Buoyed by a triple-play of significant transactions, Popular Inc., Banco Popular de Puerto Rico’s parent company, reported net income of $327.5 million for the quarter ended June 30, 2013, compared to a net loss of $120.3 million for the quarter ended March 31, 2013.
“Popular reported $328 million in net income for the second quarter. To say there’s a little noise in these numbers would be the understatement of the century,” Popular Inc. CEO Richard Carrión said during a conference call to discuss the results revealed Thursday.
During the three-month period, the financial institution completed two previously announced transactions — EVERTEC’s initial public offering and the sale of a portfolio of non-performing residential mortgage loans (NPLs) with a book value and unpaid principal balance of $434.6 million and $510.7 million, respectively — and benefitted from an amendment to the Puerto Rico Internal Revenue Code which, among other things, increased the corporate income tax rate from 30 percent to 39 percent, resulting in a benefit to the bank of $215.6 million from the increase in the net deferred tax asset.
The three transactions, he said, resulted in the adjusted net income of $68 million for the bank “in a quarter that reflects our two greatest sources of strength: revenue-generating capacity and capital levels.”
“We head into the second half of the year with an NPL to loan ratio, excluding covered loans, below 3 percent. Including the effect of the NPL sale and the EVERTEC IPO, we ended the quarter with strong capital levels,” he said, adding that Popular received some $270 million of cash from the IPO, including $92 million from the repayment of EVERTEC debt.
Popular retained a 32.4 percent stake in the company following the IPO with a current market value of $631 million and a book value of $64 million.
“EVERTEC continues to be an important business partner to Popular. Our remaining stake in the company is one of many valuable assets on our balance sheet. As investors, we’ll continue to participate in a proportionate share of the company’s income, and we expect to remain a significant shareholder in the company, and believe this investment will continue to yield a healthy return,” Carrión said.
With regards to the government’s decision to revert the corporate tax rate, Carrión said while necessary to address the difficult fiscal situation, the measure may decelerate the pace at which the Puerto Rico economy improves.
“So we cannot be certain of the magnitude of these effects. We’ve been able to make significant improvements in Popular’s business despite the soft macro environment on the island,” he said.
Meanwhile, he said the bank continues discussions with federal regulators to exit the Trouble Asset Relief Program, “in the most shareholder-friendly” way. Popular received $900 million from the assistance program at the height of the economic recession.