Popular, Inc.
Q1 2013 Earnings Call Transcript

Published: 18 Apr 2013

[Operator:]

Good day, ladies and gentlemen. Welcome to the First Quarterly Popular Earnings Conference Call. My name is Phil, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Enrique Martel, Corporate Communications. Please proceed, sir.

[Enrique Martel:]

Good morning. Thank you for joining us on today's call. Our Chairman and CEO, Richard Carrion; our CFO, Carlos Vazquez; and our CRO, Lidio Soriano, will review our first quarter results, and then answer your questions. We'll be joined in the Q&A session by other members of our management team. Before we start, I would like to remind you that on today's call, we may make forward-looking statements that are based on management's current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these forward-looking statements are set forth within today's earnings press release and are detailed in our SEC filings, financial quarterly release and supplements. You may find today's press release and our SEC filings on our web page, you may visit by going to www.popular.com. I will now turn the call over to Richard Carrion.

[Richard L. Carrion:]

Good afternoon, and thank you, all, for joining the call. I'd like to first address the highlights and key events of the quarter and then discuss our progress and priority areas, Carlos will then go into greater detail on the quarter's financial results, and Lidio will provide an overview of credit trends and metrics. So please turn to the second slide. Popular reported $60 million in net income for the first quarter excluding the impact of the NPA sale. The quarter was a solid start to the year as we continue to take actions to capture the full earnings potential of our unique franchise. Our revenue-generating capacity remained strong with overall net interest margin at 4.39% for the quarter, and Banco Popular Puerto Rico margin remaining at just over 5%. On the credit front, our intensive efforts are bearing fruit and we continue to make significant progress on key metrics. We'll provide more details in a few minutes, but suffice it to say that we have made dramatic improvements over the past few years, and we continue to do so. When discussing normalized earnings with you, we have indicated that we expected reductions in credit costs to be the largest contributor to closing the gap between current and estimated normalized earnings. About 1 month ago, we took a huge step in that direction with the completion of the sale of a large block of NPAs that were dragging our earnings. That sale included Puerto Rico commercial and construction NPLs with a book value of $401 million. While the NPA sale modestly reduced our excess capital, this will be largely replaced in the second quarter with the after-tax gain from the successful EVERTEC IPO, which was completed last week. The EVERTEC IPO also represents an important step towards clarifying and realizing the significant value of our stake. We mentioned before that we are very encouraged by the fiscal team that the new governor has appointed. Recent signing into law of the Puerto Rico retirement plan reform was a big accomplishment early on for the administration. And that, along with completing the airport transaction and other steps being taken, advances the agenda to improve the fiscal standing of the Commonwealth and pave the way for an eventual economic recovery. Lastly, including the effect of the NPA sale, we ended the quarter with strong capital levels. Our common equity Tier 1 ratio reached 12.4% and exceeded the well-capitalized guideline by $1.7 billion. Our tangible book value per share at quarter end was $31.21. These capital metrics will all be augmented by the impact of the EVERTEC IPO in the second quarter. So I want to spend a few minutes providing a little more perspective on the NPA sale and the EVERTEC IPO. While we discussed the sale in detail in the Investor Day presentation, we thought it would be helpful to review it today because of its material effect on the quarter results and the corporation's credit profile moving forward. So please turn to the third slide. We sold the package of commercial and construction loans and residential and commercial OREOs with the aggregate book value of $509 million. The purchase price is worth $338 million and we received $92 million in cash at closing. By selling nearly 1/3 of our NPAs, we have substantially de-risked our balance sheet and made a positive contribution to future profitability. In addition, we retained a 24.9% interest in the acquiring entity, which ensures that we will participate in any future upside. The structure of this deal, including seller financing, is similar to the structure of the NPL sale we completed in 2011, which is a transaction that's performed very well for us. The seller financing loans we provided for that deal have been substantially repaid much sooner than we expected and the value of our joint venture interest has appreciated. Please turn to Slide 4. Let me provide some additional color on the EVERTEC transaction and its financial impact. This was a very successful transaction. The deal was upsized due to strong demand and we raised a larger-than-expected total of $505 million. The public offering establishes a market value for this asset and gave us an opportunity to monetize a portion of our stake. Based on the shares we sold in the IPO, we will record a $169 million after-tax gain in Q2. At this point, I should note that EVERTEC benefits from a special tax rate applicable to service export companies in Puerto Rico, therefore, this and any future gains will be taxed at 4%. At roughly $1.6 billion, EVERTEC's market cap, based on the IPO price, places an approximate value of $530 million from the 33.5% stake that we retained following the IPO. This compares to a book value of $75 million on our position. We will assess further opportunities to realize value from this investment. While the economic value exists and is there, we'll only recognize additional gain if and when we sell additional shares. From a balance sheet perspective, we will receive $254 million of cash from the transaction, including $92 million from the repayment of EVERTEC debt we've previously held. As I mentioned, realized gains from the transaction will be reflected in our second quarter earnings and capital ratios. Please turn to the next slide. In the first quarter, we continue to make major progress towards our #1 objective, reducing NPAs. Clearly, the bulk sale brought the majority of the improvement in credit metrics, but it is important to note that we continue to drive improvement through our organic efforts outside of the loan sale. Total NPAs have declined $885 million year-over-year while total NPLs held in portfolio decreased by $631 million. Lidio will provide more detail. I'll just note that continuing to reduce NPAs remains our top priority. With regard to TARP, the EVERTEC IPO clearly brings us cash proceeds and a boost to our capital ratios and represents another important step towards an ultimate TARP exit. I know many of you would like to know when we might exit from TARP and what I can tell you is that I will continue to work with our regulators to chart a path towards exit. I cannot provide a definitive time frame for you since the ultimate decision is up to the regulators. So please turn to the next slide, and I'll let our new CFO, Carlos Vazquez, discuss our financial results in further detail.

[Carlos J. Vazquez:]

Thank you, Richard, and good afternoon. With the sale of NPAs having a significant impact on several line items on our income statement, this was a noisy quarter. But once we cleared the noise, as the columns on the far right show, you see good underlying performance anchored by 3 things

[Lidio V. Soriano:]

Thank you, Carlos. Before discussing the credit metrics for the quarter, I will start by highlighting the 2 key themes. First, from a risk management standpoint, the completed sale of non-performing asset is a transformative transaction that strengthens our balance sheet and improves asset quality. The corporation non-covered, non-performing assets and non-performing loans ratios stands at 3.81% and 4.86%, respectively, both lowest since 2008. Second, credit metrics, excluding the impact of the NPA sale, continued to show steady improvements in both the Puerto Rico and the U.S. regions. Net charge-off decreased by $20 million on a linked-quarter basis, reaching the lowest levels since the first quarter of 2008. Inflows of non-performing loans held in portfolio, excluding consumer loans, declined by $60 million or 25% on a linked-quarter basis, the lowest since 2009. Improvements were noted in both regions. Excluding the sale, non-performing loans decreased by $42 million

[Richard L. Carrion:]

Thank you, Lidio. And please turn to Slide 11. Before we open the lines to questions, let me conclude today's remarks by reviewing the actions we're taking to drive shareholder value. Our priorities have not changed since we discussed them 1 month ago in our Investor Day. The NPA sale is, of course, a huge step because it accelerates our progress. The leading market position of our unique Puerto Rico franchise is allowing us to benefit from a modest rebound in loan demand in certain sectors of the economy and sustain above-average market margins. Our covered portfolio continues to produce better-than-expected results. We are operating with both greater speed and efficiency in addressing NPLs as demonstrated by the continuing improvement in the credit quality of our portfolios in both the U.S. and Puerto Rico on top of the improvements resulting from the NPA sale. We continue to explore all avenues to reduce NPAs, including resolutions and sales that make economic sense. We remain focused on building increased optionality to generate high returns on the capital deployed in our U.S. operations. We're continuing a thorough analysis of our options and are prepared to execute on the best path to value creation. In summary, we are driving value for our shareholders with the 2 significant transactions we recently completed and our ongoing offers to de-risk our balance sheet, build capital and determine the best path to value creation for our U.S. operations. We look forward to reporting to you on our continuing progress. And with that, I'd like to open the call for questions.

[Operator:]

[Operator Instructions] First question comes from the line of Ken Zerbe from Morgan Stanley.

[Ken A. Zerbe:]

A question on provision expenses. This is on the non-covered or the core provision. If you back up the bulk sale loss, it looks like your core provision is pretty low, I guess about $58 million. But it seems that the annualized number is lower than kind of the core or your -- sorry, your long-term normalized provision number. How should we be thinking about that? If we -- is that a sustainable number right now? I mean, have you already reached your normalized provision numbers?

[Richard L. Carrion:]

Lidio. Lidio will take that.

[Lidio V. Soriano:]

Sure. Provision is a function of charge-off and overall credit quality in the portfolio. The trend, as we have discussed in our call over the last year, 1.5 years, has been very positive in terms of reductions in NPLs, reductions in charge-off, reduction of inflows into NPLs. So based on that, I mean, what you've seen in the quarter is accumulation of that trend that we have -- have been present over the last year. In terms of whether that could change or not, if you go back to the history of Popular, our charge-off ratio used to be around somewhere around the 1%. We're still slightly above that number. So as that number comes down, there is a possibility for our provisions to also come down.

[Ken A. Zerbe:]

So we should probably think about the provision expense may go -- are officially low near-term and then rebound up higher longer-term to the $250 million normalized number?

[Lidio V. Soriano:]

I did not say that. I say the...

[Ken A. Zerbe:]

Sorry, I misunderstood. Go ahead.

[Lidio V. Soriano:]

I said when you look at provision again, it's a function of charge-off, it's a function of overall credit quality of the portfolio. When you look overall, we're still providing in excess of -- in Puerto Rico we're providing close to 90% of charge-offs excluding non-covered transactions. So we have seen peers in the U.S. number, which is much -- will have much more significantly releases. As we look forward, it will be depending on the level of net charge-off and credit quality of the portfolio. I mentioned that if you look historically, our charge-off in the past used to run around 1%. For the quarter, we would still -- we're up 1.55%. If that number will continue to come down, we will see provision, that should come down accordingly.

[Ken A. Zerbe:]

And do you still feel good about your $250 million provision estimate or guidance for normalized?

[Lidio V. Soriano:]

We are not providing guidance in terms of provision or any of the numbers. I cannot comment on that.

[Ken A. Zerbe:]

Okay, understood. And then just maybe a quick follow-up. Can you quantify if there's any EPS or earnings reduction from the lower ownership stake in EVERTEC? What did that do for you to go forward earnings?

[Richard L. Carrion:]

Well, I don't think it should make a big difference. Bear in mind that we account for this using the equity method, and that's been -- given EVERTEC's high leverage up to this point, that has not amounted to much. Now that they have refunded all their debt, that should improve their earnings, and we'll take 33.5% of that.

[Ken A. Zerbe:]

Earnings from EVERTEC could actually -- or your portion of earnings should -- could go up.

[Richard L. Carrion:]

No, I just don't -- yes. It should go up, but I don't think it's a big driver of earnings going forward.

[Lidio V. Soriano:]

Maybe if I can go back to just one topic of the question. I mean I looked at the investor presentation that we had in Investor Day, and we had a 1% provision to charge-off -- to loans charge-off. And as we said, I mean, I think based on the number that we're showing, we're getting closer to that number. So I mean -- but everything [ph] will be our long-term target to the 1%.

[Operator:]

Your next question comes from the line of Alex Twerdahl from Sandler O’Neill.

[Alexander Twerdahl:]

First off, Lidio, I was wondering if you could update us on what the carrying value of the remaining non-performing loans is relative to their unpaid principal balance and maybe even if you could get a little bit more specific into where you're holding the various segments of those portfolios, commercial and mortgage, et cetera.

[Lidio V. Soriano:]

Sure. In terms of -- as we alluded to in the presentation, most of our NPL now is in Puerto Rico mortgages specifically the number is -- total exposure in terms of mortgages is $600 million, which -- the majority being in Puerto Rico as I said. And that, I mean, now we should be at a more or less $0.90 on the dollar, don't quote me on that. I mean, roughly $0.90 on the dollar for the mortgage piece. For the commercial piece, which is the majority of the remainder portfolio, that is about $0.65 to $0.70 on the dollar in our books.

[Alexander Twerdahl:]

Okay. That's helpful. And then I was just wondering if you can give us a bit more color on the big improvement in the mortgage non-performing loan inflows during the quarter. What sort of drove this improvement in the level of inflows, and is it something that we should expect going forward?

[Lidio V. Soriano:]

As I mentioned during the presentation, it was a function of stabilizing economic conditions in Puerto Rico, and we have stated in previous presentation, a significant portion of our NPLs from mortgage -- from the mortgage portfolio comes from the repurchases of our legacy recourse exposure. That exposure has continued to wind down. The level of purchases has gone from $65 million a quarter, down to $40 million a quarter last year, down to $24 million this quarter. So that has also contributed to the improvement plus accounting for those assets under ASC 310-30.

[Alexander Twerdahl:]

Okay. And I was wondering if you could just share us the level of -- share with us the level of accruing TDRs at March 31?

[Lidio V. Soriano:]

Sure. The corporation total TDRs is about 1.1, which is down about $100 million from the last quarter. The decrease is mostly driven by assets that were sold as part of the NPA sale. And accruing TDR is about 66% of that number, of the 1.1.

[Operator:]

Your next question comes from the line of Robert Greene from Sterne Agee.

[Robert Greene:]

I just have a quick question on the mortgage portfolio acquired in the quarter. I was wondering how that fits into your, I guess, your core mortgage portfolio in terms of underwriting and then sort of what your strategy is going forward?

[Richard L. Carrion:]

Well, I think in general, what we're trying to do is add assets to the platform where the marginal cost of handling those assets is minimal and where we feel very comfortable with the asset class. And that was the case in the 2 portfolios that we acquired in the quarter. I don't know, Lidio, if you want to add something to that?

[Lidio V. Soriano:]

I think not only that, but also the quality of it was very good. It was better than what we have in our books. So therefore, it increases the quality of our books.

[Robert Greene:]

Okay. That's helpful. I've got a question. I know obviously, the timing of the TARP repayment is uncertain at this point, but I was wondering if you've given any thought to, I guess, the consideration that you'd utilize to repay TARP, if there's a combination of liquidity at the holdco and preferreds or exactly the mechanisms that you'd use to accomplish them.

[Richard L. Carrion:]

Yes. We have quite a few different scenarios where we could do that. As you can imagine, we are in discussions with the different -- both the Fed and Treasury. The main regulator is the Fed and the other ones will have the ultimate say. We've had this EVERTEC IPO event just recently, so you can imagine also that we've let them know about that and hopefully that will help advance the discussion. But yes, we've looked at different scenarios for paying it off, with clearly some component of the EVERTEC proceeds.

[Robert Greene:]

Okay. Because if -- with the course of events, with the $92 million related to the bulk sale and cash proceeds and then the EVERTEC gains, it looks like you've got about $350 million just in this quarter of cash to holdco. And I was just wondering, do you disclose the total cash the holding company is?

[Carlos J. Vazquez:]

Total cash of the holding company now is around $440 million. That will actually go off slightly in the next few days because part of the EVERTEC transaction is paying all the debt and that will happen till later this month. So when all is said and done, the number is going to be something in the ballpark of $530 million.

[Operator:]

[Operator Instructions] And the next question comes from the line of Gerard Cassidy from RBC.

[Gerard S. Cassidy:]

Can you guys give us some flavor on the inflows? You've obviously had some good success in bringing the inflow numbers down. Do you recall what this level will be in normal times when you think back maybe 10 years ago or 8 years ago?

[Richard L. Carrion:]

Well, Lidio wasn't here. But we'll let him take a crack at it.

[Lidio V. Soriano:]

You're putting me in a difficult situation, Gerard, but I'll give my best. I think -- I mean, I think if I can relate to -- as I said before, the level of NPLs and the level of net charge-offs that we have in the organization, we're still up to -- our numbers are still slightly above the number that we had prerecession, pre-2007, 2008. If we think that we ought to aspire to go back to the levels that we have prior to the recessions in Puerto Rico and the U.S., I think you could potentially see slightly better numbers than what you're seeing today. But I -- more than that, I cannot give any more specific than that. I'm sorry.

[Gerard S. Cassidy:]

That's okay. Maybe to make it even more difficult for you, when we go back and look at your numbers like the banking industry, 20 years, these cycles have repeated themselves. This one, by far, was much worse than the other cycles. But your net charge-off ratio in prior cycles after going through the difficult time was down in the 50 to 70 to 80 basis point range. Do you think that this cycle that we're in today could reach -- when it gets better, with the economies improving, that we should see a similar cycle repeated like we saw in your past recoveries?

[Lidio V. Soriano:]

I don't know if I will say that we will go down as low as 50 or 60 basis points. I think, internally, when we do analysis, we think the numbers should be closer to 1%.

[Richard L. Carrion:]

Still a little gun shy, Gerard. Until we see a long time, we see a good trend, we'll be hesitating to bring it down further, frankly, and this is very formula-driven in many ways.

[Gerard S. Cassidy:]

I certainly understand. Richard, maybe can you give us just a little color, you put in your appendix some of the highlights of what's going on in Puerto Rico with recent government actions. What are you guys seeing economically speaking in Puerto Rico? Is there still momentum in the economy growing from the 5-year recession?

[Richard L. Carrion:]

Well, we see some hopeful signs that are clearly a lot of structural issues that need to get tackled. We thought that it was a good sign that the airport privatization deal went through. We thought it was a good sign that they tackled the retirement fund issue, which you can imagine had a lot of political overtones to it. There's still a couple of areas that need to get tackled, specifically the highway authority and the power authority seem to be 2 large structural issues. The governor is focused, I think, on job creation and we think that's the right metric. But he's been there 100 days, so you can't expect too much change.

[Gerard S. Cassidy:]

Sure. And then just finally, I don't know if you could -- if you're willing to expand upon your comments about you've continued to build optionality for your U.S. operations and you want to determine the best paths for value creation. What are some of those options that you guys are considering?

[Richard L. Carrion:]

Well, they range all over the place. I mean, we've looked at different regions as we've spoken in the past. We've looked at maybe rationalizing that distribution network. The problem always has been that each of the regions makes a positive contribution to the whole, so that even if we work to be able to sell one, we'd be worse off. So nothing of all the options that go from rationalizing those regions to downsizing, to increasing in one particular area, nothing jumps off the page. What we have been doing is improving the performance, improving the strength of the balance sheet, and that's what we mean by we're trying to build optionality. There is nothing yet, frankly, that makes a compelling case to go one direction or the other. The minute we see that, we're going to move and it's something we go at hammer and tongs every week.

[Operator:]

The next question comes from the line of Brian Klock from KBW.

[Brian Klock:]

Just a quick follow-up, most of my questions here have been answered. Just thinking about with all the noise of the bulk sale, I think what I thought was impressive was you guys were actually able to cut down on your core operating expenses. So maybe, Carlos, maybe you can talk about -- it does seem like the reduction in the FDIC deposit insurance, you talked about the benefits there, the incremental credit. So that seems like that should be -- that lower run rate should stick going forward, correct? Is that the right way to think about the deposit insurance?

[Carlos J. Vazquez:]

Well, we discussed the FDIC assessment, I think, in the last call. And what you see there is a result of us doing a deep dive in on the components of the very complex formula that comes up with the assessment. And when we did that, we found a few things that we could do to help move that number down. Now the expense for this quarter not only reflects what we hope to be a large running rate, it also reflects some of the catch-up that resulted from those efforts that we did. So some of that, what you've seen there is some credits from efforts that we're getting -- some credit we're getting from FDIC prior payments in assessments. But when you want to think -- if you want to think of the right running rate, you take those out. So the partly right running rate is something in the ballpark of $19 million a quarter. If -- of course, that depends on our balance sheet components -- composition and everything else, and that could change, but the right number to think about is something in the ballpark of $19 million.

[Brian Klock:]

Okay. And then I guess the other -- outside of that, the other operating expenses, you did have a pretty decent reduction quarter-to-quarter. So is there anything in there that we should be thing about that should be normalized as well or is that -- the other operating that dropped to $17 million from $26 million?

[Carlos J. Vazquez:]

I mean, if -- the 2 quarters look pretty different. But if you take away some of the year-end effects of the fourth quarter and you take away the transaction effects of the first quarter, they're actually not that different and they're hovering around at level of around $280 million per quarter for the expenses. Well, it's like -- that's probably a reasonable indication. And we hope that as we are seeing the benefits of the reduction in NPLs, that we can make that number better.

[Brian Klock:]

Great, great. And just one last question. So I guess just thinking about -- you did talk about the strong level of securitization activity in the fourth quarter. I guess thinking about the gain on sale number in this first quarter, I guess how should we think about that going into the second quarter?

[Carlos J. Vazquez:]

So the securitizations happen all the time. The point we were trying to make is this one, the first quarter is there are 4 reasons. The very reason being slightly larger than typical, so -- but they happen all the time. This number will be volatile because in that number you also have the effects of some resolutions in NPLs that sometimes result in gains, at other times, it's holdco. So it'll be a very volatile number going forward.

[Operator:]

Your next question comes from the line of Todd Hagerman from Sterne Agee.

[Todd L. Hagerman:]

A couple of questions. Just a follow-up just in terms of the expenses. I want to make sure that I understood your comments right. Carlos, I think you mentioned $280 million per quarter. What I want to understand is with the sale and the high proportion of commercial assets, problem commercial assets that were sold, what -- where do we -- what is the right way to think about the credit-related costs, in the sense that we've now transitioned to a large proportion of mortgage-related problem assets? Where is those costs today relative to where they were prior to the sale, generally speaking?

[Carlos J. Vazquez:]

The quick answer is that they haven't changed very much yet because we're still in transition period in servicing portfolio and things like that. We expect to have some cost savings from the sale and those will become evident in the next few months. This -- what I'm talking about, non-personnel related cost. So we expect to see some of that. With respect to the sale, the number that we're looking at is something in the neighborhood of $3 million a quarter. And -- but that is not going to be evident right away. Again, there's a process.

[Richard L. Carrion:]

Nonpersonal.

[Carlos J. Vazquez:]

Nonpersonal, yes. There is a process where we're still transitioning this portfolio. We'll continue to do a lot of things on it, but we hope to get to that level.

[Todd L. Hagerman:]

Okay. That's helpful. But I guess the -- as you mentioned before kind of a normalized on the provision side, 1% of loans, if you will. And with the concentration in mortgage-related assets, which is always going to be there so to speak, how do you think about kind of an average carry cost for kind of -- again, like if you referred back before, kind of if we think of 80 to 100 basis points in terms of average charge-offs, what would be in your opinion kind of the average cost tied to those assets outside of the provision?

[Carlos J. Vazquez:]

You would have to look at the different portfolios and tied it -- the cost related to all the worked out activity in each portfolio. We haven't done -- we don't have that information. We may have to look at it and get back to you on that.

[Richard L. Carrion:]

To get on to 80%?

[Carlos J. Vazquez:]

Right -- no, but [indiscernible] our distribution. We're talking about...

[Richard L. Carrion:]

We [indiscernible] with the requirements of mortgage.

[Carlos J. Vazquez:]

But we're talking of operating costs, not...

[Lidio V. Soriano:]

Operating...

[Richard L. Carrion:]

Operating costs, right.

[Brian Klock:]

I could take that off-line. But -- and then just finally, just again with the mortgage purchase this quarter and you've done a couple last couple of quarters. But what I'm curious about, with the residual problem asset exposure largely mortgage in Puerto Rico, and again kind of liquidity that's out there in the market, do you see any -- well, there's an appetite for earning assets certainly, is there an opportunity perhaps that there might be some smaller loan pools that might be sold down the road as it relates to mortgage?

[Carlos J. Vazquez:]

Well, if you -- if -- I'm not sure I'm fully understanding your question. But if what you're trying to ask is will I consider additional bulk sales of loans, we will always look at ways to forward our goal of using NPLs. If there's a bulk sale of loans that make sense, we will consider it.

[Richard L. Carrion:]

Yes, if we -- are we talking about additional purchases or additional sales? I...

[Todd L. Hagerman:]

No, I'm just specifically talking about sales on a smaller scale in terms of the mortgage portfolio, in terms of -- your residual problem assets right now are predominantly mortgage.

[Richard L. Carrion:]

Yes.

[Todd L. Hagerman:]

And so -- and then -- whereas the bulk sale was predominantly commercial, which was terrific.

[Richard L. Carrion:]

Yes.

[Todd L. Hagerman:]

So I'm just thinking about with that residual mortgage portfolio, if given the investor liquidity that's out there in the market, is there -- are the economics there that you would consider potentially say a smaller sale of, say, your pool of mortgage loans?

[Richard L. Carrion:]

You weigh a lot of these things. I mean, as Lidio mentioned in the presentation, we're getting about a little north of $0.80 (sic) [ 80% ] UPB on foreclosed properties. We'll take -- if there's a sale that makes sense and it'll just accelerate us lowering NPLs lower, we'll take a look at it without a doubt.

[Operator:]

[Operator Instructions] And your next question comes from the line of Alex Twerdahl from Sandler O’Neill.

[Alexander Twerdahl:]

Guys, just a couple of follow-ups. First off, Richard, I think you said that any future gains related to EVERTEC will be taxed at 4%.

[Richard L. Carrion:]

That's right.

[Alexander Twerdahl:]

Does that also apply to the $530 million in potential value on the balance sheet?

[Richard L. Carrion:]

Yes, that's correct.

[Alexander Twerdahl:]

Okay. And then just secondly, can you just remind us, when you converted the TARP a couple of years ago from preferreds to trust preferreds, you took about a $450 million book value gain.

[Richard L. Carrion:]

Yes.

[Alexander Twerdahl:]

In order to repay TARP, what is that book value gain that's still on the balance sheet today?

[Richard L. Carrion:]

Right now, it's $423 million right now. I'm being -- Carlos very definitely put the figure right in front, I was going to say $430 million, but it's $423 million. $500 million is the unamortized piece right now.

[Operator:]

Ladies and gentlemen, that concludes the question-and-answer session and today's conference. Thank you once again for your participation, and you may now disconnect. Have a good day.

[Richard L. Carrion:]

Thank you.