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Mar 31, 2020
Popular Q1 2020 Earnings Report
Popular, Inc. reported lower net income due to a large increase in provision expense, reflecting the newly adopted CECL methodology and the macroeconomic forecast for Puerto Rico and the U.S.
Key Takeaways
Popular, Inc. reported net income of $34.3 million for Q1 2020, a significant decrease compared to the previous quarter and the same period last year. The primary driver was a large increase in the provision expense, reflecting the newly adopted CECL methodology and the macroeconomic forecast due to COVID-19.
Net income of $34.3 million in Q1 2020, compared to net income of $166.8 million in Q4 2019.
Net interest margin of 3.94% in Q1 2020, compared to 3.83% in Q4 2019.
Q1 2020 results reflect the impact of the adoption of the Current Expected Credit Losses (“CECL”) accounting standard.
Common Equity Tier 1 ratio of 15.79% at March 31, 2020.
Popular
Popular
Forward Guidance
The extent to which the COVID-19 pandemic further impacts our business, results of operations and financial condition 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.
Positive Outlook
- Broadened remote working capabilities through the use of technology
- Executed actions to support employees working in our offices, including sanitation measures, social distance, staggered shifts and the distribution of masks and gloves
- Special compensation incentives to front-line employees (branches and call centers)
- Expanded health insurance benefits, including free COVID-19 tests and the availability of telephone consultations to employees and covered family members
- Published dedicated phoneline and online tool to request financial assistance for customers impacted by COVID-19
Challenges Ahead
- Lower other services by $10.8 million, mainly in the BPPR segment, due to lower debit and credit card fees by $5.0 million due to lower transactional volumes resulting from business disruptions during the last two weeks of March related to the COVID-19 pandemic which also resulted in the elimination of service charges and late fees
- Lower insurance fees principally resulting from $4.2 million in contingent insurance commissions recognized during the fourth quarter
- Lower income from mortgage banking activities by $7.0 million mainly due to higher fair value adjustments on mortgage servicing rights (“MSRs”) by $3.7 million due to an increase in estimated prepayments driven by declines in market rates, coupled with higher trading account losses by $2.6 million
- A net unrealized loss on equity securities of $2.7 million related to employee deferred compensation plans that have an offsetting expense reduction in personnel related expenses
- An unfavorable variance in adjustments to indemnity reserves on previously sold loans of $6.1 million mainly due to higher provision related to loans previously sold with credit recourse