Popular (BPOP)

TOP CONTRIBUTORS

Geoffrey Jordan

Popular, Inc. (NASDAQ: BPOP) is a financial holding company with $48.6 billion in assets. It is a complete financial services provider with operations in Puerto Rico, the United States, the Caribbean and Latin America. Its main subsidiary is Banco Popular, which operates primarily in Puerto Rico, with 173 bank branches and 580 ATMs. Banco Popular North America has roughly 96 branches throughout the Unites States. The company and its subsidiaries have substantial operations in auto leasing, mortgages, personal loans, and information processing. In recent years, consolidation of the Puerto Rican bank industry and an improving Puerto Rican economy have benefited Popular, returning the bank to profitability after several quarters of net losses.

Business Growth

In the United States, Popular has established a banking franchise through Banco Popular North America. Popular has 96 branches in New York, New Jersey, Illinois, Florida and California. Banco Popular was recently rebranded in Chicago as Popular Community Bank. In 2010, Banco Popular added access to 33,000 surcharge-free ATMs through the Allpoint Network, located in leading national and local merchant locations.^[1]

During 2010, Popular acquired Westernbank. Through this acquisition, Popular gained approximately $9 billion in loans and assumed approximately $2.4 billion in deposits. As a result, Popular added 12 branches to its network and retained 57% of Westernbank's employees. Popular has retained more than 90% of Westernbank's clients.

Trends and Forces

Consolidation of Puerto Rican bank industry has increased Popular's market share

In the context of a potential FDIC driven consolidation process in Puerto Rico, Popular completed a public offering in April, raising a total of $1.15 billion at $3 per common share. Three banks in Puerto Rico, which at the time accounted for 20% of assets in the market, significantly altered the local banking landscape. In what turned out to be the largest FDIC assisted transaction in 2010, Popular acquired approximately $9 billion in assets and assumed approximately $2.4 billion in deposits from Westernbank. This transaction provided Banco Popular Puerto Rico with a substantial amount of incremental assets with a low level of credit risk since the FDIC reimburses Popular for 80% of the losses incurred on acquired loans.^[2]

In addition, the acquisition of Westernbank further enhanced Popular's leadership position in Puerto Rico, which as of September 2010, boasted a deposit market share, excluding brokered deposits, of 42% and loan market share of 32%. The consolidation of the Puerto Rican bank industry has also allowed Popular to pursue strategies to improve the overall credit quality of its loan portfolio, such as the reclassification and sale of high-risk portfolios.^[2]

An improving economy in Puerto Rico benefits Popular

In Puerto Rico, a recent tax reform provides over $1 billion in annual tax relief to taxpayers and reduces the maximum corporate tax rate from 41% to 30%. S&P has upgraded Puerto Rico's general obligation debt from BBB- to BBB, reaffirmed by Fitch (BBB+) and Moody's (A3).^[3] Additionally, several public-private partnerships are underway including schools, toll roads and airport projects. Popular's Puerto Rican business is poised to benefit from lower taxes, as well as a stronger Puerto Rican economy.

Competition

• Oriental Financial Group (OFG)
• Doral Financial (DRL)
• First BanCorp. (FBP)
• EuroBancshares (EUBK)
• Bank of America (BAC)
• Wells Fargo (WFC)
• SunTrust Banks (STI)
• Fifth Third Bancorp (FITB)

The Puerto Rican bank industry continues to consolidate, which will likely continue to increase the market share of Banco Popular. In the U.S., Popular is pursuing marketing campaigns that will distance itself from its Hispanic image in order to acquire non-Hispanic customers.

References

1. ↑ Popular Inc. Corporate Profile
2. ↑ ^{2.0 2.1} BPOP 10-K 2010, Letter to Shareholders, p. 6
3. ↑ BPOP Q1 Investor Presentation – May 10, 2011