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haPPy dayS for BankS
Banco Popular, FirstBank and Oriental report strong Q3 numbers
Rosario Fajardo
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rfajardo@wjournalpr.com @RosarioWJournal
There is no doubt that these are happy days for banks, as Puerto Rico’s three main commercial banks continue to report strong earnings. The federal government’s financial largesse to residents and businesses alike have helped bank accounts and savings to grow, while reducing the number of bad loans and helping to prop up struggling businesses.
Banco Popular
In announcing its third quarter (Q3) 2021 results, Popular Inc. reported net income of $248.1 million for the quarter ended Sept. 30, 2021, compared to net income of $218.1 million for the previous quarter.
The third quarter’s results include a release in the allowance for credit losses of $61.2 million driven by improving credit quality and the improved macroeconomic outlook, Popular said.
Net Interest income was $489.4 million, an increase of $1.6 million compared to the previous quarter, mainly due to higher average earning assets and higher income from the loans issued under the U.S. Small Business Administration’s (SBA) Paycheck Protection Program (PPP), offset in part by a lower discount amortization of purchased credit deteriorated loans. Net interest margin decreased 14 basis points to 2.77 percent.
Total assets grew by $1.5 billion from the previous quarter, reflecting an increase in deposits across various sectors, principally from the Puerto Rico public sector.
“The third quarter was another strong quarter. We achieved net income of $248.1 million, driven by a reserve release of $61 million. The release reflects strong credit quality performance as well as a positive economic outlook. We continued to see higher credit and debit card spending, strong auto and mortgage originations as well as higher deposits. During the quarter we also continued to return capital to our shareholders, completing our $350 million accelerated repurchase program,” said Ignacio Álvarez, president and CEO of Popular. for the second quarter of 2021. Provision for credit losses was a net benefit of $12.1 million for Q3 2021, reflecting, among other things, improvements in the outlook of certain macroeconomic variables and lower loans outstanding.
Income before income taxes was $112.7 million for the third quarter of 2021, compared to $110.7 million for Q2 2021, FirstBank reported. Nonperforming assets decreased by $83.2 million to $172.4 million as of Sept. 30, 2021, compared to $255.6 million in the previous quarter. “Financial benefits of our fully integrated and expanded franchise are well underway as we report strong third quarter results. We generated $75.7 million in net income and a record $103.6 million in pre-tax, pre-provision income for the quarter. Improvements in the economic backdrop within our operating markets continue to drive core performance metrics. Asset quality continued to improve, with non-performing assets reaching a decade low of 0.81 percent of total assets,” said Aurelio Alemán, president and CEO of First BanCorp. “Loan originations, including refinancings, were healthy at $1.1 billion; however, the loan portfolio decreased largely driven by a $130.9 million reduction in SBA PPP loans and the sale of $52.5 million in nonaccrual residential mortgage loans. Core deposits, net of brokered and government deposits grew by $288.5 million during the quarter primarily in demand deposit accounts in Puerto Rico and Florida,” he added.
Oriental
OFG Bancorp reported these highlights for Q3 2021: Total core revenues of $134.7 million compared to $133.3 million in Q2 2021. Total Interest Income of $112.1 million compared to $113.5 million in the second quarter of 2021. The third quarter of 2021 also reflected mortgage paydowns and PPP loan forgiveness mostly offset by increased income from auto and commercial loans, and investment securities. Average loan balances for Q3 2021were $6.47 billion compared to $6.60 billion in the previous quarter. “Results reflect consistently growing recurring net income, our larger scale, our focus on increasing digital utilization and customer service differentiation, and Puerto Rico’s nascent economic and post-pandemic recovery,” said José Rafael Fernández, Oriental’s president and CEO.
“Q3 2021 new loan origination remained strong at $556 million. Compared to Q2 2021, loans exPPP increased, cost of funds declined 17 percent, customer deposits increased $154 million, and net interest income continued to steadily grow. Provision for credit losses was a $5 million net benefit as asset quality continued to trend to levels closer to U.S. peer banks. Total banking and financial service revenues rose 3 percent, and noninterest expenses fell 5 percent, reflecting in part reduced credit related expenses,” he noted.
CNE Details ‘Complex Arrangement’ Between PREPA and LUMA
THE WEEKLY JOURNAL Staff
The latest energy analysis from the Center for a New Economy (CNE) outlines what Puerto Rico can expect in the coming years from the Puerto Rico Electric Power Authority (PREPA) and LUMA Energy, as the island continues to grapple with selective blackouts, affecting residents and business alike. The report, authored by Sergio M. Marxuach, CNE’s Policy Director, explains the nature of the two company’s responsibilities with regard to Puerto Rico’s electricity system. “PREPA is required to provide ‘dependable generation capacity’ in exchange for a monthly payment from LUMA to cover operating and maintenance expenses, as well as approved capital expenditures; while LUMA has absolute control to dispatch generation and manage system load at any given time,” he writes. “Notice the complex nature of the current arrangement: PREPA is responsible for the operation and maintenance of the generation fleet, while LUMA is in charge of funding PREPA’s operations on a monthly basis and dispatching load into the grid. Given the complicated character of this relationship, we suspect that the recent rolling blackouts are as much a function of (1) a decrepit generation fleet and an unstable transmission and distribution grid as of (2) a series of coordination failures between PREPA and LUMA,” Marxuach states.
However, the situation was not exactly excellent when PREPA was in charge, as “Puerto Rico’s energy woes were years in the making and are the direct result of PREPA’s mismanagement, negligence and corruption. Handing control back to the masters of disaster is not an option,” he adds. It’s important to point out that “PREPA’s indictment is not LUMA’s vindication. LUMA had about a year to prepare for the takeover of Puerto Rico’s electricity grid and its performance so far has been, in the best case, deficient, and in the worst, dismal. Its management, so far, has utterly failed to deliver on its promises,” he writes.
As per the report, this is what Puerto Rico can expect in the future: • It will take about 10 years to upgrade the transmission and distribution system, with or Puerto Rico’s energy woes were years in the making and are the direct result of PREPA’s mismanagement, negligence and corruption. Handing control back to the masters of disaster is not an option. -CNE
without LUMA. This task is exceedingly complex and expensive. And there are no shortcuts. • The modernization of the generation fleet will also take several years, be it with additional natural gas capacity, increased generation from renewable sources, or a combination of both. • The above means that in the short term, electric service in Puerto Rico will continue to be unreliable and expensive. • Rising fossil fuel prices (including natural gas), the unavailability of several low-cost generation units to meet base load due to unforeseen breakdowns, and the obligation to eventually start paying debt service on PREPA’s restructured indebtedness, will be the main drivers of the cost of electricity in Puerto Rico. • Nonetheless, some remedial measures could be implemented in the short term to stabilize the transmission and distribution system and reduce the dependence on the use of high-cost peaking units. It is up to both PREPA and LUMA to identify those “quick wins” and execute them. • In addition, the transition to renewable generation must continue. The generation of electricity using renewable sources protects both the environment, by lowering emissions of greenhouse gases, and consumers, by stabilizing the price of electricity. It is not true that electricity from renewable sources is always more expensive than electricity generated with traditional fuels. The technology for solar and/or wind generation in combination with battery storage has developed significantly during the last few years, in some cases approaching the costs of natural gas generation. • To properly compare costs between one kind of generation and another, it is necessary to add the cost of the environmental and health damages caused by fossil fuel generation. Adding in the costs of these negative externalities almost always reveals that fossil generation is costlier than initially thought. The imposition of a carbon tax is one of several policy alternatives to force polluters to internalize the cost of these negative externalities they impose on society at large. • It is imperative that the government agencies in charge of implementing energy policy in Puerto Rico have the necessary resources to execute their respective missions: (1) the PREB [Puerto Rico Energy Bureau] to regulate rates and promote long-term planning for the system; (2) the [PublicPrivate Partnership] P3 Authority to effectively monitor and robustly enforce the O&M [Operation & Maintenance] Agreement with LUMA; and (3) PREPA to adequately coordinate the day-to-day operation of the generation system.
LUMA Energy Authorized for 38 Projects Costing $652.58 Million
IEEFA Calls on Biden to Focus on Renewables for Puerto Rico
Zoe Landi Fontana, Collaborator
As part of efforts to improve the island’s electricity system, the president of the Puerto Rico Energy Bureau (PREB), Edison Avilés Deliz, announced the authorization of 38 new projects by LUMA Energy.
LUMA presented 38 projects on Oct. 4 that consist of 26 substation projects, 11 transmission projects, and one for telecommunications. They will cost an estimated $652.58 million, funded by the Federal Emergency Management Agency (FEMA), and form part of the 10year infrastructure plan that was presented by the Puerto Rico Electric Power Authority (PREPA) in December 2020 to reconstruct the energy transmission and distribution systems on the island.
Plans include the repair or replacement of existing substations, repair of transmission lines, and implementation of physical security initiatives. An order-of-magnitude (class 5) estimate of costs for each project was also provided, detailing the materials, construction, labor, engineering, permits and other costs making up the $652.58 million price estimate.
The proposed projects are currently awaiting management approval by FEMA and the Central Office for Recovery, Reconstruction, and Resiliency (COR3). Both LUMA and PREPA have been called to appear at a technical hearing on the operating metrics disclosed by the electricity system operator, which will be held virtually on Nov. 4 at 10 a.m. by PREB. The hearing makes up part of the process to evaluate the electrical system’s operations within the first three months of LUMA’s long-term contract.
However, PREPA and LUMA’s plans to rebuild Puerto Rico’s electric grid were not positively received by members of the Institute for Energy Economics and Financial Analysis (IEEFA). On Oct. 14, in a letter to the Biden Administration titled “Invest FEMA funds in resilient Puerto Rico electric grid,” Tom Sanzillo, director of Financial Analysis at IEEFA, expressed his opposition to the funding of the 38 projects. The billions of dollars available in FEMA funds, according to Sanzillo, would be more effectively used to transition Puerto Rico to renewable energy sources, instead of prolonging the country’s dependence on fossil fuels.
According to IEEFA, Puerto Rico’s best method to create a resilient energy grid would be the rapid implementation of rooftop solar Puerto Rico’s best method to create a resilient energy grid would be the rapid implementation of rooftop solar and storage, which would lower and stabilize electricity rates and align with the Biden administration’s climate policy goals.
-IEEFA
and storage, which would lower and stabilize electricity rates and align with the Biden administration’s climate policy goal of a decarbonized electricity sector by 2035. Over the past few years, PREPA and the Financial Oversight and Management Board (FOMB) have acknowledged that expanding renewable energy is necessary to move away from the volatile fossil fuel industry that leaves Puerto Rico’s economy open to drastic price spikes and electric rate increases.
Sanzillo writes, “Puerto Rico’s current path of rebuilding the centralized grid and privatizing the island’s power plants will prolong the island’s dependence on fossil fuels, which is the leading cause of rising electric rates. Four years after Hurricane Maria, Puerto Rico continues to generate more than 95 percent of its electricity from fossil fuels; although the transition to renewable energy has been identified in formal budget and energy plans as a central part of the solution, next to no progress has been made.
“The federal funds available in this moment represent the best, and only, opportunity for Puerto Rico to realize this vision. I urge your offices to work together to ensure that this opportunity is not wasted. I have been in and around government programs and finances since the 1970’s. If this plan goes forward in its current form Puerto Rico is guaranteed a newly built, poorly equipped and outdated grid, a permanent fiscal crisis and rising electricity rates,” he said.
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Puerto Rico Moves Into Top 10 Percent of U.S. Travel Destinations
Paradores owners receive incentives to improve image and tourist offerings
Zoe Landi Fontana, Collaborator
According to the U.S. Travel Association, Puerto Rico leads the country as a tourist destination with a huge influx of visitors and travel spending. Reports by Tourism Economics and Aerostar data show that in September 2021 alone, over 330,000 passengers arrived at the San Juan international airport and annual visitor spending was 23 percent higher than in 2019, despite the national average having decreased by 11 percent.
At the latest Industry Update, Discover Puerto Rico released results from the tourism industry, showing improved growth. Director of Research and Analytics for Discover Puerto Rico, Alisha Valentine, revealed that they are on track to surpass $1 billion in revenues from visitor spending for the first time. Citing statistics from SMARI, a global tourism research firm, which has monitored Puerto Rico’s brand health since 2017, Valentine revealed that the past few years have seen the island move up into the top 10 percent of destinations following investments from Discover Puerto Rico to improve its image and brand it with five key attributes: colorful, authentic, beautiful, lively and vibrant.
The travel industry is also becoming a more attractive option for building careers. Recovering and growing at record rates, the sector offers promising career growth opportunities and professional development. President and CEO of Destination Analysts, Erin Francis-Cummings, reported that 68.6 percent of workers in Puerto Rico have an improved outlook on employment prospects within the travel, tourism and hospitality sectors and would consider working within them.
Puerto Rico has the highest percentage of people fully vaccinated against the coronavirus in the United States, as of Oct. 19, according to data from the Centers for Disease Control and Prevention (CDC). A healthy 73 percent of Puerto Rico’s total population of 3.3 million are fully inoculated against the virus, according to CDC data. The U.S. territory also has one of the lowest COVID community transmission rates in the U.S.
Promoting Paradores
Located outside the metro area, family-owned and highlighting the gastronomic, historical and cultural diversity of the island, small inns, or paradores, align perfectly with Discover Puerto Rico’s five key attributes. On the occasion of the 48th anniversary of the Puerto Rico Paradores Program, the Puerto Rico Tourism Company (PRTC) announced a new training program for paradores owners. In addition to the monetary support, the plan offers professional development courses for employees and owners of the endorsed businesses. The training plan is set to begin on Nov. 5, 2021 and will cover the “service steps” in various settings: in lodging rooms, at guest receptions and tableside.
Furthermore, paradores owners received incentives of up to $7,000 each to boost their amenities and guest services. The Paradores Program funds can be used to meet the individual needs of each inn, from providing employees with English and sign language classes, to supporting structural and aesthetic improvements, such as the purchase of necessary articles — towels, curtains and bed linens — to standardize rooms.
Highlighting the importance of maintaining brand health and promoting a new image, owners of the 12 paradores attended talks by Imaris Arocho, the PRTC’s officer of sales and marketing, and Lucienne Gigante, strategist and business developer. The talks covered information related to brand management and the opportunities of a new image, in accordance with the launch of the paradores program’s new logo.
The 12 inns participating in the Paradores Program are the following: el Parador Boquemar in Cabo Rojo; Parador Combate Beach in Cabo Rojo; Parador Palmas de Lucía in Yabucoa; Parador Mauna Caribe in Maunabo; Parador Guánica 1929 in Guánica; Parador El Buen Café in Hatillo; Parador El Faro in Aguadilla; Parador Villa Parguera in Lajas; Parador Villas del Mar Hau in Isabela; Parador Villas Sotomayor in Adjuntas; Parador Yunque Mar in Luquillo and Parador Turtle Bay Inn in Lajas.
Omar J. Marrero
Secretary of State and Executive Director of the Puerto Rico Fiscal Agency and Financial Advisory Authority
In recent days there has been a public discussion about how long the Oversight Board (FOMB) imposed by Congress through PROMESA will remain in Puerto Rico.
In essence, some sectors — in particular, critics of the Oversight Board and the debt-restructuring process established by PROMESA to get Puerto Rico out of bankruptcy — have argued that the implementation of the Plan of Adjustment that has been negotiated precisely to get Puerto Rico out of bankruptcy will demand that the entity remain in Puerto Rico for decades. They argue that the Board will have to remain in Puerto Rico to ensure compliance with the terms and conditions set out in the Plan of Adjustment.
Recently, the president of the FOMB himself, Professor David Skeel — an authority, a law professor and expert in bankruptcy law, in general, and in PROMESA — has made it crystal clear that these theories about an extended stay of the Oversight Board in Puerto Rico are completely wrong. Professor Skeel is right.
The Oversight Board is in Puerto Rico under the PROMESA Act passed by Congress. That same law also establishes, clearly and unequivocally, how long the Board will remain in effect in Puerto Rico.
Specifically, PROMESA provides that the Board will terminate when two conditions that Congress provided as benchmarks that the Board would have fulfilled its mission are met: (1) that Puerto Rico regains access to capital markets at reasonable interest rates; and (2) that Puerto Rico achieves balanced budgets for four consecutive years.
Now then, for Puerto Rico to regain access to capital markets at reasonable interest rates — which in simple words means Puerto Rico recovering its ability to borrow — it is imperative that Puerto Rico emerge from bankruptcy. For that, it is essential that Puerto Rico restructure its debt. And that is why the Plan of Adjustment, which is nothing other than a series of agreements to cut by a substantial amount the debt that Puerto Rico owes its creditors, has been negotiated and is pending approval. Once approved, the value instruments authorized by the Plan could be in force for approximately 30 years. That does not mean that Puerto Rico will have to wait three decades to regain access to the capital markets. In fact, we hope that Puerto Rico will be able to access the markets again within a reasonable time after we emerge from bankruptcy. It will be that fact, the return of Puerto Rico to the capital markets, which will mark the fulfillment of the first requirement for the departure of the Oversight Board.
On the other hand, developing balanced budgets for four consecutive years is strictly up to us. We already reached an important milestone this year when the Board certified the budget approved by the government of Puerto Rico.
Once the Plan of Adjustment is approved and we know exactly how many resources we will have to allocate to the payment of the debt in each year’s budget, we will have complied with PROMESA. From then on it will be a matter of maintaining the necessary budgetary discipline so that we never spend more resources than we have available. Looking ahead, that will definitely be one of AAFAF’s responsibilities and I’ll talk about that in a future column.
In summary, to satisfy the two conditions established by PROMESA for the departure of the Oversight Board, the Plan of Adjustment needs to be approved first. This requires local legislation that will allow issuing the new bonds that will replace the old ones. It is important that the bill finally approved by our Legislature to this end be prudent and reasonable and does not jeopardize the Plan of Adjustment that has taken so much work to achieve.
Under the Plan of Adjustment, nearly 80% of the central government’s debt will be reduced from $33 billion to about $7.4 billion. That’s good business for Puerto Rico, but we weren’t willing to do it if it required cutting the pensions of our public employees. Our determination and perseverance defending Governor Pierluisi’s public policy of zero pension cuts resulted in getting the Oversight Board to eliminate pension cuts from the Adjustment Plan. (Another accomplishment was that the Oversight Board desisted from making additional cuts to the UPR’s annual budget.)
This is a triumph for all — the Administration, the Legislature and society in general — and we must not jeopardize it by demanding greater conditions so that the Legislature approves the legislation required to make the Adjustment Plan viable.
The days of the Puerto Rico bankruptcy are numbered, the FOMB will not remain on the island a minute longer than what PROMESA allows and, from then on, it will be entirely our responsibility to continue driving Puerto Rico forward.
Puerto Rico Ponders Race Amid Surprising Results
Fewer identifying as white, more identifying with their African descent
Dánica Coto, Associated Press
The number of people in Puerto Rico who identified as “white” in the most recent census plummeted almost 80 percent, sparking a conversation about identity on an island breaking away from a past where race was not tracked and seldom debated in public. The drastic drop surprised many, and theories abound as the U.S. territory’s 3.3 million people begin to reckon with racial identity. “Puerto Ricans themselves are understanding their whiteness comes with an asterisk,” said
Yarimar Bonilla, a political anthropologist and director of the Center for Puerto Rican Studies at
Hunter College in New York. “They know they’re not white by U.S. standards, but they’re not Black by Puerto Rico standards.” Nearly 50 percent of those represented in the 2020 census — 1.6 million of 3.29 million — identified with “two races or more,” a jump from 3 percent — or some 122,200 of 3.72 million — who chose that option in the 2010 census. Most of them selected “white and some other race.” Meanwhile, more than 838,000 people identified as “some other race alone,” a nearly 190 percent jump compared with some 289,900 people a decade ago, although Bonilla said Census Bureau officials have yet to release what races they chose.
Experts believe people likely wrote “Puerto Rican,”
“Hispanic” or “Latino,” even though federal policy defines those categories as ethnicity, not race. Among those who changed their response to race was 45-year-old Tamara Texidor, who selected “other” in 2010 and this time opted to identify herself as “Afrodescendent.” She made the decision after talking to her brother, who was a census worker and told her how people he encountered when he went house to house often had trouble with the question about race. Texidor began reflecting about her ancestry and wanted to honor it since she descended from slaves on her father’s side. “I’m not going to select
‘other,’” she recalled thinking when filling out the census. “I feel I am something.” Experts are still debating what sparked the significant changes in the 2020 census. Some believe several factors are at play, including tweaks in wording and a change in how the Census Bureau processes and codes responses.
Growing awareness of racial identity
Bonilla also thinks a growing awareness of racial identity in Puerto Rico played a part, saying that “extra intense racialization” in the past decade might have contributed. She and other anthropologists argue that change stemmed from anger over what many consider a botched federal response to a U.S. territory struggling to recover from Hurricane Maria and a crippling economic crisis. “They’ve finally understood that they’re treated like second-class citizens,” Bárbara AbadíaRexach, a sociocultural anthropologist, said of Puerto Ricans. Another critical change in the 2020 census was that only a little over 228,700 identified solely as Black or African American, a nearly 50 percent drop compared with more than 461,000 who did so a decade ago. The decline occurred even as grass-roots organizations in Puerto Rico launched campaigns to urge people to embrace their African heritage and raised awareness about racial disparities, although they said they were encouraged by the increase in the “two or more races” category. Bonilla noted Puerto Rico currently has no reliable data to determine whether such disparities have occurred during the pandemic, noting that there is no racial data on coronavirus testing, hospitalizations or fatalities. The island’s government also does not collect racial data on populations, including those who are homeless or incarcerated, Abadía-Rexach added. “The denial of the existence of racism renders invisible, criminalizes and dehumanizes many Black people in Puerto Rico.” The lack of such data could be rooted in Puerto Rico’s history. From 1960 to 2000, the island conducted its own census and never asked about race. “We were supposed to be all mixed and all equal, and race was supposed to be an American thing,” Bonilla said. Some argued at the time that Puerto Rico should be tracking racial data while others viewed it as a divisive move that would impose or harden racial differences, a view largely embraced in France, which does not collect official data on race or ethnicity. For Isar Godreau, an anthropologist and professor at the University of Puerto Rico, that type of data is crucial. “Skin color is an important marker that makes people vulnerable to more or less racial discrimination.” The data helps people fight for racial justice and determines the allocation of resources, she said. The major shift in the 2020 census — especially how only 560,592 people identified as white versus more than 2.8 million in 2010 — comes amid a growing interest in racial identity in Puerto Rico, where even recent surveys about race prompted responses ranging from “members of the human race” to “normal” to “I get along with everyone.” Informally, people on the island use a wide range of words to describe someone’s skin color, including “coffee with milk.” That interest is fueled largely by a younger generation: They have signed up for classes of bomba and plena — centuries-old, percussionpowered musical traditions — as well as workshops on how to make or wear headwraps. More hair salons are specializing in curly hair, eschewing the blow-dried results that long dominated professional settings in the island. Some legislators have submitted a bill that cites the results of the 2020 census and that if approved would make it illegal to discriminate against someone based on their hair style. Several U.S. states already have similar laws. As debate continues on what sparked so many changes in the 2020 census, Bonilla said an important question is what the 2030 census results will look like. “Will we see an intensification of this pattern, or will 2020 have been kind of a blip moment?”
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