SAN JUAN -Popular Inc. reported net income of $ 127.6 million for the quarter ended June 30, compared with $ 34.3 million for the quarter ended March 31.
The Puerto Rico bank holding company reported $ 620.6 million in revenue and $ 127.3 million in profit for the second quarter, and earnings of $ 1.49 per share.
Popular is the leading financial institution in Puerto Rico. Banco Popular de Puerto Rico, is its principal subsidiary, providing retail, mortgage and commercial banking services in Puerto Rico and the U.S. Virgin Islands.
“Its revenue net of interest expense was $ 562.9 million, which did not meet Street forecasts,” the Associated Press reports. "Popular shares have decreased 36% since the beginning of the year. The stock has failed 31% in the last 12 months. ”
Popular also offers in Puerto Rico auto and equipment leasing and financing, investment banking, broker-dealer and insurance services through specialized subsidiaries. In the mainland United States, Popular provides retail, mortgage and commercial banking services through its New York-chartered banking subsidiary, Popular Bank, which has branches located in New York, New Jersey and Florida.
Ignacio Álvarez, president and CEO, said: “We reported net income of $ 127.6 million for the quarter, notwithstanding the challenging economic environment resulting from the coronavirus pandemic and the historically low interest rate scenario. After 126 years in the banking business, we know success requires that we act quickly and decisively, putting people first. I want to express my gratitude to our employees for their commitment to serve our customers and their creativity and ability to adapt to a rapidly changing situation. We continue to support the communities we serve during these difficult times by providing payment deferrals to more than 120,000 customers and have also provided assistance to health care professionals and non-profit organizations as they battle the pandemic. I would also like to thank our customers for their continued trust and for adapting to this new reality. They have accelerated their adoption of digital channels, helping us reach an important milestone – more than one million active users in our digital banking platform.
“We are aware that there remains much uncertainty as to the future of the economy. Economic performance will continue to be tied to developments on the health front, which are very difficult to predict. If the health situation deteriorates, leading to a new round of restrictions on businesses, this will obviously hamper the economic recovery. The strength of our balance sheet, levels of capital and liquidity place us in a strong position to continue to serve our clients and weather the challenges that may lie ahead. ”
Popular published the following highlights in its earnings release:
- Net income of $ 127.6 million in Q2 2020, compared to net income of $ 34.3 million in Q1 2020.
- Net interest margin of 3.25% in Q2 2020, compared to 3.94% in Q1 2020; Net interest margin on a taxable equivalent basis of 3.56% in Q2 2020, compared to 4.34% in Q1 2020.
- Credit Quality:
- Non-performing loans held-in-portfolio (“NPLs”) decreased by $ 8.5 million from Q1 2020; NPLs to loans ratio at 2.6% vs. 2.8% in Q1 2020;
- Net charge-offs (“NCOs”) increased by $ 2.4 million from Q1 2020; NCOs at 0.92% of average loans held-in-portfolio vs. 0.91% in Q1 2020;
- Allowance for credit losses (“ACL”) to loans held-in-portfolio at 3.16% vs. 3.32% in Q1 2020; and
- ACL to NPLs at 120.8% vs. 119.7% in Q1 2020.
- Common Equity Tier 1 ratio of 15.70%, Common Equity per Share of $ 68.40 and Tangible Book Value per Share of $ 60.13 at June 30, 2020.
Financial Highlights  For the second quarter of 2020 the Corporation recorded a net income of $ 127.6 million, compared to a net income of $ 34.3 million for the previous quarter. The results for both periods were significantly impacted by the COVID-19 pandemic, which has affected the markets in which we operate and our results of operations, as explained below.
The Corporation's total assets increased by $ 10.0 billion during the quarter to $ 62.8 billion, primarily due to an increase in deposits of $ 9.0 billion, of which $ 4.2 billion were from the public sector, driven by Federal and Puerto Rico Government assistance programs related to the pandemic. Most of this increased liquidity was deployed in overnight Fed Funds or in short-term U.S. Treasury securities and to originate $ 1.4 billion in Small Business Administration (“SBA”) loans under the Payment Protection Program (“PPP”). These are all lower yielding assets. This change in the composition of our earning assets, coupled with the effect of the declines in market interest rates, resulted in a compression of the Corporation’s net interest margin which declined 69 basis points during the quarter to 3.25%. Net interest income for the quarter ended June 30, 2020 was $ 450.9 million compared to $ 473.1 million in the previous quarter, a decrease of $ 22.2 million.
Coronavirus (COVID-19) Pandemic
The Corporation's results for the second quarter of 2020 reflect the impact of the continued business disruption caused by the pandemic, the relief measures implemented by the Corporation and by the federal, state and local governments in response thereto. Certain of the measures imposed by the governments of Puerto Rico, the United States mainland and United States Virgin Islands, including lockdowns, business closures, mandatory curfews and limits to public activities, were relaxed late in the second quarter of 2020 to allow for the gradual reopening of the economy. Nevertheless, economic activity was negatively impacted by the pandemic throughout the quarter, which in turn impacted our financial results. The recent regional resurgence in the spread of the virus has also led to the reinstitution of certain restrictive health and safety measures. For example, in July 16, 2020, as a result of the resurgence of COVID-19 cases on the Island, the Government of Puerto Rico scaled back measures to reopen the economy, including by further restricting non-essential business establishments and public activities.
As previously disclosed, the Corporation implemented several financial relief programs in response to the pandemic, including payment moratoriums, suspensions of foreclosures and other collection activity, as well as waivers of certain fees and service charges, such as late-payment charges and ATM transaction fees. In the case of Puerto Rico, the moratoriums for all consumer products are mandated by local law. As of June 30, 2020, the Corporation had granted a loan payment moratorium to 116,226 eligible retail customers with an aggregate book value of $ 3.9 billion, and to 5,003 eligible commercial clients with an aggregate book value of $ 4.1 billion as detailed below. Covid-related moratoriums began in March of 2020 and are set to expire between July 1, 2020 and September 30, 2020, depending on the loan product and deferral agreements with the borrowers. Other clients benefitted from moratoriums since mid-January 2020 as a result of various areas of Puerto Rico being declared disaster areas as a result of the January earthquakes.
|Loan portfolio affected by Covid-related moratoriums||Loan count|| Book Value
|Percentage by portfolio|
|Mortgage||16,595||$ 2,108,825|| 28.0||%|
|Lease financing|| 10,600||431,285||39.3||%|
|Credit cards||19,256||107,644||] 11.0||%|
|Other consumer loans||21,800||313,014||16.6||%  Commercial||5,003||4,116,697||28.0||%|
|Total||121,229||$  7,985,116||27.5||%|
The delinquency status of loans subject to the Corporation's payment moratorium programs remains unaltered during the payment deferral period and the Corporation continues to accrue interest income during such term.  As of June 30, 2020, the Corporation had secured funding approval for over 28,000 loans totaling approximately $ 1.4 billion under the Small Business Administration's (“SBA”) Payroll Protection Program (“PPP”). Approximately $ 1.2 billion of such loans were granted in Puerto Rico, $ 215 million in the mainland United States and $ 29 million in the U.S. Virgin Islands. The average size of loans extended under the PPP was approximately $ 45,000 in Puerto Rico and the U.S. Virgin Islands and $ 152,000 in the mainland United States. The Corporation will continue to extend PPP loans while the program remains open and is now working on the second part of the process, loan forgiveness, which is expected to be completed predominantly through digital channels.
During the second quarter, the Corporation's revenue streams were also impacted by reduced consumer transaction activity, the waiver of certain late fees and service charges, including ATM transaction fees, as well as the temporary suspension of auto loans and leases as well as mortgage origins and related securitization and loan sale activities. Collectively, these revenue captions experienced a decrease of approximately $ 21.9 million when compared to the previous quarter and of approximately $ 27.2 million when compared to the same quarter of the previous year, reflecting the impact of the COVID-19 pandemic. As of July 2020, the corporation reinstated most of the fees waived as a result of the pandemic as well as its normal collection efforts. The speed at which earnings from those activities return to pre-pandemic levels remain highly uncertain and depend on client activity and the economic recovery.
Mortgage loan origination activity resumed during the month of May. Origination volumes and related mortgage loan securitization activity reflect the impact of the lockdown for a portion of the second quarter of 2020, although the origination volumes for the month of June reflect an increase to a level that is comparable to the same period of the previous year .
The extent to which the pandemic further impacts our business, results of operations and financial condition (including our regulatory capital, liquidity ratios and realizability of deferred tax assets), as well as the operations of our clients, customers, service providers and suppliers, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response thereto.
Common Stock Repurchase Plan
On May 27, 2020, the Corporation completed its previously announced $ 500 million accelerat ed share repurchase transaction (“ASR”) for 2020 with respect to its common stock. On March 19, 2020 (the “early termination date”), the dealer counterparty to the ASR exercised its right under the ASR agreement to terminate the transaction because the trading price of the Corporation's common stock fell below a specified level due to the effects of the COVID-19 pandemic on the global markets. As a result of such early termination, the final settlement of the ASR, which was originally expected to occur during the fourth quarter of 2020, occurred during the second quarter of 2020.
Under the ASR, the Corporation prepaid $ 500 million and received from the dealer counterparty an initial delivery of 7,055,919 shares of common stock on February 3, 2020. As part of the final settlement of the ASR, the Corporation received an additional 4,763,216 shares of common stock after the early termination date. In total the Corporation repurchased 11,819,135 shares at an average price per share of $ 42,3043 under the ASR. The Corporation accounted for the ASR as a treasury stock transaction. This transaction increased by $ 2.20 the Corporation's tangible book value per share.
Goodwill Impairment Evaluation
As disclosed in the Form 10-Q for the quarter ended March 31, 2020 , the Corporation deemed the effects of the current and projected interest rate environment and the continued effects of the pandemic on the valuation of the Corporation and its subsidiaries, as an interim triggering event for the evaluation of goodwill. During the second quarter, management has continued to monitor changes in circumstances to determine if these changes would more likely than not result in an impairment of goodwill.The Corporation expects to complete its evaluation prior to the filing of its Form 10-Q for the quarter ended June 30, 2020 with the Securities and Exchange Commission. An impairment of goodwill would result in a non-cash expense, net of tax impact. A charge to earnings related to a goodwill impairment would not impact regulatory capital calculations.