Encouraged by the progress shown by its U.S. mainland operation and by the strength of its Puerto Rico franchise, Popular Inc. reported Monday net income of $85 million for the first quarter ended Mar. 31, 2016, compared to net income of $137.4 million and an adjusted net income of $98.3 million for the quarter ended Dec. 31, 2015.
“Despite the challenging conditions in Puerto Rico we delivered solid results for the quarter reflecting stability in our key revenue, expense and credit metrics. We are pleased that we have been able to maintain and strengthen our leadership position in Puerto Rico and remain encouraged by the continued growth of our U.S. franchise,” Popular Inc. CEO Richard Carrión said.
The financial institution saw strong commercial loan production from its stateside business, with an organic growth of 5 percent, down slightly from 6 percent last quarter, said Lidio Soriano, Popular Inc.’s chief risk officer.
“Despite this U.S. based growth, our outlook for stable overall loan balances for 2016 remains unchanged, noting that the opposite had held true for its operations in Puerto Rico, where limited growth has been offset with selective loan portfolio purchases over the last few years.
“We will continue to pursue the acquisition strategy if attractive transactions become available,” he said.
Popular’s Puerto Rico mortgage business originated $228 million in loans in the first quarter, down from $235 million last quarter and from $340 million in the first quarter of last year. Total operating expenses for the quarter were down $3 million to $302 million. Seasonally lower business promotion expenses and lower professional fees mostly drove this decrease, he said.
Meanwhile, Carrión told analysts Monday morning that Popular Inc. is also benefiting from its stake in EVERTEC, whose market value is approximately $163 million and exceeds the current book value of $35 million. That is coupled with the financial institution’s ownership in Banco BHD León, the second largest bank in the Dominican Republic.
“Given the fiscal and economic challenges we face on the island we’re focused on the current situation, while acting to minimize its risk,” he said.
Looking ahead, Popular officials said they are keeping an eye on events in U.S. Congress, which is drafting legislation that would create a fiscal control board on the island and a legal framework and path toward an orderly debt restructuring. This legislation however, has not yet come out of committee, but is expected to move sometime this week.
“Political processes, however promising are inherently unpredictable. The proposed U.S. Congressional legislation is being pursued in an election year. There are also two related U.S. Supreme Court cases pending, which may have bearing on this issue,” Carrión said.
“While we’re encouraged by the possibility of congressional action, we’re disappointed at the lack of economic stimulus being discussed within the legislation. Now withstanding these legislative efforts, the Government of Puerto Rico faces multiple fiscal and liquidity challenges in the coming weeks and months, in particular a large GDB payment due next week,” he said, referring to the $422 million debt service obligation coming due May 2.
“We’re convinced the Central Government of Puerto Rico will fall short of the liquidity to meet its obligations in the next few months and immediate action is required,” he said.