Popular to record big gain after exiting FDIC loss-share agreement

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Popular said its net income should increase by about $161 million after it negotiated an end to its loss-share agreement with the Federal Deposit Insurance Corp.

The $45.8 billion-asset Popular said in a press release Wednesday ending the agreement should contribute about $49.8 million to net income, even though it paid the FDIC $23.7 million to exit the agreement.

The company said it expects to recognize an additional income tax benefit of about $111.4 million tied to the terms of a June 2012 agreement with Puerto Rico Department of the Treasury that was created to clarify the tax treatment for the covered loans.

Assets once covered by the agreements, including $515 million in covered loans and $15.3 million in other real estate, were reclassified as noncovered. Popular said it will recognize all future credit losses, expenses, gains and recoveries tied to those assets.

“We are pleased to have successfully negotiated the early termination of our shared-loss agreements with the FDIC,” Ignacio Alvarez, Popular’s president and CEO, said in the release. “We are now focused on realizing the expected benefits of this transaction, which include lower operating expenses, greater flexibility to manage these assets and simpler financial reporting.”

The loss-share agreement was tied to the company’s April 2010 purchase of Westernbank Puerto Rico.

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