Thursday, October 22, 2020

Popular Inc. Announces net income of $127.6 million ‘notwithstanding the challenging economic environment’

By on July 24, 2020

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 fallen 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
(In thousands)
 Percentage by portfolio
Mortgage 16,595 $2,108,825 28.0%
Auto loans 47,975  907,651 31.3%
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 originations 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 accelerated 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.

Earnings Highlights        
         
(Unaudited)Quarters ended Six months ended
(Dollars in thousands, except per share information)30-Jun-2031-Mar-2030-Jun-19 30-Jun-2030-Jun-19
Net interest income$450,881$473,095$476,316 $923,976$947,279
Provision for credit losses – loan portfolios63,104188,99540,191 252,09982,016
Provision (reversal) for credit losses – investment securities(655)736 81
Net interest income after provision for credit losses388,432283,364436,125 671,796865,263
Other non-interest income112,055126,643138,326 238,698274,756
Operating expenses348,231372,608363,015 720,839710,435
Income before income tax152,25637,399211,436 189,655429,584
Income tax expense24,6283,09740,330 27,72590,553
Net income$127,628$34,302$171,106 $161,930$339,031
Net income applicable to common stock$127,275$33,602$170,175 $160,877$337,169
Net income per common share – basic$1.49$0.37$1.77 $1.83$3.46
Net income per common share – diluted$1.49$0.37$1.76 $1.83$3.45

Net interest income on a taxable equivalent basis – Non-GAAP financial measure

Net interest income, on a taxable equivalent basis, is presented with its different components in Table D for the quarter and six month period ended June 30, 2020 and comparable periods, segregated by major categories of interest earning assets and interest-bearing liabilities.

Interest earning assets include investment securities and loans that are exempt from income tax, principally in Puerto Rico. The main sources of tax-exempt interest income are certain investments in obligations of the U.S. Government, its agencies and sponsored entities, and certain obligations of the Commonwealth of Puerto Rico and/or its agencies and municipalities and assets held by the Corporation’s international banking entities. To facilitate the comparison of all interest related to these assets, the interest income has been converted to a taxable equivalent basis, using the applicable statutory income tax rates for each period. Net interest income on a taxable equivalent basis is a non-GAAP financial measure. Management believes that this presentation provides meaningful information since it facilitates the comparison of revenues arising from taxable and tax-exempt sources.

Non-GAAP financial measures used by the Corporation may not be comparable to similarly named Non-GAAP financial measures used by other companies.

Net interest income

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. Net interest income, on a taxable equivalent basis, for the second quarter of 2020 was $493.0 million, a decrease of $28.4 million when compared to $521.4 million in the first quarter of 2020.

The net interest margin decreased by 69 basis points to 3.25% in the second quarter of 2020, compared to 3.94% in the previous quarter. The lower margin for the quarter is mainly as a result of three major factors: the decrease of 150 basis points in the Federal Funds Rate in mid-March, the increase in average deposits by $7.3 billion which were redeployed mostly at overnight Fed Funds, short-term U.S. Treasury securities and $1.4 billion ($913 million in average balance) in loans under the SBA PPP. These assets, although accretive to net interest income, are low yielding assets and compressed the net interest margin. The redeployment in relatively short tenured assets respond to the uncertainty of the tenure of the deposit growth. On a taxable equivalent basis, net interest margin was 3.56 % compared to 4.34% in the first quarter of 2020, a decrease of 78 basis points. The main variances in net interest income on a taxable equivalent basis were:

  • Lower income from money market, trading and investment securities by $24.2 million of which $46.7 million came from lower yields by 99 basis points related to the above-mentioned decrease in the Federal funds rate, partially offset by an increase in interest income of $22.4 million caused by the increase in average volume of $6.6 billion; and
  • lower interest income from loans by $23.8 million mainly driven by the decrease in yields of 55 basis points, partially offset by an increase in volume of $875 million. As mentioned above the loans issued under the SBA PPP carry a low yield of approximately 2.85%, including the amortization of fees received under the program. The decrease in yield is also impacted by the waived fees on past due loans associated to the moratoriums granted in order to mitigate the financial impact of the pandemic.

Partially offset by:

  • Lower interest expense on deposits by $19.3 million due to lower interest cost by 29 basis points resulting from the decrease in market rates, mostly on Puerto Rico Government and U.S. deposits, partially offset by higher average balance of interest-bearing deposits of $5.3 billion. This increase is related to inflow of deposits from the relief and assistance programs provided by the P.R. and Federal governments in response to the pandemic. Payment moratoriums and the closure of economic activity may have also contributed to this outcome. Non-interest-bearing deposits increased $2.0 billion in average quarter over quarter.

The net interest income for the Banco Popular de Puerto Rico (“BPPR”) segment amounted to $387.2 million for the quarter ended June 30, 2020, compared to $409.6 million in the previous quarter. The net interest margin for the second quarter of 2020 was 3.39%, a decrease of 83 basis points when compared to 4.22% for the previous quarter. The decrease in net interest margin was impacted by lower loan fees resulting from waivers granted due to the COVID-19 pandemic, the decrease in interest rates and a higher average balance of deposits by $6.8 billion which are mostly invested in overnight Fed Funds or in short-term U.S. Treasury securities. The issuance of PPP loans in BPPR amounted to $1.2 billion or $770 million in average loan balances during the second quarter. The cost of interest-bearing deposits was 0.28%, half of the cost reported in the first quarter of 0.56%, mostly driven by a lower cost of Puerto Rico Government deposits. Total cost of deposits for the quarter was 0.22%, compared to 0.44% reported in the first quarter of 2020, a decrease of 22 basis points.

Net interest income for Popular Bank (“Popular U.S.” or “PB”) was $73.7 million, for the quarter ended June 30, 2020, compared to $72.7 million during the previous quarter. The increase of $1.0 million in net interest income was primarily due to lower deposit costs by 26 basis points, partially offset by lower yields on debt securities, both driven by the decrease in market rates. Commercial and mortgage loan yields also decreased due to lower service fees related to waivers granted due to the pandemic, lower origination rates and the origination of PPP loans of approximately $207 million or $146 million in average loan balance during the second quarter. Net interest margin for the quarter was 3.07%, a decrease of 14 basis points when compared to 3.21% reported in the first quarter of 2020. Earning assets yielded 4.02%, compared to 4.37% in the previous quarter. The cost of interest-bearing deposits was 1.18%, compared to 1.44% in the previous quarter. Total cost of deposits for the quarter was 1.01%, compared to 1.25% reported in the first quarter.

Non-interest income

Non-interest income decreased by $14.6 million to $112.0 million for the quarter ended June 30, 2020, compared to $126.6 million for the quarter ended March 31, 2020. The decrease in non-interest income was primarily driven by:

  • Lower service charges on deposit accounts by $11.5 million, mainly in the BPPR segment, due to lower transactions resulting from business disruptions and the waiver of fees related to the pandemic;
  • lower other services by $12.7 million, mainly in the BPPR segment, due to lower debit and credit card fees by $8.6 million due to lower transactional volumes resulting from business disruptions related to the pandemic, which also resulted in the elimination of service charges and late fees, lower insurance fees by $1.7 million, and lower commission income by $1.4 million principally in the broker-dealer subsidiary; and
  • lower income from mortgage banking activities by $2.6 million mainly due to lower mortgage servicing fees by $1.9 million and higher unfavorable fair value adjustments on mortgage servicing rights (“MSRs”) by $2.4 million mainly due to a decrease in float earnings and a reduction in late fee revenues resulting from the moratoriums and fee waivers granted as a result of the pandemic relief efforts, partially offset by higher gains on securitization transactions and whole loan sales by $1.5 million;

Partially offset by:

  • an increase in net unrealized gain on equity securities of $5.2 million mainly related to employee deferred compensation plans that have an offsetting expense on personnel related expenses;
  • a favorable variance in adjustments to indemnity reserves on previously sold loans of $3.6 million mainly due to a lower provision related to loans previously sold with credit recourse; and
  • higher other operating income by $2.6 million mostly due to a gain of $5.6 million recognized as a result of the sale and partial leaseback of the corporate office building that houses our auto lending subsidiary, partially offset by lower daily rental revenues by $1.2 million.

Refer to Table B for further details.

Operating expenses

Operating expenses for the second quarter of 2020 totaled $348.2 million, a decrease of $24.4 million from the first quarter of 2020. The decrease in operating expenses was driven primarily by:

  • Lower personnel cost by $7.7 million due to lower commission, incentive and other bonuses by $9.2 million, mainly related to a special incentive to front-line employees during the COVID-19 pandemic amounting to $3.4 million which was granted during the first quarter of 2020, lower stock based compensation expense by $3.8 million due to awards granted in the first quarter and lower employment taxes by $2.4 million; partially offset by higher employee deferred compensation plans expense by $4.8 million, resulting from the unrealized gains in equity securities reflected by the Corporation, as administrator of these plan;
  • lower professional fees by $8.5 million due to lower processing and technology services by $3.4 million, mainly as a result of lower number of transactions, lower advisory expenses by $2.3 million, lower legal fees by $1.1 million and lower audit and tax services by $0.7 million;
  • lower business promotion by $1.9 million due to lower advertising expense;
  • lower OREO expenses by $2.8 million due to the temporary suspension of foreclosure activity as part of the pandemic relief measures; and
  • lower other operating expenses by $1.5 million mainly due to lower mortgage loans servicing operational losses and lower legal contingency reserves.

Full-time equivalent employees were 8,525 as of June 30, 2020, compared to 8,551 as of March 31, 2020.

For a breakdown of operating expenses by category refer to Table B.

Income taxes

For the quarter ended June 30, 2020, the Corporation recorded an income tax expense of $24.6 million, compared to $3.1 million for the previous quarter. The increase in income tax expense was mainly attributed to higher income before tax during the second quarter of 2020. The effective tax rate (“ETR”) for the second quarter of 2020 was of 16%, compared to 8% in the previous quarter.

The ETR of the Corporation is impacted by the composition and source of its taxable income. For the remainder of 2020, the Corporation currently expects its consolidated ETR to be within the 14% to 17% range.

Credit Quality

The Corporation exhibited stable credit quality metrics in the second quarter of 2020 as Popular continued to provide financial relief to customers impacted by the pandemic. The effect of the pandemic and the full extent of its economic disruption remains uncertain. Management believes that the improvement over the last few years in the risk profile of the Corporation’s loan portfolios better positions Popular to operate successfully under the ongoing challenging environment. Management will continue to carefully monitor the exposure of the portfolios to COVID-19 pandemic related risks, changes in the economic outlook of the regions in which we operate and how delinquencies and NCOs evolve after the period of payment deferrals lapses during the third quarter of 2020.

The following presents credit quality results for the second quarter of 2020:

  • At June 30, 2020, total non-performing loans held-in-portfolio decreased by $8.5 million from March 31, 2020. BPPR’s NPLs decreased by $9.1 million, driven by lower mortgage and consumer (mostly auto loans), by $7.2 million and $5.3 million, respectively. Popular Bank’s NPLs remained flat quarter-over-quarter. During the first quarter of 2020, as a result of the implementation of CECL for purchased credit deteriorated (“PCD”) loans, the NPLs increased by $278 million. At June 30, 2020, the ratio of NPLs to total loans held-in-portfolio was 2.6% compared to 2.8% in the first quarter of 2020.
  • Inflows of NPLs held-in-portfolio, excluding consumer loans, increased by $21.0 million quarter-over-quarter. In Puerto Rico, commercial inflows increased by $9.2 million when compared to the first quarter of 2020, driven by a single $6.7 million loan relationship, while the mortgage inflows increased by $6.6 million. The PB inflows increased by $5.2 million from the previous quarter, mainly driven by higher mortgage inflows of $3.4 million during the period.
  • NCOs increased by $2.4 million from the first quarter of 2020, primarily driven by higher BPPR mortgage NCOs by $2.0 million. The Corporation’s ratio of annualized net charge-offs to average loans held-in-portfolio was 0.92%, compared to 0.91% in the first quarter of 2020. Refer to Table M for further information on net charge-offs and related ratios.
  • For the first quarter of 2020’s ACL computation, the Corporation utilized the March 27 Moody’s Analytics’ S3 Downside Scenario. That scenario assumed a double-dip recession. The U.S. stimulus plan enabled GDP growth in the third quarter of 2020, but the economy declined again in Q4 and it was not until Q2 2021 that a sustained recovery began. Under that scenario, unemployment peaked in the second quarter of 2020 with rates of 13.0% and 13.5% and economic activity declined by 25.3% and 18.3% in the U.S. and P.R., respectively. The recovery period began in the second quarter of 2021 and third quarter of 2021 for the U.S. and P.R., respectively.  For the second quarter’s ACL computation, the Corporation utilized Moody’s Analytics’ June Baseline scenario.  This scenario assumes that a significant pickup in economic activity will occur in the third quarter of 2020 driven by federal assistance programs, followed by a period of tepid growth.  Under this scenario, during the second quarter of 2020, the unemployment peaked with rates of 14.0% and 14.4% and economic activity declined by 33.4% and 24.6% in the U.S. and P.R., respectively. A sustained, albeit gradual, recovery begins in the fourth quarter of 2020 for the U.S. and P.R.
  • At June 30, 2020, the allowance for credit losses remained essentially flat, decreasing slightly by $1.3 million from the first quarter of 2020 to $918.4 million. The ACL reflects the current economic outlook, as well as downgrades in the internal credit rating of parts of the commercial portfolio, related to the impact of the COVID-19 pandemic. Incremental reserves in the prior quarter related to the pandemic amounted to $134 million. The ratio of the allowance for credit losses to loans held-in-portfolio was 3.16% in the second quarter of 2020, compared to 3.32% in the previous quarter. The ratio of the allowance for credit losses to NPLs held-in-portfolio stood at 120.8%, compared to 119.7% in the previous quarter.
  • The provision for credit losses for the second quarter of 2020 decreased by $125.9 million from the prior quarter. The provision for the BPPR and PB segments decreased by $52.6 million and $73.3 million, respectively, as the provision for the first quarter of 2020 included incremental reserves related to the COVID-19 pandemic impact. The provision to net charge-offs ratio was 97.2% in the second quarter of 2020, compared to 302.3% in the previous quarter.
Non-Performing Assets     
(Unaudited)     
(In thousands)30-Jun-20 31-Mar-20 30-Jun-19
Total non-performing loans held-in-portfolio$760,204 $768,675 $564,358
Non-performing loans held-for-sale6,778 10,679 
Other real estate owned (“OREO”)113,940 123,922 118,851
Total non-performing assets$880,922 $903,276 $683,209
Net charge-offs for the quarter$64,953 $62,523 $47,153
 
      
Ratios:     
Loans held-in-portfolio$29,070,553 $27,662,272 $27,005,745
Non-performing loans held-in-portfolio to loans held-in-portfolio2.62% 2.78% 2.09%
Allowance for credit losses to loans held-in-portfolio3.16 3.32 2.01
Allowance for credit losses to non-performing loans, excluding loans held-for-sale120.81 119.65 96.33
Refer to Table K for additional information.     
Provision for Credit Losses – Loan Portfolios         
          
(Unaudited) Quarters ended Six months ended
(In thousands) 30-Jun-20 31-Mar-20 30-Jun-19 30-Jun-2030-Jun-19
Provision for credit losses:         
BPPR $60,423 $113,004 $28,975 $173,427$60,429
Popular U.S. 2,681 75,991 11,216 78,67221,587
Total provision for credit losses $63,104 $188,995 $40,191 $252,099$82,016
Credit Quality by Segment       
(Unaudited)       
(In thousands)Quarters ended 
BPPR 30-Jun-20 31-Mar-20 30-Jun-19 
Provision for credit losses – loan portfolios $60,423 $113,004 $28,975 
Net charge-offs 62,143 59,517 37,167 
Total non-performing loans held-in-portfolio726,603 735,683 522,525 
Allowance / loans held-in-portfolio3.53% 3.74% 2.38% 
 Quarters ended 
Popular U.S. 30-Jun-20 31-Mar-20 30-Jun-19 
Provision for credit losses – loan portfolios $2,681 $75,991 $11,216 
Net charge-offs 2,810 3,006 9,986 
Total non-performing loans held-in-portfolio 33,601 32,992 41,833 
Allowance / loans held-in-portfolio2.13% 2.19% 0.97% 
Financial Condition Highlights     
        
(Unaudited)   
(In thousands)30-Jun-20 31-Mar-20 30-Jun-19
Cash and money market investments$10,060,358 $6,387,267 $3,563,819
Investment securities21,058,918 16,114,167 17,038,098
Loans29,070,553 27,662,272 27,005,745
Total assets62,845,352 52,803,639 50,617,221
Deposits53,844,300 44,797,176 42,059,837
Borrowings1,339,339 1,336,897 1,604,670
Total liabilities57,065,187 47,134,034 44,897,387
Stockholders’ equity5,780,165 5,669,605 5,719,834

Total assets increased by $10.0 billion from the first quarter of 2020, driven by:

  • An increase of $3.7 billion in cash and money market investments, mainly due to an increase in deposits, partially offset by purchases of available-for-sale debt securities;
  • An increase of $5.0 billion in debt securities available-for-sale mainly due to purchases of U.S. Treasury securities and mortgage-backed securities; and
  • An increase of $1.4 billion in loans held-in-portfolio mainly due to growth of commercial loans due to originations of PPP loans at both BPPR and PB and an increase of $411 million in mortgage loans due to an increase in the rebooking of GNMA loans subject to the repurchase option due to an increase in delinquency resulting from the moratorium. Loans in our serviced GNMA portfolio benefit from payment forbearance programs but continue to reflect the contractual delinquency until the borrower repays deferred payments or completes a payment deferral modification or other borrower assistance alternative.

Total liabilities increased by $9.9 billion from the first quarter of 2020, mainly due to:

  • An increase of $9.0 billion in deposits, mainly from an increase at BPPR of public sector deposits by $4.2 billion and retail and commercial demand and savings accounts by $5.0 billion; and
  • An increase of $0.9 billion in other liabilities due to an increase in the liability for GNMA loans sold with a repurchase option of $0.4 billion, and $0.4 billion in unsettled purchases of debt securities.

Stockholders’ equity increased by approximately $110.6 million from the first quarter of 2020, principally due to net income for the quarter of $127.6 million and higher unrealized gains on debt securities available-for-sale by $15.2 million, partially offset by declared dividends of $33.7 million on common stock (paid on July 1, 2020) and $0.3 million in dividends on preferred stock reflecting the reduction due to the redemption of the Series B Preferred Stock during the first quarter of 2020.

Common equity tier-1 ratio (“CET1”), common equity per share and tangible book value per share were 15.70%, $68.40 and $60.13, respectively, at June 30, 2020, compared to 15.79%, $64.08 and $56.17 at March 31, 2020. The regulatory capital ratios for the second quarter of 2020 reflect the impact of the new capital simplification rules, effective on April 1, 2020, which resulted in a reduction to CET1 of 48 bps. These rules alleviate the limitations to the amount of mortgage servicing assets and certain deferred tax assets allowed as CET1 and increased the risk weight for the portion of the deferred tax assets included as a component of CET1 from 100% to 250% among other provisions. Refer to Table A for capital ratios.

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