EX-99.2 3 g16526exv99w2.htm EX-99.2 EX-99.2
Exhibit 99.2
Unaudited Pro Forma Consolidated Financial Statements
On November 3, 2008, Popular, Inc. (“the Corporation”) completed the sale of approximately $1.2 billion in the loan and servicing assets of its U.S. mortgage subsidiary Popular Financial Holdings, Inc. (“PFH”) to Goldman Sachs Mortgage Company, Goldman, Sachs & Co., and Litton Loan Servicing, LP for the gross purchase price of approximately $730 million in cash. The sale would result in a reduction of approximately $900M in loans and mortgage servicing assets that are mainly accounted at fair value, providing Popular with more than $700 million in additional liquidity and significantly reducing Popular’s U.S. subprime assets. The proceeds from the PFH asset sales will be used for repayment of the Corporation’s medium-term notes due in 2009 as well as other debt maturities.
The accompanying unaudited pro forma consolidated financial statements present financial information to give effect of the sale of PFH assets to Goldman Sachs affiliates. The unaudited pro forma consolidated statement of income present the consolidated results of continuing operations of the Corporation, assuming the sale occurred as of January 1, 2005. The unaudited pro forma consolidated statement of condition as of June 30, 2008 presents the consolidated financial position of the Corporation, assuming the sale occurred on that date. The unaudited financial information is subject to the assumptions and adjustments in the notes accompanying the unaudited pro forma consolidated financial statements.
The unaudited pro forma consolidated financial statements include specific assumptions and adjustments related to the sale of PFH assets. The adjustments are based upon presently available information and assumptions that management believes are reasonable under the circumstances as of the date of this filing. However, actual adjustments may differ materially from the information presented. The unaudited pro forma consolidated financial statements, including notes thereto, should be read in conjunction with the historical consolidated financial statements of the Corporation included in its Annual Report on Form 10-K for the year ended December 31, 2007 and the unaudited consolidated financial statements filed in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2008.
The unaudited pro forma consolidated financial information presented is for informational purpose only. It is not intended to represent or be indicative of the consolidated financial results of operations or financial position that would have occurred has the sale been completed as of the dates presented nor is it intended to be indicative of future results of operations or financial position. Specifically, the Corporation believes that the pro forma results of operations are of limited value in projecting future results because they do not include the net loss associated with the November 3, 2008 sale of PFH assets.

 

 

Popular, Inc.
Pro forma Consolidated Statement of Income
Adjusted for Discontinued Operations of PFH
(in thousands, except share information)
(unaudited)
                                 
    For the six months ended June 30, 2008
      Discontinued   Pro forma    
    As reported on   operations   adjustments   Pro forma
    June 30, 2008   (1)   (2)   results
     
INTEREST INCOME:
                                
Loans
   $ 1,058,535     $ (94,503 )           $ 964,032  
Investment securities
     177,533       (674 )             176,859  
Other interest income
     45,030       (8,821 )             36,209  
     
 
     1,281,098       (103,998 )           1,177,100  
     
 
                                
INTEREST EXPENSE:
                                
Deposits
     362,985                       362,985  
Short-term borrowings
     107,647       (7,056 )             100,591  
Long- term debt
     115,392       (67,925 )   $ 27,924       75,391  
     
 
     586,024       (74,981 )     27,924       538,967  
     
 
                                
Net interest income
     695,074       (29,017 )     (27,924 )     638,133  
Provision for loan losses
     358,862       (8,461 )             350,401  
     
 
                                
Net interest income after provision
     336,212       (20,556 )     (27,924 )     287,732  
Service charge on deposit accounts
     102,886                       102,886  
Other service fees
     215,546       (4,199 )             211,347  
Net gain on sale and valuation adjustments of investment securities
     75,703       2,858               78,561  
Gain on sale of loans and valuation adjustments on loans held-for sale
     67,292       (48,117 )             19,175  
Other operating income
     40,120       48,460               88,580  
     
 
     837,759       (21,554 )     (27,924 )     788,281  
     
 
                                
OPERATING EXPENSES:
                                
Personnel costs
                                
Salaries
     262,132       (20,117 )             242,015  
Pension, profit sharing and other benefits
     74,932       (5,661 )             69,271  
     
 
     337,064       (25,778 )             311,286  
Net occupancy expense
     61,354       (6,646 )             54,708  
Equipment expenses
     62,722       (4,716 )             58,006  
Professional fees
     68,252       (11,067 )             57,185  
Communications
     28,448       (2,885 )             25,563  
Business promotion
     35,467       (619 )             34,848  
Other operating expenses
     126,941       (14,902 )             112,039  
     
 
     720,248       (66,613 )             653,635  
     
Income before tax
     117,511       45,059       (27,924 )     134,646  
Income tax (benefit) expense
     (10,029 )     14,187       (9,773 )     (5,615 )
 
     
NET INCOME
   $ 127,540     $ 30,872     $ (18,151 )   $ 140,261  
     
NET INCOME APPLICABLE TO COMMON STOCK
   $ 118,559                     $ 131,278  
     
BASIC EARNINGS PER COMMON SHARE (“EPS”)
   $ 0.42                     $ 0.47  
     
DILUTED EPS
   $ 0.42                     $ 0.47  
     
AVERAGE COMMON SHARES OUTSTANDING — BASIC
     280,514,164                       280,514,164  
                                 
AVERAGE COMMON SHARES OUTSTANDING — ASSUMING DILUTION
     280,514,164                       280,514,164  
                                 
See Notes to Pro Forma Consolidated Financial Statements        

 

 

Popular, Inc.
Pro forma Consolidated Statement of Income
Adjusted for Discontinued Operations of PFH
(in thousands, except share information)
(unaudited)
                                 
   
    For the year ended December 31, 2007
            Discontinued   Pro forma   Pro forma
    As reported   operations (1)   adjustments (2)   results
     
INTEREST INCOME:
                                
Loans
   $ 2,615,314     $ (568,877 )           $ 2,046,437  
Investment securities
     445,769       (4,160 )             441,609  
Other interest income
     67,088       (2,899 )             64,189  
     
 
     3,128,171       (575,936 )             2,552,235  
     
 
                                
INTEREST EXPENSE:
                                
Deposits
     765,793                       765,793  
Short-term borrowings
     448,172       (23,641 )             424,531  
Long-term debt
     464,816       (408,563 )   $ 53,684       109,937  
     
 
     1,678,781       (432,204 )     53,684       1,300,261  
     
 
Net interest income
     1,449,390       (143,732 )     (53,684 )     1,251,974  
Provision for loan losses
     562,650       (221,431 )             341,219  
     
 
                                
Net interest income after provision
     886,740       77,699       (53,684 )     910,755  
Service charge on deposit accounts
     196,072                       196,072  
Other service fees
     363,257       2,354               365,611  
Other operating income
     134,987       177,025               312,012  
     
 
     1,581,056       257,078       (53,684 )     1,784,450  
     
 
                                
OPERATING EXPENSES:
                                
Personnel costs
                               
Salaries
     519,523       (34,345 )             485,178  
Pension, profit sharing and other benefits
     148,666       (13,084 )             135,582  
     
 
     668,189       (47,429 )             620,760  
Net occupancy expense
     123,621       (14,277 )             109,344  
Equipment expenses
     127,472       (10,390 )             117,082  
Professional fees
     149,854       (30,331 )             119,523  
Communications
     66,877       (8,785 )              58,092
Business promotion
     115,388       (5,479 )             109,909  
Other operating expenses
     241,400       (42,399 )             199,001  
Goodwill and trademark impairment losses
     211,750                       211,750  
     
 
     1,704,551       (159,090 )             1,545,461  
     
(Loss) Income before tax
     (123,495 )     416,168       (53,684 )     238,989  
Income tax (benefit) expense
     (59,002 )     149,167       (18,789 )     71,376  
 
     
NET (LOSS) INCOME
   $ (64,493 )   $ 267,001     $ (34,895 )   $ 167,613  
           
NET (LOSS) INCOME APPLICABLE TO COMMON STOCK
   $ (76,406 )                   $ 155,700  
      = =  
BASIC (LOSS) INCOME PER COMMON SHARE (“EPS”)
   $ (0.27 )                   $ 0.56  
      = =  
DILUTED EPS
   $ (0.27 )                   $ 0.56  
      = =  
AVERAGE COMMON SHARES OUTSTANDING — BASIC
     279,494,150                       279,494,150  
                                 
AVERAGE COMMON SHARES OUTSTANDING — ASSUMING
DILUTION
     279,494,150                       279,494,150  
                                 
See Notes to Pro Forma Consolidated Financial Statements        

 

 

Popular, Inc.
Pro forma Consolidated Statement of Income
Adjusted for Discontinued Operations of PFH
(in thousands, except share information)
(unaudited)
                                 
    For the year ended December 31, 2006
            Discontinued   Pro forma   Pro forma
    As reported   operations (1)   adjustments (2)   results
INTEREST INCOME:
                                
Loans
   $ 2,486,453     $ (598,133 )           $ 1,888,320  
Investment securities
     516,237       (7,658 )             508,579  
Other interest income
     61,751       (3,411 )             58,340  
           
 
     3,064,441       (609,202 )             2,455,239  
           
 
                                
INTEREST EXPENSE:
                                
Deposits
     580,094                       580,094  
Short-term borrowings
     518,960       (30,349 )             488,611  
Long-term debt
     537,477       (405,674 )   $ 55,435       187,238  
           
 
     1,636,531       (436,023 )     55,435       1,255,943  
           
 
                                
Net interest income
     1,427,910       (173,179 )     (55,435 )     1,199,296  
Provision for loan losses
     287,760       (100,204 )             187,556  
           
 
                                
Net interest income after provision
     1,140,150       (72,975 )     (55,435 )     1,011,740  
Service charge on deposit accounts
     190,079                       190,079  
Other service fees
     320,875       (3,016 )             317,859  
Other operating income
     298,531       (35,961 )             262,570  
           
 
     1,949,635       (111,952 )     (55,435 )     1,782,248  
           
OPERATING EXPENSES:
                                
Personnel costs
                               
Salaries
     517,178       (58,201 )             458,977  
Pension, profit sharing and other benefits
     151,493       (18,495 )             132,998  
           
 
     668,671       (76,696 )             591,975  
 
                                
Net occupancy expense
     116,742       (17,143 )             99,599  
Equipment expenses
     135,877       (15,432 )             120,445  
Professional fees
     141,534       (24,032 )             117,502  
Communications
     68,283       (11,351 )             56,932  
Business promotion
     129,965       (11,282 )             118,683  
Other operating expenses
     209,762       (50,907 )             158,855  
Goodwill and trademark impairment losses
     14,239                       14,239  
           
 
     1,485,073       (206,843 )             1,278,230  
           
Income before tax
     464,562       94,891       (55,435 )     504,018  
Income tax (benefit) expense
     106,886       32,808       (19,402 )     120,292  
 
           
NET INCOME
   $ 357,676     $ 62,083     $ (36,033 )   $ 383,726  
           
NET INCOME APPLICABLE TO COMMON STOCK
   $ 345,763                     $ 371,812  
      = =  
BASIC EARNINGS PER COMMON SHARE (“EPS”)
   $ 1.24                     $ 1.34  
     
DILUTED EPS
   $ 1.24                     $ 1.33  
      = =  
AVERAGE COMMON SHARES OUTSTANDING — BASIC
     278,468,552                       278,468,552  
 
                                
AVERAGE COMMON SHARES OUTSTANDING — ASSUMING DILUTION
     278,703,924                       278,703,924  
 
                                
See Notes to Pro Forma Consolidated Financial Statements        

 

 

Popular, Inc.
Pro forma Consolidated Statement of Income
Adjusted for Discontinued Operations of PFH
(in thousands, except share information)
(unaudited)
                                 
    For the year ended December 31, 2005
            Discontinued   Pro forma   Pro forma
    As reported   operations (1)   adjustments (2)   results
           
 
                                
INTEREST INCOME:
                                
Loans
   $ 2,116,299     $ (578,959 )           $ 1,537,340  
Investment securities
     488,814       (4,960 )             483,854  
Other interest income
     60,746       0               60,746  
           
 
     2,665,859       (583,919 )             2,081,940  
           
 
                                
INTEREST EXPENSE:
                                
Deposits
     430,813                       430,813  
Short-term borrowings
     349,203       (32,013 )             317,190  
Long-term debt
     461,636       (350,564 )   $ 56,157       167,229  
           
 
     1,241,652       (382,577 )     56,157       915,232  
           
Net interest income
     1,424,207       (201,342 )     (56,157 )     1,166,708  
Provision for loan losses
     195,272       (73,287 )             121,985  
           
 
Net interest income after provision
     1,228,935       (128,055 )     (56,157 )     1,044,723  
Service charge on deposit accounts
     181,749                       181,749  
Other service fees
     331,501       (13,168 )             318,333  
Other operating income
     272,025       (39,495 )             232,530  
           
 
     2,014,210       (180,718 )     (56,157 )     1,777,335  
           
 
                                
OPERATING EXPENSES:
                                
Personnel costs
                               
Salaries
     474,636       (57,576 )             417,060  
Pension, profit sharing and other benefits
     148,053       (18,527 )             129,526  
           
 
     622,689       (76,103 )             546,586  
Net occupancy expense
     108,386       (11,457 )             96,929  
Equipment expenses
     124,276       (12,109 )             112,167  
Professional fees
     119,281       (21,266 )             98,015  
Communications
     63,395       (10,490 )             52,905  
Business promotion
     100,434       (8,261 )             92,173  
Other operating expenses
     189,739       (24,346 )             165,393  
 
           
 
     1,328,200       (164,032 )             1,164,168  
           
Income before tax and cumulative effect of accounting change
     686,010       (16,686 )     (56,157 )     613,167  
Income tax (benefit) expense
     148,915       (6,205 )     (19,655 )     123,055  
Income before cumulative effect of accounting change
     537,095       (10,481 )     (36,502 )     490,112  
Cumulative effect of accounting change
     3,607                       3,607  
           
NET INCOME
   $ 540,702     $ (10,481 )   $ (36,502 )   $ 493,719  
           
NET INCOME APPLICABLE TO COMMON STOCK
   $ 528,789                     $ 481,805  
           
BASIC EARNINGS PER COMMON SHARE (“EPS”) BEFORE CUMULATIVE
                                  
           
EFFECT OF ACCOUNTING CHANGE
   $ 1.97                     $ 1.79  
           
DILUTED EPS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE
   $ 1.96                     $ 1.79  
           
BASIC EPS AFTER CUMULATIVE EFFECT OF ACCOUNTING
                                  
           
CHANGE
   $ 1.98                     $ 1.80  
           
DILUTED EPS AFTER CUMULATIVE EFFECT OF ACCOUNTING CHANGE
   $ 1.97                     $ 1.80  
           
AVERAGE COMMON SHARES OUTSTANDING — BASIC
     267,334,606                       267,334,606  
 
                                
AVERAGE COMMON SHARES OUTSTANDING — ASSUMING DILUTION
     267,839,018                       267,839,018  
 
                                
See Notes to Pro Forma Consolidated Financial Statements        

 

 

Popular, Inc.
Pro forma Consolidated Statement of Condition
Adjusted for Discontinued Operations of PFH
(in thousands)
(unaudited)
                                 
    As reported on   Discontinued   Pro forma   Pro forma
    June 30, 2008   operations (1)   adjustments (3)   results
     
Assets
                                
Investment securities available-for-sale
   $ 7,702,327     $ (2,590 )           $ 7,699,737  
Loans, net of unearned income *
     27,631,678       (924,437 )             26,707,241  
Less : Allowance for loan losses
     652,730       (7,372 )             645,358  
     
 
     26,978,948       (917,065 )             26,061,883  
     
Other assets
     6,304,270       (383,448 )             5,920,822  
Intangible assets
     693,049                       693,049  
     
 
   $ 41,678,594     $ (1,303,103 )           $ 40,375,491  
     
Liabilities and Stockholders’ Equity
                                
Liabilities
                                
Deposits:
                                
Non-interest bearing
   $ 4,482,287                     $ 4,482,287  
Interest bearing
     22,633,441                       22,633,441  
     
 
     27,115,728                       27,115,728  
     
Federal funds purchased and securities sold under agreements to repurchase
     4,738,677                       4,738,677  
Other short-term borrowings
     1,337,210                       1,337,210  
Notes Payables **
     3,924,372     $ (173,725 )   $ (730,560 )     3,020,087  
Other liabilities
     856,613               25,932       882,545  
     
 
     37,972,600       (173,725 )     (704,628 )     37,094,247  
     
Stockholders’ equity
     3,705,994               (424,750 )     3,281,244  
     
 
   $ 41,678,594     $ (173,725 )   $ (1,129,378 )   $ 40,375,491  
     
See Notes to Pro Forma Consolidated Financial Statements
 
*   includes loans held-for-sale and loans measured at fair value pursuant to SFAS No. 159
 
**   includes notes payable measured at fair value pursuant to SFAS No. 159      

 

 

Notes to the Unaudited Pro Forma Financial Statements
The unaudited pro forma consolidated financial statements give effect to the sale of PFH assets. The unaudited pro forma consolidated statements of income are presented as if the sale occurred as of January 1, 2005. The anticipated nonrecurring loss on the sale is not reflected in the pro forma consolidated statement of income. The impact of the debt retained by the Corporation is included in the unaudited pro forma consolidated statements of income for the six months ended June 30, 2008 and the years ended December 31, 2007, 2006 and 2005. The unaudited pro forma consolidated statement of condition is presented as if the sale occurred on June 30, 2008, and is based on the historical consolidated statement of condition as of that date. Nonrecurring items including the loss on sale, discontinuance costs and recourse liability recorded as a result of the sale are reflected in the pro forma consolidated statement of condition.
  1)   The Discontinued Operations columns in the unaudited pro forma consolidated financial statements represent the historical financial results of the PFH segment.
 
  2)   The Pro Forma Adjustments columns in the unaudited pro forma consolidated income statements represent interest expense from the debt retained by the Corporation.
 
  3)   The Pro Forma Adjustments column in the unaudited pro forma consolidated statement of condition includes the following adjustments; (a) the estimated after tax loss of approximately $398.8 million, which includes a valuation allowance for the deferred tax asset of $88.8 million. This estimate is based on the historical information as of June 30, 2008. Actual adjustments may differ from the information presented.; (b) the accrual of $14.1 million in discontinuance costs. Discontinuance costs include employee- related expenses of approximately $4 million, lease terminations of approximately $4 million and other cost of approximately $6.1 million (principally consisting of software, equipment and other asset impairments and contract cancellations); and (c) the recognition of $11.8 million recourse liability In addition, the Pro-forma Adjustment column reflects the repayment of the Corporation’s medium-term notes due in 2009 as well as other debt maturities with the proceeds from the sale of PFH assets.