The song remains the same at Popular Inc., and it's a sad one.
The San Juan, Puerto Rico, company extended a recent string of weak earnings reports by announcing third-quarter results on Friday that fell well short of expectations. It attributed the poor results to continuing weakness in mortgage markets and a $44.7 million loss on its mainland operations.
The company said it is considering "strategic alternatives" for its noncore businesses.
"We are reviewing all of our operations in a very serious way. We know there is very little tolerance left, given the disappointing earnings we have been showing," Jorge Junquera, the chief financial officer, said in an interview. "We believe that the cost of funding will remain high for the foreseeable future, so any business that is funded with nondeposit liabilities will be difficult. Going forward, if we cannot provide a return commensurate with the risk we are assuming," the company will reduce its exposure to the business or quit it entirely.
Popular set aside $148.1 million in the third quarter to cover loan losses, up 29% from the already high second-quarter provision and 133% more than the year earlier. It took a $22.3 million valuation writedown for loans in the held-for-sale portfolio and separate writedowns of its interest-only residuals.
Net income for the quarter was $36 million, or 12 cents per share, down from $82.2 million and 28 cents the year earlier. The average of analysts' estimates was 22 cents.
The company's Popular Financial Holdings unit quit the wholesale subprime mortgage business in the first quarter, but the residual portfolio continues to dog performance.
"The level of chargeoffs in that portfolio is high," said Mr. Junquera. "It is running off, but we are going to have to live with that for a few quarters."
Popular reported some positive trends, including declining expenses and a net interest yield of 3.3%, 25 basis points higher than the year earlier. The company attributed this to a rising mix of commercial loans and less reliance on capital-markets funding. Popular, which has $47.1 billion of assets, expects to close its purchase of 17 Citibank branches in Puerto Rico this quarter.
Mr. Junquera said business is "not as much fun as it was three years ago" but added that he believes the company will turn the corner in 2008. The way forward, he said, is via a renewed focus on core businesses and an emphasis "more on profitability and not so much on growth."
