Popular Earnings Call Insights: Asset Quality, Basel III
Joe Gladue – B. Riley: I want to start off with a few asset quality questions. First off, just wondering if you could give us a little more color on the resolution of some of the construction loans during the quarter, was that sales or payoffs or just looking…
Richard L. Carrion – President, Chairman and CEO: It was – the ones that Lidio referred to in his remarks were actual sales, Joe.
Lidio V. Soriano – EVP, Corpoarate Risk Management: Individual sales.
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Richard L. Carrion – President, Chairman and CEO: Yeah.
Lidio V. Soriano – EVP, Corpoarate Risk Management: (Indiscernible) we’ve negotiated with borrowers, so it’s a combination of sales and (discounted pay-off) negotiated with the borrowers.
Richard L. Carrion – President, Chairman and CEO: The bigger one, the biggest one, the $50 million one was the sale, was an outright sale.
Joe Gladue – B. Riley: Also I noticed there was some increase in the balance of construction loans, just I guess, wondering where you are – was that increases in draw downs on existing loans or is that new loans?
Jorge A. Junquera – CFO: We have very selectively, that is on construction lending. In Puerto Rico, it is mostly related to commercial property or a judicial building that is being built for the federal government so that’s driven by that.
Joe Gladue – B. Riley: Just could you tell us what the level of accruing TDRs was at the end of the quarter?
Richard L. Carrion – President, Chairman and CEO: He was waiting for this one, Joe.
Jorge A. Junquera – CFO: I think every quarter I miss this one, so this time I do have it. We have about accruing TDRs sort of the end of the September are about $629 million.
Joe Gladue – B. Riley: I guess, lastly, I would just ask, just about the outlook for loan demand. I guess there is little bit of growth in the non-covered portfolio this quarter, but I guess not enough to offset the decline in covered loans. Just wondered if you could give us sort of a breakdown of where you see loan demand in segments, in geography and when that might overtake the decline in the covered loans?
Jorge A. Junquera – CFO: Let me take a stab on that. In Puerto Rico, obviously, we have the decline in covered loans and that will be gradual over time. We are seeing – in the commercial side, we are seeing some demand in the upper end in what we would call corporate but certainly not corporate by Mainland U.S. standards, but we are seeing some demand, some investments there. Much less so, very slow loan growth and demand in the small and middle business sector. Consumer is pretty much stable with the exception of automobiles. Automobiles, we’ve seen sales go up quite a bit and that part is growing as is the mortgage portfolio. In the U.S., I would tell you that it’s – on the commercial side that we are seeing a fairly flat demand and there we have some legacy portfolios that are coming down. So, the demand we’re seeing is not enough to make up for that fall. So, finding asset sales is a key question for us.
Ken Zerbe – Morgan Stanley: I appreciate all the color that you gave on Basel III and apologize if I missed this. But did you or could you provide what the pro forma impact to your Tier 1 common would be if you apply Basel III as of this quarter?
Richard L. Carrion – President, Chairman and CEO: Yeah, I think it’s roughly 200 basis points. But I don’t think anybody is applying Basel III tomorrow. But if that were the case, I mean, we thought it would be more meaningful to actually go through the more dynamic analysis of how it actually would get implemented, although even those things are under review, but if we were to do it right away, I think the impact is roughly 200 basis points on the common equity Tier 1, so it take us from 12.72% to 10.70% something.
Ken Zerbe – Morgan Stanley: It just helps putting everyone on the same basis. The other question I had, maybe just help us think about the reduction in NPAs. I know it’s one of your top priorities. You’ve certainly been very vocal about reducing NPAs, I think, we’ve all kind of been frustrated maybe of how slow the reduction has actually happened. When you think about going forward with the NPA reduction, what is your timing, I just want to make sure that we are all on the same page that when you think about by the end of the year, by the end 2013, these are kind of the milestones which are trying to hit, that way we cannot think about it in the right way.
Richard L. Carrion – President, Chairman and CEO: We’ll probably – I mean we’re not going to put a number out there. We certainly have a target, but as you know these deals come – Puerto Rico is a lot less liquid market than in the U.S. We’ve had a lot more success dealing with some of these things in the U.S. where it’s a much more liquid market for these assets, that’s not the case in Puerto Rico. Nonetheless, there are deals and we’ve seen some of these deals. If we see a significant deal of size that makes sense, we’re going to go ahead and do it. We think it’s a high priority for us. We are working on it. We hope to continue reducing it substantially over the next few quarters, but we don’t have a specific number that we want to put out there.
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