Popular continued to scale back its exposure to the troubled Puerto Rican government, selling off a $517 million portfolio of sales-tax bonds, the company said Wednesday.

Executives at the San Juan, Puerto Rico, company provided details about the sale during a conference call with analysts to discuss second-quarter earnings. The transaction took place after June 30 and was not reflected in the results.

During the quarter, Popular recorded an impairment charge of $8.3 million on the portfolio of sales tax, or Cofina, bonds. The charge stemmed from the Title III bankruptcy petition filed by the island’s government in May.

Popular branch in San Juan, Puerto Rico.
Bloomberg News

Popular no longer has direct exposure to the central Puerto Rican government as a result of the sale, though it still holds roughly $502 million in municipal securities.

Executive acknowledged on the call that economic growth — and thus loan growth — remains sluggish in Puerto Rico, which is struggling with a crippling debt crisis. Further cuts to government spending in the years ahead could add additional stress, they said.

Still, the company expressed optimism about the prospects for growth over the long term, noting that investments in energy and infrastructure could help to revive the local economy, once budgets are balanced and debt levels are stabilized.

“Popular maintains an important role in the island’s economy,” said Ignacio Alvarez, the company’s president and CEO. “As such, we will continue to offer our support and advise where appropriate, particularly in regard to economic growth.”

The $41.2 billion-asset company reported earnings of $96.2 million during the second quarter, or 8% more than a year earlier. Earnings per share were 94 cents, or 2 pennies higher than the consensus among analyst estimates compiled by FactSet Research Systems.

Net interest income increased 4% to $374.5 million thanks to gains on investment securities, as well as money market investments stemming from higher deposit balances from the Puerto Rican government. The provision for loan losses rose 30% to $52.5 million.

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Kristin Broughton

Kristin Broughton

Kristin Broughton is a reporter for American Banker, where she writes about the business of national and regional banking.