non-conventional residential mortgages and home equity
lines of credit, combined with specific reserves
recorded for loans considered impaired. The continued
recessionary conditions of the Puerto Rico and the
United States economies, housing value declines, a
slowdown in consumer spending and the turmoil in the
global financial markets impacted the Corporations
commercial and construction loan portfolios; increasing
charge-offs, non-performing assets and loans
judgmentally classified as impaired. The stress
consumers experienced from depreciating home prices,
rising unemployment and tighter credit conditions
resulted in higher levels of delinquencies and losses
in the Corporations mortgage and consumer loan
portfolios.
The increase in the provision for loan losses for
the year ended December 31, 2008, when compared to
2007, was as a result of
22
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POPULAR, INC. 2009 ANNUAL REPORT
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Table D
Net Interest Income Taxable Equivalent Basis
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
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|
(Dollars in millions)
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|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
Average Volume
|
|
|
Average Yields / Costs
|
|
|
|
|
Interest
|
|
|
|
|
|
|
Attributable to
|
|
2009
|
|
|
2008
|
|
|
Variance
|
|
|
2009
|
|
|
2008
|
|
|
Variance
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Variance
|
|
|
Rate
|
|
|
Volume
|
|
$
|
1,183
|
|
|
$
|
700
|
|
|
$
|
483
|
|
|
|
0.72
|
%
|
|
|
2.68
|
%
|
|
|
(1.96
|
%)
|
|
Money market investments
|
|
$
|
8,573
|
|
|
$
|
18,790
|
|
|
$
|
(10,217
|
)
|
|
$
|
(11,220
|
)
|
|
$
|
1,003
|
|
|
7,449
|
|
|
|
8,189
|
|
|
|
(740
|
)
|
|
|
4.62
|
|
|
|
5.03
|
|
|
|
(0.41
|
)
|
|
Investment securities
|
|
|
344,465
|
|
|
|
412,165
|
|
|
|
(67,700
|
)
|
|
|
(12,117
|
)
|
|
|
(55,583
|
)
|
|
615
|
|
|
|
665
|
|
|
|
(50
|
)
|
|
|
6.63
|
|
|
|
7.21
|
|
|
|
(0.58
|
)
|
|
Trading securities
|
|
|
40,771
|
|
|
|
47,909
|
|
|
|
(7,138
|
)
|
|
|
(3,669
|
)
|
|
|
(3,469
|
)
|
|
|
|
|
|
|
9,247
|
|
|
|
9,554
|
|
|
|
(307
|
)
|
|
|
4.26
|
|
|
|
5.01
|
|
|
|
(0.75
|
)
|
|
|
|
|
393,809
|
|
|
|
478,864
|
|
|
|
(85,055
|
)
|
|
|
(27,006
|
)
|
|
|
(58,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,230
|
|
|
|
15,775
|
|
|
|
(545
|
)
|
|
|
4.94
|
|
|
|
6.13
|
|
|
|
(1.19
|
)
|
|
Commercial and construction
|
|
|
752,717
|
|
|
|
967,019
|
|
|
|
(214,302
|
)
|
|
|
(181,524
|
)
|
|
|
(32,778
|
)
|
|
768
|
|
|
|
1,114
|
|
|
|
(346
|
)
|
|
|
8.42
|
|
|
|
8.01
|
|
|
|
0.41
|
|
|
Leasing
|
|
|
64,697
|
|
|
|
89,155
|
|
|
|
(24,458
|
)
|
|
|
4,439
|
|
|
|
(28,897
|
)
|
|
4,494
|
|
|
|
4,722
|
|
|
|
(228
|
)
|
|
|
6.49
|
|
|
|
7.18
|
|
|
|
(0.69
|
)
|
|
Mortgage
|
|
|
291,792
|
|
|
|
339,019
|
|
|
|
(47,227
|
)
|
|
|
(31,376
|
)
|
|
|
(15,851
|
)
|
|
4,344
|
|
|
|
4,861
|
|
|
|
(517
|
)
|
|
|
9.94
|
|
|
|
10.15
|
|
|
|
(0.21
|
)
|
|
Consumer
|
|
|
431,712
|
|
|
|
493,593
|
|
|
|
(61,881
|
)
|
|
|
(17,932
|
)
|
|
|
(43,949
|
)
|
|
|
|
|
|
|
24,836
|
|
|
|
26,472
|
|
|
|
(1,636
|
)
|
|
|
6.20
|
|
|
|
7.14
|
|
|
|
(0.94
|
)
|
|
|
|
|
1,540,918
|
|
|
|
1,888,786
|
|
|
|
(347,868
|
)
|
|
|
(226,393
|
)
|
|
|
(121,475
|
)
|
|
|
|
|
|
$
|
34,083
|
|
|
$
|
36,026
|
|
|
$
|
(1,943
|
)
|
|
|
5.68
|
%
|
|
|
6.57
|
%
|
|
|
(0.89
|
%)
|
|
Total earning assets
|
|
$
|
1,934,727
|
|
|
$
|
2,367,650
|
|
|
$
|
(432,923
|
)
|
|
$
|
(253,399
|
)
|
|
$
|
(179,524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,804
|
|
|
$
|
4,948
|
|
|
$
|
(144
|
)
|
|
|
1.12
|
%
|
|
|
1.89
|
%
|
|
|
(0.77
|
%)
|
|
NOW and money market*
|
|
$
|
53,695
|
|
|
$
|
93,523
|
|
|
$
|
(39,828
|
)
|
|
$
|
(36,579
|
)
|
|
$
|
(3,249
|
)
|
|
5,538
|
|
|
|
5,600
|
|
|
|
(62
|
)
|
|
|
0.97
|
|
|
|
1.50
|
|
|
|
(0.53
|
)
|
|
Savings
|
|
|
53,660
|
|
|
|
84,206
|
|
|
|
(30,546
|
)
|
|
|
(28,412
|
)
|
|
|
(2,134
|
)
|
|
12,193
|
|
|
|
12,796
|
|
|
|
(603
|
)
|
|
|
3.23
|
|
|
|
4.08
|
|
|
|
(0.85
|
)
|
|
Time deposits
|
|
|
393,907
|
|
|
|
522,394
|
|
|
|
(128,487
|
)
|
|
|
(110,675
|
)
|
|
|
(17,812
|
)
|
|
|
|
|
|
|
22,535
|
|
|
|
23,344
|
|
|
|
(809
|
)
|
|
|
2.22
|
|
|
|
3.00
|
|
|
|
(0.78
|
)
|
|
|
|
|
501,262
|
|
|
|
700,123
|
|
|
|
(198,861
|
)
|
|
|
(175,666
|
)
|
|
|
(23,195
|
)
|
|
|
|
|
|
|
2,888
|
|
|
|
5,115
|
|
|
|
(2,227
|
)
|
|
|
2.40
|
|
|
|
3.29
|
|
|
|
(0.89
|
)
|
|
Short-term borrowings
|
|
|
69,357
|
|
|
|
168,070
|
|
|
|
(98,713
|
)
|
|
|
(53,763
|
)
|
|
|
(44,950
|
)
|
|
2,945
|
|
|
|
2,263
|
|
|
|
682
|
|
|
|
6.22
|
|
|
|
5.60
|
|
|
|
0.62
|
|
|
Medium and long-term debt
|
|
|
183,125
|
|
|
|
126,726
|
|
|
|
56,399
|
|
|
|
15,131
|
|
|
|
41,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,368
|
|
|
|
30,722
|
|
|
|
(2,354
|
)
|
|
|
2.66
|
|
|
|
3.24
|
|
|
|
(0.58
|
)
|
|
liabilities
|
|
|
753,744
|
|
|
|
994,919
|
|
|
|
(241,175
|
)
|
|
|
(214,298
|
)
|
|
|
(26,877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,293
|
|
|
|
4,120
|
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
demand deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,422
|
|
|
|
1,184
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other sources of funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34,083
|
|
|
$
|
36,026
|
|
|
$
|
(1,943
|
)
|
|
|
2.21
|
%
|
|
|
2.76
|
%
|
|
|
(0.55
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.47
|
%
|
|
|
3.81
|
%
|
|
|
(0.34
|
%)
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income on
a taxable equivalent basis
|
|
|
1,180,983
|
|
|
|
1,372,731
|
|
|
|
(191,748
|
)
|
|
$
|
(39,101
|
)
|
|
$
|
(152,647
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.02
|
%
|
|
|
3.33
|
%
|
|
|
(0.31
|
%)
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent
adjustment
|
|
|
79,730
|
|
|
|
93,527
|
|
|
|
(13,797
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
1,101,253
|
|
|
$
|
1,279,204
|
|
|
$
|
(177,951
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes: The changes that are not due solely to volume or rate are allocated to volume and rate
based on the proportion of the change in each category.
*Includes interest bearing demand
deposits corresponding to certain government entities in Puerto Rico.
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
(In thousands)
|
|
Average Volume
|
|
|
Average Yields / Costs
|
|
|
|
|
Interest
|
|
|
|
|
|
|
Variance
Attributable to
|
|
2008
|
|
|
2007
|
|
|
Variance
|
|
|
2008
|
|
|
2007
|
|
|
Variance
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Variance
|
|
|
Rate
|
|
|
Volume
|
|
$
|
700
|
|
|
$
|
514
|
|
|
$
|
186
|
|
|
|
2.68
|
%
|
|
|
5.17
|
%
|
|
|
(2.49
|
%)
|
|
Money market investments
|
|
$
|
18,790
|
|
|
$
|
26,565
|
|
|
$
|
(7,775
|
)
|
|
$
|
(14,482
|
)
|
|
$
|
6,707
|
|
|
8,189
|
|
|
|
9,827
|
|
|
|
(1,638
|
)
|
|
|
5.03
|
|
|
|
5.16
|
|
|
|
(0.13
|
)
|
|
Investment securities
|
|
|
412,165
|
|
|
|
507,047
|
|
|
|
(94,882
|
)
|
|
|
(12,538
|
)
|
|
|
(82,344
|
)
|
|
665
|
|
|
|
653
|
|
|
|
12
|
|
|
|
7.21
|
|
|
|
6.19
|
|
|
|
1.02
|
|
|
Trading securities
|
|
|
47,909
|
|
|
|
40,408
|
|
|
|
7,501
|
|
|
|
6,729
|
|
|
|
772
|
|
|
|
|
|
|
|
9,554
|
|
|
|
10,994
|
|
|
|
(1,440
|
)
|
|
|
5.01
|
|
|
|
5.22
|
|
|
|
(0.21
|
)
|
|
|
|
|
478,864
|
|
|
|
574,020
|
|
|
|
(95,156
|
)
|
|
|
(20,291
|
)
|
|
|
(74,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,775
|
|
|
|
14,917
|
|
|
|
858
|
|
|
|
6.13
|
|
|
|
7.72
|
|
|
|
(1.59
|
)
|
|
Commercial and construction
|
|
|
967,019
|
|
|
|
1,151,602
|
|
|
|
(184,583
|
)
|
|
|
(245,680
|
)
|
|
|
61,097
|
|
|
1,114
|
|
|
|
1,178
|
|
|
|
(64
|
)
|
|
|
8.01
|
|
|
|
7.89
|
|
|
|
0.12
|
|
|
Leasing
|
|
|
89,155
|
|
|
|
92,940
|
|
|
|
(3,785
|
)
|
|
|
1,345
|
|
|
|
(5,130
|
)
|
|
4,722
|
|
|
|
4,748
|
|
|
|
(26
|
)
|
|
|
7.18
|
|
|
|
7.32
|
|
|
|
(0.14
|
)
|
|
Mortgage
|
|
|
339,019
|
|
|
|
347,302
|
|
|
|
(8,283
|
)
|
|
|
(6,384
|
)
|
|
|
(1,899
|
)
|
|
4,861
|
|
|
|
4,537
|
|
|
|
324
|
|
|
|
10.15
|
|
|
|
10.50
|
|
|
|
(0.35
|
)
|
|
Consumer
|
|
|
493,593
|
|
|
|
476,234
|
|
|
|
17,359
|
|
|
|
(20,645
|
)
|
|
|
38,004
|
|
|
|
|
|
|
|
26,472
|
|
|
|
25,380
|
|
|
|
1,092
|
|
|
|
7.14
|
|
|
|
8.15
|
|
|
|
(1.01
|
)
|
|
|
|
|
1,888,786
|
|
|
|
2,068,078
|
|
|
|
(179,292
|
)
|
|
|
(271,364
|
)
|
|
|
92,072
|
|
|
|
|
|
|
$
|
36,026
|
|
|
$
|
36,374
|
|
|
$
|
(348
|
)
|
|
|
6.57
|
%
|
|
|
7.26
|
%
|
|
|
(0.69
|
%)
|
|
Total earning assets
|
|
$
|
2,367,650
|
|
|
$
|
2,642,098
|
|
|
$
|
(274,448
|
)
|
|
$
|
(291,655
|
)
|
|
$
|
17,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,948
|
|
|
$
|
4,429
|
|
|
$
|
519
|
|
|
|
1.89
|
%
|
|
|
2.60
|
%
|
|
|
(0.71
|
%)
|
|
NOW and money market*
|
|
$
|
93,523
|
|
|
$
|
115,047
|
|
|
$
|
(21,524
|
)
|
|
$
|
(34,997
|
)
|
|
$
|
13,473
|
|
|
5,600
|
|
|
|
5,698
|
|
|
|
(98
|
)
|
|
|
1.50
|
|
|
|
1.96
|
|
|
|
(0.46
|
)
|
|
Savings
|
|
|
84,206
|
|
|
|
111,877
|
|
|
|
(27,671
|
)
|
|
|
(19,242
|
)
|
|
|
(8,429
|
)
|
|
12,796
|
|
|
|
11,399
|
|
|
|
1,397
|
|
|
|
4.08
|
|
|
|
4.73
|
|
|
|
(0.65
|
)
|
|
Time deposits
|
|
|
522,394
|
|
|
|
538,869
|
|
|
|
(16,475
|
)
|
|
|
(83,055
|
)
|
|
|
66,580
|
|
|
|
|
|
|
|
23,344
|
|
|
|
21,526
|
|
|
|
1,818
|
|
|
|
3.00
|
|
|
|
3.56
|
|
|
|
(0.56
|
)
|
|
|
|
|
700,123
|
|
|
|
765,793
|
|
|
|
(65,670
|
)
|
|
|
(137,294
|
)
|
|
|
71,624
|
|
|
|
|
|
|
|
5,115
|
|
|
|
8,316
|
|
|
|
(3,201
|
)
|
|
|
3.29
|
|
|
|
5.11
|
|
|
|
(1.82
|
)
|
|
Short-term borrowings
|
|
|
168,070
|
|
|
|
424,530
|
|
|
|
(256,460
|
)
|
|
|
(131,385
|
)
|
|
|
(125,075
|
)
|
|
2,263
|
|
|
|
1,041
|
|
|
|
1,222
|
|
|
|
5.60
|
|
|
|
5.40
|
|
|
|
0.20
|
|
|
Medium and long-term debt
|
|
|
126,726
|
|
|
|
56,254
|
|
|
|
70,472
|
|
|
|
2,130
|
|
|
|
68,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,722
|
|
|
|
30,883
|
|
|
|
(161
|
)
|
|
|
3.24
|
|
|
|
4.04
|
|
|
|
(0.80
|
)
|
|
liabilities
|
|
|
994,919
|
|
|
|
1,246,577
|
|
|
|
(251,658
|
)
|
|
|
(266,549
|
)
|
|
|
14,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,120
|
|
|
|
4,043
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
demand deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,184
|
|
|
|
1,448
|
|
|
|
(264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other sources of funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36,026
|
|
|
$
|
36,374
|
|
|
$
|
(348
|
)
|
|
|
2.76
|
%
|
|
|
3.43
|
%
|
|
|
(0.67
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.81
|
%
|
|
|
3.83
|
%
|
|
|
(0.02
|
%)
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income on
a taxable equivalent basis
|
|
|
1,372,731
|
|
|
|
1,395,521
|
|
|
|
(22,790
|
)
|
|
$
|
(25,106
|
)
|
|
$
|
2,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.33
|
%
|
|
|
3.22
|
%
|
|
|
0.11
|
%
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable equivalent
adjustment
|
|
|
93,527
|
|
|
|
89,863
|
|
|
|
3,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
1,279,204
|
|
|
$
|
1,305,658
|
|
|
$
|
(26,454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
POPULAR, INC. 2009 ANNUAL REPORT
|
Table E
Non-Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(In thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Service charges on deposit accounts
|
|
$
|
213,493
|
|
|
$
|
206,957
|
|
|
$
|
196,072
|
|
|
$
|
190,079
|
|
|
$
|
181,749
|
|
|
Other service fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debit card fees
|
|
|
110,040
|
|
|
|
108,274
|
|
|
|
76,573
|
|
|
|
61,643
|
|
|
|
52,675
|
|
Credit card fees and discounts
|
|
|
94,636
|
|
|
|
107,713
|
|
|
|
102,176
|
|
|
|
89,827
|
|
|
|
82,062
|
|
Processing fees
|
|
|
55,005
|
|
|
|
51,731
|
|
|
|
47,476
|
|
|
|
44,050
|
|
|
|
42,773
|
|
Insurance fees
|
|
|
50,132
|
|
|
|
50,417
|
|
|
|
53,097
|
|
|
|
52,045
|
|
|
|
49,021
|
|
Sale and administration of
investment products
|
|
|
34,134
|
|
|
|
34,373
|
|
|
|
30,453
|
|
|
|
27,873
|
|
|
|
28,419
|
|
Mortgage servicing fees, net of
amortization and fair value
adjustments
|
|
|
15,086
|
|
|
|
25,987
|
|
|
|
17,981
|
|
|
|
5,215
|
|
|
|
4,115
|
|
Trust fees
|
|
|
12,455
|
|
|
|
12,099
|
|
|
|
11,157
|
|
|
|
9,316
|
|
|
|
8,290
|
|
Check cashing fees
|
|
|
588
|
|
|
|
512
|
|
|
|
387
|
|
|
|
737
|
|
|
|
17,122
|
|
Other fees
|
|
|
22,111
|
|
|
|
25,057
|
|
|
|
26,311
|
|
|
|
27,153
|
|
|
|
33,857
|
|
|
Total other service fees
|
|
|
394,187
|
|
|
|
416,163
|
|
|
|
365,611
|
|
|
|
317,859
|
|
|
|
318,334
|
|
|
Net gain on sale and valuation
adjustments of investment securities
|
|
|
219,546
|
|
|
|
69,716
|
|
|
|
100,869
|
|
|
|
22,120
|
|
|
|
66,512
|
|
Trading account profit
|
|
|
39,740
|
|
|
|
43,645
|
|
|
|
37,197
|
|
|
|
36,258
|
|
|
|
30,051
|
|
(Loss) gain on sale of loans, including adjustments
to indemnity reserves, and valuation
adjustments on loans held-for-sale
|
|
|
(35,060
|
)
|
|
|
6,018
|
|
|
|
60,046
|
|
|
|
76,337
|
|
|
|
37,342
|
|
Other operating income
|
|
|
64,595
|
|
|
|
87,475
|
|
|
|
113,900
|
|
|
|
127,856
|
|
|
|
98,624
|
|
|
Total non-interest income
|
|
$
|
896,501
|
|
|
$
|
829,974
|
|
|
$
|
873,695
|
|
|
$
|
770,509
|
|
|
$
|
732,612
|
|
|
higher credit losses and increased specific reserves
for impaired loans. The deteriorating economy continued
to negatively impact the credit quality of the
Corporations loan portfolios during 2008 with more
rapid deterioration occurring in the latter part of the
year. Net charge-offs increased by $349.3 million in
2008, when compared with the previous year, mainly in
the construction, consumer, commercial, and mortgage
loan portfolios.
Refer to the Credit Risk Management and Loan
Quality section for a detailed analysis of
non-performing assets, allowance for loan losses and
selected loan losses statistics. Also, refer to Table G
and Note 10 to the consolidated financial statements
for the composition of the loan portfolio.
Non-Interest Income
Refer to Table E for a breakdown on non-interest income
by major categories for the past five years.
Non-interest income accounted for 45% of total revenues
in 2009, while it represented 39% of total revenues in
the year 2008 and 40% in 2007.
Non-interest income for the year ended December
31, 2009, compared with the previous year, increased by
8%, mostly as a result of higher net gains on sales of
investment securities, net of valuation adjustments of
investment securities, as shown on the following table:
Table Non-Interest Income Investment Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(In thousands)
|
|
2009
|
|
2008
|
|
Variance
|
|
Net gain on sale of
investment securities
|
|
$
|
236,638
|
|
|
$
|
78,863
|
|
|
$
|
157,775
|
|
Valuation adjustments of
investment securities
|
|
|
(17,092
|
)
|
|
|
(9,147
|
)
|
|
|
(7,945
|
)
|
|
Total
|
|
$
|
219,546
|
|
|
$
|
69,716
|
|
|
$
|
149,830
|
|
|
Net gains on sales of investment securities
realized during 2009 included $182.7 million derived
from the sale of $3.4 billion in U.S. Treasury notes
and U.S. agency obligations during the first quarter
of 2009 by BPPR and $52.3 million in gains from the
sale of equity securities during 2009 by the BPPR and
EVERTEC reportable segments. On the other hand, net
gains realized during 2008 included approximately $49.3
million in gains related to
25
the redemption of VISA shares of common stock held by
the Corporation during the first quarter of 2008 and
$28.3 million in gains realized from the sale of $2.4
billion in U.S. agency securities during the second
quarter of 2008 by BPPR. The valuation adjustments of
investment securities recorded during 2009 were mostly
related to write-downs on equity securities
available-for-sale and tax credit investments
classified as other investment securities in the
consolidated statement of condition.
Also having a favorable variance in non-interest
income were higher service charges on deposit accounts
by $6.5 million as a result of higher overdraft fees,
non-sufficient funds fees, surcharging fees on non-BPPR
ATM terminals and account analysis fees in commercial
accounts by BPPR which are impacted by transaction
volume, compensating deposit balances and earnings
credit given to the customer depending on the interest
rates. These favorable variances in BPPR were partially
offset by lower non-sufficient funds fees and overdraft
fees in BPNA as a result of revisions in working
capital requirements and pricing structure for money
services clients.
The above favorable variances in non-interest
income were partially offset by the following variances
related to transactions on loans sold:
Table Non-Interest Income Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(In thousands)
|
|
2009
|
|
2008
|
|
Variance
|
|
(Loss) gain on sales of loans
including adjustments to
indemnity reserves
|
|
$
|
(31,355
|
)
|
|
$
|
24,961
|
|
|
$
|
(56,316
|
)
|
Lower of cost or market
valuation adjustments on
loans held-for-sale
|
|
|
(3,705
|
)
|
|
|
(18,943
|
)
|
|
|
15,238
|
|
|
Total
|
|
$
|
(35,060
|
)
|
|
$
|
6,018
|
|
|
$
|
(41,078
|
)
|
|
The losses on sales of loans during the year ended
December 31, 2009 were mainly the result of increases
for indemnity reserves on loans previously sold by
E-LOAN by approximately $41.4 million given an upward
trend in claims and loss severities in the current
economic environment. These claims were related to
standard representation and warranties and not due to
credit recourse. This unfavorable variance was also
impacted by the fact that, during 2008, E-LOAN was
originating and selling first-lien mortgage loans.
E-LOAN stopped originating loans in the fourth quarter
of 2008, and thus impacted the loan sales volume for
2009. Also, during the year ended December 31, 2009,
Popular Equipment Finance, BPNAs equipment lease
financing subsidiary, recognized $9.8 million in losses
on the sale of a substantial portion of its outstanding
portfolio, including the impact of the indemnification
reserves established. The variance in lower of cost or
fair value adjustments on loans held-for-sale was
principally associated with a $16.1 million adjustment
recorded by Popular Equipment Finance in December 2008
on certain loans reclassified to held-for-sale, which
were sold in early 2009.
Non-interest income for the year ended December
31, 2009 also reflected lower other service fees, when
compared with the year 2008. Refer to Table E for a
breakdown of other service fees by major categories.
The decrease in credit card fees of $13.1 million was
principally associated with reduced late payment fees
as a result of lower volume of credit cards subject to
the fee and a lower average rate charged per
transaction, and to reduced merchant fees because of
lower volume of purchases. Also reflecting an
unfavorable variance in other service fees were lower
mortgage servicing fees, net of fair value adjustments,
by $10.9 million. This latter variance was principally
due to higher unfavorable fair value adjustments due to
the impact of a higher discount rate, an increase in
delinquencies and foreclosure costs, and other economic
assumptions, partially offset by higher servicing fees.
Refer to Note 13 to the consolidated financial
statements for information on the Corporations
servicing assets and serviced portfolio.
The category of other operating income in Table E also shows a decline in 2009 compared with
the previous year. The decrease was mainly impacted by lower gains on the sale of real estate
properties by $20.5 million, principally because of a $21.1 million gain realized by BPNA in the
third quarter of 2008 on the sale of a commercial building located in New York City. Also, the
variance was related to particular events that occurred in 2008, such as the sale of six retail
bank branches of BPNA in Texas during the first quarter of 2008 with a realized gain of $12.8
million and the sale of substantially all assets of EVERTECs health processing division during
2008 which resulted in a $1.7 million gain. Furthermore, there were higher derivative losses,
including unfavorable credit adjustments, by $11.3 million for the year ended December 31, 2009,
compared with the previous year. The decrease in other operating income was partially offset by
lower write-downs on certain investments accounted under the equity method that are held by the
Corporate group, which resulted in a favorable variance of $35.8 million.
For the year ended
December 31, 2008, non-interest income decreased by $43.7 million, or 5%, when compared with 2007.
There were lower gains on sales of loans and higher unfavorable valuation adjustments on loans
held-for-sale by $54.0 million. The reduction in the gain on sales of loans was mainly at E-LOAN,
which experienced a reduction of $48.7 million as a result of lower origination volumes and lower
yields due to the weakness in the U.S. mainland mortgage and housing market and to the exiting of
its loan origination business. Also contributing to the reduction in gain on sales of loans was an
increase in lower of cost or fair value adjustments of $12.9 million mostly impacted by the fair
value adjustment on the lease financing portfolio that was reclassified from held-in-portfolio to
held-for-sale in December 2008. Additionally, there were lower net gains on sale and valuation
26
|
|
POPULAR, INC. 2009 ANNUAL REPORT
|
adjustments of investment securities by $31.2 million
mainly due to $118.7 million in realized gains on the
sale of the Corporations interest in
Telecomunicaciones de Puerto Rico, Inc. (TELPRI)
during the first quarter of 2007. This was partially
offset by the gains in 2008 related to the redemption
of the VISA shares and the sale of U.S. agency
securities by BPPR, and by lower write-downs on
investment securities available-for-sale principally
related to equity investments in U.S. financial
institutions during 2008. Moreover, there was a
decrease in other operating income by $26.4 million
mostly associated with the Corporations Corporate
group which recorded lower revenues from investments
accounted under the equity method, as well as higher
other-than-temporary impairments on certain of these
investments. There were also lower revenues from escrow
closing services by E-LOAN due to the exiting of the
loan origination business, as well as lower referral
income. This was partially offset by higher gains on
the sale of real estate properties by $13.7 million
mainly in the U.S. banking subsidiary, as well as the
gain on the sale of six retail bank branches of BPNA in
Texas during 2008.
Partially offsetting these net unfavorable
variances in non-interest income for the year ended
December 31, 2008, compared with 2007, were higher
other service fees by $50.6 million and higher service
charges on deposits by $10.9 million. The increase in
other service fees was mostly related to higher debit
card fees as a result of higher revenues from merchants
due to a change in the pricing structure for
transactions processed from a fixed charge per
transaction to a variable rate based on the amount of
the transaction, higher surcharging income from the use
of Populars automated teller machine network, and
higher mortgage servicing fees due to an increase in
the portfolio of serviced loans. On the other hand, the
increase in service charges on deposits resulted from
higher account analysis fees on commercial accounts.
Operating Expenses
Refer to Table F for the detail of operating expenses
by major categories along with various related ratios
for the last five years. Operating expenses totaled
$1.2 billion for the year ended December 31, 2009, a
decrease of $182.5 million, or 14%, compared with the
same period in 2008. Refer to the Restructuring Plans
section in this MD&A for information on the
restructuring plans in effect during 2009, which
impacted principally the categories of personnel costs
and net occupancy expenses.
The primary contributor to the reduction in
operating expenses for 2009, compared with the previous
year, was the aforementioned gain on early
extinguishment of debt that resulted from the junior
subordinated debentures that were extinguished as a
result of the exchange of trust preferred securities
for common stock in August 2009.
A second contributor was the decrease in personnel
costs, which was primarily the result of a reduction in
headcount from 10,387 (excluding discontinued
operations) at December 31, 2008 to 9,407 at December
31, 2009, a freeze in the pension plan, the suspension
of matching contributions to all savings plans and
continuation of a salary and hiring freeze. BPNA and
E-LOAN were the principal contributors to the headcount
reduction with a decrease of 692 full-time equivalent
employees (FTEs) on a combined basis year over year.
There was also a reduction in headcount at the BPPR and
EVERTEC reportable segments due to cost control
initiatives, which included lower headcount from
attrition and hiring freezes. Other actions taken to
control costs included integration of certain support
and business functions in the U.S. mainland operations
to Puerto Rico, lower incentive compensation and
bonuses, and close monitoring of controllable costs
such as training and overtime. As part of the cost
control measures, in February 2009, the Corporation
also froze BPPRs pension plan with regards to all
future benefit accruals after April 30, 2009. Despite
this freeze, the pension plan expense for 2009
increased by $21.6 million when compared with 2008. The
pension plan experienced a steep decline in the fair
value of plan assets for the year ended December 31,
2008, which resulted in a significant increase in the
actuarial loss component of accumulated other
comprehensive loss at December 31, 2008. The increase
in net periodic pension cost for 2009 was primarily due
to the amortization of actuarial loss into pension
expense and a lower expected return on plan assets.
Furthermore, there was a decrease in business
promotion for the year ended December 31, 2009,
compared with 2008, principally related to the BPNA
reportable segment by $16.1 million mostly associated
with downsizing of the operations. The BPPR reportable
segment contributed with a reduction in business
promotion of $6.6 million, which was the result of cost
control measures on expenditures in general, including
mailing campaigns, among others.
Equipment expenses decreased due to lower
amortization of software packages and depreciation of
technology equipment, in part because such software and
equipment was fully amortized in 2008 or early 2009.
Also, the decrease is partially due to lower equipment
requirements and software licensing because of the
downsizing of the Corporations U.S. mainland
operations and the transfer of E-LOANs technology
operations to EVERTEC in Puerto Rico, eliminating two
data processing centers.
The reduction in professional fees was mostly due
to the fact that, in 2008, the Corporation incurred
consulting and advisory services associated to the U.S.
sale transactions and valuation services, which were
not recurrent in 2009. Also, the reduction was
influenced by lower credit bureau fees and other loan
origination related services given the exiting by
E-LOAN of the direct lending business during 2008,
lower programming fees and temporary services.
Furthermore, due to cost-containment actions, certain
technology consulting and development projects were
postponed
27
Table F
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Salaries
|
|
$
|
410,616
|
|
|
$
|
485,720
|
|
|
$
|
485,178
|
|
|
$
|
458,977
|
|
|
$
|
417,060
|
|
Pension, profit sharing and other benefits
|
|
|
122,647
|
|
|
|
122,745
|
|
|
|
135,582
|
|
|
|
132,998
|
|
|
|
129,526
|
|
|
Total personnel costs
|
|
|
533,263
|
|
|
|
608,465
|
|
|
|
620,760
|
|
|
|
591,975
|
|
|
|
546,586
|
|
|
Net occupancy expenses
|
|
|
111,035
|
|
|
|
120,456
|
|
|
|
109,344
|
|
|
|
99,599
|
|
|
|
96,929
|
|
Equipment expenses
|
|
|
101,530
|
|
|
|
111,478
|
|
|
|
117,082
|
|
|
|
120,445
|
|
|
|
112,167
|
|
Other taxes
|
|
|
52,605
|
|
|
|
52,799
|
|
|
|
48,489
|
|
|
|
43,313
|
|
|
|
37,811
|
|
Professional fees
|
|
|
111,287
|
|
|
|
121,145
|
|
|
|
119,523
|
|
|
|
117,502
|
|
|
|
98,015
|
|
Communications
|
|
|
46,264
|
|
|
|
51,386
|
|
|
|
58,092
|
|
|
|
56,932
|
|
|
|
52,904
|
|
Business promotion
|
|
|
38,872
|
|
|
|
62,731
|
|
|
|
109,909
|
|
|
|
118,682
|
|
|
|
92,173
|
|
Printing and supplies
|
|
|
11,093
|
|
|
|
14,450
|
|
|
|
15,603
|
|
|
|
15,040
|
|
|
|
15,545
|
|
Impairment losses on long-lived assets
|
|
|
1,545
|
|
|
|
13,491
|
|
|
|
10,478
|
|
|
|
|
|
|
|
|
|
FDIC deposit insurance
|
|
|
76,796
|
|
|
|
15,037
|
|
|
|
2,858
|
|
|
|
2,843
|
|
|
|
3,026
|
|
Gain on early extinguishment of debt
|
|
|
(78,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card processing, volume
and interchange expenses
|
|
|
41,799
|
|
|
|
43,326
|
|
|
|
39,811
|
|
|
|
30,141
|
|
|
|
28,113
|
|
Transportation and travel
|
|
|
8,796
|
|
|
|
12,751
|
|
|
|
14,239
|
|
|
|
13,600
|
|
|
|
14,925
|
|
OREO expenses
|
|
|
25,800
|
|
|
|
12,158
|
|
|
|
2,905
|
|
|
|
994
|
|
|
|
162
|
|
All other*
|
|
|
62,329
|
|
|
|
73,066
|
|
|
|
54,174
|
|
|
|
55,144
|
|
|
|
56,263
|
|
Goodwill and trademark
impairment losses
|
|
|
|
|
|
|
12,480
|
|
|
|
211,750
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
9,482
|
|
|
|
11,509
|
|
|
|
10,445
|
|
|
|
12,021
|
|
|
|
9,549
|
|
|
Subtotal
|
|
|
620,933
|
|
|
|
728,263
|
|
|
|
924,702
|
|
|
|
686,256
|
|
|
|
617,582
|
|
|
Total
|
|
$
|
1,154,196
|
|
|
$
|
1,336,728
|
|
|
$
|
1,545,462
|
|
|
$
|
1,278,231
|
|
|
$
|
1,164,168
|
|
|
Personnel costs to average assets
|
|
|
1.46
|
%
|
|
|
1.54
|
%
|
|
|
1.57
|
%
|
|
|
1.49
|
%
|
|
|
1.45
|
%
|
Operating expenses to average assets
|
|
|
3.16
|
|
|
|
3.39
|
|
|
|
3.92
|
|
|
|
3.21
|
|
|
|
3.08
|
|
Employees (full-time equivalent)
|
|
|
9,407
|
|
|
|
10,387
|
|
|
|
11,374
|
|
|
|
11,025
|
|
|
|
11,330
|
|
Average assets per employee (in millions)
|
|
$
|
3.89
|
|
|
$
|
3.80
|
|
|
$
|
3.47
|
|
|
$
|
3.62
|
|
|
$
|
3.33
|
|
|
|
|
|
*
|
|
Includes insurance expenses and sundry losses, among others.
|
|
Note: The data included in table above pertain to continuing operations only.
|
|
during 2009.
|
The favorable variances in operating expenses described
above, were partially offset by substantially higher FDIC deposit
insurance premiums. This increase was influenced by several
factors, which included, for example, an FDIC revised
risk-weighted methodology which increased the base assessment
rates, additional premiums resulting from two temporary programs
to further insure customer deposits at FDIC-member banks, which
include insuring deposit accounts up to $250,000 per customer (up
from $100,000) and non-interest bearing transactional accounts
(unlimited coverage), and the impact of a $16.7 million special
assessment in the second quarter of 2009 designed to replenish the
deposit insurance fund.
Operating expenses for the year ended December 31, 2008
decreased by $208.7 million, or 14%, compared with total operating
expenses of $1.5 billion in 2007. Operating expenses
for the year ended December 31, 2007, included $231.9 million in
charges related to E-LOANs 2007 Restructuring Plan, consisting
principally of $211.8 million in goodwill impairment losses.
Isolating the impact of the restructuring related costs from BPNA
and E-LOANs restructuring plans, in both 2008 and 2007, operating
expenses decreased by $18.3 million, or 1%, from the year ended
December 31, 2007 to the same period in 2008.
The decrease from 2007 to 2008 was principally due to lower
business promotion expenses and personnel costs. Business
promotion expenses decreased mainly as a result of cost control
measures on marketing expenditures on the U.S. mainland
operations, primarily at E-LOAN. The decrease in personnel costs
for 2008, compared to 2007, was principally due to lower
headcount, principally at E-LOAN, due to a reduction in FTEs in
early 2008 because of the downsizing associated to the E-LOAN
28 POPULAR, INC. 2009 ANNUAL REPORT
2007 Restructuring Plan. Also, the additional layoffs at E-LOAN
and BPNA in the fourth quarter of 2008 contributed to the
reduction in personnel costs. Furthermore, given the net loss for
the year and not attaining performance measures required under
certain employee benefit plans, there was lower compensation tied
to financial performance, including incentives and profit sharing
during 2008, when compared with 2007 results. These reductions
were principally offset by lower deferred costs in 2008 given the
reduction in loan originations. Also, these reductions were
partially offset by the impact of the integration to BPPR of the
employees from the retail branches of Citibank Puerto Rico, an
acquisition done in December 2007, higher severance payments
related to key executive officers and higher pension costs. The
favorable variances in the categories described above were
partially offset by higher other operating expenses due to higher
FDIC insurance assessments mainly in BPPR and BPNA, and higher
other real estate expenses. Also, the increase in other operating
expenses was due to the recording of reserves for unfunded loan
commitments during 2008, primarily related to commercial and
consumer lines of credit. In addition, there were higher credit
card interchange and processing costs and higher sundry losses.
Restructuring Plans
In 2008, the Corporation determined to reduce the size of its
banking operations in the U.S. mainland to a level better suited
to present economic conditions and to focus on core banking
activities. As indicated in the 2008 Annual Report, on October 17,
2008, the Board of Directors of Popular, Inc. approved two
restructuring plans for the BPNA reportable segment. The objective
of the restructuring plans was to improve profitability in the
short-term, increase liquidity and lower credit costs, and, over
time, achieve a greater integration with corporate functions in
Puerto Rico.
BPNA Restructuring Plan
The restructuring plan for BPNAs banking operations (the BPNA
Restructuring Plan) contemplated the following measures: closing,
consolidating or selling approximately 40 underperforming branches
in all existing markets; the shutting down, sale or downsizing of
lending businesses that do not generate deposits or fee income;
and the reduction of general expenses associated with functions
supporting the branch and balance sheet initiatives. The BPNA
Restructuring Plan also contemplated greater integration with the
corporate functions in Puerto Rico. The BPNA Restructuring Plan
was substantially complete at December 31, 2009. Management
continues to evaluate branch actions and business lending
opportunities as part of its business plans.
As part of the BPNA Restructuring Plan, the Corporation
exited certain businesses including, among the principal ones,
those related to the origination of non-conventional mortgages,
equipment lease financing, loans to professionals,
multifamily lending, mixed-used commercial loans and credit cards.
The Corporation holds the existing portfolios of the exited
businesses in a run-off mode. Also, the Corporation downsized the
following businesses related to its U.S. mainland banking
operations: business banking, SBA lending, and consumer / mortgage
lending.
The following table details the expenses recorded by the
Corporation related with the BPNA Restructuring Plan for the years
ended December 31, 2009 and 2008.
Table BPNA Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
(In millions)
|
|
2009
|
|
2008
|
|
Total
|
|
Personnel costs (a)
|
|
$
|
6.0
|
|
|
$
|
5.3
|
|
|
$
|
11.3
|
|
Net occupancy expenses (b)
|
|
|
0.3
|
|
|
|
8.9
|
|
|
|
9.2
|
|
Other operating expenses
|
|
|
0.4
|
|
|
|
|
|
|
|
0.4
|
|
|
Total restructuring costs
|
|
$
|
6.7
|
|
|
$
|
14.2
|
|
|
$
|
20.9
|
|
Impairment losses on
long-lived assets (c)
|
|
|
0.4
|
|
|
|
5.5
|
|
|
|
5.9
|
|
|
Total
|
|
$
|
7.1
|
|
|
$
|
19.7
|
|
|
$
|
26.8
|
|
|
|
|
|
(a)
|
|
Severance, retention bonuses and other
benefits
|
|
(b)
|
|
Lease terminations
|
|
(c)
|
|
Leasehold improvements, furniture and equipment
|
|
|
At December 31, 2009, the reserve for restructuring costs
associated with the BPNA Restructuring Plan amounted to $7 million
and was mostly related with lease contracts. Refer to Note 4 to
the consolidated financial statements for a detail of the activity
in the reserve for restructuring costs.
All restructuring efforts at BPNA are expected to result in
approximately $50 million in recurrent annual cost savings. The
majority of the savings are related to personnel costs. As a
result of the BPNA Restructuring Plan, FTEs at BPNA banking
operations were 1,409 at December 31, 2009, compared to 1,831 at
the same date in the previous year.
E-LOAN 2008 Restructuring Plan
In October 2008, the Corporations Board of Directors approved a
restructuring plan for E-LOAN (the E-LOAN 2008 Restructuring
Plan), which involved E-LOAN to cease operating as a direct
lender, an event that occurred in late 2008. E-LOAN continues to
market deposit accounts under its name for the benefit of BPNA.
The E-LOAN 2008 Restructuring Plan was completed at December 31,
2009 since all operational and support functions were transferred
to BPNA and EVERTEC, and loan servicing was transferred to a
third-party provider. The E-LOAN 2008 Restructuring Plan resulted
in a reduction in FTEs of 270 between December 31, 2008 and the
end of 2009.
29
The following table details the expenses recognized during
the years ended December 31, 2009 and 2008 that were associated
with the
E-LOAN 2008 Restructuring Plan.
Table E-LOAN 2008 Restructuring Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
(In millions)
|
|
2009
|
|
2008
|
|
Total
|
|
Personnel costs (a)
|
|
$
|
2.4
|
|
|
$
|
3.0
|
|
|
$
|
5.4
|
|
Other operating expenses
|
|
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
Total restructuring charges
|
|
$
|
2.4
|
|
|
$
|
3.1
|
|
|
$
|
5.5
|
|
Impairment losses on
long-lived assets (b)
|
|
|
|
|
|
|
8.0
|
|
|
|
8.0
|
|
Trademark impairment losses
|
|
|
|
|
|
|
10.9
|
|
|
|
10.9
|
|
|
Total
|
|
$
|
2.4
|
|
|
$
|
22.0
|
|
|
$
|
24.4
|
|
|
|
|
|
(a)
|
|
Severance, retention bonuses and other benefits
|
|
(b)
|
|
Consists mostly of leasehold improvements, equipment and intangible assets with definite lives
|
|
|
Refer to Note 4 to the consolidated financial statements for
a detail of the activity in the reserve for restructuring costs.
Refer to Note 39 to the consolidated financial statements for
information on the results of operations of E-LOAN, which are part
of BPNAs reportable segment. At December 31, 2009, E-LOANs
assets consisted primarily of a running-off portfolio of loans
held-in-portfolio totaling $617 million with an allowance for
loan losses of $102 million. This loan portfolio consisted
primarily of $74 million in mortgage loans and $543 million in
consumer loans. The ratio of allowance for loan losses to loans
for E-LOAN approximated 16.47% at December 31, 2009. The assets of
E-LOAN are funded primarily through intercompany borrowings.
Income Taxes
Income tax benefit amounted to $8.3 million for the year December
31, 2009, compared with income tax expense of $461.5 million for
the previous year. The decrease in income tax expense for 2009 was
primarily due to the impact on the initial recording of the
valuation allowance on the U.S. deferred tax assets during 2008 as
compared to the year 2009, and by lower pre-tax earnings in 2009
related to the Puerto Rico operations. During the year ended
December 31, 2008, the Corporation recorded a valuation allowance
on deferred tax assets of its U.S. mainland operations of $861
million. The recording of this valuation increased income tax
expense by $643.0 million on the continuing operations and $209.0
million on the discontinued operations for the year ended December
31, 2008. The income tax impact of the discontinued operations is
reflected as part of Net loss from discontinued operations, net
of tax in the consolidated statement of operations for the year
ended December 31,
2008.
The components of the income tax (benefit) expense for the
continuing operations for the years ended December 31, 2009, 2008
and 2007 were as follows:
Table Components of Income Tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
pre-tax
|
|
|
|
|
|
pre-tax
|
|
|
|
|
|
pre-tax
|
(Dollars in thousands)
|
|
Amount
|
|
loss
|
|
Amount
|
|
income
|
|
Amount
|
|
income
|
|
Computed income tax at
statutory rates
|
|
$
|
(230,241
|
)
|
|
|
41
|
%
|
|
$
|
(85,384
|
)
|
|
|
39
|
%
|
|
$
|
114,142
|
|
|
|
39
|
%
|
Benefits of net tax exempt
interest income
|
|
|
(50,261
|
)
|
|
|
9
|
|
|
|
(62,600
|
)
|
|
|
29
|
|
|
|
(60,304
|
)
|
|
|
(21
|
)
|
Effect of income subject
to capital gain tax rate
|
|
|
(59,843
|
)
|
|
|
10
|
|
|
|
(17,905
|
)
|
|
|
8
|
|
|
|
(24,555
|
)
|
|
|
(9
|
)
|
Non deductible goodwill
impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,544
|
|
|
|
20
|
|
Deferred tax asset valuation
allowance
|
|
|
282,933
|
|
|
|
(50
|
)
|
|
|
643,011
|
|
|
|
(294
|
)
|
|
|
|
|
|
|
|
|
Adjustment
in deferred tax due to change in tax rate
|
|
|
(12,351
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Difference in tax rates due
to multiple jurisdictions
|
|
|
40,625
|
|
|
|
(7
|
)
|
|
|
16,398
|
|
|
|
(8
|
)
|
|
|
10,391
|
|
|
|
4
|
|
States taxes
and other
|
|
|
20,836
|
|
|
|
(4
|
)
|
|
|
(31,986
|
)
|
|
|
15
|
|
|
|
(7,054
|
)
|
|
|
(2
|
)
|
|
Income tax (benefit)
expense
|
|
$
|
(8,302
|
)
|
|
|
1
|
%
|
|
$
|
461,534
|
|
|
|
(211
|
%)
|
|
$
|
90,164
|
|
|
|
31
|
%
|
|
The
change in the effective tax rate for the year ended December 31,
2009 as compared with 2008 was mainly due to the establishment during
2008 of a valuation allowance on all of the deferred tax assets
related to the U.S. operations. On the other hand, there was a
reduction in net exempt interest income when compared to the year
2008. There was an increase in the Puerto Rico statutory tax rate
from 39% in 2008 to 40.95% in 2009. This change resulted in an increase
in the difference in tax rate due to multiple jurisdictions.
Income tax expense for the year ended December 31, 2008 was
$461.5 million, compared with income tax expense of $90.2 million
for 2007. This increase in income tax expense for 2008 was
primarily due to the impact on the recording of the valuation
allowance on deferred tax assets of the U.S. mainland operations,
partially offset by pre-tax losses in 2008, when compared to
pre-tax earnings in the previous year.
The Corporations net deferred tax assets at December 31,
2009 amounted to $364 million (net of the valuation allowance of
$1.1 billion) compared to $357 million at December 31, 2008. Note
30 to the consolidated financial statements provide the
composition of the net deferred tax assets as of such dates. All
of the net deferred tax assets at December 31, 2009 pertained to
the Puerto Rico operations and have a related valuation allowance
of $8 thousand. Of the amount related to the U.S. operations,
without considering the valuation allowance, $839 million is
attributable to net operating losses of such operations.
The full valuation allowance in the Corporations U.S.
operations was recorded in the year 2008 in consideration of the
requirements of ASC Topic 740. Refer to the Critical Accounting
Policies / Estimates section of this MD&A for information on the
requirements of such accounting standard. The Corporations U.S.
mainland operations are in a cumulative loss position for the
three-year period ended December 31, 2009. For purposes of
assessing the realization of the deferred tax assets in the U.S.
mainland operations, this cumulative taxable loss position and the
financial results of the continuing business of those operations
outweighed the positive evidence that is objectively verifiable,
and caused management to conclude that it is more likely than not
that
30 POPULAR, INC. 2009 ANNUAL REPORT
the Corporation will not be able to realize the related deferred
tax assets in the future.
Management will continue to reassess the realization of the
deferred tax assets each reporting period.
Refer to Note 30 to the consolidated financial statements for
additional information on income taxes.
Fourth Quarter Results
The Corporation reported a net loss of $213.2 million for the
quarter ended December 31, 2009, compared with a net loss of
$702.9 for the same quarter of 2008. The Corporations continuing
operations reported a net loss of $213.2 million for the quarter
ended December 31, 2009, compared with a net loss of $627.7
million for the same quarter of 2008.
Net interest income for the fourth quarter of 2009 was $269.3
million, compared with $288.9 million for the fourth quarter of
2008. The decrease in net interest income was primarily due to a
decline of $3.0 billion in average earning assets, principally
loans, due to the sale of most of the lease financing portfolio,
the downsizing or discontinuance of certain loan origination units
in the U.S. mainland operations and lower loan origination
activity in general due to current market conditions. Also, the
reduction in the average balance of investment securities resulted
from the sale of available-for-sale securities, mostly U.S. agency
securities (FHLB notes), during the first quarter of 2009, as
described in the Net Interest Income of this MD&A. The
Corporations deposit volume and borrowings also decreased, which
was associated with deleverage driven by the reduction in the
earning assets they fund. Also, contributing to the reduction in
net interest income was the decrease of the federal funds target
rate by the Fed in December 2008. The reduction in short-term
market rates impacted the yield of several of the Corporations
earning assets during that period, including the yield on
commercial and construction loans with floating or adjustable
rates and floating rate collateralized mortgage obligations, as
well as the yield of newly originated loans in a declining
interest rate environment. On the positive side, the decrease in
rates contributed to a reduction in the cost of interest-bearing
deposits and short-term borrowings. Other factors impacting
negatively the Corporations net interest income for the quarter
ended December 31, 2009 when compared with the same quarter in
2008 were the increase in non-performing loans, the exchange of
Series C preferred stock for trust preferred securities and the
increase in the cost of $350 million in term notes due to credit
rating downgrades in 2009. Offsetting this negative variance was
the reduction in interest expense from the exchange of the
Corporations trust preferred securities for common stock.
The provision for loan losses totaled $352.8 million or 118%
of net charge-offs for the quarter ended December 31, 2009,
compared with $388.8 million or 174% of net charge-offs for the
fourth quarter of 2008. The decrease in the provision for loan
losses
for the quarter ended December 31, 2009, compared with the same
quarter in the previous year, was the result of higher increases
in reserves during the fourth quarter of 2008. The provision for
loan losses for the quarter ended December 31, 2009, when compared
with the same quarter in 2008, reflects higher net charge-offs by
$75.3 million, mainly in construction loans by $29.7 million,
commercial loans by $28.7 million, consumer loans by $9.3 million,
and mortgage loans by $8.1 million. The U.S. mainland commercial
lending segments which continue to report higher net charge-offs as a result
of depressed economic conditions were
primarily small businesses and commercial real estate. The losses in the construction
loans sector are mainly related to residential development projects.
Furthermore, consumer loans net charge-offs rose principally due
to higher losses on home equity lines of credit and closed-end
second mortgages of the Corporations U.S. mainland operations.
The deterioration in the delinquency profile and the declines in
property values have negatively impacted charge-offs.
Non-interest income totaled $175.9 million for the quarter ended
December 31, 2009, compared with $141.5 million for the
same quarter in 2008. The results for the fourth quarter of 2008
included the aforementioned lower of cost or fair value adjustment of
$16.1 million related to the reclassification of loans from the
equipment lease financing portfolio of the U.S. mainland operations
into loans held-for-sale. Also, non-interest income for the fourth quarter
of 2008 was reduced by impairment losses on investments accounted for under the equity method that
were recorded in the holding companies, which amounted to approximately $26.9 million. Having a
negative impact on non-interest income for the fourth quarter of 2009 when compared to the same
quarter in 2008 were lower mortgage servicing fees, net of fair value adjustments, by approximately
$15.4 million.
Operating expenses totaled $298.8 million for the quarter ended December 31, 2009, compared
with $360.2 million for the similar quarter in the previous year. The decrease in operating
expenses was principally due to lower personnel costs and net occupancy expenses by $27.7 million
and $8.9 million, respectively, principally due to downsizing of the U.S. mainland operations.
Operating expenses for the fourth quarter of 2008 included $41.7 million in costs related to the
BPNA and E-LOAN restructuring plans launched in the fourth quarter of 2008, which included $13.5
million in impairment losses on long-lived assets and $10.9 million of the partial impairment of
E-LOANs trademark. This figure compares to restructuring costs at BPNA reportable segment of $2.6
million in the fourth quarter of 2009.
Income tax expense from continuing operations amounted to
$6.9 million for the quarter ended December 31, 2009, compared
with an income tax expense of $309.1 million for the same quarter
of 2008. The variance was primarily due to the recognition,
31
during the fourth quarter of 2008, of a valuation allowance on the
Corporations deferred tax asset related to the U.S. mainland
operations that had a negative impact on income tax expense.
Reportable Segment Results
The Corporations reportable segments for managerial reporting purposes consist of Banco Popular de
Puerto Rico, EVERTEC and Banco Popular North America. A Corporate group has been defined to support
the reportable segments. For managerial reporting purposes, the costs incurred by the Corporate
group are not allocated to the reportable segments. For a description of the Corporations
reportable segments, including additional financial information and the underlying management
accounting process, refer to Note 39 to the consolidated financial statements.
The Corporate group
had a net loss of $44.2 million in 2009, compared with a net loss of $435.4 million in 2008. The
reduction in the net loss for 2009 when compared with 2008 was principally due to lower income tax
expense by $321.9 million in 2009. The Corporate groups financial results for the year ended
December 31, 2008 included an unfavorable impact to income taxes due to an allocation (for segment
reporting purposes) of $357.4 million of the $861 million valuation allowance on the deferred tax
assets of the U.S. mainland operations to Popular North America (PNA), holding company of the
U.S. operations. PNA files a consolidated tax return for its operations.
For segment reporting purposes, the impact of recording the
valuation allowance on deferred tax assets of the U.S. operations
was assigned to each legal entity within PNA (including PNA
holding company as an entity) based on each entitys net deferred
tax asset at December 31, 2008, except for PFH. The impact of
recording the valuation allowance at PFH was allocated among
continuing and discontinued operations. The portion attributed to
the continuing operations was based on PFHs net deferred tax
asset balance at January 1, 2008. The valuation allowance on
deferred taxes as it relates to the operating losses of PFH for
the year 2008 was assigned to the discontinued operations.
The tax impact in results of operations for PFH attributed to
the recording of the valuation allowance assigned to continuing
operations was included as part of the Corporate group for segment
reporting purposes since it does not relate to any of the legal
entities of the BPNA reportable segment. PFH is no longer
considered a reportable segment.
Also contributing to the reduced net loss in 2009, compared
with the previous year in the Corporate group, was the $80.3
million gain on early extinguishment of debt related to the
aforementioned exchange of trust preferred securities for common
stock. Also, impacting the results of the Corporate group was
higher net interest expense by approximately $49.1 million, mainly
due to additional interest expense on long-term debt as a result
of the exchange of the $935 million of the Corporations
Series C preferred stock for $935 million of newly issued trust
preferred securities, and a higher cost on senior debt due to rate
increases resulting from downgrades on Populars unsecured senior
debt ratings, partially offset by lower interest expense on the
extinguished junior subordinated debentures.
The Corporate group had a net loss of $435.4 million in 2008, compared with net income of
$41.8 million in 2007. As indicated previously, the Corporate groups financial results for the
year ended December 31, 2008 included the unfavorable impact to income taxes resulting from the
allocation (for segment reporting purposes) of the valuation allowance on the deferred tax assets
of the U.S. mainland operations. The Corporate group recorded non-interest losses amounting to
$32.6 million for the year ended December 31, 2008, compared to non-interest income of $118.0
million in the previous year. In 2008, the Corporations holding companies within the Corporate
group realized other-than-temporary impairment losses on investment securities available-for-sale
and investments accounted under the equity method of $36.0 million, compared to gains of $118.7
million on the sale of equity securities in 2007.
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 $170.0 million for the year ended December 31, 2009,
compared with $239.1 million for 2008 and $327.3 million for 2007.
The challenging Puerto Rico economy, now in its fourth year of
recession, continued pressuring credit quality and profitability
at this reportable segment. Deteriorating credit quality trends in
the commercial and construction loan portfolios led to an increase
in credit costs and higher levels of non-performing loans.
Although management expects weakness in the Puerto Rico sector to
persist during 2010, they will continue to work towards further
strengthening its main market, Puerto Rico. BPPRs franchise
continues to be strong.
The main factors that contributed to the variance in the financial results for 2009, compared
with the previous year, included the following:
|
|
|
lower net interest income by $92.2 million, or
10%, primarily due to a reduction in the yield of earning assets, principally commercial and
construction loans. This decline can be attributed to two main factors: (1) the reduction in rates
by the Fed as described in the Net Interest Income section of this MD&A and (2) an increase in
non-performing loans. Also, the BPPR reportable segment experienced a decrease in the yield of
investment securities and federal funds sold. Partially offsetting this unfavorable impact to net
interest income was a reduction in the average cost of funds, driven by a reduction in the cost of
deposits and short-term borrowings due to the decrease in rates by
|
32 POPULAR, INC. 2009 ANNUAL REPORT
|
|
|
the Fed and managements actions to lower the rates paid on certain deposits. Also, the
unfavorable variance in net interest income was associated with a decline in the average volume of
investment securities and in the loan portfolio, in part due to the slowdown of loan origination
activity and increased levels of loan charge-offs. This negative impact from the reduction in the
average volume of earning assets was partially offset by a reduction in the average volume of
short-term borrowings, brokered deposits and public fund deposits. Despite a reduction in average
loans for the BPPR reportable segment of $758 million when
comparing 2009 with 2008, and a significant increase in non-performing loans from $781 million at the end of 2008 to $1.5
billion at the end of 2009, the reportable segments net interest margin was 3.80% for 2009,
compared with 3.94% for the previous year;
|
|
|
|
|
higher provision for loan losses by $104.5 million, or
20%, primarily related to the construction and commercial loan portfolios. The BPPR reportable
segment experienced an increase of $160.5 million in net charge-offs for the year ended December
31, 2009 compared with 2008, principally associated with an increase in construction loan net
charge-offs by $131.8 million, mainly related to residential development projects. At December 31,
2009, there were $1.0 billion of loans individually evaluated for impairment in the BPPR reportable
segment with a related allowance for loan losses of $190 million, compared with $639 million and
$137 million, respectively, at December 31, 2008. Non-performing loans in this reportable segment
totaled $1.5 billion at December 31, 2009, compared with $781 million at December 31, 2008. The
increases in non-performing loans were mostly reflected in construction loans by $389 million,
commercial loans by $190 million and mortgage loans by $110 million. The ratio of allowance for
loan losses to loans held-in-portfolio for the BPPR reportable segment was 4.36% at December 31,
2009, compared with 3.44% at December 31, 2008. The provision for loan losses represented 122% of
net charge-offs for 2009, compared with 148% of net charge-offs for 2008. The ratio of net
charge-offs to average loans held-in-portfolio for the BPPR reportable segment was 3.34% for the
year ended December 31, 2009, compared with 2.18% for 2008;
|
|
|
|
|
higher non-interest income by $132.5
million, or 21%, mainly due to higher gains on the sale and valuation adjustment of investment
securities by $156.8 million, principally due to the gain on sale of investment securities by BPPR.
Service charges on deposit accounts increased by $11.9 million, principally for commercial account,
overdraft and ATM fees. Other non-interest income categories decreased in the aggregate by $36.2
million, which was
mostly the result of higher unfavorable changes in the fair value of the servicing rights
due to factors such as higher discount rate, delinquency, foreclosure and other economic
assumptions, and lower credit card fees mostly associated with late payment fees. These
unfavorable variances were partially offset by higher mortgage servicing fees due to a greater
volume of loans serviced for others;
|
|
|
|
|
higher operating expenses by $19.7 million, or 3%, mainly
due to higher FDIC deposit insurance by $38.4 million, partially offset by lower business
promotion, professional fees, personnel costs, equipment expenses, among others.
Several cost saving efforts were launched during the year targeting all controllable
expenses. Some high impact initiatives included: (i) decreases in business promotion expenses,
(ii) headcount reductions by attrition, and (iii) rationalization of technology investments; and
|
|
|
|
|
lower income tax expense by $14.8 million. Refer to the Income Taxes section of this MD&A for
additional information.
|
The main factors that contributed to the variance in the financial results for the Banco
Popular de Puerto Rico reportable segment during the year ended December 31, 2008, when compared to
2007, included:
|
|
|
higher provision for loan losses by $275.3 million, or 113%, primarily related to
the commercial, construction and consumer loan portfolios. These three portfolios experienced
higher net charge-offs in 2008 compared to 2007 by $68.6 million, $65.6 million and $22.5 million,
respectively. Also, during 2008, the Corporation increased its specific reserves for loans
individually evaluated for impairment. The ratio of allowance for loan losses to loans
held-in-portfolio for the BPPR reportable segment was 3.44% at December 31,
2008, compared with 2.31% at December 31, 2007;
|
|
|
|
|
higher non-interest income by $135.1 million, or
28%, mainly due to the $40.9 million gain on the redemption of Visa stock in 2008 and a $28.3
million gain on the sale of $2.4 billion in U.S. agency securities during the second quarter of
2008. Other major contributors to the favorable variance in
non-interest income were an increase in debit and credit cards fees,
mortgage servicing fees, higher
service charges on deposit accounts, and higher trading account profit;
|
|
|
|
|
higher
operating expenses by $42.3 million, or 6%, primarily associated with the provision for reserves of
unfunded lending commitments, FDIC deposit insurance, other real estate expenses, credit card
interchange expenses, collection services, other professional fees, personnel costs, and net
occupancy expenses, among others. These expenses
|
33
|
|
|
were partially offset by lower business promotion expenses; and
|
|
|
|
|
lower income taxes by $92.9
million, or 81%, primarily due to lower taxable income, an increase in net exempt interest income
due to a lower disallowance of expenses related to exempt income, higher income subject to a
preferential tax rate on capital gains, and tax benefits from the purchase of tax credits during
2008.
|
EVERTEC
EVERTEC is the Corporations reportable segment dedicated to
processing and technology outsourcing services, servicing
customers in Puerto Rico, the Caribbean, Central America and the
U.S. mainland. EVERTEC provides support internally to the
Corporations subsidiaries, as well as to third parties. EVERTECs
main clients include financial institutions, businesses and
various levels of government. EVERTEC continues to strive to
develop a strong presence in the Caribbean and Latin America,
leverage its existing product offering and processing
infrastructure to service new clients and markets, enhance the
competitiveness of its automated teller machine ATH network and
invest in new technology developments.
For the year ended December 31, 2009, net income for the
reportable segment of EVERTEC totaled $50.1 million, compared with
$43.6 million for 2008 and $31.3 million for 2007.
The principal factors that contributed to the variance in results for the year ended December
31, 2009, when compared to the previous year, included:
|
|
|
lower non-interest income by $5.1
million, or 2%, primarily due to lower income derived from Information Technology (IT) consulting
services; partially offset by higher business process outsourcing and higher electronic transaction
processing fees, which are mainly related to payment services, item processing and point-of-sale
(POS) terminals;
|
|
|
|
|
lower operating expenses by $18.1 million, or 9%, primarily due to lower
personnel costs as a result of attrition and lower incentive compensation, equipment expenses, and
professional fees; and
|
|
|
|
|
higher income tax expense by $6.2 million, or 32%.
|
Factors that contributed to the variance in the results for 2008, when compared to 2007,
included:
|
|
|
higher non-interest income by $21.6 million, or 9%, primarily due to higher transaction
processing fees mainly related to the automated teller machine (ATM) network and point-of-sale
(POS) terminals, and higher business process outsourcing. Also, there were higher payment, cash
and item processing fees and information technology (IT) consulting services, among others.
Furthermore, there were gains on sale of securities mostly as a result of a $7.6 million
gain on the redemption of Visa stock held by ATH Costa Rica during the first quarter of
2008;
|
|
|
|
|
higher operating expenses by $7.5 million, or 4%, primarily due to higher other operating
expenses, professional fees, personnel costs, and net occupancy expenses. These variances were
offset by lower equipment and communication expenses; and
|
|
|
|
|
higher income tax expense by $1.9
million, or 11%, primarily due to higher taxable income.
|
Banco Popular North America
For the year ended December 31, 2009, the reportable segment of
Banco Popular North America, which includes the operations of
E-LOAN, had a net loss of $725.9 million, compared to a net loss
of $524.8 million for 2008 and a net loss $195.4 million for 2007.
E-LOANs net loss for the year ended December 31, 2009 amounted to
$170.3 million, compared to a net loss of $233.9 million in 2008
and $245.7 million in 2007. As indicated in the Overview and
Restructuring Plans sections of this MD&A, during 2009, the BPNA
reportable segment continued its restructuring efforts to refocus
the business, including the consolidation, sale or downsizing of
underperforming branches and lending businesses. In addition,
management integrated certain support and back-office operations
of BPNA into the operations of Puerto Rico to achieve synergies
and reduce costs. Similarly, the operational and support functions
of E-LOAN were transferred to BPNA and EVERTEC and the loan
servicing of E-LOANs running-off loan portfolio was transferred
to a third-party provider during 2009.
The main factors that contributed to the variance in results for the year ended December 31,
2009, when compared with 2008, included:
|
|
|
lower net interest income by $36.1 million, or 10%, which
was mainly due to lower average volume of commercial, mortgage and personal loans driven in part by
the branch actions and the business lending initiatives whereby BPNA exited certain lines of
business and E-LOANs operation as a direct first mortgage lender was discontinued. Average loans
in the BPNA reportable segment declined by $823 million in 2009 compared with 2008. The negative
variance in net interest income was also due to lower loan yields, partially offset by lower cost
of interest-bearing deposits;
|
|
|
|
|
higher provision for loan losses by $310.0 million, or 66%,
principally as a result of higher general reserve requirements for commercial loans, construction
loans, U.S. non-conventional residential mortgages and home equity lines of credit, combined with
specific reserves recorded for individually evaluated impaired loans. There were higher net
charge-offs in commercial loans by $93.2 million, mortgage loans by $59.9 million, construction
loans by $57.7 million and consumer loans by $56.0 million. At
|
34 POPULAR, INC. 2009 ANNUAL REPORT
|
|
|
December 31, 2009, there were $629 million of individually evaluated impaired loans in the
BPNA reportable segment with a specific allowance for loan losses of $134 million, compared to $259
million and $58 million, respectively, at December 31, 2008. The increase in the provision for loan
losses considers inherent losses in the portfolios evidenced by an increase in non-performing loans
in this reportable segment by $377 million, when compared to December 31, 2008. The ratio of
allowance for loan losses to loans held-in-portfolio for the BPNA reportable segment was 6.98% at
December 31, 2009, compared with 3.42% at December 31, 2008. The provision for loan losses
represented 152% of net charge-offs for 2009, compared with 190% of net charge-offs for 2008. The
ratio of annualized net charge-offs to average loans held-in-portfolio for the Banco Popular North
America operations was 5.54% for 2009, compared with 2.45% for the same quarter in 2008;
|
|
|
|
|
lower
non-interest income by $110.8 million, or 79%, mainly due to higher indemnity reserve requirements
for representations and warranties on certain former sales agreements based on higher volume of
claims and loss experience and lower gains on the sale of loans due to greater volume of loans sold
during 2008 prior to E-LOAN ceasing to originate loans in late 2008. The indemnity reserve level
approximated $33 million at December 31, 2009, compared with $6 million at December 31, 2008. The
increase was due to a significant rise in the level of registered and expected disbursements.
Although the risk of loss or default was generally assumed by the investors, the Corporation is
required to make certain representations relating to borrower creditworthiness, loan documentation,
and collateral, which due to current credit conditions, have resulted in investors being very
aggressive in the due diligence for claims. During 2009, repurchases or make-whole events required
the Corporation to disburse approximately $15.8 million related to the indemnity reserves. Also,
the unfavorable variance in non-interest income reflects lower gains on the sale of a real estate
property as the 2008 results included $21.1 million on the sale of a commercial building in New
York City and $12.8 million on the sale of 6 Texas branches;
|
|
|
|
|
lower operating expenses by $116.2
million, or 27%. This variance was principally due to the result of lower personnel costs by $65.1
million and business promotion expenses by $16.1 million. Also, 2008 financial results included
$10.9 million of impairment on E-LOANs trademark.
Operating expenses for the BPNA reportable segment
included $41.7 million in restructuring related costs (including severance, lease cancellations,
write-off of capitalized software and equipment, impairments on other long-lived assets and
intangibles) in 2008, compared with $9.5 million in 2009. Besides the decrease associated
with lower restructuring costs, the general expense reductions reflected the combined impact of the
branch actions and the lending business initiatives plus decreases in all discretionary expending
across the organization. As part of the BPNA restructuring plan, E-LOANs operation as a direct
first mortgage lender was discontinued with all other activities consolidated into BPNA and
EVERTEC. Throughout the implementation of the restructuring plan, FTEs in the BPNA reportable
segment have decreased from 2,101 in December 2008 to approximately 1,409 in December 2009; and
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|
|
|
|
income tax benefit of $24.9 million in 2009, compared with income tax expense of $114.7 million in
2008. Income tax expense for 2008 included the recording of a valuation allowance on the deferred
tax assets. The income tax benefit reported for 2009 relates in part to a tax refund as a result of
the 2005 and 2006 net operating loss carrybacks.
|
The main factors that contributed to the variance
in financial results for 2008 when compared to 2007 for the Banco Popular North America reportable
segment included:
|
|
|
lower net interest income by $19.1 million, or 5%. This unfavorable variance was
mainly due to lower loan yields, offset in part by a reduction in the cost of interest bearing
deposits, mainly time deposits and internet-based deposits gathered through the E-LOAN deposit
platform.
Furthermore, BPNA incurred a penalty of $6.9 million on the cancellation of FHLB advances in
December 2008. The variance due to a lower net interest margin was partially offset by an
increase in the average volume of loans, which was funded through borrowings;
|
|
|
|
|
higher provision
for loan losses by $376.8 million, or 395%, primarily due to higher net charge-offs, specific
reserves for commercial, construction and mortgage loans, as well as, the impact of the
continuing deterioration of the U.S. residential housing market and the economy in general. The
ratio of allowance for loan losses to loans held-in-portfolio for the Banco Popular North America
reportable segment was 3.42% at December 31, 2008, compared with 1.26% at December 31, 2007. The
provision for loan losses represented 190% of net charge-offs for 2008, compared with 168% in
2007. Net charge-offs to average loans held-in-portfolio for the Banco Popular North America
reportable segment were 2.45% for the year ended December 31, 2008, compared with 0.61% in the
previous year;
|
|
|
|
|
lower non-interest income by $45.0 million, or 24%, mainly due to lower gains on
sale of loans by $62.0 million, as well as lower revenues derived from escrow closing services
and referral income, all of which were primarily associated to E-LOANs downsizing. This was
partially offset by higher
|
35
|
|
|
gains on the sale of real estate properties by the U.S. banking subsidiary, as well as the
gain recorded in early 2008 related to the sale of BPNAs retail bank branches located in Texas;
|
|
|
|
|
lower operating expenses by $255.6 million, or 37%, mainly due to the goodwill impairment
losses recorded in 2007 by E-LOAN, as well as a reduction in personnel and business promotion
expenses for 2008 due to the downsizing of E-LOAN early that year;
|
|
|
|
|
and income tax expense of
$114.7 million in 2008, compared with income tax benefit of $29.5 million in 2007. This variance
was mainly due to the establishment of the valuation allowance on the deferred tax assets of the
U.S. mainland continuing operations. The valuation allowance on deferred tax assets corresponding
to the BPNA reportable segment amounted to $294.5 million at December 31, 2008.
|
Discontinued Operations
For financial reporting purposes, the results of the discontinued
operations of PFH are presented as Assets / Liabilities from
discontinued operations in the consolidated statements of
condition as of December 31, 2008 and as Loss from discontinued
operations, net of tax in the consolidated statements of
operations for all periods presented in this report.
Total assets of the PFH discontinued operations amounted to
$13 million at December 31, 2008 and $3.9 billion at December 31,
2007.
The following table provides financial information for the discontinued operations for the
years ended December 31, 2009, 2008 and 2007.
Table PFHs Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
2008
|
|
2007
|
|
Net interest income
|
|
$
|
0.9
|
|
|
$
|
30.8
|
|
|
$
|
143.7
|
|
Provision for loan losses
|
|
|
|
|
|
|
19.0
|
|
|
|
221.4
|
|
Non-interest loss, including fair
value adjustments on loans and MSRs
|
|
|
(3.2
|
)
|
|
|
(266.9
|
)
|
|
|
(89.3
|
)
|
Lower of cost or fair value adjustments
on reclassification of loans to held-for-
sale prior to recharacterization
|
|
|
|
|
|
|
|
|
|
|
(506.2
|
)
|
Gain upon completion of recharacterization
|
|
|
|
|
|
|
|
|
|
|
416.1
|
|
Operating expenses, including reductions
in value of servicing advances and other
real estate, and restructuring costs
|
|
|
10.9
|
|
|
|
213.5
|
|
|
|
159.1
|
|
Loss on disposition during the period (a)
|
|
|
|
|
|
|
(79.9
|
)
|
|
|
|
|
|
Pre-tax loss from discontinued operations
|
|
$
|
(13.2
|
)
|
|
$
|
(548.5
|
)
|
|
$
|
(416.2
|
)
|
Income tax expense (benefit) (b)
|
|
|
6.8
|
|
|
|
14.9
|
|
|
|
(149.2
|
)
|
|
Loss from discontinued operations, net of tax
|
|
$
|
(20.0
|
)
|
|
$
|
(563.4
|
)
|
|
$
|
(267.0
|
)
|
|
|
|
|
(a)
|
|
Loss on disposition for 2008 includes the loss associated to
the sale of manufactured housing loans in September 2008,
including lower of cost or fair value adjustments at
reclassification from loans held-in-portfolio to loans
held-for-sale, and the loss on sale of assets in November 2008.
|
|
(b)
|
|
Income tax for 2008 included the impact of recording a
valuation allowance on deferred tax assets of $209.0 million.
|
The following paragraphs provide an overview of PFHs
principal events impacting the financial results for 2009, 2008
and 2007 and the series of actions that led to the discontinuance
of the PFH operations.
In 2007, PFH began downsizing its operations and shutting
down certain loan origination channels. During that year, the
Corporation executed the PFH Restructuring and Integration Plan,
which called for PFH to exit the wholesale subprime mortgage loan
origination business in early 2007 and to shut down the wholesale
broker, retail and call center business divisions. This plan was
substantially completed in 2007 and resulted in restructuring
costs amounting to $14.7 million in that year. In December 2007,
PFH significantly reduced its asset base through the
recharacterization of certain on-balance sheet securitizations as
sales that involved approximately $3.2 billion in unpaid principal
balance (UPB) of loans. The net impact of the recharacterization
transaction was a pre-tax loss of $90.1 million. The
recharacterization involved a series of steps, which included (i)
amending the provisions of the related pooling and servicing
agreements; (ii) reclassifying the loans as held-for-sale with the
corresponding lower of cost or market adjustment as of the date of
the transfer; (iii) removing from the Corporations books
approximately $2.6 billion in mortgage loans recognized at fair
value after reclassification to the held-for-sale category (UPB of
$3.2 billion) and $3.1 billion in related liabilities
36 POPULAR, INC. 2009 ANNUAL REPORT
representing secured borrowings; (iv) recognizing assets referred
to as residual interests, which represent the fair value of
residual interest certificates that were issued by the
securitization trusts and retained by PFH, and (v) recognizing
mortgage servicing rights, which represent the fair value of PFHs
right to continue to service the mortgage loans transferred to the
securitization trusts. Refer to the 2008 Annual Report, which is
incorporated by reference in the Corporations Form 10-K for the
year ended December 31, 2008, for further details on the nature of
the recharacterization transaction. Also, refer to Note 3 to the
consolidated financial statements for additional information on
the recharacterization and the PFH Restructuring and Integration
Plan.
In early 2008, the Corporation executed the PFH Branch
Network Restructuring Plan. As part of the plan, in March 2008,
the Corporation sold approximately $1.4 billion of consumer and
mortgage loans that were originated through Equity Ones (a
subsidiary of PFH) consumer branch network and recognized a gain
upon sale of approximately $54.5 million. Also, Equity One closed
all consumer service branches, thus exiting PFHs consumer finance
business in early 2008. The PFH Branch Network Restructuring Plan
resulted in restructuring costs amounting to $17.4 million for the
year ended December 31, 2008. Refer to Note 3 to the consolidated
financial statements for additional information on this
restructuring plan.
During the third and fourth quarters of 2008, the Corporation
executed a series of significant asset sale transactions and a
restructuring plan that led to the discontinuance of the
Corporations PFH operations. The discontinuance included sales of
PFHs loan portfolio, servicing related assets, residual interests
and other real estate assets. Also, the discontinuance included
exiting the loan servicing functions, closing service branches and
other units.
In September 2008, the Corporation sold PFHs portfolio of
manufactured housing loans with an unpaid principal balance of
approximately $309 million and recognized a loss on disposition of
$53.5 million. In November 2008, PFH consummated a transaction
that involved the sale of approximately $748 million in assets,
which included loans, residual interests and servicing related
assets, and which for the most part were measured at fair value.
The Corporation recognized a loss of approximately $26.4 million
related to this disposition. During the third quarter of 2008, the
Corporation recognized fair value adjustments on these assets
held-for-sale of approximately $360 million.
As part of the actions to exit PFHs business in the later
part of 2008, the Corporation executed the PFH Discontinuance
Restructuring Plan. The PFH Discontinuance Restructuring Plan
included the elimination of substantially all employment positions
and termination of contracts with the objective of discontinuing
PFHs operations.
During the year ended December 31, 2009 and 2008, the PFH
Discontinuance Restructuring Plan resulted in charges, on a
pre-tax basis, broken down as follows:
Table PFH Discontinuance Restructuring Plan
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
2008
|
|
Personnel costs (a)
|
|
$
|
1.1
|
|
|
$
|
4.1
|
(a)
|
Professional fees
|
|
|
0.1
|
|
|
|
|
|
Other operating expenses
|
|
|
0.2
|
|
|
|
|
|
|
Total restructuring costs
|
|
$
|
1.4
|
|
|
$
|
4.1
|
|
Impairment
losses on long-lived assets (b)
|
|
|
|
|
|
|
3.9
|
(b)
|
|
Total
|
|
$
|
1.4
|
|
|
$
|
8.0
|
|
|
|
|
|
(a)
|
|
Severance, retention bonuses and other benefits
|
|
(b)
|
|
Leasehold improvements, furniture and equipment and prepaid expenses
|
The PFH Discontinuance Restructuring Plan charges are
included in the line item Loss from discontinued operations, net
of tax in the consolidated statements of operations.
In mid-2009, PFH transferred the servicing of the loan
portfolio of its affiliated company E-LOAN to a third-party
servicer and completed the PFH Discontinuance Restructuring Plan.
The net loss for the discontinued operations reported for the year
ended December 31, 2009 included principally personnel costs
associated to severance payments and salaries for employees who
serviced the affiliated loan portfolios, legal expenses and
collection services. Also, the financial results for the
discontinued operations in 2009 included costs for lease
cancellations.
Statement of Condition Analysis
Assets
Refer to the consolidated financial statements included in this
2009 Annual Report for the Corporations consolidated statements
of condition at December 31, 2009 and 2008. Also, refer to the
Statistical Summary 2005-2009 in this MD&A for condensed
statements of condition for the past five years. At December 31,
2009, total assets were $34.7 billion compared with $38.9 billion
at December 31, 2008. During 2008, the Corporation sold
substantially all assets of PFH. Total assets at December 31, 2008
included $12.6 million from the discontinued operations. The
decline in total assets from December 31, 2008 to December 31,
2009 was primarily reflected in the portfolios of investment
securities and loans. The reduction in investment securities was
principally for deleveraging strategies, while the decline in
loans shows a decreasing trend prompted by the economic slowdown,
stricter underwriting standards, high levels of charge-offs and
the reduction of the U.S. mainland operations.
37
Investment securities
The following table provides a breakdown of the Corporations
investment securities available-for-sale and held-to-maturity on a
combined basis at December 31, 2009 and 2008. Also, Notes 7 and 8
to the consolidated financial statements provide additional
information by contractual maturity categories and gross
unrealized gains / losses with respect to the Corporations
available-for-sale (AFS) and held-to-maturity (HTM) investment
securities.
Table AFS and HTM securities
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
2008
|
|
U.S. Treasury securities
|
|
$
|
56.2
|
|
|
$
|
502.1
|
|
Obligations of U.S. government
sponsored entities
|
|
|
1,647.9
|
|
|
|
4,808.5
|
|
Obligations of Puerto Rico, States and
political subdivisions
|
|
|
262.8
|
|
|
|
385.7
|
|
Collateralized mortgage obligations
|
|
|
1,718.0
|
|
|
|
1,656.0
|
|
Mortgage-backed securities
|
|
|
3,210.2
|
|
|
|
848.5
|
|
Equity securities
|
|
|
7.8
|
|
|
|
10.1
|
|
Other
|
|
|
4.8
|
|
|
|
8.3
|
|
|
Total
|
|
$
|
6,907.7
|
|
|
$
|
8,219.2
|
|
|
The decline in the Corporations available-for-sale and
held-to-maturity investment portfolios from December 31, 2008 to
the end of 2009 was mainly associated with sales of securities in
early 2009 and the repayment of maturing securities. As previously
indicated in this MD&A, during the first quarter of 2009, the
Corporation sold $3.4 billion of investment securities
available-for-sale, principally U.S. agency securities (FHLB
notes) and U.S. Treasury securities. From the proceeds received
from this sale, approximately $2.9 billion were later reinvested,
primarily in GNMA mortgage-backed securities. As indicated in the
Overview section of this MD&A, the sale and reinvestment was
performed primarily to strengthen common equity by realizing a
gain and improving the Corporations regulatory capital ratios.
The Corporation holds investment securities principally for
liquidity, yield enhancement and interest rate risk management.
The AFS and HTM investment securities portfolio primarily includes
very liquid, high quality debt securities. The vast majority of
these investment securities, or approximately 96%, 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, most of all
are rated AAA by at least one of the three major rating agencies
at December 31, 2009. All MBS held by the Corporation and
approximately 93% of the CMOs held at December 31, 2009 are
guaranteed by government sponsored entities.
At December 31, 2009, there were investment securities
available-for-sale with a fair value of $1.7 billion in an
unrealized loss position. The unrealized losses on these
particular securities approximated $27.6 million at December 31,
2009 and corresponded principally to mortgage-backed securities
and collateralized mortgage obligations.
Management evaluates investment securities for
other-than-temporary (OTTI) declines in fair value on a
quarterly basis. Once a decline in value is determined to be
other-than-temporary, the value of a debt security is reduced and
a corresponding charge to earnings is recognized for anticipated
credit losses. Also, for equity securities that are considered
other-than-temporarily impaired, the excess of the securitys
carrying value over its fair value at the evaluation date is
accounted for as a loss in the results of operations. The OTTI
analysis requires management to consider various factors, which
include, but are not limited to: (1) the length of time and the
extent to which fair value has been less than the amortized cost
basis, (2) the financial condition of the issuer or issuers, (3)
actual collateral attributes, (4) the payment structure of the
debt security and the likelihood of the issuer being able to make
payments, (5) any rating changes by a rating agency, (6) adverse
conditions specifically related to the security, industry, or a
geographic area, and (7) managements intent to sell the security
or whether it is more likely than not that the Corporation would
be required to sell the security before a forecasted recovery
occurs.
At December 31, 2009, management performed its quarterly
analysis of all debt securities in an unrealized loss position to
determine if any securities were other-than-temporarily impaired.
Based on the analyses performed, management concluded that no
material individual debt security was other-than-temporarily
impaired as of such date. At December 31, 2009, the Corporation
does not have the intent to sell debt securities in an unrealized
loss position and it is not more likely than not that the
Corporation will have to sell the investment securities prior to
recovery of their amortized cost basis. Also, management evaluated
the Corporations portfolio of equity securities at December 31,
2009. During the twelve-month period ended December 31, 2009, the
Corporation recorded $10.9 million in losses on certain equity
securities considered other-than-temporarily impaired. Management
has the intent and ability to hold the investments in equity
securities that are at a loss position at December 31, 2009 for a
reasonable period of time for a forecasted recovery of fair value
up to (or beyond) the cost of these investments.
Loan portfolio
A breakdown of the loan portfolio, the principal category of
earning assets, is presented in Table G. Included in Table G are
$91 million of loans held-for-sale at December 31, 2009, compared
with $536 million at December 31, 2008.
The decrease of $1.5 billion, or 9%, in the commercial and
construction loan portfolios from December 31, 2008 to December
31, 2009 reflected the slowdown in origination activity and the
dramatic increase in loan charge-offs as a result of the downturn
in the real estate market, along with a deteriorated economic
environment and credit quality. On a combined basis, commercial
and construction loans net charge-offs amounted to $573 million in
38 POPULAR, INC. 2009 ANNUAL REPORT
Table G
Loans Ending Balances (including Loans Held-for-Sale)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Commercial
|
|
$
|
12,666,955
|
|
|
$
|
13,687,060
|
|
|
$
|
13,685,791
|
|
|
$
|
13,115,442
|
|
|
$
|
11,921,908
|
|
Construction
|
|
|
1,724,373
|
|
|
|
2,212,813
|
|
|
|
1,941,372
|
|
|
|
1,421,395
|
|
|
|
835,978
|
|
Lease financing
|
|
|
675,629
|
|
|
|
1,080,810
|
|
|
|
1,164,439
|
|
|
|
1,226,490
|
|
|
|
1,308,091
|
|
Mortgage*
|
|
|
4,691,145
|
|
|
|
4,639,464
|
|
|
|
7,434,800
|
|
|
|
11,695,156
|
|
|
|
12,872,452
|
|
Consumer
|
|
|
4,045,807
|
|
|
|
4,648,784
|
|
|
|
5,684,600
|
|
|
|
5,278,456
|
|
|
|
4,771,778
|
|
|
Total
|
|
$
|
23,803,909
|
|
|
$
|
26,268,931
|
|
|
$
|
29,911,002
|
|
|
$
|
32,736,939
|
|
|
$
|
31,710,207
|
|
|
|
|
|
*
|
|
Includes residential construction.
|
2009. Also, as previously indicated in this MD&A, the Corporation exited and downsized certain
loan origination channels of the U.S. mainland operations, thus impacting negatively the volume of
loan originations. Refer to Note 10 to the consolidated financial statements for a detailed
composition of loans held-in-portfolio.
The decrease in the consumer loan portfolio from December 31, 2008 to December 31, 2009 by
approximately $603 million, or 13%, was mostly reflected in personal loans, auto loans and home
equity lines of credit (HELOCs). There was a lower volume of personal and auto loans in the BPPR
reportable segment due to current economic conditions which have impacted the volume of new loan
originations. Also, the run-off of Popular Finances loan portfolio contributed to such decrease.
Popular Finances operations were closed in late 2008. Furthermore, there were reductions in the
consumer loan portfolio of BPNA, including E-LOAN, primarily due to the run-off of its auto loan
portfolio, closed-end second mortgages and HELOCs without any concentrated lending efforts in these
products.
A breakdown of the Corporations consumer loan portfolio at
December 31, 2009 and 2008 follows:
Table Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
Change
|
|
% Change
|
|
Personal
|
|
$
|
1,620,227
|
|
|
$
|
1,911,958
|
|
|
|
( $291,731
|
)
|
|
|
(15
|
)%
|
Credit cards
|
|
|
1,136,691
|
|
|
|
1,148,631
|
|
|
|
(11,940
|
)
|
|
|
(1
|
)
|
Auto
|
|
|
592,729
|
|
|
|
766,999
|
|
|
|
(174,270
|
)
|
|
|
(23
|
)
|
Home equity
lines of credit
|
|
|
463,596
|
|
|
|
572,917
|
|
|
|
(109,321
|
)
|
|
|
(19
|
)
|
Other
|
|
|
232,564
|
|
|
|
248,279
|
|
|
|
(15,715
|
)
|
|
|
(6
|
)
|
|
Total
|
|
$
|
4,045,807
|
|
|
$
|
4,648,784
|
|
|
|
( $602,977
|
)
|
|
|
(13
|
)%
|
|
The decline in the lease financing portfolio from December 31, 2008 to December 31, 2009
of $405 million was primarily the result of a substantial sale of the lease financing portfolio of
the BPNA reportable segment during early 2009.
The mortgage loan portfolio at December 31, 2009 increased $52 million from December 31, 2008.
The BPPR reportable segment showed an increase of $277 million, and was partially offset by a
reduction at the BPNA reportable segment of $225 million since BPNA ceased originating
non-conventional mortgage loans as part of the BPNA Restructuring Plan. Despite the current
challenging real estate market in Puerto Rico, Popular Mortgage is providing attractive offers to
foster sales at real estate development projects financed by the Corporation.
Other assets
The following table provides a breakdown of the principal categories that comprise the caption of
Other assets in the consolidated statements of condition at December 31, 2009 and 2008.
Table Other Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
Change
|
|
Net deferred tax assets
(net of valuation allowance)
|
|
$
|
363,967
|
|
|
$
|
357,507
|
|
|
$
|
6,460
|
|
Bank-owned life insurance
program
|
|
|
232,387
|
|
|
|
224,634
|
|
|
|
7,753
|
|
Prepaid FDIC insurance
assessment
|
|
|
206,308
|
|
|
|
|
|
|
|
206,308
|
|
Other prepaid expenses
|
|
|
130,762
|
|
|
|
136,236
|
|
|
|
(5,474
|
)
|
Investments under the equity
method
|
|
|
99,772
|
|
|
|
92,412
|
|
|
|
7,360
|
|
Derivative assets
|
|
|
71,822
|
|
|
|
109,656
|
|
|
|
(37,834
|
)
|
Trade receivables from brokers
and counterparties
|
|
|
1,104
|
|
|
|
1,686
|
|
|
|
(582
|
)
|
Others
|
|
|
216,037
|
|
|
|
193,466
|
|
|
|
22,571
|
|
|
Total
|
|
$
|
1,322,159
|
|
|
$
|
1,115,597
|
|
|
$
|
206,562
|
|
|
Refer to the Overview section of this MD&A under the subtopic of Legislative and
Regulatory Developments for details of the FDIC insurance prepayment for the years 2010 through
2012.
39
Table H
Deposits Ending Balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Demand deposits*
|
|
$
|
5,066,282
|
|
|
$
|
4,849,387
|
|
|
$
|
5,115,875
|
|
|
$
|
4,910,848
|
|
|
$
|
4,415,972
|
Savings, NOW and
money market deposits
|
|
|
9,635,347
|
|
|
|
9,554,866
|
|
|
|
9,804,605
|
|
|
|
9,200,732
|
|
|
|
8,800,047
|
Time deposits
|
|
|
11,223,265
|
|
|
|
13,145,952
|
|
|
|
13,413,998
|
|
|
|
10,326,751
|
|
|
|
9,421,986
|
|
Total
|
|
$
|
25,924,894
|
|
|
$
|
27,550,205
|
|
|
$
|
28,334,478
|
|
|
$
|
24,438,331
|
|
|
$
|
22,638,005
|
|
|
|
|
*
|
|
Includes interest and non-interest bearing demand deposits.
|
Deposits and Borrowings
The composition of the Corporations financing to total assets at December 31, 2009 and 2008 was as
follows:
Table Financing to Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% increase (decrease)
|
|
% of total assets
|
(Dollars in millions)
|
|
2009
|
|
2008
|
|
from 2008 to 2009
|
|
2009
|
|
2008
|
|
Non-interest bearing
deposits
|
|
$
|
4,495
|
|
|
$
|
4,294
|
|
|
|
4.7
|
%
|
|
|
13.0
|
%
|
|
|
11.1
|
%
|
Interest bearing core
deposits
|
|
|
14,983
|
|
|
|
15,647
|
|
|
|
(4.2
|
)
|
|
|
43.1
|
|
|
|
40.2
|
|
Other interest bearing
deposits
|
|
|
6,447
|
|
|
|
7,609
|
|
|
|
(15.3
|
)
|
|
|
18.6
|
|
|
|
19.6
|
|
Federal funds and
repurchase agreements
|
|
|
2,633
|
|
|
|
3,552
|
|
|
|
(25.9
|
)
|
|
|
7.6
|
|
|
|
9.1
|
|
Other short-term
borrowings
|
|
|
7
|
|
|
|
5
|
|
|
|
40.0
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
2,649
|
|
|
|
3,387
|
|
|
|
(21.8
|
)
|
|
|
7.6
|
|
|
|
8.7
|
|
Others
|
|
|
983
|
|
|
|
1,121
|
|
|
|
(12.3
|
)
|
|
|
2.8
|
|
|
|
2.9
|
|
Stockholders equity
|
|
|
2,539
|
|
|
|
3,268
|
|
|
|
(22.3
|
)
|
|
|
7.3
|
|
|
|
8.4
|
|
|
Deposits
The Corporations deposits by categories for 2009 and previous years are presented in Table H.
Total deposits amounted to $25.9 billion at December 31, 2009, a decrease of $1.6 billion, or 6%,
from the end of 2008. The increase in demand deposits was principally in commercial accounts, while
the reduction in time deposits was mainly in retail certificates of deposit, particularly at the
BPNA reportable segment, and lower brokered certificates of deposit due to lower reliance by
management on that funding source, mainly in the BPPR reportable segment.
The decrease in deposits from December 31, 2008 to December 31, 2009 was the result of a
combination of factors, which included lower brokered deposits, which declined from $3.1 billion at
December 31, 2008 to $2.7 billion at the same date in 2009, and the impact of the closure and sale
of branches in the U.S. mainland operations. In October 2009, the Corporation sold six New Jersey
bank branches with approximately $225 million in deposits. In addition, there were reduced levels
of deposits gathered through E-LOANs internet platform, in part influenced by the effect of a
gradual reduction in the pricing of these deposits.
Borrowings
At December 31, 2009, borrowed funds amounted to $5.3 billion, compared to $6.9 billion at December
31, 2008. Refer to Notes 17, 18 and 19 to the consolidated financial statements for detailed
information on the Corporations borrowings as of such dates. Also, refer to the Liquidity Risk
section in this MD&A for additional information on the Corporations funding sources at December
31, 2009.
The decline in borrowings from December 31, 2008 to December 31, 2009 was directly related to
the maturity of unsecured senior term notes of Popular North America during 2009, which had been
used to fund the Corporations U.S. mainland operations. Term notes classified as notes payable
declined by $803 million from the end of 2008 to the same date in 2009. Assets sold under
agreements to repurchase at December 31, 2009 presented a reduction of $774 million when compared
with December 31, 2008. This decline was associated in part to lower financing needs as a result of
a lower volume of investment securities due to deleveraging.
In August 2009, the Corporation issued junior subordinated debentures with an aggregate
liquidation amount of $936 million as part of the exchange agreement with the U.S. Treasury. At
December 31, 2009, the outstanding balance of these debentures was $424 million since it is
reported net of a discount amounting to $512 million. The discount resulted from the recording of
the debentures at fair value because of the accounting treatment of the exchange. The
aforementioned increase in junior subordinated debentures was partially offset by the reduction in
previously outstanding junior subordinated debentures of $410 million, associated with the exchange
of trust preferred securities for common stock. Refer to a subsequent section titled Exchange
Offers in this MD&A for detailed information on these exchange transactions.
40 POPULAR, INC. 2009 ANNUAL REPORT
Stockholders Equity
Stockholders equity totaled $2.5 billion at December 31, 2009, compared with $3.3 billion at
December 31, 2008. Refer to the consolidated statements of condition and of stockholders equity
included in the audited financial statements that are part of the 2009 Annual Report for
information on the composition of stockholders equity at December 31, 2009 and 2008. Also, the
disclosures of accumulated other comprehensive loss, an integral component of stockholders equity,
are included in the consolidated statements of comprehensive (loss) income.
The decrease in stockholders equity from the end of 2008 to the end of 2009 was principally
the result of the net loss of $573.9 million recorded during the year ended December 31, 2009.
Also, refer to the subsequent section titled Exchange Offers in this MD&A for three significant
transactions that occurred during 2009 that had an impact on various categories of stockholders
equity, including a reduction in preferred stock and an increase in common stockholders equity.
The objective of the exchange offer was to boost common equity as further explained in the
Regulatory Capital section of this MD&A.
In June 2009, management announced the suspension of dividends on the Corporations common
stock and Series A and B preferred stock. Dividends declared on common stock amounted to $5.6
million for the year ended December 31, 2009, compared with $134.9 million in the previous year.
Dividends paid on the Series A and B preferred stock totaled $22.5 million in 2009, compared with
$31.4 million in 2008.
On May 1, 2009, the stockholders of the Corporation approved an amendment to
the Corporations Certificate of Incorporation to increase the number of authorized shares of
common stock from 470,000,000 shares to 700,000,000 shares. The stockholders also approved a
decrease in the par value of the common stock of the Corporation from $6 per share to $0.01 per
share. The decrease in the par value of the Corporations common stock had no effect on the total
dollar value of the Corporations stockholders equity. During 2009, the Corporation transferred an
amount equal to the product of the number of shares issued and outstanding and $5.99 (the
difference between the old and new par values), from the common stock account to surplus
(additional paid-in capital).
As a result of ongoing challenging recessionary conditions, credit losses have reduced the
Corporations tangible common equity. Given the focus on tangible common equity by regulatory
authorities, rating agencies and the market, the Corporation may be required to raise additional
capital through the issuance of additional common stock in future periods to replace that common
equity. As previously indicated, the Corporation issued more than 357 million shares of common
stock in the exchange offer that was conducted in the third quarter of 2009, which left the
Corporation with only a limited number of authorized and unreserved shares of common stock to issue
in the future. As a result, the Corporation needs to obtain stockholder approval to increase the
amount of authorized capital stock if the Corporation intends to issue significant amounts of
common stock in the future.
Included within surplus in stockholders equity at December 31, 2009
was $402 million corresponding to a statutory reserve fund applicable exclusively to Puerto Rico
banking institutions. This statutory reserve fund totaled $392 million at December 31, 2008. 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. During 2009, $10 million was transferred to
the statutory reserve. 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 Ricos Commissioner of Financial Institutions. The failure
to maintain sufficient statutory reserves would preclude BPPR from paying dividends. At December
31, 2009 and 2008, BPPR was in compliance with the statutory reserve requirement.
The average tangible equity amounted to $2.2 billion for the period ended December 31, 2009,
compared to $2.7 billion at December 31, 2008. Total tangible equity was $1.9 billion at December
31, 2009, compared with $2.6 billion at December 31, 2008. The average tangible equity to average
tangible assets ratio was 6.12% at December 31, 2009 and 6.64% at December 31, 2008. Tangible
equity consists of total stockholders equity less goodwill and other intangibles.
Exchange Offers
In June 2009, the Corporation commenced an offer to issue shares of its common stock in
exchange for its Series A preferred stock and Series B preferred stock and for trust preferred
securities (also referred to as capital securities). On August 25, 2009, the Corporation completed the
settlement of the exchange offer. During the third quarter of 2009, the Corporation issued
357,510,076 new shares of common stock in exchange for its Series A and Series B preferred stock and
trust preferred securities, which resulted in a total increase in common stockholders equity of
$923 million. This increase included newly issued common stock and surplus of $612 million and a
favorable impact to accumulated deficit of $311 million, including $80.3 million in gains on the
extinguishment of junior subordinated debentures that relate to the trust preferred securities.
Preferred stock reflected a reduction as a result of the exchange of Series A and B preferred stock
for shares of common stock of $537 million.
In December 2008, the Corporation received $935 million from the United States Department of
the Treasury (U.S. Treasury) as part of the Troubled Asset Relief Program (TARP) Capital
Purchase Program in exchange for the Corporations Class C
41
preferred stock and warrants on common stock. In August 2009, the Corporation exchanged newly
issued trust preferred securities for the shares of Series C Preferred Stock that were held by the
U.S. Treasury. The reduction in total stockholders equity related to the U.S. Treasury exchange
transaction at the exchange date was approximately $416 million, which was principally impacted by
the reduction of $935 million of aggregate liquidation preference value of the Series C preferred
stock, partially offset by the $519 million discount on the junior subordinated debentures.
The following sections provide further information on the exchange transactions described
above. Also, refer to Note 21 to the consolidated financial statements for detailed information on
the exchange ratios, relevant price per share and fair value per share used for the exchange
computations and accounting impact.
Exchange of preferred stock for common stock
The exchange by holders of shares of the Series A and B non-cumulative preferred stock for shares
of common stock resulted in the extinguishment of such shares of preferred stock and an issuance of
shares of common stock during 2009. The financial impact at the exchange date of this particular
transaction was mainly as follows: (i) reduction in preferred stock by $537 million, which
represented the liquidation value of the shares of Series A and B preferred stock; (ii) increase in
common stock and surplus by $294 million, which represented the fair value of the common stock
issued (the Corporation recorded the par amount of the shares issued as common stock based on $0.01
per common share); (iii) decrease in accumulated deficit of $230.4 million, which represented the
excess of the carrying amount of the shares of preferred stock over the fair value of the shares of
common stock; and (iv) recording of issuance costs. The decrease in accumulated deficit was also
considered as an increase in income (loss) for per common share (EPS) computations. Refer to the
Overview section of this MD&A and Note 24 to the consolidated financial statements for a
reconciliation of EPS.
The decrease in total stockholders equity related to the exchange of shares of preferred
stock for shares of common stock was approximately $4 million, net of issuance costs.
As previously
indicated, the Corporation suspended dividends on the Corporations common and preferred stock
during 2009.
Common stock issued in connection with early extinguishment of debt (exchange of trust preferred securities for common stock)
As indicated previously, in August 2009, the Corporation exchanged trust preferred securities
issued by different trusts for shares of common stock of
the Corporation. The trust preferred securities were delivered to the trusts in return for the
junior subordinated debentures (recorded as notes payable in the Corporations financial
statements) that had been issued by the Corporation to the trusts in the past. This transaction was
accounted for as an early extinguishment of debt.
The major financial impact of this debt extinguishment at the date of its occurrence was as
follows: (i) the carrying value of the junior subordinated debentures (notes payable) was reduced
and common stock and surplus increased in the amount of the fair value of the common stock issued,
which was approximately $318 million; (ii) the excess of the carrying amount of the junior
subordinated debentures retired over the fair value of the common stock issued was recorded as a
gain on early extinguishment of debt in the consolidated statement of operations for the year ended
December 31, 2009, which amounted to $80.3 million; and (iii) recording of issuance costs.
The increase in total stockholders equity related to the exchange of trust preferred
securities for shares of common stock at the exchange date was approximately $390 million, net of
issuance costs, and including the aforementioned gain on the early extinguishment of debt.
The junior subordinated debentures paid interest at rates ranging from 6.125% to 8.327%. As
indicated in the Net Interest Income section of this MD&A, the extinguishment of the junior
subordinated debentures, in late August 2009, represented a reduction in interest expense of
approximately $11.9 million for the year ended December 31, 2009 when compared with the year 2008.
Exchange of preferred stock held by the U.S. Treasury for trust preferred securities
As previously indicated, in August 2009, the Corporation and Popular Capital Trust III entered into
an exchange agreement with the U.S. Treasury pursuant to which the U.S. Treasury agreed with the
Corporation that they would exchange all 935,000 shares of the Corporations outstanding Fixed Rate
Cumulative Perpetual Preferred Stock, Series C, $1,000 liquidation preference per share (the
Series C Preferred Stock), owned by the U.S Treasury for 935,000 newly issued trust preferred
securities, $1,000 liquidation amount per capital security. In connection with this exchange, the
trust used the Series C preferred stock, together with the proceeds of the issuance and sale by the
trust to the Corporation of $1 million aggregate liquidation amount of its fixed rate common
securities, to purchase $936 million aggregate principal amount of the junior subordinated
debentures (notes payable) issued by the Corporation. The trust preferred securities issued to the
U.S. Treasury have a distribution rate of 5% until, but excluding December 5, 2013, and 9%
thereafter (which is the same as the dividend rate on the Series C Preferred Stock). The common
securities of the trust, in the amount of $1 million, are held by the Corporation.
Under the exchange agreement, the Corporations agreement stated that, without the consent of
the U.S. Treasury, it would not
42 POPULAR, INC. 2009 ANNUAL REPORT
increase its dividend rate per share of common stock above that in effect as of October 14,
2008 ($0.08 per share) or repurchase shares of its common stock until, in each case, the earlier of
December 5, 2011 or such time as all of the new trust preferred securities have been redeemed or
transferred by the U.S. Treasury, remains in effect.
The warrant to purchase 20,932,836 shares of Populars common stock at an exercise price of
$6.70 per share that was initially issued to the U.S Treasury in connection with the issuance of
the Series C preferred stock on December 5, 2008 remains outstanding without amendment.
The trust preferred securities issued to the U.S. Treasury qualify as Tier 1 regulatory
capital subject to the 25% limitation on Tier 1 capital.
The Corporation paid an exchange fee of $13 million to the U.S. Treasury in connection with
the exchange of outstanding shares of Series C preferred stock for the new trust preferred
securities. This exchange fee will be amortized through interest expense using the interest yield
method over the estimated life of the junior subordinated debentures.
This transaction with the U.S. Treasury was accounted for as an extinguishment of previously
issued Series C preferred stock. The accounting impact of this transaction included the following:
(i) recognition of junior subordinated debentures; (ii) derecognition of the Series C preferred
stock; (iii) recognition of a $485 million favorable impact to accumulated deficit resulting from
the excess of (a) the carrying amount of the securities exchanged (the Series C preferred stock)
over (b) the fair value of the consideration exchanged (the trust preferred securities); (iv) the
reversal of any unamortized discount outstanding on the Series C preferred stock and (v)
recognition of issuance costs. The reduction in total stockholders equity related to the U.S.
Treasury exchange transaction at the exchange date was approximately $416 million, which was
principally impacted by the reduction of $935 million of aggregate liquidation preference value of
the Series C preferred stock, partially offset by the $519 million discount on the junior
subordinated debentures described in item (iii) above. This discount as well as the debt issue
costs will be amortized through interest expense using the interest yield method over the estimated
life of the junior subordinated debentures. During 2009, the Corporation recognized interest
expense amounting to $23.5 million, including $7 million related to the accretion of the discount
on these debentures.
This particular exchange resulted in a favorable impact to accumulated deficit at the exchange
date of $485.3 million, which is also considered in the income (loss) per common share
computations. Refer to the Overview section and Note 24 to the consolidated financial statements
for a reconciliation of EPS.
The fair value of the trust preferred securities (junior subordinated
debentures for purposes of the Corporations financial statements) at the date of the exchange
agreement was determined internally using a discounted cash flow model. The main considerations
were (1) quarterly interest payment of 5% until, but excluding December 5, 2013, and 9% thereafter;
(2) assumed maturity date of 30 years, and (3) assumed discount rate of 16%. The assumed discount
rate used for estimating the fair value was estimated by obtaining the yields at which
comparably-rated issuers were trading in the market and considering the amount of trust preferred
securities issued to the U.S. Treasury and the credit rating of the Corporation.
Regulatory Capital
Table I presents the Corporations capital adequacy information for the years 2005 through
2009. Note 25 to the consolidated financial statements present further information on the
Corporations regulatory capital requirements, including the regulatory capital ratios of its
depository institutions, BPPR and BPNA.
To meet minimum, adequately-capitalized regulatory requirements, an institution must maintain
a Tier 1 Capital ratio of 4% and a Total Capital ratio of 8%. A well-capitalized institution must
generally maintain capital ratios 200 basis points higher than the minimum guidelines. The
risk-based capital rules have been further supplemented by a Tier 1 Leverage ratio, defined as Tier
1 Capital divided by adjusted quarterly average total assets, after certain adjustments.
Well-capitalized bank holding companies must have a minimum Tier 1 Leverage ratio of 5%. At
December 31, 2009, the Corporations Tier 1 Capital, Total Capital and Tier 1 Leverage ratios were
9.81%, 11.13% and 7.50%, respectively. These ratios compare to 10.81%, 12.08% and 8.46%,
respectively, at December 31, 2008. These classify the Corporation as well-capitalized for
regulatory purposes, the highest classification at both December 31, 2009 and 2008. BPPR and BPNA
were also well-capitalized. The Corporations regulatory capital ratios for 2009 were negatively
impacted by the following principal factors: (i) net loss for the third consecutive year; (ii)
higher disallowance for total capital inclusion related to the allowance for loan losses, which is
a critical component of the Corporations financial condition that management continued to increase
during 2009; and (iii) an increase in the deferred tax assets disallowed for Tier 1 capital
inclusion.
During 2009, the Corporation made capital contributions amounting to $590 million to its
banking subsidiary BPNA to maintain BPNAs capital ratios at well-capitalized levels.
Under regulatory capital adequacy guidelines, and other regulatory requirements, Popular, Inc.
and its banking subsidiaries must meet guidelines that include quantitative measures of assets,
liabilities and certain off-balance sheet items, subject to qualitative judgments by regulators
regarding components, risk weightings and other factors. If the Corporation and its banking
subsidiaries fail to meet these minimum capital guidelines and other regulatory
43
Table I
Capital Adequacy Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
(In thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Risk-based capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital
|
|
$
|
2,563,915
|
|
|
$
|
3,272,375
|
|
|
$
|
3,361,132
|
|
|
$
|
3,727,860
|
|
|
$
|
3,540,270
|
|
Supplementary (Tier II) capital
|
|
|
346,527
|
|
|
|
384,975
|
|
|
|
417,132
|
|
|
|
441,591
|
|
|
|
403,355
|
|
|
Total capital
|
|
$
|
2,910,442
|
|
|
$
|
3,657,350
|
|
|
$
|
3,778,264
|
|
|
$
|
4,169,451
|
|
|
$
|
3,943,625
|
|
|
Risk-weighted assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet items
|
|
$
|
23,182,230
|
|
|
$
|
26,838,542
|
|
|
$
|
30,294,418
|
|
|
$
|
32,519,457
|
|
|
$
|
29,557,342
|
|
Off-balance sheet items
|
|
|
2,964,649
|
|
|
|
3,431,217
|
|
|
|
2,915,345
|
|
|
|
2,623,264
|
|
|
|
2,141,922
|
|
|
Total risk-weighted assets
|
|
$
|
26,146,879
|
|
|
$
|
30,269,759
|
|
|
$
|
33,209,763
|
|
|
$
|
35,142,721
|
|
|
$
|
31,699,264
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital (minimum required 4.00%)
|
|
|
9.81
|
%
|
|
|
10.81
|
%
|
|
|
10.12
|
%
|
|
|
10.61
|
%
|
|
|
11.17
|
%
|
Total capital (minimum required 8.00%)
|
|
|
11.13
|
|
|
|
12.08
|
|
|
|
11.38
|
|
|
|
11.86
|
|
|
|
12.44
|
|
Leverage ratio*
|
|
|
7.50
|
|
|
|
8.46
|
|
|
|
7.33
|
|
|
|
8.05
|
|
|
|
7.47
|
|
Equity to assets
|
|
|
7.80
|
|
|
|
8.21
|
|
|
|
8.20
|
|
|
|
7.75
|
|
|
|
7.06
|
|
Tangible equity to assets
|
|
|
6.12
|
|
|
|
6.64
|
|
|
|
6.64
|
|
|
|
6.25
|
|
|
|
5.86
|
|
Equity to loans
|
|
|
11.48
|
|
|
|
12.14
|
|
|
|
11.79
|
|
|
|
11.66
|
|
|
|
11.01
|
|
Internal capital generation rate
|
|
|
(21.88
|
)
|
|
|
(42.11
|
)
|
|
|
(6.61
|
)
|
|
|
4.48
|
|
|
|
10.93
|
|
|
|
|
|
*
|
|
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.
|
|
requirements, the Corporations business and financial condition will be materially and
adversely affected. If the Corporations insured depository institution subsidiaries fail to
maintain well-capitalized status under the regulatory framework, or are deemed not well-managed
under regulatory exam procedures, or if they experience certain regulatory violations, the
Corporations status as a financial holding company and its related eligibility for a streamlined
review process for acquisition proposals, and its ability to offer certain financial products will
be compromised.
In accordance with the Federal Reserve Board capital guidelines, trust preferred securities
represent restricted core capital elements and qualify as Tier 1 capital, subject to quantitative
limits. The aggregate amount of restricted core capital elements that may be included in the Tier 1
capital of a banking organization must not exceed 25% of the sum of all core capital elements
(including cumulative perpetual preferred stock and trust preferred securities). At December 31,
2009, the Corporations restricted core capital elements exceeded the 25% limitation and, as such,
$7 million of the outstanding trust preferred securities were disallowed as Tier 1 capital. Amounts
of restricted core capital elements in excess of this limit generally may be included in Tier 2
capital, subject to further limitations. The Federal Reserve Board revised the quantitative limit
which would limit restricted core capital elements included in the Tier 1 capital of a bank holding
company to 25% of the sum of core capital elements (including restricted core capital elements),
net of goodwill less any associated deferred tax liability. The new quantitative limits were
scheduled to become effective on March 31, 2009. However, on March 23, 2009, the Federal Reserve
adopted a rule extending the compliance date for the tighter limits to March 31, 2011 in light of
the stressful financial conditions and the severely constrained ability of bank holding companies
to raise additional capital in the markets.
The Corporations Tier 1 common equity to risk-weighted assets ratio was 6.39% at December 31,
2009, compared with 2.45% at June 30, 2009, which was prior to the execution of the exchange offers
described previously. Tier 1 common equity increased from $682 million at June 30, 2009 to $1.7
billion at December 31, 2009.
Ratios calculated based upon Tier 1 common equity have become a focus of regulators and
investors, and management believes ratios based on Tier 1 common equity assist investors in
analyzing the Corporations capital position. In connection with the Supervisory Capital Assessment
Program (SCAP), the Federal Reserve Board began supplementing its assessment of the capital
adequacy of a bank holding company based on a variation of Tier 1 capital, known as Tier 1 common
equity.
Because Tier 1 common equity is not formally defined by GAAP or, unlike Tier 1 capital,
codified in the federal banking regulations, this measure is considered to be a non-GAAP financial
measure. Non-GAAP financial measures have inherent limitations, are not required to be uniformly
applied and are not audited. To mitigate these limitations, the Corporation has procedures in place
to calculate these measures using the appropriate GAAP or regulatory components. Although these
non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company,
they have limitations as analytical tools, and should not be considered in isolation, or as a
substitute for analyses of
44 POPULAR, INC. 2009 ANNUAL REPORT
results as reported under GAAP.
The table below reconciles the Corporations total common stockholders equity (GAAP) at
December 31, 2009 to Tier 1 common equity as defined by the regulations issued by the Federal
Reserve Board, FDIC and other bank regulatory agencies (non-GAAP).
Table Non-GAAP Reconciliation
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
|
2009
|
|
Common stockholders equity
|
|
$
|
2,488,657
|
|
Less: Unrealized gains on available for
sale securities, net of tax (1)
|
|
|
(91,068
|
)
|
Less: Disallowed deferred tax assets (2)
|
|
|
(179,655
|
)
|
Less: Intangible assets
|
|
|
|
|
Goodwill
|
|
|
(604,349
|
)
|
Other disallowed intangibles
|
|
|
(18,056
|
)
|
Less: Aggregate adjusted carrying value
of all non-financial equity investments
|
|
|
(2,343
|
)
|
Add: Pension liability adjustment, net of tax
and accumulated net gains (losses) on
cash flow hedges (3)
|
|
|
78,488
|
|
|
Total Tier 1 common equity
|
|
$
|
1,671,674
|
|
|
|
|
|
(1)
|
|
In accordance with regulatory risk-based capital guidelines, Tier 1 capital excludes net
unrealized gains (losses) on available-for-sale debt securities and net unrealized gains on
available-for-sale equity securities with readily determinable fair values. In arriving at Tier 1
capital, institutions are required to deduct net unrealized losses on available-for-sale equity
securities with readily determinable fair values, net of tax.
|
|
(2)
|
|
Approximately $186 million of the Corporations $364 million net deferred tax assets at
December 31, 2009, were included without limitation in regulatory capital pursuant to the
risk-based capital guidelines, while approximately $180 million of such assets at December 31, 2009
exceeded the limitation imposed by these guidelines and, as disallowed deferred tax assets, were
deducted in arriving at Tier 1 capital. The remaining $2 million of the Corporations other net
deferred tax assets at December 31, 2009 represented primarily the following items (a) the deferred
tax effects of unrealized gains and losses on available-for-sale debt securities, which are
permitted to be excluded prior to deriving the amount of net deferred tax assets subject to
limitation under the guidelines; (b) the deferred tax asset corresponding to the pension liability
adjustment recorded as part of accumulated other comprehensive income; and (c) the deferred tax
liability associated with goodwill and other intangibles.
|
|
(3)
|
|
The Federal Reserve Bank has granted interim capital relief for the impact of pension liability
adjustment.
|
Risk Management
Managing risk is an essential component of the Corporations business. Risk identification and
monitoring are key elements in overall risk management. The Corporation has identified the
following nine principal risks which have been incorporated into the Corporations risk management
program:
|
|
|
Interest Rate Risk (IRR) Interest rate risk is the risk to earnings or capital
arising from changes in interest rates. The economic perspective focuses on the value of the
Corporation in todays interest rate environment and the sensitivity of that value to
changes in interest rates. Interest rate risk arises from differences between the timing of
rate changes and the timing of cash flows (repricing risk); from changing rate relationships
among different yield curves affecting bank activities (basis risk); from changing rate
relationships across the spectrum of maturities (yield curve risk); and from interest
related options embedded in bank products (options risk).
|
|
|
|
|
Market Risk Potential for loss resulting from changes in market factors that
affect the value of traded instruments or its volatility in the Corporations or in any of
its subsidiaries portfolio. Market risk arises from market-making, dealing and
position-taking activities in interest rate, foreign exchange, equity and commodity markets.
|
|
|
|
|
Liquidity Risk Potential for loss resulting from the Corporation or its
subsidiaries not being able to meet their obligations when they come due. This could be a
result of market conditions, the ability of the Corporation to liquidate assets or manage or
diversify various funding sources. This risk also encompasses the possibility that an
instrument cannot be closed out or sold at its economic value, which might be a result of
stress in the market or in a specific security type given its volume and maturity.
|
|
|
|
|
Credit Risk Potential for default or loss resulting from an obligors failure to
meet the terms of any contract with the Corporation or any of its subsidiaries, or failure
otherwise to perform as agreed. Credit risk arises from all activities where success depends
on counterparty, issuer, or borrower performance.
|
|
|
|
|
Operational Risk This risk is the possibility that inadequate internal controls or
procedures, human error, system failure or fraud can cause losses.
|
|
|
|
|
Compliance Risk and Legal Risk Potential for loss resulting from violations of or
non-conformance with laws, rules, regulations, prescribed practices, existing contracts or
ethical standards.
|
|
|
|
|
Strategic Risk Potential for loss arising from adverse business decisions or
improper implementation of business decisions. Also, it incorporates how management analyzes
external factors that impact the strategic direction of the Corporation.
|
|
|
|
|
Reputational Risk Potential for loss arising from negative public opinion.
|
The Corporations Board of Directors (the Board) has established a Risk Management Committee
(RMC) to undertake the responsibilities of overseeing and approving the Corporations Risk
Management Program.
The RMC will, as an oversight body, monitor and approve the overall business strategies,
policies and procedures to identify, measure, monitor and control risks while maintaining the
effectiveness and efficiency of the business and operational processes. As an approval body, the
RMC reviews and approves the Corporations risk management policies and critical processes.
45
Table J
Common Stock Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
Book
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
Value
|
|
Dividend
|
|
|
|
|
|
Price/
|
|
Market/
|
|
|
Market Price
|
|
Declared
|
|
Per
|
|
Payout
|
|
Dividend
|
|
Earnings
|
|
Book
|
|
|
High
|
|
Low
|
|
Per Share
|
|
Share
|
|
Ratio
|
|
Yield *
|
|
Ratio
|
|
Ratio
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3.89
|
|
|
|
N.M.
|
|
|
|
2.55
|
%
|
|
|
N.M.
|
|
|
|
58.10
|
%
|
4th quarter
|
|
$
|
2.80
|
|
|
$
|
2.12
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3rd quarter
|
|
|
2.83
|
|
|
|
1.04
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2nd quarter
|
|
|
3.66
|
|
|
|
2.19
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st quarter
|
|
|
5.52
|
|
|
|
1.47
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.33
|
|
|
|
N.M.
|
|
|
|
6.17
|
|
|
|
N.M.
|
|
|
|
81.52
|
|
4th quarter
|
|
$
|
8.61
|
|
|
$
|
4.90
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3rd quarter
|
|
|
11.17
|
|
|
|
5.12
|
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2nd quarter
|
|
|
13.06
|
|
|
|
6.59
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st quarter
|
|
|
14.07
|
|
|
|
8.90
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.12
|
|
|
|
N.M.
|
|
|
|
4.38
|
|
|
|
(39.26
|
x)
|
|
|
87.46
|
|
4th quarter
|
|
$
|
12.51
|
|
|
$
|
8.65
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3rd quarter
|
|
|
16.18
|
|
|
|
11.38
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2nd quarter
|
|
|
17.49
|
|
|
|
15.82
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st quarter
|
|
|
18.94
|
|
|
|
15.82
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.32
|
|
|
|
51.02
|
%
|
|
|
3.26
|
|
|
|
14.48
|
|
|
|
145.70
|
|
4th quarter
|
|
$
|
19.66
|
|
|
$
|
17.23
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3rd quarter
|
|
|
20.12
|
|
|
|
17.41
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2nd quarter
|
|
|
21.98
|
|
|
|
18.53
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st quarter
|
|
|
21.20
|
|
|
|
19.54
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.82
|
|
|
|
32.31
|
|
|
|
2.60
|
|
|
|
10.68
|
|
|
|
178.93
|
|
4th quarter
|
|
$
|
24.05
|
|
|
$
|
20.10
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3rd quarter
|
|
|
27.52
|
|
|
|
24.22
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2nd quarter
|
|
|
25.65
|
|
|
|
22.94
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st quarter
|
|
|
28.03
|
|
|
|
23.80
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Based on the average high and low market price for the four quarters.
|
|
N.M. Not meaningful.
|
|
|
It also reports periodically to the Board about its activities.
The Board and RMC have delegated to the Corporations management the implementation of the
risk management processes. This implementation is split into two separate but coordinated efforts
that include (i) business and / or operational units who identify, manage and control the risks
resulting from their activities, and (ii) a Risk Management Group (RMG). In general, the RMG is
mandated with responsibilities such as assessing and reporting to the Corporations management and
RMC the risk positions of the Corporation, developing and implementing mechanisms, policies and
procedures to identify, measure and monitor risks, and monitoring and testing the adequacy of the
Corporations policies, strategies and guidelines. The RMG is responsible for the overall
coordination of risk management efforts throughout the Corporation and is composed of four
reporting divisions (i) Credit Risk Management, (ii) Compliance, (iii) Operational Risk Management,
and (iv) Auditing Division. Additionally, a Market Risk Manager was appointed during 2008 to
provide an independent oversight of Treasurys management of the market, interest and liquidity
risks, and to evaluate the adequacy of policies and procedures to address and limit such risks.
Moreover, management oversight of the Corporations risk-taking and risk management activities
is conducted through management committees:
|
|
|
CRESCO (Credit Strategy Committee) Manages the Corporations overall credit exposure
and approves credit policies, standards and guidelines that define, quantify, and monitor
credit risk. Through this committee, management
|
46 POPULAR, INC. 2009 ANNUAL REPORT
|
|
|
reviews asset quality ratios, trends and forecasts, problem loans, establishes the
provision for loan losses and assesses the methodology and adequacy of the allowance for loan
losses on a quarterly basis.
|
|
|
|
|
ALCO (Asset / Liability Management Committee) Oversees and approves the policies and
processes designed to ensure sound market risk and balance sheet strategies, including the
interest rate, liquidity, investment and trading policies. Also, the ALCO monitors the
capital position of the Corporation and is briefed on strategies to maintain capital at
adequate levels.
|
|
|
|
|
ORCO (Operational Risk Committee) Monitors operational risk management activities to
ensure the development and consistent application of operational risk policies, processes
and procedures that measure, limit and manage the Corporations operational risks while
maintaining the effectiveness and efficiency of the operating and businesses processes.
|
There are other management committees such as the Fair Lending and the BSA/ Anti-Money
Laundering Committees that provide oversight of specific business risks.
Market / Interest Rate Risk
The financial results and capital levels of Popular, Inc. are constantly exposed to market,
interest rate and liquidity risks. The ALCO and the Corporate Finance Group are responsible for
planning and executing the Corporations market, interest rate risk, funding activities and
strategy, and for implementing the policies and procedures approved by the RMC. In addition, a
Market Risk Manager, who is part of the risk management group, has been appointed to enhance and
strengthen controls surrounding interest, liquidity, and market risks, and independently monitor
and report adherence with established policies. The ALCO meets on a monthly basis and reviews
various asset and liability sensitivities, ratios and portfolio information, including but not
limited to, the Corporations liquidity positions, projected sources and uses of funds, interest
rate risk positions and economic conditions.
During 2009, the capital and credit markets continued to experience volatility and disruption,
although corporate credit spreads declined considerably as general credit market conditions
improved due in part to aggressive government intervention to supply liquidity and confidence to
the markets. The economic recession accelerated in late 2008 and continued to deepen into the first
half of 2009 but, based on the recent economic indicators, it appears that it has ended and the
U.S. economy is expected to expand moderately in 2010. Nevertheless, Puerto Ricos economy,
however, continues in a recession for its fourth consecutive year. In general, during 2009,
consumers experienced higher levels of stress as a result of higher unemployment levels as well as
further declines in home prices, and businesses further reducing spending. Market instability has
led many lenders and institutional investors to reduce or cease providing funding to borrowers,
including other financial institutions. The market turmoil and tightening of credit have led to an
increased level of commercial and consumer delinquencies, lack of consumer confidence, increased
market volatility and widespread reduction of business activity in general. A material rebound in
economic activity in P.R. is not expected for 2010.
Financial services institutions are interrelated as a result of trading, clearing,
counterparty, or other relationships. The Corporation has exposures to many different industries
and counterparties, and management routinely executes transactions with counterparties in the
financial services industry, including brokers and dealers, commercial banks, and other
institutional clients. Many of these transactions expose the Corporation to credit risk in the
event of default of the Corporations counterparty or client. In addition, the Corporations credit
risk may be exacerbated when the collateral held by it cannot be realized or is liquidated at
prices not sufficient to recover the full amount of the loan or derivative exposures. There is no
assurance that any such losses would not materially and adversely affect the Corporations results
of operations.
The Board of Governors of the Federal Reserve, which influences interest rates, lowered
interbank borrowing rates during the year ended December 31, 2008 between 400 and 425 basis points,
and, as indicated in the Net Interest Income section of this MD&A, remained at similar low levels
during 2009.
The continued weakness in the overall economy and recent and proposed regulatory changes, some
of which are described in the Overview section of this MD&A, may continue to affect many of the
markets in which the Corporation does business and may adversely impact its financial results for
2010. Although the U.S. is expected to expand modestly during the year, the P.R. economy may
continue to contract for a longer period.
Interest Rate Risk
Management considers IRR a potentially predominant risk in terms of its potential impact on
profitability or market value. As previously indicated, the Corporation is subject to various
categories of IRR, including repricing, basis, yield curve and options risks. In addition, interest
rates may have an indirect impact on loan demand, loan origination volume, the value of the
Corporations investment securities holdings, gains and losses on sales of securities and loans,
the value of mortgage servicing rights, and other sources of earnings. In limiting IRR to an
acceptable level, management may alter the mix of floating and fixed rate assets and liabilities,
change pricing schedules, adjust maturities through sales and purchases of investment securities,
and enter into derivative contracts, among other alternatives.
|
|
IRR management is an active process that encompasses
|
47
monitoring loan and deposit flows complemented by investment and funding activities. Effective
management of IRR begins with understanding the dynamic characteristics of assets and liabilities
and determining the appropriate rate risk position given line of business forecasts, management
objectives, market expectations and policy constraints.
The Corporations ALCO utilizes various tools for the management of IRR, including simulation
modeling and static gap analysis for measuring short-term IRR. Economic value of equity (EVE)
sensitivities analysis is used to monitor the level of long-term IRR assumed. The three
methodologies complement each other and are used jointly to assist in the assessment of the
Corporations IRR.
Net interest income simulation analysis performed by legal entity and on a consolidated basis
is a tool used by the Corporation in estimating the potential change in net interest income
resulting from hypothetical changes in interest rates. Sensitivity analysis is calculated 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 expected 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. It is a dynamic process,
emphasizing future performance under diverse economic conditions.
Management
assesses IRR using various interest rate scenarios that differ in direction of interest rate
changes, the degree of change over time, the speed of change and the projected shape of the yield
curve. For example, the types of interest rate scenarios processed during the year included most
likely economic scenarios, flat rates, yield curve twists, +/- 200 and + 400 basis points
parallel ramps and +/- 200 basis points parallel shocks. Management also performs analyses to
isolate and measure basis and yield curve risk exposures, and prepayment risk. 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. Due to the
importance of critical assumptions in measuring market risk, the risk models incorporate
third-party developed data for critical assumptions such as prepayment speeds on mortgage loans and
mortgage-backed securities, estimates on the duration of the Corporations deposits and interest
rate scenarios.
The Corporation runs net interest income simulations under interest rate scenarios in which
the yield curve is assumed to rise and decline gradually by the same amount. The rising rate
scenarios considered in these market risk disclosures reflect gradual parallel changes of 200 and
400 basis points during the twelve-month period ending December 31, 2010. Under a 200 basis points
rising rate scenario, 2010 projected net interest income increases by $59.8 million, while under a
400 basis points rising rate scenario, 2010 projected net interest income increases by $103.2
million. These scenarios were compared against the Corporations unchanged interest rates forecast.
Given the fact that at December 31, 2009 some market interest rates were close to zero, management
has focused on measuring the risk on net interest income in rising rate scenarios.
Simulation analyses 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. Further, the estimates 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 may actually occur
in the future.
Static gap analysis measures the volume of assets and liabilities maturing or repricing at a
future point in time. Static gap reports stratify all of the Corporations assets, liabilities and
off-balance sheet positions according to the instruments maturity, repricing characteristics and
optionality, assuming no new business. The repricing volumes typically include adjustments for
anticipated future asset prepayments and for differences in sensitivity to market rates. The volume
of assets and liabilities repricing during future periods, particularly within one year, is used as
one short-term indicator of IRR. Depending on the duration and repricing characteristics, changes
in interest rates could either increase or decrease the level of net interest income. For any given
period, the pricing structure of the assets and liabilities is matched when an equal amount of such
assets and liabilities mature or reprice in that period. Any mismatch of interest earning assets
and interest bearing liabilities is known as a gap position. A positive gap denotes asset
sensitivity, which means that an increase in interest rates could have a positive effect on net
interest income, while a decrease in interest rates could have a negative effect on net interest
income. As shown in Table K, at December 31, 2009, the Corporations one-year cumulative positive
gap was $3.3 billion, or 10.15% of total earning assets. These static measurements do not reflect
the results of any projected activity and are best used as early indicators of potential interest
rate exposures. They do not incorporate possible action that could be taken to manage the
Corporations IRR, nor do they capture the basis risks that might be included within that
cumulative gap, given possible changes in the spreads between asset rates and the rates used to
fund them.
The Corporation uses EVE (economic value of equity) analysis to estimate the sensitivity of
the Corporations assets and liabilities to changes in interest rates. EVE is equal to the
estimated present value of the Corporations assets minus the estimated present value of the
liabilities. This sensitivity analysis is a useful tool to measure long-term IRR because it
captures the impact of up or down rate changes in expected cash flows, including principal and
interest,
48 POPULAR, INC. 2009 ANNUAL REPORT
from all future periods.
EVE is estimated on a monthly basis and shock scenarios are prepared on a quarterly basis. The
shock scenarios consist of +/- 200 basis points parallel shocks. Minimum EVE ratio limits,
expressed as EVE as a percentage of total assets, have been established for base case and shock
scenarios. In addition, management has also defined limits for the increases / decreases in EVE
resulting from the shock scenarios. At December 31, 2009, the Corporation was in compliance with
these limits.
The Corporations loan and investment portfolios are subject to prepayment risk, which results
from the ability of a third-party to repay debt obligations prior to maturity. At December 31,
2009, net discount associated with loans represented less than 1% of the total loan portfolio,
while net premiums associated with portfolios of AFS and HTM securities approximated 1% of these
investment securities portfolios. Prepayment risk also could have a significant impact on the
duration of mortgage-backed securities and collateralized mortgage obligations, since prepayments
could shorten the weighted average life of these portfolios. Table L, which presents the maturity
distribution of earning assets, takes into consideration prepayment assumptions.
Trading
The Corporations trading activities are another source of market risk and are subject to policies
and risk guidelines approved by the Board to manage such risks. The objective of trading activity
at the Corporation is to realize profits by buying or selling acceptable securities based on
prudent trading strategies, taking advantage of expected market direction or volatility, or to
hedge some type of market risk. This is mostly limited to mortgage banking activities. Popular
Securities, the Corporations broker-dealer business, also has as an additional objective of
maintaining inventory positions for customer resale.
Trading positions in the mortgage banking business, which are mostly agency mortgage-backed
securities, are hedged in the agency to be announced (TBA) market. In anticipation of customer
demand, the Corporation carries an inventory of capital market instruments and maintains market
liquidity by quoting bid and offer prices and trading with other market makers and clients.
Positions are also taken in interest rate sensitive instruments, based on expectations of future
market conditions. These activities constitute the proprietary trading business and are conducted
by the Corporation to provide customers with securities inventory and liquidity.
Trading instruments are recognized at fair value, with changes resulting from fluctuations in
market prices, interest rates or exchange rates reported in current period income. Further
information on the Corporations risk management and trading activities is included in Note 31 to
the consolidated financial statements.
In the opinion of management, the size and composition of the trading portfolio does not
represent a significant source of market risk for the Corporation.
At December 31, 2009, the trading portfolio of the Corporation amounted to $462 million and
represented 1% of total assets, compared with $646 million and 2% a year earlier. Mortgage-backed
securities represented 93% of the trading portfolio at the end of 2009, compared with 92% in 2008.
The mortgage-backed securities are investment grade securities, all of which are rated AAA by at
least one of the three major rating agencies at December 31, 2009. A significant portion of the
trading portfolio is hedged against market risk by positions that offset the risk assumed. This
portfolio was composed of the following at December 31, 2009:
Table Trading Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
(Dollars in thousands)
|
|
Amount
|
|
Average Yield*
|
|
Mortgage-backed securities
|
|
$
|
431,375
|
|
|
|
5.73
|
%
|
Collateralized mortgage obligations
|
|
|
3,955
|
|
|
|
5.32
|
|
U.S. Treasury and agencies
|
|
|
369
|
|
|
|
3.57
|
|
Puerto Rico and U.S. Government obligations
|
|
|
13,427
|
|
|
|
5.52
|
|
Interest-only strips
|
|
|
1,551
|
|
|
|
15.67
|
|
Other
|
|
|
11,759
|
|
|
|
6.94
|
|
|
Total
|
|
$
|
462,436
|
|
|
|
5.79
|
%
|
|
|
|
|
*
|
Not on a taxable equivalent basis.
|
|
The level of market risk assumed by trading activities at some subsidiaries of the
Corporation is subject to limits, such as those measured by its 7-day value-at-risk (VAR) with a
confidence level of 99%. The VAR measures the maximum estimated loss that may occur over a 7-day
holding period in the course of its risk taking activities with 99% confidence. Its purpose is to
describe the amount of capital needed to absorb potential losses from adverse market volatility.
Additionally, inventory position limits for selected business units are used to manage our exposure
to market risk.
At December 31, 2009, the trading portfolio of the Corporation had a 7-day value at risk (VAR)
of approximately $3.4 million, assuming a confidence level of 99%. There are numerous assumptions
and estimates associated with VAR modeling, and actual results could differ from these assumptions
and estimates. Backtesting is performed to compare actual results against maximum estimated losses,
in order to evaluate model and assumptions accuracy.
The Corporation enters into forward contracts to sell mortgage-backed securities with terms
lasting less than three months, which are accounted for as trading derivatives. These contracts are
recognized at fair value with changes directly reported in current period income. Refer to the
Derivatives section that follows in this MD&A for additional information. At December 31, 2009, the
fair value of these forward contracts was not significant.
49
Table K
Interest Rate Sensitivity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
By Repricing Dates
|
|
|
|
|
|
|
|
|
|
|
After
|
|
After
|
|
After
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
|
|
three months
|
|
six months
|
|
nine months
|
|
|
|
|
|
Non-interest
|
|
|
|
|
0-30
|
|
31-90
|
|
but within
|
|
but within
|
|
but within
|
|
After one
|
|
bearing
|
|
|
(Dollars in thousands)
|
|
days
|
|
days
|
|
six months
|
|
nine months
|
|
one year
|
|
year
|
|
funds
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market investments
|
|
$
|
977,317
|
|
|
$
|
22,805
|
|
|
|
|
|
|
$
|
200
|
|
|
$
|
100
|
|
|
$
|
2,375
|
|
|
|
|
|
|
$
|
1,002,797
|
|
Investment and trading securities
|
|
|
1,008,694
|
|
|
|
319,443
|
|
|
$
|
382,370
|
|
|
|
352,511
|
|
|
|
406,303
|
|
|
|
5,064,940
|
|
|
|
|
|
|
|
7,534,261
|
|
Loans
|
|
|
9,000,149
|
|
|
|
790,820
|
|
|
|
861,821
|
|
|
|
792,033
|
|
|
|
716,128
|
|
|
|
11,642,958
|
|
|
|
|
|
|
|
23,803,909
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,395,358
|
|
|
|
2,395,358
|
|
|
Total
|
|
|
10,986,160
|
|
|
|
1,133,068
|
|
|
|
1,244,191
|
|
|
|
1,144,744
|
|
|
|
1,122,531
|
|
|
|
16,710,273
|
|
|
|
2,395,358
|
|
|
|
34,736,325
|
|
|
Liabilities and stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW, money market and other
interest bearing demand accounts
|
|
|
1,787,682
|
|
|
|
27
|
|
|
|
5
|
|
|
|
|
|
|
|
328
|
|
|
|
8,418,286
|
|
|
|
|
|
|
|
10,206,328
|
|
Certificates of deposits
|
|
|
1,428,955
|
|
|
|
2,333,056
|
|
|
|
2,413,336
|
|
|
|
1,494,073
|
|
|
|
742,758
|
|
|
|
2,811,087
|
|
|
|
|
|
|
|
11,223,265
|
|
Federal funds purchased and assets
sold under agreements to repurchase
|
|
|
937,557
|
|
|
|
372,015
|
|
|
|
55,800
|
|
|
|
115,000
|
|
|
|
|
|
|
|
1,152,418
|
|
|
|
|
|
|
|
2,632,790
|
|
Other short-term borrowings
|
|
|
7,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,326
|
|
Notes payable
|
|
|
46,797
|
|
|
|
276,595
|
|
|
|
23,124
|
|
|
|
302,627
|
|
|
|
12,629
|
|
|
|
1,986,860
|
|
|
|
|
|
|
|
2,648,632
|
|
Non-interest bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,495,301
|
|
|
|
4,495,301
|
|
Other non-interest bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
983,866
|
|
|
|
983,866
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,538,817
|
|
|
|
2,538,817
|
|
|
Total
|
|
$
|
4,208,317
|
|
|
$
|
2,981,693
|
|
|
$
|
2,492,265
|
|
|
$
|
1,911,700
|
|
|
$
|
755,715
|
|
|
$
|
14,368,651
|
|
|
$
|
8,017,984
|
|
|
$
|
34,736,325
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate sensitive gap
|
|
|
6,777,843
|
|
|
|
(1,848,625
|
)
|
|
|
(1,248,074
|
)
|
|
|
(766,956
|
)
|
|
|
366,816
|
|
|
|
2,341,622
|
|
|
|
(5,622,626
|
)
|
|
|
|
|
Cumulative interest rate
sensitive gap
|
|
|
6,777,843
|
|
|
|
4,929,218
|
|
|
|
3,681,144
|
|
|
|
2,914,188
|
|
|
|
3,281,004
|
|
|
|
5,622,626
|
|
|
|
|
|
|
|
|
|
Cumulative interest rate sensitive
gap to earning assets
|
|
|
20.96
|
%
|
|
|
15.24
|
%
|
|
|
11.38
|
%
|
|
|
9.01
|
%
|
|
|
10.15
|
%
|
|
|
17.39
|
%
|
|
|
|
|
|
|
|
|
|
Derivatives
Derivatives are used by the Corporation as part of its overall interest rate risk management
strategy to protect against changes in net interest income and cash flows. Derivative instruments
that the Corporation may use include, among others, interest rate swaps and caps, index options,
and forward contracts. The Corporation does not use highly leveraged derivative instruments in its
interest rate risk management strategy. The Corporation enters into interest rate swaps, interest
rate caps and foreign exchange contracts for the benefit of commercial customers. Credit risk
embedded in these transactions is reduced by requiring appropriate collateral levels from
counterparties and entering into netting agreements whenever possible. All outstanding derivatives
are recognized in the Corporations consolidated statement of condition at their fair value. Refer
to Note 31 to the consolidated financial statements for further information on the Corporations
involvement in derivative instruments and hedging activities. During 2009, management enhanced
credit and collateral requirements for commercial customers entering into new interest rate swaps
due to the credit risk embedded in these transactions in the current economic environment, thus
reducing the Corporations involvement in these derivative activities.
The Corporations derivative activities are entered primarily to offset the impact of market
volatility on the economic value of assets or liabilities. The net effect on the market value of
potential changes in interest rates of derivatives and other financial instruments is analyzed. The
effectiveness of these hedges is monitored to ascertain that the Corporation is reducing market
risk as expected. Derivative transactions are generally executed with instruments with a high
correlation to the hedged asset or liability. The underlying index or instrument of the derivatives
used by the Corporation is selected based on its similarity to the asset or liability being hedged.
As a result of interest rate fluctuations, fixed and variable interest rate hedged assets and
liabilities will appreciate or depreciate in fair value. The effect of this unrealized appreciation
or depreciation is expected to be substantially offset by the Corporations gains or losses on the
derivative instruments that are linked to these hedged assets and liabilities. Management will
assess if circumstances warrant liquidating or replacing the
50 POPULAR, INC. 2009 ANNUAL REPORT
Table L
Maturity Distribution of Earning Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
Maturities
|
|
|
|
|
|
|
After one year
|
|
|
|
|
|
|
|
|
|
|
through five years
|
|
After five years
|
|
|
|
|
|
|
|
|
Fixed
|
|
Variable
|
|
Fixed
|
|
Variable
|
|
|
|
|
One year
|
|
interest
|
|
interest
|
|
interest
|
|
interest
|
|
|
(In thousands)
|
|
or less
|
|
rates
|
|
rates
|
|
rates
|
|
rates
|
|
Total
|
|
Money market securities
|
|
$
|
1,000,421
|
|
|
$
|
2,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,002,797
|
|
Investment and trading securities
|
|
|
1,877,725
|
|
|
|
2,975,668
|
|
|
$
|
354,216
|
|
|
$
|
1,812,609
|
|
|
$
|
342,104
|
|
|
|
7,362,322
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
4,317,095
|
|
|
|
2,164,581
|
|
|
|
2,462,585
|
|
|
|
1,124,840
|
|
|
|
2,597,854
|
|
|
|
12,666,955
|
|
Construction
|
|
|
1,456,107
|
|
|
|
41,581
|
|
|
|
216,141
|
|
|
|
2,182
|
|
|
|
8,362
|
|
|
|
1,724,373
|
|
Lease financing
|
|
|
278,608
|
|
|
|
396,948
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
675,629
|
|
Consumer
|
|
|
1,908,455
|
|
|
|
1,251,729
|
|
|
|
426,422
|
|
|
|
142,215
|
|
|
|
316,986
|
|
|
|
4,045,807
|
|
Mortgage
|
|
|
925,315
|
|
|
|
1,644,247
|
|
|
|
337,700
|
|
|
|
1,401,554
|
|
|
|
382,329
|
|
|
|
4,691,145
|
|
|
Total
|
|
$
|
11,763,726
|
|
|
$
|
8,477,130
|
|
|
$
|
3,797,064
|
|
|
$
|
4,483,473
|
|
|
$
|
3,647,635
|
|
|
$
|
32,169,028
|
|
|
|
|
|
Notes:
|
|
Equity securities available-for-sale and other investment securities, including Federal
Reserve Bank stock and Federal Home Loan Bank stock held by the Corporation, are not included in
this table.
|
Loans held-for-sale have been allocated according to the expected sale date.
derivatives position in the hypothetical event that high correlation is reduced. Based on the
Corporations derivative instruments outstanding at December 31, 2009, it is not anticipated that
such a scenario would have a material impact on the Corporations financial condition or results of
operations.
Certain derivative contracts also present credit risk and liquidity risk because the
counterparties may not comply with the terms of the contract, or the collateral obtained might be
illiquid. The Corporation controls credit risk through approvals, limits and monitoring procedures,
and through netting and collateral agreements whenever possible. Further, as applicable under the
terms of the master arrangements, the Corporation may obtain collateral, where appropriate, to
reduce credit risk. The credit risk attributed to the counterpartys nonperformance risk is
incorporated in the fair value of the derivatives. Additionally, as required by the fair value
measurements guidance, the fair value of the Corporations own credit standing is considered in the
fair value of the derivative liabilities. At December 31, 2009, inclusion of the credit risk in the
fair value of the derivatives resulted in a net loss of $4.8 million, which consisted of a loss of
$6.8 million resulting from the Corporations credit standing adjustment and a gain of $2.0 million
from the assessment of the counterparties credit risk. At December 31, 2009 the Corporation had
$88 million recognized for the right to reclaim cash collateral posted. On the other hand, the
Corporation had $4 million recognized for their obligation to return cash collateral received as of
December 31, 2009.
Cash Flow Hedges
The Corporation manages the variability of cash payments due to interest rate fluctuations by the
effective use of derivatives designated as cash flow hedges and that are linked to specified hedged
assets and liabilities. The notional amount of derivatives designated as cash flow hedges as of
December 31, 2009 amounted to $121 million. The cash flow hedges outstanding relate to forward
contracts or to be announced (TBA) mortgage-backed securities that are sold and bought for
future settlement to hedge the sale of mortgage-backed securities and loans prior to
securitization. The seller agrees to deliver on a specified future date a specified instrument at a
specified price or yield. These securities are hedging a forecasted transaction and thus qualify
for cash flow hedge accounting.
In conjunction with the issuance of medium-term notes, the Corporation had an interest rate
swap to convert floating rate debt to fixed rate debt with the objective of minimizing the exposure
to changes in cash flows due to higher interest rates. These contracts were designated as cash flow
hedges for accounting purposes in accordance with the derivatives and hedging activities guidance.
The swap matured in April 2009 and had a notional amount of $200 million at December 31, 2008.
Refer to Note 31 to the consolidated financial statements for additional quantitative
information on these derivative contracts.
51
Fair Value Hedges
The Corporation did not have any derivatives designated as fair value hedges during December 31,
2009 and 2008.
Trading and Non-Hedging Derivative Activities
The Corporation enters into derivative positions based on market expectations or to benefit from
price differentials between financial instruments and markets mostly to economically hedge a
related asset or liability. The Corporation also enters into various derivatives to provide these
types of derivative products to customers. These free-standing derivatives are carried at fair
value with changes in fair value recorded as part of the results of operations for the period.
Following is a description of the most significant of the Corporations derivative activities
that are not designated for hedge accounting. Refer to Note 31 to the consolidated financial
statements for additional quantitative and qualitative information on these derivative instruments.
At December 31, 2009, the Corporation had outstanding $2.0 billion in notional amount of
interest rate swap agreements with a net negative fair value of $4.2 million, which were not
designated as accounting hedges. These swaps were entered in the Corporations capacity as an
intermediary on behalf of its customers and their offsetting swap position.
For the year ended December 31, 2009, the impact of the mark-to-market of interest rate swaps
not designated as accounting hedges was a net decrease in earnings of approximately $6.5 million,
recorded in the other operating income category of the statement of operations, compared with an
earnings reduction of approximately $2.5 million in 2008, mainly in the interest expense category.
At December 31, 2009, the Corporation had forward contracts with a notional amount of $165
million and a positive fair value of $1 million not designated as accounting hedges. These forward
contracts are considered derivatives and are recorded at fair value. Subsequent changes in the
value of these forward contracts are recorded in the statement of operations. For the year ended December 31, 2009, the impact of the
mark-to-market of the forward contracts not designated as accounting hedges was a reduction to
non-interest income of $12.5 million, which was included in the category of trading account profit
in the consolidated statement of operations. In 2008, the unfavorable impact in non-interest income
of $15.3 million was included in the categories of trading account profit and gain on sale of
loans.
Furthermore, the Corporation has over-the-counter option contracts which are utilized in order
to limit the Corporations exposure on customer deposits whose returns are tied to the S&P 500 or
to certain other equity securities or commodity indexes. The Corporation, through its Puerto Rico
banking subsidiary, BPPR, offers certificates of deposit with returns linked to these indexes to
its retail customers, principally in connection with IRA accounts, and certificates of deposit sold
through its broker-dealer subsidiary. At December 31, 2009, these deposits amounted to $84 million,
or less than 1% of the Corporations total deposits. In these certificates, the customers
principal is guaranteed by BPPR and insured by the FDIC to the maximum extent permitted by law. The
instruments pay a return based on the increase of these indexes, as applicable, during the term of
the instrument. Accordingly, this product gives customers the opportunity to invest in a product
that protects the principal invested but allows the customer the potential to earn a return based
on the performance of the indexes.
The risk of issuing certificates of deposit with returns tied to the applicable indexes is
hedged by BPPR. BPPR purchases index options from financial institutions with strong credit
standings, whose return is designed to match the return payable on the certificates of deposit
issued by BPPR. By hedging the risk in this manner, the effective cost of the deposits raised by
this product is fixed. The contracts have a maturity and an index equal to the terms of the pool of
clients deposits they are economically hedging.
The purchased option contracts are initially accounted for at cost (i.e., amount of premium
paid) and recorded as a derivative asset. The derivative asset is marked-to-market on a quarterly
basis with changes in fair value charged to earnings. The deposits are hybrid instruments
containing embedded options that must be bifurcated in accordance with the derivatives and hedging
activities guidance. The initial value of the embedded option (component of the deposit contract
that pays a return based on changes in the applicable indexes) is bifurcated from the related
certificate of deposit and is initially recorded as a derivative liability and a corresponding
discount on the certificate of deposit is recorded. Subsequently, the discount on the deposit is
accreted and included as part of interest expense while the bifurcated option is marked-to-market
with changes in fair value charged to earnings.
The purchased index options are used to economically hedge the bifurcated embedded option.
These option contracts do not qualify for hedge accounting and therefore cannot be designated as
accounting hedges. At December 31, 2009, the notional amount of the index options on deposits
approximated $111 million with a fair value of $7 million (asset) while the embedded options had a
notional value of $84 million with a fair value of $5 million (liability).
Refer to Note 31 to the consolidated financial statements for a description of other
non-hedging derivative activities utilized by the Corporation during 2009 and 2008.
52 POPULAR, INC. 2009 ANNUAL REPORT
Foreign Exchange
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 would be included in other operating income in the consolidated
statements of operations.
At December 31, 2009, the Corporation had approximately $41 million in an unfavorable foreign
currency translation adjustment as part of accumulated other comprehensive loss, compared to
unfavorable adjustments of $39 million at December 31, 2008 and $35 million at December 31, 2007.
During those years, the Corporation did not record any remeasurement gains or losses in its
consolidated statements of operations as the economies were not considered highly-inflationary
environments.
EVERTEC operates in Venezuela through its wholly-owned subsidiary EVERTEC Venezuela. On
January 7, 2010, Venezuelas National Consumer Price Index for December 2009 was released. The
cumulative three-year inflation rates for both of Venezuelas inflation indices are over 100
percent. The Corporation calculated the cumulative three-year inflation rate on a blended basis by
using the Consumer Price Index (CPI) for 2006 and 2007, and the National Consumer Price Index
(NCPI) for 2008 and 2009. The blended CPI/NCPI reached cumulative three-year inflation in excess
of 100% at November 30, 2009. Therefore, the Corporation will begin considering Venezuelas economy
to be highly inflationary as of January 1, 2010, and the financial statements of EVERTEC -
Venezuela will need to be remeasured as if the functional currency was the reporting currency as of
such date. ASC Section 830-10-45-11 defines a highly inflationary economy as one with a
cumulative inflation rate of approximately 100 percent or more over a three-year period. Under ASC
Topic 830, if a countrys economy is classified as highly inflationary, the functional currency of
the foreign entity operating in that country must be remeasured to the functional currency of the
reporting entity. The impact of remeasuring the financial statements of EVERTEC Venezuela at
January 1, 2010, using the parallel market rate of Bs6.33/US$1, is estimated at $2 million. Total
assets for EVERTEC Venezuela remeasured at the parallel rate approximated $5 million at January
1, 2010.
Liquidity
The objective of effective liquidity management is to ensure that the Corporation remains
sufficiently liquid to meet all of its financial obligations, finance expected future growth and
maintains a reasonable safety margin for cash commitments under both normal and stressed market
conditions.
An institutions liquidity may be pressured if, for example, its credit rating is downgraded,
it experiences a sudden and unexpected substantial cash outflow, or some other event causes
counterparties to avoid exposure to the institution. An institution is also exposed to liquidity
risk if the markets on which it depends on are subject to temporary disruptions.
The Board is responsible for establishing Populars tolerance for liquidity risk, including
approving relevant risk limits and policies. The Board has delegated the monitoring of these risks
to the RMC and the ALCO. In addition to the risk management activities of ALCO, Popular has a
Market Risk Management function that provides independent oversight of market and liquidity risk
activities. The management of liquidity risk, on long-term and day-to-day basis, is the
responsibility of the Corporate Treasury Division. The Corporations Corporate Treasurer is
responsible for implementing the policies and procedures approved by the Board and for monitoring
the liquidity position on an ongoing basis. Also, the Corporate Treasury Division coordinates
corporate wide liquidity management strategies and activities with the reportable segments,
oversees policy breaches and manages the escalation process.
After substantial volatility and disruptions in late 2007 and 2008, the credit markets
improved substantially in 2009. Credit spreads on non-government obligations contracted materially
as they returned to more normalized levels. This was helped by the myriad funding programs
introduced by the U.S. Government, which have been helpful in restoring more normal market
conditions. However, disrupted market conditions have increased the Corporations liquidity risk
exposure due primarily to increased risk aversion on the part of traditional credit providers, as
well as the material declines in our credit ratings that occurred in 2009. While the Corporations
management has implemented various strategies in the recent years to reduce liquidity exposure,
such as substantially reducing the use of short-term and long-term unsecured borrowings, promoting
customer deposit growth through traditional banking and internet channels, diversifying and
increasing its contingency funding sources as well as exiting certain non-banking subsidiaries, a
resurgence of substantial market stress could negatively influence the availability of credit to
the Corporation, as well as its cost. The Corporations credit downgrades, as well as the economic
conditions in the Corporations main market have hindered its ability to issue debt in the capital
markets.
The Corporation obtains liquidity from both sides of the
53
balance sheet as well as from off-balance-sheet activities. Liquid assets can be quickly and easily
converted to cash at a reasonable cost, or are timed to mature when management anticipates a need
for additional liquidity. The Corporations investment portfolio, including money markets such as
fed funds sold and loans that can be pledged at the FHLBs and the FED, are used to manage Populars
liquidity needs. On the liability side, diversified sources of deposits and secured credit
facilities provide liquidity to Populars operations. Even if some of these alternatives may not be
available temporarily, it is expected that in the normal course of business, the Corporations
funding sources are adequate.
Deposits, including customer deposits, brokered certificates of deposit, and public funds
deposits, continue to be the most significant source of funds for the Corporation, totaling $25.9
billion, and funding 75% of the Corporations total assets at December 31, 2009.
In addition to traditional deposits, the Corporation maintains borrowing arrangements. These
borrowings consisted primarily of FHLB borrowings, securities sold under agreement to repurchase,
junior subordinated deferrable interest debentures, and term notes. Refer to Notes 17, 18 and 19 to
the consolidated financial statements for the composition of the Corporations borrowings at
December 31, 2009. Also, refer to Notes 32 and 34 to the consolidated financial statements for the
Corporations involvement in certain commitments and guarantees at December 31, 2009.
Federal funds purchased and assets sold under agreements to repurchase at December 31, 2009
presented a reduction of $919 million compared with December 31, 2008, principally in repurchase
agreements which declined by $774 million. This decline was mostly due to deleverage strategies
used by the Corporation, upon the sale of part of the investment securities portfolio earlier in
2009. There were no federal funds purchased at December 31, 2009, compared with $145 million at
December 31, 2008.
A summary of the most significant changes in the Corporations funding sources during the year
ended December 31, 2009, compared with the previous year, follows:
|
|
|
reduction in time
deposits of $1.9 billion, including a decline of $0.4 billion in brokered deposits, the impact of
branch closures and branch sales in the U.S. mainland operations, and lower deposit volumes
gathered through the internet platform;
|
|
|
|
|
repayment of $803 million in term notes during
the year ended December 31, 2009; and
|
|
|
|
|
a reduction in junior subordinated debentures of
$410 million that were associated with the four trusts that issued trust preferred securities prior
to December 31, 2008 and an increase of $424 million in junior subordinated debentures related to
the new trust preferred securities issued to the U.S. Treasury (in exchange for the preferred stock
under the TARP). Refer to the Exchange Offers section of this MD&A for further information.
|
Liquidity is managed by the Corporation at the level of the holding companies that own the
banking and non-banking subsidiaries. Also, it is managed at the level of the banking and
non-banking subsidiaries. The Corporation has adopted policies and limits to monitor more
effectively the Corporations liquidity position and that of the banking subsidiaries.
Additionally, contingency funding plans are used to model various stress events of different
magnitudes and affecting different time horizons that assist management in evaluating the size of
the liquidity buffers needed if those stress events occur. However, such models may not predict
accurately how the market and customers might react to every event, and are dependent on many
assumptions.
The following sections provide further information on the Corporations major funding
activities and needs, as well as the risks involved in these activities. A detailed description of
the Corporations borrowings and available lines of credit, including its terms, is included in
Notes 17 through 20 to the consolidated financial statements. Also, the consolidated statements of
cash flows in the accompanying consolidated financial statements, provide information on the
Corporations cash inflows and outflows.
Banking Subsidiaries
Primary sources of funding for the Corporations banking subsidiaries (BPPR and BPNA), or the
banking subsidiaries, include retail and commercial deposits, brokered deposits, collateralized
borrowings and, to a lesser extent, loan sales. Also, as indicated in the Regulatory Capital
section of this MD&A, during 2009, BPNA received substantial capital contributions in order to
maintain its well-capitalized status. In addition, the Corporations banking subsidiaries maintain
borrowing facilities with the Federal Home Loan Bank (FHLB) and at the discount window of the
Federal Reserve Bank of New York (Fed), and have a considerable amount of collateral pledged that
can be used to quickly raise funds under these facilities. Borrowings from the FHLB or the Fed
discount window require the Corporation to pledge securities or whole loans as collateral. The
banking subsidiaries must maintain their FHLB memberships to continue accessing this source of
funding. The principal uses of funds for the banking subsidiaries include loan originations,
investment portfolio purchases, repayment of maturing obligations (including deposits), operational
expenses, and in the case of BPPR, dividend payments to the holding company. Also, the banking
subsidiaries assume liquidity risk related to collateral posting requirements for some derivative
transactions and recourse obligations; off-balance sheet activities mainly in connection with
contractual commitments; recourse provisions; servicing advances; derivatives and support to
several mutual funds administered by BPPR.
54 POPULAR, INC. 2009 ANNUAL REPORT
The bank operating subsidiaries maintain sufficient funding capacity to address large
increases in funding requirements such as deposit outflows. This capacity is comprised mainly of
available liquidity derived from secured funding sources, as well as on-balance sheet liquidity in
the form of balances maintained at the FED and FHLB and liquid unpledged securities.
The Corporations ability to compete successfully in the marketplace for deposits, excluding
brokered deposits, depends on various factors, including pricing, service, convenience and
financial stability as reflected by operating results, credit ratings (by nationally recognized
credit rating agencies), and importantly, FDIC deposit insurance. Although a downgrade in the
credit rating of the Corporation may impact its ability to raise retail and commercial deposits or
the rate that it is required to pay on such deposits, management does not believe that the impact
should be material. Deposits at all of the Corporations banking subsidiaries are federally insured
(subject to FDIC limits) and this is expected to mitigate the effect of a downgrade in the credit
ratings. During 2009, the rating agencies downgraded the ratings of the Corporation and its banking
subsidiaries on several occasions. The impact of the downgrades on the Corporations ability to
attract and retain retail and commercial deposits has not been material to date.
Deposits are a key source of funding as they tend to be less volatile than institutional
borrowings and their cost is less sensitive to changes in market rates. Refer to Table H for a
breakdown of deposits by major types. Core deposits are generated from a large base of consumer,
corporate and institutional customers. As indicated in the glossary, for purposes of defining core
deposits, the Corporation excludes brokered deposits with denominations under $100,000. Core
deposits have historically provided the Corporation with a sizable source of relatively stable and
low-cost funds. Core deposits totaled $19.5 billion, or 75% of total deposits, at December 31,
2009, compared to $19.9 billion and 72% at December 31, 2008. Core deposits financed 60% of the
Corporations earning assets at December 31, 2009, compared to 55% at December 31, 2008.
Certificates of deposit with denominations of $100,000 and over at December 31, 2009 totaled
$4.7 billion, or 18% of total deposits, compared to $4.7 billion, or 17%, at December 31, 2008.
Their distribution by maturity at December 31, 2009 was as follows:
Table Certificates of Deposit by Maturities
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
3 months or less
|
|
$
|
2,012,633
|
|
3 to 6 months
|
|
|
1,056,514
|
|
6 to 12 months
|
|
|
913,220
|
|
Over 12 months
|
|
|
687,876
|
|
|
Total
|
|
$
|
4,670,243
|
|
|
At December 31, 2009, 8% of the Corporations assets were financed by brokered deposits.
The Corporation had $2.7 billion in brokered deposits at December 31, 2009, compared with $3.1
billion at December 31, 2008. Brokered certificates of deposit, which are typically sold through an
intermediary to small retail investors, provide access to longer-term funds and provide the ability
to raise additional funds without pressuring retail deposit pricing. An unforeseen disruption in
the brokered deposits market, stemming from factors such as legal, regulatory or financial risks,
could adversely affect the Corporations ability to fund a portion of the Corporations operations
and/or meet its obligations.
In the event that any of the Corporations banking subsidiaries fall under the regulatory
capital ratios of a well-capitalized institution or are subject to capital restrictions by the
regulators, that banking subsidiary faces the risk of not being able to raise or maintain brokered
deposits and faces limitations on the rate paid on deposits, which may hinder the Corporations
ability to effectively compete in its retail markets and could affect its deposit raising efforts.
Average deposits, including brokered deposits, for the year ended December 31, 2009
represented 79% of average earning assets, compared with 76% and 70% for the years ended December
31, 2008 and 2007, respectively. Table M summarizes average deposits for the past five years. As it
applies to the BPPR reportable segment only, average deposits for the year ended December 31, 2009,
funded 79% of its average earning assets, while for BPNAs reportable segment this ratio stood at
82%.
To the extent that the banking subsidiaries are unable to obtain sufficient liquidity through
core deposits, the Corporation may meet its liquidity needs through short-term borrowings by
pledging securities for borrowings under repurchase agreements, by pledging additional loans and
securities through the available secured lending facilities, or by selling liquid assets. These
measures are subject to availability of collateral.
The Corporations banking subsidiaries have the ability to borrow funds from the FHLB at
competitive prices. At December 31, 2009, the banking subsidiaries had short-term and long-term
credit facilities authorized with the FHLB aggregating $1.9 billion based on assets pledged with
the FHLB at that date, compared with $2.2 billion at December 31, 2008. Outstanding borrowings
under these credit facilities totaled $1.1 billion at December 31, 2009 and 2008. Such advances are
collateralized by mortgage loans and securities, do not have restrictive covenants and do not have
any callable features.
At December 31, 2009, the banking subsidiaries had a borrowing capacity at the Fed discount
window of approximately $2.9 billion, which remained unused as of that date. This compares to a
borrowing capacity at the Fed discount window of $3.4 billion as of December 31, 2008. The facility
was unused at said date. This facility is a collateralized source of credit that is highly reliable
even under difficult market conditions. The amount available
55
Table M
Average Total Deposits
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Non-interest bearing demand deposits
|
|
$
|
4,293,285
|
|
|
$
|
4,120,280
|
|
|
$
|
4,043,427
|
|
|
$
|
3,969,740
|
|
|
$
|
4,068,397
|
|
Savings accounts
|
|
|
5,538,077
|
|
|
|
5,600,377
|
|
|
|
5,697,509
|
|
|
|
5,440,101
|
|
|
|
5,676,452
|
NOW, money market and other interest
bearing demand accounts
|
|
|
4,804,023
|
|
|
|
4,948,186
|
|
|
|
4,429,448
|
|
|
|
3,877,678
|
|
|
|
3,731,905
|
|
Certificates of deposit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under $100,000
|
|
|
7,166,756
|
|
|
|
6,955,843
|
|
|
|
3,949,262
|
|
|
|
3,768,653
|
|
|
|
3,382,445
|
$100,000 and over
|
|
|
4,214,125
|
|
|
|
4,598,146
|
|
|
|
5,928,983
|
|
|
|
4,963,534
|
|
|
|
4,266,983
|
|
Certificates of deposit
|
|
|
11,380,881
|
|
|
|
11,553,989
|
|
|
|
9,878,245
|
|
|
|
8,732,187
|
|
|
|
7,649,428
|
|
Other time deposits
|
|
|
811,943
|
|
|
|
1,241,447
|
|
|
|
1,520,471
|
|
|
|
1,244,426
|
|
|
|
1,126,887
|
|
Total interest bearing deposits
|
|
|
22,534,924
|
|
|
|
23,343,999
|
|
|
|
21,525,673
|
|
|
|
19,294,392
|
|
|
|
18,184,672
|
|
Total average deposits
|
|
$
|
26,828,209
|
|
|
$
|
27,464,279
|
|
|
$
|
25,569,100
|
|
|
$
|
23,264,132
|
|
|
$
|
22,253,069
|
|
under this borrowing facility is dependent upon the balance of loans and securities pledged as
collateral. The reduction in the borrowing capacity at the Fed discount window from December 31,
2008 to December 31, 2009 was impacted by reduced volume of commercial loans pledged due to lower
availability as the banks portfolio has declined, a market-wide reduction by the Fed on the
lendable values of certain types of loans deposited as collateral based on assumptions regarding
their average risk characteristics, revised estimates of market value by the Fed and an increase in
delinquent loans. During 2009, the Corporation provided collateral in the form of consumer loans to
help replenish the available credit facility.
At December 31, 2009, management believes that the banking subsidiaries had sufficient current
and projected liquidity to meet its expected cash flow needs during the foreseeable future, and
have sufficient liquidity buffers to address a stress event.
Although the banking subsidiaries have historically been able to replace maturing deposits and
advances if desired, no assurance can be given that they would be able to replace those funds in
the future if the Corporations financial condition or general market conditions were to change.
The Corporations financial flexibility will be severely constrained if its banking subsidiaries
are unable to maintain access to funding or if adequate financing is not available to accommodate
future growth at acceptable interest rates. Finally, if management is required to rely more heavily
on more expensive funding sources to support future growth, revenues may not increase
proportionately to cover costs. In this case, profitability would be adversely affected.
Bank Holding Companies
The principal sources of funding for the holding companies include cash on hand, investment
securities, dividends received from banking and non-banking subsidiaries (subject to regulatory
limits), asset sales, credit facilities available from affiliate banking subsidiaries and proceeds
from new borrowings. The principal use of these funds include capitalizing banking subsidiaries,
the repayment of maturing debt, and interest payments to holders of senior debt and trust preferred
securities (including the payment to the U.S. Treasury amounting to $46.8 million a year based on
an annual rate of 5%). The Corporation suspended the payment of dividends to common and preferred
stockholders during 2009 as a result of dividend restrictions imposed by regulators and in order to
conserve capital.
Banking laws place certain restrictions on the amount of dividends a bank may pay to its
parent company based on its earnings and capital position. At December 31, 2009, BPPR and BPNA were
required to obtain the approval of the Federal Reserve Board to declare a dividend. Due to
limitations resulting from lower earnings in 2009 in the Puerto Rico operations, management expects
that projected dividends from BPPR to the Corporations holding company will be significantly lower
than those received in previous years. During 2009, BPPR paid $55.6 million in dividends to its
parent company, compared with $179.9 million in 2008. The Corporation has never received dividend
payments from its U.S. mainland subsidiaries. Refer to Popular, Inc.s Form 10-K for the year ended
December 31, 2009 for further information on dividend restrictions imposed by regulatory
requirements and policies on the payment of dividends by BPPR and BPNA. Furthermore, during 2009,
the non-banking subsidiaries paid $132.5 million in dividends to the BHCs.
The
Corporations bank holding companies (BHCs, Popular,
Inc., Popular North America, Inc. and
Popular International Bank, Inc.) have in the past borrowed in the money markets and in the
corporate debt market primarily to finance their non-banking
56 POPULAR, INC. 2009 ANNUAL REPORT
subsidiaries. However, the cash needs of the Corporations non-banking subsidiaries other than
to repay indebtedness are now minimal given that the PFH business was discontinued. These sources
of funding have become more difficult to obtain and costly due to disrupted market conditions and
the reductions in the Corporations credit ratings. During the fourth quarter of 2009, the
Corporation announced a medium term notes issuance. As a result of feedback received during the
marketing period, the Corporation decided not to proceed with the offering.
A principal use of liquidity at the BHCs is to ensure its subsidiaries are adequately
capitalized. Operating losses at the BPNA banking subsidiary have required the BHCs to contribute
equity capital to ensure that it meets the regulatory guidelines for well-capitalized
institutions. In the event that additional capital contributions were necessary, management
believes that the BHCs currently have enough liquidity resources to meet potential capital needs
from BPNA in the ordinary course of business. As indicated previously, during 2009, the BHCs made
capital contributions to BPNA amounting to $590 million in order to maintain the banking subsidiary
at well-capitalized levels.
Refer to Note 41 to the consolidated financial statements, which provides a statement of
condition, of operations and of cash flows for the three BHCs. The loans held-in-portfolio in such
financial statements are principally associated with intercompany transactions. The investment
securities held-to-maturity at the parent holding company, amounting to $456 million at December
31, 2009, consisted principally of $430 million of subordinated notes from BPPR. Currently, subject
to the required approval of the Federal Reserve Bank of New York, BPPR may, at any time, partially
redeem these notes at a redemption price of 100% of the principal amount.
The maturities of the BHCs outstanding notes payable at December 31, 2009 are shown in the
table below.
Table BHCs Notes Payable by Maturity
|
|
|
|
|
Year
|
|
(In millions)
|
|
2010
|
|
$
|
2
|
|
2011
|
|
|
354
|
|
2012
|
|
|
274
|
|
2013
|
|
|
3
|
|
2014
|
|
|
|
|
Later years
|
|
|
440
|
|
No stated maturity
|
|
|
936
|
|
|
Sub-total
|
|
$
|
2,009
|
|
Less: Discount
|
|
|
(512
|
)(a)
|
|
Total
|
|
$
|
1,497
|
|
|
|
|
|
(a)
|
|
Amounts relate to junior subordinated debentures associated with the trust preferred
securities issued to the U.S. Treasury. Refer to the Exchange Offers section of this MD&A for
information on this issuance.
|
|
The repayment of these obligations represents a potential cash need which is expected to
be met with internal liquidity resources and / or new debt or equity capital. The availability of
additional financing will depend on a variety of factors such as market conditions, the general
availability of credit and the Corporations creditworthiness.
Given the weakened economy, current market conditions, and the Corporations recent credit
rating downgrades, which are described below, there is no assurance that the BHCs will be able to
obtain new borrowings or additional equity from external investors. The BHCs liquidity position
continues to be adequate with sufficient cash on hand, investment securities and other sources of
liquidity which are expected to be enough to meet all BHCs obligations due through the second
quarter of 2011 in the ordinary course of business. Incremental credit losses at the U.S. banking
subsidiary could result in additional capital contributions to BPNA, which could put pressure on
the Corporations BHCs liquidity position. The Corporation has developed several strategies to
ensure that sufficient liquidity resources will be available at that time. Although there can be no
certainty that the Corporation will be successful in the implementation of these strategies, and
the costs of the implementation and their impact on the business is uncertain, management believes
that prospective liquidity challenges at the BHCs will be manageable.
Non-banking subsidiaries
The principal sources of funding for the non-banking subsidiaries include internally generated cash
flows from operations, loan sales, repurchase agreements, borrowed funds from their direct parent
companies or the holding companies. The principal uses of funds for the non-banking subsidiaries
include loan originations, repayment of maturing debt, operational expenses and payment of
dividends to the BHCs. The liquidity needs of the non-banking subsidiaries are minimal since most
of them are funded internally from operating cash flows or from intercompany borrowings from their
holding companies, BPPR or BPNA. During 2009, the non-banking subsidiaries paid $132.5 million in
dividends to the BHCs.
Other Funding Sources and Capital
The investment securities portfolio provides an additional source of liquidity, which may be
created through either securities sales or repurchase agreements. The Corporations investment
securities portfolio consists primarily of liquid government investment securities sponsored agency
securities, government sponsored mortgage-backed securities, and collateralized mortgage
obligations that can be used to raise funds in the repo markets. At December 31, 2009, the
investment and trading securities portfolios, as shown in Table L, totaled $7.4 billion, of which
$1.9 billion, or 26%, had maturities of one year or less. Mortgage-related investments in Table L
are presented based on
57
expected maturities, which may differ from contractual maturities, since they could be subject to
prepayments. The availability of the repurchase agreement would be subject to having sufficient
unpledged collateral available at the time the transactions are to be consummated. The
Corporations unpledged investment and trading securities, excluding other investment securities,
amounted to $2.6 billion at December 31, 2009, compared with $2.7 billion at the same date in the
previous year. A substantial portion of these securities could be used to raise financing quickly
in the U.S. money markets or from secured lending sources.
Additional liquidity may be provided through loan maturities, prepayments and sales. The loan
portfolio can also be used to obtain funding in the capital markets. In particular, mortgage loans
and some types of consumer loans, have secondary markets which the Corporation may use. The
maturity distribution of the loan portfolio as of December 31, 2009 is presented in Table L. As of
that date, $8.9 billion, or 37% of the loan portfolio was expected to mature within one year,
compared with $10.4 billion or 40% of the loan portfolio in the previous year. The contractual
maturities of loans have been adjusted to include prepayments based on historical data and
prepayment trends.
The Corporations debt and preferred stock ratings are currently rated non-investment grade
by the rating agencies. The market for non-investment grade securities is much smaller and less
liquid than for investment grade securities. Therefore, if the company were to attempt to issue
preferred stock or debt securities in the capital markets, it is possible that there would not be
sufficient demand to complete a transaction and the cost could be substantially higher than the
cost for highly rated securities.
As previously indicated, the Corporation has a limited number of authorized and unreserved
shares of common stock to issue in the future. As a result, the Corporation will need to obtain the
stockholders consent to amend the certificate of incorporation to increase the amount of
authorized capital stock if the Corporation intends to issue significant amounts of common stock in
the future to satisfy liquidity and regulatory needs.
Risks to Liquidity
Total lines of credit outstanding are not necessarily a measure of the total credit available on a
continuing basis. Some of these lines could be subject to collateral requirements, standards of
creditworthiness, leverage ratios and other regulatory requirements, among other factors.
Derivatives, such as those embedded in long-term repurchase transactions or interest rate swaps,
and off-balance sheet exposures, such as recourse, are subject to collateral requirements. As their
fair value increases, the collateral requirements may increase, thereby reducing the balance of
unpledged securities.
Reductions of the Corporations credit ratings by the rating agencies could also affect its
ability to borrow funds, and could substantially raise the cost of our borrowings. Some of the
Corporations borrowings have rating triggers that call for an increase in their interest rate in
the event of a rating downgrade. In addition, changes in the Corporations ratings could lead
creditors and business counterparties to raise the collateral requirements, which could reduce
available unpledged securities, reducing excess liquidity. Refer to Part II Other Information,
Item 1A-Risk Factors of the Corporations Form 10-K for the year ended December 31, 2009 for
additional information on factors that could impact liquidity.
The importance of the Puerto Rico market for the Corporation is an additional risk factor that
could affect its financing activities. In the case of a further decay or deepening of the economic
recession in Puerto Rico, the credit quality of the Corporation could be further affected and
result in higher credit costs. Even though the U.S. economy appears to be in the initial stages of
a recovery, it is not certain that the Puerto Rico economy will benefit materially from a rebound
in the U.S. cycle. Puerto Rico economy faces various challenges including the persistent government
deficit and a residential real estate sector under substantial pressures.
Factors that the Corporation does not control, such as the economic outlook of its principal
markets and regulatory changes, could also affect its ability to obtain funding. In order to
prepare for the possibility of such scenario, management has adopted contingency plans for raising
financing under stress scenarios when important sources of funds that are usually fully available
are temporarily unavailable. These plans call for using alternate funding mechanisms, such as the
pledging of certain asset classes and accessing secured credit lines and loan facilities put in
place with the FHLB and the Fed.
Credit ratings of Populars debt obligations are an important factor for liquidity because
they impact the Corporations ability to borrow in the capital markets, its cost and access to
funding sources. 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. The Corporations principal credit ratings are at a
level below investment grade which may affect the Corporations ability to raise funds in the
capital markets. The Corporations counterparties are sensitive to the risk of a rating downgrade.
As a result of the recent downgrades, the cost of borrowing funds in the institutional market has
increased materially. In addition, the ability of the Corporation to raise new funds or renew
maturing debt may be more difficult. Some of the Corporation or its subsidiaries contracts include
close-out provisions if the credit ratings fall below certain levels. Subsequent paragraphs provide
additional information on these contracts, which principally
58 POPULAR, INC. 2009 ANNUAL REPORT
include derivatives, custodial and mortgage servicing agreements.
The Corporations ratings and outlook at December 31, 2009 and 2008 are presented in the table
below.
Table Credit Ratings
|
|
|
|
|
|
|
At December 31, 2009
|
Popular, Inc.
|
|
|
Short-term
|
|
Long-term
|
|
|
|
|
debt
|
|
debt
|
|
Outlook
|
|
Fitch
|
|
B
|
|
B
|
|
Negative
|
|
Moodys
|
|
|
|
Ba1
|
|
Negative
|
|
S&P
|
|
C
|
|
B-
|
|
Negative
|
|
|
|
|
|
|
|
|
At December 31, 2008
|
Popular, Inc.
|
|
|
Short-term
|
|
Long-term
|
|
|
|
|
debt
|
|
debt
|
|
Outlook
|
|
Fitch
|
|
F-2
|
|
A-
|
|
Negative
|
|
Moodys
|
|
P-2
|
|
A3
|
|
Negative
|
|
S&P
|
|
A-2
|
|
BBB+
|
|
Negative
|
|
During 2009, the three rating agencies downgraded the Corporations credit ratings on
several occasions. In general, the rating agencies reports cited concerns, such as asset quality
challenges, pressures on the Corporations capital position, weak operating performance, and
liquidity. Any of the rating agencies could change their ratings of the Corporation or the ratings
outlook at any time without previous notice.
The Corporations banking subsidiaries have historically not used unsecured capital market
borrowings to finance its operations, and therefore are less sensitive to the level and changes in
the Corporations overall credit ratings. Their main funding sources are currently deposits and
secured borrowings, and in the case of BPNA, capital contributions from its parent company. At the
BHCs, the volume of capital market borrowings has declined substantially, as the non-banking
lending businesses that it had historically funded have been shut down and outstanding unsecured
senior debt has been reduced.
At December 31, 2009, Corporation had $350 million in senior debt issued by the bank holding
companies with interest that adjusts in the event of senior debt rating downgrades. As a result of
rating downgrades affected by the rating agencies during 2009, the cost of this senior debt
increased prospectively by 500 basis points, which would represent an annualized increase in the
interest expense on the particular debt of approximately $17.5 million. Further rating downgrades
will result in increases to the interest rate of such debt by 75 basis points per notch. Refer to
Note 19 to the consolidated financial statements for detailed terms on these term notes. No other
outstanding borrowings have rate or maturity triggers associated with credit ratings. The
Corporations banking subsidiaries currently do not use borrowings that are rated by the major
rating agencies, as these banking subsidiaries are funded primarily with deposits and secured
borrowings.
Some of the Corporations derivative instruments include financial covenants tied to the
banks well-capitalized status and credit ratings. These agreements could require exposure
collateralization, early termination or both. The fair value of derivative instruments in a
liability position subject to financial covenants approximated $66 million at December 31, 2009,
with the Corporation providing collateral totaling $88 million to cover the net liability position
with counterparties on these derivative instruments.
In addition, certain mortgage servicing and custodial agreements that BPPR has with third
parties include rating covenants. Based on BPPRs failure to maintain the required credit ratings,
the third parties could have the right to require the institution to engage a substitute fund
custodian and/or increase collateral levels securing the recourse obligations. Also, as discussed in the Contractual Obligations and
Commercial Commitments section of this MD&A, the Corporation services residential mortgage loans
subject to credit recourse provisions. Certain contractual agreements require the Corporation to
post collateral to secure such recourse obligations if the institutions required credit ratings are not
maintained. Collateral pledged by the Corporation to secure recourse obligations approximated $54
million at December 31, 2009. The Corporation could be required to post additional collateral under
the agreements. Management expects that it would be able to meet additional collateral requirements
if and when needed. The requirements to post collateral
under certain agreements or the loss of custodian funds could reduce the
Corporations liquidity resources and impact its operating results.
Off-Balance Sheet Arrangements
In the ordinary course of business, the Corporation engages in financial transactions that are not
recorded on the balance sheet, or may be recorded on the balance sheet in amounts that are
different than the full contract or notional amount of the transaction. As a provider of financial
services, the Corporation routinely enters into commitments with off-balance sheet risk to meet the
financial needs of its customers. These commitments may include loan commitments and standby
letters of credit. These commitments are subject to the same credit policies and approval process
used for on-balance sheet instruments. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the statement of financial
position. Other types of off-balance sheet arrangements that the Corporation enters in the ordinary
course of business include derivatives, operating leases and provision of guarantees,
indemnifications, and representation and warranties.
Refer to the Contractual Obligations and Commercial Commitments section of this MD&A for a
discussion of various off-balance sheet arrangements.
59
Contractual Obligations and Commercial Commitments
The Corporation has various financial obligations, including contractual obligations and commercial
commitments, which require future cash payments on debt and lease agreements. Also, in the normal
course of business, the Corporation enters into contractual arrangements whereby it commits to
future purchases of products or services from third parties. Obligations that are legally binding
agreements, whereby the Corporation agrees to purchase products or services with a specific minimum
quantity defined at a fixed, minimum or variable price over a specified period of time, are defined
as purchase obligations.
At December 31, 2009, the aggregate contractual cash obligations, including purchase
obligations and borrowings maturities, were:
Table Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
1 to 3
|
|
3 to 5
|
|
After 5
|
|
|
(In millions)
|
|
1 year
|
|
years
|
|
years
|
|
years
|
|
Total
|
|
Certificates of deposit
|
|
$
|
8,412
|
|
|
$
|
2,045
|
|
|
$
|
701
|
|
|
$
|
65
|
|
|
$
|
11,223
|
|
Fed funds and repurchase
agreements
|
|
|
1,471
|
|
|
|
125
|
|
|
|
399
|
|
|
|
638
|
|
|
|
2,633
|
|
Other short-term
borrowings
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Long-term debt
|
|
|
385
|
|
|
|
1,228
|
|
|
|
141
|
|
|
|
869
|
(a)
|
|
|
2,623
|
|
Purchase obligations
|
|
|
89
|
|
|
|
23
|
|
|
|
3
|
|
|
|
2
|
|
|
|
117
|
|
Annual rental
commitments under
operating leases
|
|
|
38
|
|
|
|
67
|
|
|
|
59
|
|
|
|
192
|
|
|
|
356
|
|
Capital leases
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
22
|
|
|
|
26
|
|
|
Total contractual cash
obligations
|
|
$
|
10,403
|
|
|
$
|
3,489
|
|
|
$
|
1,305
|
|
|
$
|
1,788
|
|
|
$
|
16,985
|
|
|
|
|
|
(a)
|
|
Includes junior subordinated debentures with an aggregate liquidation amount of $936 million,
net of $512 million discount. These junior subordinated debentures are perpetual (no stated
maturity).
|
Purchase obligations include major legal and binding contractual obligations outstanding
at the end of 2009, primarily for services, equipment and real estate construction projects.
Services include software licensing and maintenance, facilities maintenance, supplies purchasing,
and other goods or services used in the operation of the business. Generally, these contracts are
renewable or cancelable at least annually, although in some cases the Corporation has committed to
contracts that may extend for several years to secure favorable pricing concessions.
As previously indicated, the Corporation also enters into derivative contracts under which it
is required either to receive or pay cash, depending on changes in interest rates. These contracts
are carried at fair value on the consolidated statements of condition with the fair value
representing the net present value of the expected future cash receipts and payments based on
market rates of interest as of the statement of condition date. The fair value of the contract
changes daily as interest rates change. The Corporation may also be required to post additional
collateral on margin calls on the derivatives and repurchase transactions.
Under the Corporations repurchase agreements, Popular is required to deposit cash or
qualifying securities to meet margin requirements. To the extent that the value of securities
previously pledged as collateral declines because of changes in interest rates, the Corporation
will be required to deposit additional cash or securities to meet its margin requirements, thereby
adversely affecting its liquidity.
At December 31, 2009, the Corporations liability on its pension and postretirement benefit
plans amounted to $261 million, compared with $374 million at December 31, 2008. During 2010, the
Corporation expects to contribute $3 million to the pension and benefit restoration plans, and $5
million to the postretirement benefit plan to fund current benefit payment requirements.
Obligations to these plans are based on current and projected obligations of the plans, performance
of the plan assets, if applicable, and any participant contributions. Refer to Note 27 to the
consolidated financial statements for further information on these plans. Management believes that
the effect of the pension and postretirement plans on liquidity is not significant to the
Corporations overall financial condition. In February 2009, BPPRs non-contributory defined
pension and benefit restoration plans were frozen with regards to all future benefit accruals after
April 30, 2009.
At December 31, 2009, the liability for uncertain tax positions was $49 million. This liability represents an estimate of tax positions that the
Corporation has taken in its tax returns which may ultimately not be sustained upon examination by
the tax authorities. The ultimate amount and timing of any future cash settlements cannot be
predicted with reasonable certainty. Under the statute of limitations, the liability for uncertain
tax positions expires as follows: 2010 $9.6 million, 2011 $17.2 million, 2012 $11.5 million,
2013 $6.4 million, 2014 $3.6 million and 2015 $0.7 million. As a result of examinations, the
Corporation anticipates a reduction in the total amount of unrecognized tax benefits within the
next 12 months, which could amount to approximately $15 million.
The Corporation also utilizes lending-related financial instruments in the normal course of
business to accommodate the financial needs of its customers. The Corporations exposure to credit
losses in the event of nonperformance by the other party to the financial instrument for
commitments to extend credit, standby letters of credit and commercial letters of credit is
represented by the contractual notional amount of these instruments. The Corporation uses credit
procedures and policies in making those commitments and
conditional obligations as it does in extending loans to customers. Since many of the
commitments may expire
60 POPULAR, INC. 2009 ANNUAL REPORT
without being drawn upon, the total contractual amounts are not representative of the
Corporations actual future credit exposure or liquidity requirements for these commitments.
At December 31, 2009, the contractual amounts related to the Corporations off-balance sheet
lending and other activities were the following:
Table Off-Balance Sheet Lending and Other Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration Period
|
|
|
|
Less than
|
|
1 to 3
|
|
3 to 5
|
|
After 5
|
|
|
(In millions)
|
|
1 year
|
|
years
|
|
years
|
|
years
|
|
Total
|
|
Commitments to
extend credit
|
|
$
|
6,265
|
|
|
$
|
539
|
|
|
$
|
48
|
|
|
$
|
162
|
|
|
$
|
7,014
|
|
Commercial letters
of credit
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Standby letters of
credit
|
|
|
125
|
|
|
|
8
|
|
|
|
1
|
|
|
|
|
|
|
|
134
|
|
Commitments to originate
mortgage loans
|
|
|
46
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
Unfunded investment
obligations
|
|
|
|
|
|
|
1
|
|
|
|
9
|
|
|
|
|
|
|
|
10
|
|
|
Total
|
|
$
|
6,449
|
|
|
$
|
550
|
|
|
$
|
58
|
|
|
$
|
162
|
|
|
$
|
7,219
|
|
|
The Corporation securitized mortgage loans into guaranteed mortgage-backed securities
subject to limited, and in certain instances, lifetime credit recourse on the loans that serve as
collateral for the mortgage-backed securities. Also, from time to time, the Corporation may sell,
in bulk sale transactions, residential mortgage loans and SBA commercial loans subject to credit
recourse or to certain representations and warranties from the Corporation to the purchaser. These
representations and warranties may relate, for example, to borrower creditworthiness, loan
documentation, collateral, prepayment and early payment defaults. The Corporation may be required
to repurchase the loans under the credit recourse agreements or representation and warranties.
At December 31, 2009, the Corporation serviced $4.5 billion (2008 $4.9 billion) in
residential mortgage loans subject to credit recourse provisions,
principally loans associated with FNMA and Freddie Mac programs. In the event of any customer
default, pursuant to the credit recourse provided, the Corporation is required to repurchase the
loan or reimburse the third party investor for the incurred loss. The maximum potential amount of
future payments that the Corporation would be required to make under the recourse arrangements in
the event of nonperformance by the borrowers is equivalent to the total outstanding balance of the
residential mortgage loans serviced. During 2009, the Corporation repurchased approximately $47
million in mortgage loans subject to the credit recourse provisions. In the event of nonperformance
by the borrower, the Corporation has rights to the underlying collateral securing the mortgage
loan. The Corporation suffers losses on these loans when the proceeds from a foreclosure sale of
the property underlying a defaulted mortgage loan are less than the outstanding principal balance
of the loan plus any uncollected interest advanced and the costs of holding and disposing of the related property. Historically, the
losses associated to these credit recourse arrangements, which pertained to residential mortgage
loans in Puerto Rico, have not been significant. At December 31, 2009, the Corporations liability
established to cover the estimated credit loss exposure related to loans sold or serviced with
credit recourse amounted to $16 million (2008 $14 million).
When the Corporation sells or securitizes mortgage loans, it generally makes customary
representations and warranties regarding the characteristics of the loans sold. The Corporations
mortgage operations in Puerto Rico group conforming conventional mortgage loans into pools which
are exchanged for FNMA and GNMA mortgage-backed securities, which are generally sold to private
investors, or may sell the loans directly to FNMA or other private investors for cash. To the
extent the loans do not meet specified characteristics, investors are generally entitled to require
the Corporation to repurchase such loans or indemnify the investor against losses if the assets do
not meet certain guidelines. Quality review procedures are performed by the Corporation as required
under the government agency programs to ensure that asset guideline qualifications are met. The
Corporation has not recorded any specific contingent liability in the consolidated financial
statements for these customary representation and warranties related to loans sold by the
Corporations mortgage operations in Puerto Rico, and management believes that, based on historical
data, the probability of payments and expected losses under these representation and warranty
arrangements is not significant.
Servicing agreements relating to the mortgage-backed securities programs of FNMA, FHLMC and
GNMA, and to mortgage loans sold or serviced to certain other investors, require the Corporation to
advance funds to make scheduled payments of principal, interest, taxes and insurance, if such
payments have not been received from the borrowers. At December 31, 2009, the Corporation serviced
$13.2 billion (2008 $12.7 billion) in mortgage loans, including the loans serviced with credit
recourse. The Corporation generally recovers funds advanced pursuant to these arrangements from the
mortgage owner, from liquidation proceeds when the mortgage loan is foreclosed or, in the case of
FHA/VA loans, under the applicable FHA and VA insurance and guarantee programs. However, in the
interim, the Corporation must absorb the cost of the funds it advances during the time the advance
is outstanding. The Corporation must also bear the costs of attempting to collect on delinquent and
defaulted mortgage loans. In addition, if a defaulted loan is not cured, the mortgage loan will be
canceled as part of the foreclosure proceedings and the Corporation will not receive any future
servicing income with respect to that loan. At December 31, 2009, the amount of funds advanced by
the Corporation under such servicing agreements was approximately $14 million (2008 $11 million).
To the extent the mortgage loans underlying the Corporations servicing portfolio experience
increased delinquencies, the Corporation would be required to dedicate additional cash resources to
comply with its obligation to advance funds as well as incur additional administrative costs
related to increases in collection efforts.
61
At December 31, 2009, the Corporation had established reserves for customary representation
and warranties related to loans sold by its U.S. subsidiary E-LOAN. Loans had been sold to
investors on a servicing released basis subject to certain representation and warranties. Although
the risk of loss or default was generally assumed by the investors, the Corporation is required to
make certain representations relating to borrower creditworthiness, loan documentation and
collateral, which if not complied, may result in requiring the Corporation to repurchase the loans
or indemnify investors for any related losses associated to these loans. The loans had been sold
prior to 2009. At December 31, 2009, the Corporations reserve for estimated losses from such
representation and warranty arrangements amounted to $33 million, which was included as part of
other liabilities in the consolidated statement of condition (2008 $6 million). E-LOAN is no
longer originating and selling loans since the subsidiary ceased these activities during 2008. In
2009, the Corporation continued to reassess its estimate for expected losses associated to E-LOANs customary
representation and warranty arrangements. The analysis incorporates expectations on future
disbursements based on quarterly repurchases and make-whole events for the most recent two years, which reflect the increase in claims resulting
from the current deteriorated economic environment, including the real estate market. The analysis
also considers factors such as the average time distance between the loans funding date and the
loan repurchase date as observed in the historical loan data. During 2009, E-LOAN charged-off
approximately $14 million against this representation and warranty reserve associated with loan repurchases and indemnifications or
make-whole payments. Make-whole events are typically defaulted cases which
the investor attempts to recover by collateral or guarantees, and the
seller is obligated to cover any impaired or unrecovered portion of
the loan.
During 2008, the Corporation provided indemnifications for the breach of certain
representations or warranties in connection with certain sales of assets by the discontinued
operations of PFH. The sales were on a non-credit recourse basis. At December 31, 2009, the
agreements primarily include indemnification for breaches of certain key representations and
warranties, some of which expire within a definite time period; others survive until the expiration
of the applicable statute of limitations, and others do not expire. Certain of the indemnifications
are subject to a cap or maximum aggregate liability defined as a percentage of the purchase price.
The indemnifications agreements outstanding at December 31, 2009 related principally to make-whole
arrangements. At December 31, 2009, the Corporations reserve related to PFHs
indemnity arrangements amounted to $9 million (2008 $16 million), and is included as other
liabilities in the consolidated statement of condition. During 2009, the Corporation recorded charge-offs with respect to the PFHs representation and warranty arrangements amounting to
approximately $3 million. The reserve balance at
December 31, 2009 contemplates historical indemnity payments. Certain indemnification provisions, which included, for example, reimbursement of
premiums on early loan payoffs and repurchase obligation for defaulted loans within a short-term
timeframe, expired during 2009. Popular, Inc. Holding Company and Popular North America have agreed
to guarantee certain obligations of PFH with respect to the indemnification obligations.
During the year ended December 31, 2009, the Corporation sold a lease portfolio of
approximately $0.3 billion. At December 31, 2009, the reserve established to provide for any losses
on the breach of certain representations and warranties included in the associated sale agreements
amounted to $6 million. This reserve is included as part of other liabilities in the consolidated
statement of condition. During 2009, the Corporation recorded
charge-offs of approximately $1 million related to
these representation and warranty arrangements.
Popular, Inc. Holding Company (PIHC) fully and unconditionally guarantees certain borrowing
obligations issued by certain of its wholly-owned consolidated subsidiaries totaling $0.6 billion
at December 31, 2009. In addition, at December 31, 2009, PIHC fully and unconditionally guaranteed,
on a subordinated basis, $1.4 billion of capital securities (trust preferred securities) issued by
wholly-owned issuing trust entities to the extent set forth in the applicable guarantee agreement.
Refer to Note 22 to the consolidated financial statements for information on these trust entities.
The Corporation is a defendant in a number of legal proceedings arising in the ordinary course
of business. Based on the opinion of legal counsel, management believes that the final disposition
of these matters (except for the matters described in the Legal Proceedings section of this MD&A or
Note 33 to the consolidated financial statements which are in very early stages and as to which the
actions of which currently cannot be predicted) will not have a material adverse effect on the
Corporations business, results of operations, financial condition and liquidity.
Refer to the notes to the consolidated financial statements for further information on the
Corporations contractual obligations, commercial commitments, and derivative contracts.
Credit Risk Management and Loan Quality
Credit risk occurs anytime funds are advanced, committed, invested or otherwise exposed. Credit
risk arises primarily from the Corporations lending activities, as well as from other on-balance
sheet and off-balance sheet credit instruments. Credit risk management is based on analyzing the
creditworthiness of the borrower, the adequacy of underlying collateral given current events and
conditions, and the existence and strength of any guarantor support.
Business activities that expose the Corporation to credit risk should be managed within the
Boards established limits that consider factors, such as maintaining a prudent balance of
risk-taking across diversified risk types and business units (compliance with regulatory guidance,
considering factors such as concentrations and loan-to-value ratios), controlling the exposure to
lower credit quality assets, and limiting growth in, and overall exposure to, any product or risk
segment where the Corporation does not have sufficient experience and a proven ability to predict
credit losses.
The Corporation manages credit risk by maintaining sound underwriting standards, monitoring
and evaluating loan portfolio quality, its trends and collectability, and assessing reserves and
loan concentrations. Also, credit risk is mitigated by implementing and monitoring lending policies
and collateral requirements, and instituting credit review procedures to ensure appropriate actions
to comply with laws and regulations. The Corporations credit policies require prompt
identification and quantification of asset quality deterioration or potential loss in order to
ensure the adequacy of the allowance for loan losses. Included in these policies, primarily
determined by the amount, type of loan and risk characteristics of the credit facility, are various
approval levels and lending limit constraints, ranging from the branch or department level to those
that are more centralized. When considered necessary, the Corporation requires collateral to
support credit extensions and commitments, which is generally in the form of real estate and
personal property, cash on deposit and other highly liquid instruments.
The Corporations Credit Strategy Committee (CRESCO) is managements top policy-making body
with respect to credit-related matters and credit strategies. CRESCO will review the activities of
each subsidiary, in the detail that it may deem appropriate, to ensure a proactive and coordinated
management of
62 POPULAR, INC. 2009 ANNUAL REPORT
credit granting, credit exposures and credit procedures. CRESCOs principal functions include
reviewing the adequacy of the allowance for loan losses and periodically approving appropriate
provisions, monitoring compliance with charge-off policy, establishing portfolio diversification,
yield and quality standards, establishing credit exposure reporting standards, monitoring asset
quality, and approving credit policies and amendments thereto for the subsidiaries and / or
business lines, including special lending approval authorities when and if appropriate. The
analysis of the allowance adequacy is presented to the Risk Management Committee of the Board of
Directors for review, consideration and ratification on a quarterly basis.
The Corporation also has a Corporate Credit Risk Management Division (CCRMD). CCRMD is a
centralized unit, independent of the lending function. The CCRMDs functions include identifying,
measuring and controlling credit risk independently from the business units, evaluating the credit
risk rating system and reviewing the adequacy of the allowance for loan losses in accordance with
Generally Accepted Accounting Principles (GAAP) and regulatory standards. CCRMD also ensures that
the subsidiaries comply with the credit policies and applicable regulations, and monitors credit
underwriting standards. Also, the CCRMD performs ongoing monitoring of the portfolio, including
potential areas of concern for specific borrowers and/ or geographic regions.
The Corporation has a Credit Process Review Group within the CCRMD, which performs annual
comprehensive credit process reviews of several middle markets, construction, asset-based and
corporate banking lending groups in BPPR. This group evaluates the credit risk profile of each
originating unit along with each units credit administration effectiveness, including the
assessment of the risk rating representative of the current credit quality of the loans, and the
evaluation of collateral documentation. The monitoring performed by this group contributes to
assess compliance with credit policies and underwriting standards, determine the current level of
credit risk, evaluate the effectiveness of the credit management process and identify control
deficiencies that may arise in the credit-granting process. Based on its findings, the Credit
Process Review Group recommends corrective actions, if necessary, that help in maintaining a sound
credit process. CCRMD has contracted an outside loan review firm to perform the credit process
reviews for the portfolios of commercial and construction loans in the U.S. mainland operations.
The CCRMD participates in defining the review plan with the outside loan review firm and actively
participates in the discussions of the results of the loan reviews with the business units. The
CCRMD may periodically review the work performed by the outside loan review firm. CCRMD reports
the results of the credit process reviews to the Risk Management Committee of the Corporations
Board of Directors.
The Corporation has specialized workout officers that handle substantially all commercial
loans which are past due 90 days and over, borrowers which have filed bankruptcy, or those that
are considered problem loans based on their risk profile.
At December 31, 2009, the Corporations
credit exposure was centered in its $23.8 billion total loan portfolio, which represented 74% of
its earning assets. The portfolio composition for the last five years is presented in Table G.
The Corporation issues certain credit-related off-balance sheet financial instruments including
commitments to extend credit, standby letters of credit and commercial letters of credit to meet
the financing needs of its customers. For these financial instruments, the contract amount
represents the credit risk associated with failure of the counterparty to perform in accordance
with the terms and conditions of the contract and the decline in value of the underlying
collateral. The credit risk associated with these financial instruments varies depending on the
counterpartys creditworthiness and the value of any collateral held. Refer to Note 32 to the
consolidated financial statements and to the Contractual Obligations and Commercial Commitments
section of this MD&A for the Corporations involvement in these credit-related activities.
At December 31, 2009, the Corporation maintained a reserve of approximately $15 million for
potential losses associated with unfunded loan commitments related to commercial and consumer lines
of credit, compared to $16 million at December 31, 2008. The estimated reserve is principally based
on the expected draws on these facilities using historical trends and the application of the
corresponding reserve factors determined under the Corporations allowance for loan losses
methodology. This reserve for unfunded exposures remains separate and distinct from the allowance
for loan losses and is reported as part of other liabilities in the consolidated statement of
condition.
The Corporation is also exposed to credit risk by using derivative instruments but manages the
level of risk by only dealing with counterparties of good credit standing, entering into master
netting agreements whenever possible and, when appropriate, obtaining collateral. Refer to Note 31
to the consolidated financial statements for further information on the Corporations involvement
in derivative instruments and hedging activities. Also, you may refer to the Derivatives section
included under Risk Management in this MD&A.
The Corporation may also encounter risk of default in relation to its investment securities
portfolio. Refer to Notes 7 and 8 for the composition of the investment securities
available-for-sale and held-to-maturity. The investment securities portfolio held by the
Corporation at December 31, 2009 are mostly Obligations of U.S. Government sponsored entities,
collateralized mortgage obligations, mortgage-backed securities and U.S. Treasury securities. The
vast majority of these securities are rated the equivalent of AAA by the major rating agencies. A
substantial portion of these instruments are guaranteed by mortgages, a U.S.
63
government sponsored entity or the full faith and credit of the U.S. Government.
The Corporations credit risk exposure is spread among individual consumers, small and medium
businesses, as well as corporate borrowers engaged in a wide variety of industries. Only 276 of
these commercial lending relationships have credit relations with an aggregate exposure of $10
million or more. At December 31, 2009, highly leveraged transactions and credit facilities to
finance speculative real estate ventures amounted to $90 million, and there are no loans to less
developed countries. The Corporation limits its exposure to concentrations of credit risk by the
nature of its lending limits.
The Corporation has a significant portfolio in construction and commercial loans, mostly
secured by commercial and residential real estate properties. Due to their nature, these loans
entail a higher credit risk than consumer and residential mortgage loans, since they are larger in
size, may have less collateral coverage, higher concentrated risk in a single borrower and are
generally more sensitive to economic downturns. Rapidly changing collateral values, general
economic conditions and numerous other factors continue to create volatility in the housing markets
and have increased the possibility that additional losses may have to be recognized with respect to
the Corporations current nonperforming assets. Furthermore, given the current slowdown in the real
estate market, the properties securing these loans may be difficult to dispose of, if foreclosed.
The housing market in the U.S. is undergoing a correction of historic proportions. After a period
of several years of booming housing markets, fueled by liberal credit conditions and rapidly rising
property values, since early 2007 the sector has been in the midst of a substantial dislocation.
This dislocation has had a significant impact on some of the Corporations U.S.-based business
segments and has affected its ongoing financial results and condition. The general level of
property values in the U.S., as measured by several indexes widely followed by the market, has
declined significantly. These declines are the result of ongoing market adjustments that are
aligning property values with income levels and home inventories. The supply of homes in the market
increased substantially, and property value decreases were required to clear the overhang of excess
inventory in the U.S. market. Recent indicators suggest that after a material price correction, the
U.S. real estate market may be entering a period of relative stability. Nonetheless, further
declines in property values could impact the credit quality of the Corporations U.S. mortgage loan
portfolio because the value of the homes underlying the loans is a primary source of repayment in
the event of foreclosure. In the event of foreclosure in a loan from this portfolio, the current
market value of the underlying collateral could be insufficient to cover the loan amount owed.
The level of real estate prices in Puerto Rico had been more stable than in other U.S.
markets, but the current economic environment has accelerated the devaluation of properties when
compared with previous periods. Also, additional economic weakness in Puerto Rico and the U.S.
mainland could further pressure residential property values. Lower real estate values could
increase loan delinquencies, foreclosures and the cost of repossessing and disposing of real estate
collateral. The higher end of the housing market in Puerto Rico appears to have suffered a
substantial slowdown in sales activity in recent quarters, as reflected in the low absorption rates
of projects financed in the Corporations construction loan portfolio.
As indicated previously in this MD&A, during 2008, management executed a series of actions to
mitigate its credit risk exposure in the U.S. mainland. These actions included the discontinuance
of PFH. Also, the Corporation exited the lending business of E-LOAN which also faced high credit
losses, particularly in its HELOC and closed-end second mortgage portfolios. In the case of the
banking operations, during 2009, the Corporation executed a plan to close, consolidate or sell
underperforming branches and exit lending businesses that do not generate deposits or fee income.
The Corporation has significantly curtailed the production of non-traditional mortgages as it
ceased originating non-conventional mortgage loans in its U.S. mainland operations. This
initiative was part of the BPNA Restructuring Plan implemented in the fourth quarter of 2008. The
non-conventional mortgage unit is currently focused on servicing the run-off portfolio and
restructuring loans that have or show signs of credit deterioration.
Management continues to refine the Corporations credit standards to meet the changing
economic environment. The Corporation has adjusted its underwriting criteria, as well as enhanced
its line management and collection strategies, in an attempt to mitigate losses. The commercial
banking group restructured and strengthened several areas to manage more effectively the current
scenario, focusing strategies on critical steps in the origination and portfolio management
processes to ensure the quality of incoming loans as well as to detect and manage potential problem
loans early. The consumer lending area also tightened the underwriting standards across all
business lines and reduced its exposure in areas that are more likely to be impacted under the
current economic conditions.
Geographical and Government Risk
The Corporation is also exposed to geographical and government risk. The Corporations assets and
revenue composition by geographical area and by business segment is presented in Note 39 to the
consolidated financial statements.
A significant portion of the Corporations financial activities and credit exposure is
concentrated in Puerto Rico (the Island) and the Islands economy continues to deteriorate.
64 POPULAR, INC. 2009 ANNUAL REPORT
Since 2006, the Puerto Rico economy has been experiencing recessionary conditions. Based
on information published by the Puerto Rico Planning Board (the Planning Board), the Puerto Rico
real gross national product decreased 3.7% during the fiscal year ended June 30, 2009.
In 2010, the Puerto Rico economy should benefit from the disbursement of approximately $2.5
billion from the American Recovery and Reinvestment Act of 2009 (ARRA) and $280.3 million from
the Commonwealths local stimulus package.
The Commonwealth of Puerto Rico government is currently addressing a fiscal deficit which has
been estimated at approximately $3.2 billion or over 30% of its annual budget. It is implementing a
multi-year budget plan for reducing the deficit, as its access to the municipal bond market and
its credit ratings depend, in part, on achieving a balanced budget. Measures that the government
has implemented have included reducing expenses, including public-sector employment layoffs. Since
the government is an important source of employment on the Island, these measures could have the
effect of intensifying the current recessionary cycle. The Puerto Rico Labor Department reported an
unemployment rate of 14.3% for December 2009 compared with 13.1% for December 2008.
This decline in the Islands economy has resulted in, among other things, a downturn in the
Corporations loan originations; an increase in the level of its non-performing assets, loan loss
provisions and charge-offs, particularly in the Corporations construction and commercial loan
portfolios; an increase in the rate of foreclosures on mortgage loans; and a reduction in the value
of the Corporations loans and loan servicing portfolio, all of which have adversely affected its
profitability. If the decline in economic activity continues, there could be further adverse
effects on the Corporations profitability.
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 persistent economic slowdown would cause those adverse effects to continue, as
delinquency rates may increase in the short-term, until sustainable growth resumes. Also, a
potential reduction in consumer spending may also impact growth in the Corporations other interest
and non-interest revenues.
At December 31, 2009, the Corporation had $1.1 billion of credit facilities granted to or
guaranteed by the Puerto Rico Government and its political subdivisions, of which $215 million are
uncommitted lines of credit. Of these total credit facilities granted, $994 million were
outstanding at December 31, 2009. 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
it. The Corporation also has loans to various municipalities in Puerto Rico 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.
Furthermore, at December 31, 2009, the Corporation had outstanding $263 million in Obligations
of Puerto Rico, States and Political Subdivisions as part of its investment securities portfolio.
Refer to Notes 7 and 8 to the consolidated financial statements for additional information. Of that
total, $258 million was exposed to the creditworthiness of the Puerto Rico Government and its
municipalities. Of this portfolio, $55 million are in the form of Puerto Rico Commonwealth
Appropriation Bonds, of which $45 million are rated Ba1, one notch below investment grade, by
Moodys, while Standard & Poors Rating Services rates them as investment grade. As of December 31,
2009, the Puerto Rico Commonwealth Appropriation Bonds represented approximately $0.6 million in
unrealized losses in the investment securities available-for-sale and held-to-maturity portfolios.
The Corporation continues to closely monitor the political and economic situation of the Island and
evaluates the portfolio for any declines in value that management may consider being
other-than-temporary.
As further detailed in Notes 7 and 8 to the consolidated financial statements, a substantial
portion of the Corporations investment securities represented exposure to the U.S. Government in
the form of U.S. Treasury securities and obligations of U.S. Government sponsored entities, as well
as mortgage-backed securities guaranteed by Ginnie Mae. In addition, $302 million of residential
mortgages and $350 million in commercial loans were insured or guaranteed by the U.S. Government or
its agencies at December 31, 2009.
Non-Performing Assets
Non-performing assets include past-due loans that are no longer accruing interest, renegotiated
loans and real estate property acquired through foreclosure. A summary of non-performing assets by
loan categories, including certain credit quality metrics, is presented in Table N. For a summary
of the Corporations policy for placing loans on non-accrual status, refer to the Critical
Accounting Policies / Estimates section in this MD&A.
Non-performing assets attributable to the continuing operations totaled $2.4 billion at
December 31, 2009, compared with $1.3 billion at December 31, 2008 and $852 million at December 31,
65
2007. The increase from December 31, 2008 to December 31, 2009 was concentrated in portfolios
secured by real estate. At December 31, 2009, non-performing loans secured by real estate amounted
to $1.3 billion or 14.92% of total loans secured by real estate in the Puerto Rico operations and
$697 million or 10.69%, respectively, in the U.S. mainland operations. These figures compare to
$704 million or 7.64% in Puerto Rico and $338 million or 4.72% in the U.S. mainland operations at
December 31, 2008. At the end of 2007, these figures were $330 million and 3.61% in Puerto Rico and
$303 million and 4.41% in the U.S. mainland operations. The increase in non-performing assets from
December 31, 2008 to December 31, 2009 was primarily related to increases in construction,
commercial, and mortgage loans. Non-performing commercial and construction loans increased from the
end of 2008 to December 31, 2009 primarily in the BPPR reportable segment by $579 million and in
the BPNA reportable segment by $328 million. In terms of reserves, the total allowance for loan
losses to non-performing loans represented 55.40% at December 31, 2009, compared to 73.40% at
December 31, 2008 and 71.21% at December 31, 2007.
Non-performing construction loans increased $535 million from the end of 2008 to December 31,
2009 primarily in the BPPR reportable segment by $389 million and in the BPNA reportable segment by
$146 million. The ratio of construction non-performing loans to construction loans
held-in-portfolio increased from 14.44% at December 31, 2008 to 49.58% at December 31, 2009. There
were 22 construction loan relationships greater than $10 million
in non-accrual status with an outstanding debt of $544 million at December
31, 2009, mostly related to the Puerto Rico operations, compared with
6 construction loan relationships with an outstanding debt of
$152 million at December
31, 2008. The construction non-performing loans to construction loans held-in-portfolio ratios were
55.86% for the BPPR reportable segment and 38.99% for the BPNA reportable segment at December 31,
2009. At December 31, 2008, these ratios were 15.02% and 13.37% for BPPR and BPNA reportable
segments, respectively. The construction loans in non-performing status for both reportable
segments are primarily residential real estate construction loans which have been adversely
impacted by general market conditions, decreases in property values, oversupply in certain areas
and reduced absorption rates. For the year 2009, the housing market in Puerto Rico reported nearly
22,000 residential units constructed or under construction, which represented approximately 3.7
years of estimated inventory according to the demand of such year. Historically, the Corporations
loss experience with real estate construction loans has been relatively low due to the sufficiency
of the underlying real estate collateral. In the current stressed housing market, the value of the
collateral securing the loan has become one of the most important factors in determining the amount
of loss incurred and the appropriate level of the allowance for loan losses. As further described
in the Allowance for Loan Losses section of this MD&A, management has increased the allowance for
loan losses through specific reserves for the construction loans considered impaired. Construction
loans considered specifically impaired amounted to $841 million at December 31, 2009, compared to
$375 million at the same date in 2008. The specific reserves for impaired construction loans
amounted to $163 million at December 31, 2009, compared to $120 million at December 31, 2008.
Non-performing construction loans increased $224 million from the end of 2007 to December 31, 2008
primarily in the BPPR reportable segment by $168 million and in the BPNA reportable segment by $62
million.
The increase in non-performing commercial loans from $465 million at December 31, 2008 to $837
million at December 31, 2009 resulted from the continuing downturn in the U.S. economy and the
recessionary economy in Puerto Rico that is now in its fourth year. The percentage of
non-performing commercial loans to commercial loans held-in-portfolio rose from 3.41% at December
31, 2008 to 6.61% at December 31, 2009. For December 31, 2007, this ratio was 1.95%. Non-performing
commercial loans increased from December 31, 2008 to December 31, 2009 in the BPPR reportable
segment by $190 million and in the BPNA reportable segment by $182 million. There were 5 commercial
loan relationships greater than $10 million in non-accrual
status with an outstanding debt of approximately $100 million at December 31, 2009, compared
with 2 commercial loan relationships with an outstanding debt of
$31 million at December 31, 2008. Commercial loans considered specifically
impaired amounted to $646 million at December 31, 2009, compared to $447 million at the same date
in 2008. The specific reserves for impaired commercial loans at December 31, 2009 amounted to $109
million, compared to $61 million at December 31, 2008. Non-performing commercial loans increased
$198 million from the end of 2007 to December 31, 2008, which also was related to the recessionary
environment both in Puerto Rico and the United States.
The Corporations commercial loan portfolio secured by commercial real estate (CRE),
excluding construction loans, amounted to $7.5 billion at December 31, 2009, of which $3.4 billion
was secured with owner occupied properties. CRE non-performing loans amounted to $557 million, or
7.41% of CRE loans at December 31, 2009. The CRE non-performing loans ratios for the Corporations
Puerto Rico and U.S. mainland operations were 8.29% and 6.39%, respectively, at December 31, 2009.
At December 31, 2008, the Corporations CRE portfolio, excluding construction loans, amounted to
$7.5 billion, of which $3.5 billion was secured with owner occupied properties. CRE non-performing
loans amounted to $290 million or 3.88% of CRE loans at December 31, 2008. The CRE non-performing
loans ratios for the Corporations Puerto Rico and U.S. mainland
operations were 5.85% and 1.64%,
respectively, at December 31, 2008.
Recognition of interest income on commercial and construction loans is discontinued when the
loans are 90 days or more in arrears on payments of principal or interest or when other factors
66 POPULAR, INC. 2009 ANNUAL REPORT
Table N
Non-Performing Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
(Dollars in thousands)
|
|
2009
|
|
2008*
|
|
2007
|
|
2006
|
|
2005
|
|
Non-accrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
836,728
|
|
|
$
|
464,802
|
|
|
$
|
266,790
|
|
|
$
|
158,214
|
|
|
$
|
131,260
|
|
Construction
|
|
|
854,937
|
|
|
|
319,438
|
|
|
|
95,229
|
|
|
|
|
|
|
|
2,486
|
|
Lease financing
|
|
|
9,655
|
|
|
|
11,345
|
|
|
|
10,182
|
|
|
|
11,898
|
|
|
|
2,562
|
|
Mortgage
|
|
|
510,847
|
|
|
|
338,961
|
|
|
|
349,381
|
|
|
|
499,402
|
|
|
|
371,885
|
|
Consumer
|
|
|
64,185
|
|
|
|
68,263
|
|
|
|
49,090
|
|
|
|
48,074
|
|
|
|
39,316
|
|
|
Total non-performing loans
|
|
|
2,276,352
|
|
|
|
1,202,809
|
|
|
|
770,672
|
|
|
|
717,588
|
|
|
|
547,509
|
|
Other real estate
|
|
|
125,483
|
|
|
|
89,721
|
|
|
|
81,410
|
|
|
|
84,816
|
|
|
|
79,008
|
|
|
Total non-performing assets
|
|
$
|
2,401,835
|
|
|
$
|
1,292,530
|
|
|
$
|
852,082
|
|
|
$
|
802,404
|
|
|
$
|
626,517
|
|
|
Accruing loans past-due 90 days or more
|
|
$
|
239,559
|
|
|
$
|
150,545
|
|
|
$
|
109,569
|
|
|
$
|
99,996
|
|
|
$
|
86,662
|
|
|
Non-performing loans to loans held-in-portfolio
|
|
|
9.60
|
%
|
|
|
4.67
|
%
|
|
|
2.75
|
%
|
|
|
2.24
|
%
|
|
|
1.77
|
%
|
Non-performing assets to total assets
|
|
|
6.91
|
|
|
|
3.32
|
|
|
|
1.92
|
|
|
|
1.69
|
|
|
|
1.29
|
|
Interest lost
|
|
$
|
59,982
|
|
|
$
|
48,707
|
|
|
$
|
71,037
|
|
|
$
|
58,223
|
|
|
$
|
46,198
|
|
|
*
|
|
Amounts as of December 31, 2008 exclude assets from discontinued operations. Non-performing loans
and other real estate from discontinued operations amounted to $3 million and $0.9 million,
respectively, as of December 31, 2008.
|
|
indicate that the collection of principal and interest
is doubtful. The impaired portions on these loans are
charged-off at no longer than 365 days past due.
Non-performing mortgage loans held-in-portfolio
increased $172 million from December 31, 2008 to the
same date in 2009, mainly in the BPPR reportable
segment by $110 million and the BPNA reportable segment
by $62 million. The higher level of non-performing
residential mortgage loans was principally attributed
to BPNAs non-conventional mortgage business in the
U.S. mainland operations and Puerto Ricos residential
mortgage portfolio. Deteriorating economic conditions
have impacted the mortgage delinquency rates and have
increased pressure in home prices both in the United
States and Puerto Rico. Total mortgage loans net
charge-offs in the BPPR reportable segment amounted to
$10.7 million for the year ended December 31, 2009, an
increase of $7.8 million compared to the same period of
2008. BPPR reportable segments mortgage loan portfolio
averaged approximately $2.8 billion for the year ended
December 31, 2009. Total mortgage loans net charge-offs
in the BPNA reportable segment amounted to $109.9
million for the year ended December 31, 2009, an
increase of $59.9 million compared to the previous
year. BPNAs non-conventional mortgage loan portfolio
outstanding at December 31, 2009 approximated $1.1
billion with a related allowance for loan losses of
$118 million or 11.16%. As indicated in the
Restructuring Plans section of this MD&A, the
Corporation is no longer originating non-conventional
mortgage loans at BPNA. Net charge-offs for BPNAs
non-conventional mortgage loan portfolio totaled $97.1
million with a ratio of 8.50% of net charge-offs to
average non-conventional mortgage loans
held-in-portfolio for the year ended December 31, 2009.
Recognition of interest
income on mortgage loans is discontinued when 90 days
or more in arrears on payments of principal or
interest. The impaired portions on mortgage loans are
charged-off at 180 days past due. Non-performing
mortgage loans decreased by $10 million from December
31, 2007 to the same date in 2008. The decline was
associated in part to the reclassification of $2 million in non-performing mortgage loans of PFH to
Assets from discontinued operations in the
consolidated statement of condition at December 31,
2008. PFH had $179 million in non-performing mortgage
loans at December 31, 2007.
The decrease of $4 million in non-performing
consumer loans from December 31, 2008 to the same
period in 2009 was primarily associated with the BPNA
reportable segment which decreased by $13 million. This
decrease is mainly attributed to E-LOAN home equity
lines of credit and closed-end second mortgages, which
reported improvements in delinquency levels during the
fourth quarter of 2009. With the downsizing of E-LOAN
in late 2007, this subsidiary ceased originating these
types of loans. Home equity lending includes both home
equity loans and lines of credit. This type of lending,
which is secured by a first or second mortgage on the
borrowers residence, allows a customer to borrow against
the equity in their home. Real estate market values as
of the time the loan or line is granted directly affect
the amount of credit extended and, in addition, changes
in these values impact the severity of losses. E-LOANs
portfolio of home equity lines of credit and closed-end
second mortgages outstanding at December 31, 2009
totaled $538.8 million with a related allowance for
loan losses of $94.8 million or 17.59%. Recognition of
interest income on closed-end consumer loans and home
equity lines of credit is discontinued when the loans
are 90 days or more in arrears on
67
payments of principal or interest. Income is generally
recognized on open-end consumer loans, except for home
equity lines of credit, until the loans are
charged-off. Closed-end consumer loans and leases are
charged-off when they are 120 days in arrears. Open-end
consumer loans are charged-off when 180 days in
arrears. The favorable variance mentioned above was
partially offset by an increase of $9 million from
December 31, 2008 to December 31, 2009 in
non-performing consumer loans for the BPPR reportable
segment. This increase was primarily related to the
auto loans portfolio as a result of the recessionary
economic conditions. Non-performing consumer loans
increased by $19 million from December 31, 2007 to the
same date in 2008, due principally to the BPNA
reportable segment which increased by $24 million, with
an increase of $18 million attributed to E-LOAN.
Partially offsetting this increase from the end of 2007
to the end of 2008 was a reduction in PFH of $6 million
due to the sale of its portfolio and the discontinuance
of the business.
Other real estate, which represents real estate
property acquired through foreclosure, increased by $36
million from December 31, 2008 to the same date in
2009. This increase was principally due to an increase
in the BPPR reportable segment by $44 million,
including both commercial and residential properties.
This increase includes a residential real estate
construction project in the Virgin Islands repossessed
by BPPR with a carrying value of $10.5 million at
December 31, 2009. The increase in the BPPR reportable
segment was partially offset by a decrease of $9
million in other real estate pertaining to the BPNA
reportable segment mainly driven by sales of
properties. With the slowdown in the housing market
caused by a continued economic deterioration in certain
geographical areas, there has been a softening effect
on the market for resale of repossessed real estate
properties. As a result, defaulted loans have
increased, and these loans move through the default
process to the other real estate classification. The
combination of increased flow of defaulted loans from
the loan portfolio to other real estate owned and the
slowing of the liquidation market has resulted in an
increase in the number of other real estate units on
hand. Other real estate increased by $8 million from
December 31, 2007 to the same date in 2008. This
increase was principally due to an increase in the BPNA
reportable segment by $28 million and BPPR reportable
segment by $12 million, which was partially offset by
$32 million in other real estate pertaining to PFH at
December 31, 2007.
Once a loan is placed in non-accrual status, the
interest previously accrued and uncollected is charged
against current earnings and thereafter income is
recorded only to the extent of any interest collected.
Refer to Table N for information on the interest income
that would have been realized had these loans been
performing in accordance with their original terms.
In addition to the non-performing loans included
in Table N, there were $248 million of loans at
December 31, 2009, which
in managements opinion are currently subject to potential future classification as non-performing
and are considered specifically impaired, compared to $206 million at December 31, 2008 and $50
million at December 31, 2007.
Another key measure used to evaluate and monitor the Corporations
asset quality is loan delinquencies. Loans delinquent 30 days or more and delinquencies as a
percentage of their related portfolio category at December 31, 2009 and 2008 are presented below.
Table Loan Delinquencies
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
Loans delinquent 30 days or more
|
|
$
|
3,685
|
|
|
$
|
2,547
|
|
|
Total delinquencies as a percentage
of total loans:
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
10.17
|
%
|
|
|
6.74
|
%
|
Construction
|
|
|
57.72
|
|
|
|
19.33
|
|
Lease financing
|
|
|
4.49
|
|
|
|
4.95
|
|
Mortgage
|
|
|
23.96
|
|
|
|
18.51
|
|
Consumer
|
|
|
6.09
|
|
|
|
6.12
|
|
|
Total
|
|
|
15.48
|
%
|
|
|
9.69
|
%
|
|
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 GNMAs buy-back option program. Servicers
of loans underlying GNMA 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.
Allowance for Loan Losses
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 estimated credit losses on individually
evaluated loans as well as estimated credit losses
inherent in the remainder of the loan portfolio. The
Corporations management evaluates the adequacy of the
allowance for loan losses on a quarterly 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, results of periodic credit reviews of
individual loans, regulatory requirements and loan
impairment measurement, among other factors.
The Corporation must rely on estimates and
exercise judgment regarding matters where the ultimate
outcome is unknown such as economic developments
affecting specific customers, industries
68 POPULAR, INC. 2009 ANNUAL REPORT
or markets. Other factors that can affect managements
estimates are the years of historical data when
estimating losses, changes in underwriting standards,
financial accounting standards and loan impairment
measurements, among others. Changes in the financial
condition of individual borrowers, in economic
conditions, in historical loss experience and in the
condition of the various markets in which collateral
may be sold may all affect the required level of the
allowance for loan losses. Consequently, the business
financial condition, liquidity, capital and results of
operations could also be affected.
The Corporations assessment of the allowance for
loan losses is determined in accordance with accounting
guidance, specifically guidance of loss contingencies
in ASC Subtopic 450-20 and loan impairment guidance in
ASC Section 310-10-35. Refer to the Critical Accounting
Policies / Estimates section of this MD&A for a
description of the Corporations allowance for loan
losses methodology.
Refer to Table O for a summary of the activity in
the allowance for loan losses and selected loan losses
statistics for the past 5 years.
Table P details the breakdown of the allowance for
loan losses by loan categories. The breakdown is made
for analytical purposes, and it is not necessarily
indicative of the categories in which future loan
losses may occur.
The following table presents net charge-offs to
average loans held-in-portfolio (HIP) by loan
category for the years ended December 31, 2009, 2008
and 2007:
Table Net Charge-Offs to Average Loans HIP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Commercial
|
|
|
2.00
|
%
|
|
|
1.24
|
%
|
|
|
0.58
|
%
|
Construction
|
|
|
15.30
|
|
|
|
5.81
|
|
|
|
(0.10
|
)
|
Lease financing
|
|
|
2.46
|
|
|
|
1.72
|
|
|
|
1.28
|
|
Mortgage
|
|
|
2.75
|
|
|
|
1.17
|
|
|
|
0.35
|
|
Consumer
|
|
|
7.28
|
|
|
|
4.95
|
|
|
|
3.25
|
|
|
Total
|
|
|
4.17
|
%
|
|
|
2.29
|
%
|
|
|
1.01
|
%
|
|
Credit quality performance continued to be under
pressure during 2009 and has continued into 2010.
Generally, all of the Corporations loan portfolios
have been affected by the sustained deterioration of
the economic conditions affecting the markets in which
the Corporation operates.
The increase in construction loans net charge-offs
for the year ended December 31, 2009, compared with
2008, was related to the Corporations Puerto Rico and
U.S. operations. The construction loan portfolio is
currently considered one of the higher-risk portfolios
by the Corporation. Management has identified
construction loans considered specifically impaired
and has established specific reserves based on the
value of the collateral. The allowance for loan losses
corresponding to construction loans represented 19.79%
of that portfolio at December 31, 2009, compared with
7.70% in 2008 and 4.31% in 2007. The ratio
of allowance to non-performing loans in the
construction loan category was 39.92% at the end of
2009, compared with 53.32% in 2008 and 87.86% in 2007.
Construction credits, which have been adversely
impacted by depressed economic conditions and decreases
in property values, are primarily residential real
estate construction loans.
The BPPR reportable segment construction loan
portfolio totaled $1.1 billion at December 31, 2009,
compared with $1.4 billion at December 31, 2008 and
$1.2 billion at December 31, 2007. The construction
loans net charge-offs for the BPPR reportable segment
amounted to $195.8 million for the year ended December
31, 2009, compared with net charge-offs of $64.0
million for 2008 and net recoveries of $1.6 million for
2007. The ratio of construction loans net charge-offs
to average construction loans held-in-portfolio in the
BPPR reportable segment was 14.96% for the year ended
December 31, 2009, compared with 4.83% for the same
period in 2008. At December 31, 2009, approximately $605 million
or 55.86% of the segments construction loans were in
non-performing status.
The BPNA reportable segment construction loan
portfolio totaled $642 million at December 31, 2009,
compared with $778 million at December 31, 2008 and
$700 million at December 31, 2007. BPNA reportable
segment construction loans net charge-offs totaled
$114.2 million for 2009 and $56.4 million for 2008. The
BPNA reportable segment construction loans net
charge-offs to average construction loans
held-in-portfolio ratio experienced an increase from
7.54% for the year 2008 to 15.92% for the year 2009.
There were no construction loans net charge-offs at
BPNA during 2007. At December 31, 2009, approximately $250 million
or 38.99% of the segments construction loans were in
non-performing status.
The increase in commercial loans net charge-offs
for the year ended December 31, 2009, compared to the
previous year, was
mostly associated with the deteriorated economic
conditions reflected across all industry sectors. The
BPNA reportable segment had a ratio of commercial loans
net charge-offs to average commercial loans
held-in-portfolio of 2.38% for the year ended December
31, 2009, compared to 0.76% for 2008, and 0.35% for
2007. The U.S. commercial segments which continue to
report higher net charge-offs in 2009 were primarily
small businesses and commercial real estate as a result
of depressed economic conditions. The ratio of
commercial loans net charge-offs to average commercial
loans held-in-portfolio in the BPPR reportable segment
was 1.69% for the year ended December 31, 2009,
compared to 1.60% for 2008 and 0.72% for 2007. The
allowance for loan losses corresponding to commercial
loans held-in-portfolio represented
69
3.46% of that portfolio at December 31, 2009, compared
with 2.16% in 2008 and 1.02% in 2007. The ratio of
allowance to non-performing loans in the commercial
loan category was 52.31% at the end of 2009, compared
with 63.39% in 2008 and 52.10% in 2007. At December 31,
2009, commercial loans in non-performing status
amounted to approximately $516 million, or 7.25% of
commercial loans held-in-portfolio at the BPPR
reportable segment, and $320 million, or 5.79% at the
BPNA reportable segment.
The Corporations allowance for loan losses for
mortgage loans held-in-portfolio represented 3.36% of
that portfolio at December 31, 2009, compared with
2.38% in 2008 and 1.15% in 2007. Mortgage loans net
charge-offs as a percentage of average mortgage loans
held-in-portfolio increased primarily in the U.S.
mainland operations, particularly due to
non-conventional mortgage loans, which are considered
by management as another of the Corporations
higher-risk portfolios.
The BPNA reportable segment mortgage loan
portfolio totaled $1.5 billion at December 31, 2009,
compared with $1.7 billion at December 31, 2008 and
$1.9 billion at December 31, 2007. The mortgage loans
net charge-offs for the BPNA reportable segment
amounted to $109.9 million for the year ended December
31, 2009, compared with $50.0 million for 2008 and
$14.2 million for 2007. The BPNA reportable segment
reported a ratio of mortgage loans net charge-offs to
average mortgage loans held-in-portfolio of 6.93% for
the year ended December 31, 2009, compared with 2.91%
for 2008, and 0.89% for 2007. At December 31, 2009, approximately $198
million or 13.49% of the reportable segments mortgage
loans were in non-performing status. Deteriorating
economic conditions in the U.S. mainland housing market
have impacted the mortgage industry delinquency rates.
As a result of higher delinquency and net charge-offs,
BPNA recorded a higher provision for loan losses in
2009 to cover for inherent losses in this portfolio.
The general level of property values in the U.S.
mainland, as measured by several indexes widely
followed by the market, has declined. These declines
are the result of ongoing market adjustments that are
aligning property values with income levels and home
inventories. The supply of homes in the market has
increased substantially, and additional property value
decreases may be required to clear the overhang of
excess inventory in the U.S. market. Declining property
values affect the credit quality of the Corporations
U.S. mainland mortgage loan portfolio because the
value of the homes underlying the loans is a
primary source of repayment in the event of
foreclosure. As indicated in the Restructuring Plans
section of this MD&A, the Corporation is no longer
originating non-conventional mortgage loans at BPNA.
Mortgage loans net charge-offs in the BPPR
reportable segment amounted to $10.7 million for 2009,
compared to $2.9 million
in 2008 and $1.2 million in 2007. The slowdown in the
housing sector in Puerto Rico has put pressure on home
prices and reduced sales activity. The ratio of
mortgage loans net charge-offs to average mortgage
loans held-in-portfolio for the BPPR reportable segment
was 0.38% for the year ended December 31, 2009,
compared to 0.10% for 2008. BPPRs mortgage loans are
primarily 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. As in the
U.S. mainland, the continued recessionary environment
in Puerto Rico has negatively impacted property values,
thus increasing the level of losses. Deteriorating
economic conditions have impacted the mortgage
delinquency rates in Puerto Rico increasing the levels
of non-accruing mortgage loans.
Consumer loans net charge-offs as a percentage of
average consumer loans held-in-portfolio rose due to
higher delinquencies in the U.S. mainland and in Puerto
Rico. Consumer loans net charge-offs in the BPNA
reportable segment increased to $147.6 million for the
year ended December 31, 2009, compared with $91.6
million for 2008 and $20.7 million for 2007. E-LOAN
represented approximately $50.8 million of the increase
in the net charge-offs in consumer loans
held-in-portfolio for the BPNA reportable segment
between 2008 and 2009. The ratio of consumer loans net
charge-offs to average consumer loans held-in-portfolio
in the BPNA reportable segment was 13.31% for 2009,
compared with 6.89% for 2008 and 1.83% for 2007. This
increase in net charge-offs in consumer loans
held-in-portfolio for the BPNA reportable segment was
mainly related to E-LOANs home equity lines of credit
and closed-end second mortgages, also considered by
management as higher-risk portfolios. E-LOAN has ceased
originating these types of loans. A home equity line of
credit is a loan secured by a primary residence or
second home. The deterioration in the delinquency profile and the declines in property values have negatively
impacted charge-offs. E-LOANs home equity lines of
credit and closed-end second mortgages loan portfolio
totaled $538.8 million at December 31, 2009 and had a
current loan-to-value ratio of approximately 113% and 106%,
respectively. The current loan-to-value ratios of these portfolios
resulted from appraisals mostly updated during the year ended
December 31, 2009. As of such
date, approximately $15.6 million or 2.89% of these
particular loan portfolios was in non-performing status.
Combined net charge-offs for E-LOANs home equity lines
of credit and second mortgages totaled $106.7 million
or 16.99% for the year ended December 31, 2009.
Consumer loans net charge-offs in the BPPR
reportable segment rose for the year ended December 31,
2009, when compared with the previous year, by $21.7
million. The ratio of consumer loans net charge-offs to
average consumer loans held-in-portfolio in the BPPR
reportable segment was 5.21% for 2009, compared with
4.21% for 2008 and 3.73% for 2007. The increase was
mainly attributed to BPPRs credit cards portfolio as a
result of the current recessionary environment in
Puerto Rico. The allowance for loan losses for consumer
loans held-in-portfolio represented 7.64% of
70 POPULAR, INC. 2009 ANNUAL REPORT
Table O
Allowance for Loan Losses and Selected Loan Losses Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Balance at beginning of year
|
|
$
|
882,807
|
|
|
$
|
548,832
|
|
|
$
|
522,232
|
|
|
$
|
461,707
|
|
|
$
|
437,081
|
|
Allowances acquired
|
|
|
|
|
|
|
|
|
|
|
7,290
|
|
|
|
|
|
|
|
6,291
|
|
Provision for loan losses
|
|
|
1,405,807
|
|
|
|
991,384
|
|
|
|
341,219
|
|
|
|
187,556
|
|
|
|
121,985
|
|
Impact of change in reporting period*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,586
|
|
|
|
|
|
2,288,614
|
|
|
|
1,540,216
|
|
|
|
870,741
|
|
|
|
649,263
|
|
|
|
566,943
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
290,547
|
|
|
|
184,578
|
|
|
|
94,992
|
|
|
|
54,724
|
|
|
|
64,559
|
|
Construction
|
|
|
311,311
|
|
|
|
120,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease financing
|
|
|
22,281
|
|
|
|
22,761
|
|
|
|
23,722
|
|
|
|
24,526
|
|
|
|
20,568
|
|
Mortgage
|
|
|
124,781
|
|
|
|
53,303
|
|
|
|
15,889
|
|
|
|
4,465
|
|
|
|
4,908
|
|
Consumer
|
|
|
347,027
|
|
|
|
264,437
|
|
|
|
173,937
|
|
|
|
125,350
|
|
|
|
85,068
|
|
|
|
|
|
1,095,947
|
|
|
|
645,504
|
|
|
|
308,540
|
|
|
|
209,065
|
|
|
|
175,103
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
27,281
|
|
|
|
15,167
|
|
|
|
18,280
|
|
|
|
17,195
|
|
|
|
21,965
|
|
Construction
|
|
|
1,386
|
|
|
|
|
|
|
|
1,606
|
|
|
|
22
|
|
|
|
|
|
Lease financing
|
|
|
4,799
|
|
|
|
3,934
|
|
|
|
8,695
|
|
|
|
10,643
|
|
|
|
10,939
|
|
Mortgage
|
|
|
4,175
|
|
|
|
425
|
|
|
|
421
|
|
|
|
526
|
|
|
|
301
|
|
Consumer
|
|
|
30,896
|
|
|
|
26,014
|
|
|
|
28,902
|
|
|
|
27,327
|
|
|
|
26,292
|
|
|
|
|
|
68,537
|
|
|
|
45,540
|
|
|
|
57,904
|
|
|
|
55,713
|
|
|
|
59,497
|
|
|
Net loans charged-off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
263,266
|
|
|
|
169,411
|
|
|
|
76,712
|
|
|
|
37,529
|
|
|
|
42,594
|
|
Construction
|
|
|
309,925
|
|
|
|
120,425
|
|
|
|
(1,606
|
)
|
|
|
(22
|
)
|
|
|
|
|
Lease financing
|
|
|
17,482
|
|
|
|
18,827
|
|
|
|
15,027
|
|
|
|
13,883
|
|
|
|
9,629
|
|
Mortgage
|
|
|
120,606
|
|
|
|
52,878
|
|
|
|
15,468
|
|
|
|
3,939
|
|
|
|
4,607
|
|
Consumer
|
|
|
316,131
|
|
|
|
238,423
|
|
|
|
145,035
|
|
|
|
98,023
|
|
|
|
58,776
|
|
|
|
|
|
1,027,410
|
|
|
|
599,964
|
|
|
|
250,636
|
|
|
|
153,352
|
|
|
|
115,606
|
|
|
Write-downs related to loans transferred
to loans held-for-sale
|
|
|
|
|
|
|
12,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in allowance for loan losses from
discontinued operations**
|
|
|
|
|
|
|
(45,015
|
)
|
|
|
(71,273
|
)
|
|
|
26,321
|
|
|
|
10,370
|
|
|
Balance at end of year
|
|
$
|
1,261,204
|
|
|
$
|
882,807
|
|
|
$
|
548,832
|
|
|
$
|
522,232
|
|
|
$
|
461,707
|
|
|
Loans held-in-portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at year end
|
|
$
|
23,713,113
|
|
|
$
|
25,732,873
|
|
|
$
|
28,021,456
|
|
|
$
|
32,017,017
|
|
|
$
|
31,011,026
|
|
Average
|
|
|
24,650,071
|
|
|
|
26,162,786
|
|
|
|
24,908,943
|
|
|
|
23,533,341
|
|
|
|
21,280,242
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to year
end loans held-in-portfolio
|
|
|
5.32
|
%
|
|
|
3.43
|
%
|
|
|
1.96
|
%
|
|
|
1.63
|
%
|
|
|
1.49
|
%
|
Recoveries to charge-offs
|
|
|
6.25
|
|
|
|
7.05
|
|
|
|
18.77
|
|
|
|
26.65
|
|
|
|
33.98
|
|
Net charge-offs to average loans
held-in-portfolio
|
|
|
4.17
|
|
|
|
2.29
|
|
|
|
1.01
|
|
|
|
0.65
|
|
|
|
0.54
|
|
Net charge-offs earnings coverage
|
|
|
0.82
|
x
|
|
|
1.29
|
x
|
|
|
2.53
|
x
|
|
|
4.87
|
x
|
|
|
6.84
|
x
|
Allowance for loan losses to net
charge-offs
|
|
|
1.23
|
|
|
|
1.47
|
|
|
|
2.19
|
|
|
|
3.41
|
|
|
|
3.99
|
|
Provision for loan losses to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
1.37
|
|
|
|
1.65
|
|
|
|
1.36
|
|
|
|
1.22
|
|
|
|
1.06
|
|
Average loans held-in-portfolio
|
|
|
5.70
|
%
|
|
|
3.79
|
%
|
|
|
1.37
|
%
|
|
|
0.80
|
%
|
|
|
0.57
|
%
|
Allowance to non-performing loans
|
|
|
55.40
|
|
|
|
73.40
|
|
|
|
71.21
|
|
|
|
72.78
|
|
|
|
84.33
|
|
|
|
|
|
*
|
|
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 (change from fiscal to calendar
reporting year for non-banking subsidiaries).
|
|
**
|
|
A positive amount represents higher provision for loan losses recorded during the period compared
to net charge-offs, and vice versa for a negative amount.
|
71
that portfolio at December 31, 2009, compared with
6.23% in 2008 and 4.39% in 2007. The increase in this
ratio was the result of increased levels of
delinquencies and charge-offs.
The allowance for loan losses increased from
December 31, 2008 to December 31, 2009 by $378 million.
The allowance for loan losses represented 5.32% of
loans held-in-portfolio at December 31, 2009, compared
with 3.43% at December 31, 2008 and 1.96% at December
31, 2007. The increase from December 31, 2008 to
December 31, 2009 was mainly attributed to reserves for
commercial and construction loans due to the continued
deterioration of the economic and housing market
conditions in Puerto Rico and in the U.S. mainland.
Also, the Corporation recorded higher reserves to cover
inherent losses in the home equity lines of credit and
closed-end second mortgages loan portfolios of the U.S.
mainland operations. The persistent declines in
residential real estate values, combined with the
reduced ability of certain homeowners to refinance or
repay their residential real estate obligations, have
resulted in higher delinquencies and losses in these
U.S. mainland portfolios.
The following table sets forth information
concerning the composition of the Corporations
allowance for loan losses (ALLL) at December 31, 2009
by loan category and by whether the allowance and
related provisions were calculated individually
pursuant the requirements for specific impairment or
through a general valuation allowance:
Table ALLL General and Specific Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
Lease
|
|
|
|
|
|
|
(In thousands)
|
|
Commercial
|
|
Construction
|
|
Financing
|
|
Mortgage
|
|
Consumer
|
|
Total
|
|
Specific allowance
for loan losses
|
|
$
|
108,769
|
|
|
$
|
162,907
|
|
|
|
|
|
|
$
|
52,211
|
|
|
|
|
|
|
$
|
323,887
|
|
Impaired loans
|
|
|
645,513
|
|
|
|
841,361
|
|
|
|
|
|
|
|
186,747
|
|
|
|
|
|
|
|
1,673,621
|
|
Specific allowance
for loan losses to
impaired loans
|
|
|
16.85
|
%
|
|
|
19.36
|
%
|
|
|
|
|
|
|
27.96
|
%
|
|
|
|
|
|
|
19.35
|
%
|
|
General allowance
for loan losses
|
|
$
|
328,940
|
|
|
$
|
178,412
|
|
|
$
|
18,558
|
|
|
$
|
102,400
|
|
|
$
|
309,007
|
|
|
$
|
937,317
|
|
Loans held-in-portfolio,
excluding
impaired loans
|
|
|
12,018,546
|
|
|
|
883,012
|
|
|
|
675,629
|
|
|
|
4,416,498
|
|
|
|
4,045,807
|
|
|
|
22,039,492
|
|
General allowance
for loans losses
to loans held-in-portfolio,
excluding
impaired loans
|
|
|
2.74
|
%
|
|
|
20.20
|
%
|
|
|
2.75
|
%
|
|
|
2.32
|
%
|
|
|
7.64
|
%
|
|
|
4.25
|
%
|
|
Total allowance
for loan losses
|
|
$
|
437,709
|
|
|
$
|
341,319
|
|
|
$
|
18,558
|
|
|
$
|
154,611
|
|
|
$
|
309,007
|
|
|
$
|
1,261,204
|
|
Total loans held-in-portfolio
|
|
|
12,664,059
|
|
|
|
1,724,373
|
|
|
|
675,629
|
|
|
|
4,603,245
|
|
|
|
4,045,807
|
|
|
|
23,713,113
|
|
Allowance for
loan losses to
loans held-in-portfolio
|
|
|
3.46
|
%
|
|
|
19.79
|
%
|
|
|
2.75
|
%
|
|
|
3.36
|
%
|
|
|
7.64
|
%
|
|
|
5.32
|
%
|
|
The Corporations recorded investment in
commercial, construction and mortgage loans that were
considered impaired and the related valuation allowance
at December 31, 2009, December 31, 2008, and December
31, 2007 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
Recorded
|
|
Valuation
|
|
Recorded
|
|
Valuation
|
|
Recorded
|
|
Valuation
|
(In millions)
|
|
Investment
|
|
Allowance
|
|
Investment
|
|
Allowance
|
|
Investment
|
|
Allowance
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
$
|
1,263.3
|
|
|
$
|
323.9
|
|
|
$
|
664.9
|
|
|
$
|
194.7
|
|
|
$
|
174.0
|
|
|
$
|
54.0
|
|
No valuation
allowance required
|
|
|
410.3
|
|
|
|
|
|
|
|
232.7
|
|
|
|
|
|
|
|
147.7
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
1,673.6
|
|
|
$
|
323.9
|
|
|
$
|
897.6
|
|
|
$
|
194.7
|
|
|
$
|
321.7
|
|
|
$
|
54.0
|
|
|
72 POPULAR, INC. 2009 ANNUAL REPORT
Table P
Allocation of the Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
(Dollars in millions)
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
Allowance
|
|
Loans in Each
|
|
Allowance
|
|
Loans in Each
|
|
Allowance
|
|
Loans in Each
|
|
Allowance
|
|
Loans in Each
|
|
Allowance
|
|
Loans in Each
|
|
|
for
|
|
Category to
|
|
for
|
|
Category to
|
|
for
|
|
Category to
|
|
for
|
|
Category to
|
|
for
|
|
Category to
|
|
|
Loan Losses
|
|
Total Loans*
|
|
Loan Losses
|
|
Total Loans*
|
|
Loan Losses
|
|
Total Loans*
|
|
Loan Losses
|
|
Total Loans*
|
|
Loan Losses
|
|
Total Loans*
|
|
Commercial
|
|
$
|
437.7
|
|
|
|
53.4
|
%
|
|
$
|
294.6
|
|
|
|
53.0
|
%
|
|
$
|
139.0
|
|
|
|
48.8
|
%
|
|
$
|
171.3
|
|
|
|
40.9
|
%
|
|
$
|
171.7
|
|
|
|
38.0
|
%
|
Construction
|
|
|
341.3
|
|
|
|
7.3
|
|
|
|
170.3
|
|
|
|
8.6
|
|
|
|
83.7
|
|
|
|
6.9
|
|
|
|
32.7
|
|
|
|
4.4
|
|
|
|
12.7
|
|
|
|
2.7
|
|
Lease financing
|
|
|
18.6
|
|
|
|
2.8
|
|
|
|
22.0
|
|
|
|
2.9
|
|
|
|
25.6
|
|
|
|
3.9
|
|
|
|
24.8
|
|
|
|
3.8
|
|
|
|
27.6
|
|
|
|
4.2
|
|
Mortgage
|
|
|
154.6
|
|
|
|
19.4
|
|
|
|
106.3
|
|
|
|
17.4
|
|
|
|
70.0
|
|
|
|
21.7
|
|
|
|
92.2
|
|
|
|
34.6
|
|
|
|
72.7
|
|
|
|
39.7
|
|
Consumer
|
|
|
309.0
|
|
|
|
17.1
|
|
|
|
289.6
|
|
|
|
18.1
|
|
|
|
230.5
|
|
|
|
18.7
|
|
|
|
201.2
|
|
|
|
16.3
|
|
|
|
177.0
|
|
|
|
15.4
|
|
|
Total
|
|
$
|
1,261.2
|
|
|
|
100.0
|
%
|
|
$
|
882.8
|
|
|
|
100.0
|
%
|
|
$
|
548.8
|
|
|
|
100.0
|
%
|
|
$
|
522.2
|
|
|
|
100.0
|
%
|
|
$
|
461.7
|
|
|
|
100.0
|
%
|
|
*
|
|
Note: For purposes of this table, the term loans refers to loans held-in-portfolio (excludes loans
held-for-sale).
|
|
The following table sets forth the activity in the
specific reserves for impaired loans for the year
ended December 31, 2009.
Table Activity in Specific ALLL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
Construction
|
|
Mortgage
|
|
|
(In thousands)
|
|
Loans
|
|
Loans
|
|
Loans
|
|
Total
|
|
Specific allowance for loan losses
at January 1, 2009
|
|
$
|
61,261
|
|
|
$
|
119,566
|
|
|
$
|
13,895
|
|
|
$
|
194,722
|
|
Provision for impaired loans
|
|
|
156,981
|
|
|
|
345,002
|
|
|
|
64,055
|
|
|
|
566,038
|
|
Less: Net charge-offs
|
|
|
109,473
|
|
|
|
301,661
|
|
|
|
25,739
|
|
|
|
436,873
|
|
|
Specific allowance for loan losses
at December 31, 2009
|
|
$
|
108,769
|
|
|
$
|
162,907
|
|
|
$
|
52,211
|
|
|
$
|
323,887
|
|
|
The impaired construction loans at December 31,
2009 were mainly related to the BPPR reportable segment
with $606 million and the BPNA reportable segment with
$235 million. The related specific reserves for these
impaired construction loans as of such date amounted to
$116 million and $47 million, respectively. In the
current stressed housing market, the value of the
collateral securing the loan has become the most
important factor in determining the amount of loss
incurred and the appropriate level of the allowance for
loan losses. The likelihood of losses that are equal to
the entire recorded investment for a real estate loan
is remote. However, in some cases, during recent
quarters declining real estate values have resulted in
the determination that the estimated value of the
collateral was insufficient to cover all of the
recorded investment in the loans.
With respect to the $410 million portfolio of
impaired commercial and construction loans for which no
allowance for loan losses was required at 2009,
management followed the guidance for specific
impairment of a loan. 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 $410 million impaired
commercial and construction loans were collateral
dependent loans in which management performed a
detailed analysis based on the fair value of the
collateral less estimated costs to sell and determined
that the collateral was deemed adequate to cover any
losses at December 31, 2009.
Average impaired loans during the years ended
December 31, 2009 and 2008 were $1.3 billion and $0.6
billion, respectively. The Corporation recognized
interest income on impaired loans of $16.9 million and
$8.8 million for the years ended December 31, 2009 and
2008.
At December 31, 2009, the Corporations commercial
loan portfolio included a total of $135.6 million worth
of loan modifications for the BPPR reportable segment
and $2.6 million for the BPNA reportable segment, which
were considered troubled debt restructurings (TDR)
since they involved granting a concession to borrowers
under financial difficulties. The outstanding
commitments for these commercial TDRs amounted to $0.6
million in the BPPR reportable segment, and no
outstanding commitments in the BPNA reportable segment.
The TDR commercial loans were evaluated for impairment
resulting in a reserve of $24.2 million for the BPPR
reportable segment and $0.8 million for the BPNA
reportable segment at December 31, 2009.
The construction loan portfolio included a total
of $179.1 million worth of loan modifications for the
BPPR reportable segment and $96.5 million for the BPNA
reportable segment, which were considered TDRs at
December 31, 2009. The outstanding commitments for
these TDR construction loans amounted to $59.2 million
in the BPPR reportable segment, and $0.8 million in the
BPNA reportable segment. These TDR construction loans
were evaluated for impairment resulting in a reserve of
$25.9 million for the BPPR reportable segment and $14.9
million for the BPNA
73
reportable segment at December 31, 2009.
BPNAs non-conventional mortgage loan portfolio
reported a total of $187 million worth of loan modifications considered TDRs at December 31, 2009, compared
with $76 million at December 31, 2008. Although the
criteria for specific impairment excludes large groups
of smaller-balance homogeneous loans that are
collectively evaluated for impairment (e.g. mortgage
loans), it specifically requires its application to
modifications considered TDRs. These TDR mortgage loans
were evaluated for impairment resulting in a reserve of
$52 million at December 31, 2009, compared with a
reserve of $14 million at December 31, 2008.
The existing adverse economic conditions are
expected to persist through 2010, thus it is likely
that the Corporation will continue to experience
heightened credit losses, additional significant
provisions for loan losses, an increased allowance for
loan losses and higher levels of non-performing assets.
While management believes that the Corporations
allowance for loan losses was adequate at December 31,
2009, there is no certainty that it will be sufficient
to cover future credit losses in the portfolio due to
continued adverse changes in the economy, market
conditions or events negatively affecting particular
customers, industries or markets, both in Puerto Rico
and the United States.
Management has implemented the following
initiatives to manage the deterioration of the loan
portfolios and to help mitigate future credit costs:
|
|
|
increased and reorganized the resources at the commercial and construction loan divisions;
|
|
|
|
|
strengthened the workout units through enhanced collection tools and strategies to mitigate losses
focusing on early detection;
|
|
|
|
|
adjusted underwriting criteria and reduced risk exposures;
|
|
|
|
|
launched marketing campaigns with discounted offers and incentives to promote the sales of
residential units;
|
|
|
|
|
enhanced critical credit risk management processes;
|
|
|
|
|
modified
approximately $187 million in non-conventional mortgages in the U.S. mainland operations (at
December 31, 2009); and
|
|
|
|
|
consolidated the Puerto Rico consumer finance operations into retail
business.
|
There can be no assurances that these initiatives
will be successful in mitigating future credit losses.
Operational Risk Management
Operational risk can manifest itself in various ways,
including errors, fraud, business interruptions,
inappropriate behavior of employees, and failure to
perform in a timely manner, among others. These events
can potentially result in financial losses and other
damages to the Corporation, including reputational
harm. The successful management of operational risk is
particularly important to a diversified financial
services company like Popular
because of the nature, volume and complexity of its
various businesses.
To monitor and control operational risk and mitigate related losses, the Corporation maintains
a system of comprehensive policies and controls. The Corporations Operational Risk Committee
(ORCO), which is composed of senior level representatives from the business lines and corporate
functions, provides executive oversight to facilitate consistency of effective policies, best
practices, controls and monitoring tools for managing and assessing all types of operational risks
across the Corporation. The Operational Risk Management Division, within the Corporations Risk
Management Group, serves as ORCOs operating arm and is responsible for establishing baseline
processes to measure, monitor, limit and manage operational risk. In addition, the Auditing
Division provides oversight about policy compliance and ensures adequate attention is paid to
correct the identified issues.
Operational risks fall into two major categories: business specific
and corporate-wide affecting all business lines. The primary responsibility for the day-to-day
management of business specific risks relies on business unit managers. Accordingly, business unit
managers are responsible for ensuring that appropriate risk containment measures, including
corporate-wide or business segment specific policies and procedures, controls and monitoring
tools, are in place to minimize risk occurrence and loss exposures. Examples of these include
personnel management practices, data reconciliation processes, transaction processing monitoring
and analysis and contingency plans for systems interruptions. To manage corporate-wide risks,
specialized groups such as Legal, Information Security, Business Continuity, Finance and
Compliance, assist the business units in the development and implementation of risk management
practices specific to the needs of the individual businesses.
Operational risk management plays a different role
in each category. For business specific risks, the
Operational Risk Management Group works with the
segments to ensure consistency in policies, processes,
and assessments. With respect to corporate-wide risks,
such as information security, business continuity,
legal and compliance, the risks are assessed and a
consolidated corporate view is developed and
communicated to the business level.
Legal Proceedings
The Corporation and its subsidiaries are defendants in
a number of legal proceedings arising in the ordinary
course of business. Based on the opinion of legal
counsel, management believes that the final
disposition of these matters, except for the matters
described below which are in very early stages and
management cannot currently predict their outcome, will
not have a material
74 POPULAR, INC. 2009 ANNUAL REPORT
adverse effect on the Corporations business, results of operations, financial condition and
liquidity.
Between May 14, 2009 and March 1, 2010, five putative class actions and two derivative
claims were filed in the United States District Court for the District of Puerto Rico and the
Puerto Rico Court of First Instance, San Juan Part, against Popular, Inc. and certain of its
directors and officers, among others. The five class actions have now been consolidated into two
separate actions: a securities class action captioned Hoff v. Popular, Inc., et al. (consolidated
with Otero v. Popular, Inc., et al.) and an ERISA class action
entitled In re Popular, Inc. ERISA
Litigation (comprised of the consolidated cases of Walsh v. Popular, Inc. et al.; Montañez v.
Popular, Inc., et al.; and Dougan v. Popular, Inc., et al.). On October 19, 2009, plaintiffs in the
Hoff case filed a consolidated class action complaint which includes as defendants the
underwriters in the May 2008 offering of Series B Preferred Stock. The
consolidated action purports to be on behalf of purchasers of
Populars securities between January 24,
2008 and February 19, 2009 and alleges that the defendants violated Section 10(b) of the Exchange
Act, and Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act by issuing a
series of allegedly false and/or misleading statements and/or omitting to disclose material facts
necessary to make statements made by the Corporation not false and misleading. The consolidated action also
alleges that the defendants violated Section 11, Section 12(a)(2) and Section 15 of the Securities
Act by making allegedly untrue statements and/or omitting to disclose material facts necessary to
make statements made by the Corporation not false and misleading in connection with the May 2008 offering of
Series B Preferred Stock. The consolidated securities class action complaint seeks class certification,
an award of compensatory damages and reasonable costs and expenses, including counsel fees.
On January 11, 2010, Popular and the individual defendants moved to dismiss the consolidated
securities class action complaint. On November 30, 2009, plaintiffs in the ERISA case filed a
consolidated class action complaint. The consolidated complaint purports to be on behalf of
employees participating in the Popular, Inc. U.S.A. 401(k) Savings and Investment Plan and the
Popular, Inc. Puerto Rico Savings and Investment Plan from January 24, 2008 to the date of the
Complaint to recover losses pursuant to Sections 409 and 502(a)(2) of the Employee Retirement
Income Security Act (ERISA) against Popular, certain directors, officers and members of plan
committees, each of whom is alleged to be a plan fiduciary. The consolidated complaint alleges
that the defendants breached their alleged fiduciary obligations by, among other things, failing
to eliminate Popular stock as an investment alternative in the plans. The complaint seeks to
recover alleged losses to the plans and equitable relief, including injunctive relief and a
constructive trust, along with costs and attorneys fees. On December 21, 2009, and in compliance
with a scheduling order issued by the Court,
Popular and the individual defendants submitted an
answer to the amended complaint. Shortly thereafter, on
December 31, 2009, Popular and the individual
defendants filed a motion to dismiss the consolidated
class action complaint or, in the alternative, for
judgment on the pleadings. The derivative actions
(García v. Carrión, et al. and Díaz v. Carrión, et al.)
have been brought purportedly for the benefit of
nominal defendant Popular, Inc. against certain
executive officers and directors and allege breaches
of fiduciary duty, waste of assets and abuse of
control in connection with our issuance of allegedly
false and misleading financial statements and financial reports and the offering of the Series B
Preferred Stock. The derivative complaints seek a
judgment that the action is a proper derivative action,
an award of damages and restitution, and costs and
disbursements, including reasonable attorneys fees,
costs and expenses. On October 9, 2009, the Court
coordinated for purposes of discovery the García action
and the consolidated securities class action. On
October 15, 2009, Popular and the individual defendants
moved to dismiss the García complaint for failure to
make a demand on the Board of Directors prior to
initiating litigation. On November 20, 2009, and
pursuant to a stipulation among the parties, plaintiffs
filed an amended complaint, and on December 21, 2009,
Popular and the individual defendants moved to dismiss
the García amended complaint. The Díaz case, filed in
the Puerto Rico Court of First Instance, San Juan, has
been removed to the U.S. District Court for the
District of Puerto Rico. On October 13, 2009, Popular
and the individual defendants moved to consolidate the
García and Díaz actions. On October 26, 2009, plaintiff
moved to remand the Díaz case to the Puerto Rico Court
of First Instance and to stay defendants consolidation
motion pending the outcome of the remand proceedings.
At a scheduling conference held on January 14, 2010,
the Court stayed discovery in both the Hoff and García
matters pending resolution of their respective motions
to dismiss.
At this early stage, it is not possible for
management to assess the probability of an adverse
outcome, or reasonably estimate the amount of any
potential loss. It is possible that the ultimate
resolution of these matters, if unfavorable, may be
material to the Corporations results of operations.
Adoption of New Accounting Standards and Issued But Not
Yet Effective Accounting Standards
The FASB Accounting Standards Codification (ASC)
Effective July 1, 2009, the ASC became the single
source of authoritative U.S. generally accepted
accounting principles (GAAP) recognized by the
Financial Accounting Standards Board (FASB) to be
applied by non-governmental entities. Rules and
interpretive releases of the Securities and Exchange
Commission (SEC) are also sources of authoritative
GAAP for SEC registrants. The ASC superseded all
existing non-SEC accounting
75
and reporting standards. All other non-grandfathered
non-SEC accounting literature not included in the ASC
is non-authoritative. The Corporations policies were not affected by the
conversion to ASC. However, references to specific
accounting guidance in the notes of the Corporations
financial statements have been changed to the
appropriate section of the ASC.
Business Combinations (ASC Topic 805) (formerly SFAS No. 141-R)
In December 2007, the FASB issued guidance that
establishes principles and requirements for how an
acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in
an acquiree, including the recognition and measurement
of goodwill acquired in a business combination. The
Corporation is required to apply this guidance to all
business combinations completed on or after January 1,
2009. For business combinations in which the
acquisition date was before the effective date, these
provisions apply to the subsequent accounting for
deferred income tax valuation allowances and income tax
contingencies and require any changes in those
amounts to be recorded in earnings. This guidance on
business combinations did not have a material effect on
the consolidated financial statements of the
Corporation for the year ended December 31, 2009.
Noncontrolling Interests in Consolidated Financial
Statements (ASC Subtopic 810-10) (formerly SFAS No.
160)
In December 2007, the FASB issued guidance to establish
accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. This guidance requires
entities to classify noncontrolling interests as a
component of stockholders equity on the consolidated
financial statements and requires subsequent changes
in ownership interests in a subsidiary to be accounted
for as an equity transaction. Additionally, it requires
entities to recognize a gain or loss upon the loss of
control of a subsidiary and to remeasure any ownership
interest retained at fair value on that date. This
statement also requires expanded disclosures that
clearly identify and distinguish between the interests
of the parent and the interests of the noncontrolling
owners. This guidance was adopted by the Corporation on
January 1, 2009. The adoption of this standard did not
have an impact on the Corporations consolidated
financial statements.
Disclosures about Derivative Instruments and Hedging
Activities (ASC Subtopic 815-10) (formerly SFAS No.
161)
In March 2008, the FASB issued an amendment for
disclosures about derivative instruments and hedging
activities. The standard expands the disclosure
requirements for derivatives and hedged items and has
no impact on how the Corporation accounts for these
instruments. The standard was adopted by the
Corporation
in the first quarter of 2009. Refer to Note 31 to the
consolidated financial statements for related
disclosures.
Subsequent Events (ASC Subtopic 855-10) (formerly SFAS No. 165)
In May 2009, the FASB issued guidance which establishes
general standards of accounting for and disclosures of
events that occur after the balance sheet date but
before financial statements are issued or are
available to be issued. Specifically, this standard
sets forth the period after the balance sheet date
during which management of a reporting entity should
evaluate events or transactions that may occur for
potential recognition or disclosure in the financial
statements, the circumstances under which an entity
should recognize events or transactions occurring after
the balance sheet date in its financial statements,
and the disclosures that an entity should make about
events or transactions that
occurred after the balance sheet date. This guidance
was effective for interim or annual financial periods
ending after June 15, 2009, and shall be applied
prospectively. Refer to Note 2 to the consolidated
financial statements and the Subsequent Events section
in this MD&A for related disclosures.
Transfers of Financial Assets, (ASC Subtopic 860-10)
(formerly SFAS No. 166)
In June 2009, the FASB issued a revision which eliminates the concept of a qualifying
special-purpose entity (QSPEs), changes the requirements for derecognizing financial assets,
and includes additional disclosures requiring more information about transfers of financial
assets in which entities have continuing exposure to the risks related to the transferred
financial assets. This guidance must be applied as of the beginning of each reporting entitys first
annual reporting period that begins after November 15, 2009, for interim periods within that first
annual reporting period and for interim and annual reporting periods thereafter. Earlier
application was prohibited. The Corporation is adopting this guidance for transfers of financial
assets commencing on January 1, 2010.
The Corporation is evaluating the impact that this new
accounting guidance will have on the guaranteed mortgage securitizations with Fannie Mae (FNMA)
and Ginnie Mae (GNMA), which are the principal transactions executed by the Corporation that are
subject to the new guidance. The Corporation anticipates that transactions backed by FNMA will meet
the criteria for sale accounting since the assets transferred are placed and isolated in an
independent trust. However, the transactions backed by GNMA will require additional evaluation
since they are isolated without the use of a trust to hold the GNMA pass-through certificates.
Instead, the pools of mortgage loans are legally isolated through the establishment of custodial
pools, whereby all rights, title and interest are conveyed to GNMA. The Corporation
76 POPULAR, INC. 2009 ANNUAL REPORT
will assess these transactions to conclude if they will
continue to be considered a sale for accounting
purposes. Currently, the Corporation does not
anticipate that this guidance will have a material
effect on the consolidated financial statements.
Variable Interest Entities, (ASC Subtopic 860-10)
(formerly SFAS No. 167)
The FASB amended on June 2009 the guidance applicable
to variable interest entities (VIE) and changed how a
reporting entity determines when an entity that is
insufficiently capitalized or is not controlled
through voting (or similar rights) should be
consolidated. The determination of whether a reporting
entity is required to consolidate another entity is
based on, among other things, the other entitys
purpose and design and the reporting entitys ability
to direct the activities of the other entity that most
significantly impact the other entitys economic
performance. The amendments to the consolidated
guidance affect all entities that were within the scope
of the original guidance, as well as qualifying
special-purpose entities (QSPEs) that were previously
excluded from the guidance. The new guidance requires a
reporting entity to provide additional disclosures
about its involvement with variable interest entities
and any significant changes in risk exposure due to
that involvement. A reporting entity will be required
to disclose how its involvement with a variable
interest entity affects the reporting entitys financial statements. The new guidance requires ongoing
evaluation of whether an enterprise is the primary
beneficiary of a variable interest entity. The
guidance is effective for the Corporation commencing on
January 1, 2010.
Currently, the Corporation issues government
sponsored securities backed by GNMA and FNMA. FNMA uses
independent trusts to isolate the pass-through certificates and therefore, are considered VIEs. On the SEC
responses to the Mortgage Banker
Association Whitepaper issued on February 10,
2010, the SEC reiterated that the GNMA securities I and
II are considered VIEs for the assessment of the new
consolidation guidance applicable to VIEs.
After evaluation of these transactions, the
Corporation reached the conclusion that it is not the
primary beneficiary of these VIEs.
The Corporation
also owns certain equity investments that are not
considered VIEs, even in consideration of the new
accounting guidance. Other structures analyzed by
management are the trust preferred securities. Even
though these trusts are still considered VIEs under
the new guidance, the Corporation does not possess a
significant variable interest on these trusts.
Additionally, the Corporation has variable interests in
certain investments that have the attributes of
investment companies, as well as limited partnership
investments in venture capital companies. However, in
January 2010, the FASB decided to make official the
deferral of ASC Subtopic 860-10 for certain investment
entities. The deferral allows asset managers that have
no obligation to fund potentially
significant losses of an investment entity to continue
to apply the previous accounting guidance to investment
entities that have the attributes of entities subject
to ASC Topic 946 (the Investment Company Guide). The
FASB also decided to defer the application of this
guidance for money market funds subject to Rule 2a-7 of
the Investment Company Act of 1940. Asset managers
would continue to apply the applicable existing
guidance to those entities that qualify for the
deferral.
Management anticipates that the Corporation will
not be required to consolidate any existing variable
interest entities for which it has a variable interest
at December 31, 2009. The adoption of the new
accounting guidance on variable interest entities is
not expected to have a material effect on the
Corporations consolidated financial statements.
Accounting for Transfers of Financial Assets and
Repurchase Financing Transactions (ASC Subtopic 860-10)
(formerly FASB Staff Position FAS 140-3)
The FASB provided guidance in February 2008 on whether
the security transfer and contemporaneous repurchase financing involving the transferred financial asset must
be evaluated as one linked transaction or two separate
de-linked transactions. The guidance requires the
recognition of the transfer and the repurchase
agreement as one linked transaction, unless all of the
following criteria are met: (1) the initial transfer
and the repurchase financing are not contractually
contingent on one another; (2) the initial transferor
has full recourse upon default, and the repurchase
agreements price is fixed and not at fair value; (3)
the financial asset is readily obtainable in the
marketplace and the transfer and repurchase financing
are executed at market rates; and (4) the maturity of
the repurchase financing is before the maturity of the
financial asset. The scope of this accounting guidance
is limited to transfers and subsequent repurchase financings that are entered into contemporaneously or in
contemplation of one another. The Corporation adopted
the statement on January 1, 2009. The adoption of this
guidance did not have a material impact on the
Corporations consolidated financial statements for
the year ended December 31, 2009.
Determination of the Useful Life of Intangible Assets
(ASC Subtopic 350-30) (formerly FASB Staff Position FAS
142-3)
In April 2008, the FASB amended the factors that should
be considered in developing renewal or extension
assumptions used
to determine the useful life of a recognized intangible
asset. In developing these assumptions, an entity
should consider its own historical experience in
renewing or extending similar arrangements adjusted for
entity specific factors or, in the absence of that
experience, the assumptions that market participants
would use about renewals or extensions adjusted for the
entity specific factors. This guidance applies to
intangible assets acquired after the
77
adoption date of January 1, 2009. The adoption of this
guidance did not have an impact on the Corporations
consolidated financial statements for the year ended
December 31, 2009.
Equity Method Investment Accounting Considerations (ASC
Subtopic 323-10) (formerly EITF 08-6)
This guidance clarifies the accounting for certain
transactions and impairment considerations involving
equity method investments. It applies to all
investments accounted for under the equity method and
provides guidance on the following: (1) how the initial
carrying value of an equity method investment should be
determined; (2) how an impairment assessment of an
underlying indefinite-lived intangible asset of an
equity method investment should be performed; (3) how
an equity method investees issuance of shares should
be accounted for; and (4) how to account for a change
in an investment from the equity method to the cost
method. The adoption of this guidance in January 2009
did not have a material impact on the Corporations
consolidated financial statements.
Employers Disclosures about Postretirement Benefit
Plan Assets (ASC Subtopic 715-20) (formerly FASB Staff
Position FAS 132(R)-1)
This guidance requires additional disclosures in the financial statements of employers who are subject to the
disclosure requirements of postretirement benefit plan
assets as follows: (a) the investment allocation
decision making process, including the factors that are
pertinent to an understanding of investment policies
and strategies; (b) the fair value of each major
category of plan assets, disclosed separately for
pension plans and other postretirement benefit plans;
(c) the inputs and valuation techniques used to measure
the fair value of plan assets, including the level
within the fair value hierarchy in which the fair value
measurements in their entirety fall; and (d) significant concentrations of risk within plan assets.
Additional detailed information is required for each
category above. The Corporation applied the new
disclosure requirements commencing with the annual financial statements for the year ended December 31,
2009. Refer to Note 27 to the consolidated financial
statements. This guidance impacts disclosures only and
did not have an effect on the Corporations
consolidated statements of condition or results of
operations for the year ended December 31, 2009.
Recognition and Presentation of Other-Than-Temporary
Impairments (ASC Subtopic 320-10) (formerly FASB Staff
Position FAS 115-2 and FAS 124-2)
In April 2009, the FASB issued this guidance which is
intended to provide greater clarity to investors about
the credit and noncredit component of an
other-than-temporary impairment event. It specifically amends the other-than-temporary impairment
guidance for debt securities. The new guidance improves
the presentation and disclosure of other-than-temporary
impairments on investment
securities and changes the calculation of the
other-than-temporary impairment recognized in earnings
in the financial statements. However, it does not
amend existing recognition and measurement guidance
related to other-than-temporary impairments of equity
securities.
For debt securities, an entity is required to
assess whether (a) it has the intent to sell the debt
security, or (b) it is more likely than not that it
will be required to sell the debt security before its
anticipated recovery. If either of these conditions is
met, an other-than-temporary impairment on the security
must be recognized.
In instances in which a determination is made that
a credit loss (defined as the difference between the
present value of the cash flows expected to be
collected and the amortized cost basis) exists but the
entity does not intend to sell the debt security and it
is not more likely than not that the entity will be
required to sell the debt security before the
anticipated recovery of its remaining amortized cost
basis (i.e., the amortized cost basis less any
current-period credit loss), the accounting guidance
changed the presentation and amount of the
other-than-temporary impairment recognized in the
statement of operations. In these instances, the
impairment is separated into (a) the amount of the
total impairment related to the credit loss, and (b)
the amount of the total impairment related to all other
factors. The amount of the total other-than-temporary
impairment related to the credit loss is recognized in
the statement of operations. The amount of the total
impairment related to all other factors is recognized
in other comprehensive loss. Previously, in all cases,
if an impairment was determined to be
other-than-temporary, an impairment loss was recognized
in earnings in an amount equal to the entire difference
between the securitys amortized cost basis and its
fair value at the balance sheet date of the reporting
period for which the assessment was made.
This guidance was effective and is to be applied
prospectively for financial statements issued for
interim and annual reporting periods ending after June
15, 2009. At adoption an entity was required to record
a cumulative-effect adjustment as of the beginning of
the period of adoption to reclassify the noncredit
component of a previously recognized
other-than-temporary impairment from retained earnings
to accumulated other comprehensive loss if the entity
did not intend to sell the security and it was not more
likely than not that the entity would be required to
sell the security before the anticipated recovery of
its amortized cost basis.
The Corporation adopted this guidance for interim
and annual reporting periods commencing with the
quarter ended June 30, 2009. The adoption of this new
accounting guidance in the second quarter of 2009 did
not result in a cumulative-effect adjustment as of the
beginning of the period of adoption (April 1, 2009)
since there were no previously recognized
other-than-temporary impairments related to outstanding
debt securities. Refer to Notes 7 and 8 for related
disclosures as of December 31, 2009.
78 POPULAR, INC. 2009 ANNUAL REPORT
Interim Disclosures about Fair Value of Financial
Instruments (ASC Subtopic 825-10) (formerly FASB Staff
Position FAS 107-1 and
APB 28-1)
In April 2009, the FASB required providing disclosures
on a quarterly basis about the fair value of financial
instruments that
are not currently reflected on the statement of
condition at fair value. Originally the fair value for
these assets and liabilities was only required for
year-end disclosures. The Corporation adopted this
guidance effective with the financial statement
disclosures for the quarter ended June 30, 2009. This
guidance only impacts disclosure requirements and
therefore did not have an impact on the Corporations
financial condition or results of operations. Refer to
Note 37 to the consolidated financial statements for
the Corporations disclosures on fair value of
financial instruments.
Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That are Not
Orderly (ASC Subtopic 820-10) (formerly FASB Staff
Position FAS 157-4)
This guidance, issued in April 2009, provides
additional guidance for estimating fair value when the
volume and level of activity for the asset or liability
have significantly decreased. It also includes
guidance on identifying circumstances that indicate
that a transaction is not orderly. This guidance
reaffirms the need to use judgment to ascertain if an active
market has become inactive and in determining fair
values when markets have become inactive. Additionally,
it also emphasizes that even if there has been a
significant decrease in the volume and level of
activity for the asset or liability and regardless of
the valuation techniques used, the objective of a fair
value measurement remains the same. Fair value is the
price that would be received from the sale of an asset
or paid to transfer a liability in an orderly
transaction (that is, not a forced liquidation or
distressed sale) between market participants at the
measurement date under current market conditions. The
adoption of this guidance did not have a material
impact on the Corporations consolidated financial
statements for the year ended December 31, 2009.
FASB Accounting Standards Update 2009-05, Fair Value
Measurements and Disclosures (ASC Topic 820)
Measuring Liabilities at Fair Value
FASB Accounting Standards Update 2009-05, issued in
August 2009, includes amendments to ASC Subtopic
820-10, Fair Value Measurements and Disclosures, for
the fair value measurement of liabilities and provides
clarification that in circumstances in which a quoted
price in an active market for the identical liability
is not available, a reporting entity is required to
measure fair value using one or more of the following
techniques: a valuation technique that uses (a) the
quoted price of the identical liability when traded as
an asset, (b) quoted prices for similar liabilities
or similar liabilities when traded as assets, or
another valuation technique that is consistent with the
principles of ASC Topic 820. Examples would be an
income approach, such as a present value technique, or
a market approach, such as a technique that is based on
the amount at the measurement date that the reporting
entity would pay to transfer the identical liability or
would receive to enter into an identical liability. The
adoption of this guidance was effective upon issuance
and did not have a material impact on the Corporations
consolidated financial statements for the year ended
December 31, 2009.
FASB Accounting Standards Update 2010-06, Fair Value
Measurements and Disclosures (ASC Topic 820)
Improving Disclosures about Fair Value Measurements
FASB Accounting Standards Update 2010-06, issued in
January 2010, requires new disclosures and clarifies
some existing
disclosure requirements about fair value measurements
as set forth in ASC Subtopic 820-10. This update amends
Subtopic 820-10 and now requires a reporting entity to
disclose separately the amounts of significant
transfers in and out of Level 1 and Level 2 fair value
measurements and describe the reasons for the transfer.
Also in the reconciliation for fair value measurements
using significant unobservable inputs (Level 3), a
reporting entity should present separately information
about purchases, sales, issuances and settlements. In
addition, this update clarifies existing disclosures
as follows: (i) for purposes of reporting fair value
measurement for each class of assets and liabilities, a
reporting entity needs to use judgment in determining
the appropriate classes of assets and liabilities, and
(ii) a reporting entity should provide disclosures
about the valuation techniques and inputs used to
measure fair value for both recurring and nonrecurring
fair value measurements. This update is effective for
interim and annual reporting periods beginning after
December 15, 2009 except for the disclosures about
purchases, sales, issuances, and settlements in the
roll-forward of activity in Level 3 fair value
measurements. Those disclosures are effective for
fiscal years beginning after December 15, 2010 and for
interim periods within those fiscal years. Early
application is permitted. This guidance impacts
disclosures only and will not have an effect on the
Corporations consolidated statements of condition or
results of operations.
79
Glossary of Selected Financial Terms
Accretion of discount
Accounting process for
adjusting the book value of a bond recorded at a
discount to the par value at maturity.
Allowance for Loan Losses
The reserve established to
cover credit losses inherent in loans
held-in-portfolio.
Asset Securitization
The process of converting
receivables and other assets that are not readily
marketable into securities that can be placed and
traded in capital markets.
Basis Point
Equals to one-hundredth of one percent.
Used to express changes or differences in interest
yields and rates.
Book Value Per Common Share
Total common
shareholders equity divided by the total number of
common shares outstanding.
Brokered Certificate of Deposit
Deposit purchased
from a broker acting as an agent for depositors. The
broker, often a securities broker-dealer, pools CDs
from many small investors and markets them to
financial institutions and negotiates a higher rate for
CDs placed with the purchaser.
Cash Flow Hedge
A derivative designated as hedging
the exposure to variable cash flows of a forecasted
transaction.
Common Shares Outstanding
Total number of shares of
common stock issued less common shares held in
treasury.
Core Deposits
A deposit category that includes all
non-interest bearing deposits, savings deposits and
certificates of deposit under $100,000, excluding
brokered certificates of deposit with denominations
under $100,000. These deposits are considered a stable
source of funds.
Derivative
A contractual agreement between two
parties to exchange cash or other assets in response to
changes in an external factor, such as an interest rate
or a foreign exchange rate.
Dividend Payout Ratio
Dividends paid on common shares
divided by net income applicable to shares of common
stock.
Duration
Expected life of a financial instrument
taking into account its coupon yield / cost, interest
payments, maturity and call features. Duration attempts
to measure actual maturity, as opposed to final
maturity. Duration measures the time required to
recover a dollar of price in present value terms
(including principal and interest), whereas average
life computes the average time needed to collect one
dollar of principal.
Earning Assets
Assets that earn interest, such as loans,
investment securities, money market investments and
trading account securities.
Fair Value Hedge
A derivative designated as hedging
the exposure to changes in the fair value of a
recognized asset or liability or a firm commitment.
Gap
The difference that exists at a specific period
of time between the maturities or repricing terms of
interest-sensitive assets and interest-sensitive
liabilities.
Goodwill
The excess of the purchase price of net
assets over the fair value of net assets acquired in a
business combination.
Interest Rate Caps / Floors
An interest rate cap is a
contractual agreement between two counterparties in
which the buyer, in return for paying a fee, will
receive cash payments from the seller at specified
dates if rates go above a specified interest rate
level known as the strike rate (cap). An interest rate
floor is a contractual agreement between two
counterparties in which the buyer, in return for paying
a fee, will receive cash payments from the seller at
specified dates if interest rates go below the strike
rate.
Interest Rate Swap
Financial transactions in which
two counterparties agree to exchange streams of
payments over time according to a pre-determined
formula. Swaps are normally used to transform the
market exposure associated with a loan or bond
borrowing from one interest rate base (fixed-term or
floating rate).
Interest-Sensitive Assets / Liabilities
Interest-earning assets / liabilities for which
interest rates are adjustable within a specified time
period due to maturity or contractual arrangements.
Internal Capital Generation Rate
Rate at which a bank
generates equity capital, computed by dividing net
income (loss) less dividends by the average balance of
stockholders equity for a given accounting period.
Letter of Credit
A document issued by the Corporation
on behalf of a customer to a third party promising to
pay that third party upon presentation of specified
documents. A letter of credit effectively substitutes
the Corporations credit for that of the Corporations
customer.
Loan-to-value (LTV)
A commonly used credit quality
metric that is reported in terms of ending and average
loan-to-value. Ending LTV is calculated by taking the
outstanding loan balance at the end of the period
divided by the appraised value of the property securing
the loan. A loan to value of 100 percent reflects a
loan that is currently secured by a property valued at
an amount that
80 POPULAR, INC. 2009 ANNUAL REPORT
is exactly equal to the loan amount.
Mortgage
Servicing Rights (MSR)
The right to service
a mortgage loan when the underlying loan is sold or
securitized. Servicing includes collections of
principal, interest and escrow payments from borrowers
and accounting for and remitting principal and interest
payments to investors.
Net Charge-Offs
The amount of loans written-off as
uncollectible, net of the recovery of loans previously
written-off.
Net Income (Loss) Applicable to Common Stock
Net
income (loss) adjusted for preferred stock dividends,
including undeclared or unpaid dividends if cumulative,
and charges or credits related to the extinguishment of
preferred stock or induced conversions of preferred
stock.
Net Income (Loss) Per Common Share Basic
Net income
(loss) applicable to common stock divided by the number
of weighted-average common shares outstanding.
Net Income (Loss) Per Common Share Diluted
Net
income (loss) applicable to common stock divided by the
sum of weighted-average common shares outstanding plus
the effect of common stock equivalents that have the
potential to be converted into common shares.
Net Interest Income
The difference between the
revenue generated on earning assets, less the interest
cost of funding those assets.
Net Interest Margin
Net interest income divided by
total average interest-earning assets.
Net Interest Spread
Difference between the average
yield on earning assets and the average rate paid on
interest bearing liabilities, and the contribution of
non-interest bearing funds supporting earning assets
(primarily demand deposits and stockholders equity).
Non-Performing Assets
Includes loans on which the
accrual of interest income has been discontinued due to
default on interest and / or principal payments or
other factors indicative of doubtful collection, loans
for which the interest rates or terms of repayment have
been renegotiated, and real estate which has been
acquired through foreclosure.
Option Contract
Conveys a right, but not an
obligation, to buy or sell a specified number of units
of a financial instrument at a specific price per
unit within a specified time period. The
instrument underlying the option may be a security, a
futures contract (for example, an interest rate
option), a commodity, a currency, or a cash instrument.
Options may be bought or sold on organized exchanges or
over the counter on a principal-to-principal basis or
may be individually negotiated. A call option gives the
holder the right, but not the obligation, to buy the
underlying instrument. A put option gives the holder
the right, but not the obligation, to sell the
underlying instrument.
Provision For Loan Losses
The periodic expense needed
to maintain the level of the allowance for loan losses
at a level consistent with managements assessment of
the loan portfolio in light of current economic
conditions and market trends, and taking into account
loan impairment and net charge-offs.
Return on Assets
Net income as a percentage of
average total assets.
Return on Equity
Net income applicable to common
stock as a percentage of average common stockholders
equity.
Servicing Right
A contractual agreement to provide
certain billing, bookkeeping and collection services
with respect to a pool of loans.
Tangible Equity
Consists of stockholders equity less
goodwill and other intangible assets.
Tier 1 Common Equity
Tier 1 capital, less non-common
elements.
Tier 1 Leverage Ratio
Tier 1 capital divided by
average adjusted quarterly total assets. Average
adjusted quarterly assets are adjusted to exclude
non-qualifying intangible assets and disallowed
deferred tax assets.
Tier 1 Capital
Consists generally of common
stockholders equity (including the related surplus,
retained earnings and capital reserves), qualifying
noncumulative perpetual preferred stock, senior
perpetual preferred stock issued under the TARP Capital
Purchase Program, qualifying trust preferred securities
and minority interest in the qualifying equity accounts
of consolidated subsidiaries, less goodwill and other
disallowed intangible assets, disallowed portion of
deferred tax assets and the deduction for nonfinancial
equity investments.
To be announced (TBA)
A term used to describe a
forward mortgage-backed securities trade. The term TBA
is derived from the fact that the actual
mortgage-backed security that will be delivered to
fulfill a TBA trade is not designated at the time the
trade is made.
81
Total Risk-Adjusted Assets
The sum of assets and
credit equivalent off-balance sheet amounts that have
been adjusted according to assigned regulatory risk
weights, excluding the non-qualifying portion of
allowance for loan and lease losses, goodwill and other
intangible assets.
Total Risk-Based Capital
Consists generally of Tier 1
capital plus the allowance for loan losses, qualifying
subordinated debt and the allowed portion of the net
unrealized gains on available-for-sale equity
securities.
Treasury Stock
Common stock repurchased and held by
the issuing corporation for possible future issuance.
82 POPULAR, INC. 2009 ANNUAL REPORT
Statistical Summary 2005-2009
Statements of Condition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
(In thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
677,330
|
|
|
$
|
784,987
|
|
|
$
|
818,825
|
|
|
$
|
950,158
|
|
|
$
|
906,397
|
|
|
Money market investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold and securities purchased
under agreements to resell
|
|
|
452,932
|
|
|
|
519,218
|
|
|
|
883,686
|
|
|
|
286,531
|
|
|
|
740,770
|
|
Time deposits with other banks
|
|
|
549,865
|
|
|
|
275,436
|
|
|
|
123,026
|
|
|
|
15,177
|
|
|
|
8,653
|
|
|
|
|
|
1,002,797
|
|
|
|
794,654
|
|
|
|
1,006,712
|
|
|
|
301,708
|
|
|
|
749,423
|
|
|
Trading securities, at fair value
|
|
|
462,436
|
|
|
|
645,903
|
|
|
|
767,955
|
|
|
|
382,325
|
|
|
|
519,338
|
|
Investment securities available-for-sale,
at fair value
|
|
|
6,694,714
|
|
|
|
7,924,487
|
|
|
|
8,515,135
|
|
|
|
9,850,862
|
|
|
|
11,716,586
|
|
Investment securities held-to-maturity, at
amortized cost
|
|
|
212,962
|
|
|
|
294,747
|
|
|
|
484,466
|
|
|
|
91,340
|
|
|
|
153,104
|
|
Other investment securities, at lower of cost or
realizable value
|
|
|
164,149
|
|
|
|
217,667
|
|
|
|
216,584
|
|
|
|
297,394
|
|
|
|
319,103
|
|
Loans held-for-sale, at lower of cost or fair value
|
|
|
90,796
|
|
|
|
536,058
|
|
|
|
1,889,546
|
|
|
|
719,922
|
|
|
|
699,181
|
|
|
Loans held-in-portfolio:
|
|
|
23,827,263
|
|
|
|
25,857,237
|
|
|
|
28,203,566
|
|
|
|
32,325,364
|
|
|
|
31,308,639
|
|
Less Unearned income
|
|
|
114,150
|
|
|
|
124,364
|
|
|
|
182,110
|
|
|
|
308,347
|
|
|
|
297,613
|
|
Allowance for loan losses
|
|
|
1,261,204
|
|
|
|
882,807
|
|
|
|
548,832
|
|
|
|
522,232
|
|
|
|
461,707
|
|
|
|
|
|
22,451,909
|
|
|
|
24,850,066
|
|
|
|
27,472,624
|
|
|
|
31,494,785
|
|
|
|
30,549,319
|
|
|
Premises and equipment, net
|
|
|
584,853
|
|
|
|
620,807
|
|
|
|
588,163
|
|
|
|
595,140
|
|
|
|
596,571
|
|
Other real estate
|
|
|
125,483
|
|
|
|
89,721
|
|
|
|
81,410
|
|
|
|
84,816
|
|
|
|
79,008
|
|
Accrued income receivable
|
|
|
126,080
|
|
|
|
156,227
|
|
|
|
216,114
|
|
|
|
248,240
|
|
|
|
245,646
|
|
Servicing assets
|
|
|
172,505
|
|
|
|
180,306
|
|
|
|
196,645
|
|
|
|
164,999
|
|
|
|
141,489
|
|
Other assets
|
|
|
1,322,159
|
|
|
|
1,115,597
|
|
|
|
1,456,994
|
|
|
|
1,446,891
|
|
|
|
1,184,311
|
|
Goodwill
|
|
|
604,349
|
|
|
|
605,792
|
|
|
|
630,761
|
|
|
|
667,853
|
|
|
|
653,984
|
|
Other intangible assets
|
|
|
43,803
|
|
|
|
53,163
|
|
|
|
69,503
|
|
|
|
107,554
|
|
|
|
110,208
|
|
Assets from discontinued operations
|
|
|
|
|
|
|
12,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34,736,325
|
|
|
$
|
38,882,769
|
|
|
$
|
44,411,437
|
|
|
$
|
47,403,987
|
|
|
$
|
48,623,668
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
4,495,301
|
|
|
$
|
4,293,553
|
|
|
$
|
4,510,789
|
|
|
$
|
4,222,133
|
|
|
$
|
3,958,392
|
|
Interest bearing
|
|
|
21,429,593
|
|
|
|
23,256,652
|
|
|
|
23,823,689
|
|
|
|
20,216,198
|
|
|
|
18,679,613
|
|
|
|
|
|
25,924,894
|
|
|
|
27,550,205
|
|
|
|
28,334,478
|
|
|
|
24,438,331
|
|
|
|
22,638,005
|
|
Federal
funds purchased and assets sold under agreements to repurchase
|
|
|
2,632,790
|
|
|
|
3,551,608
|
|
|
|
5,437,265
|
|
|
|
5,762,445
|
|
|
|
8,702,461
|
|
Other short-term borrowings
|
|
|
7,326
|
|
|
|
4,934
|
|
|
|
1,501,979
|
|
|
|
4,034,125
|
|
|
|
2,700,261
|
|
Notes payable
|
|
|
2,648,632
|
|
|
|
3,386,763
|
|
|
|
4,621,352
|
|
|
|
8,737,246
|
|
|
|
9,893,577
|
|
Other liabilities
|
|
|
983,866
|
|
|
|
1,096,338
|
|
|
|
934,481
|
|
|
|
811,534
|
|
|
|
1,240,117
|
|
Liabilities from discontinued operations
|
|
|
|
|
|
|
24,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,197,508
|
|
|
|
35,614,405
|
|
|
|
40,829,555
|
|
|
|
43,783,681
|
|
|
|
45,174,421
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
50,160
|
|
|
|
1,483,525
|
|
|
|
186,875
|
|
|
|
186,875
|
|
|
|
186,875
|
|
Common stock
|
|
|
6,395
|
|
|
|
1,773,792
|
|
|
|
1,761,908
|
|
|
|
1,753,146
|
|
|
|
1,736,443
|
|
Surplus
|
|
|
2,804,238
|
|
|
|
621,879
|
|
|
|
568,184
|
|
|
|
526,856
|
|
|
|
452,398
|
|
(Accumulated deficit) retained earnings
|
|
|
(292,752
|
)
|
|
|
(374,488
|
)
|
|
|
1,319,467
|
|
|
|
1,594,144
|
|
|
|
1,456,612
|
|
Treasury stock at cost
|
|
|
(15
|
)
|
|
|
(207,515
|
)
|
|
|
(207,740
|
)
|
|
|
(206,987
|
)
|
|
|
(207,081
|
)
|
Accumulated other comprehensive loss,
net of tax
|
|
|
(29,209
|
)
|
|
|
(28,829
|
)
|
|
|
(46,812
|
)
|
|
|
(233,728
|
)
|
|
|
(176,000
|
)
|
|
|
|
|
2,538,817
|
|
|
|
3,268,364
|
|
|
|
3,581,882
|
|
|
|
3,620,306
|
|
|
|
3,449,247
|
|
|
|
|
$
|
34,736,325
|
|
|
$
|
38,882,769
|
|
|
$
|
44,411,437
|
|
|
$
|
47,403,987
|
|
|
$
|
48,623,668
|
|
|
83
Statistical Summary 2005-2009
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
(In thousands, except per
|
|
|
|
|
|
|
|
|
|
|
common share information)
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Interest Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
1,519,249
|
|
|
|
$1,868,462
|
|
|
$
|
2,046,437
|
|
|
$
|
1,888,320
|
|
|
$
|
1,537,340
|
|
Money market investments
|
|
|
8,570
|
|
|
|
17,982
|
|
|
|
25,190
|
|
|
|
29,626
|
|
|
|
30,736
|
|
Investment securities
|
|
|
291,988
|
|
|
|
343,568
|
|
|
|
441,608
|
|
|
|
508,579
|
|
|
|
483,854
|
|
Trading securities
|
|
|
35,190
|
|
|
|
44,111
|
|
|
|
39,000
|
|
|
|
28,714
|
|
|
|
30,010
|
|
|
Total interest income
|
|
|
1,854,997
|
|
|
|
2,274,123
|
|
|
|
2,552,235
|
|
|
|
2,455,239
|
|
|
|
2,081,940
|
|
Less Interest expense
|
|
|
753,744
|
|
|
|
994,919
|
|
|
|
1,246,577
|
|
|
|
1,200,508
|
|
|
|
859,075
|
|
|
Net interest income
|
|
|
1,101,253
|
|
|
|
1,279,204
|
|
|
|
1,305,658
|
|
|
|
1,254,731
|
|
|
|
1,222,865
|
|
Provision for loan losses
|
|
|
1,405,807
|
|
|
|
991,384
|
|
|
|
341,219
|
|
|
|
187,556
|
|
|
|
121,985
|
|
|
Net interest income after provision
for loan losses
|
|
|
(304,554
|
)
|
|
|
287,820
|
|
|
|
964,439
|
|
|
|
1,067,175
|
|
|
|
1,100,880
|
|
Net gain on sale and valuation adjustment of
investment securities
|
|
|
219,546
|
|
|
|
69,716
|
|
|
|
100,869
|
|
|
|
22,120
|
|
|
|
66,512
|
|
Trading account profit
|
|
|
39,740
|
|
|
|
43,645
|
|
|
|
37,197
|
|
|
|
36,258
|
|
|
|
30,051
|
|
(Loss) gain on sale of loans, including adjustments to
indemnity reserves, and valuation adjustments
on loans held-for-sale
|
|
|
(35,060
|
)
|
|
|
6,018
|
|
|
|
60,046
|
|
|
|
76,337
|
|
|
|
37,342
|
|
All other operating income
|
|
|
672,275
|
|
|
|
710,595
|
|
|
|
675,583
|
|
|
|
635,794
|
|
|
|
598,707
|
|
|
|
|
|
591,947
|
|
|
|
1,117,794
|
|
|
|
1,838,134
|
|
|
|
1,837,684
|
|
|
|
1,833,492
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
|
|
533,263
|
|
|
|
608,465
|
|
|
|
620,760
|
|
|
|
591,975
|
|
|
|
546,586
|
|
All other operating expenses
|
|
|
620,933
|
|
|
|
728,263
|
|
|
|
924,702
|
|
|
|
686,256
|
|
|
|
617,582
|
|
|
|
|
|
1,154,196
|
|
|
|
1,336,728
|
|
|
|
1,545,462
|
|
|
|
1,278,231
|
|
|
|
1,164,168
|
|
|
(Loss) income from continuing operations before income tax
|
|
|
(562,249
|
)
|
|
|
(218,934
|
)
|
|
|
292,672
|
|
|
|
559,453
|
|
|
|
669,324
|
|
Income tax
(benefit) expense
|
|
|
(8,302
|
)
|
|
|
461,534
|
|
|
|
90,164
|
|
|
|
139,694
|
|
|
|
142,710
|
|
|
(Loss) income from continuing operations before
cumulative effect of accounting change
|
|
|
(553,947
|
)
|
|
|
(680,468
|
)
|
|
|
202,508
|
|
|
|
419,759
|
|
|
|
526,614
|
|
Cumulative effect of accounting change, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,607
|
|
|
(Loss) income from continuing operations
|
|
|
(553,947
|
)
|
|
|
(680,468
|
)
|
|
|
202,508
|
|
|
|
419,759
|
|
|
|
530,221
|
|
(Loss) income from discontinued operations, net of tax
|
|
|
(19,972
|
)
|
|
|
(563,435
|
)
|
|
|
(267,001
|
)
|
|
|
(62,083
|
)
|
|
|
10,481
|
|
|
Net (Loss) Income
|
|
$
|
(573,919
|
)
|
|
$
|
(1,243,903
|
)
|
|
$
|
(64,493
|
)
|
|
$
|
357,676
|
|
|
$
|
540,702
|
|
|
Net Income (Loss) Applicable to Common Stock
|
|
$
|
97,377
|
|
|
$
|
(1,279,200
|
)
|
|
$
|
(76,406
|
)
|
|
$
|
345,763
|
|
|
$
|
528,789
|
|
|
Basic EPS before cumulative effect of accounting change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Continuing Operations*
|
|
$
|
0.29
|
|
|
$
|
(2.55
|
)
|
|
$
|
0.68
|
|
|
$
|
1.46
|
|
|
$
|
1.93
|
|
From Discontinued operations*
|
|
$
|
(0.05
|
)
|
|
$
|
(2.00
|
)
|
|
$
|
(0.95
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
0.04
|
|
|
Total*
|
|
$
|
0.24
|
|
|
$
|
(4.55
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
1.24
|
|
|
$
|
1.97
|
|
|
Diluted EPS before cumulative effect of accounting change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Continuing Operations*
|
|
$
|
0.29
|
|
|
$
|
(2.55
|
)
|
|
$
|
0.68
|
|
|
$
|
1.46
|
|
|
$
|
1.92
|
|
From Discontinued Operations*
|
|
$
|
(0.05
|
)
|
|
$
|
(2.00
|
)
|
|
$
|
(0.95
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
0.04
|
|
|
Total*
|
|
$
|
0.24
|
|
|
$
|
(4.55
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
1.24
|
|
|
$
|
1.96
|
|
|
Basic EPS after cumulative effect of accounting change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Continuing Operations*
|
|
$
|
0.29
|
|
|
$
|
(2.55
|
)
|
|
$
|
0.68
|
|
|
$
|
1.46
|
|
|
$
|
1.94
|
|
From Discontinued operations*
|
|
$
|
(0.05
|
)
|
|
$
|
(2.00
|
)
|
|
$
|
(0.95
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
0.04
|
|
|
Total*
|
|
$
|
0.24
|
|
|
$
|
(4.55
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
1.24
|
|
|
$
|
1.98
|
|
|
Diluted EPS after cumulative effect of accounting change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Continuing Operations*
|
|
$
|
0.29
|
|
|
$
|
(2.55
|
)
|
|
$
|
0.68
|
|
|
$
|
1.46
|
|
|
$
|
1.93
|
|
From Discontinued Operations*
|
|
$
|
(0.05
|
)
|
|
$
|
(2.00
|
)
|
|
$
|
(0.95
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
0.04
|
|
|
Total*
|
|
$
|
0.24
|
|
|
$
|
(4.55
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
1.24
|
|
|
$
|
1.97
|
|
|
Dividends Declared per Common Share
|
|
$
|
0.02
|
|
|
$
|
0.48
|
|
|
$
|
0.64
|
|
|
$
|
0.64
|
|
|
$
|
0.64
|
|
|
*
|
|
The average common shares used in the computation of basic earnings (losses) per common share were
408,229,498 for 2009; 281,079,201 for 2008; 279,494,150 for 2007; 278,468,552 for 2006; and
267,334,606 for 2005. The average common shares used in the computation of diluted earnings
(losses) per common share were 408,229,498 for 2009; 281,079,201 for 2008, 279,494,150 for 2007;
278,703,924 for 2006; and 267,839,018 for 2005.
|
84 POPULAR, INC. 2009 ANNUAL REPORT
Statistical Summary 2005-2009
Average Balance Sheet and
Summary
of Net Interest Income
On a Taxable Equivalent Basis*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Balance
|
|
Interest
|
|
Rate
|
|
|
Balance
|
|
Interest
|
|
Rate
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market investments
|
|
$
|
1,183,209
|
|
|
$
|
8,573
|
|
|
|
0.72
|
%
|
|
|
$
|
699,922
|
|
|
$
|
18,790
|
|
|
|
2.68
|
%
|
|
|
|
|
U.S. Treasury securities
|
|
|
70,308
|
|
|
|
3,452
|
|
|
|
4.91
|
|
|
|
|
463,268
|
|
|
|
21,934
|
|
|
|
4.73
|
|
Obligations of U.S. government
sponsored entities
|
|
|
1,977,460
|
|
|
|
103,303
|
|
|
|
5.22
|
|
|
|
|
4,793,935
|
|
|
|
243,709
|
|
|
|
5.08
|
|
Obligations of Puerto Rico, States and
political subdivisions
|
|
|
342,479
|
|
|
|
22,048
|
|
|
|
6.44
|
|
|
|
|
254,952
|
|
|
|
16,760
|
|
|
|
6.57
|
|
Collateralized mortgage obligations and
mortgage-backed securities
|
|
|
4,757,407
|
|
|
|
200,616
|
|
|
|
4.22
|
|
|
|
|
2,411,171
|
|
|
|
114,810
|
|
|
|
4.76
|
|
Other
|
|
|
301,649
|
|
|
|
15,046
|
|
|
|
4.99
|
|
|
|
|
266,306
|
|
|
|
14,952
|
|
|
|
5.61
|
|
|
|
|
|
Total investment securities
|
|
|
7,449,303
|
|
|
|
344,465
|
|
|
|
4.62
|
|
|
|
|
8,189,632
|
|
|
|
412,165
|
|
|
|
5.03
|
|
|
|
|
|
Trading account securities
|
|
|
614,827
|
|
|
|
40,771
|
|
|
|
6.63
|
|
|
|
|
664,907
|
|
|
|
47,909
|
|
|
|
7.21
|
|
|
|
|
|
Loans (net of unearned income)
|
|
|
24,836,067
|
|
|
|
1,540,918
|
|
|
|
6.20
|
|
|
|
|
26,471,616
|
|
|
|
1,888,786
|
|
|
|
7.14
|
|
|
|
|
|
Total interest earning assets/Interest income
|
|
|
34,083,406
|
|
|
$
|
1,934,727
|
|
|
|
5.68
|
%
|
|
|
|
36,026,077
|
|
|
$
|
2,367,650
|
|
|
|
6.57
|
%
|
|
|
|
|
Total non-interest earning assets
|
|
|
2,478,103
|
|
|
|
|
|
|
|
|
|
|
|
|
3,417,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets from continuing
operations
|
|
|
36,561,509
|
|
|
|
|
|
|
|
|
|
|
|
|
39,443,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets from discontinued
operations
|
|
|
7,861
|
|
|
|
|
|
|
|
|
|
|
|
|
1,480,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
36,569,370
|
|
|
|
|
|
|
|
|
|
|
|
$
|
40,924,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW, money market and other
interest bearing demand accounts
|
|
$
|
10,342,100
|
|
|
$
|
107,355
|
|
|
|
1.04
|
%
|
|
|
$
|
10,548,563
|
|
|
$
|
177,729
|
|
|
|
1.68
|
%
|
Time deposits
|
|
|
12,192,824
|
|
|
|
393,906
|
|
|
|
3.23
|
|
|
|
|
12,795,436
|
|
|
|
522,394
|
|
|
|
4.08
|
|
Short-term borrowings
|
|
|
2,887,727
|
|
|
|
69,357
|
|
|
|
2.40
|
|
|
|
|
5,115,166
|
|
|
|
168,070
|
|
|
|
3.29
|
|
Notes payable
|
|
|
2,945,169
|
|
|
|
183,126
|
|
|
|
6.22
|
|
|
|
|
2,263,272
|
|
|
|
126,726
|
|
|
|
5.60
|
|
Subordinated notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities/Interest expense
|
|
|
28,367,820
|
|
|
|
753,744
|
|
|
|
2.66
|
|
|
|
|
30,722,437
|
|
|
|
994,919
|
|
|
|
3.24
|
|
|
|
|
|
Total non-interest bearing liabilities
|
|
|
5,338,848
|
|
|
|
|
|
|
|
|
|
|
|
|
4,966,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities from continuing
operations
|
|
|
33,706,668
|
|
|
|
|
|
|
|
|
|
|
|
|
35,689,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities from discontinued
operations
|
|
|
10,637
|
|
|
|
|
|
|
|
|
|
|
|
|
1,876,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
33,717,305
|
|
|
|
|
|
|
|
|
|
|
|
|
37,565,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
2,852,065
|
|
|
|
|
|
|
|
|
|
|
|
|
3,358,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
36,569,370
|
|
|
|
|
|
|
|
|
|
|
|
$
|
40,924,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income on a taxable
equivalent basis
|
|
|
|
|
|
$
|
1,180,983
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,372,731
|
|
|
|
|
|
|
|
|
|
Cost of funding earning assets
|
|
|
|
|
|
|
|
|
|
|
2.21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
2.76
|
%
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
3.47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
3.81
|
%
|
|
|
|
|
Effect of the taxable equivalent adjustment
|
|
|
|
|
|
|
79,730
|
|
|
|
|
|
|
|
|
|
|
|
|
93,527
|
|
|
|
|
|
|
|
|
|
Net interest income per books
|
|
|
|
|
|
$
|
1,101,253
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,279,204
|
|
|
|
|
|
|
|
|
|
*
|
|
Shows the effect of the tax exempt status of some loans and investments on their yield, using the
applicable statutory income tax rates. The computation considers the interest expense disallowance
required by the Puerto Rico Internal Revenue Code. This adjustment is shown in order to compare the
yields of the tax exempt and taxable assets on a taxable basis.
|
Note: Average loan balances include the average balance of non-accruing loans. No interest income
is recognized for these loans in accordance with the Corporations policy.
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Balance
|
|
Interest
|
|
Rate
|
|
|
Balance
|
|
Interest
|
|
Rate
|
|
|
Balance
|
|
Interest
|
|
Rate
|
|
|
|
|
|
|
|
|
$
|
513,704
|
|
|
$
|
26,565
|
|
|
|
5.17
|
%
|
|
|
$
|
564,423
|
|
|
$
|
31,382
|
|
|
|
5.56
|
%
|
|
|
$
|
797,166
|
|
|
$
|
33,319
|
|
|
|
4.18
|
%
|
|
|
|
|
|
|
|
|
|
498,232
|
|
|
|
21,164
|
|
|
|
4.25
|
|
|
|
|
521,917
|
|
|
|
22,930
|
|
|
|
4.39
|
|
|
|
|
551,328
|
|
|
|
25,613
|
|
|
|
4.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,294,489
|
|
|
|
310,632
|
|
|
|
4.93
|
|
|
|
|
7,527,841
|
|
|
|
368,738
|
|
|
|
4.90
|
|
|
|
|
7,574,297
|
|
|
|
364,081
|
|
|
|
4.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
185,035
|
|
|
|
12,546
|
|
|
|
6.78
|
|
|
|
|
188,690
|
|
|
|
13,249
|
|
|
|
7.02
|
|
|
|
|
247,220
|
|
|
|
14,954
|
|
|
|
6.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,575,941
|
|
|
|
148,620
|
|
|
|
5.77
|
|
|
|
|
3,063,097
|
|
|
|
177,206
|
|
|
|
5.79
|
|
|
|
|
3,338,925
|
|
|
|
163,853
|
|
|
|
4.91
|
|
|
|
|
273,558
|
|
|
|
14,085
|
|
|
|
5.15
|
|
|
|
|
415,131
|
|
|
|
15,807
|
|
|
|
3.81
|
|
|
|
|
472,425
|
|
|
|
17,628
|
|
|
|
3.73
|
|
|
|
|
|
|
|
|
|
|
9,827,255
|
|
|
|
507,047
|
|
|
|
5.16
|
|
|
|
|
11,716,676
|
|
|
|
597,930
|
|
|
|
5.10
|
|
|
|
|
12,184,195
|
|
|
|
586,129
|
|
|
|
4.81
|
|
|
|
|
|
|
|
|
|
|
652,636
|
|
|
|
40,408
|
|
|
|
6.19
|
|
|
|
|
491,122
|
|
|
|
30,593
|
|
|
|
6.23
|
|
|
|
|
487,319
|
|
|
|
32,427
|
|
|
|
6.65
|
|
|
|
|
|
|
|
|
|
|
25,380,548
|
|
|
|
2,068,078
|
|
|
|
8.15
|
|
|
|
|
24,123,315
|
|
|
|
1,910,737
|
|
|
|
7.92
|
|
|
|
|
21,533,294
|
|
|
|
1,556,552
|
|
|
|
7.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,374,143
|
|
|
$
|
2,642,098
|
|
|
|
7.26
|
%
|
|
|
|
36,895,536
|
|
|
$
|
2,570,642
|
|
|
|
6.97
|
%
|
|
|
|
35,001,974
|
|
|
$
|
2,208,427
|
|
|
|
6.31
|
%
|
|
|
|
|
|
|
|
|
|
3,054,948
|
|
|
|
|
|
|
|
|
|
|
|
|
2,963,092
|
|
|
|
|
|
|
|
|
|
|
|
|
2,772,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,429,091
|
|
|
|
|
|
|
|
|
|
|
|
|
39,858,628
|
|
|
|
|
|
|
|
|
|
|
|
|
37,774,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,675,844
|
|
|
|
|
|
|
|
|
|
|
|
|
8,435,938
|
|
|
|
|
|
|
|
|
|
|
|
|
8,587,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
47,104,935
|
|
|
|
|
|
|
|
|
|
|
|
$
|
48,294,566
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46,362,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,126,956
|
|
|
$
|
226,924
|
|
|
|
2.24
|
%
|
|
|
$
|
9,317,779
|
|
|
$
|
157,431
|
|
|
|
1.69
|
%
|
|
|
$
|
9,408,358
|
|
|
$
|
125,585
|
|
|
|
1.33
|
%
|
|
|
|
11,398,715
|
|
|
|
538,869
|
|
|
|
4.73
|
|
|
|
|
9,976,613
|
|
|
|
422,663
|
|
|
|
4.24
|
|
|
|
|
8,776,314
|
|
|
|
305,228
|
|
|
|
3.48
|
|
|
|
|
8,315,502
|
|
|
|
424,530
|
|
|
|
5.11
|
|
|
|
|
10,404,667
|
|
|
|
508,174
|
|
|
|
4.88
|
|
|
|
|
9,806,452
|
|
|
|
330,254
|
|
|
|
3.37
|
|
|
|
|
1,041,410
|
|
|
|
56,254
|
|
|
|
5.40
|
|
|
|
|
2,093,337
|
|
|
|
112,240
|
|
|
|
5.36
|
|
|
|
|
1,776,842
|
|
|
|
89,861
|
|
|
|
5.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,178
|
|
|
|
8,147
|
|
|
|
6.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,882,583
|
|
|
|
1,246,577
|
|
|
|
4.04
|
|
|
|
|
31,792,396
|
|
|
|
1,200,508
|
|
|
|
3.78
|
|
|
|
|
29,887,144
|
|
|
|
859,075
|
|
|
|
2.87
|
|
|
|
|
|
|
|
|
|
|
4,825,029
|
|
|
|
|
|
|
|
|
|
|
|
|
4,626,272
|
|
|
|
|
|
|
|
|
|
|
|
|
4,736,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,707,612
|
|
|
|
|
|
|
|
|
|
|
|
|
36,418,668
|
|
|
|
|
|
|
|
|
|
|
|
|
34,623,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,535,897
|
|
|
|
|
|
|
|
|
|
|
|
|
8,134,625
|
|
|
|
|
|
|
|
|
|
|
|
|
8,463,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,243,509
|
|
|
|
|
|
|
|
|
|
|
|
|
44,553,293
|
|
|
|
|
|
|
|
|
|
|
|
|
43,087,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,861,426
|
|
|
|
|
|
|
|
|
|
|
|
|
3,741,273
|
|
|
|
|
|
|
|
|
|
|
|
|
3,274,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
47,104,935
|
|
|
|
|
|
|
|
|
|
|
|
$
|
48,294,566
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46,362,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,395,521
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,370,134
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,349,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
3.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
2.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
3.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
3.86
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,863
|
|
|
|
|
|
|
|
|
|
|
|
|
115,403
|
|
|
|
|
|
|
|
|
|
|
|
|
126,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,305,658
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,254,731
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,222,865
|
|
|
|
|
|
|
|
|
|
|
|
86 POPULAR, INC. 2009 ANNUAL REPORT
Statistical Summary 2008-2009
Quarterly
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
2008
|
(In thousands, except per
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
common share information)
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Summary of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
440,296
|
|
|
$
|
454,463
|
|
|
$
|
471,046
|
|
|
$
|
489,192
|
|
|
$
|
541,542
|
|
|
$
|
555,481
|
|
|
$
|
565,258
|
|
|
$
|
611,842
|
|
Interest expense
|
|
|
170,978
|
|
|
|
178,074
|
|
|
|
187,986
|
|
|
|
216,706
|
|
|
|
252,676
|
|
|
|
231,199
|
|
|
|
234,961
|
|
|
|
276,083
|
|
|
Net interest income
|
|
|
269,318
|
|
|
|
276,389
|
|
|
|
283,060
|
|
|
|
272,486
|
|
|
|
288,866
|
|
|
|
324,282
|
|
|
|
330,297
|
|
|
|
335,759
|
|
Provision for loan losses
|
|
|
352,771
|
|
|
|
331,063
|
|
|
|
349,444
|
|
|
|
372,529
|
|
|
|
388,823
|
|
|
|
252,160
|
|
|
|
189,165
|
|
|
|
161,236
|
|
Net (loss) gain on sale and
valuation adjustment of
investment securities
|
|
|
(1,246
|
)
|
|
|
(9,059
|
)
|
|
|
53,705
|
|
|
|
176,146
|
|
|
|
286
|
|
|
|
(9,132
|
)
|
|
|
28,334
|
|
|
|
50,228
|
|
Other non-interest income
|
|
|
177,133
|
|
|
|
169,103
|
|
|
|
172,134
|
|
|
|
158,585
|
|
|
|
141,211
|
|
|
|
197,060
|
|
|
|
207,464
|
|
|
|
214,523
|
|
Operating expenses
|
|
|
298,754
|
|
|
|
220,600
|
|
|
|
330,645
|
|
|
|
304,197
|
|
|
|
360,180
|
|
|
|
322,915
|
|
|
|
330,338
|
|
|
|
323,295
|
|
|
(Loss) income from continuing
operations before income tax
|
|
|
(206,320
|
)
|
|
|
(115,230
|
)
|
|
|
(171,190
|
)
|
|
|
(69,509
|
)
|
|
|
(318,640
|
)
|
|
|
(62,865
|
)
|
|
|
46,592
|
|
|
|
115,979
|
|
Income tax expense (benefit)
|
|
|
6,907
|
|
|
|
6,331
|
|
|
|
5,393
|
|
|
|
(26,933
|
)
|
|
|
309,067
|
|
|
|
148,308
|
|
|
|
(12,581
|
)
|
|
|
16,740
|
|
|
(Loss) income from continuing
operations
|
|
|
(213,227
|
)
|
|
|
(121,561
|
)
|
|
|
(176,583
|
)
|
|
|
(42,576
|
)
|
|
|
(627,707
|
)
|
|
|
(211,173
|
)
|
|
|
59,173
|
|
|
|
99,239
|
|
(Loss) income from discontinued
operations, net of tax
|
|
|
|
|
|
|
(3,427
|
)
|
|
|
(6,599
|
)
|
|
|
(9,946
|
)
|
|
|
(75,193
|
)
|
|
|
(457,370
|
)
|
|
|
(34,923
|
)
|
|
|
4,051
|
|
|
Net (loss) income
|
|
$
|
(213,227
|
)
|
|
$
|
(124,988
|
)
|
|
$
|
(183,182
|
)
|
|
$
|
(52,522
|
)
|
|
$
|
(702,900
|
)
|
|
$
|
(668,543
|
)
|
|
$
|
24,250
|
|
|
|
103,290
|
|
|
Net (loss) income applicable
to common stock
|
|
$
|
(213,227
|
)
|
|
$
|
595,614
|
|
|
$
|
(207,810
|
)
|
|
$
|
(77,200
|
)
|
|
$
|
(717,987
|
)
|
|
$
|
(679,772
|
)
|
|
$
|
18,247
|
|
|
|
100,312
|
|
|
Net (loss) income per common
share basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from
continuing operations
|
|
$
|
(0.33
|
)
|
|
$
|
1.41
|
|
|
$
|
(0.71
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(2.28
|
)
|
|
$
|
(0.79
|
)
|
|
$
|
0.19
|
|
|
$
|
0.33
|
|
(Loss) income from
discontinued operations
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(0.03
|
)
|
|
|
(0.03
|
)
|
|
|
(0.27
|
)
|
|
|
(1.63
|
)
|
|
|
(0.13
|
)
|
|
|
0.03
|
|
|
Net (loss) income
|
|
$
|
(0.33
|
)
|
|
$
|
1.40
|
|
|
$
|
(0.74
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(2.55
|
)
|
|
$
|
(2.42
|
)
|
|
$
|
0.06
|
|
|
$
|
0.36
|
|
|
Selected Average Balances
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
35,025
|
|
|
$
|
35,813
|
|
|
$
|
37,048
|
|
|
$
|
38,437
|
|
|
$
|
39,531
|
|
|
$
|
40,634
|
|
|
$
|
40,845
|
|
|
$
|
42,705
|
|
Loans
|
|
|
24,047
|
|
|
|
24,453
|
|
|
|
25,038
|
|
|
|
25,830
|
|
|
|
26,346
|
|
|
|
26,443
|
|
|
|
26,546
|
|
|
|
26,554
|
|
Interest earning assets
|
|
|
32,746
|
|
|
|
33,457
|
|
|
|
34,597
|
|
|
|
35,572
|
|
|
|
35,762
|
|
|
|
35,793
|
|
|
|
35,815
|
|
|
|
36,739
|
|
Deposits
|
|
|
26,234
|
|
|
|
26,681
|
|
|
|
26,976
|
|
|
|
27,436
|
|
|
|
28,046
|
|
|
|
27,255
|
|
|
|
26,994
|
|
|
|
27,557
|
|
Interest bearing liabilities
|
|
|
27,143
|
|
|
|
27,734
|
|
|
|
28,632
|
|
|
|
30,001
|
|
|
|
30,935
|
|
|
|
30,270
|
|
|
|
30,395
|
|
|
|
31,292
|
|
|
Selected Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on assets
|
|
|
(2.42
|
%)
|
|
|
(1.38
|
%)
|
|
|
(1.98
|
%)
|
|
|
(0.55
|
%)
|
|
|
(7.07
|
%)
|
|
|
(6.55
|
%)
|
|
|
0.24
|
%
|
|
|
0.97
|
%
|
Return on equity
|
|
|
(34.12
|
)
|
|
|
(26.24
|
)
|
|
|
(53.48
|
)
|
|
|
(19.13
|
)
|
|
|
(123.03
|
)
|
|
|
(93.32
|
)
|
|
|
2.08
|
|
|
|
12.83
|
|
|
Note: Because each reporting period stands on its own, the sum of the net (loss) income per common
share for the quarters is not equal to the net loss per common share for the year ended December
31, 2009. This was principally influenced by the issuance of over 357 million new shares of common
stock in August 2009 as part of the exchange offers, which impacted significantly the weighted
average common shares considered in the computation.
87
Managements Report to
Stockholders
To Our Stockholders:
Managements Assessment of Internal Control Over Financial Reporting
The management of Popular, Inc. (the Corporation) is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a 15(f) and 15d 15(f)
under the Securities Exchange Act of 1934 and for our assessment of internal control over financial
reporting. The Corporations internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting principles generally
accepted in the United States of America, and includes controls over the preparation of financial
statements in accordance with the instructions to the Consolidated Financial Statements for Bank
Holding Companies (Form FR Y-9C) to comply with the reporting requirements of Section 112 of the
Federal Deposit Insurance Corporation Improvement Act (FDICIA). The Corporations internal control
over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Corporation;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting principles generally accepted in
the United States of America, and that receipts and expenditures of the Corporation are being made
only in accordance with authorizations of management and directors of the Corporation; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Corporations assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
The management of Popular, Inc. has assessed the effectiveness of the Corporations internal
control over financial reporting as of December 31, 2009. In making this assessment, management
used the criteria set forth in the Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
Based on our assessment, management concluded that the Corporation maintained effective internal
control over financial reporting as of December 31, 2009 based on the criteria referred to above.
The Corporations independent registered public accounting firm, PricewaterhouseCoopers, LLP, has
audited the effectiveness of the Corporations internal control over financial reporting as of
December 31, 2009, as stated in their report dated March 1, 2010 which appears herein.
|
|
|
|
|
|
Richard L. Carrión
|
|
Jorge A. Junquera
|
Chairman of the Board
|
|
Senior Executive Vice President
|
and Chief Executive Officer
|
|
and Chief Financial Officer
|
88 POPULAR, INC. 2009 ANNUAL REPORT
Report of Independent Registered
Public Accounting Firm
To the Board of Directors and
Stockholders of Popular, Inc.
In our opinion, the accompanying consolidated statements of condition and the related consolidated
statements of operations, comprehensive (loss) income, changes in stockholders equity and cash
flows present fairly, in all material respects, the financial position of Popular, Inc. and its
subsidiaries at December 31, 2009 and 2008, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2009 in conformity with
accounting principles generally accepted in the United States of America. Also in our opinion, the
Corporation maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2009, based on criteria established
in
Internal Control Integrated
Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Corporations management is responsible for these financial statements, for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Managements Report to
Stockholders. Our responsibility is to express opinions on these financial statements and on the
Corporations internal control over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis
for our opinions.
As discussed in Note 1 to the consolidated financial statements, the Corporation changed the manner
in which it accounts for the financial assets and liabilities at fair value in 2008.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles.
Managements assessment and our audit of Popular, Inc.s internal control over financial reporting
also included controls over the preparation of
financial statements in accordance with the instructions to the Consolidated Financial Statements
for Bank Holding Companies (Form FR Y-9C) to comply with the reporting requirements of Section 112
of the Federal Deposit Insurance Corporation Improvement Act (FDICIA). A companys internal control
over financial reporting includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the companys assets that could have a material effect on the financial
statements.
89
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
PRICEWATERHOUSECOOPERS LLP
San Juan, Puerto Rico
March 1, 2010
CERTIFIED PUBLIC ACCOUNTANTS
(OF PUERTO RICO)
License No. 216 Expires December 1, 2010
Stamp 2389655 of the P.R.
Society of Certified Public
Accountants has been affixed
to the file copy of this report.
90 POPULAR, INC. 2009 ANNUAL REPORT
Consolidated Statements of
Condition
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands, except share information)
|
|
2009
|
|
2008
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
677,330
|
|
|
$
|
784,987
|
|
|
Money market investments:
|
|
|
|
|
|
|
|
|
Federal funds sold
|
|
|
159,807
|
|
|
|
214,990
|
|
Securities purchased under agreements to resell
|
|
|
293,125
|
|
|
|
304,228
|
|
Time deposits with other banks
|
|
|
549,865
|
|
|
|
275,436
|
|
|
|
|
|
1,002,797
|
|
|
|
794,654
|
|
|
Trading securities, at fair value:
|
|
|
|
|
|
|
|
|
Pledged securities with creditors right to repledge
|
|
|
415,653
|
|
|
|
562,795
|
|
Other trading securities
|
|
|
46,783
|
|
|
|
83,108
|
|
Investment securities available-for-sale, at fair value:
|
|
|
|
|
|
|
|
|
Pledged securities with creditors right to repledge
|
|
|
2,330,441
|
|
|
|
3,031,137
|
|
Other securities available-for-sale
|
|
|
4,364,273
|
|
|
|
4,893,350
|
|
Investment securities held-to-maturity, at amortized cost (fair value 2009 $213,146; 2008 $290,134)
|
|
|
212,962
|
|
|
|
294,747
|
|
Other investment securities, at lower of cost or realizable value (fair value 2009 $165,497;
2008 $255,830)
|
|
|
164,149
|
|
|
|
217,667
|
|
Loans held-for-sale, at lower of cost or fair value
|
|
|
90,796
|
|
|
|
536,058
|
|
|
Loans held-in-portfolio
|
|
|
23,827,263
|
|
|
|
25,857,237
|
|
Less Unearned income
|
|
|
114,150
|
|
|
|
124,364
|
|
Allowance for loan losses
|
|
|
1,261,204
|
|
|
|
882,807
|
|
|
|
|
|
22,451,909
|
|
|
|
24,850,066
|
|
|
Premises and equipment, net
|
|
|
584,853
|
|
|
|
620,807
|
|
Other real estate
|
|
|
125,483
|
|
|
|
89,721
|
|
Accrued income receivable
|
|
|
126,080
|
|
|
|
156,227
|
|
Servicing assets (measured at fair value 2009 $169,747; 2008 $176,034)
|
|
|
172,505
|
|
|
|
180,306
|
|
Other assets
(Note 15)
|
|
|
1,322,159
|
|
|
|
1,115,597
|
|
Goodwill
|
|
|
604,349
|
|
|
|
605,792
|
|
Other intangible assets
|
|
|
43,803
|
|
|
|
53,163
|
|
Assets from discontinued operations
|
|
|
|
|
|
|
12,587
|
|
|
|
|
$
|
34,736,325
|
|
|
$
|
38,882,769
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
4,495,301
|
|
|
$
|
4,293,553
|
|
Interest bearing
|
|
|
21,429,593
|
|
|
|
23,256,652
|
|
|
|
|
|
25,924,894
|
|
|
|
27,550,205
|
|
Federal funds purchased and assets sold under agreements to repurchase
|
|
|
2,632,790
|
|
|
|
3,551,608
|
|
Other short-term borrowings
|
|
|
7,326
|
|
|
|
4,934
|
|
Notes payable
|
|
|
2,648,632
|
|
|
|
3,386,763
|
|
Other liabilities
|
|
|
983,866
|
|
|
|
1,096,338
|
|
Liabilities from discontinued operations
|
|
|
|
|
|
|
24,557
|
|
|
|
|
|
32,197,508
|
|
|
|
35,614,405
|
|
|
Commitments and contingencies (See Notes 29, 31, 32, 33, 34)
|
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, 30,000,000 shares authorized; 2,006,391
shares issued and outstanding at December 31, 2009 (2008 24,410,000) (aggregate
liquidation preference value of $50,160 at December 31, 2009; 2008 $1,521,875)
|
|
|
50,160
|
|
|
|
1,483,525
|
|
Common stock, $0.01 par value at December 31, 2009 (2008 $6.00); 700,000,000
shares authorized (2008 470,000,000); 639,544,895 shares issued (2008 295,632,080)
and 639,540,105 outstanding (2008 282,004,713)
|
|
|
6,395
|
|
|
|
1,773,792
|
|
Surplus
|
|
|
2,804,238
|
|
|
|
621,879
|
|
Accumulated deficit
|
|
|
(292,752
|
)
|
|
|
(374,488
|
)
|
Treasury stock at cost, 4,790 shares (2008 13,627,367)
|
|
|
(15
|
)
|
|
|
(207,515
|
)
|
Accumulated other comprehensive loss,
net of tax of ($33,964) (2008 ($24,771))
|
|
|
(29,209
|
)
|
|
|
(28,829
|
)
|
|
|
|
|
2,538,817
|
|
|
|
3,268,364
|
|
|
|
|
$
|
34,736,325
|
|
|
$
|
38,882,769
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
91
Consolidated Statements of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(In thousands, except per share information)
|
|
2009
|
|
2008
|
|
2007
|
|
Interest Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
1,519,249
|
|
|
$
|
1,868,462
|
|
|
$
|
2,046,437
|
|
Money market investments
|
|
|
8,570
|
|
|
|
17,982
|
|
|
|
25,190
|
|
Investment securities
|
|
|
291,988
|
|
|
|
343,568
|
|
|
|
441,608
|
|
Trading securities
|
|
|
35,190
|
|
|
|
44,111
|
|
|
|
39,000
|
|
|
|
|
|
1,854,997
|
|
|
|
2,274,123
|
|
|
|
2,552,235
|
|
|
Interest Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
501,262
|
|
|
|
700,122
|
|
|
|
765,794
|
|
Short-term borrowings
|
|
|
69,357
|
|
|
|
168,070
|
|
|
|
424,530
|
|
Long-term debt
|
|
|
183,125
|
|
|
|
126,727
|
|
|
|
56,253
|
|
|
|
|
|
753,744
|
|
|
|
994,919
|
|
|
|
1,246,577
|
|
|
Net interest income
|
|
|
1,101,253
|
|
|
|
1,279,204
|
|
|
|
1,305,658
|
|
Provision for loan losses
|
|
|
1,405,807
|
|
|
|
991,384
|
|
|
|
341,219
|
|
|
Net interest income after provision for loan losses
|
|
|
(304,554
|
)
|
|
|
287,820
|
|
|
|
964,439
|
|
Service charges on deposit accounts
|
|
|
213,493
|
|
|
|
206,957
|
|
|
|
196,072
|
|
Other service fees (Note 26)
|
|
|
394,187
|
|
|
|
416,163
|
|
|
|
365,611
|
|
Net gain on sale and valuation adjustment of investment securities
|
|
|
219,546
|
|
|
|
69,716
|
|
|
|
100,869
|
|
Trading account profit
|
|
|
39,740
|
|
|
|
43,645
|
|
|
|
37,197
|
|
(Loss) gain on sale of loans, including adjustments to indemnity
reserves, and valuation adjustments on loans held-for-sale
|
|
|
(35,060
|
)
|
|
|
6,018
|
|
|
|
60,046
|
|
Other operating income
|
|
|
64,595
|
|
|
|
87,475
|
|
|
|
113,900
|
|
|
|
|
|
591,947
|
|
|
|
1,117,794
|
|
|
|
1,838,134
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
|
|
|
410,616
|
|
|
|
485,720
|
|
|
|
485,178
|
|
Pension and other benefits
|
|
|
122,647
|
|
|
|
122,745
|
|
|
|
135,582
|
|
|
|
|
|
533,263
|
|
|
|
608,465
|
|
|
|
620,760
|
|
Net occupancy expenses
|
|
|
111,035
|
|
|
|
120,456
|
|
|
|
109,344
|
|
Equipment expenses
|
|
|
101,530
|
|
|
|
111,478
|
|
|
|
117,082
|
|
Other taxes
|
|
|
52,605
|
|
|
|
52,799
|
|
|
|
48,489
|
|
Professional fees
|
|
|
111,287
|
|
|
|
121,145
|
|
|
|
119,523
|
|
Communications
|
|
|
46,264
|
|
|
|
51,386
|
|
|
|
58,092
|
|
Business promotion
|
|
|
38,872
|
|
|
|
62,731
|
|
|
|
109,909
|
|
Printing and supplies
|
|
|
11,093
|
|
|
|
14,450
|
|
|
|
15,603
|
|
Impairment losses on long-lived assets
|
|
|
1,545
|
|
|
|
13,491
|
|
|
|
10,478
|
|
FDIC deposit insurance
|
|
|
76,796
|
|
|
|
15,037
|
|
|
|
2,858
|
|
Gain on early extinguishment of debt
|
|
|
(78,300
|
)
|
|
|
|
|
|
|
|
|
Other operating expenses
|
|
|
138,724
|
|
|
|
141,301
|
|
|
|
111,129
|
|
Goodwill and trademark impairment losses
|
|
|
|
|
|
|
12,480
|
|
|
|
211,750
|
|
Amortization of intangibles
|
|
|
9,482
|
|
|
|
11,509
|
|
|
|
10,445
|
|
|
|
|
|
1,154,196
|
|
|
|
1,336,728
|
|
|
|
1,545,462
|
|
|
(Loss) income from continuing operations before income tax
|
|
|
(562,249
|
)
|
|
|
(218,934
|
)
|
|
|
292,672
|
|
Income tax (benefit) expense
|
|
|
(8,302
|
)
|
|
|
461,534
|
|
|
|
90,164
|
|
|
(Loss) income from continuing operations
|
|
|
(553,947
|
)
|
|
|
(680,468
|
)
|
|
|
202,508
|
|
Loss from discontinued operations, net of tax
|
|
|
(19,972
|
)
|
|
|
(563,435
|
)
|
|
|
(267,001
|
)
|
|
Net Loss
|
|
$
|
(573,919
|
)
|
|
$
|
(1,243,903
|
)
|
|
$
|
(64,493
|
)
|
|
Net Income (Loss) Applicable to Common Stock
|
|
$
|
97,377
|
|
|
$
|
(1,279,200
|
)
|
|
$
|
(76,406
|
)
|
|
Income (Loss) per Common Share Basic and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from continuing operations
|
|
$
|
0.29
|
|
|
$
|
(2.55
|
)
|
|
$
|
0.68
|
|
Loss from discontinued operations
|
|
|
(0.05
|
)
|
|
|
(2.00
|
)
|
|
|
(0.95
|
)
|
|
Net Income (Loss) per Common Share
|
|
$
|
0.24
|
|
|
$
|
(4.55
|
)
|
|
$
|
(0.27
|
)
|
|
Dividends Declared per Common Share
|
|
$
|
0.02
|
|
|
$
|
0.48
|
|
|
$
|
0.64
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
92 POPULAR, INC. 2009 ANNUAL REPORT
Consolidated Statements
of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(In thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(573,919
|
)
|
|
$
|
(1,243,903
|
)
|
|
$
|
(64,493
|
)
|
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of premises and equipment
|
|
|
64,451
|
|
|
|
73,088
|
|
|
|
78,563
|
|
Provision for loan losses
|
|
|
1,405,807
|
|
|
|
1,010,375
|
|
|
|
562,650
|
|
Goodwill and trademark impairment losses
|
|
|
|
|
|
|
12,480
|
|
|
|
211,750
|
|
Impairment losses on long-lived assets
|
|
|
1,545
|
|
|
|
17,445
|
|
|
|
12,344
|
|
Amortization of intangibles
|
|
|
9,482
|
|
|
|
11,509
|
|
|
|
10,445
|
|
Amortization and fair value adjustment of servicing assets
|
|
|
32,960
|
|
|
|
52,174
|
|
|
|
61,110
|
|
Amortization of discount on junior subordinated debentures
|
|
|
7,258
|
|
|
|
|
|
|
|
|
|
Net gain on sale and valuation adjustment of investment securities
|
|
|
(219,546
|
)
|
|
|
(64,296
|
)
|
|
|
(55,159
|
)
|
(Earnings) losses from changes in fair value related to instruments measured at
fair value pursuant to the fair value option
|
|
|
(1,674
|
)
|
|
|
198,880
|
|
|
|
|
|
Net gain on disposition of premises and equipment
|
|
|
(412
|
)
|
|
|
(25,904
|
)
|
|
|
(12,296
|
)
|
Net loss on sale of loans, including adjustments to indemnity reserves,
and valuation adjustments on loans held-for-sale
|
|
|
40,268
|
|
|
|
83,056
|
|
|
|
38,970
|
|
Gain on early extinguishment of debt
|
|
|
(78,300
|
)
|
|
|
|
|
|
|
|
|
Net amortization of premiums and accretion of discounts on investments
|
|
|
19,245
|
|
|
|
19,884
|
|
|
|
20,238
|
|
Net amortization of premiums on loans and deferred loan origination fees and costs
|
|
|
45,031
|
|
|
|
52,495
|
|
|
|
90,511
|
|
Fair value adjustment of other assets held for sale
|
|
|
|
|
|
|
120,789
|
|
|
|
|
|
Earnings from investments under the equity method
|
|
|
(17,695
|
)
|
|
|
(8,916
|
)
|
|
|
(21,347
|
)
|
Stock options expense
|
|
|
202
|
|
|
|
1,099
|
|
|
|
1,763
|
|
Net disbursements on loans held-for-sale
|
|
|
(1,129,554
|
)
|
|
|
(2,302,189
|
)
|
|
|
(4,803,927
|
)
|
Acquisitions of loans held-for-sale
|
|
|
(354,472
|
)
|
|
|
(431,789
|
)
|
|
|
(550,392
|
)
|
Proceeds from sale of loans held-for-sale
|
|
|
79,264
|
|
|
|
1,492,870
|
|
|
|
4,127,794
|
|
Net decrease in trading securities
|
|
|
1,542,470
|
|
|
|
1,754,100
|
|
|
|
1,222,585
|
|
Net decrease in accrued income receivable
|
|
|
30,601
|
|
|
|
59,459
|
|
|
|
11,832
|
|
Net (increase) decrease in other assets
|
|
|
(182,960
|
)
|
|
|
86,073
|
|
|
|
(94,215
|
)
|
Net (decrease) increase in interest payable
|
|
|
(47,695
|
)
|
|
|
(58,406
|
)
|
|
|
5,013
|
|
Deferred income taxes
|
|
|
(79,890
|
)
|
|
|
379,726
|
|
|
|
(223,740
|
)
|
Net increase in postretirement benefit obligation
|
|
|
4,223
|
|
|
|
3,405
|
|
|
|
2,388
|
|
Net increase (decrease) in other liabilities
|
|
|
32,213
|
|
|
|
(35,986
|
)
|
|
|
71,575
|
|
|
Total adjustments
|
|
|
1,202,822
|
|
|
|
2,501,421
|
|
|
|
768,455
|
|
|
Net cash provided by operating activities
|
|
|
628,903
|
|
|
|
1,257,518
|
|
|
|
703,962
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (increase) decrease in money market investments
|
|
|
(208,143
|
)
|
|
|
212,058
|
|
|
|
(638,568
|
)
|
Purchases of investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
(4,193,290
|
)
|
|
|
(4,075,884
|
)
|
|
|
(160,712
|
)
|
Held-to-maturity
|
|
|
(59,562
|
)
|
|
|
(5,086,169
|
)
|
|
|
(29,320,286
|
)
|
Other
|
|
|
(38,913
|
)
|
|
|
(193,820
|
)
|
|
|
(112,108
|
)
|
Proceeds from calls, paydowns, maturities and redemptions
of investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
1,631,607
|
|
|
|
2,491,732
|
|
|
|
1,608,677
|
|
Held-to-maturity
|
|
|
141,566
|
|
|
|
5,277,873
|
|
|
|
28,935,561
|
|
Other
|
|
|
75,101
|
|
|
|
192,588
|
|
|
|
44,185
|
|
Proceeds from sales of investment securities available-for-sale
|
|
|
3,825,313
|
|
|
|
2,445,510
|
|
|
|
58,167
|
|
Proceeds from sale of other investment securities
|
|
|
52,294
|
|
|
|
49,489
|
|
|
|
246,352
|
|
Net repayments (disbursements) on loans
|
|
|
1,053,747
|
|
|
|
(1,093,437
|
)
|
|
|
(1,457,925
|
)
|
Proceeds from sale of loans
|
|
|
328,170
|
|
|
|
2,426,491
|
|
|
|
415,256
|
|
Acquisition of loan portfolios
|
|
|
(72,675
|
)
|
|
|
(4,505
|
)
|
|
|
(22,312
|
)
|
Net liabilities acquired, net of cash
|
|
|
|
|
|
|
|
|
|
|
719,604
|
|
Mortgage servicing rights purchased
|
|
|
(1,364
|
)
|
|
|
(42,331
|
)
|
|
|
(26,507
|
)
|
Acquisition of premises and equipment
|
|
|
(69,640
|
)
|
|
|
(146,140
|
)
|
|
|
(104,866
|
)
|
Proceeds from sale of premises and equipment
|
|
|
40,243
|
|
|
|
60,058
|
|
|
|
63,455
|
|
Proceeds from sale of foreclosed assets
|
|
|
149,947
|
|
|
|
166,683
|
|
|
|
175,974
|
|
|
Net cash provided by investing activities
|
|
|
2,654,401
|
|
|
|
2,680,196
|
|
|
|
423,947
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in deposits
|
|
|
(1,625,598
|
)
|
|
|
(754,177
|
)
|
|
|
2,889,524
|
|
Net decrease in federal funds purchased and assets sold under agreements to repurchase
|
|
|
(918,818
|
)
|
|
|
(1,885,656
|
)
|
|
|
(325,180
|
)
|
Net increase (decrease) in other short-term borrowings
|
|
|
2,392
|
|
|
|
(1,497,045
|
)
|
|
|
(2,612,801
|
)
|
Payments of notes payable
|
|
|
(813,077
|
)
|
|
|
(2,016,414
|
)
|
|
|
(2,463,277
|
)
|
Proceeds from issuance of notes payable
|
|
|
60,675
|
|
|
|
1,028,098
|
|
|
|
1,425,220
|
|
Dividends paid
|
|
|
(71,438
|
)
|
|
|
(188,644
|
)
|
|
|
(190,617
|
)
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
17,712
|
|
|
|
20,414
|
|
Proceeds from issuance of preferred stock and associated warrants
|
|
|
|
|
|
|
1,324,935
|
|
|
|
|
|
Issuance costs and fees paid on exchange of preferred stock and trust preferred securities
|
|
|
(25,080
|
)
|
|
|
|
|
|
|
|
|
Treasury stock acquired
|
|
|
(17
|
)
|
|
|
(361
|
)
|
|
|
(2,525
|
)
|
|
Net cash used in financing activities
|
|
|
(3,390,961
|
)
|
|
|
(3,971,552
|
)
|
|
|
(1,259,242
|
)
|
|
Net decrease in cash and due from banks
|
|
|
(107,657
|
)
|
|
|
(33,838
|
)
|
|
|
(131,333
|
)
|
|
Cash and due from banks at beginning of period
|
|
|
784,987
|
|
|
|
818,825
|
|
|
|
950,158
|
|
|
Cash and due from banks at end of period
|
|
$
|
677,330
|
|
|
$
|
784,987
|
|
|
$
|
818,825
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
Note: The Consolidated Statements of Cash Flows for the year ended December 31, 2009, 2008 and
2007 include the cash flows from operating, investing and financing activities associated with
discontinued operations.
93
Consolidated Statements of
Changes in Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(In thousands, except share information)
|
|
2009
|
|
2008
|
|
2007
|
|
Preferred Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
1,483,525
|
|
|
$
|
186,875
|
|
|
$
|
186,875
|
|
Issuance of preferred stock 2008 Series B
|
|
|
|
|
|
|
400,000
|
|
|
|
|
|
Issuance of preferred stock 2008 Series C
|
|
|
|
|
|
|
935,000
|
|
|
|
|
|
Preferred stock discount 2008 Series C
|
|
|
|
|
|
|
(38,833
|
)
|
|
|
|
|
Exchange of Series A and B preferred stock
|
|
|
(536,715
|
)
|
|
|
|
|
|
|
|
|
Exchange of Series C preferred stock
|
|
|
(901,165
|
)
|
|
|
|
|
|
|
|
|
Accretion of Series C preferred stock discount
|
|
|
4,515
|
|
|
|
483
|
|
|
|
|
|
|
Balance at end of period
|
|
|
50,160
|
|
|
|
1,483,525
|
|
|
|
186,875
|
|
|
Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
1,773,792
|
|
|
|
1,761,908
|
|
|
|
1,753,146
|
|
Common stock issued in exchange of Series A and B preferred stock
|
|
|
1,717
|
|
|
|
|
|
|
|
|
|
Common stock issued in connection with early extinguishment of debt
(exchange of trust preferred securities for common stock)
|
|
|
1,858
|
|
|
|
|
|
|
|
|
|
Common stock issued under Dividend Reinvestment Plan
|
|
|
|
|
|
|
11,884
|
|
|
|
8,702
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
60
|
|
Treasury stock retired
|
|
|
(81,583
|
)
|
|
|
|
|
|
|
|
|
Change in par value (from $6.00 to $0.01)
|
|
|
(1,689,389
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
6,395
|
|
|
|
1,773,792
|
|
|
|
1,761,908
|
|
|
Surplus:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
621,879
|
|
|
|
568,184
|
|
|
|
526,856
|
|
Common stock issued in exchange of Series A and B preferred stock
|
|
|
291,974
|
|
|
|
|
|
|
|
|
|
Common stock issued in connection with early extinguishment of debt
(exchange of trust preferred securities for common stock)
|
|
|
315,794
|
|
|
|
|
|
|
|
|
|
Issuance costs related to exchange of Series A and B preferred stock
and trust preferred securities
|
|
|
(12,080
|
)
|
|
|
|
|
|
|
|
|
Issuance costs of Series A and B preferred stock (2008-Series B preferred stock)
|
|
|
12,636
|
|
|
|
(10,065
|
)
|
|
|
|
|
Issuance of common stock warrants
|
|
|
|
|
|
|
38,833
|
|
|
|
|
|
Common stock issued under Dividend Reinvestment Plan
|
|
|
|
|
|
|
5,828
|
|
|
|
11,466
|
|
Stock options expense on unexercised options, net of forfeitures
|
|
|
202
|
|
|
|
1,099
|
|
|
|
1,713
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
149
|
|
Treasury stock retired
|
|
|
(125,556
|
)
|
|
|
|
|
|
|
|
|
Change in par value (from $6.00 to $0.01)
|
|
|
1,689,389
|
|
|
|
|
|
|
|
|
|
Transfer from (accumulated deficit) retained earnings
|
|
|
10,000
|
|
|
|
18,000
|
|
|
|
28,000
|
|
|
Balance at end of year
|
|
|
2,804,238
|
|
|
|
621,879
|
|
|
|
568,184
|
|
|
(Accumulated Deficit) Retained Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
(374,488
|
)
|
|
|
1,319,467
|
|
|
|
1,594,144
|
|
Net loss
|
|
|
(573,919
|
)
|
|
|
(1,243,903
|
)
|
|
|
(64,493
|
)
|
Excess of carrying amount of Series A and B preferred stock
exchanged over fair value of new shares of common stock
|
|
|
230,388
|
|
|
|
|
|
|
|
|
|
Excess of carrying amount of Series C preferred stock
exchanged over fair value of new trust preferred securities
|
|
|
485,280
|
|
|
|
|
|
|
|
|
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
(261,831
|
)
|
|
|
8,667
|
|
Cash dividends declared on common stock
|
|
|
(5,641
|
)
|
|
|
(134,924
|
)
|
|
|
(178,938
|
)
|
Cash dividends declared on preferred stock
|
|
|
(39,857
|
)
|
|
|
(34,814
|
)
|
|
|
(11,913
|
)
|
Accretion of Series C preferred stock discount
|
|
|
(4,515
|
)
|
|
|
(483
|
)
|
|
|
|
|
Transfer to surplus
|
|
|
(10,000
|
)
|
|
|
(18,000
|
)
|
|
|
(28,000
|
)
|
|
Balance at end of year
|
|
|
(292,752
|
)
|
|
|
(374,488
|
)
|
|
|
1,319,467
|
|
|
Treasury Stock At Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
(207,515
|
)
|
|
|
(207,740
|
)
|
|
|
(206,987
|
)
|
Purchase of common stock
|
|
|
(17
|
)
|
|
|
(361
|
)
|
|
|
(2,525
|
)
|
Reissuance of common stock
|
|
|
378
|
|
|
|
586
|
|
|
|
1,772
|
|
Treasury stock retired
|
|
|
207,139
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
(15
|
)
|
|
|
(207,515
|
)
|
|
|
(207,740
|
)
|
|
Accumulated Other Comprehensive Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
(28,829
|
)
|
|
|
(46,812
|
)
|
|
|
(233,728
|
)
|
Other comprehensive (loss) income, net of tax
|
|
|
(380
|
)
|
|
|
17,983
|
|
|
|
186,916
|
|
|
Balance at end of year
|
|
|
(29,209
|
)
|
|
|
(28,829
|
)
|
|
|
(46,812
|
)
|
|
Total Stockholders Equity
|
|
$
|
2,538,817
|
|
|
$
|
3,268,364
|
|
|
$
|
3,581,882
|
|
|
Disclosure of changes in number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Preferred Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
24,410,000
|
|
|
|
7,475,000
|
|
|
|
7,475,000
|
|
Preferred stock Series A and B exchanged for common stock
|
|
|
(21,468,609
|
)
|
|
|
|
|
|
|
|
|
Preferred stock Series C exchanged for trust preferred securities
|
|
|
(935,000
|
)
|
|
|
|
|
|
|
|
|
Shares issued 2008 Series B
|
|
|
|
|
|
|
16,000,000
|
|
|
|
|
|
Shares issued 2008 Series C
|
|
|
|
|
|
|
935,000
|
|
|
|
|
|
|
Balance at end of year
|
|
|
2,006,391
|
|
|
|
24,410,000
|
|
|
|
7,475,000
|
|
|
Common Stock Issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
295,632,080
|
|
|
|
293,651,398
|
|
|
|
292,190,924
|
|
Shares issued in exchange of Series A and B preferred stock
and early extinguishment of debt (exchange
of trust preferred securities for common stock)
|
|
|
357,510,076
|
|
|
|
|
|
|
|
|
|
Shares issued under the Dividend Reinvestment Plan
|
|
|
|
|
|
|
1,980,682
|
|
|
|
1,450,410
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
10,064
|
|
Treasury stock retired
|
|
|
(13,597,261
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
639,544,895
|
|
|
|
295,632,080
|
|
|
|
293,651,398
|
|
|
Treasury stock
|
|
|
(4,790
|
)
|
|
|
(13,627,367
|
)
|
|
|
(13,622,183
|
)
|
|
Common Stock Outstanding
|
|
|
639,540,105
|
|
|
|
282,004,713
|
|
|
|
280,029,215
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
94 POPULAR, INC. 2009 ANNUAL REPORT
Consolidated Statements of
Comprehensive (Loss) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(In thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
Net loss
|
|
$
|
(573,919
|
)
|
|
$
|
(1,243,903
|
)
|
|
$
|
(64,493
|
)
|
|
Other comprehensive (loss) income, before tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(1,608
|
)
|
|
|
(4,480
|
)
|
|
|
2,113
|
|
Adjustment of pension and postretirement benefit plans
|
|
|
132,423
|
|
|
|
(209,070
|
)
|
|
|
18,121
|
|
Unrealized holding gains on securities available-for-sale
arising during the period
|
|
|
27,223
|
|
|
|
237,837
|
|
|
|
239,390
|
|
Reclassification adjustment for gains included in net loss
|
|
|
(173,107
|
)
|
|
|
(14,955
|
)
|
|
|
(55
|
)
|
Unrealized net losses on cash flow hedges
|
|
|
(1,419
|
)
|
|
|
(3,522
|
)
|
|
|
(4,782
|
)
|
Reclassification adjustment for losses included in net loss
|
|
|
6,915
|
|
|
|
2,840
|
|
|
|
1,077
|
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
(243
|
)
|
|
|
|
|
(9,573
|
)
|
|
|
8,650
|
|
|
|
255,621
|
|
Income tax benefit (expense)
|
|
|
9,193
|
|
|
|
9,333
|
|
|
|
(68,705
|
)
|
|
Total other comprehensive (loss) income, net of tax
|
|
|
(380
|
)
|
|
|
17,983
|
|
|
|
186,916
|
|
|
Comprehensive (loss) income, net of tax
|
|
$
|
(574,299
|
)
|
|
$
|
(1,225,920
|
)
|
|
$
|
122,423
|
|
|
Tax effects allocated to each component of other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(In thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
Underfunding of pension and
postretirement benefit plans
|
|
$
|
(51,075
|
)
|
|
$
|
79,533
|
|
|
$
|
(6,926
|
)
|
Unrealized
holding gains on securities available-for-sale
arising during the period
|
|
|
(1,306
|
)
|
|
|
(71,934
|
)
|
|
|
(63,104
|
)
|
Reclassification adjustment for gains included in net loss
|
|
|
62,790
|
|
|
|
2,266
|
|
|
|
8
|
|
Unrealized
net losses on cash flow hedges
|
|
|
553
|
|
|
|
579
|
|
|
|
1,723
|
|
Reclassification adjustment for losses included in net loss
|
|
|
(1,769
|
)
|
|
|
(1,111
|
)
|
|
|
(406
|
)
|
|
Income tax benefit (expense)
|
|
$
|
9,193
|
|
|
$
|
9,333
|
|
|
$
|
(68,705
|
)
|
|
Disclosure of accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(In thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
Foreign currency translation adjustment
|
|
$
|
(40,676
|
)
|
|
$
|
(39,068
|
)
|
|
$
|
(34,588
|
)
|
|
Underfunding of pension and
postretirement benefit plans
|
|
|
(127,786
|
)
|
|
|
(260,209
|
)
|
|
|
(51,139
|
)
|
Tax effect
|
|
|
48,566
|
|
|
|
99,641
|
|
|
|
20,108
|
|
|
Net of tax amount
|
|
|
(79,220
|
)
|
|
|
(160,568
|
)
|
|
|
(31,031
|
)
|
|
Unrealized gains on securities available-for-sale
|
|
|
104,090
|
|
|
|
249,974
|
|
|
|
27,092
|
|
Tax effect
|
|
|
(14,134
|
)
|
|
|
(75,618
|
)
|
|
|
(5,950
|
)
|
|
Net of tax amount
|
|
|
89,956
|
|
|
|
174,356
|
|
|
|
21,142
|
|
|
Unrealized gains (losses) on cash flow hedges
|
|
|
1,199
|
|
|
|
(4,297
|
)
|
|
|
(3,615
|
)
|
Tax effect
|
|
|
(468
|
)
|
|
|
748
|
|
|
|
1,280
|
|
|
Net of tax amount
|
|
|
731
|
|
|
|
(3,549
|
)
|
|
|
(2,335
|
)
|
|
Accumulated other comprehensive loss
|
|
$
|
(29,209
|
)
|
|
$
|
(28,829
|
)
|
|
$
|
(46,812
|
)
|
|
The accompanying notes are an integral part of the consolidated financial statements.
95
Notes to Consolidated
Financial Statements
|
|
|
|
|
Note 1 Nature of operations and summary of significant
accounting policies
|
|
|
96
|
|
Note 2 Subsequent events
|
|
|
111
|
|
Note 3 Discontinued operations
|
|
|
111
|
|
Note 4 Restructuring plans
|
|
|
113
|
|
Note 5 Restrictions on cash and due from banks and
highly liquid securities
|
|
|
115
|
|
Note 6 Securities purchased under agreements to resell
|
|
|
115
|
|
Note 7 Investment securities available-for-sale
|
|
|
116
|
|
Note 8 Investment securities held-to-maturity
|
|
|
119
|
|
Note 9 Pledged assets
|
|
|
121
|
|
Note 10 Loans and allowance for loan losses
|
|
|
121
|
|
Note 11 Related party transactions
|
|
|
122
|
|
Note 12 Premises and equipment
|
|
|
123
|
|
Note 13 Servicing assets
|
|
|
123
|
|
Note 14 Goodwill and other intangible assets
|
|
|
125
|
|
Note 15 Other assets
|
|
|
129
|
|
Note 16 Deposits
|
|
|
129
|
|
Note 17 Federal funds purchased and assets sold
under agreements to repurchase
|
|
|
130
|
|
Note 18 Other short-term borrowings
|
|
|
131
|
|
Note 19 Notes payable
|
|
|
131
|
|
Note 20 Unused lines of credit and other funding sources
|
|
|
132
|
|
Note 21 Exchange offers
|
|
|
132
|
|
Note 22 Trust preferred securities
|
|
|
134
|
|
Note 23 Stockholders equity
|
|
|
136
|
|
Note 24 Net income (loss) per common share
|
|
|
138
|
|
Note 25 Regulatory capital requirements
|
|
|
138
|
|
Note 26 Other service fees
|
|
|
139
|
|
Note 27 Employee benefits
|
|
|
139
|
|
Note 28 Stock-based compensation
|
|
|
146
|
|
Note 29 Rental expense and commitments
|
|
|
148
|
|
Note 30 Income tax
|
|
|
148
|
|
Note 31 Derivative instruments and hedging activities
|
|
|
150
|
|
Note 32 Off-balance sheet activities and
concentration of credit risk
|
|
|
153
|
|
Note 33 Contingent liabilities
|
|
|
153
|
|
Note 34 Guarantees
|
|
|
154
|
|
Note 35 Fair value option
|
|
|
156
|
|
Note 36 Fair value measurement
|
|
|
157
|
|
Note 37 Disclosures about fair value of financial
instruments
|
|
|
162
|
|
Note 38 Supplemental disclosure on the consolidated
statements of cash flows
|
|
|
164
|
|
Note 39 Segment reporting
|
|
|
165
|
|
Note 40 Popular, Inc. (Holding Company only) financial
information
|
|
|
168
|
|
Note 41 Condensed consolidating financial information
of guarantor and issuers of registered guaranteed
securities
|
|
|
170
|
|
96 POPULAR, INC. 2009 ANNUAL REPORT
Note 1 Nature of Operations and Summary of Significant Accounting Policies:
The accounting and financial reporting policies of Popular, Inc. and its subsidiaries (the
Corporation) conform with accounting principles generally accepted in the United States of
America and with prevailing practices within the financial services industry.
The following is a
description of the most significant of these policies:
Nature of operations
The Corporation 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 financial services
provider with operations in Puerto Rico, the United
States, the Caribbean and Latin America. As the leading
financial institution in Puerto Rico, the Corporation
offers retail and commercial banking services through
its principal banking subsidiary, Banco Popular de
Puerto Rico (BPPR), as well as auto and equipment
leasing and financing, mortgage loans, investment
banking, broker-dealer and insurance services through
specialized subsidiaries. In the United States, Popular
has established a community-banking franchise, Banco
Popular North America (BPNA) providing a broad range
of financial services and products with branches in New
York, New Jersey, Illinois, Florida and California.
Popular also offers processing technology services
through its subsidiary EVERTEC, Inc. This subsidiary
provides transaction processing services throughout the
Caribbean and Latin America, as well as internally
services many of the Corporations subsidiaries system
infrastructures and transactional processing
businesses. Note 39 to the consolidated financial
statements present information about the Corporations
business segments.
Principles of consolidation
The consolidated financial statements include the
accounts of Popular, Inc. and its subsidiaries.
Intercompany accounts and transactions have been
eliminated in consolidation. In accordance with the
consolidation guidance for variable interest entities, the Corporation would also
consolidate any variable interest entities (VIEs) 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. Assets held in a fiduciary capacity are not
assets of the Corporation and, accordingly, are not
included in the consolidated statements of condition.
Unconsolidated investments, in which there is at
least 20% ownership, are generally accounted for by the
equity method, with earnings recorded in other
operating income. These investments are included in
other assets and the Corporations proportionate share
of income or loss is included in other operating
income. Those investments in which there is less than
20% ownership, are generally carried under the cost
method of accounting, unless significant influence is
exercised. Under the cost method, the Corporation
recognizes income when dividends are received. Limited
partnerships are accounted for by the equity method unless the
investors interest is so minor that the limited
partner may have virtually no influence over
partnership operating and financial policies.
Statutory business trusts that are wholly-owned by the
Corporation and are issuers of trust preferred
securities are not consolidated in the Corporations
consolidated financial statements.
Business combinations
Business combinations are
accounted for under the acquisition method. Under this
method, assets acquired, liabilities assumed and any
noncontrolling interest in the acquiree at the
acquisition date are measured at their fair values as
of the acquisition date. The acquisition date is the
date the acquirer obtains control. Also, assets or
liabilities arising from noncontractual contingencies
are measured at their acquisition date at fair value
only if it is more likely than not that they meet the
definition of an asset or liability. Adjustments
subsequently made to the provisional amounts recorded
on the acquisition date will be made retroactively
during a measurement period not to exceed one year.
Furthermore, acquisition-related restructuring costs
that do not meet certain criteria of exit or disposal
activities are expensed as incurred. Transaction costs
are expensed as incurred. The reversals of deferred
income tax valuation allowances and income tax
contingencies are recognized in earnings subsequent to
the measurement period. There were no significant
business combinations during 2009 and 2008.
Discontinued operations
Components of the Corporation that have been or will be
disposed of by sale, where the Corporation does not
have a significant continuing involvement in the
operations after the disposal, are accounted for as
discontinued operations.
The financial results of Popular Financial Holdings
(PFH) are reported as discontinued operations in the
consolidated statements of operations for all periods
presented and in the consolidated statement of
condition for the year ended December 31, 2008.
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Prior to the discontinuance of the business, PFH was
considered a reportable segment. Refer to Note 3 to the
consolidated financial statements for additional
information on PFHs discontinued operations.
The results of operations of the discontinued
operations exclude allocations of corporate overhead.
The interest expense allocated to the discontinued
operations is based on legal entity, which considers a
transfer pricing allocation for intercompany funding.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity
with accounting principles generally accepted in the
United States of America requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and contingent assets
and liabilities at the date of the financial
statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results
could differ from those estimates.
Fair Value Measurements
Effective January 1, 2008, the Corporation determines
the fair values of its financial instruments based on
the fair value framework established in the guidance
for Fair Value Measurements in ASC Subtopic 820-10,
which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable
inputs when measuring fair value. Fair value is defined
as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the
asset or liability in an orderly transaction between
market participants on the measurement date. The
standard describes three levels of inputs that may be
used to measure fair value which 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. The fair value hierarchy
ranks the quality and reliability of the information
used to determine fair values. In January 2009, the
Corporation adopted the provisions of fair value
measurements and disclosures for nonfinancial assets
and nonfinancial liabilities that are recognized or
disclosed at fair value on a nonrecurring basis. Refer
to Note 36 to these consolidated financial statements
for the fair value measurement disclosures required for
the year ended December 31, 2009.
The guidance in ASC Subtopic 820-10 also addresses
measuring fair value in situations where markets are
inactive and transactions are not orderly. Transactions
or quoted prices for assets and liabilities may not be
determinative of fair value when transactions are not
orderly, and thus, may require adjustments to estimate
fair value. Price quotes based on transactions that are
not orderly should be given little, if any, weight in
measuring fair value. Price
quotes based on transactions that are orderly shall
be considered in determining fair value, and the weight
given is based on facts and circumstances. If
sufficient information is not available to determine if
price quotes are based on orderly transactions, less
weight should be given to the price quote relative to
other transactions that are known to be orderly.
Fair value option
In
January 2008, the Corporation adopted the guidance
in ASC Subtopic 825-10, 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 adoption date was recorded as
a transition adjustment to beginning retained earnings.
Subsequent changes in fair value are recognized in
earnings. After the initial adoption, the fair value election is
made at the acquisition of a financial asset, financial
liability, or a firm commitment and it may not be
revoked.
Refer to Note 35 to these consolidated financial
statements for the impact of the initial adoption of
the fair value option to beginning retained earnings as
of January 1, 2008. There were no financial assets or
liabilities from continuing operations measured pursuant to the fair value option at December 31, 2009
and 2008.
Investment securities
Investment securities are classified in four categories
and accounted for as follows:
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Debt securities that the Corporation has the
intent and ability to hold to maturity are
classified as securities held-to-maturity and
reported at amortized cost. The Corporation may
not sell or transfer held-to-maturity securities
without calling into question its intent to hold
other debt securities to maturity, unless a
nonrecurring or unusual event that could not have
been reasonably anticipated has occurred.
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Debt and equity securities classified as trading
securities are reported at fair value, with
unrealized gains and losses included in
non-interest income.
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Debt and equity securities not classified as
either securities held-to-maturity or trading
securities, and which have a readily available
fair value, are classified as securities
available-for-sale and reported at fair value,
with unrealized gains and losses excluded from
earnings and reported, net of taxes, in
accumulated other comprehensive income or loss. The
specific identification method is used to
determine realized gains and losses on securities
available-for-sale, which are included in net gains or losses
on sale and valuation adjustment
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98 POPULAR, INC. 2009 ANNUAL REPORT
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of investment securities in the consolidated
statements of operations. Declines in the value
of debt and equity securities that are considered
other-than-temporary reduce the value of the
asset, and the estimated loss is recorded in
non-interest income. In April 2009, the
Corporation adopted the new guidance for
other-than-temporary impairment for debt
securities. For debt securities, the Corporation
is required to assess whether (a) it has the
intent to sell the debt security, or (b) it is
more likely than not that it will be required to
sell the debt security before its anticipated
recovery. If either of these conditions is met,
an other-than-temporary impairment on the
security must be recognized. In instances in
which a determination is made that a credit loss
(defined as the difference between the present
value of the cash flows expected to be collected
and the amortized cost basis) exists but the
entity does not intend to sell the debt security
and it is not more likely than not that the
entity will be required to sell the debt security
before the anticipated recovery of its remaining
amortized cost basis (i.e., the amortized cost
basis less any current-period credit loss), the
impairment is separated into (a) the amount of
the total impairment related to the credit loss,
and (b) the amount of the total impairment
related to all other factors. The amount of the
total other-than-temporary impairment related to
the credit loss is recognized in the statement of
operations. The amount of the total impairment
related to all other factors is recognized in
other comprehensive loss. Previously, in all
cases, if an impairment was determined to be
other-than-temporary, an impairment loss was
recognized in earnings in an amount equal to the
entire difference between the securitys
amortized cost basis and its fair value at the
balance sheet date of the reporting period for
which the assessment was made. This guidance does
not amend the existing recognition and
measurement guidance related to
other-than-temporary impairments for equity
securities. The other-than-temporary impairment
analysis for both debt and equity securities are
performed on a quarterly basis.
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Investments in equity or other securities that do
not have readily available fair values are
classified as other investment securities in the
consolidated statements of condition, and are
subject to impairment testing if applicable.
These securities are stated at the lower of cost
or realizable value. The source of this value
varies according to the nature of the investment,
and is primarily obtained by the Corporation from
valuation analyses prepared by third-parties or
from information derived from financial
statements available for the corresponding
venture capital and mutual funds. Stock that is
owned by the Corporation to comply with
regulatory requirements, such as Federal Reserve
Bank and Federal Home Loan Bank (FHLB) stock,
is included in this
category, and their realizable value equals their cost.
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The amortization of premiums is deducted and the
accretion of discounts is added to net interest income
based on the interest method over the outstanding
period of the related securities, except for a small
portfolio of mortgage-backed securities for which the
Corporation utilizes a method which approximates the
interest method, but which incorporates factors such as
actual prepayments. The results of the alternative
method do not differ materially from those obtained
using the interest method. The cost of securities sold
is determined by specific identification. Net realized
gains or losses on sales of investment securities and
unrealized loss valuation adjustments considered other-than-temporary, if any, on securities
available-for-sale, held-to-maturity and other
investment securities are determined using the specific
identification method and are reported separately in
the consolidated statements of operations. Purchases
and sales of securities are recognized on a trade date
basis.
Derivative financial instruments
The Corporation uses derivative financial instruments
as part of its overall interest rate risk management
strategy to minimize significant unplanned fluctuations
in earnings and cash flows caused by interest rate
volatility.
All derivatives are recognized on the statement of
condition at fair value. The Corporations policy is
not to offset the fair value amounts recognized for
multiple derivative instruments executed with the same
counterparty under a master netting arrangement nor to
offset the 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.
When the Corporation enters into a derivative
contract, the derivative instrument is designated as
either a fair value hedge, cash flow hedge or as a
free-standing derivative instrument. For a fair value
hedge, changes in the fair value of the derivative
instrument and changes in the fair value of the hedged
asset or liability or of an unrecognized firm
commitment attributable to the hedged risk are recorded
in current period earnings. For a cash flow hedge,
changes in the fair value of the derivative instrument,
to the extent that it is effective, are recorded net of
taxes in accumulated other comprehensive income and
subsequently reclassified to net income (loss) in the same
period(s) that the hedged transaction impacts earnings.
The ineffective portion of cash flow hedges is
immediately recognized in current earnings. For
free-standing derivative instruments, changes in the
fair values are reported in current period earnings.
Prior to entering a hedge transaction, the
Corporation formally documents the relationship between
hedging instruments and hedged items, as well as the
risk management objective and strategy for undertaking
various hedge transactions. This process
99
includes linking all derivative instruments that are
designated as fair value or cash flow hedges to
specific assets and liabilities on the statement of
condition or to specific forecasted transactions or
firm commitments along with a formal assessment, at
both inception of the hedge and on an ongoing basis, as
to the effectiveness of the derivative instrument in
offsetting changes in fair values or cash flows of the
hedged item. Hedge accounting is discontinued when the
derivative instrument is not highly effective as a
hedge, a derivative expires, is sold, terminated, when
it is unlikely that a forecasted transaction will occur
or when it is determined that is no longer appropriate.
When hedge accounting is discontinued the derivative
continues to be carried at fair value with changes in
fair value included in earnings.
For non-exchange traded contracts, fair value is based on dealer quotes, pricing models,
discounted cash flow methodologies, or similar techniques for which the determination of fair value
may require significant management judgment or estimation.
The
fair value of derivative instruments considers the risk of
nonperformance by the counterparty or the Corporation, as applicable.
The
Corporation obtains or pledges collateral in connection
with its derivative activities when applicable under the agreement.
Loans
Loans are classified as loans held-in-portfolio when
management has the intent and ability to hold the loan
for the foreseeable future, or until maturity or
payoff. The foreseeable future is a management judgment
which is determined based upon the type of loan,
business strategies, current market conditions, balance
sheet management and liquidity needs. Managements view
of the foreseeable future may change based on changes
in these conditions. When a decision is made to sell or
securitize a loan that was not originated or initially
acquired with the intent to sell or securitize, the
loan is reclassified from held-in-portfolio into
held-for-sale. Due to changing market conditions or
other strategic initiatives, managements intent with
respect to the disposition of the loan may change, and
accordingly, loans previously classified as
held-for-sale may be reclassified into
held-in-portfolio. Loans
transferred between loans held-for-sale and
held-in-portfolio classifications are recorded at the
lower of cost or fair value at the date of transfer.
Loans held-for-sale are stated at the lower of
cost or fair value, cost being determined based on the
outstanding loan balance less unearned income, and fair
value determined, generally in the aggregate. Fair
value is measured based on current market prices for
similar loans, outstanding investor commitments, bids
received from potential purchasers, prices of recent
sales or discounted cash flow analyses which utilize
inputs and assumptions which are believed to be
consistent with market participants views. The cost
basis also includes consideration of deferred
origination fees and costs, which are recognized in
earnings at the time of sale. The amount, by which cost
exceeds fair value, if any, is accounted for as a
valuation allowance with changes therein included in
the determination of net income (loss) for the period
in which the change occurs.
Loans held-in-portfolio are reported at their
outstanding principal balances net of any unearned
income, charge-offs, unamortized deferred fees and
costs on originated loans, and premiums or discounts on
purchased loans. Fees collected and costs incurred in
the origination of new loans are deferred and amortized
using the interest method or a method which
approximates the interest method over the term of the
loan as an adjustment to interest yield.
Non-accrual loans are those loans on which the
accrual of interest is discontinued. When a loan is
placed on non-accrual status, any interest previously
recognized and not collected is generally reversed from
current earnings.
Recognition of interest income on commercial and
construction loans is discontinued when the loans are
90 days or more in arrears on payments of principal or
interest or when other factors indicate that the
collection of principal and interest is doubtful. The
impaired portions on these loans are charged-off at no
longer than 365 days past due. Recognition of interest
income on mortgage loans is discontinued when 90 days
or more in arrears
100 POPULAR, INC. 2009 ANNUAL REPORT
on payments of principal or interest. The impaired
portions on mortgage loans are charged-off at 180 days
past due. Recognition of interest income on closed-end
consumer loans and home equity lines of credit is
discontinued when the loans are 90 days or more in
arrears. Income is generally recognized on open-end
consumer loans, except for home equity lines of credit,
until the loans are charged-off. Recognition of
interest income for lease financing is ceased when
loans are 90 days or more in arrears. Closed-end
consumer loans and leases are charged-off when they are
120 days in arrears. Open-end (revolving credit)
consumer loans are charged-off when 180 days in
arrears.
Certain loans which would be treated as
non-accrual loans pursuant to the foregoing policy are
treated as accruing loans if they are considered
well-secured and in the process of collection. Also,
unsecured retail loans to borrowers who declare
bankruptcy are charged-off within 60 days of receipt of
notification of filing from the bankruptcy court.
Once a loan is placed on non-accrual status, the
interest previously accrued and uncollected is charged
against current earnings and thereafter income is
recorded only to the extent of any interest collected.
Loans designated as non-accruing are not returned to an
accrual status until interest is received on a current
basis and those factors indicative of doubtful
collection cease to exist. Special guidelines exist for
troubled debt restructurings.
Lease financing
The Corporation leases passenger and commercial
vehicles and equipment to individual and corporate
customers. The finance method of accounting is used to
recognize revenue on lease contracts that meet the
criteria specified in the guidance for leases in ASC
Topic 840. Aggregate rentals due over the term of the
leases less unearned income are included in finance
lease contracts receivable. Unearned income is
amortized using a method which results in approximate
level rates of return on the principal amounts
outstanding. Finance lease origination fees and costs
are deferred and amortized over the average life of the
lease as an adjustment to the interest yield.
Revenue for other leases is recognized as it
becomes due under the terms of the agreement.
Allowance for loan losses
The Corporation follows a systematic methodology to
establish and evaluate the adequacy of the allowance
for loan losses to provide for inherent losses in the
loan portfolio. This methodology includes the
consideration of factors such as current economic
conditions, portfolio risk characteristics, prior loss
experience and results of periodic credit reviews of
individual loans. The provision for loan losses charged
to current operations is based on such methodology.
Loan losses are charged and recoveries are credited to
the allowance for loan losses.
The allowance for loan losses excludes loans measured pursuant to the fair value option since
fair value adjustments related to these financial instruments already reflect a credit component.
The Corporations assessment of the allowance for loan losses is determined in accordance with
accounting guidance, specifically guidance of loss contingencies in ASC Subtopic 450-20 and loan
impairment guidance in ASC Section 310-10-35.
The accounting guidance provides for the
recognition of a loss allowance for groups of
homogeneous loans. During 2009, the Corporation
enhanced the reserve assessment of homogeneous loans by
establishing a more granular segmentation of loans with
similar risk characteristics, reducing the historical
base loss periods employed, and strengthening the
analysis pertaining to the environmental factors
considered. The revised segmentation considers business
segments and product types, which are further
segregated based on their secured or unsecured status.
The determination for general reserves of the allowance
for loan losses is based on historical net loss rates
(including losses from impaired loans) by loan type and
by legal entity adjusted for recent net charge-off
trends and environmental factors. The base net loss
rates are based on the moving average of annualized net
charge-offs computed over a three-year historical loss
window for commercial and construction loan portfolios,
and an 18-month period for consumer loan portfolios.
The net charge-off trend factors are applied to adjust
the base loss rates based on recent loss trends. The
environmental factors, which include credit and
macroeconomic indicators, are assessed to account for
current market conditions that are likely to cause
estimated credit losses to differ from historical loss
experience. The Corporation reflects the effect of
these environmental factors on a loan group as an
adjustment that, as appropriate, increases or decreases
the historical loss rate applied to each group.
Correlation and regression analyses are used to select
and weight these indicators.
According
to the accounting guidance criteria for specific
impairment of a loan, up to December 31, 2008, the
Corporation defined as impaired loans those commercial
borrowers with outstanding debt of $250,000 or more and
with interest and /or principal 90 days or more past
due. Also, specific commercial borrowers with
outstanding debt of $500,000 and over were deemed
impaired when, based on current information and events,
management considered that it was probable that the
debtor would be unable to pay all amounts due according
to the contractual terms of the loan agreement.
Effective January 1, 2009, the Corporation continues to
apply the same definition except that it prospectively
increased the threshold of outstanding debt to
$1,000,000 for the identification of newly impaired
commercial and construction loans. Although the accounting
codification guidance for specific impairment of a loan excludes
large groups of smaller balance homogeneous loans that
are collectively evaluated for impairment (e.g.
mortgage loans), it specifically requires that loan
modifications considered troubled
101
debt restructurings (TDRs) be analyzed under its
provisions. An allowance for loan impairment is
recognized to the extent that the carrying value of an
impaired loan exceeds the present value of the expected
future cash flows discounted at the loans effective
rate, the observable market price of the loan, if
available, or the fair value of the collateral if the
loan is collateral dependent. The fair value of the
collateral is generally obtained from appraisals. The
Corporation periodically requires updated appraisal
reports for loans that are considered impaired. As a
general procedure, the Corporation internally reviews
appraisals as part of the underwriting and approval
process and also for credits considered impaired.
Cash payments received on impaired loans are
recorded in accordance with the contractual terms of
the loan. The principal portion of the payment is used
to reduce the principal balance of the loan, whereas
the interest portion is recognized as interest income.
However, when management believes the ultimate
collectability of principal is in doubt, the interest
portion is applied to principal.
Troubled debt restructurings (
TDR
)
TDRs represent loans where concessions have been
granted to borrowers experiencing financial
difficulties that the creditor would not otherwise
consider. These concessions could include a reduction
in the interest rate on the loan, payment extensions,
forgiveness of principal, forbearance or other actions
intended to maximize collection. These concessions stem
from an agreement between the creditor and the debtor
or are imposed by law or a court. Classification of
loan modifications as TDRs involves a degree of
judgment. Indicators that the debtor is experiencing
financial difficulties include, for example: (i) the
debtor is currently in default on any of its debt; (ii)
the debtor has declared or is in the process of
declaring bankruptcy; (iii) there is significant doubt
as to whether the debtor will continue to be a going
concern; (iv) currently, the debtor has securities that
have been delisted, are in the process of being
delisted, or are under threat of being delisted from an
exchange; (v) based on estimates and projections that
only encompass the current business capabilities, the
debtor forecasts that its entity-specific cash flows
will be insufficient to service the debt (both interest
and principal) in accordance with the contractual terms
of the existing agreement through maturity; and absent
the current modification, the debtor cannot obtain
funds from sources other than the existing creditors at
an effective interest rate equal to the current market
interest rate for similar debt for a nontroubled
debtor. The identification of TDRs is critical in the
determination of the adequacy of the allowance for loan
losses. Loans classified as TDRs are reported in
non-accrual status if the loan was in non-accruing
status at the time of the modification. The TDR loan should continue
in non-accrual status until the borrower has demonstrated a
willingness and ability to make the restructured loan payments (at
least six months of sustained performance after classified as TDR). Loans
classified
as TDRs are excluded from TDR status if performance
under the restructured terms exists for a reasonable
period (at least twelve months of sustained performance)
and the loan yields a market rate.
Transfers and servicing of financial assets and
extinguishment of liabilities
The transfer of financial assets in which the
Corporation surrenders control over the assets is accounted for as a sale to the extent that
consideration other than beneficial interests is
received in exchange. The guidance for transfer of
financial assets in ASC Topic 860 sets forth the
criteria that must be met for control over transferred
assets to be considered to have been surrendered, which
includes, among others: (1) the assets must be
isolated from creditors of the transferor, (2) the
transferee must obtain the right (free of conditions
that constrain it from taking advantage of that right)
to pledge or exchange the transferred assets, and (3)
the transferor cannot maintain effective control over
the transferred assets through an agreement to
repurchase them before their maturity. When the
Corporation transfers financial assets and the transfer
fails any one of these criteria, the Corporation is
prevented from derecognizing the transferred financial
assets and the transaction is accounted for as a
secured borrowing. For federal and Puerto Rico income
tax purposes, the Corporation treats the transfers of
loans which do not qualify as true sales under the
applicable accounting guidance, as sales, recognizing a deferred tax
asset or liability on the transaction.
For
transfers of financial assets that satisfy the
conditions to be accounted for as sales, the
Corporation derecognizes all assets sold; recognizes
all assets obtained and liabilities incurred in
consideration as proceeds of the sale, including
servicing assets and servicing liabilities, if
applicable; initially measures at fair value assets
obtained and liabilities incurred in a sale; and
recognizes in earnings any gain or loss on the sale.
The guidance on transfer of financial assets
requires a true sale analysis of the treatment of the
transfer under state law as if the Corporation was a
debtor under the bankruptcy code. A true sale legal
analysis includes several legally relevant factors,
such as the nature and level of recourse to the
transferor, and the nature of retained interests in the
loans sold. The analytical conclusion as to a true sale
is never absolute and unconditional, but contains
qualifications based on the inherent equitable powers
of a bankruptcy court, as well as the unsettled state
of the common law. Once the legal isolation test has
been met, other factors concerning the nature and
extent of the transferors control over the transferred
assets are taken into account in order to determine
whether derecognition of assets is warranted.
The Corporation sells mortgage loans to the
Government National Mortgage Association (GNMA) in
the normal course of business and retains the servicing
rights. The GNMA programs
102 POPULAR, INC. 2009 ANNUAL REPORT
under which the loans are sold allow the Corporation to
repurchase individual delinquent loans that meet
certain criteria. At the Corporations option, and
without GNMAs prior authorization, the Corporation may
repurchase the delinquent loan for an amount equal to
100% of the remaining principal balance of the loan.
Once the Corporation has the unconditional ability to
repurchase the delinquent loan, the Corporation is
deemed to have regained effective control over the loan
and recognizes the loan on its balance sheet as well as
an offsetting liability, regardless of the
Corporations intent to repurchase the loan.
Servicing assets
The Corporation periodically sells or securitizes loans
while retaining the obligation to perform the servicing
of such loans. In addition, the Corporation may
purchase or assume the right to service loans
originated by others. Whenever the Corporation
undertakes an obligation to service a loan, management
assesses whether a servicing asset or liability should
be recognized. A servicing asset is recognized whenever
the compensation for servicing is expected to more than
adequately compensate the servicer for performing the
servicing. Likewise, a servicing liability would be
recognized in the event that servicing fees to be
received are not expected to adequately compensate the
Corporation for its expected cost. Servicing assets are
separately presented on the consolidated statement of
condition.
All separately recognized servicing assets are
initially recognized at fair value. For subsequent
measurement of servicing rights, the Corporation has
elected the fair value method for mortgage loans
servicing rights (MSRs) while all other servicing
assets, particularly related to Small Business
Administration (SBA) commercial loans, follow the
amortization method. Under the fair value measurement
method, MSRs are recorded at fair value each reporting
period, and changes in fair value are reported in other
service fees in the consolidated statement of
operations. Under the amortization method, servicing
assets are amortized in proportion to, and over the
period of, estimated servicing income, and assessed for
impairment based on fair value at each reporting
period. Contractual servicing fees including ancillary
income and late fees, as well as fair value
adjustments, and impairment losses, if any, are
reported in other service fees in the consolidated
statement of operations. Loan servicing fees, which are
based on a percentage of the principal balances of the
loans serviced, are credited to income as loan payments
are collected.
The fair value of servicing rights is estimated by
using a cash flow valuation model which calculates the
present value of estimated future net servicing cash
flows, taking into consideration actual and expected
loan prepayment rates, discount rates, servicing costs,
and other economic factors, which are determined based
on current market conditions.
For purposes of evaluating and measuring impairment
of capitalized servicing assets that are accounted
under the amortization method, the amount of impairment
recognized, if any, is the amount by which the
capitalized servicing assets per stratum exceed their
estimated fair value. Temporary impairment is
recognized through a valuation allowance with changes
included in results of operations for the period in
which the change occurs. If it is later determined that
all or a portion of the temporary impairment no longer
exists for a particular stratum, the valuation
allowance is reduced through a recovery in earnings.
Any fair value in excess of the cost basis of the
servicing asset for a given stratum is not recognized.
Servicing rights subsequently accounted under the
amortization method are also reviewed for
other-than-temporary impairment. When the
recoverability of an impaired servicing asset accounted
under the amortization method is determined to be
remote, the unrecoverable portion of the valuation
allowance is applied as a direct write-down to the
carrying value of the servicing rights, precluding
subsequent recoveries.
Refer to Note 13 to the consolidated financial
statements for information on the classes of servicing
assets defined by the Corporation.
Premises and equipment
Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation
is computed on a straight-line basis over the estimated
useful life of each type of asset. Amortization of
leasehold improvements is computed over the terms of
the respective leases or the estimated useful lives of
the improvements, whichever is shorter. Costs of
maintenance and repairs which do not improve or extend
the life of the respective assets are expensed as
incurred. Costs of renewals and betterments are
capitalized. When assets are disposed of, their cost
and related accumulated depreciation are removed from
the accounts and any gain or loss is reflected in
earnings as realized or incurred, respectively.
The Corporation capitalizes interest cost incurred in the construction of significant real
estate projects, which consist primarily of facilities for its own use or intended for lease. The
amount of interest cost capitalized is to be an allocation of the interest cost incurred during the
period required to substantially complete the asset. The interest rate for capitalization purposes
is to be based on a weighted average rate on the Corporations outstanding borrowings, unless there
is a specific new borrowing associated with the asset. Interest cost capitalized for the years
ended December 31, 2009, 2008 and 2007 was not significant.
The Corporation has operating lease
arrangements primarily associated with the rental of premises to support the branch network or for
general office space. Certain of these arrangements are non-cancelable and provide for rent
escalations and renewal options. Rent expense on non-cancelable operating leases with scheduled
rent increases are recognized on a straight-line basis
103
over the lease term.
Impairment on long-lived assets
The Corporation evaluates for impairment its long-lived
assets to be held and used, and long-lived assets to be
disposed of, whenever events or changes in
circumstances indicate that the carrying amount of an
asset may not be recoverable.
Restructuring costs
A liability for a cost associated with an exit or
disposal activity is recognized and measured initially
at its fair value in the period in which the liability
is incurred. If future service is required for
employees to receive the one-time termination benefit,
the liability is initially measured at its fair value
as of the termination date and recognized
over the future service period.
Other real estate
Other real estate, received in satisfaction of debt, is
recorded at the lower of cost (carrying value of the
loan) or the appraised value less estimated costs of
disposal of the real estate acquired, by charging the
allowance for loan losses. Subsequent to foreclosure,
any losses in the carrying value arising from periodic
reevaluations of the properties, and any gains or
losses on the sale of these properties are credited or
charged to expense in the period incurred and are
included as a component of other operating expenses.
The cost of maintaining and operating such properties
is expensed as incurred.
Goodwill and other intangible assets
Goodwill is recognized when the purchase price is
higher than the fair value of net assets acquired in
business combinations under the purchase method of
accounting. Goodwill is not amortized, but is tested
for impairment at least annually or more frequently if
events or circumstances indicate possible impairment
using a two-step process at each reporting unit level.
The first step of the goodwill impairment test, used to
identify potential impairment, compares the fair value
of a reporting unit with its carrying amount, including
goodwill. If the fair value of a reporting unit exceeds
its carrying amount, the goodwill of the reporting unit
is not considered impaired and the second step of the
impairment test is unnecessary. If needed, the second
step consists of comparing the implied fair value of
the reporting unit goodwill with the carrying amount of
that goodwill. In determining the fair value of a
reporting unit, the Corporation generally uses a
combination of methods, which include market price
multiples of comparable companies and the discounted
cash flow analysis. Goodwill impairment losses are
recorded as part of operating expenses in the
consolidated
statement of operations.
Other intangible assets deemed to have an
indefinite life are not amortized, but are tested for
impairment using a one-step process which compares the
fair value with the carrying amount of the asset. In
determining that an intangible asset has an indefinite
life, the Corporation considers expected cash inflows
and legal, regulatory, contractual, competitive,
economic and other factors, which could limit the
intangible assets useful life.
Other identifiable intangible assets with a finite
useful life, mainly core deposits, are amortized using
various methods over the periods benefited, which range
from 3 to 11 years. These intangibles are evaluated
periodically for impairment when events or changes in
circumstances indicate that the carrying amount may not
be recoverable. Impairments on intangible assets with a
finite useful life are evaluated
under the guidance for impairment or disposal of
long-lived assets and are included as
part of Impairment losses on long-lived assets in the
category of operating expenses in the consolidated
statements of operations.
For further disclosures required by goodwill and
other intangibles guidance, refer to Note 14 to the
consolidated financial statements.
Bank-Owned Life Insurance
Bank-owned life insurance represents life
insurance on the lives of certain employees who have
provided positive consent allowing the Corporation to
be the beneficiary of the policy. Bank-owned life
insurance policies are carried at their cash surrender
value. The Corporation recognizes income from the
periodic increases in the cash surrender value of the
policy, as well as insurance proceeds received, which
are recorded as other operating income, and are not
subject to income taxes.
The cash surrender value and any additional
amounts provided by the contractual terms of the
bank-owned insurance policy that are realizable at the
balance sheet date are considered in determining the
amount that could be realized, and any amounts that are
not immediately payable to the policyholder in cash are
discounted to their present value. In determining the
amount that could be realized, it is assumed that
policies will be surrendered on an
individual-by-individual basis.
Assets sold / purchased under agreements to repurchase / resell
Repurchase and resell agreements are treated as
collateralized financing transactions and are carried
at the amounts at which the assets will be subsequently
reacquired or resold as specified in the respective
agreements.
104 POPULAR, INC. 2009 ANNUAL REPORT
It is the Corporations policy to take possession
of securities purchased under agreements to resell.
However, the counterparties to such agreements maintain
effective control over such securities, and accordingly
those securities are not reflected in the Corporations
consolidated statements of condition. The Corporation
monitors the fair value of the underlying securities
as compared to the related receivable, including
accrued interest. It is the Corporations policy to
maintain effective control over assets sold under
agreements to repurchase; accordingly, such securities
continue to be carried on the consolidated statements
of condition.
The Corporation may require counterparties to
deposit additional collateral or return collateral
pledged, when appropriate.
Software
Capitalized software is stated at cost, less
accumulated amortization. Capitalized software includes
purchased software and capitalizable application
development costs associated with internally-developed
software. Amortization, computed on a straight-line
method, is charged to operations over the estimated
useful life of the software. Capitalized software is
included in Other assets in the consolidated
statement of condition.
Guarantees, including indirect guarantees of
indebtedness of others
The Corporation, as a guarantor, recognizes at the
inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the
guarantee. Refer to Note 34 to the consolidated
financial statements for further disclosures.
Accounting considerations related to the cumulative
preferred stock and warrant to purchase shares of
common stock
The value of the warrant to purchase shares of common
stock was determined by allocating the proceeds received
by the Corporation based on the relative fair values of
the instruments issued (preferred stock and warrant).
The transaction was recorded when it was consummated and
proceeds were received. Refer to Note 23 to the
consolidated financial statements for information on
the warrant issued in 2008.
Warrants issued are included in the calculation of
average diluted shares in determining income (loss)
per common share using the treasury stock method.
The discount on increasing rate preferred stock was
amortized over the period preceding commencement of the
perpetual dividend by charging an imputed dividend cost
against retained earnings. The amortization of the
discount on the preferred shares also reduced the
income (or increased the loss) applicable to common
stockholders in the computation of basic and diluted
net income (loss) per share.
Income (loss) applicable to common stockholders considers
the deduction of both the dividends declared in the
period on cumulative preferred stock (whether or not
paid) and the dividends accumulated for the period on
cumulative preferred stock (whether or not earned) from
income (loss) from continuing operations and also from
net income (loss).
Accounting considerations related to the redemption of
cumulative preferred stock and redemption
of the trust preferred securities
The Corporation applied the guidance in ASC Subsection
260-10-S99 (formerly EITF Topic D-42 The effect on the
calculation of Earnings per Share for the Redemption or
Induced Conversion of Preferred Stock) for the
redemption of the Corporations cumulative preferred
stock, which indicates that the difference between
(1) the fair value of the consideration transferred to
the holders of the preferred stock and (2) the carrying
amount of the preferred stock in the registrants
balance sheet (net of issuance costs) be
subtracted from (or added to) net income to arrive at
income available to common stockholders in the
calculation of net income (loss) per common share.
The Corporation treated the redemption of the
trust preferred securities as an extinguishment of debt
pursuant to the guidance in ASC Subsection 470-50-40
which indicates that the difference between the
reacquisition price and the net carrying amount of the
extinguished debt be recognized as gain or loss on extinguishment in the results of operations.
Treasury stock
Treasury stock is recorded at cost and is carried as a
reduction of stockholders equity in the consolidated
statements of condition. At the date of retirement or
subsequent reissue, the treasury stock account is
reduced by the cost of such stock. At retirement, the
excess of the cost of the treasury stock over its par
value is recorded entirely to surplus. At reissuance,
the difference between the consideration received upon
issuance and the specific cost is charged or credited
to surplus.
Income
and expense recognition Processing business
Revenue from information processing and other services
is recognized at the time services are rendered. Rental
and maintenance service revenue is recognized ratably
over the corresponding contractual periods. Revenue
from software and hardware sales and related costs is
recognized at the time software and equipment is
installed or delivered depending on the contractual
terms. Revenue from contracts to create data processing
centers and the related cost is recognized as project
phases are
105
completed and accepted. Operating expenses are
recognized as incurred. Project expenses are deferred
and recognized when the related income is earned. The
Corporation applies the guidance in ASC Subtopic 605-35
as the guidance to
determine what project expenses must be deferred until
the related income is earned on certain long-term
projects that involve the outsourcing of technological
services.
Income Recognition Insurance agency business
Commissions and fees are recognized when related
policies are effective. Additional premiums and rate
adjustments are recorded as they occur. Contingent
commissions are recorded on the accrual basis when the
amount to be received is notified by the insurance
company. Commission income from advance business is
deferred. An allowance is created for expected
adjustments to commissions earned relating to policy
cancellations.
Income Recognition Investment banking revenues
Investment banking revenue is recorded as follows:
underwriting fees at the time the underwriting is
completed and income is reasonably determinable;
corporate finance advisory fees as earned, according to
the terms of the specific contracts; and sales
commissions on a trade-date basis.
Foreign exchange
Assets and liabilities denominated in foreign
currencies are translated to U.S. dollars using
prevailing rates of exchange at the end of the period.
Revenues, expenses, gains and losses are translated
using weighted average rates for the period. The
resulting foreign currency translation adjustment from
operations for which the functional currency is other
than the U.S. dollar is reported in accumulated other
comprehensive income (loss), except for highly
inflationary environments in which the effects are
included in other operating income.
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 Corporation monitors the inflation levels in
the foreign countries where it operates to evaluate
whether they meet the highly inflationary economy
test prescribed by the guidance for functional currency
in highly inflationary economies in ASC Subsection
830-10-45. Such statement defines highly inflationary
as a cumulative inflation of approximately 100 percent
or more over a three-year period. In accordance with
the provisions of this
guidance, the financial statements of a foreign entity
in a highly inflationary economy are remeasured as if
the functional currency was the reporting currency.
Refer to the disclosure of accumulated other
comprehensive income (loss) included in the
accompanying consolidated statements of comprehensive
income (loss) for the outstanding balances of
unfavorable foreign currency translation adjustments at
December 31, 2009, 2008 and 2007.
Income taxes
The Corporation recognizes deferred tax assets and
liabilities for the expected future tax consequences of
events that have been recognized in the Corporations
financial statements or tax returns. Deferred income
tax assets and liabilities are determined for
differences between financial statement and tax bases
of assets and liabilities that will result in taxable
or deductible amounts in the future. The computation is
based on enacted tax laws and rates applicable to
periods in which the temporary differences are expected
to be recovered or settled.
The guidance for income taxes requires a reduction of the carrying amounts of deferred tax
assets by a valuation allowance if, based on the available evidence, it is more likely than not
(defined as a likelihood of more than 50 percent) that such assets will not be realized.
Accordingly, the need to establish valuation allowances for deferred tax assets are assessed
periodically by the Corporation based on the more likely than not
realization threshold criterion. In the assessment for a valuation allowance, appropriate
consideration is given to all positive and negative evidence related to the realization of the
deferred tax assets. This assessment considers, among other matters, all sources of taxable income
available to realize the deferred tax asset, including the future reversal of existing temporary
differences, the future taxable income exclusive of reversing temporary differences and
carryforwards, taxable income in carryback years and tax-planning strategies. In making such
assessments, significant weight is given to evidence that can be objectively verified.
The
valuation of deferred tax assets requires judgment in assessing the likely future tax consequences
of events that have been recognized in the Corporations financial statements or tax returns and
future profitability. The Corporations accounting for deferred tax consequences represents
managements best estimate of those future events.
Positions taken in the Corporations tax returns
may be subject to challenge by the taxing authorities
upon examination. Uncertain tax positions are initially
recognized in the financial statements when it is more
likely than not the position will be sustained upon
examination by the tax authorities. Such tax positions
are both initially and subsequently measured as the
largest amount of tax benefit that is greater than 50%
likely of being realized upon settlement with the tax
authority, assuming full knowledge of the
106 POPULAR, INC. 2009 ANNUAL REPORT
position and all relevant facts. Interest on income tax
uncertainties is classified within income tax expense
in the statement of operations; while the penalties, if
any, are accounted for as other operating expenses.
The Corporation accounts for the taxes collected
from customers and remitted to governmental authorities
on a net basis (excluded from revenues).
Income tax expense or benefit for the year is
allocated among continuing operations, discontinued
operations, and other comprehensive income, as
applicable. The amount allocated to continuing
operations is the tax effect of the pretax income or
loss from continuing operations that occurred during
the year, plus or minus income tax effects of (a)
changes in circumstances that cause a change in
judgment about the realization of deferred tax assets
in future years, (b) changes in tax laws or rates, (c)
changes in tax status, and (d) tax-deductible dividends
paid to shareholders, subject to certain exceptions.
Employees retirement and other postretirement benefit plans
Pension costs are computed on the basis of accepted
actuarial methods and are charged to current
operations. Net pension costs are based on various
actuarial assumptions regarding future experience under
the plan, which include costs for services rendered
during the period, interest costs and return on plan
assets, as well as deferral and amortization of certain
items such as actuarial gains or losses. The funding
policy is to contribute to the plan as necessary to
provide for services to date and for those expected to
be earned in the future. To the extent that these
requirements are fully covered by assets in the plan, a
contribution may not be made in a particular year.
The cost of postretirement benefits, which is
determined based on actuarial assumptions and estimates
of the costs of providing these benefits in the future,
is accrued during the years that the employee renders
the required service.
The guidance for compensation retirement benefits
of ASC Topic 715 requires the recognition of the funded
status of each defined pension benefit plan, retiree
health care and other postretirement benefit plans on
the statement of condition.
Stock-based compensation
The Corporation opted to use the fair value method of
recording stock-based compensation as described in the
guidance for employee share plans in ASC Subtopic
718-50.
Comprehensive income (loss)
Comprehensive income (loss) is defined as the change in
equity of a business enterprise during a period from
transactions and other events and circumstances, except
those resulting from investments by owners and
distributions to owners. The presentation of
comprehensive income (loss) is included in separate
consolidated
statements of comprehensive income (loss).
Net income (loss) per common share
Basic income (loss) per common share is computed by
dividing net income (loss) adjusted for preferred stock
dividends, including undeclared or unpaid dividends if
cumulative, and charges or credits related to the
extinguishment of preferred stock or induced
conversions of preferred stock, by the weighted average
number of common shares outstanding during the year.
Diluted income per common share take into consideration
the weighted average common shares adjusted for the
effect of stock options, restricted stock and warrants
on common stock, using the treasury stock method.
Statement of cash flows
For purposes of reporting cash flows, cash includes
cash on hand and amounts due from banks.
Adoption of New Accounting Standards and Issued But Not
Yet Effective Accounting Standards
The FASB Accounting Standards Codification (ASC)
Effective July 1, 2009, the ASC became the single
source of authoritative U.S. generally accepted
accounting principles (GAAP) recognized by the
Financial Accounting Standards Board (FASB) to be
applied by non-governmental entities. Rules and
interpretive releases of the Securities and Exchange
Commission (SEC) are also sources of authoritative
GAAP for SEC registrants. The ASC superseded all
existing non-SEC accounting and reporting standards.
All other non-grandfathered non-SEC accounting
literature not included in the ASC is
non-authoritative. The Corporations policies were not
affected by the conversion to ASC. However, references
to specific accounting guidance in the notes of the
Corporations financial statements have been changed to
the appropriate section of the ASC.
Business Combinations (ASC Topic 805) (formerly SFAS
No. 141-R)
In December 2007, the FASB issued guidance that
establishes principles and requirements for how an
acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in
an acquiree, including the recognition and measurement
of goodwill acquired in a business combination. The
Corporation is required to apply this guidance to all
business combinations completed on or after January 1,
2009. For business combinations in which the
acquisition date was before the effective date, these
provisions apply to the subsequent accounting for
deferred income tax valuation allowances and income tax
contingencies and require any changes in those
amounts to be recorded in earnings. This
107
guidance
on business combinations did not have a
material effect on the consolidated financial
statements of the Corporation for the year ended December 31, 2009.
Noncontrolling Interests in Consolidated Financial
Statements (ASC Subtopic 810-10) (formerly SFAS No.
160)
In December 2007, the FASB issued guidance to establish
accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. This guidance requires
entities to classify noncontrolling interests as a
component of stockholders equity on the consolidated
financial statements and requires subsequent changes in
ownership interests in a subsidiary to be accounted for
as an equity transaction. Additionally, it requires
entities to recognize a gain or loss upon the loss of
control of a subsidiary and to remeasure any ownership
interest retained at fair value on that date. This
statement also requires expanded disclosures that
clearly identify and distinguish between the interests
of the parent and the interests of the noncontrolling
owners. This guidance was adopted by the Corporation on
January 1, 2009. The adoption of this standard did not
have an impact on the Corporations consolidated
financial statements.
Disclosures about Derivative Instruments and Hedging
Activities (ASC Subtopic 815-10) (formerly SFAS No.
161)
In March 2008, the FASB issued an amendment for
disclosures about derivative instruments and hedging
activities. The standard expands the disclosure
requirements for derivatives and hedged items and has
no impact on how the Corporation accounts for these
instruments. The standard was adopted by the
Corporation in the first quarter of 2009. Refer to Note
31 to the consolidated financial statements for related
disclosures.
Subsequent Events (ASC Subtopic 855-10) (formerly SFAS
No. 165)
In May 2009, the FASB issued guidance which establishes
general standards of accounting for and disclosures of
events that occur after the balance sheet date but
before financial statements are issued or are available
to be issued. Specifically, this standard sets forth
the period after the balance sheet date during which
management of a reporting entity should evaluate events
or transactions that may occur for potential
recognition or disclosure in the financial statements,
the circumstances under which an entity should
recognize events or transactions occurring after the
balance sheet date in its financial statements, and the
disclosures that an entity should make about events or
transactions that occurred after the balance sheet
date. This guidance was effective for interim or annual
financial periods ending after June 15, 2009, and shall
be applied prospectively. Refer to Note 2 to the
consolidated financial statements for related
disclosures.
Transfers of Financial Assets, (ASC Subtopic 860-10)
(formerly SFAS No. 166)
In June 2009, the FASB issued a revision which eliminates the concept of a qualifying
special-purpose entity (QSPEs), changes the requirements for derecognizing financial assets, and
includes additional disclosures requiring more information about transfers of financial assets in
which entities have continuing exposure to the risks related to the transferred financial assets.
This guidance must be applied as of the beginning of each reporting entitys first annual reporting
period that begins after November 15, 2009, for interim periods within that first annual reporting
period and for interim and annual reporting periods thereafter. Earlier application was prohibited.
The Corporation is adopting this guidance for transfers of financial assets commencing on January
1, 2010.
The Corporation is evaluating the impact that this new accounting guidance will have on
the guaranteed mortgage securitizations with Fannie Mae (FNMA) and Ginnie Mae (GNMA), which are
the principal transactions executed by the Corporation that are subject to the new guidance. The
Corporation anticipates that transactions backed by FNMA will meet the criteria for sale accounting
since the assets transferred are placed and isolated in an independent trust. However, the
transactions backed by GNMA will require additional evaluation since they are isolated without the
use of a trust to hold the GNMA pass-through certificates. Instead, the pools of mortgage loans are
legally isolated through the establishment of custodial pools, whereby all rights, title and
interest are conveyed to GNMA. The Corporation will assess these transactions to conclude if they
will continue to be considered a sale for accounting purposes. Currently, the Corporation does not
anticipate that this guidance will have a material effect on the consolidated financial statements.
Variable Interest Entities, (ASC Subtopic 860-10)
(formerly SFAS No. 167)
The FASB amended on June 2009 the guidance applicable
to variable interest entities (VIE) and changed how a
reporting entity determines when an entity that is
insufficiently capitalized or is not controlled through
voting (or similar rights) should be consolidated. The
determination of whether a reporting entity is required
to consolidate another entity is based on, among other
things, the other entitys purpose and design and the
reporting entitys ability to direct the activities of
the other entity that most significantly impact the
other entitys economic performance. The amendments to
the consolidated guidance affect all entities that were
within the scope of the original guidance, as well as
qualifying special-purpose entities (QSPEs) that were
previously excluded
108 POPULAR, INC. 2009 ANNUAL REPORT
from the guidance. The new guidance requires a reporting
entity to provide additional disclosures about its
involvement with variable interest entities and any
significant changes in risk exposure due to that
involvement. A reporting entity will be required to
disclose how its involvement with a variable interest
entity affects the reporting entitys financial
statements. The new guidance requires ongoing
evaluation of whether an enterprise is the primary
beneficiary of a variable interest entity. The
guidance is effective for the Corporation commencing on
January 1, 2010.
Currently, the Corporation issues government
sponsored securities backed by GNMA and FNMA. FNMA uses
independent trusts to isolate the pass-through
certificates and therefore, are considered VIEs. On the
SEC responses to the Mortgage Banker Association
Whitepaper issued on February 10, 2010, the SEC
reiterated that the GNMA securities I and II are
considered VIEs for the assessment of the new
consolidation guidance applicable to VIEs.
After evaluation of these transactions, the Corporation reached the conclusion that it is not
the primary beneficiary of these VIEs.
The Corporation also owns certain equity investments that
are not considered VIEs, even in consideration of the new accounting guidance. Other structures
analyzed by management are the trust preferred securities. Even though these trusts are still
considered VIEs under the new guidance, the Corporation does
not possess a significant variable
interest on these trusts. Additionally, the Corporation has variable interests in certain
investments that have the attributes of investment companies, as well as limited partnership
investments in venture capital companies. However, in January 2010, the FASB decided to make
official the deferral of ASC Subtopic 860-10 for certain investment entities. The deferral allows asset
managers that have no obligation to fund potentially significant losses of an investment entity to
continue to apply the previous accounting guidance to investment entities that have the attributes
of entities subject to ASC Topic 946 (the Investment Company Guide). The FASB also decided to
defer the application of this guidance for money market funds subject to Rule 2a-7 of the
Investment Company Act of 1940. Asset managers would continue to apply the applicable existing
guidance to those entities that qualify for the deferral.
Management anticipates that the Corporation will
not be required to consolidate any existing variable
interest entities for which it has a variable interest
at December 31, 2009. The adoption of the new
accounting guidance on variable interest entities is
not expected to have a material effect on the
Corporations consolidated financial statements.
Accounting for Transfers of Financial Assets and
Repurchase Financing Transactions (ASC Subtopic 860-10)
(formerly FASB Staff Position FAS 140-3)
The FASB provided guidance in February 2008 on whether the
security transfer and contemporaneous repurchase
financing involving the transferred financial asset
must be evaluated as one linked transaction or two
separate de-linked transactions. The guidance requires
the recognition of the transfer and the repurchase
agreement as one linked transaction, unless all of the
following criteria are met: (1) the initial transfer
and the repurchase financing are not contractually
contingent on one another; (2) the initial transferor
has full recourse upon default, and the repurchase
agreements price is fixed and not at fair value; (3)
the financial asset is readily obtainable in the
marketplace and the transfer and repurchase financing
are executed at market rates; and (4) the maturity of
the repurchase financing is before the maturity of the
financial asset. The scope of this accounting guidance
is limited to transfers and subsequent repurchase
financings that are entered into contemporaneously or
in contemplation of one another. The Corporation
adopted the statement on January 1, 2009. The adoption
of this guidance did not have a material impact on the
Corporations consolidated financial statements for the
year ended December 31, 2009.
Determination of the Useful Life of Intangible Assets
(ASC Subtopic 350-30) (formerly FASB Staff Position
FAS 142-3)
In April 2008, the FASB amended the factors that should
be considered in developing renewal or extension
assumptions used to determine the useful life of a
recognized intangible asset. In developing these
assumptions, an entity should consider its own
historical experience in renewing or extending similar
arrangements adjusted for entity specific factors or,
in the absence of that experience, the assumptions that
market participants would use about renewals or
extensions adjusted for the entity specific factors.
This guidance applies to intangible assets acquired
after the adoption date of January 1, 2009. The
adoption of this guidance did not have an impact on the
Corporations consolidated financial statements for the
year ended December 31, 2009.
Equity Method Investment Accounting Considerations (ASC
Subtopic 323-10) (formerly EITF 08-6)
This guidance clarifies the accounting for certain
transactions and impairment considerations involving
equity method investments. It applies to all
investments accounted for under the equity method and
provides guidance on the following: (1) how the initial
carrying value of an equity method investment should be
determined; (2) how an impairment assessment of an
underlying indefinite-lived intangible asset of an
equity method investment should be performed; (3) how
an equity method investees issuance of shares should
be accounted for; and (4) how to account for a change
in an investment from the equity method to the cost
method. The adoption of this guidance in January 2009
did not have a material impact on the Corporations
consolidated financial statements.
109
Employers Disclosures about Postretirement Benefit
Plan Assets (ASC Subtopic 715-20) (formerly FASB Staff
Position FAS 132(R)-1)
This guidance requires additional disclosures in the
financial statements of employers who are subject to
the disclosure requirements of postretirement benefit
plan assets as follows: (a) the investment allocation
decision making process, including the factors that are
pertinent to an understanding of investment policies
and strategies; (b) the fair value of each major
category of plan assets, disclosed separately for
pension plans and other postretirement benefit plans;
(c) the inputs and valuation techniques used to measure
the fair value of plan assets, including the level
within the fair value hierarchy in which the fair value
measurements in their entirety fall; and (d)
significant concentrations of risk within plan assets.
Additional detailed information is required for each
category above. The Corporation applied the new
disclosure requirements commencing with the annual
financial statements for the year ended December 31,
2009. Refer to Note 27 to the consolidated financial
statements. This guidance impacts disclosures only and
did not have an effect on the Corporations
consolidated statements of condition or results of
operations for the year ended December 31, 2009.
Recognition and Presentation of Other-Than-Temporary
Impairments (ASC Subtopic 320-10) (formerly FASB Staff
Position FAS 115-2 and FAS 124-2)
In April 2009, the FASB issued this guidance which is
intended to provide greater clarity to investors about
the credit and noncredit component of an
other-than-temporary impairment event. It specifically
amends the other-than-temporary impairment guidance for
debt securities. The new guidance improves the
presentation and disclosure of other-than-temporary
impairments on investment securities and changes the
calculation of the other-than-temporary impairment
recognized in earnings in the financial statements.
However, it does not amend existing recognition and
measurement guidance related to other-than-temporary
impairments of equity securities.
For debt securities, an entity is required to
assess whether (a) it has the intent to sell the debt
security, or (b) it is more likely than not that it
will be required to sell the debt security before its
anticipated recovery. If either of these conditions is
met, an other-than-temporary impairment on the security
must be recognized.
In instances in which a determination is made that
a credit loss (defined as the difference between the
present value of the cash flows expected to be
collected and the amortized cost basis) exists but the
entity does not intend to sell the debt security and it
is not more likely than not that the entity will be
required to sell the debt security before the
anticipated recovery of its remaining amortized cost
basis (i.e., the amortized cost basis less any
current-period credit loss), the accounting guidance
changed the presentation
and amount of the other-than-temporary impairment
recognized in the statement of operations. In these
instances, the impairment is separated into (a) the
amount of the total impairment related to the credit
loss, and (b) the amount of the total impairment
related to all other factors. The amount of the total
other-than-temporary impairment related to the credit
loss is recognized in the statement of operations. The
amount of the total impairment related to all other
factors is recognized in other comprehensive loss.
Previously, in all cases, if an impairment was
determined to be other-than-temporary, an impairment
loss was recognized in earnings in an amount equal to
the entire difference between the securitys amortized
cost basis and its fair value at the balance sheet date
of the reporting period for which the assessment was
made.
This guidance was effective and is to be applied
prospectively for financial statements issued for
interim and annual reporting periods ending after June
15, 2009. At adoption an entity was required to record
a cumulative-effect adjustment as of the beginning of
the period of adoption to reclassify the noncredit
component of a previously recognized
other-than-temporary impairment from retained earnings
to accumulated other comprehensive loss if the entity
did not intend to sell the security and it was not more
likely than not that the entity would be required to
sell the security before the anticipated recovery of
its amortized cost basis.
The Corporation adopted this guidance for interim
and annual reporting periods commencing with the
quarter ended June 30, 2009. The adoption of this new
accounting guidance in the second quarter of 2009 did
not result in a cumulative effect adjustment as of the
beginning of the period of adoption (April 1, 2009)
since there were no previously recognized
other-than-temporary impairments related to outstanding
debt securities. Refer to Notes 7 and 8 for related
disclosures at December 31, 2009.
Interim Disclosures about Fair Value of Financial
Instruments (ASC Subtopic 825-10) (formerly FASB Staff
Position FAS 107-1 and
APB 28-1)
In April 2009, the FASB required providing disclosures
on a quarterly basis about the fair value of financial
instruments that are not currently reflected on the
statement of condition at fair value. Originally the
fair value for these assets and liabilities was only
required for year-end disclosures. The Corporation
adopted this guidance effective with the financial
statement disclosures for the quarter ended June 30,
2009. This guidance only impacts disclosure
requirements and therefore did not have an impact on
the Corporations financial condition or results of
operations. Refer to Note 37 to the consolidated
financial statements for the Corporations disclosures
about fair value of financial instruments.
110 POPULAR, INC. 2009 ANNUAL REPORT
Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That are Not
Orderly (ASC Subtopic 820-10) (formerly FASB Staff
Position FAS 157-4)
This guidance, issued in April 2009, provides
additional guidance for estimating fair value when the
volume and level of activity for the asset or liability
have significantly decreased. It also includes guidance
on identifying circumstances that indicate that a
transaction is not orderly. This guidance reaffirms the
need to use judgment to ascertain if an active market
has become inactive and in determining fair values when
markets have become inactive. Additionally, it also
emphasizes that even if there has been a significant
decrease in the volume and level of activity for the
asset or liability and regardless of the valuation
techniques used, the objective of a fair value
measurement remains the same. Fair value is the price
that would be received from the sale of an asset or
paid to transfer a liability in an orderly transaction
(that is, not a forced liquidation or distressed sale)
between market participants at the measurement date
under current market conditions. The adoption of this
guidance did not have a material impact on the
Corporations consolidated financial statements for the
year ended December 31, 2009.
FASB Accounting Standards Update 2009-05, Fair Value
Measurements and Disclosures (ASC Topic 820) -
Measuring Liabilities at Fair Value
FASB Accounting Standards Update 2009-05, issued in
August 2009, includes amendments to ASC Subtopic
820-10, Fair Value Measurements and Disclosures, for
the fair value measurement of liabilities and provides
clarification that in circumstances in which a quoted
price in an active market for the identical liability
is not available, a reporting entity is required to
measure fair value using one or more of the following
techniques: a valuation technique that uses (a) the
quoted price of the identical liability when traded as
an asset, (b) quoted prices for similar liabilities or
similar liabilities when trade as assets, or another
valuation technique that is consistent with the
principles of ASC Topic 820. Examples would be an
income approach, such as a present value technique, or
a market approach, such as a technique that is based on
the amount at the measurement date that the reporting
entity would pay to transfer the identical liability or
would receive to enter into an identical liability. The
adoption of this guidance was effective upon issuance
and did not have a material impact on the Corporations
consolidated financial statements for the year ended
December 31, 2009.
FASB Accounting Standards Update 2010-06, Fair Value
Measurements and Disclosures (ASC Topic 820) -
Improving Disclosures about Fair Value Measurements
FASB Accounting Standards Update 2010-06, issued in January
2010, requires new disclosures and clarifies some
existing disclosure requirements about fair value
measurements as set forth in ASC Subtopic 820-10. This
update amends Subtopic 820-10 and now requires a
reporting entity to disclose separately the amounts of
significant transfers in and out of Level 1 and Level 2
fair value measurements and describe the reasons for
the transfer. Also in the reconciliation for fair value
measurements using significant unobservable inputs
(Level 3), a reporting entity should present separately
information about purchases, sales, issuances and
settlements. In addition, this update clarifies
existing disclosures as follows: (i) for purposes of
reporting fair value measurement for each class of
assets and liabilities, a reporting entity needs to use
judgment in determining the appropriate classes of
assets and liabilities, and (ii) a reporting entity
should provide disclosures about the valuation
techniques and inputs used to measure fair value for
both recurring and nonrecurring fair value
measurements. This update is effective for interim and
annual reporting periods beginning after December 15,
2009 except for the disclosures about purchases, sales,
issuances, and settlements in the roll-forward of
activity in Level 3 fair value measurements. Those
disclosures are effective for fiscal years beginning
after December 15, 2010 and for interim periods within
those fiscal years. Early application is permitted.
This guidance impacts disclosures only and will not
have an effect on the Corporations consolidated
statements of condition or results of operations.
111
Note 2 Subsequent events:
Management has evaluated the effects of subsequent
events that have occurred subsequent to December 31,
2009. There are no material events
that would require recognition or disclosure in the
consolidated financial statements for the year ended
December 31, 2009.
Note 3 Discontinued operations:
For financial reporting purposes, the results of the
discontinued operations of PFH are presented as Assets
/ Liabilities from discontinued operations in the
consolidated statements of condition and Loss from
discontinued operations, net of tax in the
consolidated statements of operations.
Total assets of the PFH discontinued operations
amounted to $13 million at December 31, 2008.
The following table provides financial information
for the discontinued operations for the years ended
December 31, 2009, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
2008
|
|
2007
|
|
Net interest income
|
|
$
|
0.9
|
|
|
$
|
30.8
|
|
|
$
|
143.7
|
|
Provision for loan losses
|
|
|
|
|
|
|
19.0
|
|
|
|
221.4
|
|
Non-interest
loss, including fair value adjustments on loans and MSRs
|
|
|
(3.2
|
)
|
|
|
(266.9
|
)
|
|
|
(89.3
|
)
|
Lower of cost or fair value adjustments
on reclassification of loans to held-for-
sale prior to recharacterization
|
|
|
|
|
|
|
|
|
|
|
(506.2
|
)
|
Gain upon completion of recharacterization
|
|
|
|
|
|
|
|
|
|
|
416.1
|
|
Operating expenses, including reductions
in value of servicing advances and other
real estate, and restructuring costs
|
|
|
10.9
|
|
|
|
213.5
|
|
|
|
159.1
|
|
Loss on disposition during the period (a)
|
|
|
|
|
|
|
(79.9
|
)
|
|
|
|
|
|
Pre-tax loss from discontinued operations
|
|
$
|
(13.2
|
)
|
|
$
|
(548.5
|
)
|
|
$
|
(416.2
|
)
|
Income tax expense (benefit) (b)
|
|
|
6.8
|
|
|
|
14.9
|
|
|
|
(149.2
|
)
|
|
Loss from discontinued operations, net of tax
|
|
$
|
(20.0
|
)
|
|
$
|
(563.4
|
)
|
|
$
|
(267.0
|
)
|
|
|
|
|
(a)
|
|
Loss on disposition for 2008 includes the loss
associated to the sale of manufactured housing loans
in September 2008, including lower of cost or market
adjustments at reclassification from loans
held-in-portfolio to loans held-for-sale. Also, it
includes the impact of fair value adjustments and
other losses incurred during the fourth quarter of
2008 specifically related to the sale of loans,
residual interests and servicing related assets to the
third-party buyer in November 2008. These events led
the Corporation to classify PFHs operations as
discontinued operations.
|
|
(b)
|
|
Income tax for 2008 included the impact of
recording a valuation allowance on deferred tax assets
of $209.0 million.
|
In 2007, PFH began downsizing its operations and
shutting down certain loan origination channels. During
that year, the Corporation executed the PFH
Restructuring and Integration Plan, which called for
PFH to exit the wholesale subprime mortgage loan
origination business in early 2007 and to shut down
the wholesale broker, retail and call center business
divisions. This plan was substantially completed in
2007 and resulted in restructuring costs amounting to
$14.7 million in that year. PFH began 2008 with a
significantly reduced asset base due to lower loan
volume as it shut down those loan origination channels,
and due to the recharacterization, in December 2007, of
certain on-balance sheet securitizations as sales that
involved approximately $3.2 billion in unpaid principal
balance (UPB) of loans. Additional information on the
recharacterization transaction is provided in a
subsection of this note to the consolidated financial
statements.
During the third and fourth quarters of 2008, the
Corporation executed a series of significant asset sale
transactions and a restructuring plan that led to the
discontinuance of PFHs operations, which prior to
September 30, 2008, were defined as a reportable
segment for managerial reporting. The discontinuance
included the sale of a substantial portion of PFHs
loan portfolio, servicing related assets, residual
interests and other real estate assets. Also, the
discontinuance included exiting the loan servicing
functions related to portfolios from non-affiliated
parties.
In March 2008, the Corporation sold approximately
$1.4 billion of consumer and mortgage loans that were
originated through Equity Ones (a subsidiary of PFH)
consumer branch network and recognized a gain upon sale
of approximately $54.5 million. The loan portfolio
buyer retained certain branch locations. Equity One
closed all consumer service branches not assumed by the
buyer, thus exiting PFHs consumer finance business in
early 2008.
In September 2008, the Corporation sold PFHs
portfolio of manufactured housing loans with a UPB of
approximately $309 million for cash proceeds of $198
million. The Corporation recognized a loss on
disposition of $53.5 million.
During the third quarter of 2008, the Corporation also entered into an agreement to sell
substantially all of PFHs outstanding loan portfolio, residual interests and servicing related
assets. This transaction, which was consummated in November 2008, involved the sale of
approximately $748 million in assets, which for the most part were measured at fair value. The
Corporation recognized a loss of approximately $26.4 million in the fourth quarter of 2008 related
to this disposition. Proceeds from this sale amounted to $731 million. During the third quarter of
2008, the Corporation recognized fair value adjustments on these assets held-for-sale of
approximately $360 million.
Also, in conjunction with the November 2008 sale, the Corporation sold
the implied residual interests associated to certain on-balance sheet securitizations, thus
transferring all rights and obligations to the third party with no continuing involvement
whatsoever on the Corporation with the transferred assets. The Corporation derecognized the secured
debt related to these securitizations of approximately $164 million, as well as the loans that
served as collateral for approximately $158 million. The
112 POPULAR, INC. 2009 ANNUAL REPORT
on-balance sheet secured debt as well as the related
loans were measured at fair value pursuant to the fair
value option.
As part of the actions to exit PFHs business, the
Corporation executed two restructuring plans. These
were the PFH Branch Network Restructuring Plan and
the PFH Discontinuance Restructuring Plan. The PFH
Branch Network Restructuring Plan resulted in the sale
of a substantial portion of PFHs loan portfolio in the
first quarter of 2008 and the closure of Equity Ones
consumer service branches, which represented, at the
time, the only significant channel for PFH to continue
originating loans. The PFH Branch Network Restructuring
Plan resulted in restructuring costs amounting to $17.4
million in 2008 and impairment losses on long-lived
assets of $1.9 million in 2007. The accrual balance of
$1.9 million at December 31, 2008, mostly related to
severance and lease contracts, was substantially
settled during 2009.
The following table details the expenses recorded
by the Corporation that were associated with the PFH
Branch Network Restructuring Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2008
|
|
2007
|
|
Total
|
|
Personnel costs (a)
|
|
$
|
8.9
|
|
|
|
|
|
|
$
|
8.9
|
|
Net occupancy expenses (b)
|
|
|
6.7
|
|
|
|
|
|
|
|
6.7
|
|
Equipment expenses
|
|
|
0.7
|
|
|
|
|
|
|
|
0.7
|
|
Communications
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
Other operating expenses
|
|
|
0.9
|
|
|
|
|
|
|
|
0.9
|
|
|
Total restructuring costs
|
|
$
|
17.4
|
|
|
|
|
|
|
$
|
17.4
|
|
Impairment losses on
long-lived assets (c)
|
|
|
|
|
|
$
|
1.9
|
|
|
|
1.9
|
|
|
|
|
$
|
17.4
|
|
|
$
|
1.9
|
|
|
$
|
19.3
|
|
|
|
|
|
(a)
|
|
Severance, retention
bonuses and other benefits
|
|
(b)
|
|
Lease terminations
|
|
(c)
|
|
Leasehold improvements,
furniture and equipment
|
The PFH Discontinuance Restructuring Plan
commenced in the second half of 2008 and was completed
in 2009. This restructuring plan included the
elimination of all employment positions and termination
of contracts with the objective of discontinuing PFHs
operations. This restructuring plan resulted in
charges, on a pre-tax basis, broken down as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
2008
|
|
Total
|
|
Personnel costs (a)
|
|
$
|
1.1
|
|
|
$
|
4.1
|
|
|
$
|
5.2
|
|
Professional fees
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
Other operating expenses
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
|
Total restructuring costs
|
|
$
|
1.4
|
|
|
$
|
4.1
|
|
|
$
|
5.5
|
|
Impairment losses on
long-lived assets (b)
|
|
|
|
|
|
|
3.9
|
|
|
|
3.9
|
|
|
Total
|
|
$
|
1.4
|
|
|
$
|
8.0
|
|
|
$
|
9.4
|
|
|
|
|
|
(a)
|
|
Severance, retention bonuses and other benefits
|
|
(b)
|
|
Leasehold improvements, furniture and equipment and prepaid expenses
|
The PFH Discontinuance Restructuring Plan charges are
included in the line item Loss from discontinued
operations, net of tax in the consolidated statements
of operations.
The following table presents the activity in the
accrued balances for the PFH Discontinuance
Restructuring Plan.
|
|
|
|
|
(In thousands)
|
|
Restructuring Costs
|
|
Balance at January 1, 2008
|
|
|
|
|
Charges expensed during 2008
|
|
$
|
4.1
|
|
Payments made during 2008
|
|
|
(0.7
|
)
|
|
Balance at December 31, 2008
|
|
$
|
3.4
|
|
Charges expensed during 2009
|
|
|
1.4
|
|
Payments made during 2009
|
|
|
(4.4
|
)
|
|
Balance at December 31, 2009
|
|
$
|
0.4
|
|
|
PFHs Recharacterization Transaction
From 2001 through 2006, the Corporation, particularly
PFH or its subsidiary Equity One, conducted 21 mortgage
loan securitizations that were sales for legal purposes
but did not qualify for sale accounting treatment at
the time of inception because the securitization trusts
did not meet the criteria for qualifying special
purpose entities (QSPEs) required by accounting
standards. As a result, the transfers of the mortgage
loans pursuant to these securitizations were initially
accounted for as secured borrowings with the mortgage
loans continuing to be reflected as assets on the
Corporations consolidated statements of condition with
appropriate footnote disclosure indicating that the
mortgage loans were, for legal purposes, sold to the
securitization trusts.
As part of the Corporations strategy of exiting
the subprime business at PFH, on December 19, 2007, PFH
and the trustee for each of the related securitization
trusts amended the provisions of the related pooling
and servicing agreements to delete the discretionary
provisions that prevented the transactions from
qualifying for sale treatment. The Corporation obtained
a legal opinion, which among other considerations,
indicated that each amendment (a) was authorized or
permitted under
the pooling and servicing agreement related to
such amendment, and (b) will not adversely affect in
any material respect the interests of any certificate
holders covered by the related pooling and servicing
agreement. The amendments to the pooling and servicing
agreement allowed the Corporation to recognize 16 out
of the 21 transactions as sales for accounting
purposes.
The net impact of the recharacterization
transaction was a pre-tax loss of $90.1 million in
2007, which is included as part of the Net loss from
discontinued operations, net of tax in these
consolidated financial statements. The net loss on the
recharacterization included a loss of $506.2 million in
lower of cost or market adjustment associated with the
reclassification of loans held-in-portfolio to loans
held-for-sale, and a $416.1 million gain upon
completion of the recharacterization.
The recharacterization involved a series of steps, which
113
included the following:
|
(i)
|
|
reclassifying the loans as held-for-sale with the corresponding lower of cost or market
adjustment as of the date of the transfer;
|
|
|
(ii)
|
|
removing from the Corporations books
approximately $2.6 billion in mortgage loans recognized at fair value after reclassification to
the held-for-sale category (UPB of $3.2 billion) and $3.1 billion in related liabilities
representing secured borrowings;
|
|
|
(iii)
|
|
recognizing assets referred to as residual interests,
which represented the fair value of residual interest certificates that were issued by the
securitization trusts and retained by PFH; and
|
|
|
(iv)
|
|
recognizing mortgage servicing rights, which
represented the fair value of PFHs right to continue to service the mortgage loans transferred
to the securitization trusts.
|
After reclassifying the loans to held-for-sale at
fair value, the Corporation proceeded to simultaneously
account for the transfers as sales upon
recharacterization. The accounting entries at
recharacterization entailed the removal from the
Corporations books of the $2.6 billion in mortgage
loans measured at fair value, the $3.1 billion in
secured borrowings (which represent the bond
certificates due to investors in the securitizations
that are collateralized by the mortgage loans), and
other assets and liabilities related to the
securitization, including for example, accrued
interest. Upon sale accounting, the Corporation also
recognized residual interests of $38 million and MSRs
of $18 million, which represented the Corporations
retained interests. The residual interests represented
the fair value at recharacterization date of residual
interest certificates that were issued by the
securitization trusts and retained by PFH, and the MSRs
represented the fair value of PFHs right to continue
to service the mortgage loans transferred to the
securitization trusts.
In November 2008, the Corporation sold all
residual interests and mortgage servicing rights
related to all securitization transactions completed by
PFH. Therefore, the Corporation did not retain any
interest on the securitizations trust assets from a
legal or accounting standpoint at the end of 2008.
Note 4 Restructuring plans:
In 2008, the Corporation determined to reduce the size
of its banking operations in the U.S. mainland to a
level better suited to present economic conditions and
to focus on core banking activities. As indicated in
the 2008 Annual Report, on October 17, 2008, the Board
of Directors of Popular, Inc. approved two
restructuring plans for the BPNA reportable segment.
The objective of the restructuring plans was to improve
profitability in the short-term, increase liquidity and
lower credit costs, and,
over time, achieve a greater integration with corporate
functions in Puerto Rico.
BPNA Restructuring Plan
The restructuring plan for BPNAs banking operations
(the BPNA Restructuring Plan) contemplated the
following measures: closing, consolidating or selling
approximately 40 underperforming branches in all
existing markets; the shutting down, sale or downsizing
of lending businesses that do not generate deposits or
fee income; and the reduction of general expenses
associated with functions supporting the branch and
balance sheet initiatives. The BPNA Restructuring Plan
also contemplated greater integration with the
corporate functions in Puerto Rico. The BPNA
Restructuring Plan was substantially complete at
December 31, 2009. Management continues to evaluate
branch actions and business lending opportunities as
part of its business plans.
As part of the BPNA Restructuring Plan, the
Corporation exited certain businesses including, among
the principal ones, those related to the origination of
non-conventional mortgages, equipment lease financing,
loans to professionals, multifamily lending,
mixed-used commercial loans and credit cards. The
Corporation holds the existing portfolios of the exited
businesses in a run-off mode. Also, the Corporation
downsized certain businesses related to its U.S.
mainland banking, including: business banking, SBA
lending, and consumer / mortgage lending.
The following table details the expenses recorded
by the Corporation related with the BPNA Restructuring
Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
(In millions)
|
|
2009
|
|
2008
|
|
Total
|
|
Personnel costs (a)
|
|
$
|
6.0
|
|
|
$
|
5.3
|
|
|
$
|
11.3
|
|
Net occupancy expenses (b)
|
|
|
0.3
|
|
|
|
8.9
|
|
|
|
9.2
|
|
Other operating expenses
|
|
|
0.4
|
|
|
|
|
|
|
|
0.4
|
|
|
Total restructuring costs
|
|
$
|
6.7
|
|
|
$
|
14.2
|
|
|
$
|
20.9
|
|
Impairment losses on
long-lived assets (c)
|
|
|
0.4
|
|
|
|
5.5
|
|
|
|
5.9
|
|
|
Total
|
|
$
|
7.1
|
|
|
$
|
19.7
|
|
|
$
|
26.8
|
|
|
|
|
|
(a)
|
|
Severance, retention
bonuses and other benefits
|
|
(b)
|
|
Lease terminations
|
|
(c)
|
|
Leasehold improvements, furniture and equipment
|
|
|
114 POPULAR, INC. 2009 ANNUAL REPORT
The following table presents the activity in the reserve for restructuring costs associated
with the BPNA Restructuring Plan.
|
|
|
|
|
(In millions)
|
|
Restructuring Costs
|
|
Balance at January 1, 2008
|
|
|
|
|
Charges expensed during 2008
|
|
$
|
14.2
|
|
Payments made during 2008
|
|
|
(3.3
|
)
|
|
Balance at December 31, 2008
|
|
$
|
10.9
|
|
Charges expensed during 2009
|
|
|
8.5
|
|
Reversals during 2009
|
|
|
(1.8
|
)
|
Payments made during 2009
|
|
|
(10.5
|
)
|
|
Balance at December 31, 2009
|
|
$
|
7.1
|
|
|
The reserve balance at December 31, 2009 was mostly related to lease contracts.
The costs related to the BPNA Restructuring Plan are included in the BPNA Reportable Segment.
E-LOAN 2007 and 2008 Restructuring Plans
In November 2007, the Corporation approved an initial restructuring plan for E-LOAN (the E-LOAN
2007 Restructuring Plan). This plan included a substantial reduction of marketing and personnel
costs at E-LOAN and changes in E-LOANs business model. At that time, the changes included
concentrating marketing investment toward the Internet and the origination of first mortgage loans.
Also, as a result of escalating credit costs and lower liquidity in the secondary markets for
mortgage related products, in the fourth quarter of 2007, the Corporation determined to hold back
the origination by E-LOAN of home equity lines of credit, closed-end second lien mortgage loans and
auto loans.
The following table details the expenses recognized during the years ended December 31, 2008
and 2007 that were associated with the E-LOAN 2007 Restructuring Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
(In millions)
|
|
2008
|
|
2007
|
|
Total
|
|
Personnel costs (a)
|
|
$
|
(0.3
|
)
|
|
$
|
4.6
|
|
|
$
|
4.3
|
|
Net occupancy expenses (b)
|
|
|
0.1
|
|
|
|
4.2
|
|
|
|
4.3
|
|
Equipment expenses (c)
|
|
|
|
|
|
|
0.4
|
|
|
|
0.4
|
|
Professional fees (c)
|
|
|
|
|
|
|
0.4
|
|
|
|
0.4
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
$
|
(0.2
|
)
|
|
$
|
9.6
|
|
|
$
|
9.4
|
|
|
Impairment
losses on long-lived assets (d)
|
|
|
|
|
|
|
10.5
|
|
|
|
10.5
|
|
Goodwill and trademark
impairment losses (e)
|
|
|
|
|
|
|
211.8
|
|
|
|
211.8
|
|
|
Total
|
|
$
|
(0.2
|
)
|
|
$
|
231.9
|
|
|
$
|
231.7
|
|
|
|
|
|
(a)
|
|
Severance, retention bonuses and other benefits
|
|
(b)
|
|
Lease terminations
|
|
(c)
|
|
Service contract terminations
|
|
(d)
|
|
Consists mostly of leasehold improvements, equipment and intangible assets with definite lives
|
|
(e)
|
|
Goodwill impairment of $164.4 million and trademark impairment of $47.4 million
|
|
These series of actions executed during 2007 and early 2008 proved not to be sufficient given
the unprecedented market conditions and disappointing financial results. In October 2008, the
Corporations Board of Directors approved another restructuring plan for E-LOAN (the E-LOAN 2008
Restructuring Plan), which involved E-LOAN to cease operating as a direct lender, an event that
occurred in late 2008. E-LOAN continues to market deposit accounts under its name for the benefit
of BPNA. The E-LOAN 2008 Restructuring Plan was completed during 2009 since all operational and
support functions were transferred to BPNA and EVERTEC and loan servicing was transferred to a
third-party provider. The E-LOAN 2008 Restructuring Plan resulted in a reduction in FTEs of 270
between December 31, 2008 and the end of 2009. Refer to Note 39 to the consolidated financial
statements for information on the results of operations of E-LOAN, which are part of BPNAs
reportable segment
The following table details the expenses recognized during the years ended December 31, 2009
and 2008 that were associated with the E-LOAN 2008 Restructuring Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
(In millions)
|
|
2009
|
|
2008
|
|
Total
|
|
Personnel costs (a)
|
|
$
|
2.4
|
|
|
$
|
3.0
|
|
|
$
|
5.4
|
|
Other operating expenses
|
|
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
Total restructuring charges
|
|
$
|
2.4
|
|
|
$
|
3.1
|
|
|
$
|
5.5
|
|
Impairment losses on
long-lived assets (b)
|
|
|
|
|
|
|
8.0
|
|
|
|
8.0
|
|
Trademark impairment losses
|
|
|
|
|
|
|
10.9
|
|
|
|
10.9
|
|
|
Total
|
|
$
|
2.4
|
|
|
$
|
22.0
|
|
|
$
|
24.4
|
|
|
|
|
|
(a)
|
|
Severance, retention bonuses and other benefits
|
|
(b)
|
|
Consists mostly of leasehold improvements, equipment and
intangible assets with definite
lives
|
|
The following table presents the activity in the reserve for restructuring costs associated
with the E-LOAN 2008 Restructuring Plan for the years ended December 31, 2009 and 2008.
|
|
|
|
|
(In millions)
|
|
Restructuring Costs
|
|
Balance at January 1, 2008
|
|
|
|
|
Charges expensed during 2008
|
|
|
3.1
|
|
Payments made during 2008
|
|
|
(0.1
|
)
|
|
Balance at December 31, 2008
|
|
$
|
3.0
|
|
Charges expensed during 2009
|
|
|
2.9
|
|
Payments made during 2009
|
|
|
(5.4
|
)
|
Reversals made during 2009
|
|
|
(0.5
|
) (a)
|
|
Balance at December 31, 2009
|
|
$
|
|
|
|
|
|
|
(a)
|
|
Severance, retention bonuses and other benefits
|
115
Note 5 Restrictions on cash and due from banks and highly liquid securities:
Restricted assets include cash and other highly liquid securities whereby the Corporations ability
to withdraw funds at any time is contractually limited. Restricted assets are generally designated
for specific purposes arising out of certain contractual or other obligations.
The Corporations subsidiary banks are required by federal and state regulatory agencies to
maintain average reserve balances with the Federal Reserve Bank or other banks. Those required
average reserve balances were approximately $721 million at December 31, 2009
(2008 $684
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, the
Corporation may be required to establish a special reserve account for the benefit of brokerage
customers of its broker-dealer subsidiary, which may consist of securities segregated in the
special reserve account. There were no reserve requirements at December 31, 2009. At December 31,
2008 the Corporation had securities with a market value of $0.3 million. These securities were
classified in the consolidated statement of condition within the other trading securities category.
As required by the Puerto Rico International Banking Center Law, at December 31, 2009 and
2008, the Corporation maintained separately for its two international banking entities (IBEs),
$0.6 million in time deposits, equally split for the two IBEs, which were considered restricted
assets.
As part of a line of credit facility with a financial institution, at December 31, 2009 and
2008, the Corporation maintained restricted cash of $2 million as collateral for the line of
credit. The cash is being held in certificates of deposit, which mature in less than 90 days. The
line of credit is used to support letters of credit.
At December 31, 2009, the Corporation maintained restricted cash of $3 million to support a
letter of credit. The cash is being held in an interest-bearing money market account.
At December 31, 2009, the Corporation had restricted cash of $1 million (2008 $3 million) to
support a letter of credit related to a service settlement agreement.
At December 31, 2008, as part of a loan sales agreement, the Corporation was required to have
$10 million in cash equivalents restricted as to usage for potential payment of obligations. This
restriction expired on November 3, 2009.
Note 6 Securities purchased under agreements to resell:
The securities purchased underlying the agreements to resell were delivered to, and are held by,
the Corporation. The counterparties to such agreements maintain effective control over such
securities. The Corporation is permitted by contract to repledge the securities, and has agreed to
resell to the counterparties the same or substantially similar securities at the maturity of the
agreements.
The fair value of the collateral securities held by the Corporation on these transactions at
December 31, was as follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
Repledged
|
|
$
|
167,602
|
|
|
$
|
199,558
|
|
Not repledged
|
|
|
155,072
|
|
|
|
122,871
|
|
|
Total
|
|
$
|
322,674
|
|
|
$
|
322,429
|
|
|
The repledged securities were used as underlying securities for
repurchase agreement transactions.
116 POPULAR, INC. 2009 ANNUAL REPORT
Note 7 Investment securities available-for-sale:
The amortized cost, gross unrealized gains and losses, approximate fair value, weighted average
yield and contractual maturities of investment securities available-for-sale at December 31, 2009
and 2008 (2007 only fair value is presented) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Weighted
|
|
|
Amortized
|
|
unrealized
|
|
unrealized
|
|
Fair
|
|
average
|
|
|
cost
|
|
gains
|
|
losses
|
|
value
|
|
yield
|
|
|
(Dollars in thousands)
|
U.S. Treasury securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 5 to 10 years
|
|
$
|
29,359
|
|
|
$
|
1,093
|
|
|
|
|
|
|
$
|
30,452
|
|
|
|
3.80
|
%
|
|
Obligations of
U.S. government
sponsored entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
349,424
|
|
|
|
7,491
|
|
|
|
|
|
|
|
356,915
|
|
|
|
3.67
|
|
After 1 to 5 years
|
|
|
1,177,318
|
|
|
|
58,151
|
|
|
|
|
|
|
|
1,235,469
|
|
|
|
3.79
|
|
After 5 to 10 years
|
|
|
27,812
|
|
|
|
680
|
|
|
|
|
|
|
|
28,492
|
|
|
|
4.96
|
|
After 10 years
|
|
|
26,884
|
|
|
|
176
|
|
|
|
|
|
|
|
27,060
|
|
|
|
5.68
|
|
|
|
|
|
1,581,438
|
|
|
|
66,498
|
|
|
|
|
|
|
|
1,647,936
|
|
|
|
3.82
|
|
|
Obligations of Puerto Rico,
States and political
subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 1 to 5 years
|
|
|
22,311
|
|
|
|
7
|
|
|
$
|
15
|
|
|
|
22,303
|
|
|
|
6.92
|
|
After 5 to 10 years
|
|
|
50,910
|
|
|
|
249
|
|
|
|
632
|
|
|
|
50,527
|
|
|
|
5.08
|
|
After 10 years
|
|
|
7,840
|
|
|
|
|
|
|
|
61
|
|
|
|
7,779
|
|
|
|
5.26
|
|
|
|
|
|
81,061
|
|
|
|
256
|
|
|
|
708
|
|
|
|
80,609
|
|
|
|
5.60
|
|
|
Collateralized mortgage
obligations federal agencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
3.78
|
|
After 1 to 5 years
|
|
|
4,875
|
|
|
|
120
|
|
|
|
|
|
|
|
4,995
|
|
|
|
4.44
|
|
After 5 to 10 years
|
|
|
125,397
|
|
|
|
2,105
|
|
|
|
404
|
|
|
|
127,098
|
|
|
|
2.85
|
|
After 10 years
|
|
|
1,454,833
|
|
|
|
19,060
|
|
|
|
5,837
|
|
|
|
1,468,056
|
|
|
|
3.03
|
|
|
|
|
|
1,585,146
|
|
|
|
21,285
|
|
|
|
6,241
|
|
|
|
1,600,190
|
|
|
|
3.02
|
|
|
Collateralized mortgage
obligations private label
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 5 to 10 years
|
|
|
20,885
|
|
|
|
|
|
|
|
653
|
|
|
|
20,232
|
|
|
|
2.00
|
|
After 10 years
|
|
|
105,669
|
|
|
|
109
|
|
|
|
8,452
|
|
|
|
97,326
|
|
|
|
2.59
|
|
|
|
|
|
126,554
|
|
|
|
109
|
|
|
|
9,105
|
|
|
|
117,558
|
|
|
|
2.50
|
|
|
Mortgage-backed
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
26,878
|
|
|
|
512
|
|
|
|
|
|
|
|
27,390
|
|
|
|
3.61
|
|
After 1 to 5 years
|
|
|
30,117
|
|
|
|
823
|
|
|
|
|
|
|
|
30,940
|
|
|
|
3.94
|
|
After 5 to 10 years
|
|
|
205,480
|
|
|
|
8,781
|
|
|
|
|
|
|
|
214,261
|
|
|
|
4.80
|
|
After 10 years
|
|
|
2,915,689
|
|
|
|
32,102
|
|
|
|
10,203
|
|
|
|
2,937,588
|
|
|
|
4.40
|
|
|
|
|
|
3,178,164
|
|
|
|
42,218
|
|
|
|
10,203
|
|
|
|
3,210,179
|
|
|
|
4.42
|
|
|
Equity securities
(without contractual
maturity)
|
|
|
8,902
|
|
|
|
233
|
|
|
|
1,345
|
|
|
|
7,790
|
|
|
|
3.65
|
|
|
|
|
$
|
6,590,624
|
|
|
$
|
131,692
|
|
|
$
|
27,602
|
|
|
$
|
6,694,714
|
|
|
|
3.91
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Weighted
|
|
|
|
|
Amortized
|
|
unrealized
|
|
unrealized
|
|
Fair
|
|
average
|
|
Fair
|
|
|
cost
|
|
gains
|
|
losses
|
|
value
|
|
yield
|
|
value
|
|
|
(Dollars in thousands)
|
U.S. Treasury securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,996
|
|
After 5 to 10 years
|
|
$
|
456,551
|
|
|
$
|
45,567
|
|
|
|
|
|
|
$
|
502,118
|
|
|
|
3.83
|
%
|
|
|
461,100
|
|
|
|
|
|
456,551
|
|
|
|
45,567
|
|
|
|
|
|
|
|
502,118
|
|
|
|
3.83
|
|
|
|
471,096
|
|
|
Obligations of
U.S. government
sponsored entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
123,315
|
|
|
|
2,855
|
|
|
|
|
|
|
|
126,170
|
|
|
|
4.46
|
|
|
|
1,310,599
|
|
After 1 to 5 years
|
|
|
4,361,775
|
|
|
|
262,184
|
|
|
|
|
|
|
|
4,623,959
|
|
|
|
4.07
|
|
|
|
3,641,774
|
|
After 5 to 10 years
|
|
|
27,811
|
|
|
|
1,097
|
|
|
|
|
|
|
|
28,908
|
|
|
|
4.96
|
|
|
|
472,270
|
|
After 10 years
|
|
|
26,877
|
|
|
|
1,094
|
|
|
|
|
|
|
|
27,971
|
|
|
|
5.68
|
|
|
|
72,471
|
|
|
|
|
|
4,539,778
|
|
|
|
267,230
|
|
|
|
|
|
|
|
4,807,008
|
|
|
|
4.09
|
|
|
|
5,497,114
|
|
|
Obligations of Puerto Rico,
States and political
subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
4,500
|
|
|
|
66
|
|
|
|
|
|
|
|
4,566
|
|
|
|
6.10
|
|
|
|
12,431
|
|
After 1 to 5 years
|
|
|
2,259
|
|
|
|
4
|
|
|
$
|
6
|
|
|
|
2,257
|
|
|
|
4.95
|
|
|
|
7,960
|
|
After 5 to 10 years
|
|
|
67,975
|
|
|
|
232
|
|
|
|
3,269
|
|
|
|
64,938
|
|
|
|
4.77
|
|
|
|
24,114
|
|
After 10 years
|
|
|
29,423
|
|
|
|
46
|
|
|
|
240
|
|
|
|
29,229
|
|
|
|
5.20
|
|
|
|
56,987
|
|
|
|
|
|
104,157
|
|
|
|
348
|
|
|
|
3,515
|
|
|
|
100,990
|
|
|
|
4.95
|
|
|
|
101,492
|
|
|
Collateralized mortgage
obligations federal agencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
179
|
|
|
|
|
|
|
|
|
|
|
|
179
|
|
|
|
5.36
|
|
|
|
190
|
|
After 1 to 5 years
|
|
|
6,837
|
|
|
|
52
|
|
|
|
12
|
|
|
|
6,877
|
|
|
|
5.20
|
|
|
|
6,589
|
|
After 5 to 10 years
|
|
|
156,240
|
|
|
|
784
|
|
|
|
994
|
|
|
|
156,030
|
|
|
|
3.38
|
|
|
|
123,982
|
|
After 10 years
|
|
|
1,363,705
|
|
|
|
9,090
|
|
|
|
28,913
|
|
|
|
1,343,882
|
|
|
|
3.11
|
|
|
|
1,027,660
|
|
|
|
|
|
1,526,961
|
|
|
|
9,926
|
|
|
|
29,919
|
|
|
|
1,506,968
|
|
|
|
3.15
|
|
|
|
1,158,421
|
|
|
Collateralized mortgage
obligations private label
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
443
|
|
|
|
|
|
|
|
3
|
|
|
|
440
|
|
|
|
4.96
|
|
|
|
|
|
After 1 to 5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
871
|
|
After 5 to 10 years
|
|
|
30,914
|
|
|
|
|
|
|
|
2,909
|
|
|
|
28,005
|
|
|
|
2.30
|
|
|
|
3,269
|
|
After 10 years
|
|
|
158,667
|
|
|
|
|
|
|
|
38,364
|
|
|
|
120,303
|
|
|
|
3.52
|
|
|
|
233,979
|
|
|
|
|
|
190,024
|
|
|
|
|
|
|
|
41,276
|
|
|
|
148,748
|
|
|
|
3.32
|
|
|
|
238,119
|
|
|
Mortgage-backed
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
18,673
|
|
|
|
46
|
|
|
|
8
|
|
|
|
18,711
|
|
|
|
3.94
|
|
|
|
27,116
|
|
After 1 to 5 years
|
|
|
67,570
|
|
|
|
237
|
|
|
|
150
|
|
|
|
67,657
|
|
|
|
3.86
|
|
|
|
93,351
|
|
After 5 to 10 years
|
|
|
116,059
|
|
|
|
3,456
|
|
|
|
226
|
|
|
|
119,289
|
|
|
|
4.85
|
|
|
|
68,906
|
|
After 10 years
|
|
|
635,159
|
|
|
|
11,127
|
|
|
|
3,438
|
|
|
|
642,848
|
|
|
|
5.47
|
|
|
|
820,755
|
|
|
|
|
|
837,461
|
|
|
|
14,866
|
|
|
|
3,822
|
|
|
|
848,505
|
|
|
|
5.22
|
|
|
|
1,010,128
|
|
|
Equity securities
(without contractual
maturity)
|
|
|
19,581
|
|
|
|
61
|
|
|
|
9,492
|
|
|
|
10,150
|
|
|
|
5.01
|
|
|
|
33,953
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 1 to 5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
After 5 to 10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
After 10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,812
|
|
|
|
|
$
|
7,674,513
|
|
|
$
|
337,998
|
|
|
$
|
88,024
|
|
|
$
|
7,924,487
|
|
|
|
4.01
|
%
|
|
$
|
8,515,135
|
|
|
The weighted average yield on investment securities available-for-sale is based on amortized
cost; therefore, it does not give effect to changes in fair value.
Securities not due on a single contractual maturity date, such as mortgage-backed securities
and collateralized mortgage
117
obligations, are classified in the period of final contractual maturity. The expected maturities of
collateralized mortgage obligations, mortgage-backed securities and certain other securities may
differ from their contractual maturities because they may be subject to prepayments or may be
called by the issuer.
The aggregate amortized cost and fair value of investment securities available-for-sale at
December 31, 2009, by contractual maturity, are shown below:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Amortized cost
|
|
|
Fair value
|
|
Within 1 year
|
|
$
|
376,343
|
|
|
$
|
384,346
|
|
After 1 to 5 years
|
|
|
1,234,621
|
|
|
|
1,293,707
|
|
After 5 to 10 years
|
|
|
459,843
|
|
|
|
471,062
|
|
After 10 years
|
|
|
4,510,915
|
|
|
|
4,537,809
|
|
|
Total
|
|
|
6,581,722
|
|
|
|
6,686,924
|
|
Equity securities
|
|
|
8,902
|
|
|
|
7,790
|
|
|
Total investment securities
available-for-sale
|
|
$
|
6,590,624
|
|
|
$
|
6,694,714
|
|
|
Proceeds from the sale of investment securities available-for-sale during 2009 were $3.8
billion (2008 $2.4 billion; 2007 $58.2 million). Gross realized gains and losses on securities
available-for-sale during 2009 were $184.7 million and $0.4 million, respectively (2008 $29.6
million and $0.1 million; 2007 $8.0 million and $4.3 million).
The following table shows the Corporations amortized cost, gross unrealized losses and fair
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 December 31,
2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
Less than 12 months
|
|
|
|
|
|
|
Gross
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Fair
|
(In thousands)
|
|
Cost
|
|
Losses
|
|
Value
|
|
Obligations of Puerto Rico, States and
political subdivisions
|
|
$
|
2,395
|
|
|
$
|
8
|
|
|
$
|
2,387
|
|
Collateralized mortgage obligations
federal agencies
|
|
|
302,584
|
|
|
|
3,667
|
|
|
|
298,917
|
|
Collateralized mortgage obligations
private label
|
|
|
6,734
|
|
|
|
18
|
|
|
|
6,716
|
|
Mortgage-backed securities
|
|
|
915,158
|
|
|
|
10,130
|
|
|
|
905,028
|
|
Equity securities
|
|
|
3,328
|
|
|
|
981
|
|
|
|
2,347
|
|
|
|
|
$
|
1,230,199
|
|
|
$
|
14,804
|
|
|
$
|
1,215,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 months or more
|
|
|
|
|
|
|
Gross
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Fair
|
(In thousands)
|
|
Cost
|
|
Losses
|
|
Value
|
|
Obligations of Puerto Rico, States and
political subdivisions
|
|
$
|
64,129
|
|
|
$
|
700
|
|
|
$
|
63,429
|
|
Collateralized mortgage obligations
federal agencies
|
|
|
361,788
|
|
|
|
2,574
|
|
|
|
359,214
|
|
Collateralized mortgage obligations
private label
|
|
|
106,991
|
|
|
|
9,087
|
|
|
|
97,904
|
|
Mortgage-backed securities
|
|
|
3,639
|
|
|
|
73
|
|
|
|
3,566
|
|
Equity securities
|
|
|
4,262
|
|
|
|
364
|
|
|
|
3,898
|
|
|
|
|
$
|
540,809
|
|
|
$
|
12,798
|
|
|
$
|
528,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Fair
|
(In thousands)
|
|
Cost
|
|
Losses
|
|
Value
|
|
Obligations of Puerto Rico, States and
political subdivisions
|
|
$
|
66,524
|
|
|
$
|
708
|
|
|
$
|
65,816
|
|
Collateralized mortgage obligations
federal agencies
|
|
|
664,372
|
|
|
|
6,241
|
|
|
|
658,131
|
|
Collateralized mortgage obligations
private label
|
|
|
113,725
|
|
|
|
9,105
|
|
|
|
104,620
|
|
Mortgage-backed securities
|
|
|
918,797
|
|
|
|
10,203
|
|
|
|
908,594
|
|
Equity securities
|
|
|
7,590
|
|
|
|
1,345
|
|
|
|
6,245
|
|
|
|
|
$
|
1,771,008
|
|
|
$
|
27,602
|
|
|
$
|
1,743,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
Less than 12 months
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Fair
|
|
(In thousands)
|
|
Cost
|
|
|
Losses
|
|
|
Value
|
|
|
Obligations of Puerto Rico, States and
political subdivisions
|
|
$
|
34,795
|
|
|
$
|
303
|
|
|
$
|
34,492
|
|
Collateralized mortgage obligations
federal agencies
|
|
|
485,140
|
|
|
|
13,274
|
|
|
|
471,866
|
|
Collateralized mortgage obligations
private label
|
|
|
59,643
|
|
|
|
15,315
|
|
|
|
44,328
|
|
Mortgage-backed securities
|
|
|
109,298
|
|
|
|
676
|
|
|
|
108,622
|
|
Equity securities
|
|
|
19,541
|
|
|
|
9,480
|
|
|
|
10,061
|
|
|
|
|
$
|
708,417
|
|
|
$
|
39,048
|
|
|
$
|
669,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 months or more
|
|
|
|
|
|
|
Gross
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Fair
|
(In thousands)
|
|
Cost
|
|
Losses
|
|
Value
|
|
Obligations of Puerto Rico, States and
political subdivisions
|
|
$
|
44,011
|
|
|
$
|
3,212
|
|
|
$
|
40,799
|
|
Collateralized mortgage obligations
federal agencies
|
|
|
423,137
|
|
|
|
16,645
|
|
|
|
406,492
|
|
Collateralized mortgage obligations
private label
|
|
|
130,065
|
|
|
|
25,961
|
|
|
|
104,104
|
|
Mortgage-backed securities
|
|
|
206,472
|
|
|
|
3,146
|
|
|
|
203,326
|
|
Equity securities
|
|
|
29
|
|
|
|
12
|
|
|
|
17
|
|
|
|
|
$
|
803,714
|
|
|
$
|
48,976
|
|
|
$
|
754,738
|
|
|
118 POPULAR, INC. 2009 ANNUAL REPORT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Fair
|
(In thousands)
|
|
Cost
|
|
Losses
|
|
Value
|
|
Obligations of Puerto Rico, States and
political subdivisions
|
|
$
|
78,806
|
|
|
$
|
3,515
|
|
|
$
|
75,291
|
|
Collateralized mortgage obligations
federal agencies
|
|
|
908,277
|
|
|
|
29,919
|
|
|
|
878,358
|
|
Collateralized mortgage obligations
private label
|
|
|
189,708
|
|
|
|
41,276
|
|
|
|
148,432
|
|
Mortgage-backed securities
|
|
|
315,770
|
|
|
|
3,822
|
|
|
|
311,948
|
|
Equity securities
|
|
|
19,570
|
|
|
|
9,492
|
|
|
|
10,078
|
|
|
|
|
$
|
1,512,131
|
|
|
$
|
88,024
|
|
|
$
|
1,424,107
|
|
|
Management evaluates investment securities for other-than-temporary (OTTI) declines in fair
value on a quarterly basis. Once a decline in value is determined to be other-than- temporary, the
value of a debt security is reduced and a corresponding charge to earnings is recognized for
anticipated credit losses. Also, for equity securities that are considered other-than-temporarily
impaired, the excess of the securitys carrying value over its fair value at the evaluation date is
accounted for as a loss in the results of operations. The OTTI analysis requires management to
consider various factors, which include, but are not limited to: (1) the length of time and the
extent to which fair value has been less than the amortized cost basis, (2) the financial condition
of the issuer or issuers, (3) actual collateral attributes, (4) the payment structure of the debt
security and the likelihood of the issuer being able to make payments, (5) any rating changes by a
rating agency, (6) adverse conditions specifically related to the security, industry, or a
geographic area, and (7) managements intent to sell the security or whether it is more likely than
not that the Corporation would be required to sell the security before a forecasted recovery
occurs.
At December 31, 2009, management performed its quarterly analysis of all debt securities in an
unrealized loss position. Based on the analyses performed, management concluded that no material
individual debt security was other-than-temporarily impaired as of such date. At December 31, 2009,
the Corporation does not have the intent to sell debt securities in an unrealized loss position and
it is not more likely than not that the Corporation will have to sell the investment securities
prior to recovery of their amortized cost basis. Also, management evaluated the Corporations
portfolio of equity securities at December 31, 2009. During the
year ended
December 31, 2009, the Corporation recorded $10.9 million in losses
on certain equity securities considered other-than-temporarily impaired. Management has the intent
and ability to hold the investments in equity securities that are at a loss position at December
31, 2009 for a reasonable period of time for a forecasted recovery of fair value up to (or beyond)
the cost of these investments.
The unrealized losses associated with Obligations of Puerto Rico, States and political
subdivisions are primarily associated to approximately $55 million in Commonwealth of Puerto Rico
Appropriation Bonds (Appropriation Bonds). Of this total, $45 million are rated Ba1, one notch
below investment grade, by Moodys Investors Service (Moodys), while Standard & Poors (S&P)
rates them as investment grade. During early June, S&P Rating Services affirmed its BBB- rating on
the Commonwealth of Puerto Rico general obligations and appropriation debt outstanding, which
indicates S&Ps opinion that Puerto Ricos appropriation credit profile is not speculative grade.
The outlook indicated by S&P is stable. These securities will continue to be monitored as part of
managements ongoing OTTI assessments. Management expects to receive cash flows sufficient to
recover the entire amortized cost basis of the securities.
The unrealized losses reported for Collateralized mortgage obligations federal agencies
are principally associated to CMOs that were issued by U.S. government-sponsored entities and
agencies, primarily Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage
Corporation (FHLMC), institutions which the government has affirmed its commitment to support,
and Government National Mortgage Association (GNMA), which has the full faith and credit of the
U.S. Government. These collateralized mortgage obligations are rated AAA by the major rating
agencies and are backed by residential mortgages. The unrealized losses in this portfolio were
primarily attributable to changes in interest rates and levels of market liquidity relative to when
the investment securities were purchased and not due to credit quality of the securities.
The unrealized losses associated with private-label collateralized mortgage obligations are
primarily related to securities backed by residential mortgages. In addition to verifying the
credit ratings for the private label CMOs, management analyzed the underlying mortgage loan
collateral for these bonds. Various statistics or metrics were reviewed for each private-label CMO,
including among others, the weighted average loan-to-value, FICO score, and delinquency and
foreclosure rates of the underlying assets in the securities. At December 31, 2009, there were no
sub-prime or Alt-A securities in the Corporations private-label CMO portfolios. For
private-label CMOs with unrealized losses as of December 31, 2009, credit impairment was assessed
using a cash flow model that estimates the cash flows on the underlying mortgages, using the
security-specific collateral and transaction structure. The model estimates cash flows from the
underlying mortgage loans and distributes those cash flows to various tranches of securities,
considering the transaction structure and any subordination and credit enhancements that exist in
that structure. The cash flow model incorporates actual cash flows through the current period and
then projects the expected cash flows using a number of assumptions, including default rates, loss
severity and prepayment rates. Managements assessment also considered tests using more stressful
parameters. Based on the assessments, management concluded that the tranches of the private-label
CMOs held by
119
the Corporation were not other-than-temporarily impaired at December 31, 2009, thus management
expects to recover the amortized cost basis of the securities.
All of the Corporations securities classified as mortgage-backed securities were issued by
U.S. government-sponsored entities and agencies, primarily GNMA and FNMA, thus as previously
expressed, have the guarantee or support of the U.S. government. These mortgage-backed securities
are rated AAA by the major rating agencies and are backed by residential mortgages. Most of the
mortgage-backed securities held at December 31, 2009 with unrealized losses had been purchased at a
premium during 2009 and although their fair values have declined, they continue to exceed the par
value of the securities. The unrealized losses in this portfolio were generally attributable to
changes in interest rates relative to when the investment securities were purchased and not due to
credit quality of the securities.
The following table states the name of issuers, and the aggregate amortized cost and market
value of the securities of such issuer (includes available-for-sale and held-to-maturity
securities), in which 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
(In thousands)
|
|
cost
|
|
Value
|
|
cost
|
|
Value
|
|
FNMA
|
|
$
|
970,744
|
|
|
$
|
991,825
|
|
|
$
|
1,198,645
|
|
|
$
|
1,197,648
|
|
FHLB
|
|
|
1,385,535
|
|
|
|
1,449,454
|
|
|
|
4,389,271
|
|
|
|
4,651,249
|
|
Freddie Mac
|
|
|
959,316
|
|
|
|
971,556
|
|
|
|
884,414
|
|
|
|
875,493
|
|
|
Note 8 Investment securities held-to-maturity:
The amortized cost, gross unrealized gains and losses, approximate fair value, weighted average
yield and contractual maturities of investment securities held-to-maturity at December 31, 2009 and
2008 (2007 only amortized cost is presented) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Weighted
|
|
|
Amortized
|
|
unrealized
|
|
unrealized
|
|
Fair
|
|
average
|
|
|
cost
|
|
gains
|
|
losses
|
|
value
|
|
yield
|
|
|
(Dollars in thousands)
|
|
U.S. Treasury
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
$
|
25,777
|
|
|
$
|
4
|
|
|
|
|
|
|
$
|
25,781
|
|
|
|
0.11
|
%
|
|
Obligations of Puerto Rico,
States and political
subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
7,015
|
|
|
|
6
|
|
|
|
|
|
|
|
7,021
|
|
|
|
2.04
|
|
After 1 to 5 years
|
|
|
109,415
|
|
|
|
3,157
|
|
|
$
|
6
|
|
|
|
112,566
|
|
|
|
5.51
|
|
After 5 to 10 years
|
|
|
17,112
|
|
|
|
39
|
|
|
|
452
|
|
|
|
16,699
|
|
|
|
5.79
|
|
After 10 years
|
|
|
48,600
|
|
|
|
|
|
|
|
2,552
|
|
|
|
46,048
|
|
|
|
4.00
|
|
|
|
|
|
182,142
|
|
|
|
3,202
|
|
|
|
3,010
|
|
|
|
182,334
|
|
|
|
5.00
|
|
|
Collateralized
mortgage obligations
private label
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 10 years
|
|
|
220
|
|
|
|
|
|
|
|
12
|
|
|
|
208
|
|
|
|
5.45
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
3,573
|
|
|
|
|
|
|
|
|
|
|
|
3,573
|
|
|
|
3.77
|
|
After 1 to 5 years
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
|
1.66
|
|
|
|
|
|
4,823
|
|
|
|
|
|
|
|
|
|
|
|
4,823
|
|
|
|
3.22
|
|
|
|
|
$
|
212,962
|
|
|
$
|
3,206
|
|
|
$
|
3,022
|
|
|
$
|
213,146
|
|
|
|
4.37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Weighted
|
|
|
|
|
Amortized
|
|
unrealized
|
|
unrealized
|
|
Fair
|
|
average
|
|
Amortized
|
|
|
cost
|
|
gains
|
|
losses
|
|
value
|
|
yield
|
|
cost
|
|
|
(Dollars in thousands)
|
|
Obligations of
U.S. government
sponsored entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
$
|
1,499
|
|
|
$
|
1
|
|
|
|
|
|
|
$
|
1,500
|
|
|
|
1.00
|
%
|
|
$
|
395,974
|
|
|
Obligations of Puerto Rico,
States and political
subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
106,910
|
|
|
|
8
|
|
|
|
|
|
|
|
106,918
|
|
|
|
2.82
|
|
|
|
1,785
|
|
After 1 to 5 years
|
|
|
108,860
|
|
|
|
351
|
|
|
$
|
367
|
|
|
|
108,844
|
|
|
|
5.50
|
|
|
|
11,745
|
|
After 5 to 10 years
|
|
|
16,170
|
|
|
|
500
|
|
|
|
116
|
|
|
|
16,554
|
|
|
|
5.75
|
|
|
|
12,754
|
|
After 10 years
|
|
|
52,730
|
|
|
|
115
|
|
|
|
5,141
|
|
|
|
47,704
|
|
|
|
5.56
|
|
|
|
50,180
|
|
|
|
|
|
284,670
|
|
|
|
974
|
|
|
|
5,624
|
|
|
|
280,020
|
|
|
|
4.52
|
|
|
|
76,464
|
|
|
Collateralized
mortgage obligations
private label
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 10 years
|
|
|
244
|
|
|
|
|
|
|
|
13
|
|
|
|
231
|
|
|
|
5.45
|
|
|
|
310
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
6,584
|
|
|
|
49
|
|
|
|
|
|
|
|
6,633
|
|
|
|
6.04
|
|
|
|
6,228
|
|
After 1 to 5 years
|
|
|
1,750
|
|
|
|
|
|
|
|
|
|
|
|
1,750
|
|
|
|
3.90
|
|
|
|
5,490
|
|
|
|
|
|
8,334
|
|
|
|
49
|
|
|
|
|
|
|
|
8,383
|
|
|
|
5.59
|
|
|
|
11,718
|
|
|
|
|
$
|
294,747
|
|
|
$
|
1,024
|
|
|
$
|
5,637
|
|
|
$
|
290,134
|
|
|
|
4.53
|
%
|
|
$
|
484,466
|
|
|
120 POPULAR, INC. 2009 ANNUAL REPORT
Securities not due on a single contractual maturity date, such as collateralized mortgage
obligations, are classified in the period of final contractual maturity. The expected maturities of
collateralized mortgage obligations and certain other securities may differ from their contractual
maturities because they may be subject to prepayments or may be called by the issuer.
The aggregate amortized cost and fair value of investment securities held-to-maturity at
December 31, 2009, by contractual maturity, are shown below:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Amortized cost
|
|
|
Fair value
|
|
Within 1 year
|
|
$
|
36,365
|
|
|
$
|
36,375
|
|
After 1 to 5 years
|
|
|
110,665
|
|
|
|
113,816
|
|
After 5 to 10 years
|
|
|
17,112
|
|
|
|
16,699
|
|
After 10 years
|
|
|
48,820
|
|
|
|
46,256
|
|
|
Total investment securities
held-to-maturity
|
|
$
|
212,962
|
|
|
$
|
213,146
|
|
|
The following table shows the Corporations amortized cost, 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 December 31,
2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
Less than 12 months
|
|
|
|
|
|
|
Gross
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Fair
|
(In thousands)
|
|
Cost
|
|
Losses
|
|
Value
|
|
Obligations of Puerto Rico, States and
political subdivisions
|
|
$
|
23,095
|
|
|
$
|
1,908
|
|
|
$
|
21,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 months or more
|
|
|
|
|
|
|
Gross
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Fair
|
(In thousands)
|
|
Cost
|
|
Losses
|
|
Value
|
|
Obligations of Puerto Rico, States and
political subdivisions
|
|
$
|
38,820
|
|
|
$
|
1,102
|
|
|
$
|
37,718
|
|
Collateralized mortgage obligations
private label
|
|
|
221
|
|
|
|
12
|
|
|
|
209
|
|
|
|
|
$
|
39,041
|
|
|
$
|
1,114
|
|
|
$
|
37,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Fair
|
(In thousands)
|
|
Cost
|
|
Losses
|
|
Value
|
|
Obligations of Puerto Rico, States and
political subdivisions
|
|
$
|
61,915
|
|
|
$
|
3,010
|
|
|
$
|
58,905
|
|
Collateralized mortgage obligations
private label
|
|
|
220
|
|
|
|
12
|
|
|
|
208
|
|
|
|
|
$
|
62,135
|
|
|
$
|
3,022
|
|
|
$
|
59,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
Less than 12 months
|
|
|
|
|
|
|
Gross
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Fair
|
(In thousands)
|
|
Cost
|
|
Losses
|
|
Value
|
|
Obligations of Puerto Rico, States and
political subdivisions
|
|
$
|
135,650
|
|
|
$
|
5,452
|
|
|
$
|
130,198
|
|
Other
|
|
|
250
|
|
|
|
|
|
|
|
250
|
|
|
|
|
$
|
135,900
|
|
|
$
|
5,452
|
|
|
$
|
130,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 months or more
|
|
|
|
|
|
|
Gross
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Fair
|
(In thousands)
|
|
Cost
|
|
Losses
|
|
Value
|
|
Obligations of Puerto Rico, States and
political subdivisions
|
|
$
|
9,535
|
|
|
$
|
172
|
|
|
$
|
9,363
|
|
Collateralized mortgage obligations
private label
|
|
|
244
|
|
|
|
13
|
|
|
|
231
|
|
Other
|
|
|
250
|
|
|
|
|
|
|
|
250
|
|
|
|
|
$
|
10,029
|
|
|
$
|
185
|
|
|
$
|
9,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Fair
|
(In thousands)
|
|
Cost
|
|
Losses
|
|
Value
|
|
Obligations of Puerto Rico, States and
political subdivisions
|
|
$
|
145,185
|
|
|
$
|
5,624
|
|
|
$
|
139,561
|
|
Collateralized mortgage obligations
private label
|
|
|
244
|
|
|
|
13
|
|
|
|
231
|
|
Other
|
|
|
500
|
|
|
|
|
|
|
|
500
|
|
|
|
|
$
|
145,929
|
|
|
$
|
5,637
|
|
|
$
|
140,292
|
|
|
As indicated in Note 7 to these consolidated financial statements, management evaluates
investment securities for other-than-temporary (OTTI) declines in fair value on a quarterly
basis.
The Obligations of Puerto Rico, States and political subdivisions classified as
held-to-maturity as of December 31, 2009 are primarily associated with securities issued by
municipalities of Puerto Rico and are generally not rated by a credit rating agency. The
Corporation performs periodic credit quality reviews on these issuers. The decline in fair value as
of December 31, 2009 was attributable to changes in interest rates and not credit quality, thus no
other-than-temporary decline in value was necessary to be recorded in these held-to-maturity
securities at December 31, 2009. At December 31, 2009, the Corporation does not have the intent to
sell securities held-to-maturity and it is not more likely than not that the Corporation will have
to sell these investment securities prior to recovery of their amortized cost basis.
121
Note 9 Pledged assets:
At December 31, 2009 and 2008, certain securities and loans were pledged to secure public and trust
deposits, assets sold under agreements to repurchase, other borrowings and credit facilities
available, derivative positions and loan servicing agreements. 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:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
Investment securities available-for-sale,
at fair value
|
|
$
|
1,923,338
|
|
|
$
|
2,470,591
|
|
Investment securities held-to-maturity,
at amortized cost
|
|
|
125,769
|
|
|
|
100,000
|
|
Loans held-for-sale measured at lower
of cost or fair value
|
|
|
2,254
|
|
|
|
35,764
|
|
Loans held-in-portfolio
|
|
|
8,993,967
|
|
|
|
8,101,999
|
|
|
|
|
$
|
11,045,328
|
|
|
$
|
10,708,354
|
|
|
Pledged securities and loans that the creditor has the right by custom or contract to repledge
are presented separately on the consolidated statements of condition.
Note 10 Loans and allowance for loan losses:
The composition of loans held-in-portfolio at December 31, was as follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
Loans secured by real estate:
|
|
|
|
|
|
|
|
|
Insured or guaranteed by the U.S.
Government or its agencies
|
|
$
|
301,611
|
|
|
$
|
185,796
|
|
Guaranteed by the Commonwealth
of Puerto Rico
|
|
|
184,853
|
|
|
|
131,418
|
|
Commercial loans secured by real estate
|
|
|
7,983,486
|
|
|
|
7,973,500
|
|
Residential conventional mortgages
|
|
|
4,092,526
|
|
|
|
4,110,953
|
|
Construction and land development
|
|
|
1,796,577
|
|
|
|
2,400,230
|
|
Consumer loans secured by real estate
|
|
|
1,029,534
|
|
|
|
1,251,206
|
|
|
|
|
|
15,388,587
|
|
|
|
16,053,103
|
|
Depository institutions
|
|
|
6,705
|
|
|
|
10,061
|
|
Commercial, industrial and agricultural
|
|
|
3,706,087
|
|
|
|
4,605,815
|
|
Lease financing
|
|
|
785,659
|
|
|
|
872,653
|
|
Consumer for household, credit cards
and other consumer expenditures
|
|
|
3,021,717
|
|
|
|
3,403,822
|
|
Obligations of states and political subdivisions
|
|
|
613,127
|
|
|
|
507,188
|
|
Other
|
|
|
305,381
|
|
|
|
404,595
|
|
|
|
|
$
|
23,827,263
|
|
|
$
|
25,857,237
|
|
|
At December 31, 2009, loans on which the accrual of interest income had been discontinued
amounted to $2.3 billion (2008
- $1.2 billion; 2007 $771 million). If these loans had been accruing interest, the additional
interest income realized would have been approximately $60.0 million (2008 $48.7 million; 2007 -
$71.0 million). Non-accruing loans at December 31, 2009 include $64 million (2008 $68 million;
2007 $49 million) in consumer loans.
The commercial, construction and mortgage loans that were considered impaired based on ASC
Section 310-10-35 at December 31, 2009 and 2008, and the related disclosures are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
|
2009
|
|
2008
|
|
Impaired loans with a related allowance
|
|
$
|
1,263,298
|
|
|
$
|
664,852
|
|
Impaired loans that do not require allowance
|
|
|
410,323
|
|
|
|
232,712
|
|
|
Total impaired loans
|
|
$
|
1,673,621
|
|
|
$
|
897,564
|
|
|
Allowance for impaired loans
|
|
$
|
323,887
|
|
|
$
|
194,722
|
|
|
Average balance of impaired
loans during the year
|
|
$
|
1,339,438
|
|
|
$
|
619,073
|
|
|
Interest income recognized on
impaired loans during the year
|
|
$
|
16,939
|
|
|
$
|
8,834
|
|
|
Troubled debt restructurings amounted to $601 million at December 31, 2009, which included
commercial, construction and mortgage loans which had been renegotiated at below-market interest
rates or which other concessions were granted. The amount of outstanding commitments to lend
additional funds to debtors owing receivables whose terms have been modified in troubled debt
restructurings amounted to $61 million at December 31, 2009, which consisted of $1 million for
commercial loans and $60 million for construction loans.
The changes in the allowance for loan losses for the year ended December 31, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
Balance at beginning of year
|
|
$
|
882,807
|
|
|
$
|
548,832
|
|
|
$
|
522,232
|
|
Net allowances acquired
|
|
|
|
|
|
|
|
|
|
|
7,290
|
|
Provision for loan losses
|
|
|
1,405,807
|
|
|
|
991,384
|
|
|
|
341,219
|
|
Recoveries
|
|
|
68,537
|
|
|
|
45,540
|
|
|
|
57,904
|
|
Charge-offs
|
|
|
(1,095,947
|
)
|
|
|
(645,504
|
)
|
|
|
(308,540
|
)
|
Write-downs related to loans
transferred to loans held-for-sale
|
|
|
|
|
|
|
(12,430
|
)
|
|
|
|
|
Change in allowance for loan
losses from discontinued
operations (a)
|
|
|
|
|
|
|
(45,015
|
)
|
|
|
(71,273
|
)
|
|
Balance at end of year
|
|
$
|
1,261,204
|
|
|
$
|
882,807
|
|
|
$
|
548,832
|
|
|
|
|
|
(a)
|
|
A positive amount represents higher provision for loan losses recorded during the period
compared to net charge-offs, and vice versa for a negative amount.
|
122 POPULAR, INC. 2009 ANNUAL REPORT
The components of the net financing leases receivable at December 31, were:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
Total minimum lease payments
|
|
$
|
613,347
|
|
|
$
|
677,926
|
|
Estimated residual value of leased property
|
|
|
165,097
|
|
|
|
188,526
|
|
Deferred origination costs, net of fees
|
|
|
7,216
|
|
|
|
6,201
|
|
Less Unearned financing income
|
|
|
110,031
|
|
|
|
119,450
|
|
|
Net minimum lease payments
|
|
|
675,629
|
|
|
|
753,203
|
|
Less Allowance for loan losses
|
|
|
18,558
|
|
|
|
21,976
|
|
|
|
|
$
|
657,071
|
|
|
$
|
731,227
|
|
|
At December 31, 2009, future minimum lease payments are expected to be received as follows:
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
2010
|
|
$
|
202,958
|
|
2011
|
|
|
159,526
|
|
2012
|
|
|
119,552
|
|
2013
|
|
|
81,806
|
|
2014 and thereafter
|
|
|
49,505
|
|
|
|
|
$
|
613,347
|
|
|
Note 11 Related party transactions:
The Corporation grants loans to its directors, executive officers and certain related individuals
or organizations in the ordinary course of business. The movement and balance of these loans were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
|
|
|
(In thousands)
|
|
Officers
|
|
Directors
|
|
Total
|
|
Balance at December 31, 2007
|
|
$
|
4,597
|
|
|
$
|
32,819
|
|
|
$
|
37,416
|
|
New loans
|
|
|
2,740
|
|
|
|
27,955
|
|
|
|
30,695
|
|
Payments
|
|
|
(2,831
|
)
|
|
|
(19,435
|
)
|
|
|
(22,266
|
)
|
Other changes
|
|
|
(24
|
)
|
|
|
|
|
|
|
(24
|
)
|
|
Balance at December 31, 2008
|
|
$
|
4,482
|
|
|
$
|
41,339
|
|
|
$
|
45,821
|
|
New loans
|
|
|
4,944
|
|
|
|
54,639
|
|
|
|
59,583
|
|
Payments
|
|
|
(3,717
|
)
|
|
|
(43,409
|
)
|
|
|
(47,126
|
)
|
Other changes
|
|
|
(417
|
)
|
|
|
|
|
|
|
(417
|
)
|
|
Balance at December 31, 2009
|
|
$
|
5,292
|
|
|
$
|
52,569
|
|
|
$
|
57,861
|
|
|
The amounts reported as other changes include changes in the status of those who are
considered related parties.
Management believes these loans have been consummated on terms no less favorable to the
Corporation than those that would have been obtained if the transactions had been with unrelated
parties and do not involve more than the normal risk of collection.
At December 31, 2009, the Corporations banking subsidiaries held deposits from related
parties amounting to $38 million (2008 $37 million).
From time to time, the Corporation, in the ordinary course of business, obtains services from
related parties or makes contributions to non-profit organizations that have some association with
the Corporation. Management believes the terms of such arrangements are consistent with
arrangements entered into with independent third parties.
During 2009, the Corporation engaged, in the ordinary course of business, the legal services
of certain law firms in Puerto Rico, in which the Secretary of the Board of Directors of Popular,
Inc. and immediate family members of a former executive officer of the Corporation acted as Senior
Counsel or as partners. The fees paid to these law firms for fiscal year 2009 amounted to
approximately $3.2 million (2008 $2.4 million). These fees included $0.6 million (2008 $0.2
million) paid by the Corporations clients in connection with commercial loan transactions and $41
thousand (2008 $27 thousand) paid by mutual funds managed by BPPR. In addition, one of these law
firms leases office space in the Corporations headquarters building, which is owned by BPPR.
During 2009, this law firm made lease payments of approximately $1 million (2008 $0.7 million).
It also engages BPPR as trustee of its retirement plan and paid approximately $31 thousand for
these services in 2009 (2008 $64 thousand).
For the year ended December 31, 2009, the Corporation made contributions of approximately $0.6
million to Banco Popular Foundations, which are not-for-profit corporations dedicated to
philanthropic work (2008 $1.8 million). Also, during 2009, the Corporation contributed $135
thousand to a non-profit organization in which a director of the Corporation is the president and
trustee (2008 $150 thousand).
In August 2009, BPPR sold part of the real estate assets and related construction permits,
which had been received from a bank commercial customer as part of a workout agreement, to a
limited liability corporation (the LLC) that is 33.3% owned by a director of the Corporation for
$13.5 million. The Bank received two offers from reputable developers and builders, and the LLC
offered the higher bid amount. The sale price represented the value of the real estate according to
an appraisal report. The transaction was approved by the appropriate committee of the Corporations
Board of Directors.
123
Note 12 Premises and equipment:
Premises and equipment are stated at cost less accumulated depreciation and amortization as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful life
|
|
|
|
|
|
|
|
(In thousands)
|
|
in years
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
|
|
|
|
$
|
97,260
|
|
|
$
|
97,639
|
|
Buildings
|
|
10-50
|
|
|
|
440,107
|
|
|
|
433,986
|
|
Equipment
|
|
3-10
|
|
|
|
474,606
|
|
|
|
509,887
|
|
Leasehold improvements
|
|
1-10
|
|
|
|
95,481
|
|
|
|
100,901
|
|
|
|
|
|
|
|
|
|
1,010,194
|
|
|
|
1,044,774
|
|
Less Accumulated depreciation
and amortization
|
|
|
|
|
|
|
578,143
|
|
|
|
574,264
|
|
|
|
|
|
|
|
|
|
432,051
|
|
|
|
470,510
|
|
|
Construction in progress
|
|
|
|
|
|
|
55,542
|
|
|
|
52,658
|
|
|
|
|
|
|
|
|
$
|
584,853
|
|
|
$
|
620,807
|
|
|
Depreciation and amortization of premises and equipment for the year 2009 was $64.4 million
(2008 $72.4 million; 2007 $76.2 million), of which $24.1 million (2008 $26.2 million; 2007 $26.4 million) was charged
to occupancy expense and $40.3 million (2008 $46.2 million; 2007 $49.7 million) was charged to
equipment, communications and other operating expenses. Occupancy expense is net of rental income
of $26.6 million (2008 $32.1 million; 2007 $27.5 million).
Note 13 Servicing assets:
The Corporation recognizes as assets the rights to service loans for others, whether these rights
are purchased or result from asset transfers such as sales and securitizations.
Classes of mortgage servicing rights were determined based on the different markets or types
of assets being serviced. The Corporation recognizes the servicing rights of its banking
subsidiaries that are related to residential mortgage loans as a class of servicing rights. These
mortgage servicing rights (MSRs) are measured at fair value. Prior to November 2008, PFH also
held servicing rights to residential mortgage loan portfolios. The MSRs were segregated between
loans serviced by the Corporations banking subsidiaries and by PFH. PFH no longer services
third-party loans due to the discontinuance of the business. The PFH servicing rights were sold in
the fourth quarter of 2008. Fair value determination is performed on a subsidiary basis, with
assumptions varying in accordance with the types of assets or markets served.
The Corporation uses a discounted cash flow model to estimate the fair value of MSRs. 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. Prepayment speeds are adjusted for the Corporations loan
characteristics and portfolio behavior.
The following tables present the changes in MSRs measured using the fair value method for the
years ended December 31, 2009 and 2008.
|
|
|
|
|
Residential MSRs 2009
|
(In thousands)
|
|
Total
|
|
Fair value at January 1, 2009
|
|
$
|
176,034
|
|
Purchases
|
|
|
1,364
|
|
Servicing from securitizations or asset transfers
|
|
|
23,795
|
|
Changes due to payments on loans (1)
|
|
|
(13,293
|
)
|
Changes in fair value due to changes in valuation model
inputs or assumptions
|
|
|
(18,153
|
)
|
|
Fair value at December 31, 2009
|
|
$
|
169,747
|
|
|
|
|
|
(1)
|
|
Represents changes due to collection / realization of expected cash flows over time.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential MSRs 2008
|
(In thousands)
|
|
Banking subsidiaries
|
|
PFH
|
|
Total
|
|
Fair value at January 1, 2008
|
|
$
|
110,612
|
|
|
$
|
81,012
|
|
|
$
|
191,624
|
|
Purchases
|
|
|
62,907
|
|
|
|
|
|
|
|
62,907
|
|
Servicing from securitizations
or asset transfers
|
|
|
28,919
|
|
|
|
|
|
|
|
28,919
|
|
Changes due to payments on
loans (1)
|
|
|
(10,851
|
)
|
|
|
(20,298
|
)
|
|
|
(31,149
|
)
|
Changes in fair value due to
changes in valuation model
inputs or assumptions
|
|
|
(15,553
|
)
|
|
|
(23,896
|
)
|
|
|
(39,449
|
)
|
Rights sold
|
|
|
|
|
|
|
(36,818
|
)
|
|
|
(36,818
|
)
|
|
Fair value at December 31, 2008
|
|
$
|
176,034
|
|
|
|
|
|
|
$
|
176,034
|
|
|
|
|
|
(1)
|
|
Represents changes due to collection / realization of expected cash flows over time.
|
|
Residential mortgage loans serviced for others were $17.7 billion at December 31, 2009 (2008 -
$17.6 billion).
Net mortgage servicing fees, a component of other service fees in the consolidated statements
of operations, include the changes from period to period in the 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, including changes due to
collection / realization of expected cash flows. Mortgage servicing fees, excluding fair value
adjustments, for the year ended December 31, 2009
amounted to $46.5 million (2008 $31.8 million; 2007 $26.0 million). The banking subsidiaries
receive servicing fees based on a percentage of the outstanding loan balance. At December 31, 2009
and December 31, 2008, those weighted average mortgage servicing fees were 0.26%. Under these
servicing agreements, the banking subsidiaries do not generally earn significant prepayment penalty
fees on the underlying loans serviced.
The section below includes information on assumptions used in the valuation model of the MSRs,
originated and purchased.
124 POPULAR, INC. 2009 ANNUAL REPORT
Banking subsidiaries
The Corporations banking subsidiaries retain servicing responsibilities on the sale of wholesale
mortgage loans and under pooling / selling arrangements of mortgage loans into mortgage-backed
securities, primarily GNMA and FNMA securities. Substantially all mortgage loans securitized by the
banking subsidiaries have fixed rates.
During the year ended December 31, 2009, the Corporation retained servicing rights on guaranteed
mortgage securitizations (FNMA and GNMA) and whole loan sales involving approximately $1.4 billion
(2008 $1.8 billion) in principal balance outstanding. Gains of approximately $24.6 million were
realized on these transactions during the year ended December 31, 2009 (2008 $58.9 million).
Key economic assumptions used in measuring the servicing rights retained at the date of the
residential mortgage loan securitizations and whole loan sales by the banking subsidiaries during
the years ended December 31, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Mortgage
|
|
|
SBA
|
|
|
|
Loans
|
|
|
Loans
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Prepayment speed
|
|
|
7.8
|
%
|
|
|
11.6
|
%
|
|
|
|
|
|
18.1% to 18.6%
|
Weighted average life
|
|
12.8 years
|
|
8.6 years
|
|
|
|
|
|
2.8 years
|
Discount rate (annual rate)
|
|
|
11.0
|
%
|
|
|
11.3
|
%
|
|
|
|
|
|
|
13.0
|
%
|
|
Key economic assumptions used to estimate the fair value of MSRs derived from sales and
securitizations of mortgage loans performed by the banking subsidiaries and the sensitivity to
immediate changes in those assumptions at December 31, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
Originated MSRs
|
|
|
December 31,
|
|
December 31,
|
(In thousands)
|
|
2009
|
|
2008
|
|
Fair value of retained interests
|
|
$
|
97,870
|
|
|
$
|
104,614
|
|
Weighted average life
|
|
8.8 years
|
|
|
10.2 years
|
|
Weighted average prepayment speed (annual rate)
|
|
|
11.4
|
%
|
|
|
9.9
|
%
|
Impact on fair value of 10% adverse change
|
|
$
|
(3,182
|
)
|
|
$
|
(4,734
|
)
|
Impact on fair value of 20% adverse change
|
|
$
|
(7,173
|
)
|
|
$
|
(8,033
|
)
|
Weighted average discount rate (annual rate)
|
|
|
12.41
|
%
|
|
|
11.46
|
%
|
Impact on fair value of 10% adverse change
|
|
$
|
(2,715
|
)
|
|
$
|
(3,769
|
)
|
Impact on fair value of 20% adverse change
|
|
$
|
(6,240
|
)
|
|
$
|
(6,142
|
)
|
|
The banking subsidiaries also own servicing rights purchased from other financial
institutions. The fair value of purchased MSRs, their related valuation assumptions and the
sensitivity to immediate changes in those assumptions as of December 31, 2009 and 2008 were as
follows:
|
|
|
|
|
|
|
|
|
Purchased MSRs
|
|
|
December 31,
|
|
December 31,
|
(In thousands)
|
|
2009
|
|
2008
|
|
Fair value of retained interests
|
|
$
|
71,877
|
|
|
$
|
71,420
|
|
Weighted average life
|
|
9.9 years
|
|
|
7.0 years
|
|
Weighted average prepayment speed (annual rate)
|
|
|
10.1
|
%
|
|
|
14.4
|
%
|
Impact on fair value of 10% adverse change
|
|
$
|
(2,697
|
)
|
|
$
|
(3,880
|
)
|
Impact on fair value of 20% adverse change
|
|
$
|
(5,406
|
)
|
|
$
|
(7,096
|
)
|
Weighted average discount rate (annual rate)
|
|
|
11.1
|
%
|
|
|
10.6
|
%
|
Impact on fair value of 10% adverse change
|
|
$
|
(2,331
|
)
|
|
$
|
(2,277
|
)
|
Impact on fair value of 20% adverse change
|
|
$
|
(4,681
|
)
|
|
$
|
(4,054
|
)
|
|
The sensitivity analyses presented in the tables above for servicing rights 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.
At December 31, 2009, the Corporation serviced $4.5 billion (2008 $4.9 billion) in
residential mortgage loans with credit recourse to the Corporation.
Under the GNMA securitizations, the Corporation, as servicer, has the right to repurchase, at
its option and without GNMAs prior authorization, any loan that is collateral for a GNMA
guaranteed mortgage-backed security when certain delinquency criteria are met. At the time that
individual loans meet GNMAs specified delinquency criteria and are eligible for repurchase, the
Corporation is deemed to have regained effective control over these loans. At December 31, 2009,
the Corporation had recorded $124 million in mortgage loans on its financial statements related to
this buy-back option program (2008 $61 million).
125
The Corporation has also identified the rights to service a portfolio of Small Business
Administration (SBA) commercial loans as another class of servicing rights. The SBA servicing
rights are measured at the lower of cost or fair value method. The following table presents the
activity in the balance of SBA servicing rights and related valuation allowance for the years ended
December 31, 2009 and 2008. During 2009, the Corporation did not executed any sale of SBA loans
(2008 $98 million in SBA loans sold, with gains of approximately $4.8 million).
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
Balance at beginning of year
|
|
$
|
4,272
|
|
|
$
|
5,021
|
|
Rights originated
|
|
|
|
|
|
|
1,398
|
|
Rights purchased
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
(1,514
|
)
|
|
|
(2,147
|
)
|
|
Balance at end of year
|
|
$
|
2,758
|
|
|
$
|
4,272
|
|
Less: Valuation allowance
|
|
|
|
|
|
|
|
|
|
Balance at end of year, net of valuation allowance
|
|
$
|
2,758
|
|
|
$
|
4,272
|
|
|
Fair value at end of year
|
|
$
|
6,081
|
|
|
$
|
6,344
|
|
|
SBA loans serviced for others were $544 million at December 31, 2009 (2008 $568 million).
In 2009 and 2008, weighted average servicing fees on the SBA serviced loans were approximately
1.04%.
Key economic assumptions used to estimate the fair value of SBA loans and the sensitivity to
immediate changes in those assumptions were as follows:
|
|
|
|
|
|
|
|
|
SBA Loans
|
|
|
December 31,
|
|
December 31,
|
(In thousands)
|
|
2009
|
|
2008
|
|
Carrying amount of retained interests
|
|
$
|
2,758
|
|
|
$
|
4,272
|
|
Fair value of retained interests
|
|
$
|
6,081
|
|
|
$
|
6,344
|
|
Weighted average life
|
|
3.4 years
|
|
|
2.8 years
|
|
Weighted average prepayment speed (annual rate)
|
|
|
8.0
|
%
|
|
|
18.1
|
%
|
Impact on fair value of 10% adverse change
|
|
$
|
(128
|
)
|
|
$
|
(282
|
)
|
Impact on fair value of 20% adverse change
|
|
$
|
(264
|
)
|
|
$
|
(572
|
)
|
Weighted average discount rate (annual rate)
|
|
|
13.0
|
%
|
|
|
13.0
|
%
|
Impact on fair value of 10% adverse change
|
|
$
|
(193
|
)
|
|
$
|
(171
|
)
|
Impact on fair value of 20% adverse change
|
|
$
|
(393
|
)
|
|
$
|
(350
|
)
|
|
Quantitative information about delinquencies, net credit losses, and components of securitized
financial assets and other assets managed together with them by the Corporation, including its own
loan portfolio, for the years ended December 31, 2009 and 2008, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
Total principal
|
|
Principal amount
|
|
|
|
|
amount of loans,
|
|
60 days or more
|
|
Net credit
|
(In thousands)
|
|
net of unearned
|
|
past due
|
|
losses
|
|
Loans (owned and managed):
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
construction
|
|
$
|
14,391,328
|
|
|
$
|
1,861,569
|
|
|
$
|
573,191
|
|
Lease financing
|
|
|
675,629
|
|
|
|
12,416
|
|
|
|
17,482
|
|
Mortgage
|
|
|
9,133,494
|
|
|
|
1,233,717
|
|
|
|
121,564
|
|
Consumer
|
|
|
4,045,807
|
|
|
|
149,535
|
|
|
|
316,131
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans securitized / sold
|
|
|
(4,442,349
|
)
|
|
|
(401,257
|
)
|
|
|
(958
|
)
|
Loans held-for-sale
|
|
|
(90,796
|
)
|
|
|
|
|
|
|
|
|
|
Loans held-in-portfolio
|
|
$
|
23,713,113
|
|
|
$
|
2,855,980
|
|
|
$
|
1,027,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
Total principal
|
|
Principal amount
|
|
|
|
|
amount of loans,
|
|
60 days or more
|
|
Net credit
|
(In thousands)
|
|
net of unearned
|
|
past due
|
|
losses
|
|
Loans (owned and managed):
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
construction
|
|
$
|
15,909,532
|
|
|
$
|
907,078
|
|
|
$
|
289,836
|
|
Lease financing
|
|
|
1,080,810
|
|
|
|
19,311
|
|
|
|
18,827
|
|
Mortgage
|
|
|
9,524,463
|
|
|
|
831,950
|
|
|
|
52,968
|
|
Consumer
|
|
|
4,648,784
|
|
|
|
170,205
|
|
|
|
238,423
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans securitized / sold
|
|
|
(4,894,658
|
)
|
|
|
(276,426
|
)
|
|
|
(90
|
)
|
Loans held-for-sale
|
|
|
(536,058
|
)
|
|
|
|
|
|
|
|
|
|
Loans held-in-portfolio
|
|
$
|
25,732,873
|
|
|
$
|
1,652,118
|
|
|
$
|
599,964
|
|
|
Note 14 Goodwill and other intangible assets:
The changes in the carrying amount of goodwill for the years ended December 31, 2009 and 2008,
allocated by reportable segments, were as follows (refer to Note 39 for the definition of the
Corporations reportable segments):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
Purchase
|
|
|
|
|
|
Balance at
|
|
|
January 1,
|
|
Goodwill
|
|
Impairment
|
|
accounting
|
|
|
|
|
|
December 31,
|
(In thousands)
|
|
2009
|
|
acquired
|
|
losses
|
|
adjustments
|
|
Other
|
|
2009
|
|
Banco Popular de
Puerto Rico:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Banking
|
|
$
|
31,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,729
|
|
Consumer and
Retail Banking
|
|
|
117,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,000
|
|
Other Financial
Services
|
|
|
8,330
|
|
|
|
|
|
|
|
|
|
|
$
|
(34
|
)
|
|
|
|
|
|
|
8,296
|
|
Banco Popular
North America:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banco Popular
North America
|
|
|
404,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,159
|
)
|
|
|
402,078
|
|
E-LOAN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EVERTEC
|
|
|
44,496
|
|
|
|
|
|
|
|
|
|
|
|
750
|
|
|
|
|
|
|
|
45,246
|
|
|
Total Popular, Inc.
|
|
$
|
605,792
|
|
|
|
|
|
|
|
|
|
|
$
|
716
|
|
|
$
|
(2,159
|
)
|
|
$
|
604,349
|
|
|
126 POPULAR, INC. 2009 ANNUAL REPORT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
Purchase
|
|
|
|
|
|
Balance at
|
|
|
January 1,
|
|
Goodwill
|
|
Impairment
|
|
accounting
|
|
|
|
|
|
December 31,
|
(In thousands)
|
|
2008
|
|
acquired
|
|
losses
|
|
adjustments
|
|
Other
|
|
2008
|
|
Banco Popular de
Puerto Rico:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Banking
|
|
$
|
35,371
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,631
|
)
|
|
$
|
(11
|
)
|
|
$
|
31,729
|
|
Consumer and
Retail Banking
|
|
|
136,407
|
|
|
|
|
|
|
|
|
|
|
|
(17,794
|
)
|
|
|
(1,613
|
)
|
|
|
117,000
|
|
Other Financial
Services
|
|
|
8,621
|
|
|
$
|
153
|
|
|
|
|
|
|
|
(444
|
)
|
|
|
|
|
|
|
8,330
|
|
Banco Popular
North America:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banco Popular
North America
|
|
|
404,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
404,237
|
|
E-LOAN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EVERTEC
|
|
|
46,125
|
|
|
|
|
|
|
|
|
|
|
|
785
|
|
|
|
(2,414
|
)
|
|
|
44,496
|
|
|
Total Popular, Inc.
|
|
$
|
630,761
|
|
|
$
|
153
|
|
|
|
|
|
|
$
|
(21,084
|
)
|
|
$
|
(4,038
|
)
|
|
$
|
605,792
|
|
|
The gross amount of goodwill and accumulated impairment
losses at the beginning and the end of the year by reportable
segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
Balance at
|
|
|
|
|
|
Balance at
|
|
Balance at
|
|
|
|
|
|
Balance at
|
|
|
January 1,
|
|
|
|
|
|
January 1,
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
2009
|
|
Accumulated
|
|
2009
|
|
2009
|
|
Accumulated
|
|
2009
|
|
|
(gross
|
|
impairment
|
|
(net
|
|
(gross
|
|
impairment
|
|
(net
|
(In thousands)
|
|
amounts)
|
|
losses
|
|
amounts)
|
|
amounts)
|
|
losses
|
|
amounts)
|
|
Banco Popular de
Puerto Rico:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Banking
|
|
$
|
31,729
|
|
|
|
|
|
|
$
|
31,729
|
|
|
$
|
31,729
|
|
|
|
|
|
|
$
|
31,729
|
|
Consumer and
Retail Banking
|
|
|
117,000
|
|
|
|
|
|
|
|
117,000
|
|
|
|
117,000
|
|
|
|
|
|
|
|
117,000
|
|
Other Financial
Services
|
|
|
8,330
|
|
|
|
|
|
|
|
8,330
|
|
|
|
8,296
|
|
|
|
|
|
|
|
8,296
|
|
Banco Popular
North America:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banco Popular
North America
|
|
|
404,237
|
|
|
|
|
|
|
|
404,237
|
|
|
|
402,078
|
|
|
|
|
|
|
|
402,078
|
|
E-LOAN
|
|
|
164,411
|
|
|
$
|
164,411
|
|
|
|
|
|
|
|
164,411
|
|
|
$
|
164,411
|
|
|
|
|
|
EVERTEC
|
|
|
44,679
|
|
|
|
183
|
|
|
|
44,496
|
|
|
|
45,429
|
|
|
|
183
|
|
|
|
45,246
|
|
|
Total Popular, Inc.
|
|
$
|
770,386
|
|
|
$
|
164,594
|
|
|
$
|
605,792
|
|
|
$
|
768,943
|
|
|
$
|
164,594
|
|
|
$
|
604,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
Balance at
|
|
|
|
|
|
Balance at
|
|
Balance at
|
|
|
|
|
|
Balance at
|
|
|
January 1,
|
|
|
|
|
|
January 1,
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
2008
|
|
Accumulated
|
|
2008
|
|
2008
|
|
Accumulated
|
|
2008
|
|
|
(gross
|
|
impairment
|
|
(net
|
|
(gross
|
|
impairment
|
|
(net
|
(In thousands)
|
|
amounts)
|
|
losses
|
|
amounts)
|
|
amounts)
|
|
losses
|
|
amounts)
|
|
Banco Popular de
Puerto Rico:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Banking
|
|
$
|
35,371
|
|
|
|
|
|
|
$
|
35,371
|
|
|
$
|
31,729
|
|
|
|
|
|
|
$
|
31,729
|
|
Consumer and
Retail Banking
|
|
|
136,407
|
|
|
|
|
|
|
|
136,407
|
|
|
|
117,000
|
|
|
|
|
|
|
|
117,000
|
|
Other Financial
Services
|
|
|
8,621
|
|
|
|
|
|
|
|
8,621
|
|
|
|
8,330
|
|
|
|
|
|
|
|
8,300
|
|
Banco Popular
North America:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banco Popular
North America
|
|
|
404,237
|
|
|
|
|
|
|
|
404,237
|
|
|
|
404,237
|
|
|
|
|
|
|
|
404,237
|
|
E-LOAN
|
|
|
164,411
|
|
|
$
|
164,411
|
|
|
|
|
|
|
|
164,411
|
|
|
$
|
164,411
|
|
|
|
|
|
EVERTEC
|
|
|
46,308
|
|
|
|
183
|
|
|
|
46,125
|
|
|
|
44,679
|
|
|
|
183
|
|
|
|
44,496
|
|
|
Total Popular, Inc.
|
|
$
|
795,355
|
|
|
$
|
164,594
|
|
|
$
|
630,761
|
|
|
$
|
770,386
|
|
|
$
|
164,594
|
|
|
$
|
605,792
|
|
|
For the year ended December 31, 2009, the purchase accounting adjustments in the EVERTEC reportable
segment consisted of contingent consideration paid during the contractual contingency period. The
$2.2 million included in the other category at the BPNA reportable segment represented the
assigned goodwill associated with the six New Jersey branches of BPNA that was written-off upon
their sale in October 2009.
Purchase accounting adjustments for the year ended December 31, 2008 consisted 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 at the BPPR reportable segment were mostly related to the acquisition of
Citibanks retail branches in Puerto Rico (acquisition completed in December 2007). The amount
included in the other category at the BPPR reportable segment was mainly associated with the
write-off of Popular Finances goodwill since the subsidiary ceased originating loans during the
fourth quarter of 2008. The reduction in goodwill in the EVERTEC reportable segment during 2008 was
mainly the result of the sale of substantially all assets of EVERTECs health processing division
during the third quarter of 2008.
The Corporations goodwill and other identifiable intangible assets having an indefinite
useful life are tested for impairment. Intangibles with indefinite lives are evaluated for
impairment at least annually and on a more frequent basis if events or circumstances indicate
impairment could have taken place. Such events could include, among others, a significant adverse
change in the business climate, an adverse action by a regulator, an unanticipated change in the
competitive environment and a decision to change the operations or dispose of a reporting unit.
Under applicable accounting standards, goodwill impairment analysis is a two-step test. The
first step of the goodwill impairment test involves comparing the fair value of the reporting unit
with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its
carrying amount, goodwill of the reporting unit is considered not impaired; however, if the
carrying amount of the reporting unit exceeds its fair value, the second step must be performed.
The second step involves calculating an implied fair value of goodwill for each reporting unit for
which the first step indicated possible impairment. The implied fair value of goodwill is
determined in the same manner as the amount of goodwill recognized in a business combination, which
is the excess of the fair value of the reporting unit, as determined in the first step, over the
aggregate fair values of the individual assets, liabilities and identifiable intangibles (including
any unrecognized intangible assets, such as unrecognized core deposits and trademark) as if the
reporting unit was being acquired in a business combination and the fair value of the reporting
unit was the price paid to acquire the reporting unit. The Corporation estimates the fair values of
the assets and liabilities of a reporting unit, consistent
127
with the requirements of the fair value measurements accounting standard, which defines fair value
as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value of the assets and
liabilities reflects market conditions, thus volatility in prices could have a material impact on
the determination of the implied fair value of the reporting unit goodwill at the impairment test
date. The adjustments to measure the assets, liabilities and intangibles at fair value are for the
purpose of measuring the implied fair value of goodwill and such adjustments are not reflected in
the consolidated statement of condition. If the implied fair value of goodwill exceeds the goodwill
assigned to the reporting unit, there is no impairment. If the goodwill assigned to a reporting
unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the
excess. An impairment loss recognized cannot exceed the amount of goodwill assigned to a reporting
unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill
impairment losses is not permitted under applicable accounting standards.
The Corporation performed the annual goodwill impairment evaluation for the entire
organization during the third quarter of 2009 using July 31, 2009 as the annual evaluation date.
The reporting units utilized for this evaluation were those that are one level below the business
segments, which basically are the legal entities that compose the reportable segment. The
Corporation follows push-down accounting, as such all goodwill is assigned to the reporting units
when carrying out a business combination.
In determining the fair value of a reporting unit, the Corporation generally uses a
combination of methods, including market price multiples of comparable companies and transactions,
as well as discounted cash flow analysis. Management evaluates the particular circumstances of each
reporting unit in order to determine the most appropriate valuation methodology. The Corporation
evaluates the results obtained under each valuation methodology to identify and understand the key
value drivers in order to ascertain that the results obtained are reasonable and appropriate under
the circumstances. Elements considered include current market and economic conditions, developments
in specific lines of business, and any particular features in the individual reporting units.
The computations require management to make estimates and assumptions. Critical assumptions
that are used as part of these evaluations include:
|
|
|
a selection of comparable publicly traded companies, based on nature of business, location and
size;
|
|
|
|
|
a selection of comparable acquisition and capital raising transactions;
|
|
|
|
|
the discount rate applied to future earnings, based on an estimate of the cost of equity;
|
|
|
|
|
the potential future earnings of the reporting unit; and
|
|
|
|
|
the market growth and new business assumptions.
|
For purposes of the market comparable approach, valuations were determined by calculating
average price multiples of relevant value drivers from a group of companies that are comparable to
the reporting unit being analyzed and applying those price multiples to the value drivers of the
reporting unit. Multiples used are minority based multiples and thus, no control premium adjustment
is made to the comparable companies market multiples. While the market price multiple is not an
assumption, a presumption that it provides an indicator of the value of the reporting unit is
inherent in the valuation. The determination of the market comparables also involves a degree of
judgment.
For purposes of the discounted cash flows (DCF) approach, the valuation is based on
estimated future cash flows. The financial projections used in the DCF valuation analysis for each
reporting unit are based on the most recent (as of the valuation date) financial projections
presented to the Corporations Asset / Liability Management Committee (ALCO). The growth
assumptions included in these projections are based on managements expectations for each reporting
units financial prospects considering economic and industry conditions as well as particular plans
of each entity (i.e. restructuring plans, de-leveraging, etc.). The cost of equity used to discount
the cash flows was calculated using the Ibbotson Build-Up Method and ranged from 11.24% to 17.78%
for the 2009 analysis. The Ibbottson Build-Up Model builds up a cost of equity starting with the
rate of return of a riskless asset (10 year U.S. Treasury note) and adds to it additional risk
elements such as equity risk premium, size premium, and industry risk premium. The resulting
discount rates were analyzed in terms of reasonability given the current market conditions and
adjustments were made when necessary.
For BPNA, the only reporting unit that failed Step 1, the Corporation determined the fair
value of Step 1 utilizing a market value approach based on a combination of price multiples from
comparable companies and multiples from capital raising transactions of comparable companies. The
market multiples used included price to book and price to tangible book. Additionally, the
Corporation determined the reporting unit fair value using a DCF analysis based on BPNAs financial
projections, but assigned no weight to it given that the current market approaches provide a more
meaningful measure of fair value considering the reporting units financial performance and current
market conditions. The Step 1 fair value for BPNA under both valuation approaches (market and DCF)
was below the carrying amount of its equity book value as of the valuation date (July 31),
requiring the completion of Step 2. In accordance with accounting standards, the Corporation
performed a valuation of all assets and liabilities of BPNA, including any recognized and
unrecognized intangible assets, to determine the fair value of BPNAs net assets. To complete Step
2, the Corporation
128 POPULAR, INC. 2009 ANNUAL REPORT
subtracted from BPNAs Step 1 fair value the determined fair value of the net assets to arrive at
the implied fair value of goodwill. The results of the Step 2 indicated that the implied fair value
of goodwill exceeded the goodwill carrying value of $404 million at July 31, 2009, resulting in no
goodwill impairment. The reduction in BPNAs Step 1 fair value was offset by a reduction in the
fair value of its net assets, resulting in an implied fair value of goodwill that exceeds the
recorded book value of goodwill.
The analysis of the results for Step 2 indicates that the reduction in the fair value of the
reporting unit was mainly attributed to the deteriorated fair value of the loan portfolios and not
to the fair value of the reporting unit as a going concern entity. The negative performance of the
reporting unit is principally related to deteriorated credit quality in its loan portfolio, which
agrees with the results of the Step 2 analysis. BPNAs provision for loan losses, as a stand-alone
legal entity, which is the reporting unit level used for the goodwill impairment analysis, amounted
to $633.4 million for the year ended December 31, 2009, which represented 115% of BPNA legal
entitys net loss of $552.0 million for that period.
If the Step 1 fair value of BPNA declines further in the future without a corresponding
decrease in the fair value of its net assets or if loan discounts improve without a corresponding
increase in the Step 1 fair value, the Corporation may be required to record a goodwill impairment
charge. The Corporation engaged a third-party valuator to assist management in the annual
evaluation of BPNAs goodwill (including Step 1 and Step 2) as well as BPNAs loan portfolios as of
the July 31, 2009 valuation date. Management discussed the methodologies, assumptions and results
supporting the relevant values for conclusions and determined they were reasonable.
Furthermore, as part of the analyses, management performed a reconciliation of the aggregate
fair values determined for the reporting units to the market capitalization of Popular, Inc.
concluding that the fair value results determined for the reporting units in the July 31, 2009
annual assessment were reasonable.
The goodwill impairment evaluation process requires the Corporation to make estimates and
assumptions with regard to the fair value of the reporting units. Actual values may differ
significantly from these estimates. Such differences could result in future impairment of goodwill
that would, in turn, negatively impact the Corporations results of operations and the reporting
units where the goodwill is recorded. Declines in the Corporations market capitalization increase
the risk of goodwill impairment in the future.
Management monitors events or changes in circumstances between annual tests to determine if
these events or changes in circumstances would more likely than not reduce the fair value of a
reporting unit below its carrying amount. The economic situation in the United States and Puerto
Rico, including deterioration in the housing market and credit market, continued to negatively
impact the financial results of the Corporation during 2009.
Accordingly, management continued monitoring the fair value of the reporting units,
particularly the unit that failed the Step 1 test in the annual goodwill impairment evaluation. As
part of the monitoring process, management performed an assessment for BPNA at December 31, 2009.
The Corporation determined BPNAs fair value utilizing the same valuation approaches (market and
DCF) used in the annual goodwill impairment test. The determined fair value for BPNA at December
31, 2009 continued to be below its carrying amount under all valuation approaches. The fair value
determination of BPNAs assets and liabilities was updated at December 31, 2009 utilizing valuation
methodologies consistent with the July 31, 2009 test. The results of the assessment at December 31,
2009 indicated that the implied fair value of goodwill exceeded the goodwill carrying amount,
resulting in no goodwill impairment. The results obtained in the December 31, 2009 assessment were
consistent with the results of the annual impairment test in that the reduction in the fair value
of BPNA was mainly attributable to a significant reduction in the fair value of BPNAs loan
portfolio.
At December 31, 2009 and 2008, other than goodwill, the Corporation had $6 million of
identifiable intangibles with indefinite useful lives, mostly associated with E-LOANs trademark.
For the year ended 2009, the Corporation did not recognize impairment losses related to other
intangible assets with indefinite lives. During the year ended December 31, 2008, the Corporation
recognized impairment losses of $10.9 million related to E-LOANs trademark (2007 $47.4 million).
The valuation of the E-LOAN trademark was performed using a valuation approach called the
relief-from-royalty method. The basis of the relief-from-royalty method is that, by virtue of
having ownership of the trademark, the Corporation is relieved from having to pay a royalty,
usually expressed as a percentage of revenue, for the use of trademark. The main attributes
involved in the valuation of this intangible asset include the royalty rate, revenue projections
that benefit from the use of this intangible, after-tax royalty savings derived from the ownership
of the intangible, and the discount rate to apply to the projected benefits to arrive at the
present value of this intangible. Since estimates are an integral part of this trademark impairment
analysis, changes in these estimates could have a significant impact on the calculated fair value.
129
The following table reflects the components of other intangible assets subject to amortization
at December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
Gross
|
|
Accumulated
|
|
Gross
|
|
Accumulated
|
(In thousands)
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amortization
|
|
Core deposits
|
|
$
|
65,379
|
|
|
$
|
30,991
|
|
|
$
|
65,379
|
|
|
$
|
24,130
|
|
Other customer
relationships
|
|
|
8,816
|
|
|
|
5,804
|
|
|
|
8,839
|
|
|
|
4,585
|
|
Other intangibles
|
|
|
125
|
|
|
|
71
|
|
|
|
3,037
|
|
|
|
1,725
|
|
|
Total
|
|
$
|
74,320
|
|
|
$
|
36,866
|
|
|
$
|
77,255
|
|
|
$
|
30,440
|
|
|
During the year ended December 31, 2009, the Corporation recognized $9.5 million in
amortization expense related to other intangible assets with definite lives (2008 $11.5 million;
2007 $10.4 million).
The Corporation did not incur costs to renew or extend the term of acquired intangible assets
during the year ended December 31, 2009.
During 2009, the Corporation did not recognize impairment losses associated with other
intangible assets subject to amortization. In 2008, the Corporation recorded impairment losses
associated with the write-off of certain customer relationships and other intangibles of $1.9
million and $0.2 million, respectively, mainly pertaining to E-LOAN. These write-offs were the
result of the E-LOAN Restructuring plans described in Note 4 to the consolidated financial
statements. These amounts are included in the caption of impairment losses on long-lived assets on
the consolidated statement of operations. E-LOANs other intangible assets subject to amortization
were fully written-off at December 31, 2008.
Intangible assets with a gross amount of $3.0 million became fully amortized during 2009 and,
as such, their gross amount and accumulated amortization were eliminated from the tabular
disclosure presented in the preceding table.
The following table presents the estimated aggregate amortization expense of the intangible
assets with definite lives that the Corporation has at December 31, 2009, for each of the next five
years:
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
2010
|
|
$
|
7,671
|
|
2011
|
|
|
6,982
|
|
2012
|
|
|
5,967
|
|
2013
|
|
|
5,784
|
|
2014
|
|
|
5,146
|
|
|
Note 15 Other assets:
The caption of other assets in the consolidated statements of condition consists of the following
major categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
Change
|
|
Net deferred tax assets
(net of valuation allowance)
|
|
$
|
363,967
|
|
|
$
|
357,507
|
|
|
$
|
6,460
|
|
Bank-owned life insurance
program
|
|
|
232,387
|
|
|
|
224,634
|
|
|
|
7,753
|
|
Prepaid FDIC insurance
assessment
|
|
|
206,308
|
|
|
|
|
|
|
|
206,308
|
|
Other prepaid expenses
|
|
|
130,762
|
|
|
|
136,236
|
|
|
|
(5,474
|
)
|
Investments under the equity
method
|
|
|
99,772
|
|
|
|
92,412
|
|
|
|
7,360
|
|
Derivative assets
|
|
|
71,822
|
|
|
|
109,656
|
|
|
|
(37,834
|
)
|
Trade receivables from brokers
and counterparties
|
|
|
1,104
|
|
|
|
1,686
|
|
|
|
(582
|
)
|
Others
|
|
|
216,037
|
|
|
|
193,466
|
|
|
|
22,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,322,159
|
|
|
$
|
1,115,597
|
|
|
$
|
206,562
|
|
|
Note 16 Deposits:
Total interest bearing deposits at December 31, consisted of:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
Savings accounts
|
|
$
|
5,480,124
|
|
|
$
|
5,500,190
|
|
NOW, money market and
other interest bearing demand
|
|
|
4,726,204
|
|
|
|
4,610,511
|
|
|
|
|
|
10,206,328
|
|
|
|
10,110,701
|
|
|
Certificates of deposit:
|
|
|
|
|
|
|
|
|
Under $100,000
|
|
|
6,553,022
|
|
|
|
8,439,324
|
|
$100,000 and over
|
|
|
4,670,243
|
|
|
|
4,706,627
|
|
|
|
|
|
11,223,265
|
|
|
|
13,145,951
|
|
|
|
|
$
|
21,429,593
|
|
|
$
|
23,256,652
|
|
|
A summary of certificates of deposit by maturity at December 31, 2009, follows:
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
2010
|
|
$
|
8,412,178
|
|
2011
|
|
|
1,260,448
|
|
2012
|
|
|
784,378
|
|
2013
|
|
|
334,007
|
|
2014
|
|
|
367,303
|
|
2015 and thereafter
|
|
|
64,951
|
|
|
|
|
$
|
11,223,265
|
|
|
At December 31, 2009, the Corporation had brokered deposits amounting to $2.7 billion (2008 -
$3.1 billion). At December 31, 2009, $2.7 million in brokered deposits were classified as
certificates of deposits in the under $100,000 category. At December 31, 2008, the $3.1 billion
in brokered deposits were classified as $65 million in money markets and $3.0 billion in
certificates of deposits under $100,000.
130 POPULAR, INC. 2009 ANNUAL REPORT
The brokered deposits classified in the under $100,000 category represented certificates of
deposits acquired in denominations of $1,000 under various master certificates of deposit.
The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans
was $44 million at December 31, 2009
(2008 $123 million).
Note 17 Federal funds purchased and assets sold under agreements to repurchase:
The following table summarizes certain information on federal funds purchased and assets sold under
agreements to repurchase at December 31, 2009, 2008, and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
Federal funds purchased
|
|
|
|
|
|
$
|
144,471
|
|
|
$
|
303,492
|
|
Assets sold
under agreements to repurchase
|
|
$
|
2,632,790
|
|
|
|
3,407,137
|
|
|
|
5,133,773
|
|
|
Total amount outstanding
|
|
$
|
2,632,790
|
|
|
$
|
3,551,608
|
|
|
$
|
5,437,265
|
|
|
Maximum aggregate balance
outstanding at any month-end
|
|
$
|
3,938,845
|
|
|
$
|
5,697,842
|
|
|
$
|
6,942,722
|
|
|
Average monthly aggregate
balance outstanding
|
|
$
|
2,844,975
|
|
|
$
|
4,163,015
|
|
|
$
|
5,272,476
|
|
|
Weighted average interest rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year
|
|
|
2.45
|
%
|
|
|
3.37
|
%
|
|
|
5.19
|
%
|
At December 31
|
|
|
2.42
|
|
|
|
1.45
|
|
|
|
4.40
|
|
|
The following table presents the liability associated with the repurchase transactions
(including accrued interest), their maturities and weighted average interest rates. Also, it
includes the carrying value and approximate market value of the collateral (including accrued
interest) as of December 31, 2009 and 2008. The information excludes repurchase agreement
transactions which were collateralized with securities or other assets held-for-trading purposes
or which have been obtained under agreements to resell.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Repurchase
|
|
|
Carrying value
|
|
|
Market value
|
|
|
average
|
|
|
|
liability
|
|
|
of collateral
|
|
|
of collateral
|
|
|
interest rate
|
|
|
|
|
(Dollars in thousands)
|
|
Obligations of
U.S. government
sponsored entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 90 days
|
|
$
|
398,862
|
|
|
$
|
456,368
|
|
|
$
|
456,368
|
|
|
|
4.06
|
%
|
|
Mortgage-backed
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overnight
|
|
|
4,855
|
|
|
|
4,876
|
|
|
|
4,876
|
|
|
|
0.30
|
|
Within 30 days
|
|
|
125,428
|
|
|
|
131,941
|
|
|
|
131,941
|
|
|
|
0.40
|
|
After 90 days
|
|
|
602,416
|
|
|
|
686,147
|
|
|
|
686,147
|
|
|
|
4.21
|
|
|
|
|
|
732,699
|
|
|
|
822,964
|
|
|
|
822,964
|
|
|
|
3.53
|
|
|
Collateralized mortgage
obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overnight
|
|
|
28,844
|
|
|
|
46,746
|
|
|
|
46,746
|
|
|
|
0.30
|
|
Within 30 days
|
|
|
331,142
|
|
|
|
362,901
|
|
|
|
362,901
|
|
|
|
0.42
|
|
After 30 to 90 days
|
|
|
312,657
|
|
|
|
345,786
|
|
|
|
345,786
|
|
|
|
0.51
|
|
After 90 days
|
|
|
302,818
|
|
|
|
354,969
|
|
|
|
354,969
|
|
|
|
3.63
|
|
|
|
|
|
975,461
|
|
|
|
1,110,402
|
|
|
|
1,110,402
|
|
|
|
1.44
|
|
|
|
|
$
|
2,107,022
|
|
|
$
|
2,389,734
|
|
|
$
|
2,389,734
|
|
|
|
2.66
|
%
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Repurchase
|
|
Carrying value
|
|
Market value
|
|
average
|
|
|
liability
|
|
of collateral
|
|
of collateral
|
|
interest rate
|
(Dollars in thousands)
|
Obligations of
U.S. government
sponsored entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overnight
|
|
$
|
5,622
|
|
|
$
|
5,681
|
|
|
$
|
5,681
|
|
|
|
3.37
|
%
|
Within 30 days
|
|
|
565,870
|
|
|
|
610,628
|
|
|
|
610,628
|
|
|
|
2.31
|
|
After 90 days
|
|
|
152,309
|
|
|
|
184,119
|
|
|
|
184,119
|
|
|
|
4.82
|
|
|
|
|
|
723,801
|
|
|
|
800,428
|
|
|
|
800,428
|
|
|
|
2.85
|
|
|
Mortgage-backed
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overnight
|
|
|
1,725
|
|
|
|
1,981
|
|
|
|
1,981
|
|
|
|
5.34
|
|
Within 30 days
|
|
|
8,294
|
|
|
|
9,038
|
|
|
|
9,038
|
|
|
|
1.00
|
|
After 30 to 90 days
|
|
|
60,083
|
|
|
|
59,471
|
|
|
|
59,471
|
|
|
|
3.12
|
|
After 90 days
|
|
|
522,732
|
|
|
|
539,040
|
|
|
|
539,040
|
|
|
|
4.52
|
|
|
|
|
|
592,834
|
|
|
|
609,530
|
|
|
|
609,530
|
|
|
|
4.33
|
|
|
Collateralized mortgage
obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overnight
|
|
|
46,914
|
|
|
|
66,691
|
|
|
|
66,691
|
|
|
|
3.89
|
|
Within 30 days
|
|
|
591,652
|
|
|
|
580,174
|
|
|
|
580,174
|
|
|
|
2.73
|
|
After 30 to 90 days
|
|
|
221,491
|
|
|
|
279,115
|
|
|
|
279,115
|
|
|
|
3.04
|
|
After 90 days
|
|
|
609,396
|
|
|
|
765,218
|
|
|
|
765,218
|
|
|
|
4.34
|
|
|
|
|
|
1,469,453
|
|
|
|
1,691,198
|
|
|
|
1,691,198
|
|
|
|
3.48
|
|
|
|
|
$
|
2,786,088
|
|
|
$
|
3,101,156
|
|
|
$
|
3,101,156
|
|
|
|
3.50
|
%
|
|
Note 18 Other short-term borrowings:
Other short-term borrowings at December 31, 2009 and 2008, consisted of the following:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
Secured borrowing with clearing broker with
an interest rate of 1.50% at December 31, 2009
|
|
$
|
6,000
|
|
|
|
|
|
Unsecured borrowings with private investors
at fixed rates ranging from 0.40% to 3.13%
|
|
|
|
|
|
$
|
3,548
|
|
Others
|
|
|
1,326
|
|
|
|
1,386
|
|
|
Total
|
|
$
|
7,326
|
|
|
$
|
4,934
|
|
|
The maximum aggregate balance outstanding at any month-end was approximately $205 million (2008 -
$1.6 billion; 2007 $3.8 billion). The weighted average interest rate of other short-term
borrowings at December 31, 2009 was 2.74% (2008 1.35%; 2007 4.74%). The average aggregate
balance outstanding during the year was approximately $43 million (2008 $952 million; 2007 $3.0
billion). The weighted average interest rate during the year was 0.95% (2008 2.92%; 2007
4.95%).
The Corporations broker-dealer subsidiary entered into an agreement with a clearing agent
providing for margin borrowing. The outstanding balance of $6 million at December 31, 2009 was
collateralized with securities with a fair value amounting to approximately $11 million.
Note 20 presents additional information with respect to available credit facilities.
Note 19 Notes payable:
Notes payable outstanding at December 31, 2009 and 2008, consisted of the following:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
Advances with the FHLB:
|
|
|
|
|
|
|
|
|
- with maturities ranging from 2010 through 2015 paying
interest monthly at fixed rates ranging from 1.48% to
5.06% (2008 - 2.67% to 5.06%)
|
|
$
|
1,103,627
|
|
|
$
|
1,050,741
|
|
- maturing in 2010 paying interest quarterly at a
fixed rate of 5.10%
|
|
|
20,000
|
|
|
|
20,000
|
|
Term notes maturing in 2030 paying interest monthly
at fixed rates ranging from 3.00% to 6.00%
|
|
|
|
|
|
|
3,100
|
|
Term notes with maturities ranging from 2010
through 2013 paying interest semiannually at
fixed rates ranging from 5.20% to 12.00%
(2008 - 4.60% to 7.00%)
|
|
|
382,858
|
|
|
|
995,027
|
|
Term notes with maturities ranging from 2010 through
2013 paying interest monthly at floating rates of 3.00%
over the 10-year U.S. Treasury Note rate
|
|
|
1,528
|
|
|
|
3,777
|
|
Term notes with maturities from 2010 through 2011
paying interest quarterly at a floating rate of 8.25%
(2008 - 0.40% to 3.25%) over the 3-month LIBOR rate
|
|
|
250,000
|
|
|
|
435,543
|
|
Junior subordinated deferrable interest debentures
(related to trust preferred securities) with maturities
ranging from 2027 through 2034 with fixed interest
rates ranging from 6.125% to 8.327% (Refer to Note 22)
|
|
|
439,800
|
|
|
|
849,672
|
|
Junior subordinated deferrable interest debentures
(related to trust preferred securities) ($936,000 less
discount of $512,350) with no stated maturity and
a fixed interest rate of 5.00% until, but excluding
December 5, 2013 and 9.00% thereafter
(Refer to Note 22)
|
|
|
423,650
|
|
|
|
|
|
Other
|
|
|
27,169
|
|
|
|
28,903
|
|
|
Total
|
|
$
|
2,648,632
|
|
|
$
|
3,386,763
|
|
|
Note: Key index rates as of December 31, 2009 and December 31, 2008, respectively, were as follows:
3-month LIBOR rate = 0.25% and 1.43%; 10-year U.S. Treasury Note rate = 3.84% and 2.21%.
The aggregate amounts of maturities of notes payable at December 31, 2009 were as follows:
|
|
|
|
|
|
|
Notes
|
Year
|
|
Payable
|
(In thousands)
|
2010
|
|
$
|
385,939
|
|
2011
|
|
|
697,367
|
|
2012
|
|
|
531,820
|
|
2013
|
|
|
131,914
|
|
2014
|
|
|
10,920
|
|
Later years
|
|
|
467,022
|
|
No stated maturity
|
|
|
936,000
|
|
|
Subtotal
|
|
|
3,160,982
|
|
Less: Discount
|
|
|
(512,350
|
)
|
|
Total
|
|
$
|
2,648,632
|
|
|
132 POPULAR, INC. 2009 ANNUAL REPORT
At December 31, 2009, the holders of $25 million of certain of the Corporations fixed-rate term
notes and $75 million of the Corporations floating rate term notes had the right to require the
Corporation to purchase the notes on each quarterly interest payment date beginning in March 2010.
These notes were issued by the Corporation in 2008 and mature in 2011, subject to the right of
investors to require their earlier repurchase by the Corporation.
At December 31, 2009 and 2008, term notes with interest that adjust in the event of senior debt
rating downgrades amounted to $350 million. At December 31, 2009, the Corporations senior
unsecured debt was rated non-investment grade by the three major rating agencies. As a result of
rating downgrades effected in January 2009, April 2009, June 2009 and December 2009, the cost of
the $350 million term notes increased prospectively at different time intervals throughout 2009 by
an additional 500 basis points. At December 31, 2009, the term notes consisted of $75 million with
a fixed rate of 12% (2008 7%), $25 million with a fixed rate of 11.66% (2008 6.66%) and $250
million with a floating rate of 8.25% (2008 3.25%) over the 3-month LIBOR. These term notes have
a contractual maturity of September 2011. As previously indicated, $100 million of the term notes
have put options which could accelerate their maturity. Further reductions in the Corporations
senior debt rating could increment the cost of these term notes by an additional 75 basis points
per notch.
Note 20 Unused lines of credit and other funding sources:
At December 31, 2009, the Corporation had borrowing facilities available with the Federal Home Loan
Banks (FHLB) whereby the Corporation could borrow up to $1.9 billion based on the assets pledged
with the FHLB at that date (2008 $2.2 billion). Refer to Note 19 for the amounts of FHLB advances
outstanding under these facilities at December 31, 2009 and 2008.
The FHLB advances at December 31, 2009 are collateralized with investment securities and mortgage
loans, and do not have restrictive covenants or callable features. The maximum borrowing capacity
with the FHLB is dependent on certain computations as determined by the FHLB, which consider the
amount and type of assets available for collateral.
The Corporation has a borrowing facility at the discount window of the Federal Reserve Bank of New
York. At December 31, 2009, the borrowing capacity at the discount window approximated $2.9 billion
(2008 $3.4 billion), which remained unused at December 31, 2009 and 2008. The facility is a
collateralized source of credit that is highly reliable even under difficult market conditions.
Note 21 Exchange Offers
In June 2009, the Corporation commenced an offer to issue shares of its common stock in exchange
for its Series A preferred stock and Series B preferred stock and for trust preferred securities
(also referred as capital securities). On August 25, 2009, the Corporation completed the settlement
of the exchange offer and issued over 357 million new shares of common stock.
Exchange of preferred stock for common stock
The exchange by holders of shares of the Series A and B non-cumulative preferred stock for shares
of common stock resulted in the extinguishment of such shares of preferred stock and an issuance of
shares of common stock.
In accordance with the terms of the exchange offer, the Corporation used a relevant price of $2.50
per share of its common stock and an exchange ratio of 80% of the preferred stock liquidation value
to determine the number of shares of its common stock issued in exchange for the tendered shares of
Series A and B preferred stock. The fair value of the common stock was $1.71 per share, which was
the price at August 20, 2009, the expiration date of the exchange offer. The carrying (liquidation)
value of each share of Series A and B preferred stock exchanged was reduced and common stock and
surplus increased in the amount of the fair value of the common stock issued. The Corporation
recorded the par amount of the shares issued as common stock ($0.01 per common share). The excess
of the common stock fair value over the par amount was recorded in surplus. The excess of the
carrying amount of the shares of preferred stock over the fair value of the shares of common stock
was recorded as a reduction to accumulated deficit and an increase in income (loss) per common
share (EPS) computations.
The results of the exchange offer with respect to the Series A and B preferred stock were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
Shares of
|
|
|
|
|
|
Shares of
|
|
liquidation
|
|
|
|
|
|
|
|
|
preferred
|
|
|
|
|
|
preferred
|
|
preference
|
|
Shares
|
|
|
Per security
|
|
stock
|
|
Shares of
|
|
stock
|
|
amount
|
|
of
|
|
|
liquidation
|
|
outstanding
|
|
preferred
|
|
outstanding
|
|
after
|
|
common
|
Title of
|
|
preference
|
|
prior to
|
|
stock
|
|
after
|
|
exchange
|
|
stock
|
securities
|
|
amount
|
|
exchange
|
|
exchanged
|
|
exchange
|
|
(in thousands)
|
|
issued
|
|
6.375%
Non-
cumulative
monthly
income
preferred
stock, 2003
Series A
|
|
$
|
25
|
|
|
|
7,475,000
|
|
|
|
6,589,274
|
|
|
|
885,726
|
|
|
$
|
22,143
|
|
|
|
52,714,192
|
|
|
8.25%
Non-
cumulative
monthly
income
preferred
stock,
Series B
|
|
$
|
25
|
|
|
|
16,000,000
|
|
|
|
14,879,335
|
|
|
|
1,120,665
|
|
|
$
|
28,017
|
|
|
|
119,034,680
|
|
|
133
The exchange of shares of preferred stock for shares of common stock resulted in a favorable impact
to accumulated deficit of $230.4 million, which is also considered in the income (loss) per common
share computations. Refer to Note 24 to the consolidated financial statements for a reconciliation
of EPS.
Common stock issued in connection with early extinguishment of debt (exchange of trust preferred
securities for common stock)
Also, during the third quarter of 2009, the Corporation exchanged trust preferred securities (also
referred to as capital securities) issued by different trusts for shares of common stock of the
Corporation. Refer to the table that follows for a list of such securities and trusts. The trust
preferred securities were delivered to the trusts in return for the junior subordinated debentures
(recorded as notes payable in the Corporations financial statements) that had been issued by the
Corporation to the trusts in the past. The junior subordinated debentures were submitted for
cancellation by the indenture trustee under the applicable indenture. The Corporation recognized a
pre-tax gain of $80.3 million on the extinguishment of the applicable junior subordinated
debentures, which was included in the consolidated statement of operations for the year ended
December 31, 2009. This transaction was accounted for as an early extinguishment of debt.
In accordance with the terms of the exchange offer, the Corporation used a relevant price of $2.50
per share of its common stock and the exchange ratios referred to in the table that follows to
determine the number of shares of its common stock issued in exchange for the validly tendered
trust preferred securities. The fair value of the common stock was $1.71 per share, which was the
price at August 20, 2009, the expiration date of the exchange offer. The carrying value of the
junior subordinated debentures was reduced and common stock and surplus increased in the amount of
the fair value of the common stock issued. The Corporation recorded the par amount of the shares
issued as common stock ($0.01 per common share). The excess of the common stock fair value over the
par amount was recorded in surplus. The excess of the carrying amount of the junior subordinated
debentures retired over the fair value of the common stock issued was recorded as a gain on early
extinguishment of debt in the consolidated statement of operations for the year ended December 31,
2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.564%
|
|
|
|
|
|
|
|
|
|
|
|
|
TRUPS
|
|
|
|
|
|
|
|
|
6.70%
|
|
(issued by)
|
|
6.125%
|
|
|
8.327%
|
|
TRUPS
|
|
Popular
|
|
TRUPS
|
|
|
TRUPS
|
|
(issued by
|
|
North
|
|
(issued by
|
|
|
(issued by
|
|
Popular
|
|
America
|
|
Popular
|
|
|
BanPonce
|
|
Capital
|
|
Capital
|
|
Capital
|
|
|
Trust I)
|
|
Trust I)
|
|
Trust I)
|
|
Trust II)
|
|
Liquidation preference
amount per TRUPS
|
|
$
|
1,000
|
|
|
$
|
25
|
|
|
$
|
1,000
|
|
|
$
|
25
|
|
TRUPS exchange value
|
|
$
|
1,150
|
|
|
$
|
30
|
|
|
$
|
1,150
|
|
|
$
|
30
|
|
|
|
|
or 115
|
%
|
|
|
or 120
|
%
|
|
|
or 115
|
%
|
|
|
or 120
|
%
|
TRUPS outstanding prior
to exchange
|
|
|
144,000
|
|
|
|
12,000,000
|
|
|
|
250,000
|
|
|
|
5,200,000
|
|
TRUPS exchanged for
common stock
|
|
|
91,135
|
|
|
|
4,757,480
|
|
|
|
158,349
|
|
|
|
1,159,080
|
|
TRUPS outstanding
after exchange
|
|
|
52,865
|
|
|
|
7,242,520
|
|
|
|
91,651
|
|
|
|
4,040,920
|
|
Aggregate liquidation
preference amount of
TRUPS after exchange
(In thousands)
|
|
$
|
52,865
|
|
|
$
|
181,063
|
|
|
$
|
91,651
|
|
|
$
|
101,023
|
|
Aggregate liquidation
preference amount of
junior subordinated
debentures after
exchange (In thousands)
|
|
$
|
54,502
|
|
|
$
|
186,664
|
|
|
$
|
94,486
|
|
|
$
|
104,148
|
|
|
The increase in stockholders equity related to the exchange of trust preferred securities for
shares of common stock was approximately $390 million, net of issuance costs, and including the
aforementioned gain on the early extinguishment of debt.
Exchange of preferred stock held by the U.S. Treasury for trust preferred securities
Also, on August 21, 2009, the Corporation and Popular Capital Trust III entered into an exchange
agreement with the United States Department of the Treasury (U.S. Treasury) pursuant to which the
U.S. Treasury agreed with the Corporation that the U.S. Treasury would exchange all 935,000 shares
of the Corporations outstanding Fixed Rate Cumulative Perpetual Preferred Stock, Series C, $1,000
liquidation preference per share (the Series C Preferred Stock), owned by the U.S Treasury for
935,000 newly issued trust preferred securities, $1,000 liquidation amount per capital security.
The trust preferred securities were issued to the U.S. Treasury on August 24, 2009. In connection
with this exchange, the trust used the Series C preferred stock, together with the proceeds of the
issuance and sale by the trust to the Corporation of $1 million aggregate liquidation amount of its
fixed rate common securities, to purchase $936 million aggregate principal amount of the junior
subordinated debentures issued by the Corporation.
The trust preferred securities issued to the U.S. Treasury have a distribution rate of 5% until,
but excluding December 5, 2013, and 9% thereafter (which is the same as the dividend rate on the
Series C Preferred Stock). The common securities of the trust, in the amount of $1 million, are
held by the Corporation.
The sole asset and only source of funds to make payments on the trust
preferred securities and the common securities of the trust is $936 million of Populars Fixed Rate
Perpetual Junior
134 POPULAR, INC. 2009 ANNUAL REPORT
Subordinated Debentures, Series A, issued by the Corporation to the trust. These debentures have an
interest rate of 5% until, but excluding December 5, 2013, and 9% thereafter. The debentures are
perpetual and may be redeemed by the Corporation at any time, subject to the consent of the Board
of Governors of the Federal Reserve System.
Under the guarantee agreement dated as of August 24, 2009, the Corporation irrevocably and
unconditionally agrees to pay in full to the holders of the trust preferred securities the
guarantee payments, as and when due. The Corporations obligation to make the guaranteed payment
may be satisfied by direct payment of the required amounts to the holders of the trust preferred
securities or by causing the issuer trust to pay such amounts to the holders. The obligations of
the Corporation under the guarantee agreement constitute unsecured obligations and rank subordinate
and junior in right of payment to all senior debt. The obligations of the Corporation under the
guarantee agreement rank pari passu with the obligations of Popular under any similar guarantee
agreements issued by the Corporation on behalf of the holders of preferred or capital securities
issued by any statutory trust, among others stated in the guarantee agreement. Under the guarantee
agreement, the Corporation has guaranteed the payment of the liquidation amount of the trust
preferred securities upon liquidation of the trust, but only to the extent that the trust has funds
available to make such payments.
Under the exchange agreement, the Corporations agreement stated that, without the consent of the
U.S. Treasury, it would not increase its dividend rate per share of common stock above that in
effect as of October 14, 2008 or repurchase shares of its common stock until, in each case, the
earlier of December 5, 2011 or such time as all of the new trust preferred securities have been
redeemed or transferred by the U.S. Treasury, remains in effect.
The warrant to purchase 20,932,836 shares of Populars common stock at an exercise price of $6.70
per share that was initially issued to the U.S Treasury in connection with the issuance of the
Series C preferred stock on December 5, 2008 remains outstanding without amendment.
The trust preferred securities issued to the U.S. Treasury qualify as Tier 1 regulatory capital
subject to the 25% limitation on Tier 1 capital.
The Corporation paid an exchange fee of $13 million to the U.S. Treasury in connection with the
exchange of outstanding shares of Series C preferred stock for the new trust preferred securities.
This exchange fee will be amortized through interest expense using the interest yield method over
the estimated life of the junior subordinated debentures.
This transaction with the U.S. Treasury was accounted for as an extinguishment of previously issued
Series C preferred stock. The accounting impact of this transaction included (1) recognition of
junior subordinated debentures and derecognition of the Series C preferred stock; (2) recognition
of a favorable impact to accumulated deficit resulting from the excess of (a) the carrying amount
of the securities exchanged (the Series C preferred stock) over (b) the fair value of the
consideration exchanged (the trust preferred securities); (3) the reversal of any unamortized
discount outstanding on the Series C preferred stock; and (4) recognition of issuance costs. The
reduction in total stockholders equity related to the U.S. Treasury exchange transaction at the
exchange rate was approximately $416 million, which was principally impacted by the reduction of
$935 million of aggregate liquidation preference value of the Series C preferred stock, partially
offset by the $519 million discount on the junior subordinated debentures described in item (2)
above. This discount as well as the debt issue costs will be amortized through interest expense
using the interest yield method over the estimated life of the junior subordinated debentures.
During 2009, the Corporation recognized $7 million in interest expense associated with the
accretion of the discount on these debentures.
This particular exchange resulted in a favorable impact to accumulated deficit on the exchange date
of $485.3 million, which is also considered in the income (loss) per common share computations.
Refer to Note 24 to the consolidated financial statements for a reconciliation of EPS.
The fair value of the trust preferred securities (junior subordinated debentures for purposes of
the Corporations financial statements) at the date of the exchange agreement was determined
internally using a discounted cash flow model. The main considerations were (1) quarterly interest
payment of 5% until, but excluding December 5, 2013, and 9% thereafter; (2) assumed maturity date
of 30 years; and (3) assumed discount rate of 16%. The assumed discount rate used for estimating
the fair value was estimated by obtaining the yields at which comparably-rated issuers were trading
in the market and considering the amount of trust preferred securities issued to the U.S. Treasury
and the credit rating of the Corporation.
Note 22 Trust preferred securities:
At December 31, 2009 and 2008, the Corporation had established four trusts (BanPonce Trust I,
Popular Capital Trust I, Popular North America Capital Trust I and Popular Capital Trust II) for
the purpose of issuing trust preferred securities (also referred to as 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 amounts outstanding in each of the four trusts at December 31, 2009 were
impacted by the exchange offers described in Note 21 to the consolidated financial statements.
135
Also, as described in Note 21, in August 2009, the Corporation established the Popular Capital
Trust III for the purpose of exchanging the shares of Popular, Inc.s Series C preferred stock held
by the U.S. Treasury for trust preferred securities issued by this trust. In connection with this
exchange, the trust used the Series C preferred stock, together with the proceeds of the issuance
and sale of common securities of the trust (the common securities), to purchase junior
subordinated deferrable interest debentures (the junior subordinated debentures) issued by the
Corporation.
Refer to Note 21 to the consolidated financial statements for further information on the impact of
the exchange transactions on the trust preferred securities.
The sole assets of the five trusts consisted of the junior subordinated debentures of the
Corporation and the related accrued interest receivable. These trusts are not consolidated by the
Corporation pursuant to accounting principles generally accepted in the United States of America.
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 at December 31, 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Popular North
|
|
|
|
|
|
|
BanPonce
|
|
Popular Capital
|
|
America Capital
|
|
Popular Capital
|
|
Popular Capital
|
Issuer
|
|
Trust I
|
|
Trust I
|
|
Trust I
|
|
Trust II
|
|
Trust III
|
|
Capital securities
|
|
$
|
52,865
|
|
|
$
|
181,063
|
|
|
$
|
91,651
|
|
|
$
|
101,023
|
|
|
$
|
935,000
|
|
Distribution rate
|
|
|
8.327
|
%
|
|
|
6.700
|
%
|
|
|
6.564
|
%
|
|
|
6.125
|
%
|
|
5.000% until,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
but excluding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 5,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.000% thereafter
|
Common securities
|
|
$
|
1,637
|
|
|
$
|
5,601
|
|
|
$
|
2,835
|
|
|
$
|
3,125
|
|
|
$
|
1,000
|
|
Junior subordinated
debentures aggregate
liquidation amount
|
|
$
|
54,502
|
|
|
$
|
186,664
|
|
|
$
|
94,486
|
|
|
$
|
104,148
|
|
|
$
|
936,000
|
|
Stated maturity
date
|
|
February 2027
|
|
November 2033
|
|
September 2034
|
|
December 2034
|
|
Perpetual
|
Reference notes
|
|
(a),(c),(f),(g)
|
|
(b),(d),(f)
|
|
(a),(c),(f)
|
|
(b),(d),(f)
|
|
(b),(d),(h),(i)
|
|
Financial data pertaining to the trusts at December 31, 2008 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Popular North
|
|
|
|
|
|
|
BanPonce
|
|
Popular Capital
|
|
America Capital
|
|
Popular Capital
|
|
Popular Capital
|
Issuer
|
|
Trust I
|
|
Trust I
|
|
Trust I
|
|
Trust II
|
|
Trust III
|
|
Capital securities
|
|
$
|
144,000
|
|
|
$
|
300,000
|
|
|
$
|
250,000
|
|
|
$
|
130,000
|
|
|
|
|
|
Distribution rate
|
|
|
8.327
|
%
|
|
|
6.700
|
%
|
|
|
6.564
|
%
|
|
|
6.125
|
%
|
|
|
|
|
Common securities
|
|
$
|
4,640
|
|
|
$
|
9,279
|
|
|
$
|
7,732
|
|
|
$
|
4,021
|
|
|
|
|
|
Junior
subordinated debentures aggregate liquidation amount
|
|
$
|
148,640
|
|
|
$
|
309,279
|
|
|
$
|
257,732
|
|
|
$
|
134,021
|
|
|
|
|
|
Stated
maturity date
|
|
February 2027
|
|
November 2033
|
|
September 2034
|
|
December 2034
|
|
|
|
|
Reference notes
|
|
(a),(c),(e),(f),(g)
|
|
(b),(d),(f)
|
|
(a),(c),(f)
|
|
(b),(d),(f)
|
|
|
|
|
|
|
|
|
(a)
|
|
Statutory business trust that is wholly-owned by Popular North America (PNA) and indirectly
wholly-owned by the Corporation.
|
|
(b)
|
|
Statutory business trust that is wholly-owned by the Corporation.
|
|
(c)
|
|
The obligations of PNA under the junior subordinated debentures and its guarantees of the
capital securities under the trust are fully and unconditionally guaranteed on a subordinated basis
by the Corporation to the extent set forth in the applicable guarantee agreement.
|
|
(d)
|
|
These capital securities are fully and unconditionally guaranteed on a subordinated basis by
the Corporation to the extent set forth in the applicable guarantee agreement.
|
|
(e)
|
|
The original issuance was for $150 million. The Corporation had reacquired $6 million of the 8.327% capital
securities at December 31, 2008.
|
|
(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.
|
|
(g)
|
|
Same as (f) above, except that the investment company event does not apply for early
redemption.
|
|
(h)
|
|
The debentures are perpetual and may be redeemed by the Corporation at any time, subject to the
consent of the Board of Governors of the Federal Reserve System.
|
|
(i)
|
|
Carrying value of junior subordinated debentures of $424 million at December 31, 2009 ($936
million aggregate liquidation amount, net of $512 million discount).
|
In accordance with the Federal Reserve Board guidance, the trust preferred securities represent
restricted core capital elements and qualify as Tier 1 Capital, subject to quantitative limits. The
aggregate amount of restricted core capital elements that may be included in the Tier 1 Capital of
a banking organization must
136 POPULAR, INC. 2009 ANNUAL REPORT
not exceed 25 percent of the sum of all core capital elements (including cumulative perpetual
preferred stock and trust preferred securities). At December 31, 2009, the Corporations restricted
core capital elements exceeded the 25% limitation and, as such, $7 million of the outstanding trust
preferred securities were disallowed as Tier 1 capital. Amounts of restricted core capital elements
in excess of this limit generally may be included in Tier 2 capital, subject to further
limitations. The Federal Reserve Board revised the quantitative limit which would limit restricted
core capital elements included in the Tier 1 capital of a bank holding company to 25% of the sum of
core capital elements (including restricted core capital elements), net of goodwill less any
associated deferred tax liability. The new limit would be effective on March 31, 2011.
Note 23 Stockholders equity:
The Corporations authorized preferred stock, which amounted to 30,000,000 at December 31, 2009 and
2008, 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 preferred stock issued and outstanding at December 31, 2009
and 2008 consisted of:
|
|
|
6.375% non-cumulative monthly income preferred stock, 2003 Series A, no par value, liquidation
preference value of $25 per share. Holders on record of the 2003 Series A Preferred Stock are
entitled to receive, when, as and if declared by the Board of Directors of the Corporation or an
authorized committee thereof, out of funds legally available, non-cumulative cash dividends at the
annual rate per share of 6.375% of their liquidation preference value, or $0.1328125 per share per
month. These shares of preferred stock are perpetual, nonconvertible, have no preferential rights
to purchase any securities of the Corporation and are redeemable solely at the option of the
Corporation with the consent of the Board of Governors of the Federal Reserve System beginning on
March 31, 2008. The redemption price per share at December 31, 2009 was $25.25 up to March 30, 2010
and $25.00 from March 31, 2010 and thereafter. The shares of 2003 Series A Preferred Stock have no
voting rights, except for certain rights in instances when the Corporation does not pay dividends
for a defined period. These shares are not subject to any sinking fund requirement. Cash dividends
declared and paid on the 2003 Series A Preferred Stock amounted to $6.0 million for the year ended
December 31, 2009 (2008 and 2007 $11.9 million each). The Corporation suspended the payment of
dividends on the Series A preferred stock commencing with the July 2009 payment. Outstanding shares
of 2003 Series A preferred stock totaled 885,726 at December 31, 2009, which reflect the reduction
that resulted from the exchange offer described in Note 21 to the consolidated financial statements
(2008 7,475,000 outstanding shares).
|
|
|
|
|
8.25% non-cumulative monthly income preferred stock, 2008 Series B, no par value, liquidation
preference value of $25 per share. The shares of 2008 Series B Preferred Stock were issued in May
2008. Holders of record of the 2008 Series B Preferred Stock are entitled to receive, when, as and
if declared by the Board of Directors of the Corporation or an authorized committee thereof, out of
funds legally available, non-cumulative cash dividends at the annual rate per share of 8.25% of
their liquidation preferences, or $0.171875 per share per month. These shares of preferred stock
are perpetual, nonconvertible, have no preferential rights to purchase any securities of the
Corporation and are redeemable solely at the option of the Corporation with the consent of the
Board of Governors of the Federal Reserve System beginning on May 28, 2013. The redemption price
per share is $25.50 from May 28, 2013 through May 28, 2014, $25.25 from May 28, 2014 through May
28, 2015 and $25.00 from May 28, 2015 and thereafter. The Series B Preferred Stock was issued on
May 28, 2008 at a purchase price of $25 per share. Cash dividends declared and paid on the 2008
Series B Preferred Stock amounted to $16.5 million for the year ended December 31, 2009 (2008 -
$19.5 million). The Corporation suspended the payment of dividends on the Series B Preferred Stock
commencing with the July 2009 payment. Outstanding shares of 2008 Series B preferred stock totaled
1,120,665 at December 31, 2009, which reflect the impact of the exchange offer (2008 16,000,000
outstanding shares).
|
|
|
|
|
At December 31, 2008, the Corporation had outstanding 935,000 shares of its Fixed Rate
Cumulative Perpetual Preferred Stock, Series C, $1,000 liquidation preference per share issued to
the U.S. Department of Treasury (U.S. Treasury) in December 2008 under the U.S. Treasurys
Troubled Asset Relief Program (TARP) Capital Purchase Program. The shares of Series C Preferred
Stock qualified as Tier I regulatory capital and paid cumulative dividends quarterly at a rate of
5% per annum for the first five years, and 9% per annum thereafter. During 2009, the Corporation
exchanged newly issued trust preferred securities for the shares of Series C Preferred Stock held
by the U.S. Treasury. After the exchange, the newly issued trust preferred securities continue to
qualify as Tier 1 regulatory capital subject to the 25% limitation on Tier 1 capital explained in
Note 22 to the consolidated financial statements. Refer to Note 21 to the consolidated financial
statements for information on the exchange agreement dated August 21, 2009 related to these shares
of preferred stock. The Corporation paid cash
|
137
|
|
|
dividends on the Series C preferred stock during the year ended December 31, 2009 amounting to
$20.8 million. Dividends accrued on the Series C Preferred Stock amounted to $3.4 million for the
year ended December 31, 2008. Also, during the year ended December 31, 2009, the Corporation
recognized through accumulated deficit the accretion of the Series C Preferred Stock discount
amounting to $4.5 million (2008 $483 thousand).
|
As part of the Series C preferred stock transaction with the U.S. Treasury effected on December 5,
2008, the Corporation issued to the U.S. Treasury a warrant to purchase 20,932,836 shares of the
Corporations common stock at an exercise price of $6.70 per share, which continues to be
outstanding in full and without amendment at December 31, 2009. The exercise price of the warrant
was determined based upon the average of the closing prices of the Corporations common stock
during the 20-trading day period ended November 12, 2008, the last trading day prior to the date
that the Corporations application to participate in the TARP program was preliminarily approved.
The allocated carrying values of the Series C Preferred Stock and the warrant on the date of
issuance in 2008 (based on the relative fair values) were $896 million and $39 million,
respectively.
The warrant is immediately exercisable, subject to certain restrictions, and has a 10-year term.
The exercise price and number of shares subject to the warrant are both subject to anti-dilution
adjustments. U.S. Treasury may not exercise voting power with respect to shares of common stock
issued upon exercise of the warrant. Neither the Series C preferred stock (exchanged for trust
preferred securities) nor the warrant nor the shares issuable upon exercise of the warrant are
subject to any contractual restriction on transfer.
On September 18, 2009, the Corporation announced the voluntary delisting of its 2003 Series A and
2008 Series B preferred stock from the NASDAQ Stock Market (the NASDAQ), effective October 8,
2009. The Corporations common stock continues to be traded on the NASDAQ under the symbol BPOP.
On May 1, 2009, the stockholders of the Corporation approved an amendment to the Corporations
Certificate of Incorporation to increase the number of authorized shares of common stock from
470,000,000 shares to 700,000,000 shares. The stockholders also approved a decrease in the par
value of the common stock of the Corporation from $6 per share to $0.01 per share. The decrease in
the par value of the Corporations common stock had no effect on the total dollar value of the
Corporations stockholders equity. During 2009, the Corporation transferred an amount equal to the
product of the number of shares issued and outstanding and $5.99 (the difference between the old
and new par values), from the common stock account to surplus (additional paid-in capital).
During the third quarter of 2009, the Corporation issued 357,510,076 new shares of common stock in
exchange of its Series A and Series B preferred stock and trust preferred securities, which resulted in an increase in
common stockholders equity of $923 million. This increase included newly issued common stock and
surplus of $612.4 million and a favorable impact to accumulated deficit of $311 million, including
$80.3 million in gains on the extinguishment of junior subordinated debentures that relate to the
trust preferred securities. Refer to Note 21 for information on the exchange offers.
On February 19, 2009, the Board of Directors of the Corporation resolved to retire 13,597,261
shares of the Corporations common stock that were held by the Corporation as treasury shares. It
is the Corporations accounting policy to account, at retirement, for the excess of the cost of the
treasury stock over its par value entirely to surplus. The impact of the retirement is reflected in
the accompanying Consolidated Statement of Changes in Stockholders Equity.
The Corporations common stock ranks junior to all series of preferred stock as to dividend rights
and / or as to rights on liquidation, dissolution or winding up of the Corporation. Dividends on
each series of preferred stock are payable if declared. The Corporations ability to declare or pay
dividends on, or purchase, redeem or otherwise acquire, its common stock is subject to certain
restrictions in the event that the Corporation fails to pay or set aside full dividends on the
preferred stock for the latest dividend period. The ability of the Corporation to pay dividends in
the future is limited by regulatory requirements, legal availability of funds, recent and projected
financial results, capital levels and liquidity of the Corporation, general business conditions and
other factors deemed relevant by the Corporations Board of Directors.
During the year 2009, cash dividends of $0.02 (2008 $0.48; 2007 $0.64) per common share
outstanding amounting to $5.6 million (2008 $134.9 million; 2007 $178.9 million) were declared.
There were no dividends payable to shareholders of common stock at December 31, 2009 (2008 $23
million and 2007 $45 million). The Corporation suspended the payment of dividends to shareholders
of common stock during 2009.
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 $402 million at December
31, 2009 (2008 $392 million; 2007 $374 million). During 2009, $10 million (2008 $18 million;
2007 $28 million) was transferred to the statutory reserve account. At December 31, 2009, 2008
and 2007,
138 POPULAR, INC. 2009 ANNUAL REPORT
BPPR was in compliance with the statutory reserve requirement.
Note 24 Net income (loss) per common share:
The following table sets forth the computation of net income (loss) per common share (EPS), basic
and diluted, for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except share information)
|
|
2009
|
|
2008
|
|
2007
|
|
Net (loss) income from continuing operations
|
|
$
|
(553,947
|
)
|
|
$
|
(680,468
|
)
|
|
$
|
202,508
|
|
Net loss from discontinued operations
|
|
|
(19,972
|
)
|
|
|
(563,435
|
)
|
|
|
(267,001
|
)
|
Preferred stock dividends
|
|
|
(39,857
|
)
|
|
|
(34,815
|
)
|
|
|
(11,913
|
)
|
Preferred stock discount accretion
|
|
|
(4,515
|
)
|
|
|
(482
|
)
|
|
|
|
|
Favorable impact from exchange of shares of
Series A and B preferred stock for common
stock, net of issuance costs (Refer to Note 21)
|
|
|
230,388
|
|
|
|
|
|
|
|
|
|
Favorable impact from exchange of Series C
preferred stock for trust preferred securities
(Refer to Note 21)
|
|
|
485,280
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stock
|
|
$
|
97,377
|
|
|
$
|
(1,279,200
|
)
|
|
$
|
(76,406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
|
408,229,498
|
|
|
|
281,079,201
|
|
|
|
279,494,150
|
|
Average potential common shares
|
|
|
|
|
|
|
|
|
|
|
58,352
|
|
|
Average common shares outstanding -
assuming dilution
|
|
|
408,229,498
|
|
|
|
281,079,201
|
|
|
|
279,552,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted EPS from continuing
operations
|
|
$
|
0.29
|
|
|
$
|
(2.55
|
)
|
|
$
|
0.68
|
|
Basic and diluted EPS from discontinued
operations
|
|
|
(0.05
|
)
|
|
|
(2.00
|
)
|
|
|
(0.95
|
)
|
|
Basic and diluted EPS
|
|
$
|
0.24
|
|
|
$
|
(4.55
|
)
|
|
$
|
(0.27
|
)
|
|
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. Warrants and 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 year 2009, there were 2,715,852 weighted average antidilutive stock options outstanding (2008 -
3,036,843; 2007 2,431,830). Additionally, the Corporation has outstanding a warrant to purchase
20,932,836 shares of common stock, which have an antidilutive effect as of December 31, 2009.
Note 25 Regulatory capital requirements:
The Corporation and its banking subsidiaries are subject to various regulatory capital requirements
imposed by the federal banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Corporations consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective action, the Federal
Reserve Board and the other bank regulators have adopted quantitative measures which assign risk
weightings to assets and off-balance sheet items and also define and set minimum regulatory capital
requirements. Rules adopted by the federal banking agencies provide that a depository institution
will be deemed to be well capitalized if it maintains a leverage ratio of at least 5%, a Tier 1
risk-based capital ratio of at least 6% and a total risk-based ratio of at least 10%. Management
has determined that as of December 31, 2009 and 2008, the Corporation exceeded all capital adequacy
requirements to which it is subject.
At December 31, 2009 and 2008, BPPR and BPNA were well-capitalized under the regulatory framework
for prompt corrective action. As of December 31, 2009,
management believes that there were no conditions or events since the
most recent notification date that could have changed the
institutions category.
The Corporation has been designated by the Federal Reserve Board as a Financial Holding Company
(FHC) and is eligible to engage in certain financial activities permitted under the
Gramm-Leach-Bliley Act of 1999.
The Corporations risk-based capital and leverage ratios at December 31, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Capital adequacy minimum
|
|
|
|
|
|
|
|
|
|
|
requirement
|
(Dollars in thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
2009
|
|
Total Capital
(to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
2,910,442
|
|
|
|
11.13
|
%
|
|
$
|
2,091,750
|
|
|
|
8
|
%
|
BPPR
|
|
|
2,233,995
|
|
|
|
12.56
|
|
|
|
1,423,486
|
|
|
|
8
|
|
BPNA
|
|
|
866,811
|
|
|
|
10.86
|
|
|
|
638,815
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
(to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
2,563,915
|
|
|
|
9.81
|
%
|
|
$
|
1,045,875
|
|
|
|
4
|
%
|
BPPR
|
|
|
1,575,837
|
|
|
|
8.86
|
|
|
|
711,743
|
|
|
|
4
|
|
BPNA
|
|
|
760,181
|
|
|
|
9.52
|
|
|
|
319,407
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
(to Average Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
2,563,915
|
|
|
|
7.50
|
%
|
|
$
|
1,025,917
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
1,367,890
|
|
|
|
4
|
|
BPPR
|
|
|
1,575,837
|
|
|
|
6.87
|
|
|
|
688,612
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
918,149
|
|
|
|
4
|
|
BPNA
|
|
|
760,181
|
|
|
|
7.15
|
|
|
|
318,853
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
425,137
|
|
|
|
4
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Capital adequacy minimum
|
|
|
|
|
|
|
|
|
|
|
requirement
|
(Dollars in thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
2008
|
|
Total Capital
(to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
3,657,350
|
|
|
|
12.08
|
%
|
|
$
|
2,421,581
|
|
|
|
8
|
%
|
BPPR
|
|
|
2,195,366
|
|
|
|
11.28
|
|
|
|
1,556,905
|
|
|
|
8
|
|
BPNA
|
|
|
1,028,639
|
|
|
|
10.17
|
|
|
|
809,256
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
(to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
3,272,375
|
|
|
|
10.81
|
%
|
|
$
|
1,210,790
|
|
|
|
4
|
%
|
BPPR
|
|
|
1,518,140
|
|
|
|
7.80
|
|
|
|
778,453
|
|
|
|
4
|
|
BPNA
|
|
|
899,443
|
|
|
|
8.89
|
|
|
|
404,628
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
(to Average Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
|
|
$
|
3,272,375
|
|
|
|
8.46
|
%
|
|
$
|
1,161,084
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
1,548,111
|
|
|
|
4
|
|
BPPR
|
|
|
1,518,140
|
|
|
|
6.07
|
|
|
|
750,082
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,109
|
|
|
|
4
|
|
BPNA
|
|
|
899,443
|
|
|
|
7.23
|
|
|
|
373,317
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
497,755
|
|
|
|
4
|
|
|
The following table also presents the minimum amounts and ratios for the Corporations banks to be
categorized as well-capitalized under prompt corrective action:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
(Dollars in thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Total Capital
(to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPPR
|
|
$
|
1,779,358
|
|
|
|
10
|
%
|
|
$
|
1,946,132
|
|
|
|
10
|
%
|
BPNA
|
|
|
798,518
|
|
|
|
10
|
|
|
|
1,011,570
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
(to Risk-Weighted Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPPR
|
|
$
|
1,067,615
|
|
|
|
6
|
%
|
|
$
|
1,167,679
|
|
|
|
6
|
%
|
BPNA
|
|
|
479,111
|
|
|
|
6
|
|
|
|
606,942
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
(to Average Assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BPPR
|
|
$
|
1,147,687
|
|
|
|
5
|
%
|
|
$
|
1,250,136
|
|
|
|
5
|
%
|
BPNA
|
|
|
531,422
|
|
|
|
5
|
|
|
|
622,194
|
|
|
|
5
|
|
|
Note 26 Other service fees:
The caption of other service fees in the consolidated statements of income consists of the
following major categories that exceed one percent of the aggregate of total interest income plus
non-interest income for the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
Debit card fees
|
|
$
|
110,040
|
|
|
$
|
108,274
|
|
|
$
|
76,573
|
|
Credit card fees and discounts
|
|
|
94,636
|
|
|
|
107,713
|
|
|
|
102,176
|
|
Processing fees
|
|
|
55,005
|
|
|
|
51,731
|
|
|
|
47,476
|
|
Insurance fees
|
|
|
50,132
|
|
|
|
50,417
|
|
|
|
53,097
|
|
Sale and administration of
investment products
|
|
|
34,134
|
|
|
|
34,373
|
|
|
|
30,453
|
|
Other fees
|
|
|
50,240
|
|
|
|
63,655
|
|
|
|
55,836
|
|
|
Total other service fees
|
|
$
|
394,187
|
|
|
$
|
416,163
|
|
|
$
|
365,611
|
|
|
Note 27 Employee benefits:
Pension and benefit restoration plans
Certain employees of BPPR and BPNA are covered by non-contributory defined benefit pension plans.
Pension benefits are based on age, years of credited service, and final average compensation.
BPPRs non-contributory, defined benefit retirement plan is currently closed to new hires and to
employees who as of December 31, 2005 were under 30 years of age or were credited with less than 10
years of benefit service. Effective May 1, 2009, the accrual of the benefits under the BPPR
retirement plan were frozen to all participants. Pursuant to the amendment, the retirement plan
participants will not receive any additional credit for compensation earned and service performed
after April 30, 2009 for purposes of calculating benefits under the retirement plan. The retirement
plans benefit formula is based on a percentage of average final compensation and years of service.
Normal retirement age under the retirement plans is age 65 with 5 years of service. Pension costs
are funded in accordance with minimum funding standards under the Employee Retirement Income
Security Act of 1974 (ERISA). Benefits under the BPPR retirement plan are subject to the U.S.
Internal Revenue Code limits on compensation and benefits. Benefits under restoration plans restore
benefits to selected employees that are limited under the retirement plan due to U.S. Internal
Revenue Code limits and a compensation definition that excludes amounts deferred pursuant to
nonqualified arrangements. The aforementioned freeze applied to the restoration plan as well.
Effective April 1, 2007, the Corporations U.S.A. non-contributory, defined benefit retirement
plan, which covered substantially all salaried employees of BPNA hired before June 30, 2004, was
amended to freeze the plan and terminate it as soon as practical thereafter. Participants in this
plan were no longer entitled to any further benefit accruals on or after that date. These actions
140 POPULAR, INC. 2009 ANNUAL REPORT
were also applicable to the related plan that restored benefits to select employees that were
limited under the retirement plan.
The Corporations funding policy is to make annual contributions to the plans, when necessary, in
amounts which fully provide for all benefits as they become due under the plans.
The Corporations
pension fund investment strategy is to invest in a prudent manner for the exclusive purpose of
providing benefits to participants. A well defined internal structure has been established to
develop and implement a risk-controlled investment strategy that is targeted to produce a total
return that, when combined with the banks contributions to the fund, will maintain the funds
ability to meet all required benefit obligations. Risk is controlled through diversification of
asset types, such as investments in domestic and international equities and fixed income.
Equity investments include various types of stock and index funds. Also, this category includes
Popular, Inc.s common stock. Fixed income investments include U.S. Government securities and other
U.S. agencies obligations, corporate bonds, mortgage loans, mortgage-backed securities and index
funds, among others. A designated committee periodically reviews the performance of the pension
plans investments and assets allocation. The Trustee and the money managers are allowed to
exercise investment discretion, subject to limitations established by the pension plans investment
policies. The plans forbid money managers to enter into derivative transactions, unless approved by
the Trustee.
The overall expected long-term rate-of-return-on-assets assumption reflects the average rate of
earnings expected on the funds invested or to be invested to provide for the benefits included in
the benefit obligation. The assumption has been determined by reflecting expectations regarding
future rates of return for the plan assets, with consideration given to the distribution of the
investments by asset class and historical rates of return for each individual asset class. This
process is reevaluated at least on an annual basis and if market, actuarial and economic conditions
change, adjustments to the rate of return may come into place.
The plans target allocation based on market value for 2009 and 2008, by asset category,
considered:
|
|
|
|
|
|
|
|
|
|
|
Allocation
|
|
Maximum
|
|
|
range
|
|
allotment
|
|
Equity
|
|
|
0-70
|
%
|
|
|
70
|
%
|
Fixed / variable income
|
|
|
0-100
|
%
|
|
|
100
|
%
|
Cash and cash equivalents
|
|
|
0-100
|
%
|
|
|
100
|
%
|
|
Assets of the pension and benefit restoration plans at December 31, consisted of:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Investments, at fair value:
|
|
|
|
|
|
|
|
|
Allocated share of Master Trust net assets
|
|
$
|
414,775
|
|
|
$
|
361,575
|
|
Popular, Inc. common stock
|
|
|
6,206
|
|
|
|
14,168
|
|
Private equity investment
|
|
|
884
|
|
|
|
1,247
|
|
|
Total investments
|
|
|
421,865
|
|
|
|
376,990
|
|
|
|
|
|
|
|
|
|
|
|
Receivables:
|
|
|
|
|
|
|
|
|
Accrued interest and dividends
|
|
|
55
|
|
|
|
219
|
|
|
Total receivables
|
|
|
55
|
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
12,212
|
|
|
|
12,416
|
|
|
Total assets
|
|
$
|
434,132
|
|
|
$
|
389,625
|
|
|
Certain assets of the plans are maintained, for investment purposes only, on a commingled basis
with the assets of the Popular Savings Plan in a Master Trust (the Master Trust). Neither the
pension or benefit restoration plan has any interest in the specific assets of the Master Trust,
but maintains beneficial interests in such assets. The Master Trust is managed by the Trust
Division of BPPR and by several investment managers.
At December 31, 2009, the pension and restoration plans interest in the net assets of the Master
Trust was approximately 87.8% (2008 87.7%).
The following table sets forth by level, within the fair value hierarchy, the plans assets at fair
value at December 31, 2009 and 2008. The following table does not include the plans interests in
the Master Trust because that information is presented in a separate table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
(In thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Common stock
|
|
$
|
6,206
|
|
|
|
|
|
|
|
|
|
|
$
|
6,206
|
|
Private equity investment
|
|
|
|
|
|
|
|
|
|
$
|
884
|
|
|
|
884
|
|
Cash and cash equivalents
|
|
|
12,212
|
|
|
|
|
|
|
|
|
|
|
|
12,212
|
|
Accrued interest and dividends
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
55
|
|
|
Total assets, excluding interests
in Master Trust
|
|
$
|
18,418
|
|
|
|
|
|
|
$
|
939
|
|
|
$
|
19,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
(In thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Common stock
|
|
$
|
14,168
|
|
|
|
|
|
|
|
|
|
|
$
|
14,168
|
|
Private equity investment
|
|
|
|
|
|
|
|
|
|
$
|
1,247
|
|
|
|
1,247
|
|
Cash and cash equivalents
|
|
|
12,416
|
|
|
|
|
|
|
|
|
|
|
|
12,416
|
|
Accrued interest and dividends
|
|
|
|
|
|
|
|
|
|
|
219
|
|
|
|
219
|
|
|
Total assets, excluding interests
in Master Trust
|
|
$
|
26,584
|
|
|
|
|
|
|
$
|
1,466
|
|
|
$
|
28,050
|
|
|
Following is a description of the plans valuation methodologies used for assets measured at fair
value:
|
|
|
Common stock Equity securities with quoted market prices obtained from an active exchange
market are classified as Level 1.
|
141
|
|
|
Private equity investments Private equity investments include an investment in a private
equity fund. This fund value is recorded at the net asset value (NAV) of the fund which is affected
by the changes of the fair value of the investments held in the fund. This fund is classified as
Level 3.
|
|
|
|
|
Cash and cash equivalents The carrying amount of cash and cash equivalents are reasonable
estimates of their fair value since they are available on demand or due to their short-term
maturity.
|
|
|
|
|
Accrued interest and dividends Given the short-term nature of these assets, their carrying
amount approximates fair value. Since there is a lack of observable inputs related to instrument
specific attributes, these are reported as Level 3.
|
The changes in Level 3 assets measured at fair value for the years ended December 31, were as
follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
Balance at January 1
|
|
$
|
1,466
|
|
|
$
|
2,011
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) relating to
instruments still held at the reporting date
|
|
|
(363
|
)
|
|
|
(323
|
)
|
Actual return on plan assets (gain (loss))
relating to instruments sold during the year
|
|
|
|
|
|
|
|
|
Purchases, sales, issuances, settlements,
paydowns and maturities (net)
|
|
|
(164
|
)
|
|
|
(222
|
)
|
Transfers in and/or out of Level 3
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
939
|
|
|
$
|
1,466
|
|
|
Master Trust
Investments held in the Master Trust at December 31, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
Obligations of the U.S. Government
and its agencies
|
|
$
|
25,733
|
|
|
$
|
18,121
|
|
Corporate bonds and debentures
|
|
|
47,792
|
|
|
|
43,157
|
|
Common stock
|
|
|
207,747
|
|
|
|
161,981
|
|
Index fund equity
|
|
|
78,520
|
|
|
|
58,483
|
|
Index fund fixed income
|
|
|
7,868
|
|
|
|
28,572
|
|
Mortgage-backed securities agencies
|
|
|
85,921
|
|
|
|
84,585
|
|
Private equity investments
|
|
|
894
|
|
|
|
1,338
|
|
Cash
|
|
|
16,440
|
|
|
|
14,484
|
|
Accrued investment income
|
|
|
1,719
|
|
|
|
1,611
|
|
|
Total assets
|
|
$
|
472,634
|
|
|
$
|
412,332
|
|
|
The closing prices reported in the active markets in which the securities are traded are used to
value the investments in the Master Trust. The following table sets forth by level, within the fair
value hierarchy, the Master Trusts investments at fair value at December 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
(In thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Obligations the U.S. Government
and its agencies
|
|
|
|
|
|
$
|
25,733
|
|
|
|
|
|
|
$
|
25,733
|
|
Corporate bonds and debentures
|
|
|
|
|
|
|
47,792
|
|
|
|
|
|
|
|
47,792
|
|
Common stock
|
|
$
|
207,747
|
|
|
|
|
|
|
|
|
|
|
|
207,747
|
|
Index fund equity
|
|
|
5,164
|
|
|
|
73,356
|
|
|
|
|
|
|
|
78,520
|
|
Index fund fixed income
|
|
|
|
|
|
|
7,868
|
|
|
|
|
|
|
|
7,868
|
|
Mortgage-backed securities agencies
|
|
|
|
|
|
|
85,921
|
|
|
|
|
|
|
|
85,921
|
|
Private equity investments
|
|
|
|
|
|
|
|
|
|
$
|
894
|
|
|
|
894
|
|
Cash
|
|
|
16,440
|
|
|
|
|
|
|
|
|
|
|
|
16,440
|
|
Accrued investment income
|
|
|
|
|
|
|
|
|
|
|
1,719
|
|
|
|
1,719
|
|
|
Total
|
|
$
|
229,351
|
|
|
$
|
240,670
|
|
|
$
|
2,613
|
|
|
$
|
472,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
(In thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Obligations the U.S. Government
and its agencies
|
|
|
|
|
|
$
|
18,121
|
|
|
|
|
|
|
$
|
18,121
|
|
Corporate bonds and debentures
|
|
|
|
|
|
|
43,157
|
|
|
|
|
|
|
|
43,157
|
|
Common stock
|
|
$
|
161,981
|
|
|
|
|
|
|
|
|
|
|
|
161,981
|
|
Index fund equity
|
|
|
2,815
|
|
|
|
55,668
|
|
|
|
|
|
|
|
58,483
|
|
Index fund fixed income
|
|
|
|
|
|
|
28,572
|
|
|
|
|
|
|
|
28,572
|
|
Mortgage-backed securities agencies
|
|
|
|
|
|
|
84,585
|
|
|
|
|
|
|
|
84,585
|
|
Private equity investments
|
|
|
|
|
|
|
|
|
|
$
|
1,338
|
|
|
|
1,338
|
|
Cash
|
|
|
14,484
|
|
|
|
|
|
|
|
|
|
|
|
14,484
|
|
Accrued investment income
|
|
|
|
|
|
|
|
|
|
|
1,611
|
|
|
|
1,611
|
|
|
Total
|
|
$
|
179,280
|
|
|
$
|
230,103
|
|
|
$
|
2,949
|
|
|
$
|
412,332
|
|
|
Following is a description of the Master Trusts valuation methodologies used for investments
measured at fair value:
|
|
|
Cash The carrying amount of cash is a reasonable
estimate of the fair value since it is
available on demand.
|
|
|
|
|
Equity securities Equity securities with quoted market prices obtained from an active
exchange market and high liquidity are classified as Level 1.
|
|
|
|
|
Index funds equity Investments in index funds equity with quoted market prices obtained
from an active exchange market and high liquidity are classified as Level
1. Investments in index funds equity valued at the net asset value (NAV) of shares held by the
plan at year end are classified as Level 2.
|
|
|
|
|
Mutual funds and index funds fixed income Investments in mutual funds and index funds
-fixed income, are valued at the net asset value (NAV) of shares held by the plan at year end.
These securities are classified as Level 2.
|
|
|
|
|
Obligations of U.S. Government sponsored entities The fair value of Obligations of U.S.
Government sponsored entities
|
142 POPULAR, INC. 2009 ANNUAL REPORT
|
|
|
is based on an active exchange market and is based on quoted market prices for similar securities.
These securities are classified as Level 2. U.S. agency structured notes are priced based on a
bonds theoretical value from similar bonds defined by credit quality and market sector and for
which the fair value incorporates an option adjusted spread in deriving their fair value. These
securities are classified as Level 2.
|
|
|
|
|
Mortgage-backed securities Certain agency mortgage and other asset backed securities (MBS)
are priced based on a bonds theoretical value from similar bonds defined by credit quality and
market sector. Their fair value incorporates an option adjusted spread. The agency MBS is
classified as Level 2.
|
|
|
|
|
Corporate bonds and debentures Corporate bonds and debentures are valued at fair value at
the closing price reported in the active market in which the bond is traded. These securities are
classified as Level 2.
|
|
|
|
|
Private equity investments Private equity investments include an investment in a private
equity fund. The fund value is recorded at its net asset value (NAV) which is affected by the
changes in the fair market value of the investments held in the fund. This fund is classified as
Level 3.
|
|
|
|
|
Accrued investment income Given the short-term nature of these assets, their carrying amount
approximates fair value. Since there is a lack of observable inputs related to instrument specific
attributes, these are reported as Level 3.
|
The preceding valuation methods may produce a fair value calculation that may not be indicative of
net realizable value or reflective of future fair values. Furthermore, although the plan believes
its valuation methods are appropriate and consistent with other market participants, the use of
different methodologies or assumptions to determine the fair value of certain financial instruments
could result in a different fair value measurement at the reporting date.
The following table presents the changes in Level 3 assets measured at fair value for the years
ended December 31, 2009 and 2008 for the Master Trust:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
Balance at January 1
|
|
$
|
2,949
|
|
|
$
|
3,732
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
Change in unrealized gain (loss) relating to
instruments still held at the reporting date
|
|
|
(444
|
)
|
|
|
(564
|
)
|
Actual return on plan assets (gain (loss))
relating to instruments sold during the year
|
|
|
|
|
|
|
|
|
Purchases, sales, issuances, settlements,
paydowns and maturities (net)
|
|
|
108
|
|
|
|
(219
|
)
|
Transfers in and/or out of Level 3
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
2,613
|
|
|
$
|
2,949
|
|
|
At December 31, 2009, the pension and restoration plans included 2,745,720 shares (2008 -
2,745,720) of the Corporations common stock with a market value of approximately $6.2 million
(2008 $14.2 million). Dividends paid on shares of the Corporations common stock held by the plan
during 2009 amounted to $275 thousand (2008 $1.5 million).
The following table sets forth the aggregate status of the plans and the amounts recognized in the
consolidated financial statements at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
|
|
|
|
|
Pension Plans
|
|
Restoration Plans
|
|
Total
|
(In thousands)
|
|
2009
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation
at beginning of year
|
|
$
|
596,489
|
|
|
$
|
31,219
|
|
|
$
|
627,708
|
|
Service cost
|
|
|
3,330
|
|
|
|
340
|
|
|
|
3,670
|
|
Interest cost
|
|
|
32,672
|
|
|
|
1,616
|
|
|
|
34,288
|
|
Curtailment (gain) loss
|
|
|
(40,947
|
)
|
|
|
(4,349
|
)
|
|
|
(45,296
|
)
|
Actuarial (gain) loss
|
|
|
(4,791
|
)
|
|
|
(1,955
|
)
|
|
|
(6,746
|
)
|
Benefits paid
|
|
|
(29,445
|
)
|
|
|
(475
|
)
|
|
|
(29,920
|
)
|
|
Benefit obligations
at end of year
|
|
$
|
557,308
|
|
|
$
|
26,396
|
|
|
$
|
583,704
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
at beginning of year
|
|
$
|
373,709
|
|
|
$
|
15,916
|
|
|
$
|
389,625
|
|
Actual return on plan assets
|
|
|
60,135
|
|
|
|
3,314
|
|
|
|
63,449
|
|
Employer contributions
|
|
|
9,232
|
|
|
|
1,746
|
|
|
|
10,978
|
|
Benefits paid
|
|
|
(29,445
|
)
|
|
|
(475
|
)
|
|
|
(29,920
|
)
|
|
Fair value of plan assets at
end of year
|
|
$
|
413,631
|
|
|
$
|
20,501
|
|
|
$
|
434,132
|
|
|
Amounts recognized in
accumulated other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
146,935
|
|
|
$
|
6,119
|
|
|
$
|
153,054
|
|
|
Accumulated other
comprehensive loss (AOCL)
|
|
$
|
146,935
|
|
|
$
|
6,119
|
|
|
$
|
153,054
|
|
|
Reconciliation of net (liability) / asset:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (liability) / asset at beginning
of year
|
|
$
|
(222,780
|
)
|
|
$
|
(15,303
|
)
|
|
$
|
(238,083
|
)
|
Amount recognized in AOCL at
beginning of year, pre-tax
|
|
|
241,923
|
|
|
|
15,017
|
|
|
|
256,940
|
|
|
(Accrual) / prepaid at beginning
of year
|
|
|
19,143
|
|
|
|
(286
|
)
|
|
|
18,857
|
|
Net periodic benefit (cost) / income
|
|
|
(24,297
|
)
|
|
|
(1,577
|
)
|
|
|
(25,874
|
)
|
Additional benefit (cost) income
|
|
|
(820
|
)
|
|
|
340
|
|
|
|
(480
|
)
|
Contributions
|
|
|
9,232
|
|
|
|
1,746
|
|
|
|
10,978
|
|
|
(Accrual) / prepaid at end of year
|
|
|
3,258
|
|
|
|
223
|
|
|
|
3,481
|
|
Amount recognized in AOCL
|
|
|
(146,935
|
)
|
|
|
(6,119
|
)
|
|
|
(153,054
|
)
|
|
Net (liability) / asset at end of year
|
|
$
|
(143,677
|
)
|
|
$
|
(5,896
|
)
|
|
$
|
(149,573
|
)
|
|
Accumulated benefit obligation
|
|
$
|
557,308
|
|
|
$
|
26,396
|
|
|
$
|
583,704
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
|
|
|
|
|
Pension Plans
|
|
Restoration Plans
|
|
Total
|
(In thousands)
|
|
2008
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation
at beginning of year
|
|
$
|
555,333
|
|
|
$
|
29,065
|
|
|
$
|
584,398
|
|
Service cost
|
|
|
9,261
|
|
|
|
729
|
|
|
|
9,990
|
|
Interest cost
|
|
|
34,444
|
|
|
|
1,843
|
|
|
|
36,287
|
|
Settlement (gain) loss
|
|
|
|
|
|
|
(24
|
)
|
|
|
(24
|
)
|
Actuarial (gain) loss
|
|
|
21,643
|
|
|
|
229
|
|
|
|
21,872
|
|
Benefits paid
|
|
|
(24,192
|
)
|
|
|
(623
|
)
|
|
|
(24,815
|
)
|
|
Benefit obligations
at end of year
|
|
$
|
596,489
|
|
|
$
|
31,219
|
|
|
$
|
627,708
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
at beginning of year
|
|
$
|
526,090
|
|
|
$
|
20,400
|
|
|
$
|
546,490
|
|
Actual return on plan assets
|
|
|
(133,861
|
)
|
|
|
(5,388
|
)
|
|
|
(139,249
|
)
|
Employer contributions
|
|
|
5,672
|
|
|
|
1,527
|
|
|
|
7,199
|
|
Benefits paid
|
|
|
(24,192
|
)
|
|
|
(623
|
)
|
|
|
(24,815
|
)
|
|
Fair value of plan assets at
end of year
|
|
$
|
373,709
|
|
|
$
|
15,916
|
|
|
$
|
389,625
|
|
|
Amounts recognized in
accumulated other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net prior service cost
|
|
$
|
864
|
|
|
$
|
(304
|
)
|
|
$
|
560
|
|
Net loss
|
|
|
241,059
|
|
|
|
15,321
|
|
|
|
256,380
|
|
|
Accumulated other
comprehensive loss (AOCL)
|
|
$
|
241,923
|
|
|
$
|
15,017
|
|
|
$
|
256,940
|
|
|
Reconciliation of net (liability) / asset:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (liability) / asset at beginning
of year
|
|
$
|
(29,243
|
)
|
|
$
|
(8,665
|
)
|
|
$
|
(37,908
|
)
|
Amount recognized in AOCL at
beginning of year, pre-tax
|
|
|
46,009
|
|
|
|
8,353
|
|
|
|
54,362
|
|
|
(Accrual) / prepaid at beginning
of year
|
|
|
16,766
|
|
|
|
(312
|
)
|
|
|
16,454
|
|
Net periodic benefit (cost) / income
|
|
|
(3,295
|
)
|
|
|
(1,525
|
)
|
|
|
(4,820
|
)
|
Additional benefit (cost) income
|
|
|
|
|
|
|
24
|
|
|
|
24
|
|
Contributions
|
|
|
5,672
|
|
|
|
1,527
|
|
|
|
7,199
|
|
|
(Accrual) / prepaid at end of year
|
|
|
19,143
|
|
|
|
(286
|
)
|
|
|
18,857
|
|
Amount recognized in AOCL
|
|
|
(241,923
|
)
|
|
|
(15,017
|
)
|
|
|
(256,940
|
)
|
|
Net (liability) / asset at end of year
|
|
$
|
(222,780
|
)
|
|
$
|
(15,303
|
)
|
|
$
|
(238,083
|
)
|
|
Accumulated benefit obligation
|
|
$
|
553,923
|
|
|
$
|
26,939
|
|
|
$
|
580,862
|
|
|
Of the total liabilities of the pension plans and benefit restoration plans at December 31, 2009,
approximately $1.7 million and $48 thousand, respectively, were considered current liabilities
(2008 $3.7 million and $29 thousand, respectively).
The change in accumulated other comprehensive loss (AOCL), pre-tax for the plans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
Benefit
|
|
|
(In thousands)
|
|
Pension Plans
|
|
Restoration Plans
|
|
Total
|
|
Accumulated other comprehensive
loss at January 1, 2009
|
|
$
|
241,923
|
|
|
$
|
15,017
|
|
|
$
|
256,940
|
|
|
Increase (decrease) in AOCL:
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service (cost) / credit
|
|
|
(864
|
)
|
|
|
304
|
|
|
|
(560
|
)
|
Actuarial (losses) / gains
|
|
|
(13,794
|
)
|
|
|
(824
|
)
|
|
|
(14,618
|
)
|
Ocurring during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial losses / (gains)
|
|
|
(80,330
|
)
|
|
|
(8,378
|
)
|
|
|
(88,708
|
)
|
|
Total decrease in AOCL
|
|
|
(94,988
|
)
|
|
|
(8,898
|
)
|
|
|
(103,886
|
)
|
|
Accumulated other comprehensive
loss at December 31, 2009
|
|
$
|
146,935
|
|
|
$
|
6,119
|
|
|
$
|
153,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
Benefit
|
|
|
(In thousands)
|
|
Pension Plans
|
|
Restoration Plans
|
|
Total
|
|
Accumulated other comprehensive
loss at January 1, 2008
|
|
$
|
46,009
|
|
|
$
|
8,353
|
|
|
$
|
54,362
|
|
|
Increase (decrease) in AOCL:
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service (cost) / credit
|
|
|
(266
|
)
|
|
|
53
|
|
|
|
(213
|
)
|
Actuarial (losses) / gains
|
|
|
|
|
|
|
(686
|
)
|
|
|
(686
|
)
|
Ocurring during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial losses / (gains)
|
|
|
196,180
|
|
|
|
7,297
|
|
|
|
203,477
|
|
|
Total increase in AOCL
|
|
|
195,914
|
|
|
|
6,664
|
|
|
|
202,578
|
|
|
Accumulated other comprehensive
loss at December 31, 2008
|
|
$
|
241,923
|
|
|
$
|
15,017
|
|
|
$
|
256,940
|
|
|
The amounts in accumulated other comprehensive loss that are expected to be recognized as
components of net periodic benefit cost (credit) during 2010 are as follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Pension Plans
|
|
Benefit Restoration Plans
|
|
Net loss
|
|
$
|
8,745
|
|
|
$
|
397
|
|
|
Information for plans with an accumulated benefit obligation in excess of plan assets for the years
ended December 31, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
|
|
|
Pension Plans
|
|
Restoration Plans
|
(In thousands)
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Projected benefit obligation
|
|
$
|
557,308
|
|
|
$
|
596,489
|
|
|
$
|
26,396
|
|
|
$
|
31,219
|
|
Accumulated benefit obligation
|
|
|
557,308
|
|
|
|
553,923
|
|
|
|
26,396
|
|
|
|
26,939
|
|
Fair value of plan assets
|
|
|
413,631
|
|
|
|
373,709
|
|
|
|
20,501
|
|
|
|
15,916
|
|
|
144 POPULAR, INC. 2009 ANNUAL REPORT
The actuarial assumptions used to determine benefit obligations for the years ended December 31,
were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Discount rate:
|
|
|
|
|
|
|
|
|
P.R. Plan
|
|
|
5.90
|
%
|
|
|
6.10
|
%
|
U.S. Plan
|
|
|
4.30
|
|
|
|
4.00
|
|
|
|
|
|
|
|
|
|
|
Rate of compensation
increase weighted average:
|
|
|
|
|
|
|
|
|
P.R. Plan
|
|
|
|
|
|
|
4.50
|
|
U.S. Plan
|
|
|
|
|
|
|
|
|
|
The actuarial assumptions used to determine the components of net periodic pension cost for the
years ended December 31, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
|
|
|
Pension Plans
|
|
Restoration Plans
|
|
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
Discount rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P.R. Plan
|
|
|
6.10
|
%
|
|
|
6.40
|
%
|
|
|
5.75
|
%
|
|
|
6.10
|
%
|
|
|
6.40
|
%
|
|
|
5.75
|
%
|
U.S. Plan
|
|
|
4.00
|
|
|
|
4.52
|
|
|
|
4.50
|
|
|
|
|
|
|
|
5.75
|
|
|
|
5.75
|
|
Discount rate at remeasurement
|
|
|
6.70
|
%
|
|
|
|
|
|
|
|
|
|
|
6.70
|
%
|
|
|
|
|
|
|
|
|
Expected return on
plan assets
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
Rate of compensation
increase weighted average:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P.R. Plan
|
|
|
4.50
|
%
|
|
|
4.60
|
%
|
|
|
4.80
|
%
|
|
|
4.50
|
%
|
|
|
4.60
|
%
|
|
|
4.80
|
%
|
U.S. Plan
|
|
|
|
|
|
|
|
|
|
|
5.00
|
|
|
|
|
|
|
|
|
|
|
|
5.00
|
|
|
The components of net periodic pension cost for the years ended December 31, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
|
|
|
Pension Plans
|
|
Restoration Plans
|
(In thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
Components of net
periodic pension cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
3,330
|
|
|
$
|
9,261
|
|
|
$
|
11,023
|
|
|
$
|
340
|
|
|
$
|
729
|
|
|
$
|
898
|
|
Interest cost
|
|
|
32,672
|
|
|
|
34,444
|
|
|
|
31,850
|
|
|
|
1,616
|
|
|
|
1,843
|
|
|
|
1,677
|
|
Expected return
on plan assets
|
|
|
(25,543
|
)
|
|
|
(40,676
|
)
|
|
|
(42,121
|
)
|
|
|
(1,239
|
)
|
|
|
(1,680
|
)
|
|
|
(1,473
|
)
|
Amortization of
prior service cost
|
|
|
44
|
|
|
|
266
|
|
|
|
207
|
|
|
|
(9
|
)
|
|
|
(53
|
)
|
|
|
(53
|
)
|
Amortization of
net loss
|
|
|
13,794
|
|
|
|
|
|
|
|
|
|
|
|
869
|
|
|
|
686
|
|
|
|
991
|
|
|
Net periodic
cost (benefit)
|
|
|
24,297
|
|
|
|
3,295
|
|
|
|
959
|
|
|
|
1,577
|
|
|
|
1,525
|
|
|
|
2,040
|
|
Settlement (gain) loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
|
|
Curtailment loss (gain)
|
|
|
820
|
|
|
|
|
|
|
|
(247
|
)
|
|
|
(340
|
)
|
|
|
|
|
|
|
(258
|
)
|
|
Total cost
|
|
$
|
25,117
|
|
|
$
|
3,295
|
|
|
$
|
712
|
|
|
$
|
1,237
|
|
|
$
|
1,501
|
|
|
$
|
1,782
|
|
|
During 2010, the Corporation expects to contribute $3.1 million to the pension plans and $48
thousand to the benefit restoration plans.
The following benefit payments are expected to be paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
|
(In thousands)
|
|
Pension
|
|
Restoration Plans
|
|
2010
|
|
$
|
42,868
|
|
|
$
|
697
|
|
2011
|
|
|
29,719
|
|
|
|
908
|
|
2012
|
|
|
30,785
|
|
|
|
1,111
|
|
2013
|
|
|
31,844
|
|
|
|
1,280
|
|
2014
|
|
|
32,832
|
|
|
|
1,449
|
|
2015 - 2019
|
|
|
177,634
|
|
|
|
9,763
|
|
|
Postretirement health care benefits
In addition to providing pension benefits, BPPR provides certain health care benefits for retired
employees. Regular employees of BPPR, except for employees hired after February 1, 2000, may become
eligible for health care benefits, provided they reach retirement age while working for BPPR.
The amounts in accumulated other comprehensive loss that are expected to be recognized as
components of net periodic benefit cost for the postretirement health care benefit plan during 2010
are as follows:
|
|
|
|
|
(In thousands)
|
|
2010
|
|
Net prior service cost (credit)
|
|
$
|
(1,046
|
)
|
Net loss
|
|
|
(1,175
|
)
|
|
145
The status of the Corporations unfunded postretirement benefit plan at December 31, was as
follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning
of the year
|
|
$
|
135,943
|
|
|
$
|
126,046
|
|
Service cost
|
|
|
2,195
|
|
|
|
2,142
|
|
Interest cost
|
|
|
8,105
|
|
|
|
8,219
|
|
Benefits paid
|
|
|
(5,031
|
)
|
|
|
(5,910
|
)
|
Actuarial loss (gain)
|
|
|
(29,584
|
)
|
|
|
5,446
|
|
|
Benefit obligation at end of year
|
|
$
|
111,628
|
|
|
$
|
135,943
|
|
|
Funded status at end of year:
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
(111,628
|
)
|
|
$
|
(135,943
|
)
|
Fair value of plan assets
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(111,628
|
)
|
|
$
|
(135,943
|
)
|
|
Amounts recognized in
accumulated other
comprehensive loss:
|
|
|
|
|
|
|
|
|
Net prior service cost
|
|
$
|
(2,207
|
)
|
|
$
|
(3,253
|
)
|
Net (gain) loss
|
|
|
(23,061
|
)
|
|
|
6,522
|
|
|
Accumulated other
comprehensive loss ( income)
|
|
$
|
(25,268
|
)
|
|
$
|
3,269
|
|
|
Reconciliation of net (liability) / asset:
|
|
|
|
|
|
|
|
|
Net (liability) / asset at beginning of year
|
|
$
|
(135,943
|
)
|
|
$
|
(126,046
|
)
|
Amount recognized in accumulated other
comprehensive loss at beginning of year,
pre-tax
|
|
|
3,269
|
|
|
|
(3,223
|
)
|
|
(Accrual) / prepaid at beginning of year
|
|
|
(132,674
|
)
|
|
|
(129,269
|
)
|
Net periodic benefit (cost) / income
|
|
|
(9,254
|
)
|
|
|
(9,315
|
)
|
Contributions
|
|
|
5,031
|
|
|
|
5,910
|
|
|
(Accrual) / prepaid at end of year
|
|
|
(136,897
|
)
|
|
|
(132,674
|
)
|
Amount recognized in accumulated other
comprehensive (loss) income
|
|
|
25,268
|
|
|
|
(3,269
|
)
|
|
Net (liability) / asset at end of year
|
|
$
|
(111,629
|
)
|
|
$
|
(135,943
|
)
|
|
Of the total postretirement liabilities as of December 31, 2009, approximately $5.2 million were
considered current liabilities (2008 $6.1 million).
The change in accumulated other comprehensive income, pre-tax for the postretirement plan was as
follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
Accumulated other comprehensive (income) loss at beginning
of year
|
|
$
|
3,269
|
|
|
$
|
(3,223
|
)
|
Increase (decrease) in accumulated other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
Recognized during the year:
|
|
|
|
|
|
|
|
|
Prior service (cost) / credit
|
|
|
1,046
|
|
|
|
1,046
|
|
Ocurring during the year:
|
|
|
|
|
|
|
|
|
Net actuarial losses (gains)
|
|
|
(29,583
|
)
|
|
|
5,446
|
|
|
Total decrease in accumulated other comprehensive loss
|
|
$
|
(28,537
|
)
|
|
|
6,492
|
|
|
Accumulated other comprehensive loss (income) at end of year
|
|
$
|
(25,268
|
)
|
|
$
|
3,269
|
|
|
The weighted average discount rate used in determining the accumulated postretirement benefit
obligation at December 31,
2009 was 5.90% (2008 6.10%).
The weighted average discount rate used to determine the components of net periodic postretirement
benefit cost for the year ended December 31, 2009 was 6.10% (2008 6.40%; 2007 5.75%).
The components of net periodic postretirement benefit cost for the year ended December 31, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Service cost
|
|
$
|
2,195
|
|
|
$
|
2,142
|
|
|
$
|
2,312
|
|
Interest cost
|
|
|
8,105
|
|
|
|
8,219
|
|
|
|
7,556
|
|
Amortization of prior service benefit
|
|
|
(1,046
|
)
|
|
|
(1,046
|
)
|
|
|
(1,046
|
)
|
|
Total net periodic benefit cost
|
|
$
|
9,254
|
|
|
$
|
9,315
|
|
|
$
|
8,822
|
|
|
The assumed health care cost trend rates at December 31, were as follows:
|
|
|
|
|
|
|
|
|
To determine postretirement benefit obligation:
|
|
2009
|
|
|
2008
|
|
|
Initial health care cost trend rate
|
|
|
7.00
|
%
|
|
|
7.50
|
%
|
Ultimate health care cost trend rate
|
|
|
5.00
|
|
|
|
5.00
|
|
Year that the ultimate trend
rate is reached
|
|
|
2014
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
To determine net periodic benefit cost:
|
|
2009
|
|
|
2008
|
|
|
Initial health care cost trend rate
|
|
|
7.50
|
%
|
|
|
8.00
|
%
|
Ultimate health care cost trend rate
|
|
|
5.00
|
|
|
|
5.00
|
|
Year that the ultimate trend
rate is reached
|
|
|
2014
|
|
|
|
2011
|
|
|
The Plan provides that the cost will be capped to 3% of the annual health care cost increase
affecting only those employees retiring after February 1, 2001.
Assumed health care trend rates generally have a significant effect on the amounts reported for a
health care plan. A one-percentage-point change in assumed health care cost trend rates would have
the following effects:
|
|
|
|
|
|
|
|
|
|
|
1-Percentage
|
|
|
1-Percentage
|
|
(In thousands)
|
|
Point Increase
|
|
|
Point Decrease
|
|
|
Effect on total service cost and
interest cost components
|
|
$
|
414
|
|
|
$
|
(366
|
)
|
Effect on postretirement
benefit obligation
|
|
|
6,880
|
|
|
|
(9,172
|
)
|
|
The Corporation expects to contribute $5.2 million to the postretirement benefit plan in 2010 to
fund current benefit payment requirements.
146 POPULAR, INC. 2009 ANNUAL REPORT
The following benefit payments are expected to be paid:
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
2010
|
|
$
|
5,165
|
|
2011
|
|
|
5,397
|
|
2012
|
|
|
5,589
|
|
2013
|
|
|
5,791
|
|
2014
|
|
|
6,067
|
|
2015 - 2019
|
|
|
34,580
|
|
|
Savings plans
The Corporation also provides defined contribution savings plans pursuant to Section 1165(e) of the
Puerto Rico Internal Revenue Code and Section 401(k) of the U.S. Internal Revenue Code, as
applicable, for substantially all the employees of the Corporation. Investments in the plans are
participant-directed, and employer matching contributions are determined based on the specific
provisions of each plan. Employees are fully vested in the employers contribution after five years
of service. Effective March 20, 2009, the savings plans were amended to suspend the employer
matching contribution to the plan. The cost of providing these benefits in 2009 was $2.9 million
(2008 $18.8 million; 2007 $17.4 million).
The plans held 22,239,167 (2008 17,254,175; 2007 14,972,919) shares of common stock of the
Corporation with a market value of approximately $50.3 million at December 31, 2009 (2008 $89.0
million; 2007 $158.7 million).
Note 28 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 as of December 31, 2009 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 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 at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
Average
|
|
|
|
|
|
Average
|
Exercise
|
|
|
|
|
|
Exercise
|
|
Remaining
|
|
|
|
|
|
Exercise
|
Price
|
|
|
|
|
|
Price of
|
|
Life of Options
|
|
Options
|
|
Price of
|
Range
|
|
Options
|
|
Options
|
|
Outstanding
|
|
Exercisable
|
|
Options
|
per Share
|
|
Outstanding
|
|
Outstanding
|
|
in Years
|
|
(fully vested)
|
|
Exercisable
|
|
$14.39 - $18.50
|
|
|
1,245,277
|
|
|
$
|
15.85
|
|
|
|
2.75
|
|
|
|
1,245,277
|
|
|
$
|
15.85
|
|
$19.25 - $27.20
|
|
|
1,307,386
|
|
|
$
|
25.21
|
|
|
|
4.48
|
|
|
|
1,220,999
|
|
|
$
|
25.07
|
|
|
$14.39 - $27.20
|
|
|
2,552,663
|
|
|
$
|
20.64
|
|
|
|
3.63
|
|
|
|
2,466,276
|
|
|
$
|
20.41
|
|
|
The aggregate intrinsic value of options outstanding as of December 31, 2009 was $0.2 million (2008
- $1.6 million; 2007 $7.3 million). There was no intrinsic value of options exercisable at
December 31, 2009, 2008 and 2007.
The following table summarizes the stock option activity and related information:
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted-Average
|
|
|
Outstanding
|
|
Exercise Price
|
|
Outstanding at January 1, 2007
|
|
|
3,144,799
|
|
|
$
|
20.65
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(10,064
|
)
|
|
|
15.83
|
|
Forfeited
|
|
|
(19,063
|
)
|
|
|
25.50
|
|
Expired
|
|
|
(23,480
|
)
|
|
|
20.08
|
|
|
Outstanding at December 31, 2007
|
|
|
3,092,192
|
|
|
$
|
20.64
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(40,842
|
)
|
|
|
26.29
|
|
Expired
|
|
|
(85,507
|
)
|
|
|
19.67
|
|
|
Outstanding at December 31, 2008
|
|
|
2,965,843
|
|
|
$
|
20.59
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(59,631
|
)
|
|
|
26.42
|
|
Expired
|
|
|
(353,549
|
)
|
|
|
19.25
|
|
|
Outstanding at December 31, 2009
|
|
|
2,552,663
|
|
|
$
|
20.64
|
|
|
The stock options exercisable at December 31, 2009 totaled 2,466,276 (2008 2,653,114; 2007 -
2,402,481). There were no stock options exercised during the years ended December 31, 2009 and 2008
(2007 10,064). Thus, there was no intrinsic value of options exercised during the years ended
December 31, 2009 and 2008 (2007 $28 thousand). There was no cash received from stock options
exercised during the years ended December 31, 2009 and 2008 (2007 $0.2 million)
There were no new
stock option grants issued by the Corporation under the Stock Option Plan during 2009, 2008
and 2007.
147
During the year ended December 31, 2009, the Corporation recognized $0.2 million in stock options
expense, with a tax benefit of $92 thousand (2008 $1.1 million, with a tax benefit of $0.4
million; 2007 $1.8 million, with a tax benefit of $0.7 million).
Incentive Plan
The Incentive Plan permits the granting of incentive awards in the form of Annual Incentive Awards,
Long-term Performance Unit Awards, Stock 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 restricted shares, which become vested based
on the employees continued service with Popular. Unless otherwise stated in an agreement, the
compensation cost associated with the shares of restricted stock is determined based on a two-prong
vesting schedule. 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.
The following table summarizes the restricted stock activity under the Incentive Plan for members
of management:
|
|
|
|
|
|
|
|
|
|
|
Restricted
|
|
Weighted-Average
|
|
|
Stock
|
|
Grant Date Fair Value
|
|
Nonvested at January 1, 2007
|
|
|
611,470
|
|
|
$
|
22.55
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(304,003
|
)
|
|
|
22.76
|
|
Forfeited
|
|
|
(3,781
|
)
|
|
|
19.95
|
|
|
Nonvested at December 31, 2007
|
|
|
303,686
|
|
|
$
|
22.37
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(50,648
|
)
|
|
|
20.33
|
|
Forfeited
|
|
|
(4,699
|
)
|
|
|
19.95
|
|
|
Nonvested at December 31, 2008
|
|
|
248,339
|
|
|
$
|
22.83
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(104,791
|
)
|
|
|
21.93
|
|
Forfeited
|
|
|
(5,036
|
)
|
|
|
19.95
|
|
|
Nonvested at December 31, 2009
|
|
|
138,512
|
|
|
$
|
23.62
|
|
|
During the years ended December 31, 2009, 2008 and 2007, no shares of restricted stock were awarded
to management under the Incentive Plan.
Beginning in 2007, the Corporation authorized the issuance of performance shares, in addition to
restricted shares, under the Incentive Plan. The performance shares award consists of the
opportunity to receive shares of Popular Inc.s common stock
provided that the Corporation achieves
certain performance goals during a three-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, except when the participants employment is terminated by the Corporation without cause. In
such case, the participant will receive a pro-rata amount of shares calculated as if the
Corporation would have met the performance goal for the performance period. As of December 31,
2009, 35,397 shares have been granted under this plan (2008 7,106).
During the year ended December 31, 2009, the Corporation recognized $1.5 million of restricted
stock expense related to management incentive awards, with a tax benefit of $0.6 million (2008 -
$2.2 million, with a tax benefit of $0.9 million; 2007 $2.4 million, with a tax benefit of $0.9
million). The fair market value of the restricted stock vested was $1.8 million at grant date and
$0.3 million at vesting date. This triggers a shortfall of $1.5 million that was recorded as an
additional income tax expense at the applicable income tax rate net of deferred tax asset valuation
allowance since the Corporation does not have any surplus due to windfalls. During the year ended
December 31, 2009, the Corporation recognized $0.6 million of performance shares expense, with a
tax benefit of $0.1 million (2008 $0.9 million, with a tax benefit of $0.4 million). The total
unrecognized compensation cost related to non-vested restricted stock awards and performance shares
to members of management as of December 31, 2009 was $5.0 million and is expected to be recognized
over a weighted-average period of 2.32 years.
The following table summarizes the restricted stock activity under the Incentive Plan for members
of the Board of Directors:
|
|
|
|
|
|
|
|
|
|
|
Restricted
|
|
Weighted-Average
|
|
|
Stock
|
|
Grant Date Fair Value
|
|
Non-vested at January 1, 2007
|
|
|
76,614
|
|
|
$
|
22.02
|
|
Granted
|
|
|
38,427
|
|
|
|
15.89
|
|
Vested
|
|
|
(115,041
|
)
|
|
|
19.97
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2007
|
|
|
|
|
|
|
|
|
Granted
|
|
|
56,025
|
|
|
$
|
10.75
|
|
Vested
|
|
|
(56,025
|
)
|
|
|
10.75
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2008
|
|
|
|
|
|
|
|
|
Granted
|
|
|
270,515
|
|
|
$
|
2.62
|
|
Vested
|
|
|
(270,515
|
)
|
|
|
2.62
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2009
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2009, the Corporation granted 270,515 (2008 56,025; 2007 -
38,427) shares of
148 POPULAR, INC. 2009 ANNUAL REPORT
restricted stock to members of the Board of Directors of Popular, Inc. and BPPR, which became
vested at grant date. During this period, the Corporation recognized $0.5 million of restricted
stock expense related to these restricted stock grants, with a tax benefit of $0.2 million (2008 -
$0.5 million, with a tax benefit of $0.2 million; 2007 $0.5 million, with a tax benefit of $0.2
million). The fair value at vesting date of the restricted stock vested during the year ended
December 31, 2009 for directors was $0.7 million.
Note 29 Rental expense and commitments:
At
December 31, 2009, the Corporation was obligated under a number of non-cancelable leases for
land, buildings, and equipment which require rentals (net of related sublease rentals) as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
Sublease
|
|
|
Year
|
|
payments
|
|
rentals
|
|
Net
|
|
|
(In thousands)
|
|
|
|
|
2010
|
|
$
|
39,001
|
|
|
$
|
1,184
|
|
|
$
|
37,817
|
|
2011
|
|
|
35,136
|
|
|
|
741
|
|
|
|
34,395
|
|
2012
|
|
|
33,615
|
|
|
|
701
|
|
|
|
32,914
|
|
2013
|
|
|
31,678
|
|
|
|
701
|
|
|
|
30,977
|
|
2014
|
|
|
28,380
|
|
|
|
581
|
|
|
|
27,799
|
|
Later years
|
|
|
193,446
|
|
|
|
913
|
|
|
|
192,533
|
|
|
|
|
$
|
361,256
|
|
|
$
|
4,821
|
|
|
$
|
356,435
|
|
|
Total rental expense for the year ended December 31, 2009 was $65.6 million (2008 $79.5 million;
2007 $71.1 million), which is included in net occupancy, equipment and communication expenses,
according to their nature.
Note 30 Income tax:
The components of income tax expense for the continuing operations for the years ended December 31,
are summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current income tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico
|
|
$
|
75,368
|
|
|
$
|
91,609
|
|
|
$
|
157,436
|
|
Federal and States
|
|
|
3,012
|
|
|
|
5,106
|
|
|
|
7,302
|
|
|
Subtotal
|
|
|
78,380
|
|
|
|
96,715
|
|
|
|
164,738
|
|
|
Deferred income tax (benefit) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico
|
|
|
(67,098
|
)
|
|
|
(70,403
|
)
|
|
|
(11,982
|
)
|
Federal and States
|
|
|
(19,584
|
)
|
|
|
2,507
|
|
|
|
(62,592
|
)
|
Valuation allowance initial
recognition
|
|
|
|
|
|
|
432,715
|
|
|
|
|
|
|
Subtotal
|
|
|
(86,682
|
)
|
|
|
364,819
|
|
|
|
(74,574
|
)
|
|
Total income tax (benefit) expense
|
|
$
|
(8,302
|
)
|
|
$
|
461,534
|
|
|
$
|
90,164
|
|
|
The reasons for the difference between the income tax (benefit) expense applicable to income before
provision for income taxes and the amount computed by applying the statutory tax rate in Puerto
Rico, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
pre-tax
|
|
|
|
|
|
pre-tax
|
|
|
|
|
|
pre-tax
|
(Dollars in thousands)
|
|
Amount
|
|
loss
|
|
Amount
|
|
income
|
|
Amount
|
|
income
|
|
Computed income tax at
statutory rates
|
|
$
|
(230,241
|
)
|
|
|
41
|
%
|
|
$
|
(85,384
|
)
|
|
|
39
|
%
|
|
$
|
114,142
|
|
|
|
39
|
%
|
Benefits of net tax exempt
interest income
|
|
|
(50,261
|
)
|
|
|
9
|
|
|
|
(62,600
|
)
|
|
|
29
|
|
|
|
(60,304
|
)
|
|
|
(21
|
)
|
Effect of income subject
to capital gain tax rate
|
|
|
(59,843
|
)
|
|
|
10
|
|
|
|
(17,905
|
)
|
|
|
8
|
|
|
|
(24,555
|
)
|
|
|
(9
|
)
|
Non deductible goodwill
impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,544
|
|
|
|
20
|
|
Deferred tax asset valuation
allowance
|
|
|
282,933
|
|
|
|
(50
|
)
|
|
|
643,011
|
|
|
|
(294
|
)
|
|
|
|
|
|
|
|
|
Adjustment
in deferred tax due to change in tax rate
|
|
|
(12,351
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Difference in tax rates due
to multiple jurisdictions
|
|
|
40,625
|
|
|
|
(7
|
)
|
|
|
16,398
|
|
|
|
(8
|
)
|
|
|
10,391
|
|
|
|
4
|
|
States taxes
and other
|
|
|
20,836
|
|
|
|
(4
|
)
|
|
|
(31,986
|
)
|
|
|
15
|
|
|
|
(7,054
|
)
|
|
|
(2
|
)
|
|
Income tax (benefit)
expense
|
|
$
|
(8,302
|
)
|
|
|
1
|
%
|
|
$
|
461,534
|
|
|
|
(211
|
%)
|
|
$
|
90,164
|
|
|
|
31
|
%
|
|
149
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and their tax bases. Significant
components of the Corporations deferred tax assets and liabilities at December 31, were as
follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Tax credits available for carryforward
|
|
$
|
11,026
|
|
|
$
|
74,676
|
|
Net operating loss and donation
carryforward available
|
|
|
843,968
|
|
|
|
670,326
|
|
Postretirement and pension benefits
|
|
|
103,979
|
|
|
|
149,027
|
|
Fair value option
|
|
|
|
|
|
|
13,132
|
|
Deferred loan origination fees
|
|
|
7,880
|
|
|
|
8,603
|
|
Allowance for loan losses
|
|
|
536,277
|
|
|
|
368,690
|
|
Deferred gains
|
|
|
14,040
|
|
|
|
18,307
|
|
Accelerated depreciation
|
|
|
2,418
|
|
|
|
|
|
Intercompany deferred gains
|
|
|
7,015
|
|
|
|
11,263
|
|
Other temporary differences
|
|
|
39,096
|
|
|
|
37,951
|
|
|
Total gross deferred tax assets
|
|
|
1,565,699
|
|
|
|
1,351,975
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Differences between the assigned
values and the tax bases of assets
and liabilities recognized in purchase
business combinations
|
|
|
25,896
|
|
|
|
21,017
|
|
Unrealized net gain on trading and
available-for-sale securities
|
|
|
30,323
|
|
|
|
78,761
|
|
Deferred loan origination costs
|
|
|
9,708
|
|
|
|
11,228
|
|
Accelerated depreciation
|
|
|
|
|
|
|
9,348
|
|
Other temporary differences
|
|
|
5,923
|
|
|
|
13,232
|
|
|
Total gross deferred tax liabilities
|
|
|
71,850
|
|
|
|
133,586
|
|
|
Valuation allowance
|
|
|
1,129,882
|
|
|
|
861,018
|
|
|
Net deferred tax asset
|
|
$
|
363,967
|
|
|
$
|
357,371
|
|
|
The net deferred tax asset shown in the table above at December 31, 2009 is reflected in the
consolidated statements of condition as $364 million in net deferred tax assets (in the other
assets caption) (2008 $357.5 million in deferred tax asset in the other assets caption and
$136 thousand in deferred tax liabilities in the other liabilities caption), reflecting the
aggregate deferred tax assets or liabilities of individual tax-paying subsidiaries of the
Corporation.
At December 31, 2009, the Corporation had total tax credits of $11 million that will reduce the
regular income tax liability in future years expiring in annual installments through the year 2015.
The deferred tax asset related to the net operating loss carryforwards (NOLs) outstanding at
December 31, 2009 expires as follows:
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
2013
|
|
$
|
1,736
|
|
2014
|
|
|
1,553
|
|
2015
|
|
|
2,354
|
|
2016
|
|
|
7,559
|
|
2017
|
|
|
8,542
|
|
2018
|
|
|
14,640
|
|
2019
|
|
|
1
|
|
2021
|
|
|
76
|
|
2022
|
|
|
971
|
|
2023
|
|
|
1,248
|
|
2027
|
|
|
77,423
|
|
2028
|
|
|
517,265
|
|
2029
|
|
|
210,600
|
|
|
|
|
$
|
843,968
|
|
|
A deferred tax asset should be reduced by a valuation allowance if based on the weight of all
available evidence, it is more likely than not (a likelihood of more than 50%) that some portion or
the entire deferred tax asset will not be realized. The valuation allowance should be sufficient to
reduce the deferred tax asset to the amount that is more likely than not to be realized. The
determination of whether a deferred tax asset is realizable is based on weighting all available
evidence, including both positive and negative evidence. The realization of deferred tax assets,
including carryforwards and deductible temporary differences, depends upon the existence of
sufficient taxable income of the same character during the carryback or carryforward period. The
analysis considers all sources of taxable income available to realize the deferred tax asset,
including the future reversal of existing taxable temporary differences, future taxable income
exclusive of reversing temporary differences and carryforwards, taxable income in prior carryback
years and tax-planning strategies.
The Corporations U.S. mainland operations are in a cumulative loss position for the three-year
period ended December 31, 2009. For purposes of assessing the realization of the deferred tax
assets in the U.S. mainland, this cumulative taxable loss position is considered significant
negative evidence and has caused management to conclude that the Corporation will not be able to
realize the associated deferred tax assets in the future. At December 31, 2009, the Corporation
recorded a valuation allowance of $1.1 billion on the deferred tax assets of its U.S. operations.
At December 31, 2009, the Corporations deferred tax assets related to its Puerto Rico operations
amounted to $382 million. The Corporation assessed the realization of the Puerto Rico portion of
the net deferred tax asset and based on the weighting of all available evidence has concluded that
it is more likely than not that such net deferred tax assets will be realized.
Management reassesses the realization of the deferred tax assets
150 POPULAR, INC. 2009 ANNUAL REPORT
each reporting period.
Under the Puerto Rico Internal Revenue Code, the Corporation and its subsidiaries are treated as
separate taxable entities and are not entitled to file consolidated tax returns. The Code provides
a dividends-received deduction of 100% on dividends received from controlled subsidiaries subject
to taxation in Puerto Rico and 85% on dividends received from other taxable domestic corporations.
The
Corporations federal income tax (benefit) provision for 2009 was ($12.9) million (2008 -
$436.9 million; 2007 ($196.5) million). The intercompany settlement of taxes paid is based on tax
sharing agreements which generally allocate taxes to each entity based on a separate return basis.
The reconciliation of unrecognized tax benefits was as follows:
|
|
|
|
|
(In millions)
|
|
Total
|
|
Balance at January 1, 2008
|
|
$
|
19.3
|
|
Additions for tax positions related to 2008
|
|
|
11.1
|
|
Additions for tax positions of prior years
|
|
|
10.1
|
|
|
Balance at December 31, 2008
|
|
$
|
40.5
|
|
Additions for tax positions related to 2009
|
|
|
3.7
|
|
Reductions for tax positions of prior years
|
|
|
(0.6
|
)
|
Reductions by lapse of statute of limitations
|
|
|
(1.8
|
)
|
|
Balance at December 31, 2009
|
|
$
|
41.8
|
|
|
At December 31, 2009, the related accrued interest approximated $7.2 million (2008 $4.7 million).
The interest expense recognized during 2009 was $2.5 million (2008 $1.8 million). Management
determined that, as of December 31, 2009, there was 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 operations.
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 $47.1 million at December 31,
2009 (2008 $43.7 million).
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 statute of limitations, 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
December 31, 2009, the following years remain subject to examination: U.S. Federal jurisdiction -
2007 through 2009 and Puerto Rico 2005 through 2009. During
2009, the U.S. Internal Revenue
Service (IRS) began the examination of the Corporations U.S. operations tax returns for 2007.
That examination is expected to be finished during 2010. 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. As a result of
examinations, the Corporation anticipates a reduction in the total amount of unrecognized tax
benefits within the next 12 months, which could amount to approximately $15 million.
Note 31 Derivative instruments and hedging activities:
The following discussion and tables provide a description of the derivative instruments used as
part of the Corporations interest rate risk management strategies. The use of derivatives is
incorporated as part of the Corporations overall interest rate risk management strategy to
minimize significant unplanned fluctuations in earnings and cash flows that are caused by interest
rate volatility. The Corporations goal is to manage interest rate sensitivity by modifying the
repricing or maturity characteristics of certain balance sheet assets and liabilities so that the
net interest income is not, on a material basis, adversely affected by movements in interest rates.
The Corporation uses derivatives in its trading activities to facilitate customer transactions, to
take proprietary positions and as means of risk management. As a result of interest rate fluctuations, hedged fixed and variable interest rate assets and liabilities will appreciate or
depreciate in fair value. The effect of this unrealized appreciation or depreciation is expected to
be substantially offset by the Corporations gains or losses on the derivative instruments that are
linked to these hedged assets and liabilities. As a matter of policy, the Corporation does not use
highly leveraged derivative instruments for interest rate risk management.
By using derivative instruments, the Corporation exposes itself to credit and market risk. If a
counterparty fails to fulfill its performance obligations under a derivative contract, the
Corporations credit risk will equal the fair value of the derivative asset. Generally, when the
fair value of a derivative contract is positive, this indicates that the counterparty owes the
Corporation, thus creating a repayment risk for the Corporation. To manage the level of credit
risk, the Corporation deals with counterparties of good credit standing, enters into master netting
agreements whenever possible and, when appropriate, obtains collateral. The derivative assets
include a $5.1 million negative adjustment (2008 $7.1 million) as a result of the credit risk of
the counterparties at December 31, 2009. In the other hand, when the fair value of a derivative
contract is negative, the Corporation owes the counterparty and, therefore, the fair value of
derivatives liabilities incorporates nonperformance risk or the risk that the obligation will not
be fulfilled. The derivative liabilities include a $2.1
151
million positive adjustment (2008 $8.9 million) related to the incorporation of the Corporations
own credit risk at December 31, 2009.
Market risk is the adverse effect that a change in interest rates, currency exchange rates, or
implied volatility rates might have on the value of a financial instrument. The Corporation manages
the market risk associated with interest rates and, to a limited extent, with fluctuations in
foreign currency exchange rates by establishing and monitoring limits for the types and degree of
risk that may be undertaken. The Corporation regularly measures this risk by using static gap
analysis, simulations and duration analysis.
The derivatives fair values are not offset with the amounts for the right to reclaim cash
collateral or the obligation to return cash collateral pursuant to the Corporations accounting
policies. At December 31, 2009, the amount recognized for the right to reclaim cash collateral
under master netting agreements was $88 million and the amount recognized for the obligation to
return cash collateral was $4 million.
Certain of the Corporations derivative instruments include financial covenants tied to the
corresponding banking subsidiary well-capitalized status and credit rating. These agreements could
require exposure collateralization, early termination or both. The aggregate fair value of all
derivative instruments with contingent features that were in a liability position at December 31,
2009 was $66 million. Based on the contractual obligations established on these derivative
instruments, the Corporation has fully collateralized these positions by pledging collateral of $88
million at December 31, 2009.
Financial instruments designated as cash flow hedges or non-hedging derivatives outstanding at
December 31, 2009 and December 31, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
|
|
|
|
|
Statement of
|
|
|
|
|
|
Statement of
|
|
|
|
|
Notional
|
|
Condition
|
|
Fair
|
|
Condition
|
|
Fair
|
(In thousands)
|
|
Amount
|
|
Classification
|
|
Value
|
|
Classification
|
|
Value
|
|
Derivatives designated as
hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward commitments
|
|
$
|
120,800
|
|
|
Other assets
|
|
$
|
1,346
|
|
|
Other liabilities
|
|
$
|
22
|
|
|
Total derivatives designated
as hedging instruments
|
|
$
|
120,800
|
|
|
|
|
|
|
$
|
1,346
|
|
|
|
|
|
|
$
|
22
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
$
|
165,300
|
|
|
Trading account securities
|
|
$
|
1,253
|
|
|
Other liabilities
|
|
$
|
79
|
|
Interest rate swaps
associated with:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- swaps with corporate
clients
|
|
|
1,006,154
|
|
|
Other assets
|
|
|
63,120
|
|
|
Other liabilities
|
|
|
131
|
|
- swaps offsetting position
of corporate clients swaps
|
|
|
1,006,154
|
|
|
Other assets
|
|
|
131
|
|
|
Other liabilities
|
|
|
67,358
|
|
Interest rate caps and floors
|
|
|
139,859
|
|
|
Other assets
|
|
|
249
|
|
|
|
|
|
|
|
|
|
Interest rate caps and floors for
the benefit of corporate clients
|
|
|
139,859
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
249
|
|
Index options on deposits
|
|
|
110,900
|
|
|
Other assets
|
|
|
6,976
|
|
|
|
|
|
|
|
|
|
Bifurcated embedded options
|
|
|
84,316
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits
|
|
|
5,402
|
|
|
Total derivatives not
designated as
hedging instruments
|
|
$
|
2,652,542
|
|
|
|
|
|
|
$
|
71,729
|
|
|
|
|
|
|
$
|
73,219
|
|
|
Total derivative assets
and liabilities
|
|
$
|
2,773,342
|
|
|
|
|
|
|
$
|
73,075
|
|
|
|
|
|
|
$
|
73,241
|
|
|
152 POPULAR, INC. 2009 ANNUAL REPORT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008
|
|
|
Derivative Assets
|
|
|
|
|
|
Derivative Liabilities
|
|
|
|
|
|
|
Statement of
|
|
|
|
|
|
Statement of
|
|
|
|
|
Notional
|
|
Condition
|
|
Fair
|
|
Condition
|
|
Fair
|
(In thousands)
|
|
Amount
|
|
Classification
|
|
Value
|
|
Classification
|
|
Value
|
|
Derivatives designated as
hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward commitments
|
|
$
|
112,500
|
|
|
Other assets
|
|
$
|
6
|
|
|
Other liabilities
|
|
$
|
2,255
|
|
Interest rate swaps
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
2,380
|
|
|
Total derivatives designated
as hedging instruments
|
|
$
|
312,500
|
|
|
|
|
|
|
$
|
6
|
|
|
|
|
|
|
$
|
4,635
|
|
|
Derivatives not designated as
hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
$
|
272,301
|
|
|
Other assets
|
|
$
|
38
|
|
|
Other liabilities
|
|
$
|
4,733
|
|
Interest rate swaps
associated with:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
swaps with corporate
clients
|
|
|
1,038,908
|
|
|
Other assets
|
|
|
100,668
|
|
|
|
|
|
|
|
|
|
swaps offsetting
position of corporate
clients swaps
|
|
|
1,038,908
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
98,437
|
|
Foreign currency and
exchange rate commitments
with clients
|
|
|
377
|
|
|
Other assets
|
|
|
18
|
|
|
Other liabilities
|
|
|
15
|
|
Foreign currency and
exchange rate commitments
with counterparty
|
|
|
373
|
|
|
Other assets
|
|
|
16
|
|
|
Other liabilities
|
|
|
16
|
|
Interest rate caps
|
|
|
128,284
|
|
|
Other assets
|
|
|
89
|
|
|
|
|
|
|
|
|
|
Interest rate caps for the
benefit of corporate clients
|
|
|
128,284
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
89
|
|
Index options on deposits
|
|
|
208,557
|
|
|
Other assets
|
|
|
8,821
|
|
|
|
|
|
|
|
|
|
Bifurcated embedded options
|
|
|
178,608
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits
|
|
|
8,584
|
|
|
Total derivatives not
designated as
hedging instruments
|
|
$
|
2,994,600
|
|
|
|
|
|
|
$
|
109,650
|
|
|
|
|
|
|
$
|
111,874
|
|
|
Total derivative assets
and liabilities
|
|
$
|
3,307,100
|
|
|
|
|
|
|
$
|
109,656
|
|
|
|
|
|
|
$
|
116,509
|
|
|
The Corporation utilizes forward contracts to
hedge the sale of mortgage-backed securities with
duration terms over one month. Interest rate forwards
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 hedging a forecasted transaction
and thus qualify for cash flow hedge accounting.
Changes in the fair value of the derivatives are
recorded in other comprehensive income (loss). The
amount included in accumulated other comprehensive
income (loss) corresponding to these forward contracts
is expected to be reclassified to earnings in the next
twelve months. These contracts have a maximum remaining
maturity of 77 days at December 31, 2009.
For cash flow hedges, gains and losses on derivative contracts
that are reclassified from accumulated other
comprehensive income (loss) to current period earnings
are included in the line item in which the hedged item
is recorded and in the same period in which the
forecasted transaction affects earnings, as presented
in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
|
Amount of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of gain (loss)
|
|
gain (loss)
|
|
|
|
|
|
|
Classification
|
|
|
|
|
|
recognized in
|
|
recognized in
|
|
|
|
|
|
|
in the
|
|
|
|
|
|
income on
|
|
income on
|
|
|
Amount of
|
|
statement of
|
|
Amount of
|
|
derivatives
|
|
derivatives
|
|
|
gain (loss)
|
|
operations of
|
|
gain (loss)
|
|
(ineffective
|
|
(ineffective
|
|
|
recognized in
|
|
the gain
|
|
reclassified
|
|
portion and
|
|
portion and
|
|
|
OCI on
|
|
(loss) reclassified
|
|
from AOCI
|
|
amount
|
|
amount
|
|
|
derivatives
|
|
from AOCI into
|
|
into income
|
|
excluded from
|
|
excluded from
|
|
|
(effective
|
|
income (effective
|
|
(effective
|
|
effectiveness
|
|
effectiveness
|
(In thousands)
|
|
portion)
|
|
portion)
|
|
portion)
|
|
testing)
|
|
testing)
|
|
Forward commitments
|
|
$
|
(1,419
|
)
|
|
Trading account profit
|
|
$
|
(4,535
|
)
|
|
Trading account profit
|
|
$
|
125
|
|
Interest rate swaps
|
|
|
|
|
|
Interest expense
|
|
|
(2,380
|
)
|
|
|
|
|
|
|
|
|
|
Total cash flow hedges
|
|
$
|
(1,419
|
)
|
|
|
|
|
|
$
|
(6,915
|
)
|
|
|
|
|
|
$
|
125
|
|
|
|
|
|
OCI Other Comprehensive Income
|
|
AOCI Accumulated Other Comprehensive Income
|
|
Fair Value Hedges
At December 31, 2009 and 2008, there were no
derivatives designated as fair value hedges.
Non-Hedging Activities
For the year ended December 31, 2009, the
Corporation recognized a loss of $19.5 million related
to its non-hedging derivatives, as detailed in the
table below.
|
|
|
|
|
|
|
|
|
|
|
Classification of gain
|
|
Amount of gain
|
|
|
(loss) recognized in
|
|
(loss) recognized in
|
(In thousands)
|
|
income on derivatives
|
|
income on derivatives
|
|
Forward contracts
|
|
Trading account profit
|
|
$
|
(12,485
|
)
|
Interest rate swap contracts
|
|
Other operating income
|
|
|
(6,468
|
)
|
Credit derivatives
|
|
Other operating income
|
|
|
(2,599
|
)
|
Foreign currency and
exchange rate commitments
|
|
Interest expense
|
|
|
(4
|
)
|
Foreign currency and
|
|
|
|
|
|
|
|
|
exchange rate commitments
|
|
Other operating income
|
|
|
25
|
|
Indexed options
|
|
Interest expense
|
|
|
1,209
|
|
Bifurcated embedded options
|
|
Interest expense
|
|
|
788
|
|
|
Total
|
|
|
|
|
|
$
|
(19,534
|
)
|
|
Forward Contracts
The Corporation has forward contracts to sell
mortgage-backed securities with terms lasting less than
a month, which are accounted for as trading
derivatives. Changes in their fair value are recognized
in trading gains and losses.
Interest Rates Swaps and Foreign Currency and
Exchange Rate Commitments
In addition to using derivative instruments as part
of its interest rate risk management strategy, the
Corporation also utilizes derivatives,
153
such as interest rate swaps and foreign exchange
contracts, in its capacity as an intermediary on behalf
of its customers. The Corporation minimizes its market
risk and credit risk by taking offsetting positions
under the same terms and conditions with credit limit
approvals and monitoring procedures. Market value
changes on these swaps and other derivatives are
recognized in income in the period of change.
Interest Rate Caps
The Corporation enters into interest rate caps as
an intermediary on behalf of its customers and
simultaneously takes offsetting positions under the
same terms and conditions thus minimizing its market
and credit risks.
Note 32 Off-balance sheet activities and
concentration of credit risk:
Off-balance sheet risk
The Corporation is a party to financial instruments
with off-balance sheet credit risk in the normal course
of business to meet the financial needs of its
customers. These financial instruments include loan
commitments, letters of credit, and standby letters of
credit. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of
the amount recognized in the consolidated statements of
condition.
The Corporations exposure to credit loss in the
event of nonperformance by the other party to the
financial instrument for commitments to extend credit,
standby letters of credit and financial guarantees
written is represented by the contractual notional
amounts of those instruments. The Corporation uses the
same credit policies in making these commitments and
conditional obligations as it does for those reflected
on the consolidated statements of condition.
Financial instruments with off-balance sheet
credit risk at December 31, whose contract amounts
represent potential credit risk were as follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
Commitments to extend credit:
|
|
|
|
|
|
|
|
|
Credit card lines
|
|
$
|
3,787,587
|
|
|
$
|
3,571,404
|
|
Commercial lines of credit
|
|
|
2,826,762
|
|
|
|
2,960,174
|
|
Other unused credit commitments
|
|
|
398,799
|
|
|
|
585,399
|
|
Commercial letters of credit
|
|
|
13,366
|
|
|
|
18,572
|
|
Standby letters of credit
|
|
|
134,281
|
|
|
|
181,223
|
|
Commitments to originate mortgage loans
|
|
|
47,941
|
|
|
|
71,297
|
|
|
Commitments to extend credit
Contractual commitments to extend credit are
legally binding agreements to lend money to customers
for a specified period of time. To extend credit, the
Corporation evaluates each customers creditworthiness.
The amount of collateral obtained, if deemed necessary, is based on managements credit
evaluation of the counterparty. Collateral held varies
but may include cash, accounts receivable, inventory,
property, plant and equipment and investment
securities, among others. Since many of the loan
commitments may expire without being drawn upon, the
total commitment amount does not necessarily represent
future cash requirements.
Letters of credit
There are two principal types of letters of credit:
commercial and standby letters of credit. The credit
risk involved in issuing letters of credit is
essentially the same as that involved in extending loan
facilities to customers.
In general, commercial letters of credit are
short-term instruments used to finance a commercial
contract for the shipment of goods from a seller to a
buyer. This type of letter of credit ensures prompt
payment to the seller in accordance with the terms of
the contract. Although the commercial letter of credit
is contingent upon the satisfaction of specified
conditions, it represents a credit exposure if the
buyer defaults on the underlying transaction.
Standby letters of credit are issued by the
Corporation to disburse funds to a third party
beneficiary if the Corporations customer fails to
perform under the terms of an agreement with the
beneficiary. These letters of credit are used by the
customer as a credit enhancement and typically expire
without being drawn upon.
Other commitments
At December 31, 2009, the Corporation also
maintained other non-credit commitments for $10
million, primarily for the acquisition of other
investments (2008 $10 million).
Geographic concentration
At December 31, 2009, the Corporation had no
significant concentrations of credit risk and no
significant exposure to highly leveraged transactions
in its loan portfolio. Note 39 provide further
information on the asset composition of the Corporation
by geographical area at December 31, 2009 and 2008.
Included in total assets of Puerto Rico are
investments in obligations of the U.S. Treasury and
U.S. Government agencies amounting to $1.5 billion at
December 31, 2009 (2008 $4.7 billion).
Note 33 Contingent liabilities:
Legal Proceedings
The Corporation and its subsidiaries are defendants
in a number of legal proceedings arising in the
ordinary course of business. Based on the opinion of
legal counsel, management believes that the final
disposition of these matters, except for the matters
154 POPULAR, INC. 2009 ANNUAL REPORT
described below which are in very early stages and management cannot currently predict their
outcome, will not have a material adverse effect on the Corporations business, results of
operations, financial condition and liquidity.
Between May 14, 2009 and March 1, 2010, five putative class actions and two derivative claims were
filed in the United States District Court for the District of Puerto Rico and the Puerto Rico Court
of First Instance, San Juan Part, against Popular, Inc. and certain of its directors and officers,
among others. The five class actions have now been consolidated into two separate actions: a
securities class action captioned Hoff v. Popular, Inc., et al. (consolidated with Otero v.
Popular, Inc., et al.) and an ERISA class action entitled In re
Popular, Inc. ERISA Litigation
(comprised of the consolidated cases of Walsh v. Popular, Inc. et al.; Montañez v. Popular, Inc.,
et al.; and Dougan v. Popular, Inc., et al.). On October 19, 2009, plaintiffs in the Hoff case
filed a consolidated class action complaint which includes as defendants the underwriters in the
May 2008 offering of Series B Preferred Stock. The consolidated action
purports to be on behalf of purchasers of Populars securities between January 24, 2008 and February 19,
2009 and alleges that the defendants violated Section 10(b) of the Exchange Act, and Rule 10b-5
promulgated thereunder, and Section 20(a) of the Exchange Act by issuing a series of allegedly
false and/or misleading statements and/or omitting to disclose material facts necessary to make
statements made by the Corporation not false and misleading. The consolidated action also alleges that the
defendants violated Section 11, Section 12(a)(2) and Section 15 of the Securities Act by making
allegedly untrue statements and/or omitting to disclose material facts necessary to make statements
made by the Corporation not false and misleading in connection with the May 2008 offering of Series B Preferred
Stock. The consolidated securities class action complaint seeks class certification, an award of
compensatory damages and reasonable costs and expenses, including counsel fees. On January 11,
2010, Popular and the individual defendants moved to dismiss the consolidated securities class
action complaint. On November 30, 2009, plaintiffs in the ERISA case filed a consolidated class
action complaint. The consolidated complaint purports to be on behalf of employees participating in
the Popular, Inc. U.S.A. 401(k) Savings and Investment Plan and the Popular, Inc. Puerto Rico
Savings and Investment Plan from January 24, 2008 to the date of the Complaint to recover losses
pursuant to Sections 409 and 502(a)(2) of the Employee Retirement Income Security Act (ERISA)
against Popular, certain directors, officers and members of plan committees, each of whom is
alleged to be a plan fiduciary. The consolidated complaint alleges that the defendants breached
their alleged fiduciary obligations by, among other things, failing to eliminate Popular stock as
an investment alternative in the plans. The complaint seeks to recover alleged losses to the plans
and equitable relief, including injunctive relief and a constructive trust, along with costs and
attorneys fees. On December 21, 2009, and in compliance with a scheduling order issued by the
Court, Popular and the individual defendants submitted an answer to the amended complaint. Shortly
thereafter, on December 31, 2009, Popular and the individual defendants filed a motion to dismiss
the consolidated class action complaint or, in the alternative, for judgment on the pleadings. The
derivative actions (García v. Carrión, et al. and Díaz v. Carrión, et al.) have been brought
purportedly for the benefit of nominal defendant Popular, Inc. against certain executive officers
and directors and allege breaches of fiduciary duty, waste of assets and abuse of control in
connection with our issuance of allegedly false and misleading financial statements and financial
reports and the offering of the Series B Preferred Stock. The derivative complaints seek a judgment
that the action is a proper derivative action, an award of damages and restitution, and costs and
disbursements, including reasonable attorneys fees, costs and expenses. On October 9, 2009, the
Court coordinated for purposes of discovery the García action and the consolidated securities class
action. On October 15, 2009, Popular and the individual defendants moved to dismiss the García
complaint for failure to make a demand on the Board of Directors prior to initiating litigation. On
November 20, 2009, and pursuant to a stipulation among the parties, plaintiffs filed an amended
complaint, and on December 21, 2009, Popular and the individual defendants moved to dismiss the
García amended complaint. The Díaz case, filed in the Puerto Rico Court of First Instance, San
Juan, has been removed to the U.S. District Court for the District of Puerto Rico. On October 13,
2009, Popular and the individual defendants moved to consolidate the García and Díaz actions. On
October 26, 2009, plaintiff moved to remand the Díaz case to the Puerto Rico Court of First
Instance and to stay defendants consolidation motion pending the outcome of the remand
proceedings. At a scheduling conference held on January 14, 2010, the Court stayed discovery in
both the Hoff and García matters pending resolution of their respective motions to dismiss.
At this early stage, it is not possible for
management to assess the probability of an adverse
outcome, or reasonably estimate the amount of any
potential loss. It is possible that the ultimate
resolution of these matters, if unfavorable, may be
material to the Corporations results of operations.
Note 34 Guarantees:
The Corporation has obligations upon the occurrence of
certain events under financial guarantees provided in
certain contractual agreements. These various
arrangements are summarized below.
The Corporation issues financial standby letters
of credit and has risk participation in standby letters
of credit issued by other financial institutions, in
each case to guarantee the performance of various
customers to third parties. If the customer fails to
meet
155
its financial or performance obligation to the
third party under the terms of the contract, then, upon
their request, the Corporation would be obligated to
make the payment to the guaranteed party. At December
31, 2009 and 2008, the Corporation recorded a liability
of $0.7 million, which represents the unamortized
balance of the obligations undertaken in issuing the
guarantees under the standby letters of credit issued
or modified after December 31, 2002. In accordance with
the provisions of ASC Topic 460, the Corporation
recognizes at fair value the obligation at inception of
the standby 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 contract
amounts in standby letters of credit outstanding at
December 31, 2009 and 2008, shown in Note 32, represent
the maximum potential amount of future payments the
Corporation could be required to make under the
guarantees in the event of nonperformance by the
customers. These standby letters of credit are used by
the customer as a credit enhancement and typically
expire without being drawn upon. The Corporations
standby letters of credit are generally secured, and in
the event of nonperformance by the customers, the
Corporation has rights to the underlying collateral
provided, which normally includes cash and marketable
securities, real estate, receivables and others.
Management does not anticipate any material losses
related to these instruments.
The Corporation securitized mortgage loans into guaranteed mortgage-backed securities
subject to limited, and in certain instances, lifetime credit recourse on the loans that serve as
collateral for the mortgage-backed securities. Also, from time to time, the Corporation may sell,
in bulk sale transactions, residential mortgage loans and SBA commercial loans subject to credit
recourse or to certain representations and warranties from the Corporation to the purchaser. These
representations and warranties may relate, for example, to borrower creditworthiness, loan
documentation, collateral, prepayment and early payment defaults. The Corporation may be required
to repurchase the loans under the credit recourse agreements or representation and warranties.
At December 31, 2009, the Corporation serviced $4.5 billion (2008 $4.9 billion) in
residential mortgage loans subject to credit recourse provisions,
principally loans associated with FNMA and Freddie Mac programs. In the event of any customer
default, pursuant to the credit recourse provided, the Corporation is required to repurchase the
loan or reimburse the third party investor for the incurred loss. The maximum potential amount of
future payments that the Corporation would be required to make under the recourse arrangements in
the event of nonperformance by the borrowers is equivalent to the total outstanding balance of the
residential mortgage loans serviced. During 2009, the Corporation repurchased approximately $47
million in mortgage loans subject to the credit recourse provisions. In the event of nonperformance
by the borrower, the Corporation has rights to the underlying collateral securing the mortgage
loan. The Corporation suffers losses on these loans when the proceeds from a foreclosure sale of
the property underlying a defaulted mortgage loan are less than the outstanding principal balance
of the loan plus any uncollected interest advanced and the costs of holding and disposing of the related property. Historically, the
losses associated to these credit recourse arrangements, which pertained to residential mortgage
loans in Puerto Rico, have not been significant. At December 31, 2009, the Corporations liability
established to cover the estimated credit loss exposure related to loans sold or serviced with
credit recourse amounted to $16 million (2008 $14 million).
When the Corporation sells or securitizes mortgage loans, it generally makes customary
representations and warranties regarding the characteristics of the loans sold. The Corporations
mortgage operations in Puerto Rico group conforming conventional mortgage loans into pools which
are exchanged for FNMA and GNMA mortgage-backed securities, which are generally sold to private
investors, or may sell the loans directly to FNMA or other private investors for cash. To the
extent the loans do not meet specified characteristics, investors are generally entitled to require
the Corporation to repurchase such loans or indemnify the investor against losses if the assets do
not meet certain guidelines. Quality review procedures are performed by the Corporation as required
under the government agency programs to ensure that asset guideline qualifications are met. The
Corporation has not recorded any specific contingent liability in the consolidated financial
statements for these customary representation and warranties related to loans sold by the
Corporations mortgage operations in Puerto Rico, and management believes that, based on historical
data, the probability of payments and expected losses under these representation and warranty
arrangements is not significant.
Servicing agreements relating to the mortgage-backed securities programs of FNMA, FHLMC and
GNMA, and to mortgage loans sold or serviced to certain other investors, require the Corporation to
advance funds to make scheduled payments of principal, interest, taxes and insurance, if such
payments have not been received from the borrowers. At December 31, 2009, the Corporation serviced
$17.7 billion (2008 $17.6 billion) in mortgage loans, including the loans serviced with credit
recourse. The Corporation generally recovers funds advanced pursuant to these arrangements from the
mortgage owner, from liquidation proceeds when the mortgage loan is foreclosed or, in the case of
FHA/VA loans, under the applicable FHA and VA insurance and guarantee programs. However, in the
interim, the Corporation must absorb the cost of the funds it advances during the time the advance
is outstanding. The Corporation must also bear the costs of attempting to collect on delinquent and
defaulted mortgage loans. In addition, if a defaulted loan is not cured, the mortgage loan will be
canceled as part of the foreclosure proceedings and the Corporation will not receive any future
servicing income with respect to that loan. At December 31, 2009, the amount of funds advanced by
the Corporation under such servicing agreements was approximately $14 million (2008 $11 million).
To the extent the mortgage loans underlying the Corporations servicing portfolio experience
increased delinquencies, the Corporation would be required to dedicate additional cash resources to
comply with its obligation to advance funds as well as incur additional administrative costs
related to increases in collection efforts.
156 POPULAR, INC. 2009 ANNUAL REPORT
At December 31, 2009, the Corporation had established reserves for customary representation
and warranties related to loans sold by its U.S. subsidiary E-LOAN. Loans had been sold to
investors on a servicing released basis subject to certain representation and warranties. Although
the risk of loss or default was generally assumed by the investors, the Corporation is required to
make certain representations relating to borrower creditworthiness, loan documentation and
collateral, which if not complied, may result in requiring the Corporation to repurchase the loans
or indemnify investors for any related losses associated to these loans. The loans had been sold
prior to 2009. At December 31, 2009, the Corporations reserve for estimated losses from such
representation and warranty arrangements amounted to $33 million, which was included as part of
other liabilities in the consolidated statement of condition (2008 $6 million). E-LOAN is no
longer originating and selling loans since the subsidiary ceased these activities during 2008. In
2009, the Corporation continued to reassess its estimate for expected losses associated to E-LOANs customary
representation and warranty arrangements. The analysis incorporates expectations on future
disbursements based on quarterly repurchases and make-whole events for the most recent two years, which reflect the increase in claims resulting
from the current deteriorated economic environment, including the real estate market. The analysis
also considers factors such as the average time distance between the loans funding date and the
loan repurchase date as observed in the historical loan data. During
2009, E-LOAN charged-off
approximately $14 million to this representation and warranty
reserve associated with loan repurchases and indemnification or
make-whole payments. Make-whole events are typically defaulted cases which
the investor attempts to recover by collateral or guarantees, and the
seller is obligated to cover any impaired or unrecovered portion of
the loan.
During 2008, the Corporation provided indemnifications for the breach of certain
representations or warranties in connection with certain sales of assets by the discontinued
operations of PFH. The sales were on a non-credit recourse basis. At December 31, 2009, the
agreements primarily include indemnification for breaches of certain key representations and
warranties, some of which expire within a definite time period; others survive until the expiration
of the applicable statute of limitations, and others do not expire. Certain of the indemnifications
are subject to a cap or maximum aggregate liability defined as a percentage of the purchase price.
The indemnifications agreements outstanding at December 31, 2009 related principally to make-whole
arrangements. At December 31, 2009, the Corporations reserve related to PFHs
indemnity arrangements amounted to $9 million (2008 $16 million), and is included as other
liabilities in the consolidated statement of condition. During 2009,
the Corporation recorded charge-offs with respect to the PFHs representation and
warranty arrangements amounting to
approximately $3 million. The reserve balance at
December 31, 2009 contemplates historical indemnity payments. Certain indemnification provisions, which included, for example, reimbursement of
premiums on early loan payoffs and repurchase obligation for defaulted loans within a short-term
timeframe, expired during 2009. Popular, Inc. Holding Company and Popular North America have agreed
to guarantee certain obligations of PFH with respect to the indemnification obligations.
During the year ended December 31, 2009, the Corporation sold a lease portfolio of
approximately $0.3 billion. At December 31, 2009, the reserve established to provide for any losses
on the breach of certain representations and warranties included in the associated sale agreements
amounted to $6 million. This reserve is included as part of other liabilities in the consolidated
statement of condition. During 2009, the Corporation recorded
charge-offs of approximately $1 million related to
these representation and warranty arrangements.
Popular, Inc. Holding Company (PIHC) fully and
unconditionally guarantees certain borrowing
obligations issued by certain of its wholly-owned
consolidated subsidiaries totaling $0.6 billion at
December 31, 2009 (2008 $1.7 billion). In addition,
at December 31, 2009, PIHC fully and unconditionally
guaranteed on a subordinated basis $1.4 billion (2008 -
$824 million) of capital securities (trust preferred
securities) issued by wholly-owned issuing trust
entities to the extent set forth in the applicable
guarantee agreement. Refer to Note 22 to the
consolidated financial statements for information on
these trust entities.
Note 35 Fair value option:
During 2008 and upon adoption of ASC Topic 825, the
Corporation elected to measure at fair value
approximately $1.5 billion in loans and $287 million in
borrowings outstanding at December 31, 2007, which
pertained to the discontinued operations of PFH.
Upon adoption of ASC Topic 825, the Corporation
recognized a $262 million negative after-tax adjustment
($409 million before tax) to beginning retained
earnings (accumulated deficit) due to the transitional
adjustment for electing the fair value option, as
detailed in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect
|
|
|
|
|
|
|
|
|
adjustment to
|
|
January 1, 2008
|
|
|
January 1, 2008
|
|
January 1, 2008
|
|
Fair value
|
|
|
(Carrying value)
|
|
retained earnings -
|
|
(Carrying value
|
(In thousands)
|
|
prior to adoption)
|
|
Gain (Loss)
|
|
after adoption)
|
|
Loans
|
|
$
|
1,481,297
|
|
|
$
|
(494,180
|
)
|
|
$
|
987,117
|
|
|
Notes payable
(bond certificates)
|
|
$
|
(286,611
|
)
|
|
$
|
85,625
|
|
|
$
|
(200,986
|
)
|
|
Pre-tax cumulative effect
of adopting fair value
option accounting
|
|
|
|
|
|
$
|
(408,555
|
)
|
|
|
|
|
Net increase in deferred
tax asset
|
|
|
|
|
|
|
146,724
|
|
|
|
|
|
|
After-tax cumulative effect of
adopting fair value option
accounting
|
|
|
|
|
|
$
|
(261,831
|
)
|
|
|
|
|
|
During the year ended December 31, 2008, the
Corporation recognized $198.9 million in losses
attributable to changes in the fair value of loans and
notes payable (bond certificates). These losses were
included in the caption Loss from discontinued
operations, net of tax in the consolidated statement
of operations.
As described in Note 3 to the consolidated
financial statements, the Corporation executed a series
of sales during 2008 that reduced substantially the
volume of PFHs financial instruments measured at fair
value. At December 31, 2008, there were only $5 million
in loans measured at fair value pursuant to the fair
value option. These loans were included as part of
Assets from discontinued operations in the
consolidated statement of condition. At December 31,
2009, there were no financial assets or liabilities
measured at fair value pursuant to the fair value
option.
157
Note 36 Fair value measurement:
ASC Subtopic 820-10 Fair Value Measurements and
Disclosures establishes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to
measure fair value into three levels in order to
increase consistency and comparability in fair value
measurements and disclosures. The hierarchy is broken
down into three levels based on the reliability of
inputs as follows:
|
|
|
Level 1
Unadjusted quoted prices in
active markets for identical assets or
liabilities that the Corporation has the
ability to access at the measurement date.
Valuation on these instruments does not
necessitate a significant degree of judgment
since valuations are based on quoted prices
that are readily available in an active
market.
|
|
|
|
|
Level 2
Quoted prices other than
those included in Level 1 that are observable
either directly or indirectly. Level 2 inputs
include quoted prices for similar assets or
liabilities in active markets, quoted prices
for identical or similar assets or liabilities
in markets that are not active, or other
inputs that are observable or that can be
corroborated by observable market data for
substantially the full term of the financial
instrument.
|
|
|
|
|
Level 3
Inputs are unobservable and
significant to the fair value measurement.
Unobservable inputs reflect the Corporations
own assumptions about assumptions that market
participants would use in pricing the asset or
liability.
|
The Corporation maximizes the use of observable
inputs and minimizes the use of unobservable inputs by
requiring that the observable inputs be used when
available. Fair value is based upon quoted market
prices when available. If listed price or quotes are
not available, the Corporation employs
internally-developed models that primarily use
market-based inputs including yield curves, interest
rates, volatilities, and credit curves, among others.
Valuation adjustments are limited to those necessary to
ensure that the financial instruments fair value is
adequately representative of the price that would be
received or paid in the marketplace. These adjustments
include amounts that reflect counterparty credit
quality, the Corporations credit standing, constraints
on liquidity and unobservable parameters that are
applied consistently.
The estimated fair value may be subjective in
nature and may involve uncertainties and matters of
significant judgment for certain financial instruments.
Changes in the underlying assumptions used in
calculating fair value could significantly affect the
results.
The Corporation adopted the provisions of ASC
Subtopic 820-10 for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed
at fair value on nonrecurring basis on January 1, 2009.
Fair Value on a Recurring Basis
The following fair value hierarchy tables present
information about the Corporations assets and
liabilities measured at fair value on a recurring basis
as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
2009
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
|
|
|
|
$
|
30
|
|
|
|
|
|
|
$
|
30
|
|
Obligations of U.S. Government
sponsored entities
|
|
|
|
|
|
|
1,648
|
|
|
|
|
|
|
|
1,648
|
|
Obligations of Puerto Rico, States
and political subdivisions
|
|
|
|
|
|
|
81
|
|
|
|
|
|
|
|
81
|
|
Collateralized mortgage
obligations federal agencies
|
|
|
|
|
|
|
1,600
|
|
|
|
|
|
|
|
1,600
|
|
Collateralized mortgage
obligations private label
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
118
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
3,176
|
|
|
$
|
34
|
|
|
|
3,210
|
|
Equity securities
|
|
$
|
3
|
|
|
|
5
|
|
|
|
|
|
|
|
8
|
|
|
Total investment securities
available-for-sale
|
|
$
|
3
|
|
|
$
|
6,658
|
|
|
$
|
34
|
|
|
$
|
6,695
|
|
|
Trading account securities,
excluding derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of Puerto Rico,
States and political subdivisions
|
|
|
|
|
|
$
|
13
|
|
|
|
|
|
|
$
|
13
|
|
Collateralized mortgage obligations
|
|
|
|
|
|
|
1
|
|
|
$
|
3
|
|
|
|
4
|
|
Residential mortgage-backed
securities federal agencies
|
|
|
|
|
|
|
208
|
|
|
|
224
|
|
|
|
432
|
|
Other
|
|
|
|
|
|
|
9
|
|
|
|
3
|
|
|
|
12
|
|
|
Total trading account securities
|
|
|
|
|
|
$
|
231
|
|
|
$
|
230
|
|
|
$
|
461
|
|
|
Mortgage servicing rights
|
|
|
|
|
|
|
|
|
|
$
|
170
|
|
|
$
|
170
|
|
Derivatives
|
|
|
|
|
|
$
|
73
|
|
|
|
|
|
|
|
73
|
|
|
Total
|
|
$
|
3
|
|
|
$
|
6,962
|
|
|
$
|
434
|
|
|
$
|
7,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
$
|
(73
|
)
|
|
|
|
|
|
$
|
(73
|
)
|
|
Total
|
|
|
|
|
|
$
|
(73
|
)
|
|
|
|
|
|
$
|
(73
|
)
|
|
158 POPULAR, INC. 2009 ANNUAL REPORT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
2008
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
|
|
|
|
$
|
502
|
|
|
|
|
|
|
$
|
502
|
|
Obligations of U.S. Government
sponsored entities
|
|
|
|
|
|
|
4,807
|
|
|
|
|
|
|
|
4,807
|
|
Obligations of Puerto Rico, States
and political subdivisions
|
|
|
|
|
|
|
101
|
|
|
|
|
|
|
|
101
|
|
Collateralized mortgage
obligations federal agencies
|
|
|
|
|
|
|
1,507
|
|
|
|
|
|
|
|
1,507
|
|
Collateralized mortgage
obligations private label
|
|
|
|
|
|
|
149
|
|
|
|
|
|
|
|
149
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
812
|
|
|
$
|
37
|
|
|
|
849
|
|
Equity securities
|
|
$
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
10
|
|
|
Total investment securities
available-for-sale
|
|
$
|
5
|
|
|
$
|
7,883
|
|
|
$
|
37
|
|
|
$
|
7,925
|
|
|
Trading account securities,
excluding derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and
obligations of U.S. Government
sponsored entities
|
|
|
|
|
|
$
|
3
|
|
|
|
|
|
|
$
|
3
|
|
Obligations of Puerto Rico,
States and political subdivisions
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
28
|
|
Collateralized mortgage obligations
|
|
|
|
|
|
|
2
|
|
|
$
|
3
|
|
|
|
5
|
|
Residential mortgage-backed
securities federal agencies
|
|
|
|
|
|
|
296
|
|
|
|
292
|
|
|
|
588
|
|
Commercial paper
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
Other
|
|
|
|
|
|
|
12
|
|
|
|
5
|
|
|
|
17
|
|
|
Total trading account securities
|
|
|
|
|
|
$
|
346
|
|
|
$
|
300
|
|
|
$
|
646
|
|
|
Mortgage servicing rights
|
|
|
|
|
|
|
|
|
|
$
|
176
|
|
|
$
|
176
|
|
Derivatives
|
|
|
|
|
|
$
|
110
|
|
|
|
|
|
|
|
110
|
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans measured at fair value
pursuant to fair value option
|
|
|
|
|
|
|
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
Total
|
|
$
|
5
|
|
|
$
|
8,339
|
|
|
$
|
518
|
|
|
$
|
8,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
$
|
(117
|
)
|
|
|
|
|
|
$
|
(117
|
)
|
|
Total
|
|
|
|
|
|
$
|
(117
|
)
|
|
|
|
|
|
$
|
(117
|
)
|
|
The following tables present the changes in
Level 3 assets and liabilities measured at fair value
on a recurring basis for the years ended December 31,
2009 and 2008.
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases,
|
|
|
|
|
|
gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sales,
|
|
|
|
|
|
included in
|
|
|
|
|
|
|
Gains
|
|
Gains (losses)
|
|
Increase
|
|
issuances,
|
|
|
|
|
|
earnings related
|
|
|
Balance
|
|
(losses)
|
|
included in
|
|
(decrease)
|
|
settlements,
|
|
Balance
|
|
to assets still
|
|
|
at
|
|
included
|
|
other
|
|
in accrued
|
|
paydowns
|
|
at
|
|
held as of
|
|
|
January
|
|
in
|
|
comprehensive
|
|
interest
|
|
and maturities
|
|
December
|
|
December 31,
|
(In millions)
|
|
1, 2009
|
|
earnings
|
|
income
|
|
receivable
|
|
(net)
|
|
31, 2009
|
|
2009
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3
|
)
|
|
$
|
34
|
|
|
|
|
|
|
Total investment securities available-for-sale
|
|
$
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3
|
)
|
|
$
|
34
|
|
|
|
|
|
|
Trading account securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3
|
|
|
|
|
|
Residential mortgage-backed securities-federal agencies
|
|
|
292
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
$
|
(71
|
)
|
|
|
224
|
|
|
$
|
6
|
(a)
|
Other
|
|
|
5
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
|
|
|
Total trading account securities
|
|
$
|
300
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
$
|
(72
|
)
|
|
$
|
230
|
|
|
$
|
6
|
|
|
Mortgage servicing rights
|
|
$
|
176
|
|
|
$
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
$
|
25
|
|
|
$
|
170
|
|
|
$
|
(18)
|
(c)
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans measured at fair value pursuant to fair value option
|
|
$
|
5
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
$
|
(6
|
)
|
|
|
|
|
|
|
|
(b)
|
|
Total
|
|
$
|
518
|
|
|
$
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(56
|
)
|
|
$
|
434
|
|
|
$
|
(12
|
)
|
|
|
|
|
a)
|
|
Gains (losses) are included in Trading account profit in the
statement of operations
|
|
b)
|
|
Gains (losses) are included in Loss from discontinued operations,
net of tax in the statement of operations
|
|
c)
|
|
Gains (losses) are included in Other service fees in the
statement of operations
|
160 POPULAR, INC. 2009 ANNUAL REPORT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases,
|
|
|
|
|
|
unrealized gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sales,
|
|
|
|
|
|
(losses) included
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
issuances,
|
|
|
|
|
|
in earnings
|
|
|
|
|
|
|
Gains
|
|
Gains (losses)
|
|
(decrease)
|
|
settlements,
|
|
|
|
|
|
related to assets
|
|
|
Balance
|
|
(losses)
|
|
included in
|
|
in accrued
|
|
paydowns
|
|
Balance
|
|
and liabilities
|
|
|
at
|
|
included
|
|
other
|
|
interest
|
|
and
|
|
at
|
|
still held as of
|
|
|
January
|
|
in
|
|
comprehensive
|
|
receivable
|
|
maturities
|
|
December
|
|
December 31,
|
(In millions)
|
|
1, 2008
|
|
earnings
|
|
income
|
|
/payable
|
|
(net)
|
|
31, 2008
|
|
2008
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
39
|
|
|
|
|
|
|
$
|
1
|
|
|
|
|
|
|
$
|
(3
|
)
|
|
$
|
37
|
|
|
|
|
|
|
Total investment securities available-for-sale
|
|
$
|
39
|
|
|
|
|
|
|
$
|
1
|
|
|
|
|
|
|
$
|
(3
|
)
|
|
$
|
37
|
|
|
|
|
|
|
Trading account securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3
|
|
|
|
|
|
Residential mortgage-backed securities-federal agencies
|
|
|
227
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
$
|
58
|
|
|
|
292
|
|
|
$
|
5
|
(a)
|
Other
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
5
|
|
|
|
|
|
|
Total trading account securities
|
|
$
|
233
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
$
|
60
|
|
|
$
|
300
|
|
|
$
|
5
|
|
|
Mortgage servicing rights
|
|
$
|
111
|
|
|
$
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
$
|
92
|
|
|
$
|
176
|
|
|
$
|
(16)
|
(c)
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residual interests available-for-sale
|
|
$
|
4
|
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
|
Residual interests-trading
|
|
|
40
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(8
|
)
|
|
|
|
|
|
|
|
(b)
|
Mortgage servicing rights
|
|
|
81
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
(b)
|
Loans measured at fair value pursuant to fair value option
|
|
|
987
|
|
|
|
(188
|
)
|
|
|
|
|
|
$
|
(13
|
)
|
|
|
(781
|
)
|
|
$
|
5
|
|
|
$
|
(38
|
)(b)
|
|
Total
|
|
$
|
1,495
|
|
|
$
|
(288
|
)
|
|
$
|
1
|
|
|
$
|
(13
|
)
|
|
$
|
(677
|
)
|
|
$
|
518
|
|
|
$
|
(49
|
)
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable measured at fair value pursuant to fair value option
|
|
$
|
(201
|
)
|
|
$
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
$
|
212
|
|
|
|
|
|
|
|
|
(b)
|
|
Total
|
|
$
|
(201
|
)
|
|
$
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
$
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a)
|
|
Gains (losses) are included in Trading account profit in the
statement of operations
|
|
b)
|
|
Gains (losses) are included in Loss from discontinued operations,
net of tax in the statement of operations
|
|
c)
|
|
Gains (losses) are included in Other service fees in the
statement of operations
|
161
There were no transfers in and/or out of Level
3 for financial instruments measured at fair value on
a recurring basis during the years ended December 31,
2009 and 2008.
Gains and losses (realized and unrealized)
included in earnings for the years ended December 31,
2009 and 2008 for Level 3 assets and liabilities
included in the previous tables are reported in the
consolidated statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December
|
|
Year ended December
|
|
|
31, 2009
|
|
31, 2008
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
gains
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
(losses)
|
|
|
|
|
|
unrealized
|
|
|
Total
|
|
relating
|
|
Total
|
|
gains (losses)
|
|
|
gains
|
|
to assets/
|
|
gains
|
|
relating to
|
|
|
(losses)
|
|
liabilities
|
|
(losses)
|
|
assets/
|
|
|
included
|
|
still held at
|
|
included
|
|
liabilities still
|
|
|
in
|
|
reporting
|
|
in
|
|
held at
|
(In millions)
|
|
earnings
|
|
date
|
|
earnings
|
|
reporting date
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other service fees
|
|
$
|
(31
|
)
|
|
$
|
(18
|
)
|
|
$
|
(27
|
)
|
|
$
|
(16
|
)
|
Trading account profit
|
|
|
2
|
|
|
|
6
|
|
|
|
7
|
|
|
|
5
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued
operations, net of tax
|
|
|
1
|
|
|
|
|
|
|
|
(279
|
)
|
|
|
(38
|
)
|
|
Total
|
|
$
|
(28
|
)
|
|
$
|
(12
|
)
|
|
$
|
(299
|
)
|
|
$
|
(49
|
)
|
|
Additionally, the Corporation may be required
to measure certain assets at fair value in periods
subsequent to initial recognition on a nonrecurring
basis in accordance with generally accepted accounting
principles. The adjustments to fair value usually
result from the application of lower of cost or fair
value accounting, identification of impaired loans
requiring specific reserves under ASC Subsection
310-10-35 Accounting by Creditors for Impairment of a
Loan (formerly SFAS No. 114), or write-downs of
individual assets. The following tables present
financial and non-financial assets that were subject to
a fair value measurement on a nonrecurring basis during
the years ended December 31, 2009 and 2008 and which
were still included in the consolidated statement of
condition as of such dates. The amounts disclosed
represent the aggregate of the fair value measurements
of those assets as of the end of the reporting period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at December 31, 2009
|
(In millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (1)
|
|
|
|
|
|
|
|
|
|
$
|
877
|
|
|
$
|
877
|
|
Other real estate owned (2)
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
60
|
|
Other foreclosed assets (2)
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
942
|
|
|
$
|
942
|
|
|
|
|
|
(1)
|
|
Relates mostly to certain impaired collateral
dependent loans. The impairment was measured based on
the fair value of the collateral, which is derived
from appraisals that
take into consideration prices in observed
transactions involving similar assets in similar
locations, in accordance with the provisions of ASC
Subsection 310-10-35.
|
|
(2)
|
|
Represents the fair value of foreclosed real
estate and other collateral owned that were measured
at fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at December 31, 2008
|
(In millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (1)
|
|
|
|
|
|
|
|
|
|
$
|
523
|
|
|
$
|
523
|
|
Loans held-for-sale (2)
|
|
|
|
|
|
|
|
|
|
|
364
|
|
|
|
364
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held-for-sale (2)
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
889
|
|
|
$
|
889
|
|
|
|
|
|
(1)
|
|
Relates mostly to certain impaired collateral
dependent loans. The impairment was measured based on
the fair value of the collateral, which is derived
from appraisals that take into consideration prices in
observed transactions involving similar assets in
similar locations, in accordance with the provisions
of ASC Subsection 310-10-35.
|
|
(2)
|
|
Relates to lower of cost of fair value adjustments
of loans held-for-sale and loans transferred from
loans held-in-portfolio to loans held-for-sale. These
adjustments were principally determined based on
negotiated price terms for the loans.
|
Following is a description of the
Corporations valuation methodologies used for assets
and liabilities measured at fair value. The disclosure
requirements exclude certain financial instruments and
all non-financial instruments. Accordingly, the
aggregate fair value amounts of the financial
instruments presented in these note disclosures do not
represent managements estimate of the underlying value
of the Corporation.
Trading Account Securities and Investment
Securities Available-for-Sale
|
|
|
U.S. Treasury securities: The fair
value of U.S. Treasury securities is based on
yields that are interpolated from the constant
maturity treasury curve. These securities are
classified as Level 2.
|
|
|
|
|
Obligations of U.S. Government
sponsored entities: The Obligations of U.S.
Government sponsored entities include U.S.
agency securities. The fair value of U.S.
agency securities is based on an active
exchange market and on quoted market prices
for similar securities. The U.S. agency
securities are classified as Level 2.
|
|
|
|
|
Obligations of Puerto Rico, States
and political subdivisions: Obligations of
Puerto Rico, States and political subdivisions
include municipal bonds. The bonds are
segregated and the like characteristics
divided into specific sectors. Market inputs
used in the evaluation process include all or
some of the following: trades, bid price or
spread, two sided markets, quotes, benchmark
curves including but not limited to Treasury
benchmarks, LIBOR and swap curves, market data
feeds such as MSRB, discount and capital
rates, and trustee reports. The municipal
bonds are classified as Level 2.
|
|
|
|
|
Mortgage-backed securities: Certain
agency mortgage-backed securities (MBS) are
priced based on a bonds theoretical value
from similar bonds defined by credit quality
and market sector. Their fair value
incorporates an option adjusted spread. The
agency MBS are classified as Level 2. Other
agency MBS such as GNMA Puerto Rico Serials
are priced using an internally-prepared
pricing matrix with quoted prices from
|
162 POPULAR, INC. 2009 ANNUAL REPORT
|
|
|
local brokers dealers. These particular MBS
are classified as Level 3.
|
|
|
|
|
Collateralized mortgage obligations:
Agency and private collateralized mortgage
obligations (CMOs) are priced based on a
bonds theoretical value from similar bonds
defined by credit quality and market sector
and for which fair value incorporates an
option adjusted spread. The option adjusted
spread model includes prepayment and
volatility assumptions, ratings (whole loans
collateral) and spread adjustments. These
investment securities are classified as Level
2.
|
|
|
|
|
Equity securities: Equity securities
with quoted market prices obtained from an
active exchange market are classified as Level
1. Other equity securities that do not trade
in highly liquid markets are classified as
Level 2.
|
|
|
|
|
Corporate securities and mutual
funds (included as other in the trading
account securities category): Quoted prices
for these security types are obtained from
broker dealers. Given that the quoted prices
are for similar instruments or do not trade in
highly liquid markets, the corporate
securities and mutual funds are classified as
Level 2. The important variables in
determining the prices of Puerto Rico
tax-exempt mutual fund shares are net asset
value, dividend yield and type of assets in
the fund. All funds trade based on a relevant
dividend yield taking into consideration the
aforementioned variables. In addition, demand
and supply also affect the price. Corporate
securities that trade less frequently or are
in distress are classified as Level 3.
|
Derivatives
Interest rate swaps, interest rate caps and index
options are traded in over-the-counter active markets.
These derivatives are indexed to an observable interest
rate benchmark, such as LIBOR or equity indexes, and
are priced using an income approach based on present
value and option pricing models using observable
inputs. Other derivatives are liquid and have quoted
prices, such as forward contracts or to be announced
securities (TBAs). All of these derivatives are
classified as Level 2. The nonperformance risk is
determined using internally-developed models that
consider the collateral held, the remaining term, and
the creditworthiness of the entity that bears the risk,
and uses available public data or internally-developed
data related to current spreads that denote their
probability of default.
Mortgage servicing rights
Mortgage servicing rights (MSRs) do not trade in
an active market with readily observable prices. MSRs
are priced internally using a discounted cash flow
model. The valuation model considers servicing fees,
portfolio characteristics, prepayments assumptions,
delinquency rates, late charges, other ancillary
revenues, cost to
service and other economic factors. Due to the
unobservable nature of certain valuation inputs, the
MSRs are classified as Level 3.
Loans held-in-portfolio considered impaired under
ASC Subsection 310-10-35 that are collateral dependent
The impairment is measured based on the fair value
of the collateral, which is derived from appraisals
that take into consideration prices in observed
transactions involving similar assets in similar
locations, in accordance with the provisions of ASC
Subsection 310-10-35. Currently, the associated loans
considered impaired are classified as Level 3.
Loans measured at fair value pursuant to lower of
cost or fair value adjustments
Loans measured at fair value on a nonrecurring
basis pursuant to lower of cost or fair value were
priced based on bids received from potential buyers,
secondary market prices, and discounting cash flow
models which incorporate internally-developed
assumptions for prepayments and credit loss estimates.
These loans were classified as Level 3.
Other real estate owned and other foreclosed assets
Other real estate owned includes real estate
properties securing mortgage, consumer, and commercial
loans. Other foreclosed assets include automobiles
securing auto loans. The fair value of foreclosed
assets may be determined using an external appraisal,
broker price opinion or an internal valuation. These
foreclosed assets are classified as Level 3 given
certain internal adjustments that may be made to
external appraisals.
Note 37 Disclosures about fair value of financial
instruments:
The fair value of financial instruments is the amount
at which an asset or obligation could be exchanged in a
current transaction between willing parties, other than
in a forced or liquidation sale. Fair value estimates
are made at a specific point in time based on the type
of financial instrument and relevant market
information. Many of these estimates involve various
assumptions and may vary significantly from amounts
that could be realized in actual transactions.
The information about the estimated fair values of
financial instruments presented hereunder excludes all
nonfinancial instruments and certain other specific
items.
Derivatives are considered financial instruments
and their carrying value equals fair value. For
disclosures about the fair value of derivative
instruments refer to Note 31 to the consolidated
financial statements.
For those financial instruments with no quoted
market prices available, fair values have been
estimated using present value
163
calculations or other valuation techniques, as well as
managements best judgment with respect to current
economic conditions, including discount rates,
estimates of future cash flows, and prepayment
assumptions.
The fair values reflected herein have been
determined based on the prevailing interest rate
environment as of December 31, 2009 and 2008,
respectively. In different interest rate environments,
fair value estimates can differ significantly,
especially for certain fixed rate financial
instruments. In addition, the fair values presented do
not attempt to estimate the value of the Corporations
fee generating businesses and anticipated future
business activities, that is, they do not represent the
Corporations value as a going concern. Accordingly,
the aggregate fair value amounts presented do not
represent the underlying value of the Corporation. The
methods and assumptions used to estimate the fair
values of significant financial instruments at December
31, 2009 and 2008 are described in the paragraphs
below.
Short-term financial assets and liabilities have
relatively short maturities, or no defined maturities,
and little or no credit risk. The carrying amounts
reported in the consolidated statements of condition
approximate fair value because of the short-term
maturity of those instruments or because they carry
interest rates which approximate market. Included in
this category are cash and due from banks, federal
funds sold and securities purchased under agreements to
resell, time deposits with other banks, bankers
acceptances, federal funds purchased, assets sold under
agreements to repurchase and short-term borrowings.
Resell and repurchase agreements with long-term
maturities are valued using discounted cash flows based
on market rates currently available for agreements with
similar terms and remaining maturities.
Trading and investment securities, except for
investments classified as other investment securities
in the consolidated statement of condition, are
financial instruments that regularly trade on secondary
markets. The estimated fair value of these securities
was determined using either market prices or dealer
quotes, if available, or quoted market prices of
financial instruments with similar characteristics.
Trading account securities and securities
available-for-sale are reported at their respective
fair values in the consolidated statements of
condition. These instruments are detailed in the
consolidated statements of condition and in Notes 7, 8
and 31.
The estimated fair value for loans held-for-sale
was based on secondary market prices. The fair value of
loans held-in-portfolio was determined for groups of
loans with similar characteristics. Loans were
segregated by type such as commercial, construction,
residential mortgage, consumer and credit cards. Each
loan category was further segmented based on loan
characteristics, including interest rate terms, credit
quality and vintage. Generally, the fair values were
estimated based on an exit price by discounting
scheduled cash flows for the segmented groups of loans
using a
discount rate that considers interest, credit and
expected return by market participants under current
market condition. Additionally, prepayment, default and
recovery assumptions have been applied
in the mortgage loan portfolio valuations. Generally
accepted accounting principles do not require a fair
valuation of the lease financing portfolio, therefore
it is included in the loans total at the carrying
amount.
The fair value of deposits with no stated
maturity, such as non-interest bearing demand deposits,
savings, NOW, and money market accounts is, for
purposes of this disclosure, equal to the amount
payable on demand as of the respective dates. The fair
value of certificates of deposit is based on the
discounted value of contractual cash flows using
interest rates being offered on certificates with
similar maturities. The value of these deposits in a
transaction between willing parties is in part
dependent of the buyers ability to reduce the
servicing cost and the attrition that sometimes occurs.
Therefore, the amount a buyer would be willing to pay
for these deposits could vary significantly from the
presented fair value.
Long-term borrowings were valued using discounted
cash flows, based on market rates currently available
for debt with similar terms and remaining maturities
and in certain instances using quoted market rates for
similar instruments at December 31, 2009 and 2008,
respectively.
As part of the fair value estimation procedures of
certain liabilities, including repurchase agreements
(regular and structured) and FHLB advances, the
Corporation considered, when applicable, the
collateralization levels as part of its evaluation of
nonperformance risk. Also, for certificates of deposit,
the nonperformance risk was determined using
internally-developed models that consider, when
applicable, the collateral held, amounts insured, the
remaining term and the credit premium of the
institution.
Commitments to extend credit were valued using the
fees currently charged to enter into similar
agreements. For those commitments where a future stream
of fees is charged, the fair value was estimated by
discounting the projected cash flows of fees on
commitments. The fair value of letters of credit is
based on fees currently charged on similar agreements.
164 POPULAR, INC. 2009 ANNUAL REPORT
Carrying or notional amounts, as applicable,
and estimated fair values for financial instruments at
December 31, were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
(In thousands)
|
|
amount
|
|
value
|
|
amount
|
|
value
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and money market
investments
|
|
$
|
1,680,127
|
|
|
$
|
1,680,127
|
|
|
$
|
1,579,641
|
|
|
$
|
1,579,641
|
|
Trading securities
|
|
|
462,436
|
|
|
|
462,436
|
|
|
|
645,903
|
|
|
|
645,903
|
|
Investment securities
available-for-sale
|
|
|
6,694,714
|
|
|
|
6,694,714
|
|
|
|
7,924,487
|
|
|
|
7,924,487
|
|
Investment securities
held-to-maturity
|
|
|
212,962
|
|
|
|
213,146
|
|
|
|
294,747
|
|
|
|
290,134
|
|
Other investment
securities
|
|
|
164,149
|
|
|
|
165,497
|
|
|
|
217,667
|
|
|
|
255,830
|
|
Loans held-for-sale
|
|
|
90,796
|
|
|
|
91,542
|
|
|
|
536,058
|
|
|
|
541,576
|
|
Loans held-in-portfolio, net
|
|
|
22,451,909
|
|
|
|
20,021,224
|
|
|
|
24,850,066
|
|
|
|
17,383,956
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
25,924,894
|
|
|
$
|
26,076,515
|
|
|
$
|
27,550,205
|
|
|
$
|
27,793,826
|
|
Federal funds purchased
|
|
|
|
|
|
|
|
|
|
|
144,471
|
|
|
|
144,471
|
|
Assets sold under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agreements to repurchase
|
|
|
2,632,790
|
|
|
|
2,759,438
|
|
|
|
3,407,137
|
|
|
|
3,592,236
|
|
Short-term borrowings
|
|
|
7,326
|
|
|
|
7,326
|
|
|
|
4,934
|
|
|
|
4,934
|
|
Notes payable
|
|
|
2,648,632
|
|
|
|
2,453,037
|
|
|
|
3,386,763
|
|
|
|
3,257,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
Fair
|
|
Notional
|
|
Fair
|
(In thousands)
|
|
amount
|
|
value
|
|
amount
|
|
value
|
|
Commitments to extend
credit and letters
of credit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend
credit
|
|
$
|
7,013,148
|
|
|
$
|
882
|
|
|
$
|
7,116,977
|
|
|
$
|
943
|
|
Letters of credit
|
|
|
147,647
|
|
|
|
1,565
|
|
|
|
199,795
|
|
|
|
3,938
|
|
|
Note 38 Supplemental disclosure on the
consolidated statements of cash flows:
Additional disclosures on cash flow information as
well as non-cash activities are listed in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
|
Income taxes paid
|
|
$
|
23,622
|
|
|
$
|
81,115
|
|
|
$
|
160,271
|
|
|
|
|
|
Interest paid
|
|
|
801,475
|
|
|
|
1,165,930
|
|
|
|
1,673,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans transferred to other real estate
|
|
$
|
146,043
|
|
|
$
|
112,870
|
|
|
$
|
203,965
|
|
|
|
|
|
Loans transferred to other property
|
|
|
37,529
|
|
|
|
83,833
|
|
|
|
36,337
|
|
|
|
|
|
|
Total loans transferred to foreclosed assets
|
|
|
183,572
|
|
|
|
196,703
|
|
|
|
240,302
|
|
|
|
|
|
Transfers from loans held-in-portfolio
to loans held-for-sale (a)
|
|
|
33,072
|
|
|
|
473,442
|
|
|
|
1,580,821
|
|
|
|
|
|
Transfers from loans held-for-sale to
loans held-in-portfolio
|
|
|
180,735
|
|
|
|
65,793
|
|
|
|
244,675
|
|
|
|
|
|
Loans securitized into trading securities (b)
|
|
|
1,355,456
|
|
|
|
1,686,141
|
|
|
|
1,321,655
|
|
|
|
|
|
Recognition of mortgage servicing rights on
securitizations or asset transfers
|
|
|
23,795
|
|
|
|
28,919
|
|
|
|
48,865
|
|
|
|
|
|
Recognition of residual interests on
securitizations
|
|
|
|
|
|
|
|
|
|
|
42,975
|
|
|
|
|
|
Treasury stock retired
|
|
|
207,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in par value of common stock
|
|
|
1,689,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust preferred securities exchanged for
new common stock issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust preferred securities exchanged
|
|
|
(397,911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
New common stock issued
|
|
|
317,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock exchanged for new
common stock issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock exchanged (Series A and B)
|
|
|
(524,079
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
New common stock issued
|
|
|
293,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock exchanged for new trust
preferred securities issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock exchanged (Series C)
|
|
|
(901,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
New trust preferred securities issued
(junior subordinated debentures)
|
|
|
415,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets and liabilities removed as part of the
recharacterization of on-balance sheet
securitizations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
|
|
|
|
|
|
|
|
|
3,221,003
|
|
|
|
|
|
Secured borrowings
|
|
|
|
|
|
|
|
|
|
|
(3,083,259
|
)
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
111,446
|
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
(13,513
|
)
|
|
|
|
|
Business acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of loans and other assets acquired
|
|
|
|
|
|
|
|
|
|
|
225,972
|
|
|
|
|
|
Goodwill and other intangible assets acquired
|
|
|
|
|
|
|
|
|
|
|
149,123
|
|
|
|
|
|
Deposits and other liabilities assumed
|
|
|
|
|
|
|
|
|
|
|
(1,094,699
|
)
|
|
|
|
|
|
|
|
|
(a)
|
|
In 2008 it excludes $375 million in individual
mortgage loans transferred to held-for-sale and sold
as well as $232 million securitized into trading
securities and immediately sold. In 2007 it excludes
the $3.2 billion in mortgage loans from the
recharacterization that were classified to loans
held-for-sale and immediately removed from the
Corporations books.
|
|
(b)
|
|
Includes loans securitized into trading securities and subsequently sold before year end.
|
165
Note 39 Segment reporting:
The Corporations corporate structure consists of three
reportable segments Banco Popular de Puerto Rico,
Banco Popular North America and EVERTEC. These
reportable segments pertain only to the continuing
operations of Popular, Inc. The operations of Popular
Financial Holdings which were considered a reportable
segment prior to 2008 were classified as discontinued
operations in 2008 through September 30, 2009. A
corporate group has been defined to support the
reportable segments. The Corporation retrospectively
adjusted the 2007 information in the statements of
operations to exclude the results from discontinued
operations to conform to the 2008 and 2009
presentation.
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.
Banco Popular de Puerto Rico:
Given that Banco Popular de Puerto Rico constitutes
a significant portion of the Corporations results of
operations and total assets as of December 31, 2009,
additional disclosures are provided for the business
areas included in this reportable segment, as described
below:
|
|
|
Commercial banking represents the
Corporations banking operations conducted at
BPPR, which are targeted mainly to corporate,
small and middle size businesses. It includes
aspects of the lending and depository
businesses, as well as other finance and
advisory services. BPPR allocates funds across
segments based on duration matched transfer
pricing at market rates. This area also
incorporates income related with the
investment of excess funds, as well as a
proportionate share of the investment function
of BPPR.
|
|
|
|
|
Consumer and retail banking
represents the branch banking operations of
BPPR which focus on retail clients. It
includes the consumer lending business
operations of BPPR, as well as the lending
operations of Popular Auto and Popular
Mortgage. Popular Auto focuses on auto and
lease financing, while Popular Mortgage
focuses principally in residual mortgage loan
originations. The consumer and retail banking
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.,
Popular Risk Services, and Popular Life Re.
Most of the services that are provided by
these subsidiaries generate profits based on
fee income.
|
Banco Popular North America:
Banco Popular North Americas reportable segment
consists of the banking operations of BPNA, E-LOAN,
Popular Equipment Finance, Inc. and Popular Insurance
Agency, U.S.A. Popular Equipment Finance, Inc. sold a
substantial portion of its lease financing portfolio
during 2009 and also ceased originations as part of
BPNAs strategic plan. BPNA operates through a retail
branch network in the U.S. mainland, while E-LOAN
supports BPNAs deposit gathering through its online
platform. All direct lending activities at E-LOAN were
ceased during the fourth quarter of 2008. Popular
Insurance Agency, U.S.A. offers investment and
insurance services across the BPNA branch network.
Due to the significant losses in the E-LOAN
operations during 2008 and 2009, and given the
discontinuance of E-LOANs loan origination unit, its
core business, management has determined to provide as
additional disclosure the results of E-LOAN apart from
the other BPNA subsidiaries.
EVERTEC:
This reportable segment includes the financial
transaction processing and technology functions of the
Corporation, including EVERTEC, with offices in Puerto
Rico, Florida, the Dominican Republic and Venezuela;
and ATH Costa Rica, S.A., EVERTEC LATINOAMERICA,
SOCIEDAD ANONIMA and T.I.I. Smart Solutions Inc.
located in Costa Rica. In addition, this reportable
segment includes the equity investments in Consorcio de
Tarjetas Dominicanas, S.A. (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.
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
EVERTEC segment. The Corporate group also includes the
expenses of the certain corporate areas that are
identified as critical for the organization, such as
Finance, Risk Management and Legal.
For segment reporting purposes, the impact of
recording the valuation allowance on deferred tax
assets of the U.S. operations was assigned to each
legal entity within PNA (including PNA holding company
as an entity) based on each entitys net deferred
166 POPULAR, INC. 2009 ANNUAL REPORT
tax asset at December 31, 2009 and 2008, except for
PFH. The impact of recording the valuation allowance at
PFH was allocated among continuing and discontinued
operations. The portion attributed to the continuing
operations was based on PFHs net deferred tax asset
balance at January 1, 2008. The valuation allowance on
deferred taxes as it relates to the operating losses of
PFH for the year 2008 was assigned to the discontinued
operations.
The tax impact in results of operations for PFH
attributed to the recording of the valuation allowance
assigned to continuing operations was included as part
of the Corporate group for segment reporting purposes
since it does not relate to any of the legal entities
of the BPNA reportable segment. PFH is no longer
considered a reportable segment.
The accounting policies of the individual
operating segments are the same as those of the
Corporation described in Note 1. Transactions between
reportable segments are primarily conducted at market
rates, resulting in profits that are eliminated for
reporting consolidated results of operations.
The results of operations included in the tables
below for the years ended December 31, 2009, 2008 and
2007 exclude the results of operations of the
discontinued business of PFH. Segment assets as of
December 31, 2008 also exclude the assets of the
discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
At December 31, 2009
|
Popular, Inc.
|
|
|
Banco Popular
|
|
Banco Popular
|
|
|
|
|
|
Intersegment
|
(In thousands)
|
|
de Puerto Rico
|
|
North America
|
|
EVERTEC
|
|
Eliminations
|
|
Net interest income (loss)
|
|
$
|
866,971
|
|
|
$
|
315,469
|
|
|
$
|
(1,059
|
)
|
|
|
|
|
Provision for loan losses
|
|
|
623,532
|
|
|
|
782,275
|
|
|
|
|
|
|
|
|
|
Non-interest income
|
|
|
753,214
|
|
|
|
30,231
|
|
|
|
258,156
|
|
|
$
|
(146,310
|
)
|
Amortization of intangibles
|
|
|
5,031
|
|
|
|
3,641
|
|
|
|
810
|
|
|
|
|
|
Depreciation expense
|
|
|
39,092
|
|
|
|
10,811
|
|
|
|
12,994
|
|
|
|
(22
|
)
|
Other operating expenses
|
|
|
775,964
|
|
|
|
299,726
|
|
|
|
167,503
|
|
|
|
(146,076
|
)
|
Income tax expense
|
|
|
6,565
|
|
|
|
(24,896
|
)
|
|
|
25,653
|
|
|
|
(84
|
)
|
|
Net income (loss)
|
|
$
|
170,001
|
|
|
$
|
(725,857
|
)
|
|
$
|
50,137
|
|
|
$
|
(128
|
)
|
|
Segment assets
|
|
$
|
23,615,042
|
|
|
$
|
10,846,748
|
|
|
$
|
245,680
|
|
|
$
|
(67,730
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable
|
|
|
|
|
|
|
|
|
|
Total
|
(In thousands)
|
|
Segments
|
|
Corporate
|
|
Eliminations
|
|
Popular, Inc.
|
|
Net interest income (loss)
|
|
$
|
1,181,381
|
|
|
$
|
(81,140
|
)
|
|
|
1,012
|
|
|
$
|
1,101,253
|
|
Provision for loan losses
|
|
|
1,405,807
|
|
|
|
|
|
|
|
|
|
|
|
1,405,807
|
|
Non-interest income
|
|
|
895,291
|
|
|
|
15,265
|
|
|
|
(14,055
|
)
|
|
|
896,501
|
|
Amortization of intangibles
|
|
|
9,482
|
|
|
|
|
|
|
|
|
|
|
|
9,482
|
|
Depreciation expense
|
|
|
62,875
|
|
|
|
1,576
|
|
|
|
|
|
|
|
64,451
|
|
Other operating expenses
|
|
|
1,097,117
|
|
|
|
(7,026
|
)
|
|
|
(9,828
|
)
|
|
|
1,080,263
|
|
Income tax expense
|
|
|
7,238
|
|
|
|
(16,231
|
)
|
|
|
691
|
|
|
|
(8,302
|
)
|
|
Net loss
|
|
$
|
(505,847
|
)
|
|
$
|
(44,194
|
)
|
|
$
|
(3,906
|
)
|
|
$
|
(553,947
|
)
|
|
Segment assets
|
|
$
|
34,639,740
|
|
|
$
|
5,439,842
|
|
|
$
|
(5,343,257
|
)
|
|
$
|
34,736,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
At December 31, 2008
|
Popular, Inc.
|
|
|
Banco Popular
|
|
Banco Popular
|
|
|
|
|
|
Intersegment
|
(In thousands)
|
|
de Puerto Rico
|
|
North America
|
|
EVERTEC
|
|
Eliminations
|
|
Net interest income (loss)
|
|
$
|
959,215
|
|
|
$
|
351,519
|
|
|
$
|
(723
|
)
|
|
|
|
|
Provision for loan losses
|
|
|
519,045
|
|
|
|
472,299
|
|
|
|
|
|
|
|
|
|
Non-interest income
|
|
|
620,685
|
|
|
|
141,006
|
|
|
|
263,258
|
|
|
$
|
(150,620
|
)
|
Goodwill and trademark impairment losses
|
|
|
1,623
|
|
|
|
10,857
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
4,975
|
|
|
|
5,643
|
|
|
|
891
|
|
|
|
|
|
Depreciation expense
|
|
|
41,825
|
|
|
|
14,027
|
|
|
|
14,286
|
|
|
|
(73
|
)
|
Other operating expenses
|
|
|
751,930
|
|
|
|
399,867
|
|
|
|
184,264
|
|
|
|
(149,139
|
)
|
Income tax expense
|
|
|
21,375
|
|
|
|
114,670
|
|
|
|
19,450
|
|
|
|
(549
|
)
|
|
Net income (loss)
|
|
$
|
239,127
|
|
|
$
|
(524,838
|
)
|
|
$
|
43,644
|
|
|
$
|
(859
|
)
|
|
Segment assets
|
|
$
|
25,931,855
|
|
|
$
|
12,441,612
|
|
|
$
|
270,524
|
|
|
$
|
(64,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable
|
|
|
|
|
|
|
|
|
|
Total
|
(In thousands)
|
|
Segments
|
|
Corporate
|
|
Eliminations
|
|
Popular, Inc.
|
|
Net interest income (loss)
|
|
$
|
1,310,011
|
|
|
$
|
(32,013
|
)
|
|
$
|
1,206
|
|
|
$
|
1,279,204
|
|
Provision for loan losses
|
|
|
991,344
|
|
|
|
40
|
|
|
|
|
|
|
|
991,384
|
|
Non-interest income (loss)
|
|
|
874,329
|
|
|
|
(32,630
|
)
|
|
|
(11,725
|
)
|
|
|
829,974
|
|
Goodwill and trademark impairment losses
|
|
|
12,480
|
|
|
|
|
|
|
|
|
|
|
|
12,480
|
|
Amortization of intangibles
|
|
|
11,509
|
|
|
|
|
|
|
|
|
|
|
|
11,509
|
|
Depreciation expense
|
|
|
70,065
|
|
|
|
2,325
|
|
|
|
|
|
|
|
72,390
|
|
Other operating expenses
|
|
|
1,186,922
|
|
|
|
62,774
|
|
|
|
(9,347
|
)
|
|
|
1,240,349
|
|
Income tax expense
|
|
|
154,946
|
|
|
|
305,619
|
|
|
|
969
|
|
|
|
461,534
|
|
|
Net loss
|
|
$
|
(242,926
|
)
|
|
$
|
(435,401
|
)
|
|
$
|
(2,141
|
)
|
|
$
|
(680,468
|
)
|
|
Segment assets
|
|
$
|
38,579,141
|
|
|
$
|
6,295,760
|
|
|
$
|
(6,004,719
|
)
|
|
$
|
38,870,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
At December 31, 2007
|
Popular, Inc.
|
|
|
Banco Popular
|
|
Banco Popular
|
|
|
|
|
|
Intersegment
|
(In thousands)
|
|
de Puerto Rico
|
|
North America
|
|
EVERTEC
|
|
Eliminations
|
|
Net interest income (loss)
|
|
$
|
957,822
|
|
|
$
|
370,605
|
|
|
$
|
(823
|
)
|
|
|
|
|
Provision for loan losses
|
|
|
243,727
|
|
|
|
95,486
|
|
|
|
|
|
|
|
|
|
Non-interest income
|
|
|
485,548
|
|
|
|
185,962
|
|
|
|
241,627
|
|
|
$
|
(141,498
|
)
|
Goodwill and trademark impairment losses
|
|
|
|
|
|
|
211,750
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
1,909
|
|
|
|
7,602
|
|
|
|
934
|
|
|
|
|
|
Depreciation expense
|
|
|
41,684
|
|
|
|
16,069
|
|
|
|
16,162
|
|
|
|
(72
|
)
|
Other operating expenses
|
|
|
714,457
|
|
|
|
450,576
|
|
|
|
174,877
|
|
|
|
(141,159
|
)
|
Income tax expense (benefit)
|
|
|
114,311
|
|
|
|
(29,477
|
)
|
|
|
17,547
|
|
|
|
(105
|
)
|
|
Net income (loss)
|
|
$
|
327,282
|
|
|
$
|
(195,439
|
)
|
|
$
|
31,284
|
|
|
$
|
(162
|
)
|
|
Segment assets
|
|
$
|
27,102,493
|
|
|
$
|
13,364,306
|
|
|
|
$228,746
|
|
|
$
|
(367,835
|
)
|
|
167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable
|
|
|
|
|
|
|
|
|
|
Total
|
(In thousands)
|
|
Segments
|
|
Corporate
|
|
Eliminations
|
|
Popular, Inc.
|
|
Net interest income (loss)
|
|
$
|
1,327,604
|
|
|
$
|
(26,444
|
)
|
|
$
|
4,498
|
|
|
$
|
1,305,658
|
|
Provision for loan losses
|
|
|
339,213
|
|
|
|
2,006
|
|
|
|
|
|
|
|
341,219
|
|
Non-interest income
|
|
|
771,639
|
|
|
|
117,981
|
|
|
|
(15,925
|
)
|
|
|
873,695
|
|
Goodwill and trademark
impairment losses
|
|
|
211,750
|
|
|
|
|
|
|
|
|
|
|
|
211,750
|
|
Amortization of intangibles
|
|
|
10,445
|
|
|
|
|
|
|
|
|
|
|
|
10,445
|
|
Depreciation expense
|
|
|
73,843
|
|
|
|
2,368
|
|
|
|
|
|
|
|
76,211
|
|
Other operating expenses
|
|
|
1,198,751
|
|
|
|
55,944
|
|
|
|
(7,639
|
)
|
|
|
1,247,056
|
|
Income tax expense (benefit)
|
|
|
102,276
|
|
|
|
(10,569
|
)
|
|
|
(1,543
|
)
|
|
|
90,164
|
|
|
Net income
|
|
$
|
162,965
|
|
|
$
|
41,788
|
|
|
$
|
(2,245
|
)
|
|
$
|
202,508
|
|
|
Segment assets
|
|
$
|
40,327,710
|
|
|
$
|
10,456,031
|
(a)
|
|
$
|
(6,372,304
|
)
|
|
$
|
44,411,437
|
|
|
|
|
|
(a)
|
|
Includes $3.9 billion in assets from PFH.
|
Additional disclosures with respect to the Banco Popular de Puerto Rico reportable segment are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
At December 31, 2009
|
Banco Popular de Puerto Rico
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Commercial
|
|
and Retail
|
|
Other Financial
|
|
|
|
|
|
Banco Popular
|
(In thousands)
|
|
Banking
|
|
Banking
|
|
Services
|
|
Eliminations
|
|
de Puerto Rico
|
|
Net interest income
|
|
$
|
299,668
|
|
|
$
|
555,059
|
|
|
$
|
11,716
|
|
|
$
|
528
|
|
|
$
|
866,971
|
|
Provision for loan losses
|
|
|
427,501
|
|
|
|
196,031
|
|
|
|
|
|
|
|
|
|
|
|
623,532
|
|
Non-interest income
|
|
|
159,242
|
|
|
|
493,962
|
|
|
|
100,698
|
|
|
|
(688
|
)
|
|
|
753,214
|
|
Amortization of intangibles
|
|
|
162
|
|
|
|
4,177
|
|
|
|
692
|
|
|
|
|
|
|
|
5,031
|
|
Depreciation expense
|
|
|
16,187
|
|
|
|
21,649
|
|
|
|
1,256
|
|
|
|
|
|
|
|
39,092
|
|
Other operating expenses
|
|
|
213,892
|
|
|
|
500,135
|
|
|
|
62,211
|
|
|
|
(274
|
)
|
|
|
775,964
|
|
Income tax (benefit) expense
|
|
|
(105,470
|
)
|
|
|
95,154
|
|
|
|
16,831
|
|
|
|
50
|
|
|
|
6,565
|
|
|
Net (loss) income
|
|
$
|
(93,362
|
)
|
|
$
|
231,875
|
|
|
$
|
31,424
|
|
|
$
|
64
|
|
|
$
|
170,001
|
|
|
Segment assets
|
|
$
|
9,679,767
|
|
|
$
|
17,288,825
|
|
|
$
|
467,645
|
|
|
$
|
(3,821,195
|
)
|
|
$
|
23,615,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
At December 31, 2008
|
Banco Popular de Puerto Rico
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Commercial
|
|
and Retail
|
|
Other Financial
|
|
|
|
|
|
Banco Popular
|
(In thousands)
|
|
Banking
|
|
Banking
|
|
Services
|
|
Eliminations
|
|
de Puerto Rico
|
|
Net interest income
|
|
$
|
347,952
|
|
|
$
|
598,622
|
|
|
$
|
12,097
|
|
|
$
|
544
|
|
|
$
|
959,215
|
|
Provision for loan losses
|
|
|
348,998
|
|
|
|
170,047
|
|
|
|
|
|
|
|
|
|
|
|
519,045
|
|
Non-interest income
|
|
|
114,844
|
|
|
|
406,547
|
|
|
|
99,502
|
|
|
|
(208
|
)
|
|
|
620,685
|
|
Goodwill impairment losses
|
|
|
|
|
|
|
1,623
|
|
|
|
|
|
|
|
|
|
|
|
1,623
|
|
Amortization of intangibles
|
|
|
212
|
|
|
|
4,113
|
|
|
|
650
|
|
|
|
|
|
|
|
4,975
|
|
Depreciation expense
|
|
|
17,805
|
|
|
|
22,742
|
|
|
|
1,278
|
|
|
|
|
|
|
|
41,825
|
|
Other operating expenses
|
|
|
194,589
|
|
|
|
492,995
|
|
|
|
64,642
|
|
|
|
(296
|
)
|
|
|
751,930
|
|
Income tax (benefit) expense
|
|
|
(60,769
|
)
|
|
|
66,674
|
|
|
|
15,158
|
|
|
|
312
|
|
|
|
21,375
|
|
|
Net (loss) income
|
|
$
|
(38,039
|
)
|
|
$
|
246,975
|
|
|
$
|
29,871
|
|
|
$
|
320
|
|
|
$
|
239,127
|
|
|
Segment assets
|
|
$
|
11,148,150
|
|
|
$
|
18,903,624
|
|
|
$
|
579,463
|
|
|
$
|
(4,699,382
|
)
|
|
$
|
25,931,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
At December 31, 2007
|
Banco Popular de Puerto Rico
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Commercial
|
|
and Retail
|
|
Other Financial
|
|
|
|
|
|
Banco Popular
|
(In thousands)
|
|
Banking
|
|
Banking
|
|
Services
|
|
Eliminations
|
|
de Puerto Rico
|
|
Net interest income
|
|
$
|
379,673
|
|
|
$
|
566,635
|
|
|
$
|
10,909
|
|
|
$
|
605
|
|
|
$
|
957,822
|
|
Provision for loan losses
|
|
|
79,810
|
|
|
|
163,917
|
|
|
|
|
|
|
|
|
|
|
|
243,727
|
|
Non-interest income
|
|
|
91,596
|
|
|
|
303,945
|
|
|
|
90,969
|
|
|
|
(962
|
)
|
|
|
485,548
|
|
Amortization of intangibles
|
|
|
565
|
|
|
|
860
|
|
|
|
484
|
|
|
|
|
|
|
|
1,909
|
|
Depreciation expense
|
|
|
14,457
|
|
|
|
26,001
|
|
|
|
1,226
|
|
|
|
|
|
|
|
41,684
|
|
Other operating expenses
|
|
|
178,193
|
|
|
|
470,184
|
|
|
|
66,466
|
|
|
|
(386
|
)
|
|
|
714,457
|
|
Income tax expense
|
|
|
56,613
|
|
|
|
46,812
|
|
|
|
10,860
|
|
|
|
26
|
|
|
|
114,311
|
|
|
Net income
|
|
$
|
141,631
|
|
|
$
|
162,806
|
|
|
$
|
22,842
|
|
|
$
|
3
|
|
|
$
|
327,282
|
|
|
Segment assets
|
|
$
|
11,601,186
|
|
|
$
|
19,407,327
|
|
|
$
|
478,252
|
|
|
$
|
(4,384,272
|
)
|
|
$
|
27,102,493
|
|
|
Additional disclosures with respect to the Banco Popular North America reportable segment are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
At December 31, 2009
|
Banco Popular North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Banco Popular
|
|
|
|
|
|
|
|
|
|
Banco Popular
|
(In thousands)
|
|
North America
|
|
E-LOAN
|
|
Eliminations
|
|
North America
|
|
Net interest income
|
|
$
|
303,700
|
|
|
$
|
10,593
|
|
|
$
|
1,176
|
|
|
$
|
315,469
|
|
Provision for loan losses
|
|
|
641,668
|
|
|
|
140,607
|
|
|
|
|
|
|
|
782,275
|
|
Non-interest income (loss)
|
|
|
70,059
|
|
|
|
(39,706
|
)
|
|
|
(122
|
)
|
|
|
30,231
|
|
Amortization of intangibles
|
|
|
3,641
|
|
|
|
|
|
|
|
|
|
|
|
3,641
|
|
Depreciation expense
|
|
|
9,627
|
|
|
|
1,184
|
|
|
|
|
|
|
|
10,811
|
|
Other operating expenses
|
|
|
283,113
|
|
|
|
16,610
|
|
|
|
3
|
|
|
|
299,726
|
|
Income tax benefit
|
|
|
(7,665
|
)
|
|
|
(17,231
|
)
|
|
|
|
|
|
|
(24,896
|
)
|
|
Net loss
|
|
$
|
(556,625
|
)
|
|
$
|
(170,283
|
)
|
|
$
|
1,051
|
|
|
$
|
(725,857
|
)
|
|
Segment assets
|
|
$
|
11,478,201
|
|
|
$
|
560,885
|
|
|
$
|
(1,192,338
|
)
|
|
$
|
10,846,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
At December 31, 2008
|
Banco Popular North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Banco Popular
|
|
|
|
|
|
|
|
|
|
Banco Popular
|
(In thousands)
|
|
North America
|
|
E-LOAN
|
|
Eliminations
|
|
North America
|
|
Net interest income
|
|
$
|
328,713
|
|
|
$
|
21,458
|
|
|
$
|
1,348
|
|
|
$
|
351,519
|
|
Provision for loan losses
|
|
|
346,000
|
|
|
|
126,299
|
|
|
|
|
|
|
|
472,299
|
|
Non-interest income
|
|
|
127,903
|
|
|
|
13,915
|
|
|
|
(812
|
)
|
|
|
141,006
|
|
Goodwill and trademark
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impairment losses
|
|
|
|
|
|
|
10,857
|
|
|
|
|
|
|
|
10,857
|
|
Amortization of intangibles
|
|
|
4,144
|
|
|
|
1,499
|
|
|
|
|
|
|
|
5,643
|
|
Depreciation expense
|
|
|
12,172
|
|
|
|
1,855
|
|
|
|
|
|
|
|
14,027
|
|
Other operating expenses
|
|
|
327,736
|
|
|
|
72,117
|
|
|
|
14
|
|
|
|
399,867
|
|
Income tax expense
|
|
|
57,521
|
|
|
|
56,618
|
|
|
|
531
|
|
|
|
114,670
|
|
|
Net loss
|
|
$
|
(290,957
|
)
|
|
$
|
(233,872
|
)
|
|
$
|
(9
|
)
|
|
$
|
(524,838
|
)
|
|
Segment assets
|
|
$
|
12,913,337
|
|
|
$
|
759,082
|
|
|
$
|
(1,230,807
|
)
|
|
$
|
12,441,612
|
|
|
168 POPULAR, INC. 2009 ANNUAL REPORT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
At December 31, 2007
|
Banco Popular North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Banco Popular
|
|
|
|
|
|
|
|
|
|
Banco Popular
|
(In thousands)
|
|
North America
|
|
E-LOAN
|
|
Eliminations
|
|
North America
|
|
Net interest income
|
|
$
|
348,728
|
|
|
$
|
20,925
|
|
|
$
|
952
|
|
|
$
|
370,605
|
|
Provision for loan losses
|
|
|
77,832
|
|
|
|
17,654
|
|
|
|
|
|
|
|
95,486
|
|
Non-interest income
|
|
|
112,954
|
|
|
|
74,270
|
|
|
|
(1,262
|
)
|
|
|
185,962
|
|
Goodwill and trademark
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impairment losses
|
|
|
|
|
|
|
211,750
|
|
|
|
|
|
|
|
211,750
|
|
Amortization of intangibles
|
|
|
4,810
|
|
|
|
2,792
|
|
|
|
|
|
|
|
7,602
|
|
Depreciation expense
|
|
|
12,835
|
|
|
|
3,234
|
|
|
|
|
|
|
|
16,069
|
|
Other operating expenses
|
|
|
287,831
|
|
|
|
162,706
|
|
|
|
39
|
|
|
|
450,576
|
|
Income tax expense (benefit)
|
|
|
27,863
|
|
|
|
(57,218
|
)
|
|
|
(122
|
)
|
|
|
(29,477
|
)
|
|
Net income (loss)
|
|
$
|
50,511
|
|
|
$
|
(245,723
|
)
|
|
$
|
(227
|
)
|
|
$
|
(195,439
|
)
|
|
Segment assets
|
|
$
|
13,595,461
|
|
|
$
|
1,178,438
|
|
|
$
|
(1,409,593
|
)
|
|
$
|
13,364,306
|
|
|
Intersegment revenues*
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
Banco Popular de Puerto Rico:
|
|
|
|
|
|
|
|
|
|
|
|
|
P.R. Commercial Banking
|
|
$
|
1
|
|
|
$
|
820
|
|
|
$
|
1,532
|
|
P.R. Consumer and Retail Banking
|
|
|
2
|
|
|
|
1,932
|
|
|
|
3,339
|
|
P.R. Other Financial Services
|
|
|
(269
|
)
|
|
|
(230
|
)
|
|
|
(449
|
)
|
EVERTEC
|
|
|
(146,080
|
)
|
|
|
(149,784
|
)
|
|
|
(140,949
|
)
|
Banco Popular North America:
|
|
|
|
|
|
|
|
|
|
|
|
|
Banco Popular North America
|
|
|
36
|
|
|
|
(2,730
|
)
|
|
|
(4,971
|
)
|
E-LOAN
|
|
|
|
|
|
|
(628
|
)
|
|
|
|
|
|
Total intersegment revenues from
continuing operations
|
|
$
|
(146,310
|
)
|
|
$
|
(150,620
|
)
|
|
$
|
(141,498
|
)
|
|
|
|
|
*
|
|
For purposes of the intersegment revenues disclosure, revenues include interest income (expense)
related to internal funding and other non-interest income derived from intercompany transactions,
mainly related to gain on sales of loans and processing / information technology services.
|
Geographic Information
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
Revenues*:
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico
|
|
$
|
1,566,081
|
|
|
$
|
1,568,837
|
|
|
$
|
1,567,276
|
|
United States
|
|
|
306,667
|
|
|
|
432,008
|
|
|
|
523,685
|
|
Other
|
|
|
125,006
|
|
|
|
108,333
|
|
|
|
88,392
|
|
|
Total consolidated revenues from
continuing operations
|
|
$
|
1,997,754
|
|
|
$
|
2,109,178
|
|
|
$
|
2,179,353
|
|
|
|
|
|
*
|
|
Total revenues include net interest income, service charges on deposit accounts, other service
fees, net gain on sale and valuation adjustment of investment securities, trading account (loss)
profit, (loss) gain on sale of loans and valuation adjustments on loans held-for-sale and other
operating income.
|
Selected Balance Sheet Information:**
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
Puerto Rico
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
22,480,832
|
|
|
$
|
24,886,736
|
|
|
$
|
26,017,716
|
|
Loans
|
|
|
14,176,793
|
|
|
|
15,160,033
|
|
|
|
15,679,181
|
|
Deposits
|
|
|
16,634,123
|
|
|
|
16,737,693
|
|
|
|
17,341,601
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
11,033,114
|
|
|
$
|
12,713,357
|
|
|
$
|
17,093,929
|
|
Loans
|
|
|
8,825,559
|
|
|
|
10,417,840
|
|
|
|
13,517,728
|
|
Deposits
|
|
|
8,242,604
|
|
|
|
9,662,690
|
|
|
|
9,737,996
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,222,379
|
|
|
$
|
1,270,089
|
|
|
$
|
1,299,792
|
|
Loans
|
|
|
801,557
|
|
|
|
691,058
|
|
|
|
714,093
|
|
Deposits
|
|
|
1,048,167
|
|
|
|
1,149,822
|
|
|
|
1,254,881
|
|
|
|
|
|
**
|
|
Does not include balance sheet information of the discontinued operations as of December 31,
2008.
|
Note 40 Popular, Inc. (Holding Company only) financial information:
The following condensed financial information presents the financial position of Holding Company
only at December 31, 2009 and 2008, and the results of its operations and cash flows for each of
the three years in the period ended December 31, 2009.
Statements of Condition
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
|
2009
|
|
2008
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,174
|
|
|
$
|
2
|
|
Money market investments
|
|
|
51
|
|
|
|
89,694
|
|
Investments securities available-for-sale, at
market value
|
|
|
|
|
|
|
188,893
|
|
Investments securities held-to-maturity, at
amortized cost (includes $430,000 in subordinated notes from BPPR)
|
|
|
455,777
|
|
|
|
431,499
|
|
Other investment securities, at lower of cost
or realizable value
|
|
|
10,850
|
|
|
|
14,425
|
|
Investment in BPPR and subsidiaries, at equity
|
|
|
1,910,695
|
|
|
|
1,899,839
|
|
Investment in Popular International Bank
and subsidiaries, at equity
|
|
|
867,275
|
|
|
|
436,234
|
|
Investment in other subsidiaries, at equity
|
|
|
268,372
|
|
|
|
274,980
|
|
Advances to subsidiaries
|
|
|
100,600
|
|
|
|
814,600
|
|
Loans to affiliates
|
|
|
6,666
|
|
|
|
10,000
|
|
Loans
|
|
|
2,366
|
|
|
|
2,684
|
|
Less Allowance for loan losses
|
|
|
60
|
|
|
|
60
|
|
Premises and equipment
|
|
|
2,907
|
|
|
|
22,057
|
|
Other assets
|
|
|
34,576
|
|
|
|
37,298
|
|
|
Total assets
|
|
$
|
3,661,249
|
|
|
$
|
4,222,145
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Federal funds purchased
|
|
|
|
|
|
$
|
44,471
|
|
Other short-term borrowings
|
|
$
|
24,225
|
|
|
|
42,769
|
|
Notes payable
|
|
|
1,064,462
|
|
|
|
793,300
|
|
Accrued expenses and other liabilities
|
|
|
33,745
|
|
|
|
73,241
|
|
Stockholders equity
|
|
|
2,538,817
|
|
|
|
3,268,364
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,661,249
|
|
|
$
|
4,222,145
|
|
|
169
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(In thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from subsidiaries
|
|
$
|
160,625
|
|
|
$
|
179,900
|
|
|
$
|
383,100
|
|
Interest on money market and
investment securities
|
|
|
37,229
|
|
|
|
32,642
|
|
|
|
38,555
|
|
Other operating income
|
|
|
692
|
|
|
|
(15
|
)
|
|
|
9,862
|
|
Gain on sale and valuation
adjustment of investment securities
|
|
|
3,008
|
|
|
|
|
|
|
|
115,567
|
|
Interest on advances to
subsidiaries
|
|
|
8,133
|
|
|
|
19,812
|
|
|
|
19,114
|
|
Interest on loans to affiliates
|
|
|
888
|
|
|
|
1,022
|
|
|
|
1,144
|
|
Interest on loans
|
|
|
127
|
|
|
|
173
|
|
|
|
382
|
|
|
Total income
|
|
|
210,702
|
|
|
|
233,534
|
|
|
|
567,724
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
74,980
|
|
|
|
42,061
|
|
|
|
37,095
|
|
Provision for loan losses
|
|
|
|
|
|
|
40
|
|
|
|
2,007
|
|
Gain on early
extinguishment of debt
|
|
|
(26,439
|
)
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
7,018
|
|
|
|
2,614
|
|
|
|
2,226
|
|
|
Total expenses
|
|
|
55,559
|
|
|
|
44,715
|
|
|
|
41,328
|
|
|
Income before income taxes
and equity in undistributed
losses of subsidiaries
|
|
|
155,143
|
|
|
|
188,819
|
|
|
|
526,396
|
|
Income taxes
|
|
|
(891
|
)
|
|
|
366
|
|
|
|
30,288
|
|
|
Income before equity in
undistributed losses of
subsidiaries
|
|
|
156,034
|
|
|
|
188,453
|
|
|
|
496,108
|
|
Equity in undistributed losses
of subsidiaries
|
|
|
(729,953
|
)
|
|
|
(1,432,356
|
)
|
|
|
(560,601
|
)
|
|
Net loss
|
|
$
|
(573,919
|
)
|
|
$
|
(1,243,903
|
)
|
|
$
|
(64,493
|
)
|
|
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(In thousands)
|
|
2009
|
|
2008
|
|
2007
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
($573,919
|
)
|
|
|
($1,243,903
|
)
|
|
|
($64,493
|
)
|
|
Adjustments to reconcile net loss
to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed losses
of subsidiaries and dividends from
subsidiaries
|
|
|
729,953
|
|
|
|
1,432,356
|
|
|
|
560,601
|
|
Provision for loan losses
|
|
|
|
|
|
|
40
|
|
|
|
2,007
|
|
Net gain on sale and valuation adjustment
of investment securities
|
|
|
(3,008
|
)
|
|
|
|
|
|
|
(115,567
|
)
|
Amortization of discount on junior
subordinated debentures
|
|
|
6,765
|
|
|
|
|
|
|
|
|
|
Gain on early extinguishment of debt
|
|
|
(26,439
|
)
|
|
|
|
|
|
|
|
|
Net amortization of premiums and
accretion of discounts on investments
|
|
|
335
|
|
|
|
(1,791
|
)
|
|
|
(8,244
|
)
|
(Earnings) losses from investments under
the equity method
|
|
|
(692
|
)
|
|
|
110
|
|
|
|
(4,612
|
)
|
Stock options expense
|
|
|
91
|
|
|
|
412
|
|
|
|
568
|
|
Net decrease in other assets
|
|
|
22,774
|
|
|
|
2,435
|
|
|
|
28,340
|
|
Deferred income taxes
|
|
|
(1,850
|
)
|
|
|
(444
|
)
|
|
|
1,156
|
|
Net increase (decrease) in interest payable
|
|
|
6,455
|
|
|
|
(1,982
|
)
|
|
|
1,508
|
|
Net (decrease) increase in other liabilities
|
|
|
(1,797
|
)
|
|
|
9,511
|
|
|
|
4,354
|
|
|
Total adjustments
|
|
|
732,587
|
|
|
|
1,440,647
|
|
|
|
470,111
|
|
|
Net cash provided by operating
activities
|
|
|
158,668
|
|
|
|
196,744
|
|
|
|
405,618
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease (increase) in money
market investments
|
|
|
89,643
|
|
|
|
(43,294
|
)
|
|
|
(37,700
|
)
|
Purchases of investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
(249,603
|
)
|
|
|
(188,673
|
)
|
|
|
(6,808
|
)
|
Held-to-maturity
|
|
|
(51,539
|
)
|
|
|
(605,079
|
)
|
|
|
(4,087,972
|
)
|
Proceeds from maturities and
redemptions of investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
14,226
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
27,318
|
|
|
|
801,500
|
|
|
|
3,900,087
|
|
Proceeds from sales of investment
securities available-for-sale
|
|
|
426,666
|
|
|
|
|
|
|
|
5,783
|
|
Proceeds from sale of other
investment securities
|
|
|
|
|
|
|
|
|
|
|
245,484
|
|
Capital contribution to subsidiaries
|
|
|
(940,000
|
)
|
|
|
(251,512
|
)
|
|
|
|
|
Transfer of shares of a subsidiary
|
|
|
(42,971
|
)
|
|
|
|
|
|
|
|
|
Net change in advances to subsidiaries
and affiliates
|
|
|
714,000
|
|
|
|
(1,302,100
|
)
|
|
|
(260,100
|
)
|
Net repayments on loans
|
|
|
3,578
|
|
|
|
156
|
|
|
|
337
|
|
Acquisition of premises and equipment
|
|
|
(310
|
)
|
|
|
(664
|
)
|
|
|
(522
|
)
|
Proceeds from sale of premises and equipment
|
|
|
14,943
|
|
|
|
|
|
|
|
11
|
|
Proceeds from sale of foreclosed assets
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
5,998
|
|
|
|
(1,589,666
|
)
|
|
|
(241,400
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in federal
funds purchased
|
|
|
(44,471
|
)
|
|
|
44,471
|
|
|
|
|
|
Net (decrease) increase in other
short-term borrowings
|
|
|
(18,544
|
)
|
|
|
(122,232
|
)
|
|
|
14,213
|
|
Payments of notes payable
|
|
|
|
|
|
|
(31,152
|
)
|
|
|
(5,000
|
)
|
Proceeds from issuance of notes payable
|
|
|
|
|
|
|
350,297
|
|
|
|
397
|
|
Cash dividends paid
|
|
|
(71,438
|
)
|
|
|
(188,644
|
)
|
|
|
(190,617
|
)
|
Proceeds from issuance of
common stock
|
|
|
|
|
|
|
17,712
|
|
|
|
20,414
|
|
Proceeds from issuance of
preferred stock and associated warrants
|
|
|
|
|
|
|
1,321,142
|
|
|
|
|
|
Issuance costs and fees paid on
exchange of preferred stock and
trust preferred securities
|
|
|
(29,024
|
)
|
|
|
|
|
|
|
|
|
Treasury stock acquired
|
|
|
(17
|
)
|
|
|
(61
|
)
|
|
|
(2,236
|
)
|
|
Net cash (used in) provided by
financing activities
|
|
|
(163,494
|
)
|
|
|
1,391,533
|
|
|
|
(162,829
|
)
|
|
Net increase (decrease) in cash
|
|
|
1,172
|
|
|
|
(1,389
|
)
|
|
|
1,389
|
|
Cash at beginning of year
|
|
|
2
|
|
|
|
1,391
|
|
|
|
2
|
|
|
Cash at end of year
|
|
$
|
1,174
|
|
|
$
|
2
|
|
|
$
|
1,391
|
|
|
170 POPULAR, INC. 2009 ANNUAL REPORT
Notes
payable at December 31, 2009 mature as follows:
|
|
|
|
|
Year
|
|
Notes Payable
|
|
|
|
|
(In thousands)
|
|
2010
|
|
|
|
|
2011
|
|
$
|
350,000
|
|
2012
|
|
|
|
|
2013
|
|
|
|
|
2014
|
|
|
|
|
Later years
|
|
|
290,812
|
|
No stated maturity
|
|
|
936,000
|
|
|
Subtotal
|
|
|
1,576,812
|
|
Less: Discount
|
|
|
(512,350
|
)
|
|
Total
|
|
$
|
1,064,462
|
|
|
A source of income for the Holding Company consists of dividends from BPPR. As members
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 each
entity during the calendar year would exceed the total of its net income for that year, as
defined by the Federal Reserve Board, combined with its retained net income for the preceding two
years, less any required transfers to surplus or to a fund for the retirement of any preferred
stock. The payment of dividends by BPPR may also be affected by other regulatory requirements and
policies, such as the maintenance of certain minimum capital levels described in Note 25. At
December 31, 2009, BPPR was required to obtain the approval of the Federal Reserve Board to
declare a dividend. At December 31, 2008 and 2007, BPPR could have declared a dividend of
approximately $31.6 million and $45.0 million, respectively, without the approval of the Federal
Reserve Board. At December 31, 2009, 2008 and 2007, BPNA was required to obtain the approval of
the Federal Reserve Board to declare a dividend.
Note 41 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 at December 31,
2009 and 2008, and the results of their operations and cash flows for each of the years ended
December 31, 2009, 2008 and 2007, respectively.
PIBI is an operating subsidiary of PIHC and is the holding company of its wholly-owned
subsidiaries ATH Costa Rica S.A., EVERTEC LATINOAMERICA, SOCIEDAD ANONIMA, 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
subsidiary BPNA, including its wholly-owned subsidiaries Popular Equipment Finance, Inc., Popular
Insurance Agency, U.S.A., and E-LOAN, Inc.
PIHC fully and unconditionally guarantees all registered debt securities issued by PNA.
Condensed Consolidating Statement of Condition
171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other
|
|
|
|
|
|
|
Popular, Inc.
|
|
PIBI
|
|
PNA
|
|
subsidiaries
|
|
Elimination
|
|
Popular, Inc.
|
(In thousands)
|
|
Holding Co.
|
|
Holding Co.
|
|
Holding Co.
|
|
and eliminations
|
|
entries
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
1,174
|
|
|
$
|
300
|
|
|
$
|
738
|
|
|
$
|
677,606
|
|
|
$
|
(2,488
|
)
|
|
$
|
677,330
|
|
Money market investments
|
|
|
51
|
|
|
|
56,144
|
|
|
|
238
|
|
|
|
1,002,702
|
|
|
|
(56,338
|
)
|
|
|
1,002,797
|
|
Trading account securities, at
fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
462,436
|
|
|
|
|
|
|
|
462,436
|
|
Investment securities
available-for-sale, at fair value
|
|
|
|
|
|
|
2,448
|
|
|
|
|
|
|
|
6,694,053
|
|
|
|
(1,787
|
)
|
|
|
6,694,714
|
|
Investment securities
held-to-maturity, at amortized cost
|
|
|
455,777
|
|
|
|
1,250
|
|
|
|
|
|
|
|
185,935
|
|
|
|
(430,000
|
)
|
|
|
212,962
|
|
Other investment securities, at
lower of cost or
realizable value
|
|
|
10,850
|
|
|
|
1
|
|
|
|
4,492
|
|
|
|
148,806
|
|
|
|
|
|
|
|
164,149
|
|
Investment in subsidiaries
|
|
|
3,046,342
|
|
|
|
733,737
|
|
|
|
1,156,680
|
|
|
|
|
|
|
|
(4,936,759
|
)
|
|
|
|
|
Loans held-for-sale measured at
lower of
cost or fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,796
|
|
|
|
|
|
|
|
90,796
|
|
|
Loans held-in-portfolio
|
|
|
109,632
|
|
|
|
|
|
|
|
|
|
|
|
23,844,455
|
|
|
|
(126,824
|
)
|
|
|
23,827,263
|
|
Less Unearned income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,150
|
|
|
|
|
|
|
|
114,150
|
|
Allowance for loan losses
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
1,261,144
|
|
|
|
|
|
|
|
1,261,204
|
|
|
|
|
|
109,572
|
|
|
|
|
|
|
|
|
|
|
|
22,469,161
|
|
|
|
(126,824
|
)
|
|
|
22,451,909
|
|
|
Premises and equipment, net
|
|
|
2,907
|
|
|
|
|
|
|
|
125
|
|
|
|
581,821
|
|
|
|
|
|
|
|
584,853
|
|
Other real estate
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
125,409
|
|
|
|
|
|
|
|
125,483
|
|
Accrued income receivable
|
|
|
120
|
|
|
|
127
|
|
|
|
132
|
|
|
|
125,857
|
|
|
|
(156
|
)
|
|
|
126,080
|
|
Servicing assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172,505
|
|
|
|
|
|
|
|
172,505
|
|
Other assets
|
|
|
33,828
|
|
|
|
73,308
|
|
|
|
21,162
|
|
|
|
1,242,099
|
|
|
|
(48,238
|
)
|
|
|
1,322,159
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
604,349
|
|
|
|
|
|
|
|
604,349
|
|
Other intangible assets
|
|
|
554
|
|
|
|
|
|
|
|
|
|
|
|
43,249
|
|
|
|
|
|
|
|
43,803
|
|
|
|
|
$
|
3,661,249
|
|
|
$
|
867,315
|
|
|
$
|
1,183,567
|
|
|
$
|
34,626,784
|
|
|
$
|
(5,602,590
|
)
|
|
$
|
34,736,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,497,730
|
|
|
$
|
(2,429
|
)
|
|
$
|
4,495,301
|
|
Interest bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,485,931
|
|
|
|
(56,338
|
)
|
|
|
21,429,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,983,661
|
|
|
|
(58,767
|
)
|
|
|
25,924,894
|
|
Federal funds purchased and assets
sold under
agreements to repurchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,632,790
|
|
|
|
|
|
|
|
2,632,790
|
|
Other short-term borrowings
|
|
$
|
24,225
|
|
|
|
|
|
|
$
|
700
|
|
|
|
107,226
|
|
|
|
(124,825
|
)
|
|
|
7,326
|
|
Notes payable
|
|
|
1,064,462
|
|
|
|
|
|
|
|
433,846
|
|
|
|
1,152,324
|
|
|
|
(2,000
|
)
|
|
|
2,648,632
|
|
Subordinated notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
430,000
|
|
|
|
(430,000
|
)
|
|
|
|
|
Other liabilities
|
|
|
33,745
|
|
|
$
|
40
|
|
|
|
45,547
|
|
|
|
954,525
|
|
|
|
(49,991
|
)
|
|
|
983,866
|
|
|
|
|
|
1,122,432
|
|
|
|
40
|
|
|
|
480,093
|
|
|
|
31,260,526
|
|
|
|
(665,583
|
)
|
|
|
32,197,508
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
50,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,160
|
|
Common stock
|
|
|
6,395
|
|
|
|
3,961
|
|
|
|
2
|
|
|
|
52,322
|
|
|
|
(56,285
|
)
|
|
|
6,395
|
|
Surplus
|
|
|
2,797,328
|
|
|
|
3,437,437
|
|
|
|
3,321,208
|
|
|
|
4,637,181
|
|
|
|
(11,388,916
|
)
|
|
|
2,804,238
|
|
Accumulated deficit
|
|
|
(285,842
|
)
|
|
|
(2,541,802
|
)
|
|
|
(2,627,520
|
)
|
|
|
(1,329,311
|
)
|
|
|
6,491,723
|
|
|
|
(292,752
|
)
|
Treasury stock, at cost
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
Accumulated other comprehensive
(loss) income,
net of tax
|
|
|
(29,209
|
)
|
|
|
(32,321
|
)
|
|
|
9,784
|
|
|
|
6,066
|
|
|
|
16,471
|
|
|
|
(29,209
|
)
|
|
|
|
|
2,538,817
|
|
|
|
867,275
|
|
|
|
703,474
|
|
|
|
3,366,258
|
|
|
|
(4,937,007
|
)
|
|
|
2,538,817
|
|
|
|
|
$
|
3,661,249
|
|
|
$
|
867,315
|
|
|
$
|
1,183,567
|
|
|
$
|
34,626,784
|
|
|
$
|
(5,602,590
|
)
|
|
$
|
34,736,325
|
|
|
172 POPULAR, INC. 2009 ANNUAL REPORT
Condensed Consolidating Statement of Condition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other
|
|
|
|
|
|
|
Popular, Inc.
|
|
PIBI
|
|
PNA
|
|
subsidiaries
|
|
Elimination
|
|
Popular, Inc.
|
(In thousands)
|
|
Holding Co.
|
|
Holding Co.
|
|
Holding Co.
|
|
and eliminations
|
|
entries
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
2
|
|
|
$
|
89
|
|
|
$
|
7,668
|
|
|
$
|
777,994
|
|
|
$
|
(766
|
)
|
|
$
|
784,987
|
|
Money market investments
|
|
|
89,694
|
|
|
|
40,614
|
|
|
|
450,246
|
|
|
|
794,521
|
|
|
|
(580,421
|
)
|
|
|
794,654
|
|
Trading account securities, at
fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
645,903
|
|
|
|
|
|
|
|
645,903
|
|
Investment securities
available-for-sale, at fair value
|
|
|
188,893
|
|
|
|
5,243
|
|
|
|
|
|
|
|
7,730,351
|
|
|
|
|
|
|
|
7,924,487
|
|
Investment securities
held-to-maturity, at amortized cost
|
|
|
431,499
|
|
|
|
1,250
|
|
|
|
|
|
|
|
291,998
|
|
|
|
(430,000
|
)
|
|
|
294,747
|
|
Other investment securities, at
lower of cost or
realizable value
|
|
|
14,425
|
|
|
|
1
|
|
|
|
12,392
|
|
|
|
190,849
|
|
|
|
|
|
|
|
217,667
|
|
Investment in subsidiaries
|
|
|
2,611,053
|
|
|
|
324,412
|
|
|
|
1,348,241
|
|
|
|
|
|
|
|
(4,283,706
|
)
|
|
|
|
|
Loans held-for-sale measured at
lower of
cost or fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
536,058
|
|
|
|
|
|
|
|
536,058
|
|
|
Loans held-in-portfolio
|
|
|
827,284
|
|
|
|
|
|
|
|
12,800
|
|
|
|
25,885,773
|
|
|
|
(868,620
|
)
|
|
|
25,857,237
|
|
Less Unearned income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,364
|
|
|
|
|
|
|
|
124,364
|
|
Allowance for loan losses
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
882,747
|
|
|
|
|
|
|
|
882,807
|
|
|
|
|
|
827,224
|
|
|
|
|
|
|
|
12,800
|
|
|
|
24,878,662
|
|
|
|
(868,620
|
)
|
|
|
24,850,066
|
|
|
Premises and equipment, net
|
|
|
22,057
|
|
|
|
|
|
|
|
128
|
|
|
|
598,622
|
|
|
|
|
|
|
|
620,807
|
|
Other real estate
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
89,674
|
|
|
|
|
|
|
|
89,721
|
|
Accrued income receivable
|
|
|
1,033
|
|
|
|
474
|
|
|
|
1,861
|
|
|
|
204,955
|
|
|
|
(52,096
|
)
|
|
|
156,227
|
|
Servicing assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180,306
|
|
|
|
|
|
|
|
180,306
|
|
Other assets
|
|
|
35,664
|
|
|
|
64,881
|
|
|
|
21,532
|
|
|
|
995,550
|
|
|
|
(2,030
|
)
|
|
|
1,115,597
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
605,792
|
|
|
|
|
|
|
|
605,792
|
|
Other intangible assets
|
|
|
554
|
|
|
|
|
|
|
|
|
|
|
|
52,609
|
|
|
|
|
|
|
|
53,163
|
|
Assets from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,587
|
|
|
|
|
|
|
|
12,587
|
|
|
|
|
$
|
4,222,145
|
|
|
$
|
436,964
|
|
|
$
|
1,854,868
|
|
|
$
|
38,586,431
|
|
|
$
|
(6,217,639
|
)
|
|
$
|
38,882,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,294,221
|
|
|
$
|
(668
|
)
|
|
$
|
4,293,553
|
|
Interest bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,747,393
|
|
|
|
(490,741
|
)
|
|
|
23,256,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,041,614
|
|
|
|
(491,409
|
)
|
|
|
27,550,205
|
|
Federal funds purchased and assets
sold under
agreements to repurchase
|
|
$
|
44,471
|
|
|
|
|
|
|
|
|
|
|
|
3,596,817
|
|
|
|
(89,680
|
)
|
|
|
3,551,608
|
|
Other short-term borrowings
|
|
|
42,769
|
|
|
|
|
|
|
$
|
500
|
|
|
|
828,285
|
|
|
|
(866,620
|
)
|
|
|
4,934
|
|
Notes payable
|
|
|
793,300
|
|
|
|
|
|
|
|
1,488,942
|
|
|
|
1,106,521
|
|
|
|
(2,000
|
)
|
|
|
3,386,763
|
|
Subordinated notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
430,000
|
|
|
|
(430,000
|
)
|
|
|
|
|
Other liabilities
|
|
|
73,241
|
|
|
$
|
117
|
|
|
|
68,490
|
|
|
|
1,008,427
|
|
|
|
(53,937
|
)
|
|
|
1,096,338
|
|
Liabilities from discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,557
|
|
|
|
|
|
|
|
24,557
|
|
|
|
|
|
953,781
|
|
|
|
117
|
|
|
|
1,557,932
|
|
|
|
35,036,221
|
|
|
|
(1,933,646
|
)
|
|
|
35,614,405
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
1,483,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,483,525
|
|
Common stock
|
|
|
1,773,792
|
|
|
|
3,961
|
|
|
|
2
|
|
|
|
52,318
|
|
|
|
(56,281
|
)
|
|
|
1,773,792
|
|
Surplus
|
|
|
613,085
|
|
|
|
2,301,193
|
|
|
|
2,184,964
|
|
|
|
4,050,514
|
|
|
|
(8,527,877
|
)
|
|
|
621,879
|
|
Accumulated deficit
|
|
|
(365,694
|
)
|
|
|
(1,797,175
|
)
|
|
|
(1,865,418
|
)
|
|
|
(585,705
|
)
|
|
|
4,239,504
|
|
|
|
(374,488
|
)
|
Treasury stock, at cost
|
|
|
(207,515
|
)
|
|
|
|
|
|
|
|
|
|
|
(377
|
)
|
|
|
377
|
|
|
|
(207,515
|
)
|
Accumulated other comprehensive
(loss) income,
net of tax
|
|
|
(28,829
|
)
|
|
|
(71,132
|
)
|
|
|
(22,612
|
)
|
|
|
33,460
|
|
|
|
60,284
|
|
|
|
(28,829
|
)
|
|
|
|
|
3,268,364
|
|
|
|
436,847
|
|
|
|
296,936
|
|
|
|
3,550,210
|
|
|
|
(4,283,993
|
)
|
|
|
3,268,364
|
|
|
|
|
$
|
4,222,145
|
|
|
$
|
436,964
|
|
|
$
|
1,854,868
|
|
|
$
|
38,586,431
|
|
|
$
|
(6,217,639
|
)
|
|
$
|
38,882,769
|
|
|
173
Condensed Consolidating Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other
|
|
|
|
|
|
|
Popular, Inc.
|
|
PIBI
|
|
PNA
|
|
subsidiaries
|
|
Elimination
|
|
Popular, Inc.
|
(In thousands)
|
|
Holding Co.
|
|
Holding Co.
|
|
Holding Co.
|
|
and eliminations
|
|
entries
|
|
Consolidated
|
|
INTEREST AND DIVIDEND INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income from subsidiaries
|
|
$
|
160,625
|
|
|
$
|
7,500
|
|
|
$
|
20,000
|
|
|
|
|
|
|
$
|
(188,125
|
)
|
|
|
|
|
Loans
|
|
|
9,148
|
|
|
|
|
|
|
|
44
|
|
|
$
|
1,518,431
|
|
|
|
(8,374
|
)
|
|
$
|
1,519,249
|
|
Money market investments
|
|
|
109
|
|
|
|
1,306
|
|
|
|
2,156
|
|
|
|
8,573
|
|
|
|
(3,574
|
)
|
|
|
8,570
|
|
Investment securities
|
|
|
37,120
|
|
|
|
70
|
|
|
|
703
|
|
|
|
281,887
|
|
|
|
(27,792
|
)
|
|
|
291,988
|
|
Trading account securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,190
|
|
|
|
|
|
|
|
35,190
|
|
|
|
|
|
207,002
|
|
|
|
8,876
|
|
|
|
22,903
|
|
|
|
1,844,081
|
|
|
|
(227,865
|
)
|
|
|
1,854,997
|
|
|
INTEREST EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
504,732
|
|
|
|
(3,470
|
)
|
|
|
501,262
|
|
Short-term borrowings
|
|
|
169
|
|
|
|
|
|
|
|
45
|
|
|
|
77,548
|
|
|
|
(8,405
|
)
|
|
|
69,357
|
|
Long-term debt
|
|
|
74,811
|
|
|
|
|
|
|
|
58,581
|
|
|
|
78,609
|
|
|
|
(28,876
|
)
|
|
|
183,125
|
|
|
|
|
|
74,980
|
|
|
|
|
|
|
|
58,626
|
|
|
|
660,889
|
|
|
|
(40,751
|
)
|
|
|
753,744
|
|
|
Net interest income (loss)
|
|
|
132,022
|
|
|
|
8,876
|
|
|
|
(35,723
|
)
|
|
|
1,183,192
|
|
|
|
(187,114
|
)
|
|
|
1,101,253
|
|
Provision for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,405,807
|
|
|
|
|
|
|
|
1,405,807
|
|
|
Net interest income (loss) after
provision
for loan losses
|
|
|
132,022
|
|
|
|
8,876
|
|
|
|
(35,723
|
)
|
|
|
(222,615
|
)
|
|
|
(187,114
|
)
|
|
|
(304,554
|
)
|
Service charges on deposit
accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213,493
|
|
|
|
|
|
|
|
213,493
|
|
Other service fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401,934
|
|
|
|
(7,747
|
)
|
|
|
394,187
|
|
Net gain (loss) on sale and
valuation adjustments
of investment securities
|
|
|
3,008
|
|
|
|
(10,934
|
)
|
|
|
|
|
|
|
229,530
|
|
|
|
(2,058
|
)
|
|
|
219,546
|
|
Trading account profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,740
|
|
|
|
|
|
|
|
39,740
|
|
Loss on sale of loans, including
adjustments to
indemnity reserves, and
valuation adjustments
on loans held-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,060
|
)
|
|
|
|
|
|
|
(35,060
|
)
|
Other operating income (loss)
|
|
|
692
|
|
|
|
16,558
|
|
|
|
(1,184
|
)
|
|
|
52,778
|
|
|
|
(4,249
|
)
|
|
|
64,595
|
|
|
|
|
|
135,722
|
|
|
|
14,500
|
|
|
|
(36,907
|
)
|
|
|
679,800
|
|
|
|
(201,168
|
)
|
|
|
591,947
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
|
|
|
24,238
|
|
|
|
368
|
|
|
|
|
|
|
|
387,004
|
|
|
|
(994
|
)
|
|
|
410,616
|
|
Pension, profit sharing and
other benefits
|
|
|
3,918
|
|
|
|
59
|
|
|
|
|
|
|
|
118,694
|
|
|
|
(24
|
)
|
|
|
122,647
|
|
|
|
|
|
28,156
|
|
|
|
427
|
|
|
|
|
|
|
|
505,698
|
|
|
|
(1,018
|
)
|
|
|
533,263
|
|
Net occupancy expenses
|
|
|
2,613
|
|
|
|
30
|
|
|
|
3
|
|
|
|
108,389
|
|
|
|
|
|
|
|
111,035
|
|
Equipment expenses
|
|
|
3,683
|
|
|
|
|
|
|
|
4
|
|
|
|
97,843
|
|
|
|
|
|
|
|
101,530
|
|
Other taxes
|
|
|
3,544
|
|
|
|
|
|
|
|
|
|
|
|
49,061
|
|
|
|
|
|
|
|
52,605
|
|
Professional fees
|
|
|
15,676
|
|
|
|
14
|
|
|
|
(55
|
)
|
|
|
100,831
|
|
|
|
(5,179
|
)
|
|
|
111,287
|
|
Communications
|
|
|
443
|
|
|
|
20
|
|
|
|
23
|
|
|
|
45,778
|
|
|
|
|
|
|
|
46,264
|
|
Business promotion
|
|
|
1,182
|
|
|
|
|
|
|
|
|
|
|
|
37,690
|
|
|
|
|
|
|
|
38,872
|
|
Printing and supplies
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
11,019
|
|
|
|
|
|
|
|
11,093
|
|
Impairment losses on long-lived
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,545
|
|
|
|
|
|
|
|
1,545
|
|
FDIC deposit insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,796
|
|
|
|
|
|
|
|
76,796
|
|
Gain on early extinguishment of
debt
|
|
|
(26,439
|
)
|
|
|
|
|
|
|
(51,897
|
)
|
|
|
1,959
|
|
|
|
(1,923
|
)
|
|
|
(78,300
|
)
|
Other operating expenses
|
|
|
(48,353
|
)
|
|
|
(400
|
)
|
|
|
238
|
|
|
|
188,947
|
|
|
|
(1,708
|
)
|
|
|
138,724
|
|
Amortization of intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,482
|
|
|
|
|
|
|
|
9,482
|
|
|
|
|
|
(19,421
|
)
|
|
|
91
|
|
|
|
(51,684
|
)
|
|
|
1,235,038
|
|
|
|
(9,828
|
)
|
|
|
1,154,196
|
|
|
Income (loss) before income tax
and equity in
losses of subsidiaries
|
|
|
155,143
|
|
|
|
14,409
|
|
|
|
14,777
|
|
|
|
(555,238
|
)
|
|
|
(191,340
|
)
|
|
|
(562,249
|
)
|
Income tax (benefit) expense
|
|
|
(891
|
)
|
|
|
26
|
|
|
|
21,601
|
|
|
|
(29,729
|
)
|
|
|
691
|
|
|
|
(8,302
|
)
|
|
Income (loss) before equity in
losses
of subsidiaries
|
|
|
156,034
|
|
|
|
14,383
|
|
|
|
(6,824
|
)
|
|
|
(525,509
|
)
|
|
|
(192,031
|
)
|
|
|
(553,947
|
)
|
Equity in undistributed losses
of subsidiaries
|
|
|
(709,981
|
)
|
|
|
(739,039
|
)
|
|
|
(735,305
|
)
|
|
|
|
|
|
|
2,184,325
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(553,947
|
)
|
|
|
(724,656
|
)
|
|
|
(742,129
|
)
|
|
|
(525,509
|
)
|
|
|
1,992,294
|
|
|
|
(553,947
|
)
|
Loss from discontinued
operations, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,972
|
)
|
|
|
|
|
|
|
(19,972
|
)
|
Equity in undistributed losses of
discontinued operations
|
|
|
(19,972
|
)
|
|
|
(19,972
|
)
|
|
|
(19,972
|
)
|
|
|
|
|
|
|
59,916
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(573,919
|
)
|
|
$
|
(744,628
|
)
|
|
$
|
(762,101
|
)
|
|
$
|
(545,481
|
)
|
|
$
|
2,052,210
|
|
|
$
|
(573,919
|
)
|
|
174 POPULAR, INC. 2009 ANNUAL REPORT
Condensed Consolidating Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other
|
|
|
|
|
|
|
Popular, Inc.
|
|
PIBI
|
|
PNA
|
|
subsidiaries
|
|
Elimination
|
|
Popular, Inc.
|
(In thousands)
|
|
Holding Co.
|
|
Holding Co.
|
|
Holding Co.
|
|
and eliminations
|
|
entries
|
|
Consolidated
|
|
INTEREST AND DIVIDEND INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income from subsidiaries
|
|
$
|
179,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(179,900
|
)
|
|
|
|
|
Loans
|
|
|
21,007
|
|
|
$
|
219
|
|
|
$
|
89,167
|
|
|
$
|
1,868,717
|
|
|
|
(110,648
|
)
|
|
$
|
1,868,462
|
|
Money market investments
|
|
|
1,730
|
|
|
|
1,073
|
|
|
|
1,918
|
|
|
|
19,056
|
|
|
|
(5,795
|
)
|
|
|
17,982
|
|
Investment securities
|
|
|
30,912
|
|
|
|
766
|
|
|
|
894
|
|
|
|
339,059
|
|
|
|
(28,063
|
)
|
|
|
343,568
|
|
Trading account securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,111
|
|
|
|
|
|
|
|
44,111
|
|
|
|
|
|
233,549
|
|
|
|
2,058
|
|
|
|
91,979
|
|
|
|
2,270,943
|
|
|
|
(324,406
|
)
|
|
|
2,274,123
|
|
|
INTEREST EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
702,858
|
|
|
|
(2,736
|
)
|
|
|
700,122
|
|
Short-term borrowings
|
|
|
2,943
|
|
|
|
|
|
|
|
18,818
|
|
|
|
181,059
|
|
|
|
(34,750
|
)
|
|
|
168,070
|
|
Long-term debt
|
|
|
39,118
|
|
|
|
|
|
|
|
120,605
|
|
|
|
75,178
|
|
|
|
(108,174
|
)
|
|
|
126,727
|
|
|
|
|
|
42,061
|
|
|
|
|
|
|
|
139,423
|
|
|
|
959,095
|
|
|
|
(145,660
|
)
|
|
|
994,919
|
|
|
Net interest income (loss)
|
|
|
191,488
|
|
|
|
2,058
|
|
|
|
(47,444
|
)
|
|
|
1,311,848
|
|
|
|
(178,746
|
)
|
|
|
1,279,204
|
|
Provision for loan losses
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
991,344
|
|
|
|
|
|
|
|
991,384
|
|
|
Net interest income (loss) after
provision
for loan losses
|
|
|
191,448
|
|
|
|
2,058
|
|
|
|
(47,444
|
)
|
|
|
320,504
|
|
|
|
(178,746
|
)
|
|
|
287,820
|
|
Service charges on deposit
accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206,957
|
|
|
|
|
|
|
|
206,957
|
|
Other service fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
424,971
|
|
|
|
(8,808
|
)
|
|
|
416,163
|
|
Net (loss) gain on sale and
valuation adjustments
of investment securities
|
|
|
|
|
|
|
(9,147
|
)
|
|
|
|
|
|
|
78,863
|
|
|
|
|
|
|
|
69,716
|
|
Trading account profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,645
|
|
|
|
|
|
|
|
43,645
|
|
Gain on sale of loans, including
adjustments
to indemnity reserves, and
valuation
adjustments on loans
held-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,018
|
|
|
|
|
|
|
|
6,018
|
|
Other operating (loss) income
|
|
|
(15
|
)
|
|
|
11,844
|
|
|
|
(31,447
|
)
|
|
|
111,360
|
|
|
|
(4,267
|
)
|
|
|
87,475
|
|
|
|
|
|
191,433
|
|
|
|
4,755
|
|
|
|
(78,891
|
)
|
|
|
1,192,318
|
|
|
|
(191,821
|
)
|
|
|
1,117,794
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
|
|
|
22,363
|
|
|
|
395
|
|
|
|
|
|
|
|
464,971
|
|
|
|
(2,009
|
)
|
|
|
485,720
|
|
Pension, profit sharing and
other benefits
|
|
|
4,816
|
|
|
|
75
|
|
|
|
|
|
|
|
117,927
|
|
|
|
(73
|
)
|
|
|
122,745
|
|
|
|
|
|
27,179
|
|
|
|
470
|
|
|
|
|
|
|
|
582,898
|
|
|
|
(2,082
|
)
|
|
|
608,465
|
|
Net occupancy expenses
|
|
|
2,582
|
|
|
|
29
|
|
|
|
3
|
|
|
|
117,842
|
|
|
|
|
|
|
|
120,456
|
|
Equipment expenses
|
|
|
3,697
|
|
|
|
|
|
|
|
|
|
|
|
107,781
|
|
|
|
|
|
|
|
111,478
|
|
Other taxes
|
|
|
2,590
|
|
|
|
|
|
|
|
|
|
|
|
50,209
|
|
|
|
|
|
|
|
52,799
|
|
Professional fees
|
|
|
19,573
|
|
|
|
12
|
|
|
|
(24
|
)
|
|
|
107,253
|
|
|
|
(5,669
|
)
|
|
|
121,145
|
|
Communications
|
|
|
314
|
|
|
|
19
|
|
|
|
37
|
|
|
|
51,016
|
|
|
|
|
|
|
|
51,386
|
|
Business promotion
|
|
|
1,621
|
|
|
|
|
|
|
|
|
|
|
|
61,110
|
|
|
|
|
|
|
|
62,731
|
|
Printing and supplies
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
14,380
|
|
|
|
|
|
|
|
14,450
|
|
Impairment losses on long-lived
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,491
|
|
|
|
|
|
|
|
13,491
|
|
FDIC deposit insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,037
|
|
|
|
|
|
|
|
15,037
|
|
Other operating expenses
|
|
|
(55,012
|
)
|
|
|
(401
|
)
|
|
|
(954
|
)
|
|
|
199,264
|
|
|
|
(1,596
|
)
|
|
|
141,301
|
|
Goodwill and trademark
impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,480
|
|
|
|
|
|
|
|
12,480
|
|
Amortization of intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,509
|
|
|
|
|
|
|
|
11,509
|
|
|
|
|
|
2,614
|
|
|
|
129
|
|
|
|
(938
|
)
|
|
|
1,344,270
|
|
|
|
(9,347
|
)
|
|
|
1,336,728
|
|
|
Income (loss) before income tax
and equity in
losses of subsidiaries
|
|
|
188,819
|
|
|
|
4,626
|
|
|
|
(77,953
|
)
|
|
|
(151,952
|
)
|
|
|
(182,474
|
)
|
|
|
(218,934
|
)
|
Income tax expense
|
|
|
366
|
|
|
|
|
|
|
|
12,962
|
|
|
|
447,730
|
|
|
|
476
|
|
|
|
461,534
|
|
|
Income (loss) before equity in
losses
of subsidiaries
|
|
|
188,453
|
|
|
|
4,626
|
|
|
|
(90,915
|
)
|
|
|
(599,682
|
)
|
|
|
(182,950
|
)
|
|
|
(680,468
|
)
|
Equity in undistributed losses
of subsidiaries
|
|
|
(868,921
|
)
|
|
|
(929,637
|
)
|
|
|
(849,432
|
)
|
|
|
|
|
|
|
2,647,990
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(680,468
|
)
|
|
|
(925,011
|
)
|
|
|
(940,347
|
)
|
|
|
(599,682
|
)
|
|
|
2,465,040
|
|
|
|
(680,468
|
)
|
Loss from discontinued
operations, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(563,435
|
)
|
|
|
|
|
|
|
(563,435
|
)
|
Equity in undistributed losses of
discontinued operations
|
|
|
(563,435
|
)
|
|
|
(563,435
|
)
|
|
|
(563,435
|
)
|
|
|
|
|
|
|
1,690,305
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(1,243,903
|
)
|
|
$
|
(1,488,446
|
)
|
|
$
|
(1,503,782
|
)
|
|
$
|
(1,163,117
|
)
|
|
$
|
4,155,345
|
|
|
$
|
(1,243,903
|
)
|
|
175
Condensed Consolidating Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other
|
|
|
|
|
|
|
Popular, Inc.
|
|
PIBI
|
|
PNA
|
|
subsidiaries
|
|
Elimination
|
|
Popular, Inc.
|
(In thousands)
|
|
Holding Co.
|
|
Holding Co.
|
|
Holding Co.
|
|
and eliminations
|
|
entries
|
|
Consolidated
|
|
INTEREST AND DIVIDEND INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income from subsidiaries
|
|
$
|
383,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(383,100
|
)
|
|
|
|
|
Loans
|
|
|
20,640
|
|
|
$
|
343
|
|
|
$
|
158,510
|
|
|
$
|
2,045,405
|
|
|
|
(178,461
|
)
|
|
$
|
2,046,437
|
|
Money market investments
|
|
|
1,147
|
|
|
|
370
|
|
|
|
52
|
|
|
|
29,612
|
|
|
|
(5,991
|
)
|
|
|
25,190
|
|
Investment securities
|
|
|
37,408
|
|
|
|
1,800
|
|
|
|
894
|
|
|
|
430,285
|
|
|
|
(28,779
|
)
|
|
|
441,608
|
|
Trading account securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,000
|
|
|
|
|
|
|
|
39,000
|
|
|
|
|
|
442,295
|
|
|
|
2,513
|
|
|
|
159,456
|
|
|
|
2,544,302
|
|
|
|
(596,331
|
)
|
|
|
2,552,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
766,945
|
|
|
|
(1,151
|
)
|
|
|
765,794
|
|
Short-term borrowings
|
|
|
3,644
|
|
|
|
|
|
|
|
59,801
|
|
|
|
441,133
|
|
|
|
(80,048
|
)
|
|
|
424,530
|
|
Long-term debt
|
|
|
33,451
|
|
|
|
|
|
|
|
149,461
|
|
|
|
6,577
|
|
|
|
(133,236
|
)
|
|
|
56,253
|
|
|
|
|
|
37,095
|
|
|
|
|
|
|
|
209,262
|
|
|
|
1,214,655
|
|
|
|
(214,435
|
)
|
|
|
1,246,577
|
|
|
Net interest income (loss)
|
|
|
405,200
|
|
|
|
2,513
|
|
|
|
(49,806
|
)
|
|
|
1,329,647
|
|
|
|
(381,896
|
)
|
|
|
1,305,658
|
|
Provision for loan losses
|
|
|
2,007
|
|
|
|
|
|
|
|
|
|
|
|
339,212
|
|
|
|
|
|
|
|
341,219
|
|
|
Net interest income (loss) after
provision
for loan losses
|
|
|
403,193
|
|
|
|
2,513
|
|
|
|
(49,806
|
)
|
|
|
990,435
|
|
|
|
(381,896
|
)
|
|
|
964,439
|
|
Service charges on deposit accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196,072
|
|
|
|
|
|
|
|
196,072
|
|
Other service fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
370,270
|
|
|
|
(4,659
|
)
|
|
|
365,611
|
|
Net gain (loss) on sale and
valuation adjustments
of investment securities
|
|
|
115,567
|
|
|
|
(20,083
|
)
|
|
|
|
|
|
|
5,385
|
|
|
|
|
|
|
|
100,869
|
|
Trading account profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,197
|
|
|
|
|
|
|
|
37,197
|
|
Gain on sale of loans, including
adjustments to
indemnity reserves, and
valuation adjustments
on loans held-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,046
|
|
|
|
|
|
|
|
60,046
|
|
Other operating income (loss)
|
|
|
9,862
|
|
|
|
15,410
|
|
|
|
(1,592
|
)
|
|
|
92,605
|
|
|
|
(2,385
|
)
|
|
|
113,900
|
|
|
|
|
|
528,622
|
|
|
|
(2,160
|
)
|
|
|
(51,398
|
)
|
|
|
1,752,010
|
|
|
|
(388,940
|
)
|
|
|
1,838,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
|
|
|
21,062
|
|
|
|
389
|
|
|
|
|
|
|
|
465,366
|
|
|
|
(1,639
|
)
|
|
|
485,178
|
|
Pension, profit sharing and
other benefits
|
|
|
5,878
|
|
|
|
69
|
|
|
|
|
|
|
|
130,100
|
|
|
|
(465
|
)
|
|
|
135,582
|
|
|
|
|
|
26,940
|
|
|
|
458
|
|
|
|
|
|
|
|
595,466
|
|
|
|
(2,104
|
)
|
|
|
620,760
|
|
Net occupancy expenses
|
|
|
2,327
|
|
|
|
29
|
|
|
|
3
|
|
|
|
106,985
|
|
|
|
|
|
|
|
109,344
|
|
Equipment expenses
|
|
|
1,755
|
|
|
|
|
|
|
|
3
|
|
|
|
115,324
|
|
|
|
|
|
|
|
117,082
|
|
Other taxes
|
|
|
1,557
|
|
|
|
|
|
|
|
|
|
|
|
46,932
|
|
|
|
|
|
|
|
48,489
|
|
Professional fees
|
|
|
12,103
|
|
|
|
20
|
|
|
|
47
|
|
|
|
110,493
|
|
|
|
(3,140
|
)
|
|
|
119,523
|
|
Communications
|
|
|
518
|
|
|
|
|
|
|
|
|
|
|
|
57,574
|
|
|
|
|
|
|
|
58,092
|
|
Business promotion
|
|
|
2,768
|
|
|
|
|
|
|
|
|
|
|
|
107,141
|
|
|
|
|
|
|
|
109,909
|
|
Printing and supplies
|
|
|
75
|
|
|
|
|
|
|
|
1
|
|
|
|
15,527
|
|
|
|
|
|
|
|
15,603
|
|
Impairment losses on long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,478
|
|
|
|
|
|
|
|
10,478
|
|
FDIC deposit insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,858
|
|
|
|
|
|
|
|
2,858
|
|
Other operating expenses
|
|
|
(45,817
|
)
|
|
|
(400
|
)
|
|
|
446
|
|
|
|
158,558
|
|
|
|
(1,658
|
)
|
|
|
111,129
|
|
Goodwill and trademark impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
211,750
|
|
|
|
|
|
|
|
211,750
|
|
Amortization of intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,445
|
|
|
|
|
|
|
|
10,445
|
|
|
|
|
|
2,226
|
|
|
|
107
|
|
|
|
500
|
|
|
|
1,549,531
|
|
|
|
(6,902
|
)
|
|
|
1,545,462
|
|
|
Income (loss) before income tax
and equity in losses of subsidiaries
|
|
|
526,396
|
|
|
|
(2,267
|
)
|
|
|
(51,898
|
)
|
|
|
202,479
|
|
|
|
(382,038
|
)
|
|
|
292,672
|
|
Income tax expense (benefit)
|
|
|
30,288
|
|
|
|
|
|
|
|
(18,164
|
)
|
|
|
77,602
|
|
|
|
438
|
|
|
|
90,164
|
|
|
Income (loss) before equity in
losses
of subsidiaries
|
|
|
496,108
|
|
|
|
(2,267
|
)
|
|
|
(33,734
|
)
|
|
|
124,877
|
|
|
|
(382,476
|
)
|
|
|
202,508
|
|
Equity in undistributed losses of subsidiaries
|
|
|
(293,600
|
)
|
|
|
(237,145
|
)
|
|
|
(206,477
|
)
|
|
|
|
|
|
|
737,222
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
202,508
|
|
|
|
(239,412
|
)
|
|
|
(240,211
|
)
|
|
|
124,877
|
|
|
|
354,746
|
|
|
|
202,508
|
|
Loss from discontinued operations, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
(267,001
|
)
|
|
|
|
|
|
|
(267,001
|
)
|
Equity in undistributed losses of
discontinued operations
|
|
|
(267,001
|
)
|
|
|
(267,001
|
)
|
|
|
(267,001
|
)
|
|
|
|
|
|
|
801,003
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(64,493
|
)
|
|
$
|
(506,413
|
)
|
|
$
|
(507,212
|
)
|
|
$
|
(142,124
|
)
|
|
$
|
1,155,749
|
|
|
$
|
(64,493
|
)
|
|
176 POPULAR, INC. 2009 ANNUAL REPORT
Condensed Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009
|
|
|
Popular, Inc.
|
|
PIBI
|
|
PNA
|
|
Other
|
|
Elimination
|
|
Popular, Inc.
|
(In thousands)
|
|
Holding Co.
|
|
Holding Co.
|
|
Holding Co.
|
|
Subsidiaries
|
|
Entries
|
|
Consolidated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(573,919
|
)
|
|
$
|
(744,628
|
)
|
|
$
|
(762,101
|
)
|
|
$
|
(545,481
|
)
|
|
$
|
2,052,210
|
|
|
$
|
(573,919
|
)
|
|
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed losses of subsidiaries
|
|
|
729,953
|
|
|
|
759,011
|
|
|
|
755,277
|
|
|
|
|
|
|
|
(2,244,241
|
)
|
|
|
|
|
Depreciation and amortization of premises and
equipment
|
|
|
1,573
|
|
|
|
|
|
|
|
3
|
|
|
|
62,875
|
|
|
|
|
|
|
|
64,451
|
|
Provision for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,405,807
|
|
|
|
|
|
|
|
1,405,807
|
|
Impairment losses on long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,545
|
|
|
|
|
|
|
|
1,545
|
|
Amortization of intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,482
|
|
|
|
|
|
|
|
9,482
|
|
Amortization and fair value adjustment of
servicing assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,960
|
|
|
|
|
|
|
|
32,960
|
|
Amortization of discount on junior
subordinated debentures
|
|
|
6,765
|
|
|
|
|
|
|
|
493
|
|
|
|
|
|
|
|
|
|
|
|
7,258
|
|
Net (gain) loss on sale and valuation
adjustment of investment securities
|
|
|
(3,008
|
)
|
|
|
10,934
|
|
|
|
|
|
|
|
(229,530
|
)
|
|
|
2,058
|
|
|
|
(219,546
|
)
|
Earnings from changes in fair value related
to instruments
measured at fair value pursuant to SFAS No.
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,674
|
)
|
|
|
|
|
|
|
(1,674
|
)
|
Net loss (gain) on disposition of premises
and equipment
|
|
|
3,006
|
|
|
|
|
|
|
|
|
|
|
|
(3,418
|
)
|
|
|
|
|
|
|
(412
|
)
|
Net loss on sale of loans and valuation
adjustments on loans
held-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,268
|
|
|
|
|
|
|
|
40,268
|
|
(Gain) loss on early extinguishment of debt
|
|
|
(26,439
|
)
|
|
|
|
|
|
|
(51,898
|
)
|
|
|
1,959
|
|
|
|
(1,922
|
)
|
|
|
(78,300
|
)
|
Net amortization of premiums and accretion of
discount on investments
|
|
|
335
|
|
|
|
|
|
|
|
|
|
|
|
19,181
|
|
|
|
(271
|
)
|
|
|
19,245
|
|
Net amortization of premiums on loans and
deferred loan
origination fees and costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,031
|
|
|
|
|
|
|
|
45,031
|
|
(Earnings) losses from investments under the
equity method
|
|
|
(692
|
)
|
|
|
(16,558
|
)
|
|
|
1,184
|
|
|
|
90
|
|
|
|
(1,719
|
)
|
|
|
(17,695
|
)
|
Stock options expense
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
202
|
|
Net disbursements on loans held-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,129,554
|
)
|
|
|
|
|
|
|
(1,129,554
|
)
|
Acquisitions of loans held-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(354,472
|
)
|
|
|
|
|
|
|
(354,472
|
)
|
Proceeds from sale of loans held-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,264
|
|
|
|
|
|
|
|
79,264
|
|
Net decrease in trading securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,542,470
|
|
|
|
|
|
|
|
1,542,470
|
|
Net decrease (increase) in accrued income
receivable
|
|
|
913
|
|
|
|
347
|
|
|
|
1,728
|
|
|
|
29,553
|
|
|
|
(1,940
|
)
|
|
|
30,601
|
|
Net decrease (increase) in other assets
|
|
|
17,282
|
|
|
|
6,712
|
|
|
|
1,020
|
|
|
|
(194,668
|
)
|
|
|
(13,306
|
)
|
|
|
(182,960
|
)
|
Net increase (decrease) in interest payable
|
|
|
6,455
|
|
|
|
|
|
|
|
(11,605
|
)
|
|
|
(44,485
|
)
|
|
|
1,940
|
|
|
|
(47,695
|
)
|
Deferred income taxes
|
|
|
(1,850
|
)
|
|
|
|
|
|
|
(2,601
|
)
|
|
|
(100,308
|
)
|
|
|
24,869
|
|
|
|
(79,890
|
)
|
Net decrease in postretirement benefit
obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,223
|
|
|
|
|
|
|
|
4,223
|
|
Net (decrease) increase in other liabilities
|
|
|
(1,797
|
)
|
|
|
(77
|
)
|
|
|
3,796
|
|
|
|
39,999
|
|
|
|
(9,708
|
)
|
|
|
32,213
|
|
|
Total adjustments
|
|
|
732,587
|
|
|
|
760,369
|
|
|
|
697,397
|
|
|
|
1,256,709
|
|
|
|
(2,244,240
|
)
|
|
|
1,202,822
|
|
|
Net cash provided by (used in) operating
activities
|
|
|
158,668
|
|
|
|
15,741
|
|
|
|
(64,704
|
)
|
|
|
711,228
|
|
|
|
(192,030
|
)
|
|
|
628,903
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease (increase) in money market
investments
|
|
|
89,643
|
|
|
|
(15,530
|
)
|
|
|
450,008
|
|
|
|
(208,181
|
)
|
|
|
(524,083
|
)
|
|
|
(208,143
|
)
|
Purchases of investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
(249,603
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,135,171
|
)
|
|
|
191,484
|
|
|
|
(4,193,290
|
)
|
Held-to-maturity
|
|
|
(51,539
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,023
|
)
|
|
|
|
|
|
|
(59,562
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,913
|
)
|
|
|
|
|
|
|
(38,913
|
)
|
Proceeds from calls, paydowns, maturities and
redemptions of investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
14,226
|
|
|
|
|
|
|
|
|
|
|
|
1,617,381
|
|
|
|
|
|
|
|
1,631,607
|
|
Held-to-maturity
|
|
|
27,318
|
|
|
|
|
|
|
|
|
|
|
|
114,248
|
|
|
|
|
|
|
|
141,566
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,101
|
|
|
|
|
|
|
|
75,101
|
|
Proceeds from sales of investment
securities available-for-sale
|
|
|
426,666
|
|
|
|
|
|
|
|
|
|
|
|
3,590,131
|
|
|
|
(191,484
|
)
|
|
|
3,825,313
|
|
Proceeds from sale of other investment
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,294
|
|
|
|
|
|
|
|
52,294
|
|
Net repayments on loans
|
|
|
717,578
|
|
|
|
|
|
|
|
12,800
|
|
|
|
1,065,164
|
|
|
|
(741,795
|
)
|
|
|
1,053,747
|
|
Proceeds from sale of loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
328,170
|
|
|
|
|
|
|
|
328,170
|
|
Acquisition of loan portfolios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(72,675
|
)
|
|
|
|
|
|
|
(72,675
|
)
|
Capital contribution to subsidiary
|
|
|
(940,000
|
)
|
|
|
(940,000
|
)
|
|
|
(590,000
|
)
|
|
|
|
|
|
|
2,470,000
|
|
|
|
|
|
Transfer of shares of a subsidiary
|
|
|
(42,971
|
)
|
|
|
|
|
|
|
42,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,364
|
)
|
|
|
|
|
|
|
(1,364
|
)
|
Acquisition of premises and equipment
|
|
|
(310
|
)
|
|
|
|
|
|
|
|
|
|
|
(69,330
|
)
|
|
|
|
|
|
|
(69,640
|
)
|
Proceeds from sale of premises and equipment
|
|
|
14,943
|
|
|
|
|
|
|
|
|
|
|
|
25,300
|
|
|
|
|
|
|
|
40,243
|
|
Proceeds from sale of foreclosed assets
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
149,900
|
|
|
|
|
|
|
|
149,947
|
|
|
Net cash provided by (used in) investing
activities
|
|
|
5,998
|
|
|
|
(955,530
|
)
|
|
|
(84,221
|
)
|
|
|
2,484,032
|
|
|
|
1,204,122
|
|
|
|
2,654,401
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,058,240
|
)
|
|
|
432,642
|
|
|
|
(1,625,598
|
)
|
Net decrease in federal funds purchased and
assets sold under agreements to repurchase
|
|
|
(44,471
|
)
|
|
|
|
|
|
|
|
|
|
|
(964,027
|
)
|
|
|
89,680
|
|
|
|
(918,818
|
)
|
Net (decrease) increase in other short-term
borrowings
|
|
|
(18,544
|
)
|
|
|
|
|
|
|
200
|
|
|
|
(721,059
|
)
|
|
|
741,795
|
|
|
|
2,392
|
|
Payments of notes payable
|
|
|
|
|
|
|
|
|
|
|
(798,880
|
)
|
|
|
(14,197
|
)
|
|
|
|
|
|
|
(813,077
|
)
|
Proceeds from issuance of notes payable
|
|
|
|
|
|
|
|
|
|
|
675
|
|
|
|
60,000
|
|
|
|
|
|
|
|
60,675
|
|
Dividends paid to parent company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(188,125
|
)
|
|
|
188,125
|
|
|
|
|
|
Dividends paid
|
|
|
(71,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71,438
|
)
|
Issuance costs and fees paid on exchange of
preferred stock and trust
preferred securities
|
|
|
(29,024
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,944
|
|
|
|
(25,080
|
)
|
Treasury stock acquired
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
Capital contribution from parent
|
|
|
|
|
|
|
940,000
|
|
|
|
940,000
|
|
|
|
590,000
|
|
|
|
(2,470,000
|
)
|
|
|
|
|
|
Net cash (used in) provided by financing
activities
|
|
|
(163,494
|
)
|
|
|
940,000
|
|
|
|
141,995
|
|
|
|
(3,295,648
|
)
|
|
|
(1,013,814
|
)
|
|
|
(3,390,961
|
)
|
|
Net increase (decrease) in cash and due from
banks
|
|
|
1,172
|
|
|
|
211
|
|
|
|
(6,930
|
)
|
|
|
(100,388
|
)
|
|
|
(1,722
|
)
|
|
|
(107,657
|
)
|
Cash and due from banks at beginning of period
|
|
|
2
|
|
|
|
89
|
|
|
|
7,668
|
|
|
|
777,994
|
|
|
|
(766
|
)
|
|
|
784,987
|
|
|
Cash and due from banks at end of period
|
|
$
|
1,174
|
|
|
$
|
300
|
|
|
$
|
738
|
|
|
$
|
677,606
|
|
|
$
|
(2,488
|
)
|
|
$
|
677,330
|
|
|
177
Condensed Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008
|
|
|
Popular, Inc.
|
|
PIBI
|
|
PNA
|
|
Other
|
|
Elimination
|
|
Popular, Inc.
|
(In thousands)
|
|
Holding Co.
|
|
Holding Co.
|
|
Holding Co.
|
|
Subsidiaries
|
|
Entries
|
|
Consolidated
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,243,903
|
)
|
|
$
|
(1,488,446
|
)
|
|
$
|
(1,503,782
|
)
|
|
$
|
(1,163,117
|
)
|
|
$
|
4,155,345
|
|
|
$
|
(1,243,903
|
)
|
|
Adjustments to reconcile net loss
to net
cash provided by (used in)
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed losses of
subsidiaries
|
|
|
1,432,356
|
|
|
|
1,493,072
|
|
|
|
1,412,867
|
|
|
|
|
|
|
|
(4,338,295
|
)
|
|
|
|
|
Depreciation and amortization of
premises and equipment
|
|
|
2,321
|
|
|
|
|
|
|
|
3
|
|
|
|
70,764
|
|
|
|
|
|
|
|
73,088
|
|
Provision for loan losses
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
1,010,335
|
|
|
|
|
|
|
|
1,010,375
|
|
Goodwill and trademark impairment
losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,480
|
|
|
|
|
|
|
|
12,480
|
|
Impairment losses on long-lived
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,445
|
|
|
|
|
|
|
|
17,445
|
|
Amortization of intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,509
|
|
|
|
|
|
|
|
11,509
|
|
Amortization and fair value
adjustment of servicing assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,174
|
|
|
|
|
|
|
|
52,174
|
|
Net loss (gain) on sale and
valuation
adjustment of investment securities
|
|
|
|
|
|
|
9,147
|
|
|
|
|
|
|
|
(73,443
|
)
|
|
|
|
|
|
|
(64,296
|
)
|
Losses from changes in fair value
related to instruments
measured at fair value pursuant to
SFAS No. 159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
198,880
|
|
|
|
|
|
|
|
198,880
|
|
Net loss (gain) on disposition of
premises and equipment
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
(25,961
|
)
|
|
|
|
|
|
|
(25,904
|
)
|
Loss on sale of loans, including
adjustments to indemnity
reserves, and adjustments on loans
held-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,056
|
|
|
|
|
|
|
|
83,056
|
|
Net amortization of premiums and
accretion
of discounts on investments
|
|
|
(1,791
|
)
|
|
|
|
|
|
|
|
|
|
|
21,675
|
|
|
|
|
|
|
|
19,884
|
|
Net amortization of premiums on
loans and deferred loan
origination fees and costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,495
|
|
|
|
|
|
|
|
52,495
|
|
Fair value adjustment of other
assets held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,789
|
|
|
|
|
|
|
|
120,789
|
|
Losses (earnings) from investments
under the equity
method
|
|
|
110
|
|
|
|
(11,845
|
)
|
|
|
4,546
|
|
|
|
26
|
|
|
|
(1,753
|
)
|
|
|
(8,916
|
)
|
Stock options expense
|
|
|
412
|
|
|
|
|
|
|
|
|
|
|
|
687
|
|
|
|
|
|
|
|
1,099
|
|
Net disbursements on loans
held-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,302,189
|
)
|
|
|
|
|
|
|
(2,302,189
|
)
|
Acquisitions of loans held-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(431,789
|
)
|
|
|
|
|
|
|
(431,789
|
)
|
Proceeds from sale of loans
held-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,492,870
|
|
|
|
|
|
|
|
1,492,870
|
|
Net decrease in trading securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,754,419
|
|
|
|
(319
|
)
|
|
|
1,754,100
|
|
Net decrease (increase) in accrued
income receivable
|
|
|
642
|
|
|
|
(412
|
)
|
|
|
(1,383
|
)
|
|
|
59,787
|
|
|
|
825
|
|
|
|
59,459
|
|
Net (increase) decrease in other
assets
|
|
|
(585
|
)
|
|
|
5,245
|
|
|
|
7,067
|
|
|
|
99,482
|
|
|
|
(25,136
|
)
|
|
|
86,073
|
|
Net decrease in interest payable
|
|
|
(1,982
|
)
|
|
|
|
|
|
|
(15,934
|
)
|
|
|
(39,665
|
)
|
|
|
(825
|
)
|
|
|
(58,406
|
)
|
Deferred income taxes
|
|
|
(444
|
)
|
|
|
|
|
|
|
12,962
|
|
|
|
366,733
|
|
|
|
475
|
|
|
|
379,726
|
|
Net increase in postretirement
benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,405
|
|
|
|
|
|
|
|
3,405
|
|
Net increase (decrease) in other
liabilities
|
|
|
9,511
|
|
|
|
1
|
|
|
|
(26,835
|
)
|
|
|
(44,293
|
)
|
|
|
25,630
|
|
|
|
(35,986
|
)
|
|
Total adjustments
|
|
|
1,440,647
|
|
|
|
1,495,208
|
|
|
|
1,393,293
|
|
|
|
2,511,671
|
|
|
|
(4,339,398
|
)
|
|
|
2,501,421
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
196,744
|
|
|
|
6,762
|
|
|
|
(110,489
|
)
|
|
|
1,348,554
|
|
|
|
(184,053
|
)
|
|
|
1,257,518
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (increase) decrease in money
market investments
|
|
|
(43,294
|
)
|
|
|
(40,314
|
)
|
|
|
(550,095
|
)
|
|
|
237,491
|
|
|
|
608,270
|
|
|
|
212,058
|
|
Purchases of investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
(188,673
|
)
|
|
|
(181
|
)
|
|
|
|
|
|
|
(3,887,030
|
)
|
|
|
|
|
|
|
(4,075,884
|
)
|
Held-to-maturity
|
|
|
(605,079
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,481,090
|
)
|
|
|
|
|
|
|
(5,086,169
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(193,820
|
)
|
|
|
|
|
|
|
(193,820
|
)
|
Proceeds from calls, paydowns,
maturities and
redemptions of investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,491,732
|
|
|
|
|
|
|
|
2,491,732
|
|
Held-to-maturity
|
|
|
801,500
|
|
|
|
|
|
|
|
|
|
|
|
4,476,373
|
|
|
|
|
|
|
|
5,277,873
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
192,588
|
|
|
|
|
|
|
|
192,588
|
|
Proceeds from sales of investment
securities available-for-sale
|
|
|
|
|
|
|
8,296
|
|
|
|
|
|
|
|
2,437,214
|
|
|
|
|
|
|
|
2,445,510
|
|
Proceeds from sale of other
investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,489
|
|
|
|
|
|
|
|
49,489
|
|
Net (disbursements) repayments on
loans
|
|
|
(1,301,944
|
)
|
|
|
25,150
|
|
|
|
2,054,214
|
|
|
|
(991,266
|
)
|
|
|
(879,591
|
)
|
|
|
(1,093,437
|
)
|
Proceeds from sale of loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,426,491
|
|
|
|
|
|
|
|
2,426,491
|
|
Acquisition of loan portfolios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,505
|
)
|
|
|
|
|
|
|
(4,505
|
)
|
Capital contribution to subsidiary
|
|
|
(251,512
|
)
|
|
|
(250,000
|
)
|
|
|
(246,800
|
)
|
|
|
|
|
|
|
748,312
|
|
|
|
|
|
Mortgage servicing rights purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,331
|
)
|
|
|
|
|
|
|
(42,331
|
)
|
Acquisition of premises and
equipment
|
|
|
(664
|
)
|
|
|
|
|
|
|
|
|
|
|
(145,476
|
)
|
|
|
|
|
|
|
(146,140
|
)
|
Proceeds from sale of premises and
equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,058
|
|
|
|
|
|
|
|
60,058
|
|
Proceeds from sale of foreclosed
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,683
|
|
|
|
|
|
|
|
166,683
|
|
|
Net cash (used in) provided by
investing activities
|
|
|
(1,589,666
|
)
|
|
|
(257,049
|
)
|
|
|
1,257,319
|
|
|
|
2,792,601
|
|
|
|
476,991
|
|
|
|
2,680,196
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(164,957
|
)
|
|
|
(589,220
|
)
|
|
|
(754,177
|
)
|
Net increase (decrease) in federal
funds purchased and
assets sold under agreements to
repurchase
|
|
|
44,471
|
|
|
|
|
|
|
|
(117,692
|
)
|
|
|
(1,794,455
|
)
|
|
|
(17,980
|
)
|
|
|
(1,885,656
|
)
|
Net decrease in other short-term
borrowings
|
|
|
(122,232
|
)
|
|
|
|
|
|
|
(6,473
|
)
|
|
|
(892,692
|
)
|
|
|
(475,648
|
)
|
|
|
(1,497,045
|
)
|
Payments of notes payable
|
|
|
(61,152
|
)
|
|
|
|
|
|
|
(1,273,568
|
)
|
|
|
(2,069,253
|
)
|
|
|
1,387,559
|
|
|
|
(2,016,414
|
)
|
Proceeds from issuance of notes
payable
|
|
|
380,297
|
|
|
|
|
|
|
|
8,171
|
|
|
|
671,630
|
|
|
|
(32,000
|
)
|
|
|
1,028,098
|
|
Dividends paid
|
|
|
(188,644
|
)
|
|
|
|
|
|
|
|
|
|
|
(179,900
|
)
|
|
|
179,900
|
|
|
|
(188,644
|
)
|
Proceeds from issuance of common
stock
|
|
|
17,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,712
|
|
Proceeds from issuance of preferred
stock and
associated warrants
|
|
|
1,321,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,793
|
|
|
|
1,324,935
|
|
Treasury stock acquired
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
(300
|
)
|
|
|
|
|
|
|
(361
|
)
|
Capital contribution from parent
|
|
|
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
248,311
|
|
|
|
(748,311
|
)
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
1,391,533
|
|
|
|
250,000
|
|
|
|
(1,139,562
|
)
|
|
|
(4,181,616
|
)
|
|
|
(291,907
|
)
|
|
|
(3,971,552
|
)
|
|
Net (decrease) increase in cash and
due from banks
|
|
|
(1,389
|
)
|
|
|
(287
|
)
|
|
|
7,268
|
|
|
|
(40,461
|
)
|
|
|
1,031
|
|
|
|
(33,838
|
)
|
Cash and due from banks at beginning
of period
|
|
|
1,391
|
|
|
|
376
|
|
|
|
400
|
|
|
|
818,455
|
|
|
|
(1,797
|
)
|
|
|
818,825
|
|
|
Cash and due from banks at end of
period
|
|
$
|
2
|
|
|
$
|
89
|
|
|
$
|
7,668
|
|
|
$
|
777,994
|
|
|
$
|
(766
|
)
|
|
$
|
784,987
|
|
|
178 POPULAR, INC. 2009 ANNUAL REPORT
Condensed Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
Popular, Inc.
|
|
PIBI
|
|
PNA
|
|
Other
|
|
Elimination
|
|
Popular, Inc.
|
|
|
|
|
(In thousands)
|
|
Holding Co.
|
|
Holding Co.
|
|
Holding Co.
|
|
Subsidiaries
|
|
Entries
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(64,493
|
)
|
|
$
|
(506,413
|
)
|
|
$
|
(507,212
|
)
|
|
$
|
(142,124
|
)
|
|
$
|
1,155,749
|
|
|
$
|
(64,493
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to
net
cash provided by (used in ) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed losses of
subsidiaries
|
|
|
560,601
|
|
|
|
504,146
|
|
|
|
473,478
|
|
|
|
|
|
|
|
(1,538,225
|
)
|
|
|
|
|
|
|
|
|
Depreciation and amortization of
premises and equipment
|
|
|
2,365
|
|
|
|
|
|
|
|
3
|
|
|
|
76,195
|
|
|
|
|
|
|
|
78,563
|
|
|
|
|
|
Provision for loan losses
|
|
|
2,007
|
|
|
|
|
|
|
|
|
|
|
|
560,643
|
|
|
|
|
|
|
|
562,650
|
|
|
|
|
|
Goodwill and trademark impairment
losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
211,750
|
|
|
|
|
|
|
|
211,750
|
|
|
|
|
|
Impairment losses on long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,344
|
|
|
|
|
|
|
|
12,344
|
|
|
|
|
|
Amortization of intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,445
|
|
|
|
|
|
|
|
10,445
|
|
|
|
|
|
Amortization and fair value adjustment
of servicing assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,110
|
|
|
|
|
|
|
|
61,110
|
|
|
|
|
|
Net (gain) loss on sale and valuation
adjustment of investment securities
|
|
|
(115,567
|
)
|
|
|
20,083
|
|
|
|
|
|
|
|
40,325
|
|
|
|
|
|
|
|
(55,159
|
)
|
|
|
|
|
Net loss (gain) on disposition of
premises and equipment
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
(12,297
|
)
|
|
|
|
|
|
|
(12,296
|
)
|
|
|
|
|
Loss on sale of loans, including
adjustments to indemnity
reserves, and valuation adjustments on
loans held-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,970
|
|
|
|
|
|
|
|
38,970
|
|
|
|
|
|
Net amortization of premiums and
accretion
of discounts on investments
|
|
|
(8,244
|
)
|
|
|
7
|
|
|
|
|
|
|
|
28,468
|
|
|
|
7
|
|
|
|
20,238
|
|
|
|
|
|
Net amortization of premiums on loans
and deferred loan
origination fees and costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,511
|
|
|
|
|
|
|
|
90,511
|
|
|
|
|
|
(Earnings) losses from investments
under the equity
method
|
|
|
(4,612
|
)
|
|
|
(15,410
|
)
|
|
|
1,592
|
|
|
|
(1,293
|
)
|
|
|
(1,624
|
)
|
|
|
(21,347
|
)
|
|
|
|
|
Stock options expense
|
|
|
568
|
|
|
|
|
|
|
|
|
|
|
|
1,195
|
|
|
|
|
|
|
|
1,763
|
|
|
|
|
|
Net disbursements on loans
held-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,803,927
|
)
|
|
|
|
|
|
|
(4,803,927
|
)
|
|
|
|
|
Acquisitions of loans held-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(550,392
|
)
|
|
|
|
|
|
|
(550,392
|
)
|
|
|
|
|
Proceeds from sale of loans
held-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,127,794
|
|
|
|
|
|
|
|
4,127,794
|
|
|
|
|
|
Net decrease in trading securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,222,266
|
|
|
|
319
|
|
|
|
1,222,585
|
|
|
|
|
|
Net (increase) decrease in accrued
income receivable
|
|
|
(617
|
)
|
|
|
(51
|
)
|
|
|
(2,690
|
)
|
|
|
11,630
|
|
|
|
3,560
|
|
|
|
11,832
|
|
|
|
|
|
Net decrease (increase) in other assets
|
|
|
26,591
|
|
|
|
4,005
|
|
|
|
(8,339
|
)
|
|
|
(116,729
|
)
|
|
|
257
|
|
|
|
(94,215
|
)
|
|
|
|
|
Net increase (decrease) in interest
payable
|
|
|
1,508
|
|
|
|
|
|
|
|
(7,762
|
)
|
|
|
14,827
|
|
|
|
(3,560
|
)
|
|
|
5,013
|
|
|
|
|
|
Deferred income taxes
|
|
|
1,156
|
|
|
|
|
|
|
|
(18,164
|
)
|
|
|
(195,283
|
)
|
|
|
(11,449
|
)
|
|
|
(223,740
|
)
|
|
|
|
|
Net increase in postretirement benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,388
|
|
|
|
|
|
|
|
2,388
|
|
|
|
|
|
Net increase in other liabilities
|
|
|
4,354
|
|
|
|
55
|
|
|
|
8,180
|
|
|
|
46,795
|
|
|
|
12,191
|
|
|
|
71,575
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
470,111
|
|
|
|
512,835
|
|
|
|
446,298
|
|
|
|
877,735
|
|
|
|
(1,538,524
|
)
|
|
|
768,455
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating
activities
|
|
|
405,618
|
|
|
|
6,422
|
|
|
|
(60,914
|
)
|
|
|
735,611
|
|
|
|
(382,775
|
)
|
|
|
703,962
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (increase) decrease in money
market investments
|
|
|
(37,700
|
)
|
|
|
775
|
|
|
|
2,402
|
|
|
|
(664,268
|
)
|
|
|
60,223
|
|
|
|
(638,568
|
)
|
|
|
|
|
Purchases of investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
(6,808
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(886,267
|
)
|
|
|
732,365
|
|
|
|
(160,712
|
)
|
|
|
|
|
Held-to-maturity
|
|
|
(4,087,972
|
)
|
|
|
|
|
|
|
|
|
|
|
(25,232,314
|
)
|
|
|
|
|
|
|
(29,320,286
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(928
|
)
|
|
|
(111,180
|
)
|
|
|
|
|
|
|
(112,108
|
)
|
|
|
|
|
Proceeds from calls, paydowns,
maturities and
redemptions of investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,344,225
|
|
|
|
(735,548
|
)
|
|
|
1,608,677
|
|
|
|
|
|
Held-to-maturity
|
|
|
3,900,087
|
|
|
|
900
|
|
|
|
|
|
|
|
25,034,574
|
|
|
|
|
|
|
|
28,935,561
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,185
|
|
|
|
|
|
|
|
44,185
|
|
|
|
|
|
Proceeds from sales of investment
securities available-for-sale
|
|
|
5,783
|
|
|
|
17,572
|
|
|
|
|
|
|
|
34,812
|
|
|
|
|
|
|
|
58,167
|
|
|
|
|
|
Proceeds from sale of other
investment securities
|
|
|
245,484
|
|
|
|
2
|
|
|
|
865
|
|
|
|
1
|
|
|
|
|
|
|
|
246,352
|
|
|
|
|
|
Net disbursements on loans
|
|
|
(259,763
|
)
|
|
|
(25,150
|
)
|
|
|
(129,969
|
)
|
|
|
(954,507
|
)
|
|
|
(88,536
|
)
|
|
|
(1,457,925
|
)
|
|
|
|
|
Proceeds from sale of loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
415,256
|
|
|
|
|
|
|
|
415,256
|
|
|
|
|
|
Acquisition of loan portfolios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,312
|
)
|
|
|
|
|
|
|
(22,312
|
)
|
|
|
|
|
Capital contribution to subsidiary
|
|
|
|
|
|
|
(300
|
)
|
|
|
|
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
Net liabilities assumed, net of cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
719,604
|
|
|
|
|
|
|
|
719,604
|
|
|
|
|
|
Mortgage servicing rights purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,507
|
)
|
|
|
|
|
|
|
(26,507
|
)
|
|
|
|
|
Acquisition of premises and
equipment
|
|
|
(522
|
)
|
|
|
|
|
|
|
|
|
|
|
(104,344
|
)
|
|
|
|
|
|
|
(104,866
|
)
|
|
|
|
|
Proceeds from sale of premises and
equipment
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
63,444
|
|
|
|
|
|
|
|
63,455
|
|
|
|
|
|
Proceeds from sale of foreclosed
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,974
|
|
|
|
|
|
|
|
175,974
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing
activities
|
|
|
(241,400
|
)
|
|
|
(6,203
|
)
|
|
|
(127,630
|
)
|
|
|
830,376
|
|
|
|
(31,196
|
)
|
|
|
423,947
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,887,952
|
|
|
|
1,572
|
|
|
|
2,889,524
|
|
|
|
|
|
Net increase (decrease) in federal
funds purchased and assets sold under agreements to
repurchase
|
|
|
|
|
|
|
|
|
|
|
9,063
|
|
|
|
(270,843
|
)
|
|
|
(63,400
|
)
|
|
|
(325,180
|
)
|
|
|
|
|
Net increase (decrease) in other
short-term borrowings
|
|
|
14,213
|
|
|
|
|
|
|
|
260,815
|
|
|
|
(2,776,773
|
)
|
|
|
(111,056
|
)
|
|
|
(2,612,801
|
)
|
|
|
|
|
Payments of notes payable
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
(444,583
|
)
|
|
|
(2,216,143
|
)
|
|
|
202,449
|
|
|
|
(2,463,277
|
)
|
|
|
|
|
Proceeds from issuance of notes
payable
|
|
|
397
|
|
|
|
|
|
|
|
363,327
|
|
|
|
1,061,496
|
|
|
|
|
|
|
|
1,425,220
|
|
|
|
|
|
Dividends paid to parent company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(383,100
|
)
|
|
|
383,100
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(190,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(190,617
|
)
|
|
|
|
|
Proceeds from issuance of common
stock
|
|
|
20,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,414
|
|
|
|
|
|
Treasury stock acquired
|
|
|
(2,236
|
)
|
|
|
|
|
|
|
|
|
|
|
(289
|
)
|
|
|
|
|
|
|
(2,525
|
)
|
|
|
|
|
Capital contribution from parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
|
|
(300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(162,829
|
)
|
|
|
|
|
|
|
188,622
|
|
|
|
(1,697,400
|
)
|
|
|
412,365
|
|
|
|
(1,259,242
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and due
from banks
|
|
|
1,389
|
|
|
|
219
|
|
|
|
78
|
|
|
|
(131,413
|
)
|
|
|
(1,606
|
)
|
|
|
(131,333
|
)
|
|
|
|
|
Cash and due from banks at beginning of
period
|
|
|
2
|
|
|
|
157
|
|
|
|
322
|
|
|
|
949,868
|
|
|
|
(191
|
)
|
|
|
950,158
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks at end of period
|
|
$
|
1,391
|
|
|
$
|
376
|
|
|
$
|
400
|
|
|
$
|
818,455
|
|
|
$
|
(1,797
|
)
|
|
$
|
818,825
|
|
|
|
|
|
|
|
|
|
|