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1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-Q
[X]
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended
March 31, 2023
or
[ ]
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number:
001-34084
POPULAR, INC.
(Exact name of registrant as specified in its charter)
Puerto Rico
66-0667416
(State or other jurisdiction of Incorporation or
(IRS Employer Identification Number)
organization)
Popular Center Building
209 Muñoz Rivera Avenue
Hato Rey
,
Puerto Rico
00918
(Address of principal executive offices)
(Zip code)
(
787
)
765-9800
(Registrant’s telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which
registered
Common Stock ($0.01 par value)
BPOP
The
NASDAQ Stock Market
6.125% Cumulative Monthly Income Trust
Preferred Securities
BPOPM
The
NASDAQ Stock Market
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the
Securities Exchange
Act of
1934 during
the preceding
12 months
(or for
such shorter
period that
the registrant
was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X]
Yes
[
]
No
Indicate by
check mark
whether the registrant
has submitted electronically
every Interactive
Data File
required to
be
submitted pursuant to
Rule 405 of
Regulation S-T (§
232.405 of this
chapter) during the
preceding 12 months
(or for
such shorter period that the registrant was required to submit such files).
[X]
Yes
[
]
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company.
See definitions of “large accelerated filer”, “accelerated
filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
[X]
Accelerated filer [
]
Non-accelerated filer [
]
Smaller reporting company
[ ]
Emerging growth company
[ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act.
[
]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[
]
Yes
[X]
No
Indicate
the
number
of
shares
outstanding
of
each
of
the
issuer’s
classes
of
common
stock,
as
of
the
latest
practicable date:
Common Stock, $0.01 par value,
71,974,054
shares outstanding as of May 8, 2023.
2
POPULAR, INC.
INDEX
Part I – Financial Information
Page
Item 1. Financial Statements
Unaudited Consolidated Statements of Financial Condition
at March 31, 2023 and
December 31, 2022
6
Unaudited Consolidated Statements of Operations for
the quarters
ended March 31, 2023 and 2022
7
Unaudited Consolidated Statements of Comprehensive
Income (Loss) for the
quarters
ended March 31, 2023 and 2022
8
Unaudited Consolidated Statements of Changes in Stockholders’
Equity for the
quarters ended March 31, 2023 and 2022
9
Unaudited Consolidated Statements of Cash Flows for
the quarters
ended March 31, 2023 and 2022
11
Notes to Unaudited Consolidated Financial Statements
13
Item 2. Management’s Discussion and Analysis of Financial
Condition and
Results of Operations
117
Item 3. Quantitative and Qualitative Disclosures about
Market Risk
156
Item 4. Controls and Procedures
156
Part II – Other Information
Item 1. Legal Proceedings
157
Item 1A. Risk Factors
157
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds
157
Item 3. Defaults Upon Senior Securities
158
Item 4. Mine Safety Disclosures
158
Item 5. Other information
158
Item 6. Exhibits
158
Signatures
159
3
Forward-Looking Information
This
Form 10-Q
contains “forward-looking
statements” within
the meaning
of the
U.S. Private
Securities Litigation
Reform Act
of
1995,
including,
without
limitation,
statements
about
Popular,
Inc.’s
(the
“Corporation,”
“Popular,”
“we,”
“us,”
“our”)
business,
financial condition, results
of operations, plans,
objectives and future
performance. These statements
are not
guarantees of future
performance,
are
based
on
management’s
current
expectations
and,
by
their
nature,
involve
risks,
uncertainties,
estimates
and
assumptions. Potential
factors, some
of which
are beyond
the Corporation’s
control, could
cause actual
results to
differ materially
from those expressed in, or implied by, such forward-looking statements. Risks and uncertainties include without limitation the effect
of competitive and
economic factors, and our
reaction to those factors,
the adequacy of
the allowance for loan
losses, delinquency
trends, market risk and the impact of interest rate changes, capital markets conditions, capital adequacy and liquidity,
and the effect
of legal and regulatory proceedings and new accounting
standards on the Corporation’s financial condition and results
of operations.
All statements
contained herein
that are
not clearly
historical in
nature are
forward-looking, and
the words
“anticipate,” “believe,”
“continues,” “expect,”
“estimate,” “intend,”
“project” and
similar expressions
and future
or conditional
verbs such
as “will,”
“would,”
“should,” “could,” “might,” “can,” “may” or similar
expressions are generally intended to identify
forward-looking statements.
Various factors, some of which
are beyond Popular’s control, could cause actual results to differ materially from those expressed in,
or implied by, such forward-looking statements. Factors that might cause such a
difference include, but are not limited to:
●
the
rate
of
growth
or
decline
in
the
economy
and
employment
levels,
as
well
as
general
business
and
economic
conditions
in
the
geographic
areas
we
serve
and,
in
particular,
in
the
Commonwealth
of
Puerto
Rico
(the
“Commonwealth” or “Puerto Rico”), where a significant
portion of our business is concentrated;
●
adverse
economic conditions,
including high
levels
of
and
ongoing increases
in
inflation
rates,
that
adversely
affect
housing prices, the job market, consumer confidence
and spending habits which may affect in turn, among
other things,
our level of non-performing assets, charge-offs and provision
expense;
●
changes in interest rates and market liquidity,
which may reduce interest margins, impact funding sources, reduce loan
originations, affect
our ability
to originate
and distribute
financial products
in the
primary and
secondary markets
and
impact the value of our investment portfolio and
our ability to return capital to our shareholders;
●
changes
to
regulatory
capital,
liquidity
and
resolution-related
requirements
applicable
to
financial
institutions
in
response to recent developments affecting the banking sector;
●
the
impact
of
bank
failures
or
adverse
developments
at
other
banks
and
related
negative
media
coverage
of
the
banking industry in general on investor and depositor
sentiment regarding the stability and liquidity of
banks;
●
the impact of the current fiscal and economic challenges of Puerto Rico and
the measures taken and to be taken by the
Puerto
Rico
Government
and
the
Federally-appointed
oversight
board
on
the
economy,
our
customers
and
our
business;
●
the impact of the pending debt
restructuring proceedings under Title III of the
Puerto Rico Oversight, Management and
Economic
Stability
Act
(“PROMESA”)
and
of
other
actions
taken
or
to
be
taken
to
address
Puerto
Rico’s
fiscal
challenges on the value of our portfolio of Puerto Rico government securities and
loans to governmental entities and of
our
commercial,
mortgage
and
consumer
loan
portfolios
where
private
borrowers
could
be
directly
affected
by
governmental action;
●
the
amount of
Puerto Rico
public sector
deposits held
at
the Corporation,
whose future
balances are
uncertain and
difficult
to
predict
and
may
be
impacted
by
factors
such
as
the
amount
of
Federal
funds
received
by
the
P.R.
Government in connection with the COVID-19 pandemic and hurricane recovery assistance and the rate of expenditure
of
such
funds,
as
well
as
the
financial
condition,
liquidity
and
cash
management
practices
of
the
Puerto
Rico
Government and its instrumentalities;
●
unforeseen
or
catastrophic
events,
including
extreme
weather
events,
including
hurricanes,
other
natural
disasters,
man-made disasters,
acts of
violence or
war or
pandemics, epidemics
and other
health-related crises,
including any
4
resurgence of COVID-19, or the fear of any
such event occurring, any of which could cause adverse consequences for
our business, including, but not limited to, disruptions
in our operations;
●
our
ability
to
achieve
the
expected
benefits
from
our
transformation
initiative,
including
our
ability
to
achieve
our
targeted sustainable return on tangible common equity
of 14% by the end of 2025;
●
risks related to Popular’s acquisition of certain information technology and related assets formerly used by Evertec, Inc.
to
service certain
of Banco
Popular de
Puerto Rico’s
key channels,
as well
as the
entry into
amended and
restated
commercial
agreements
(the
“Evertec
Business
Acquisition
Transaction”),
including
Popular’s
ability
to
successfully
transition and integrate the assets
acquired as part of the
Evertec Business Acquisition Transaction, as
well as related
operations,
employees
and
third
party
contractors;
unexpected
costs,
including,
without
limitation,
costs
due
to
exposure to any unrecorded liabilities or issues not identified during due diligence investigation of the Evertec Business
Acquisition Transaction or
that are not
subject to indemnification or
reimbursement by Evertec, Inc.;
and business and
other risks arising from the extension of Popular’s
current commercial agreements with Evertec,
Inc.;
●
the fiscal and monetary policies of the federal government
and its agencies;
●
changes
in
federal
bank
regulatory
and
supervisory
policies,
including
required
levels
of
capital
and
the
impact
of
proposed capital standards on our capital ratios;
●
additional Federal Deposit Insurance Corporation (“FDIC”)
assessments;
●
regulatory approvals
that may
be necessary
to undertake
certain actions
or consummate
strategic transactions,
such
as acquisitions and dispositions;
●
the
relative strength
or
weakness
of
the
consumer and
commercial credit
sectors
and
of
the
real
estate markets
in
Puerto Rico and the other markets in which
our borrowers are located;
●
the performance of the stock and bond markets;
●
competition in the financial services industry;
●
possible legislative, tax or regulatory changes;
●
a failure
in or
breach of
our operational
or security
systems or
infrastructure or
those of
Evertec, Inc.,
our provider
of
core financial
transaction processing and
information technology services,
or of
third parties
providing services
to us,
including
as
a
result
of
cyberattacks, e-fraud,
denial-of-services and
computer intrusion,
that
might result
in,
among
other
things,
loss
or
breach
of
customer
data,
disruption
of
services,
reputational
damage
or
additional
costs
to
Popular;
●
changes in market rates and prices which may
adversely impact the value of financial assets
and liabilities;
●
potential judgments,
claims, damages,
penalties, fines,
enforcement actions
and
reputational damage
resulting from
pending
or
future
litigation
and
regulatory
or
government
investigations
or
actions,
including
as
a
result
of
our
participation in and execution of government programs
related to the COVID-19 pandemic;
●
changes in accounting standards, rules and interpretations;
●
our ability to grow our core businesses;
●
decisions to downsize, sell or close branches or business
units or otherwise change our business mix;
and
●
management’s ability to identify and manage these and
other risks.
5
Moreover,
the
outcome
of
legal
and
regulatory
proceedings,
as
discussed
in
“Part
II,
Item
1.
Legal
Proceedings,”
is
inherently
uncertain and depends on judicial interpretations of law and the findings of regulators, judges and/or juries. Investors should refer to
the Corporation’s Annual
Report on Form
10-K for the
year ended December 31,
2022 (the “2022
Form 10-K”), as
well as “Part
II,
Item 1A”
of our
Quarterly Reports
on Form
10-Q for
a discussion
of such
factors and
certain risks
and uncertainties
to which
the
Corporation is subject.
All forward-looking
statements included
in this
Form 10-Q
are based
upon information
available to
Popular as
of the
date of
this
Form 10-Q, and other than as
required by law, including the
requirements of applicable securities laws, we assume no
obligation to
update or revise any such forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date
of such statements.
6
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF FINANCIAL CONDITION
(UNAUDITED)
[UNAUDITED]
March 31,
December 31,
(In thousands, except share information)
2023
2022
Assets:
Cash and due from banks
$
462,013
$
469,501
Money market investments:
Time deposits with other banks
6,098,288
5,614,595
Total money market investments
6,098,288
5,614,595
Trading account debt securities, at fair value:
Other trading account debt securities
29,839
27,723
Debt securities available-for-sale, at fair
value:
Pledged securities with creditors’ right to repledge
106,094
129,203
Other debt securities available-for-sale
17,067,034
17,675,171
Debt securities held-to-maturity, at amortized cost:
Pledged securities with creditors’ right to repledge
26,676
26,496
Other debt securities held-to-maturity
8,536,376
8,498,870
Debt securities held-to-maturity (fair
value 2023 - $
8,597,920
; 2022 - $
8,440,196
)
8,563,052
8,525,366
Less – Allowance for credit losses
6,792
6,911
Debt securities held-to-maturity, net
8,556,260
8,518,455
Equity securities (realizable value 2023 -
$
186,744
; 2022 - $
196,665
)
185,917
195,854
Loans held-for-sale, at fair value
11,181
5,381
Loans held-in-portfolio
32,645,023
32,372,925
Less – Unearned income
306,650
295,156
Allowance for credit losses
689,120
720,302
Total loans held-in-portfolio, net
31,649,253
31,357,467
Premises and equipment, net
508,007
498,711
Other real estate
91,721
89,126
Accrued income receivable
239,815
240,195
Mortgage servicing rights, at fair value
127,475
128,350
Other assets
1,703,285
1,847,813
Goodwill
827,428
827,428
Other intangible assets
12,149
12,944
Total assets
$
67,675,759
$
67,637,917
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing
$
15,940,850
$
15,960,557
Interest bearing
45,013,038
45,266,670
Total deposits
60,953,888
61,227,227
Assets sold under agreements to repurchase
123,499
148,609
Other short-term borrowings
-
365,000
Notes payable
1,279,127
886,710
Other liabilities
848,520
916,946
Total liabilities
63,205,034
63,544,492
Commitments and contingencies (Refer
to Note 21)
Stockholders’ equity:
Preferred stock,
30,000,000
shares authorized;
885,726
shares issued and outstanding (2022 -
885,726
)
22,143
22,143
Common stock, $
0.01
par value;
170,000,000
shares authorized;
104,683,010
shares issued (2022 -
104,657,522
) and
71,965,984
shares outstanding (2022 -
71,853,720
)
1,047
1,047
Surplus
4,792,619
4,790,993
Retained earnings
3,982,140
3,834,348
Treasury stock - at cost,
32,717,026
shares (2022 -
32,803,802
)
(2,025,399)
(2,030,178)
Accumulated other comprehensive loss, net
of tax
(2,301,825)
(2,524,928)
Total stockholders’ equity
4,470,725
4,093,425
Total liabilities and stockholders’ equity
$
67,675,759
$
67,637,917
The accompanying notes are an integral part of
these Consolidated Financial Statements.
7
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF OPERATIONS
(UNAUDITED)
Quarters ended March 31,
(In thousands, except per share information)
2023
2022
Interest income:
Loans
$
541,210
$
426,791
Money market investments
65,724
6,464
Investment securities
132,088
96,466
Total interest income
739,022
529,721
Interest expense:
Deposits
193,215
24,783
Short-term borrowings
2,885
80
Long-term debt
11,266
10,546
Total interest expense
207,366
35,409
Net interest income
531,656
494,312
Provision for credit losses (benefit)
47,637
(15,500)
Net interest income after provision for credit losses
(benefit)
484,019
509,812
Service charges on deposit accounts
34,678
40,713
Other service fees
90,076
77,134
Mortgage banking activities (Refer to Note 10)
7,400
12,865
Net gain (loss), including impairment on equity securities
1,100
(2,094)
Net gain (loss) on trading account debt securities
378
(723)
Adjustments to indemnity reserves on loans sold
612
(745)
Other operating income
27,717
27,542
Total non-interest income
161,961
154,692
Operating expenses:
Personnel costs
198,760
166,996
Net occupancy expenses
26,039
24,723
Equipment expenses
8,412
8,389
Other taxes
16,291
15,715
Professional fees
33,431
36,792
Technology and software expenses
68,559
70,535
Processing and transactional services
33,909
30,953
Communications
4,088
3,673
Business promotion
18,871
15,083
FDIC deposit insurance
8,865
7,372
Other real estate owned (OREO) income
(1,694)
(2,713)
Other operating expenses
24,361
23,930
Amortization of intangibles
795
891
Total operating expenses
440,687
402,339
Income before income tax
205,293
262,165
Income tax expense
46,314
50,479
Net Income
$
158,979
$
211,686
Net Income Applicable to Common Stock
$
158,626
$
211,333
Net Income per Common Share - Basic
$
2.22
$
2.69
Net Income per Common Share - Diluted
$
2.22
$
2.69
The accompanying notes are an integral part of
these Consolidated Financial Statements.
8
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
Quarters ended March 31,
(In thousands)
2023
2022
Net income
$
158,979
$
211,686
Other comprehensive (loss) income before tax:
Foreign currency translation adjustment
(5,245)
(2,858)
Adjustment of pension and postretirement benefit plans
-
2,030
Amortization of net losses of pension and
postretirement benefit plans
4,813
3,911
Unrealized holding gains (losses) on debt securities arising
during the period
213,318
(1,219,023)
Amortization of unrealized losses of debt securities
transfer from available-for-sale to held-to-
maturity
42,040
-
Unrealized net (losses) gains on cash flow hedges
(30)
3,888
Reclassification adjustment for net gains included
in net income
(41)
(699)
Other comprehensive income (loss) before tax
254,855
(1,212,751)
Income tax (expense) benefit
(31,752)
140,582
Total other comprehensive income (loss), net of tax
223,103
(1,072,169)
Comprehensive income (loss), net of tax
$
382,082
$
(860,483)
Tax effect allocated to each component of other comprehensive income
(loss):
Quarters ended March 31,
(In thousands)
2023
2022
Adjustment of pension and postretirement benefit plans
$
-
$
(761)
Amortization of net losses of pension and
postretirement benefit plans
(1,805)
(1,467)
Unrealized holding gains (losses) on debt securities arising
during the period
(21,566)
143,193
Amortization of unrealized losses of debt securities
transfer from available-for-sale to held-to-
maturity
(8,407)
-
Unrealized net (losses) gains on cash flow hedges
11
(749)
Reclassification adjustment for net gains included
in net income
15
366
Income tax (expense) benefit
$
(31,752)
$
140,582
The accompanying notes are an integral part of
these Consolidated Financial Statements.
9
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
Accumulated
other
Common
Preferred
Retained
Treasury
comprehensive
(In thousands)
stock
stock
Surplus
earnings
stock
(loss) income
Total
Balance at December 31, 2021
$
1,046
$
22,143
$
4,650,182
$
2,973,745
$
(1,352,650)
$
(325,069)
$
5,969,397
Net income
211,686
211,686
Issuance of stock
-
1,199
1,199
Dividends declared:
Common stock
[1]
(42,074)
(42,074)
Preferred stock
(353)
(353)
Common stock purchases
[2]
(80,000)
(324,920)
(404,920)
Stock based compensation
(270)
8,750
8,480
Other comprehensive loss, net of tax
(1,072,169)
(1,072,169)
Balance at March 31, 2022
$
1,046
$
22,143
$
4,571,111
$
3,143,004
$
(1,668,820)
$
(1,397,238)
$
4,671,246
Balance at December 31, 2022
$
1,047
$
22,143
$
4,790,993
$
3,834,348
$
(2,030,178)
$
(2,524,928)
$
4,093,425
Cumulative effect of accounting change
28,752
28,752
Net income
158,979
158,979
Issuance of stock
1,567
1,567
Dividends declared:
Common stock
[1]
(39,586)
(39,586)
Preferred stock
(353)
(353)
Common stock purchases
-
(2,970)
(2,970)
Stock based compensation
59
7,749
7,808
Other comprehensive income, net of tax
223,103
223,103
Balance at March 31, 2023
$
1,047
$
22,143
$
4,792,619
$
3,982,140
$
(2,025,399)
$
(2,301,825)
$
4,470,725
[1]
Dividends declared per common share during the quarter
ended March 31, 2023 - $
0.55
(2022 - $
0.55
).
[2]
During the quarter
ended March 31,
2022, the Corporation
entered into a
$
400
million accelerated share
repurchase transaction with
respect to
its common stock, which was accounted for as a treasury
stock transaction. Refer to Note 18 for additional information.
10
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
For the quarters ended
March 31,
March 31,
Disclosure of changes in number of shares:
2023
2022
Preferred Stock:
Balance at beginning and end of period
885,726
885,726
Common Stock – Issued:
Balance at beginning of period
104,657,522
104,579,334
Issuance of stock
25,488
15,460
Balance at end of period
104,683,010
104,594,794
Treasury stock
(32,717,026)
(28,107,271)
Common Stock – Outstanding
71,965,984
76,487,523
The accompanying notes are an integral part of these Consolidated
Financial Statements.
11
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(UNAUDITED)
Quarters ended March 31,
(In thousands)
2023
2022
Cash flows from operating activities:
Net income
$
158,979
$
211,686
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for credit losses (benefit)
47,637
(15,500)
Amortization of intangibles
795
891
Depreciation and amortization of premises and equipment
13,842
13,630
Net accretion of discounts and amortization of premiums and
deferred fees
(2,276)
15,843
Interest capitalized on loans subject to the temporary payment
moratorium or loss mitigation alternatives
(2,876)
(3,416)
Share-based compensation
7,873
8,276
Fair value adjustments on mortgage servicing rights
1,376
(1,017)
Adjustments to indemnity reserves on loans sold
(612)
745
Earnings from investments under the equity method, net
of dividends or distributions
(8,621)
(15,099)
Deferred income tax (benefit) expense
(2,064)
22,129
(Gain) loss on:
Disposition of premises and equipment and other productive
assets
(2,423)
(2,363)
Sale of loans, including valuation adjustments on loans
held-for-sale and mortgage banking activities
(264)
1,534
Sale of foreclosed assets, including write-downs
(5,228)
(7,566)
Acquisitions of loans held-for-sale
(2,861)
(55,134)
Proceeds from sale of loans held-for-sale
9,148
19,739
Net originations on loans held-for-sale
(21,790)
(98,356)
Net (increase) decrease in:
Trading debt securities
(1,055)
136,941
Equity securities
(3,731)
(111)
Accrued income receivable
314
(1,379)
Other assets
25,072
4,068
Net (decrease) increase in:
Interest payable
(2,846)
(7,106)
Pension and other postretirement benefits obligation
4,038
(196)
Other liabilities
(59,381)
(31,053)
Total adjustments
(5,933)
(14,500)
Net cash provided by operating activities
153,046
197,186
Cash flows from investing activities:
Net (increase) decrease in money market investments
(483,178)
7,467,248
Purchases of investment securities:
Available-for-sale
(3,960,443)
(5,747,659)
Equity
(11,927)
(845)
Proceeds from calls, paydowns, maturities and redemptions
of investment securities:
Available-for-sale
4,909,334
3,109,090
Held-to-maturity
3,818
4,114
Proceeds from sale of investment securities:
Equity
25,595
4,585
Net disbursements on loans
(155,538)
(236,365)
Proceeds from sale of loans
3,276
752
Acquisition of loan portfolios
(145,735)
(119,479)
Return of capital from equity method investments
249
-
Acquisition of premises and equipment
(36,062)
(15,205)
Proceeds from sale of:
Premises and equipment and other productive assets
1,972
578
Foreclosed assets
21,417
23,631
Net cash provided by investing activities
172,778
4,490,445
12
Cash flows from financing activities:
Net decrease in:
Deposits
(293,780)
(4,141,068)
Assets sold under agreements to repurchase
(25,110)
(18,784)
Other short-term borrowings
(365,000)
(75,000)
Payments of notes payable
(1,000)
(1,000)
Principal payments of finance leases
(804)
(833)
Proceeds from issuance of notes payable
394,178
-
Proceeds from issuance of common stock
1,567
1,199
Dividends paid
(39,878)
(36,289)
Net payments for repurchase of common stock
(282)
(400,604)
Payments related to tax withholding for share-based compensation
(2,688)
(4,316)
Net cash used in financing activities
(332,797)
(4,676,695)
Net (decrease) increase in cash and due from banks, and
restricted cash
(6,973)
10,936
Cash and due from banks, and restricted cash at beginning
of period
476,159
434,512
Cash and due from banks, and restricted cash at the end of
the period
$
469,186
$
445,448
The accompanying notes are an integral part of these Consolidated
Financial Statements.
13
Notes to Consolidated Financial
Statements
(Unaudited)
Note 1 -
Nature of operations
14
Note 2 -
Basis of presentation
15
Note 3 -
New accounting pronouncements
16
Note 4 -
Summary of significant accounting policies
19
Note 5 -
Restrictions on cash and due from banks and
certain securities
20
Note 6 -
Debt securities available-for-sale
21
Note 7 -
Debt securities held-to-maturity
24
Note 8 -
Loans
28
Note 9 -
Allowance for credit losses – loans held-in-
portfolio
37
Note 10 -
Mortgage banking activities
64
Note 11 -
Transfers of financial assets and mortgage
servicing assets
65
Note 12 -
Other real estate owned
68
Note 13 -
Other assets
69
Note 14 -
Goodwill and other intangible assets
70
Note 15 -
Deposits
72
Note 16 -
Borrowings
73
Note 17 -
Other liabilities
75
Note 18 -
Stockholders’ equity
76
Note 19 -
Other comprehensive loss
77
Note 20 -
Guarantees
79
Note 21 -
Commitments and contingencies
81
Note 22-
Non-consolidated variable interest entities
87
Note 23 -
Related party transactions
89
Note 24 -
Fair value measurement
91
Note 25 -
Fair value of financial instruments
97
Note 26 -
Net income per common share
100
Note 27 -
Revenue from contracts with customers
101
Note 28 -
Leases
103
Note 29 -
Pension and postretirement benefits
105
Note 30 -
Stock-based compensation
106
Note 31 -
Income taxes
108
Note 32 -
Supplemental disclosure on the consolidated
statements of cash flows
112
Note 33 -
Segment reporting
113
14
Note 1 – Nature of Operations
Nature of Operations
Popular,
Inc. (the
“Corporation” or
“Popular”) is
a diversified,
publicly-owned financial
holding company
subject to
the supervision
and
regulation
of
the
Board
of
Governors
of
the
Federal
Reserve
System.
The
Corporation
has
operations
in
Puerto
Rico,
the
mainland United
States (“U.S.”)
and the
U.S. and
British Virgin
Islands. In
Puerto Rico,
the Corporation
provides retail,
mortgage,
and
commercial
banking
services,
through
its
principal
banking
subsidiary,
Banco
Popular
de
Puerto
Rico
(“BPPR”),
as
well
as
investment
banking,
broker-dealer,
auto
and
equipment
leasing
and
financing,
and
insurance
services
through
specialized
subsidiaries. In
the U.S.
mainland, the
Corporation provides
retail, mortgage,
commercial banking
services, as
well as
equipment
leasing
and
financing,
through
its
New
York-chartered
banking
subsidiary,
Popular
Bank
(“PB”
or
“Popular
U.S.”),
which
has
branches located in New York, New Jersey, and Florida.
15
Note 2 – Basis of Presentation
Basis of Presentation
The consolidated interim financial statements have been prepared without audit. The Consolidated Statement of Financial Condition
data at
December 31,
2022 was
derived from
audited financial
statements. The
unaudited interim
financial statements
are, in
the
opinion
of
management,
a
fair
statement
of
the
results
for
the
periods
reported
and
include
all
necessary
adjustments,
all
of
a
normal recurring nature, for a fair statement of
such results.
Certain
information
and
note
disclosures
normally
included
in
financial
statements
prepared
in
accordance
with
accounting
principles
generally
accepted
in
the
United
States
of
America
have
been
condensed
or
omitted
from
the
unaudited
financial
statements
pursuant
to
the
rules
and
regulations
of
the
Securities
and
Exchange
Commission.
Accordingly,
these
financial
statements should be read in conjunction
with the audited Consolidated Financial Statements of the
Corporation for the year ended
December 31, 2022, included
in the 2022 Form
10-K. Operating results for
the interim periods disclosed herein
are not necessarily
indicative of the results that may be expected for
a full year or any future period.
The Corporation embarked on a
broad-based multi-year, technological and
business process transformation during the second
half
of 2022. The needs and expectations of
the Corporation’s clients, as well as
the competitive landscape, have evolved, requiring the
Corporation to
make
important
investments
in
its
technological infrastructure
and
adopt
more
agile
practices.
The
Corporation’s
technology and business transformation will be
a significant priority for the Corporation over the next
three years and beyond.
As
part
of
this
transformation,
the
Corporation
aims
to
expand
its
digital
capabilities,
modernize
our
technology
platform,
and
implement agile and
efficient business
processes across the
entire Corporation. To
facilitate the transparency
of the
progress with
the transformation initiative and to better portray the level of technology
related expenses categorized by the nature of the expense,
effective
in the
fourth quarter
of
2022,
the
Corporation has
separated technology,
professional fees
and
transactional and
items
processing related expenses as standalone expense categories in the
accompanying Consolidated Statement of Operations. There
were no
changes to
the total
operating expenses
presented.
Prior periods
amount in
the Consolidated
Financial Statements
and
related disclosures have been reclassified to conform
to the current presentation.
The following table provides the detail of
the reclassifications for each respective quarter:
31-Mar-22
Financial statement line item
As reported
Adjustments
Adjusted
Equipment expenses
$
23,479
$
(15,090)
$
8,389
Professional services
108,497
(71,705)
36,792
Technology and
software expenses
-
70,535
70,535
Processing and transactional services
-
30,953
30,953
Communications
6,147
(2,474)
3,673
Other expenses
36,149
(12,219)
23,930
Net effect on operating expenses
$
174,272
$
-
$
174,272
Use of Estimates in the Preparation of Financial Statements
The preparation of financial
statements in conformity with
accounting principles generally accepted in
the United States
of America
requires management to make
estimates and assumptions that
affect the reported
amounts of assets and
liabilities and contingent
assets
and
liabilities
at
the
date
of
the
financial
statements,
and
the
reported
amounts
of
revenues
and
expenses
during
the
reporting period. Actual results could differ from those estimates.
16
Note 3 - New accounting pronouncements
Recently Adopted Accounting Standards Updates
Standard
Description
Date of adoption
Effect on the financial statements
FASB ASU 2022-05,
Financial Services -
Insurance (Topic 944)
Transition for Sold
Contracts
The
FASB
issued
ASU
2022-05
in
December 2022, which
allows an insurance
entity to make
an accounting policy election
of
applying
the
Long-Duration
Contracts
(LDTI) transition guidance
on a transaction-
by-transaction
basis
if
the
contracts
have
been
derecognized
because
of
a
sale
or
disposal
and
the
insurance
entity
has
no
significant
continuing
involvement
with
the
derecognized contract.
January 1, 2023
The
Corporation
was
not
impacted
by
the
adoption
of
ASU
2022-05
during
the
first
quarter
of
2023
since
it
does
not
hold
Long-Duration
Contracts
(LDTI).
FASB ASU 2022-04,
Liabilities—Supplier
Finance Programs
(Subtopic 405-50)
Disclosure of Supplier
Finance Program
Obligations
The
FASB
issued
ASU
2022-04
in
September 2022, which requires to disclose
information
about
the
use
of
supplier
finance
programs
in
connection
with
the
purchase of goods and services.
January 1, 2023
The
Corporation
was
not
impacted
by
the
adoption
of
ASU
2022-04
during
the
first
quarter
of
2023
since
it
does
not use supplier finance programs.
FASB ASU 2022-02,
Financial Instruments—
Credit Losses (Topic 326)
Troubled Debt
Restructurings and
Vintage Disclosures
The
FASB
issued
ASU
2022-02
in
March
2022,
which
eliminates
the
accounting
guidance
for
troubled
debt
restructurings
(“TDRs”) in
Subtopic 310-40
Receivables—
Troubled
Debt
Restructurings
by
Creditors
and
requires
creditors
to
apply
the
loan
refinancing
and
restructuring
guidance
to
determine whether
a modification
results in
a new
loan or
a continuation
of an
existing
loan.
In
addition,
the
ASU
enhances
the
disclosure
requirements
for
certain
loan
refinancing
and
restructurings
by
creditors
when
a
borrower
is
experiencing
financial
difficulty
and
enhances
the
vintage
disclosure
by
requiring
the
disclosure
of
current-period
gross
write-offs
by
year
of
origination for financing
receivables and net
investments in leases.
January 1, 2023
The Corporation adopted ASU
2022-02
during
the
first
quarter
of
2023.
The
adoption
of
this
standard
resulted
in
enhanced disclosure for
loans modified
to
borrowers
with
financial
difficulties
and
the
disclosure
of
period
gross
charge
offs
by
vintage
year.
The
Corporation
anticipates
that
there
will
be
loans
subject
to
disclosure
under
the
new
standard
that
did
not
qualify
under
the
prior
guidance
given
the
removal of
the concession
requirement
for
such
disclosures.
The
amended
guidance eliminated
the requirement to
measure
the
effect
of
the
concession
from
a loan
modification, for
which the
Corporation
used
a
discounted
cash
flow
(“DCF”)
model.
The
impact
of
discontinuing the use of the DCF model
to
measure
the
concession
resulted in
a
release
of
the
allowance
for
credit
losses
("ACL")
of
$
46
million,
mainly
related
to
mortgage
loans
for
which
modifications
mostly
included
a
reduction
in
contractual
interest
rates
and
given
the
extended
maturity
term
of
these
loans,
this
resulted
in
an
increase
in
the
ACL
in
the
period
of
modification. For
the
transition
method
related
to
the
recognition
and
measurement of TDRs, the Corporation
has
elected
to
apply
the
modified
retrospective approach for the
adoption
of
this
standard.
Accordingly,
this
presented
an
adjustment
increase
of
$
29
million,
net
of
tax
effect,
to
the
beginning balance
of retained
earnings
on January 1, 2023.
17
Recently Adopted Accounting Standards Updates
Standard
Description
Date of adoption
Effect on the financial statements
FASB ASU 2022-01,
Derivatives and Hedging
(Topic 815) – Fair Value
Hedging—Portfolio Layer
Method
The
FASB
issued
ASU
2022-01
in
March
2022,
which
amends
ASC
Topic
815
by
allowing
non
prepayable
financial
assets
also
to
be
included
in
a
closed
portfolio
hedged
using
the
portfolio
layer
method.
This
amendment permits
an entity
to
apply
fair
value
hedging to
a
stated
amount
of
a
closed
portfolio
of
prepayable
and
non-
prepayable
financial
assets
without
considering
prepayment
risk
or
credit
risk
when measuring those assets.
January 1, 2023
The
Corporation
was
not
impacted
by
the adoption of ASU 2022-01 during the
first
quarter
of
2023
since
it
does
not
hold
derivatives
designated
as
fair
value hedges.
FASB ASU 2021-08,
Business Combinations
(Topic 805) – Accounting
for Contract Assets and
Contract Liabilities from
Contracts with Customers
The FASB
issued ASU
2021-08 in
October
2021,
which
amends
ASC
Topic
805
by
requiring
contract
assets
and
contract
liabilities arising
from revenue
contract with
customers
to
be
recognized
in
accordance
with ASC
Topic
606 on
the acquisition date
instead of fair value.
January 1, 2023
The
Corporation
was
not
impacted
by
the adoption of ASU 2021-08 during the
first
quarter
of
2023,
however,
it
will
consider
this
guidance
for
revenue
contracts with customers recognized as
part
of
business
combinations
entered
into on or after the effective date.
18
Accounting Standards Updates Not Yet Adopted
Standard
Description
Date of adoption
Effect on the financial statements
FASB ASU 2023-02,
Investments—Equity
Method and Joint
Ventures (Topic 323) -
Accounting for
Investments in Tax Credit
Structures Using the
Proportional Amortization
Method
The
FASB
issued
ASU
2023-02
in
March
2023,
which
amend
topic
ASC
323
by
permitting
the
election
to
apply
the
proportional amortization method to account
for
tax
equity
investments
that
generate
income
tax
credits
through
investment
in
low-income-housing
tax
credit
(LIHTC)
structures
and
other
tax
credit
programs
if
certain
conditions
are
met.
The
ASU
also
eliminates
the
application
of
the
subtopic
323-740
to
LIHTC
investment
not
accounted
for
using
the
proportional
amortization
method
and
instead
requires
the use of other guidance.
January 1, 2024
The Corporation
is currently
evaluating
the
impact
that
the
adoption
of
this
guidance
will
have
on
its
financial
statements
and
presentation
and
disclosures.
FASB ASU 2023-01,
Leases (Topic 842),
Lessors – Common
Control Arrangements
The
FASB
issued
ASU
2023-01
in
March
2023,
which
amends
ASC
Topic
842
and
requires
to
amortize
leasehold
improvements
associated
with
common
control
leases
over
the
useful
life
of
the
leasehold
improvements
to
the
common
control group as long
as the lessee controls
the
use
of
the
underlying assets
through a
lease.
In
addition,
the
ASU
requires
companies
to
account
for
leasehold
improvements
associated
with
common
control leases as a transfer between entities
under
common
control
through
an
adjustments
to
equity
if,
and
when,
the
lessee
no
longer
controls
the
use
of
the
underlying asset.
January 1, 2024
The Corporation
is currently
evaluating
the
impact
that
the
adoption
of
this
guidance
will
have
on
its
financial
statements
and
presentation
and
disclosures.
For other recently issued Accounting Standards
Updates not yet effective, refer to Note 3
to the Consolidated Financial Statements
included in the 2022 Form 10-K.
19
Note 4 – Summary of significant accounting
policies
The
accounting
and
financial
reporting
policies
of
Popular,
Inc.
and
its
subsidiaries
(the
“Corporation”) conform
with
accounting
principles generally accepted
in the
United States of
America and with
prevailing practices within
the financial services
industry.
A
description of the significant accounting and
financial reporting policies can be found on Note 2
to the 2022 Form 10-K.
In connection with the implementation of the Accounting Standards Update (“ASU”) 2022-02, the Corporation has modified its policy
related to
loan modifications.
As discussed
in Note
3, the
new accounting
guidance eliminates
the recognition
and measurement
principle of
TDRs.
The Corporation
has
also made
changes to
certain of
its
accounting policies
related to
its
loans portfolio
and
allowance for credit losses in connection with
this accounting standards update.
A
modification is
subject to
disclosure under
the new
ASU when
the Corporation
separately concludes
that both
of the
following
conditions exist:
1) the
debtor is experiencing
financial difficulties 2)
the modification constitutes
a reduction
in the
interest rate
on
the loan, a payment extension, a forgiveness of principal, or a more-than-insignificant payment delay. Determination that a borrower
is experiencing
financial difficulties
involves a
degree of
judgment. The identification
of loan
modifications to
debtors with
financial
difficulties is critical in the determination of the adequacy
of the ACL.
The
ASU
also
eliminates
the
requirement to
use
a
DCF
approach
to
estimated
credit
losses
for
modified
loans
with
borrowers
experiencing financial difficulties. The
entity can apply
a methodology similar to
the one used for
loans that were not
modified. The
Corporation applied a modified retrospective transition method for the implementation of ASU 2022-02 which
resulted in a reduction
of approximately $
46
million, $
29
million net of tax, in the reserve which was recorded as an
adjustment to the beginning balance of
retained earnings.
A
loan modified
with financial
difficulties is
typically in
non-accrual status
at the
time of
the modification.
These loans
continue in
non-accrual status until the borrower has demonstrated a willingness
and ability to make the restructured loan payments (at least
six
months of sustained performance after the modification (or one year for loans providing for quarterly or semi-annual payments)) and
management has concluded that it is probable
that the borrower would not be in payment
default in the foreseeable
future.
Refer
to
Note
9
to
the
Consolidated
Financial
Statements
for
additional
qualitative
information
on
loan
modifications
and
the
Corporation’s determination of the ACL.
Refer below for changes in accounting policies due
to the adoption of the new ASU and other
policy adoptions:
Loans
Effective on January 1, 2023,
newly originated mortgage loans held-for-sale are stated at fair
value, with changes recorded through
earnings.
Previously held-for-sale
were carried
at
the lower
of
its cost
or market
value. Fair
value is
generally determined
in the
aggregate and
is measured
based on
current market
prices for
similar loans,
outstanding investor
commitments, prices
of recent
sales
or
discounted
cash
flow
analyses
which
utilize
inputs
and
assumptions
which
are
believed
to
be
consistent
with
market
participants’ views.
Derivative instruments
Effective on
January 1,
2023, the
Corporation discontinued
the hedge
accounting treatment
of certain
forward contracts
for which
the
changes
in
fair
value
were
recorded,
net
of
taxes,
in
accumulated
other
comprehensive
income/(loss)
and
subsequently
reclassified to net
income (loss) in
the same
period that the
hedged transaction impacted
earnings. As a
result of this
change, the
changes in the fair
value of these forward contracts
are being recorded through net
income (loss). The Corporation utilizes
forward
contracts to hedge the
sale of mortgage-backed securities with
duration terms over one month.
Interest rate forwards are contracts
for the delayed delivery of securities, which the seller agrees to deliver on a specified future
date at a specified price or yield. These
forward contracts are hedging a forecasted transaction
and thus qualify for cash flow hedge accounting.
Based
on
the
election
to
apply
fair
value
accounting
for
its
mortgage
loans
held
for
sale,
effective
on
January
1,
2023,
the
Corporation discontinued
the
hedge accounting
since
the
changes
in
the
fair
value
of
the
loans
is
expected
to
be
offset
by
the
changes in the fair value of the forward
contract, both of which are now recorded through
net income (loss).
20
Note 5 - Restrictions on cash and due from
banks and certain securities
BPPR is
required by
regulatory agencies
to maintain
average reserve
balances with
the Federal
Reserve Bank
of New
York
(the
“Fed”) or other banks.
Those required average reserve balances amounted
to $
2.8
billion at March 31, 2023
(December 31, 2022 -
$
2.8
billion). Cash
and due
from banks,
as well
as other
highly liquid
securities, are
used to
cover the
required average
reserve
balances.
At March 31,
2023, the Corporation
held $
72
million in restricted
assets in the
form of funds
deposited in money
market accounts,
debt
securities
available
for
sale
and
equity
securities
(December
31,
2022
-
$
80
million).
The
restricted
assets
held
in
debt
securities available for sale and equity securities consist primarily of assets
held for the Corporation’s non-qualified retirement plans
and fund deposits guaranteeing possible liens or encumbrances
over the title of insured properties.
21
Note 6 – Debt securities available-for-sale
The following tables present
the amortized cost, gross
unrealized gains and losses,
approximate fair value, weighted average
yield
and contractual maturities of debt securities available-for-sale
at March 31, 2023 and December 31, 2022.
At March 31, 2023
Gross
Gross
Weighted
Amortized
unrealized
unrealized
Fair
average
(In thousands)
cost
gains
losses
value
yield
U.S. Treasury securities
Within 1 year
$
4,724,780
$
622
$
50,140
$
4,675,262
2.69
%
After 1 to 5 years
5,991,694
43
308,049
5,683,688
1.33
After 5 to 10 years
308,525
-
32,728
275,797
1.63
Total U.S. Treasury
securities
11,024,999
665
390,917
10,634,747
1.92
Collateralized mortgage obligations - federal agencies
After 1 to 5 years
13,109
-
733
12,376
1.58
After 5 to 10 years
34,671
-
2,230
32,441
1.80
After 10 years
123,200
34
9,279
113,955
2.56
Total collateralized
mortgage obligations - federal agencies
170,980
34
12,242
158,772
2.33
Mortgage-backed securities
Within 1 year
460
-
3
457
3.37
After 1 to 5 years
71,211
14
2,721
68,504
2.36
After 5 to 10 years
837,061
47
52,682
784,426
2.19
After 10 years
6,610,019
1,220
1,086,066
5,525,173
1.63
Total mortgage-backed
securities
7,518,751
1,281
1,141,472
6,378,560
1.70
Other
After 1 to 5 years
1,049
-
-
1,049
3.98
Total other
1,049
-
-
1,049
3.98
Total debt securities
available-for-sale
[1]
$
18,715,779
$
1,980
$
1,544,631
$
17,173,128
1.84
%
[1]
Includes $
10.3
billion pledged to secure government and trust
deposits, assets sold under agreements to repurchase, credit
facilities and loan
servicing agreements that the secured parties are not permitted
to sell or repledge the collateral, of which $
9.4
billion serve as collateral for public
funds.
The Corporation had unpledged Available for Sale
securities with a fair value of
$
6.7
billion that could be used to increase its borrowing
facilities.
22
At December 31, 2022
Gross
Gross
Weighted
Amortized
unrealized
unrealized
Fair
average
(In thousands)
cost
gains
losses
value
yield
U.S. Treasury securities
Within 1 year
$
4,576,127
$
506
$
47,156
$
4,529,477
2.42
%
After 1 to 5 years
6,793,739
-
410,858
6,382,881
1.35
After 5 to 10 years
308,854
-
40,264
268,590
1.63
Total U.S. Treasury
securities
11,678,720
506
498,278
11,180,948
1.78
Collateralized mortgage obligations - federal agencies
After 1 to 5 years
3,914
-
213
3,701
1.77
After 5 to 10 years
47,979
-
3,428
44,551
1.73
After 10 years
127,639
24
10,719
116,944
2.53
Total collateralized
mortgage obligations - federal agencies
179,532
24
14,360
165,196
2.30
Mortgage-backed securities
After 1 to 5 years
74,328
11
3,428
70,911
2.33
After 5 to 10 years
866,757
43
58,997
807,803
2.16
After 10 years
6,762,150
932
1,184,626
5,578,456
1.61
Total mortgage-backed
securities
7,703,235
986
1,247,051
6,457,170
1.68
Other
After 1 to 5 years
1,062
-
2
1,060
3.98
Total other
1,062
-
2
1,060
3.98
Total debt securities
available-for-sale
[1]
$
19,562,549
$
1,516
$
1,759,691
$
17,804,374
1.75
%
[1]
Includes $
11.3
billion pledged to secure government and trust deposits,
assets sold under agreements to repurchase, credit facilities
and loan
servicing agreements that the secured parties are not permitted
to sell or repledge the collateral, of which $
10.3
billion serve as collateral for
public funds. The Corporation had unpledged Available
for Sale securities with a fair value of
$
6.4
billion that could be used to increase its
borrowing facilities.
The weighted
average yield
on debt
securities available-for-sale
is based
on amortized
cost; therefore,
it
does not
give
effect to
changes in fair value.
Debt
securities
not
due
on
a
single
contractual
maturity
date,
such
as
mortgage-backed
securities
and
collateralized
mortgage
obligations, are classified
in the period
of final contractual
maturity. The
expected maturities of
collateralized mortgage obligations,
mortgage-backed securities and certain other securities may
differ from their contractual maturities
because they may be subject to
prepayments or may be called by the issuer.
There were
no
debt securities sold during the quarters ended March
31, 2023 and 2022.
23
The
following
tables
present
the
Corporation’s
fair
value
and
gross
unrealized
losses
of
debt
securities
available-for-sale,
aggregated by investment category and length of
time that individual securities have been in a continuous
unrealized loss position at
March 31, 2023 and December 31, 2022.
At March 31, 2023
Less than 12 months
12 months or more
Total
Gross
Gross
Gross
Fair
unrealized
Fair
unrealized
Fair
unrealized
(In thousands)
value
losses
value
losses
value
losses
U.S. Treasury securities
$
2,162,329
$
42,295
$
6,598,099
$
348,622
$
8,760,428
$
390,917
Collateralized mortgage obligations - federal agencies
42,946
1,526
113,220
10,716
156,166
12,242
Mortgage-backed securities
440,122
22,396
5,881,221
1,119,076
6,321,343
1,141,472
Total debt securities
available-for-sale in an unrealized loss position
$
2,645,397
$
66,217
$
12,592,540
$
1,478,414
$
15,237,937
$
1,544,631
At December 31, 2022
Less than 12 months
12 months or more
Total
Gross
Gross
Gross
Fair
unrealized
Fair
unrealized
Fair
unrealized
(In thousands)
value
losses
value
losses
value
losses
U.S. Treasury securities
$
6,027,786
$
288,582
$
3,244,572
$
209,696
$
9,272,358
$
498,278
Collateralized mortgage obligations - federal agencies
139,845
10,655
22,661
3,705
162,506
14,360
Mortgage-backed securities
1,740,214
138,071
4,662,195
1,108,980
6,402,409
1,247,051
Other
60
2
-
-
60
2
Total debt securities
available-for-sale in an unrealized loss position
$
7,907,905
$
437,310
$
7,929,428
$
1,322,381
$
15,837,333
$
1,759,691
As of March 31, 2023, the portfolio of available-for-sale debt securities reflects gross unrealized losses of approximately $
1.5
billion,
driven mainly by fixed-rate U.S. Treasury Securities and
mortgage-backed securities, which have been impacted by a decline in fair
value as a result of the rising interest rate
environment.
The portfolio of available-for-sale debt securities is comprised mainly of U.S
Treasuries and obligations from the U.S. Government, its agencies or government sponsored entities, including FNMA, FHMLC and
GNMA. As discussed in Note 2 to the Consolidated Financial Statements in the 2022
Form 10-K, these securities carry an explicit or
implicit guarantee from the U.S. Government, are highly rated
by major rating agencies, and have a long history
of no credit losses.
Accordingly, the Corporation applies a zero-credit loss assumption and no ACL for
these securities has been established.
In October 2022, the
Corporation transferred U.S. Treasury securities
with a fair value
of $
6.5
billion (par value of
$
7.4
billion) from
its available-for-sale portfolio to its held-to-maturity portfolio.
Management changed its intent, given its ability to hold these securities
to maturity
due to
the Corporation’s
liquidity position
and its
intention to
reduce the
impact on
accumulated other
comprehensive
income (loss) (“AOCI”) and
tangible capital of further
increases in interest rates.
The securities were reclassified
at fair value at
the
time of
the transfer.
At the
date of
the transfer,
these securities
had pre-tax
unrealized losses of
$
873.0
million recorded
in AOCI.
This fair value discount is being accreted to interest income and the unrealized loss remaining in AOCI is being amortized, offsetting
each other through the remaining life of the securities.
There were no realized gains or losses recorded
as a result of this transfer.
24
Note 7 –Debt securities held-to-maturity
The following
tables present
the amortized
cost, allowance
for credit
losses, gross
unrealized gains
and losses,
approximate fair
value, weighted
average yield
and contractual
maturities of
debt securities
held-to-maturity at
March 31,
2023 and
December 31,
2022.
At March 31, 2023
Allowance
Carrying
Value
Gross
Gross
Weighted
Amortized
Book
[1]
for Credit
Net of
unrealized
unrealized
Fair
average
(In thousands)
cost
Value
Losses
Allowance
gains
losses
value
yield
U.S. Treasury securities
Within 1 year
$
649,391
$
649,391
$
-
$
649,391
$
-
$
6,923
$
642,468
2.75
%
After 1 to 5 years
6,591,199
6,043,507
-
6,043,507
49,211
28,571
6,064,147
1.45
After 5 to 10 years
2,043,395
1,801,754
-
1,801,754
25,736
-
1,827,490
1.44
Total U.S. Treasury
securities
9,283,985
8,494,652
-
8,494,652
74,947
35,494
8,534,105
1.54
Obligations of Puerto Rico, States and
political subdivisions
Within 1 year
4,730
4,730
21
4,709
18
3
4,724
6.15
After 1 to 5 years
15,805
15,805
212
15,593
119
115
15,597
3.83
After 5 to 10 years
1,025
1,025
34
991
34
-
1,025
5.80
After 10 years
40,865
40,865
6,525
34,340
4,423
2,270
36,493
1.40
Total obligations of
Puerto Rico, States and
political subdivisions
62,425
62,425
6,792
55,633
4,594
2,388
57,839
2.45
Collateralized mortgage obligations - federal
agencies
After 1 to 5 years
16
16
-
16
1
-
17
6.44
Total collateralized
mortgage obligations -
federal agencies
16
16
-
16
1
-
17
6.44
Securities in wholly owned statutory business
trusts
After 10 years
5,959
5,959
-
5,959
-
-
5,959
6.33
Total securities
in wholly owned statutory
business trusts
5,959
5,959
-
5,959
-
-
5,959
6.33
Total debt securities
held-to-maturity [2]
$
9,352,385
$
8,563,052
$
6,792
$
8,556,260
$
79,542
$
37,882
$
8,597,920
1.55
%
[1]
Book value includes $
789
million of net unrealized loss which remains in Accumulated
other comprehensive income (AOCI) related to certain
securities transferred from available-for-sale securities
portfolio to the held-to-maturity securities portfolio as
discussed in Note 6.
[2]
Includes $
7.1
billion pledged to secure public and trust deposits that
the secured parties are not permitted to sell or repledge
the collateral.
The
Corporation had unpledged held-to-maturities securities with
a fair value of
$
1.3
billion that could be used to increase
its borrowing facilities.
25
At December 31, 2022
Allowance
Carrying
Value
Gross
Gross
Weighted
Amortized
Book
[1]
for Credit
Net of
unrealized
unrealized
Fair
average
(In thousands)
cost
Value
Losses
Allowance
gains
losses
value
yield
U.S. Treasury securities
Within 1 year
$
499,034
$
499,034
$
-
$
499,034
$
-
$
6,203
$
492,831
2.83
%
After 1 to 5 years
6,147,568
5,640,767
-
5,640,767
-
59,806
5,580,961
1.49
After 5 to 10 years
2,638,238
2,313,666
-
2,313,666
-
14,857
2,298,809
1.41
Total U.S. Treasury
securities
9,284,840
8,453,467
-
8,453,467
-
80,866
8,372,601
1.54
Obligations of Puerto Rico, States and
political subdivisions
`
Within 1 year
4,530
4,530
8
4,522
5
-
4,527
6.08
%
After 1 to 5 years
19,105
19,105
234
18,871
150
82
18,939
4.24
After 5 to 10 years
1,025
1,025
34
991
34
-
1,025
5.80
After 10 years
41,261
41,261
6,635
34,626
4,729
2,229
37,126
1.40
Total obligations of
Puerto Rico, States and
political subdivisions
65,921
65,921
6,911
59,010
4,918
2,311
61,617
2.61
Collateralized mortgage obligations - federal
agencies
After 1 to 5 years
19
19
-
19
-
-
19
6.44
Total collateralized
mortgage obligations -
federal agencies
19
19
-
19
-
-
19
6.44
Securities in wholly owned statutory business
trusts
After 10 years
5,959
5,959
-
5,959
-
-
5,959
6.33
Total securities
in wholly owned statutory
business trusts
5,959
5,959
-
5,959
-
-
5,959
6.33
Total debt securities
held-to-maturity [2]
$
9,356,739
$
8,525,366
$
6,911
$
8,518,455
$
4,918
$
83,177
$
8,440,196
1.55
%
[1]
Book value includes $
831
million of net unrealized loss which remains in Accumulated
other comprehensive income (AOCI) related to certain
securities transferred from available-for-sale securities
portfolio to the held-to-maturity securities portfolio as
discussed in Note 6.
[2]
Includes $
6.9
billion pledged to secure public and trust deposits that
the secured parties are not permitted to sell or repledge
the collateral. The
Corporation had unpledged held-to-maturities securities with
a fair value of
$
1.5
billion that could be used to increase its borrowing
facilities.
Debt securities not due on a single contractual maturity date,
such as collateralized mortgage obligations, are classified in the period
of final
contractual maturity.
The expected
maturities of
collateralized mortgage
obligations and
certain other
securities may
differ
from their contractual maturities because they may be
subject to prepayments or may be called
by the issuer.
Credit Quality Indicators
The following describes the credit quality
indicators by major security type that
the Corporation considers in its’ estimate
to develop
the allowance for credit losses for investment securities
held-to-maturity.
As discussed in
Note 2 to
the Consolidated Financial Statements
in the 2022
Form 10-K, U.S.
Treasury securities carry
an explicit
guarantee
from
the
U.S.
Government
are
highly
rated
by
major
rating
agencies,
and
have
a
long
history
of
no
credit
losses.
Accordingly, the Corporation applies a zero-credit loss assumption and no ACL for
these securities has been established.
At March 31, 2023
and December 31, 2022, the
“Obligations of Puerto Rico, States and
political subdivisions” classified as held-to-
maturity,
includes
securities
issued by
municipalities
of
Puerto
Rico
that
are
generally
not
rated
by
a
credit
rating
agency.
This
includes $
22
million of general and special obligation bonds issued by three municipalities of Puerto Rico, that
are payable primarily
from
certain
property
taxes
imposed
by
the
issuing
municipality
(December
31,
2022
-
$
25
million).
In
the
case
of
general
obligations, they
also benefit
from a
pledge of
the full
faith, credit
and unlimited
taxing power
of the
issuing municipality,
which is
required by law to levy property taxes in an amount sufficient for the payment of
debt service on such general obligation bonds. The
Corporation performs periodic credit quality
reviews of these securities and
internally assigns standardized credit risk ratings
based
on its evaluation.
The Corporation considers these ratings
in its estimate to
develop the allowance for credit
losses associated with
these
securities.
For
the
definitions
of
the
obligor
risk
ratings,
refer
to
the
Credit
Quality
section
of
Note
9
to
the
Consolidated
Financial Statements.
The
following
presents
the
amortized
cost
basis
of
securities
held
by
the
Corporation
issued
by
municipalities
of
Puerto
Rico
aggregated by the internally assigned standardized
credit risk rating:
26
At March 31, 2023
At December 31, 2022
(In thousands)
Securities issued by Puerto Rico municipalities
Watch
$
2,905
$
13,735
Pass
18,655
10,925
Total
$
21,560
$
24,660
At
March
31,
2023,
the
portfolio
of
“Obligations
of
Puerto
Rico,
States
and
political
subdivisions”
also
includes
$
41
million
in
securities
issued
by
the
Puerto
Rico
Housing
Finance
Authority
(“HFA”),
a
government
instrumentality,
for
which
the
underlying
source of payment is second mortgage loans in Puerto Rico
residential properties (not the government), but for which HFA, provides
a guarantee
in the
event of default
and upon the
satisfaction of certain
other conditions (December
31, 2022 -
$
42
million). These
securities
are
not
rated
by
a
credit
rating
agency.
The
Corporation assesses
the
credit
risk
associated
with
these
securities
by
evaluating
the
refreshed
FICO
scores
of
a
representative sample
of
the
underlying borrowers.
At
March
31,
2023,
the
average
refreshed FICO
score
for the
representative sample,
comprised of
66
%
of
the
nominal value
of the
securities, used
for the
loss
estimate was
of
707
(compared to
65
%
and
707
,
respectively,
at December
31, 2022).
The
loss estimates
for this
portfolio was
based on the methodology established under CECL
for similar loan obligations. The Corporation does not
consider the government
guarantee when estimating the credit losses associated
with this portfolio.
A
further
deterioration
of
the
Puerto
Rico
economy
or
of
the
fiscal
health
of
the
Government
of
Puerto
Rico
and/or
its
instrumentalities (including if any of
the issuing municipalities become subject to
a debt restructuring proceeding under PROMESA)
could further affect the value of these securities, resulting in losses
to the Corporation.
Refer to
Note 21
to the
Consolidated Financial
Statements
for additional
information on
the Corporation’s
exposure to
the Puerto
Rico Government.
Delinquency status
At March 31, 2023 and December 31, 2022, there were
no
securities held-to-maturity in past due or non-performing
status.
Allowance for credit losses on debt securities held-to-maturity
The following table provides the
activity in the allowance for
credit losses related to debt securities
held-to-maturity by security type
at March 31, 2023 and March 31, 2022:
27
For the quarters ended March 31,
2023
2022
(In thousands)
Obligations of Puerto Rico, States and political subdivisions
Allowance for credit losses:
Beginning balance
$
6,911
$
8,096
Provision for credit losses (benefit)
(119)
(252)
Securities charged-off
-
-
Recoveries
-
-
Ending balance
$
6,792
$
7,844
The
allowance
for
credit
losses
for
the
Obligations
of
Puerto
Rico,
States
and
political
subdivisions
includes
$
0.3
million
for
securities issued by municipalities of
Puerto Rico, and $
6.5
million for bonds issued by
the Puerto Rico HFA,
which are secured by
second mortgage loans on
Puerto Rico residential properties (compared to
$
0.3
million and $
6.6
million, respectively, at
December
31, 2022).
28
Note 8 – Loans
For
a
summary
of the
accounting policies
related to
loans, interest
recognition
and
allowance for
credit
losses
refer to
Note
2
-
Summary of Significant Accounting Policies of the 2022
Form 10-K.
During the
quarter ended
March 31,
2023, the
Corporation recorded purchases
(including repurchases)
of mortgage
loans of
$
76
million,
consumer
loans
of
$
27
million
and
commercial
loans
of
$
45
million;
compared
to
purchases
(including
repurchases)
of
mortgage loans of
$
82
million, which include
$
3
million in PCD
loans, and consumer
loans of $
91
million during the
quarter ended
March 31, 2022.
The
Corporation performed
whole-loan
sales
involving
approximately $
10
million
of
residential mortgage
loans
and
$
2
million
of
commercial and construction loans
during the quarter ended
March 31, 2023 (March
31, 2022 -
$
19
million of residential mortgage
loans
and
$
1
million
of
commercial
loans).
Also,
during
the
quarter
ended
March
31,
2023,
the
Corporation
securitized
approximately $
1
million of mortgage
loans into Government
National Mortgage Association (“GNMA”)
mortgage-backed securities
and $
10
million of mortgage
loans into Federal
National Mortgage Association
(“FNMA”) mortgage-backed securities, compared
to
$
78
million and $
58
million, respectively, during the quarter ended March 31, 2022.
Delinquency status
The following tables present the
amortized cost basis of loans
held-in-portfolio (“HIP”), net of unearned
income, by past due status,
and by loan class including those that are in non-performing status or that are accruing
interest but are past due 90 days or more at
March 31, 2023 and December 31, 2022.
29
March 31, 2023
BPPR
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
Non-accrual
Accruing
(In thousands)
days
days
or more
past due
Current
Loans HIP
loans
loans
Commercial multi-family
$
650
$
-
$
185
$
835
$
291,971
$
292,806
$
185
$
-
Commercial real estate:
Non-owner occupied
2,739
1,584
22,856
27,179
2,858,304
2,885,483
22,856
-
Owner occupied
21,496
-
37,779
59,275
1,438,228
1,497,503
37,779
-
Commercial and industrial
17,934
793
31,847
50,574
3,883,859
3,934,433
30,132
1,715
Construction
8,081
-
-
8,081
147,268
155,349
-
-
Mortgage
183,187
81,729
515,752
780,668
5,336,016
6,116,684
224,075
291,677
Leasing
12,301
2,605
6,103
21,009
1,593,335
1,614,344
6,103
-
Consumer:
Credit cards
7,162
5,823
12,061
25,046
1,021,129
1,046,175
-
12,061
Home equity lines of credit
-
-
-
-
2,865
2,865
-
-
Personal
14,131
8,990
17,427
40,548
1,572,370
1,612,918
17,412
15
Auto
60,324
12,684
39,516
112,524
3,405,416
3,517,940
39,516
-
Other
1,264
49
1,091
2,404
127,608
130,012
921
170
Total
$
329,269
$
114,257
$
684,617
$
1,128,143
$
21,678,369
$
22,806,512
$
378,979
$
305,638
March 31, 2023
Popular U.S.
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
Non-accrual
Accruing
(In thousands)
days
days
or more
past due
Current
Loans HIP
loans
loans
Commercial multi-family
$
-
$
-
$
421
$
421
$
2,043,130
$
2,043,551
$
421
$
-
Commercial real estate:
Non-owner occupied
16,033
-
207
16,240
1,748,952
1,765,192
207
-
Owner occupied
18,042
-
5,095
23,137
1,497,947
1,521,084
5,095
-
Commercial and industrial
13,779
3
5,570
19,352
2,045,857
2,065,209
5,325
245
Construction
7,165
-
-
7,165
536,482
543,647
-
-
Mortgage
22,041
1,499
14,719
38,259
1,250,964
1,289,223
14,719
-
Consumer:
Credit cards
-
-
-
-
21
21
-
-
Home equity lines of
credit
496
70
4,618
5,184
61,838
67,022
4,618
-
Personal
1,900
1,259
2,505
5,664
222,487
228,151
2,505
-
Other
2
-
514
516
8,245
8,761
514
-
Total
$
79,458
$
2,831
$
33,649
$
115,938
$
9,415,923
$
9,531,861
$
33,404
$
245
30
March 31, 2023
Popular, Inc.
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
Non-accrual
Accruing
(In thousands)
days
days
or more
past due
Current
Loans HIP
[2] [3]
loans
loans
Commercial multi-family
$
650
$
-
$
606
$
1,256
$
2,335,101
$
2,336,357
$
606
$
-
Commercial real estate:
Non-owner occupied
18,772
1,584
23,063
43,419
4,607,256
4,650,675
23,063
-
Owner occupied
39,538
-
42,874
82,412
2,936,175
3,018,587
42,874
-
Commercial and industrial
31,713
796
37,417
69,926
5,929,716
5,999,642
35,457
1,960
Construction
15,246
-
-
15,246
683,750
698,996
-
-
Mortgage
[1]
205,228
83,228
530,471
818,927
6,586,980
7,405,907
238,794
291,677
Leasing
12,301
2,605
6,103
21,009
1,593,335
1,614,344
6,103
-
Consumer:
Credit cards
7,162
5,823
12,061
25,046
1,021,150
1,046,196
-
12,061
Home equity lines of credit
496
70
4,618
5,184
64,703
69,887
4,618
-
Personal
16,031
10,249
19,932
46,212
1,794,857
1,841,069
19,917
15
Auto
60,324
12,684
39,516
112,524
3,405,416
3,517,940
39,516
-
Other
1,266
49
1,605
2,920
135,853
138,773
1,435
170
Total
$
408,727
$
117,088
$
718,266
$
1,244,081
$
31,094,292
$
32,338,373
$
412,383
$
305,883
[1]
It is the Corporation’s policy to report delinquent residential
mortgage loans insured by Federal Housing Administration
(“FHA”) or guaranteed by
the U.S. Department of Veterans Affairs
(“VA”) as accruing loans past
due 90 days or more as opposed to non-performing
since the principal
repayment is insured.
These balances include $
167
million of residential mortgage loans insured by
FHA or guaranteed by the VA that
are no
longer accruing interest as of March 31, 2023. Furthermore, the
Corporation has approximately $
40
million in reverse mortgage loans which are
guaranteed by FHA, but which are currently not accruing interest.
Due to the guaranteed nature of the loans, it is
the Corporation’s policy to
exclude these balances from non-performing assets.
[2]
Loans held-in-portfolio are net of $
307
million in unearned income and exclude $
11
million in loans held-for-sale.
[3]
Includes $
7.7
billion pledged to secure credit facilities and public funds
that the secured parties are not permitted to sell or
repledge the collateral,
of which $
5.1
billion were pledged at the Federal Home Loan Bank
("FHLB") as collateral for borrowings and $
2.6
billion at the Federal Reserve
Bank ("FRB") for discount window borrowings. The Corporation
had an available borrowing facility with the FHLB and
the discount window of
Federal Reserve Bank of New York
of $
2.8
billion and $
1.5
billion, respectively, as of
March 31, 2023.
31
December 31, 2022
BPPR
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
Non-accrual
Accruing
(In thousands)
days
days
or more
past due
Current
Loans HIP
loans
loans
Commercial multi-family
$
425
$
-
$
242
$
667
$
280,706
$
281,373
$
242
$
-
Commercial real estate:
Non-owner occupied
941
428
23,662
25,031
2,732,296
2,757,327
23,662
-
Owner occupied
729
245
23,990
24,964
1,563,092
1,588,056
23,990
-
Commercial and industrial
3,036
941
35,777
39,754
3,756,754
3,796,508
34,277
1,500
Construction
-
-
-
-
147,041
147,041
-
-
Mortgage
222,926
91,881
579,993
894,800
5,215,479
6,110,279
242,391
337,602
Leasing
11,983
3,563
5,941
21,487
1,564,252
1,585,739
5,941
-
Consumer:
Credit cards
7,106
5,049
11,910
24,065
1,017,766
1,041,831
-
11,910
Home equity lines of credit
-
-
-
-
2,954
2,954
-
-
Personal
13,232
8,752
18,082
40,066
1,545,621
1,585,687
18,082
-
Auto
68,868
19,243
40,978
129,089
3,383,441
3,512,530
40,978
-
Other
487
87
12,682
13,256
124,324
137,580
12,446
236
Total
$
329,733
$
130,189
$
753,257
$
1,213,179
$
21,333,726
$
22,546,905
$
402,009
$
351,248
December 31, 2022
Popular U.S.
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
Non-accrual
Accruing
(In thousands)
days
days
or more
past due
Current
Loans HIP
loans
loans
Commercial multi-family
$
2,177
$
-
$
-
$
2,177
$
2,038,163
$
2,040,340
$
-
$
-
Commercial real estate:
Non-owner occupied
484
-
1,454
1,938
1,740,405
1,742,343
1,454
-
Owner occupied
-
-
5,095
5,095
1,485,398
1,490,493
5,095
-
Commercial and industrial
12,960
2,205
4,685
19,850
2,022,842
2,042,692
4,319
366
Construction
-
-
-
-
610,943
610,943
-
-
Mortgage
16,131
5,834
20,488
42,453
1,244,739
1,287,192
20,488
-
Consumer:
Credit cards
-
-
-
-
39
39
-
-
Home equity lines of credit
413
161
4,110
4,684
64,278
68,962
4,110
-
Personal
1,808
1,467
1,958
5,233
232,659
237,892
1,958
-
Other
-
-
8
8
9,960
9,968
8
-
Total
$
33,973
$
9,667
$
37,798
$
81,438
$
9,449,426
$
9,530,864
$
37,432
$
366
32
December 31, 2022
Popular, Inc.
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
Non-accrual
Accruing
(In thousands)
days
days
or more
past due
Current
Loans HIP
[2]
[3]
loans
loans
Commercial multi-family
$
2,602
$
-
$
242
$
2,844
$
2,318,869
$
2,321,713
$
242
$
-
Commercial real estate:
Non-owner occupied
1,425
428
25,116
26,969
4,472,701
4,499,670
25,116
-
Owner occupied
729
245
29,085
30,059
3,048,490
3,078,549
29,085
-
Commercial and industrial
15,996
3,146
40,462
59,604
5,779,596
5,839,200
38,596
1,866
Construction
-
-
-
-
757,984
757,984
-
-
Mortgage
[1]
239,057
97,715
600,481
937,253
6,460,218
7,397,471
262,879
337,602
Leasing
11,983
3,563
5,941
21,487
1,564,252
1,585,739
5,941
-
Consumer:
Credit cards
7,106
5,049
11,910
24,065
1,017,805
1,041,870
-
11,910
Home equity lines of credit
413
161
4,110
4,684
67,232
71,916
4,110
-
Personal
15,040
10,219
20,040
45,299
1,778,280
1,823,579
20,040
-
Auto
68,868
19,243
40,978
129,089
3,383,441
3,512,530
40,978
-
Other
487
87
12,690
13,264
134,284
147,548
12,454
236
Total
$
363,706
$
139,856
$
791,055
$
1,294,617
$
30,783,152
$
32,077,769
$
439,441
$
351,614
[1]
It is the Corporation’s policy to report delinquent residential
mortgage loans insured by FHA or guaranteed
by the VA as accruing loans
past due
90 days or more as opposed to non-performing since
the principal repayment is insured.
These balances also include $
190
million of residential
mortgage loans insured by FHA or guaranteed by the VA
that are no longer accruing interest as of December
31, 2022. Furthermore, the
Corporation has approximately $
42
million in reverse mortgage loans which are guaranteed
by FHA, but which are currently not accruing interest.
Due to the guaranteed nature of the loans, it is the Corporation’s
policy to exclude these balances from non-performing assets.
[2]
Loans held-in-portfolio are net of $
295
million in unearned income and exclude $
5
million in loans held-for-sale.
[3]
Includes $
7.4
billion pledged to secure credit facilities and public funds
that the secured parties are not permitted to sell or
repledge the collateral,
of which $
4.8
billion were pledged at the Federal Home Loan Bank
(FHLB) as collateral for borrowings and $
2.6
billion at the Federal Reserve
Bank (FRB) for discount window borrowings. The Corporation
had an available borrowing facility with the FHLB and
the discount window of
Federal Reserve Bank of New York
of $
2.1
billion and $
1.4
billion, respectively, as of December
31, 2022.
Recognition of interest income on mortgage loans is generally discontinued when loans are 90 days or more in arrears on payments
of principal or interest. The Corporation discontinues the recognition of interest income on residential mortgage loans insured by the
FHA or
guaranteed by
VA
when 15
months delinquent
as to
principal or
interest, since
the principal
repayment on
these loans
is
insured.
At March
31, 2023, mortgage
loans held-in-portfolio include
$
2.0
billion (December 31,
2022 -
$
2
.0 billion)
of loans
insured by the
FHA, or guaranteed by the VA of which $
0.3
billion (December 31, 2022 - $
0.3
billion) are 90 days or more past due. The portfolio of
guaranteed loans includes $
167
million of residential mortgage loans in Puerto Rico that are no longer accruing interest as of March
31, 2023
(December 31, 2022
- $
190
million). The Corporation
has approximately $
40
million in
reverse mortgage loans
in Puerto
Rico
which are
guaranteed by
FHA,
but which
are currently
not
accruing interest
at
March 31,
2023 (December
31, 2022
- $
42
million).
Loans with a delinquency status of
90 days past due as of
March 31, 2023 include $
7
million in loans previously pooled into GNMA
securities
(December
31,
2022
-
$
14
million).
Under
the
GNMA
program,
issuers
such
as
BPPR
have
the
option
but
not
the
obligation to repurchase loans
that are 90
days or more
past due. For
accounting purposes, these loans
subject to the
repurchase
option
are
required to
be
reflected on
the
financial statements
of BPPR
with
an
offsetting
liability.
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.
The following tables present the amortized cost basis
of non-accrual loans as of March 31, 2023
and December 31, 2022 by class of
loans:
33
March 31, 2023
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Non-accrual
with no
allowance
Non-accrual
with
allowance
Non-accrual
with no
allowance
Non-accrual
with
allowance
Non-accrual
with no
allowance
Non-accrual
with
allowance
Commercial multi-family
$
-
$
185
$
-
$
421
$
-
$
606
Commercial real estate non-owner occupied
19,324
3,532
-
207
19,324
3,739
Commercial real estate owner occupied
24,513
13,266
5,095
-
29,608
13,266
Commercial and industrial
17,551
12,581
-
5,325
17,551
17,906
Mortgage
103,316
120,759
227
14,492
103,543
135,251
Leasing
194
5,909
-
-
194
5,909
Consumer:
HELOCs
-
-
-
4,618
-
4,618
Personal
5,122
12,290
-
2,505
5,122
14,795
Auto
1,117
38,399
-
-
1,117
38,399
Other
263
658
-
514
263
1,172
Total
$
171,400
$
207,579
$
5,322
$
28,082
$
176,722
$
235,661
December 31, 2022
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Non-accrual
with no
allowance
Non-accrual
with
allowance
Non-accrual
with no
allowance
Non-accrual
with
allowance
Non-accrual
with no
allowance
Non-accrual
with
allowance
Commercial multi-family
$
-
$
242
$
-
$
-
$
-
$
242
Commercial real estate non-owner occupied
15,639
8,023
1,454
-
17,093
8,023
Commercial real estate owner occupied
9,070
14,920
5,095
-
14,165
14,920
Commercial and industrial
20,227
14,050
-
4,319
20,227
18,369
Mortgage
119,027
123,364
71
20,417
119,098
143,781
Leasing
458
5,483
-
-
458
5,483
Consumer:
HELOCs
-
-
-
4,110
-
4,110
Personal
4,623
13,459
-
1,958
4,623
15,417
Auto
1,177
39,801
-
-
1,177
39,801
Other
263
12,183
-
8
263
12,191
Total
$
170,484
$
231,525
$
6,620
$
30,812
$
177,104
$
262,337
Loans in non-accrual status with
no allowance at March 31,
2023 include $
176
million in collateral dependent loans
(December 31,
2022 - $
177
million). The Corporation recognized $
4
million in interest income on non-accrual loans during the quarter ended March
31, 2023 (March 31, 2022 - $
4
million).
The Corporation has
designated loans classified as
collateral dependent for
which the ACL
is measured based
on the fair
value of
the collateral less
cost to sell,
when foreclosure is
probable or when
the repayment is
expected to be
provided substantially by the
sale or
operation of
the collateral
and the
borrower is
experiencing financial
difficulty.
The fair
value of
the collateral
is based
on
appraisals, which may be
adjusted due to their
age, and the
type, location, and condition
of the property
or area or general
market
conditions to reflect the expected change in value between the effective date
of the appraisal and the measurement date. Appraisals
are updated every one to two years depending on
the type of loan and the total exposure of
the borrower.
The following tables present the amortized cost basis
of collateral-dependent loans, for which the ACL was measured
based on the
fair value of the collateral less cost to sell, by class
of loans and type of collateral as of March
31, 2023 and December 31, 2022:
34
March 31, 2023
(In thousands)
Real Estate
Auto
Equipment
Accounts
Receivables
Other
Total
BPPR
Commercial multi-family
$
1,316
$
-
$
-
$
-
$
-
$
1,316
Commercial real estate:
Non-owner occupied
180,090
-
-
-
-
180,090
Owner occupied
32,471
-
-
-
-
32,471
Commercial and industrial
1,070
-
22
8,397
18,995
28,484
Mortgage
106,168
-
-
-
-
106,168
Leasing
-
844
-
-
-
844
Consumer:
Personal
5,433
-
-
-
-
5,433
Auto
-
10,074
-
-
-
10,074
Other
-
-
-
-
263
263
Total BPPR
$
326,548
$
10,918
$
22
$
8,397
$
19,258
$
365,143
Popular U.S.
Commercial real estate:
Owner occupied
$
5,095
$
-
$
-
$
-
$
-
$
5,095
Commercial and industrial
-
-
74
-
2,000
2,074
Mortgage
775
-
-
-
-
775
Total Popular U.S.
$
5,870
$
-
$
74
$
-
$
2,000
$
7,944
Popular, Inc.
Commercial multi-family
$
1,316
$
-
$
-
$
-
$
-
$
1,316
Commercial real estate:
Non-owner occupied
180,090
-
-
-
-
180,090
Owner occupied
37,566
-
-
-
-
37,566
Commercial and industrial
1,070
-
96
8,397
20,995
30,558
Mortgage
106,943
-
-
-
-
106,943
Leasing
-
844
-
-
-
844
Consumer:
Personal
5,433
-
-
-
-
5,433
Auto
-
10,074
-
-
-
10,074
Other
-
-
-
-
263
263
Total Popular,
Inc.
$
332,418
$
10,918
$
96
$
8,397
$
21,258
$
373,087
35
December 31, 2022
(In thousands)
Real Estate
Auto
Equipment
Accounts
Receivables
Other
Total
BPPR
Commercial multi-family
$
1,329
$
-
$
-
$
-
$
-
$
1,329
Commercial real estate:
Non-owner occupied
202,980
-
-
-
-
202,980
Owner occupied
18,234
-
-
-
-
18,234
Commercial and industrial
1,345
-
32
9,853
20,985
32,215
Mortgage
128,069
-
-
-
-
128,069
Leasing
-
1,020
-
-
-
1,020
Consumer:
Personal
5,381
-
-
-
-
5,381
Auto
-
9,556
-
-
-
9,556
Other
-
-
-
-
263
263
Total BPPR
$
357,338
$
10,576
$
32
$
9,853
$
21,248
$
399,047
Popular U.S.
Commercial real estate:
Non-owner occupied
$
1,454
$
-
$
-
$
-
$
-
$
1,454
Owner occupied
5,095
-
-
-
-
5,095
Commercial and industrial
-
-
136
-
-
136
Mortgage
1,104
-
-
-
-
1,104
Total Popular U.S.
$
7,653
$
-
$
136
$
-
$
-
$
7,789
Popular, Inc.
Commercial multi-family
$
1,329
$
-
$
-
$
-
$
-
$
1,329
Commercial real estate:
Non-owner occupied
204,434
-
-
-
-
204,434
Owner occupied
23,329
-
-
-
-
23,329
Commercial and industrial
1,345
-
168
9,853
20,985
32,351
Mortgage
129,173
-
-
-
-
129,173
Leasing
-
1,020
-
-
-
1,020
Consumer:
Personal
5,381
-
-
-
-
5,381
Auto
-
9,556
-
-
-
9,556
Other
-
-
-
-
263
263
Total Popular,
Inc.
$
364,991
$
10,576
$
168
$
9,853
$
21,248
$
406,836
36
Purchased Credit Deteriorated (PCD) Loans
The Corporation has purchased loans during
the quarter for which there was, at acquisition, evidence
of more than insignificant
deterioration of credit quality since origination. The
carrying amount of those loans is as follows:
(In thousands)
March 31, 2023
March 31, 2022
Purchase price of loans at acquisition
$
255
$
2,002
Allowance for credit losses at acquisition
68
612
Non-credit discount / (premium) at acquisition
9
99
Par value of acquired loans at acquisition
$
332
$
2,713
37
Note 9 – Allowance for credit losses – loans
held-in-portfolio
The
Corporation follows
the current
expected credit
loss (“CECL”)
model, to
establish and
evaluate the
adequacy of
the ACL
to
provide for
expected losses
in the
loan portfolio.
This model
establishes a forward-looking
methodology that
reflects the
expected
credit losses over the lives of financial assets, starting when such
assets are first acquired or originated. In addition, CECL provides
that the initial ACL on purchased credit deteriorated (“PCD”) financial
assets be recorded as an increase to the
purchase price, with
subsequent
changes
to
the
allowance
recorded
as
a
credit
loss
expense.
The
provision
for
credit
losses
recorded
in
current
operations
is
based
on
this
methodology.
Loan
losses
are
charged
and
recoveries
are
credited
to
the
ACL.
The
Corporation’s
modeling framework includes competing
risk models that
generate lifetime default and
prepayment estimates as well
as other loan
level techniques to estimate loss severity.
These models combine credit risk factors, which include the
impact of loan modifications,
with macroeconomic expectations to derive the
lifetime expected loss.
At March
31, 2023, the
Corporation estimated the
ACL by
weighting the outputs
of optimistic, baseline,
and pessimistic scenarios.
Among the
three scenarios used
to estimate
the ACL, the
baseline is
assigned the highest
probability,
followed by the
pessimistic
scenario given the
uncertainties in the
economic outlook and
downside risk. The
weightings applied are subject
to evaluation on
a
quarterly basis as
part of the
ACL’s governance
process. The Corporation evaluates,
at least on
an annual basis, the
assumptions
tied to the CECL accounting framework. These
include the reasonable and supportable period
as well as the reversion window.
The
2023
annualized
GDP
growth
in
the
baseline
scenario
stands
at
2.1%
and
1.3%
for
Puerto
Rico
and
the
United
States,
respectively,
increasing from
1.3% and
0.7% in
the previous
quarter. The
2023 forecasted
average unemployment
rate continues
strong, improving quarter-over-quarter to
6.9% and 3.5%
for Puerto Rico
and the United
States, respectively,
from 7.8% and
4.0%
respectively, in the previous forecast.
The following
tables present
the changes
in the
ACL of
loans held-in-portfolio
and unfunded
commitments for
the quarters
ended
March 31, 2023 and 2022.
38
For the quarter ended March 31, 2023
BPPR
Impact of
Provision for
Allowance
for
Beginning
Adopting
credit losses
credit losses -
Ending
(In thousands)
Balance
ASU 2022-02
(benefit)
PCD Loans
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
5,210
$
-
$
(454)
$
-
$
-
$
-
$
4,756
Commercial real estate non-owner occupied
52,475
-
1,284
-
-
135
53,894
Commercial real estate owner occupied
48,393
(1,161)
(2,730)
-
(3)
1,510
46,009
Commercial and industrial
68,217
(552)
9,819
-
(1,607)
1,165
77,042
Total Commercial
174,295
(1,713)
7,919
-
(1,610)
2,810
181,701
Construction
2,978
-
94
-
-
-
3,072
Mortgage
117,344
(33,556)
1,267
68
(846)
4,800
89,077
Leasing
20,618
(35)
734
-
(1,417)
1,090
20,990
Consumer
Credit Cards
58,670
-
15,570
-
(8,676)
2,389
67,953
HELOCs
103
-
(39)
-
(33)
69
100
Personal
96,369
(7,020)
11,104
-
(13,580)
1,535
88,408
Auto
129,735
(21)
8,319
-
(12,118)
4,914
130,829
Other
15,433
-
235
-
(11,007)
216
4,877
Total Consumer
300,310
(7,041)
35,189
-
(45,414)
9,123
292,167
Total - Loans
$
615,545
$
(42,345)
$
45,203
$
68
$
(49,287)
$
17,823
$
587,007
Allowance for credit losses - unfunded commitments:
Commercial
$
4,336
$
-
$
564
$
-
$
-
$
-
$
4,900
Construction
2,022
-
(76)
-
-
-
1,946
Ending balance - unfunded commitments [1]
$
6,358
$
-
$
488
$
-
$
-
$
-
$
6,846
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
39
For the quarter ended March 31, 2023
Popular U.S.
Impact of
Provision for
Beginning
Adopting
credit losses -
Ending
(In thousands)
Balance
ASU 2022-02
(benefits)
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
21,101
$
-
$
(493)
$
-
$
2
$
20,610
Commercial real estate non-owner occupied
19,065
-
(2,961)
-
1,852
17,956
Commercial real estate owner occupied
8,688
-
(224)
-
24
8,488
Commercial and industrial
12,227
-
2,528
(499)
968
15,224
Total Commercial
61,081
-
(1,150)
(499)
2,846
62,278
Construction
1,268
-
(10)
-
-
1,258
Mortgage
17,910
(2,098)
(426)
-
14
15,400
Consumer
Credit Cards
-
-
1
(1)
-
-
HELOCs
2,439
-
(712)
(143)
269
1,853
Personal
22,057
(1,140)
4,191
(4,170)
383
21,321
Other
2
-
49
(53)
5
3
Total Consumer
24,498
(1,140)
3,529
(4,367)
657
23,177
Total - Loans
$
104,757
$
(3,238)
$
1,943
$
(4,866)
$
3,517
$
102,113
Allowance for credit losses - unfunded commitments:
Commercial
$
1,175
$
-
$
54
$
-
$
-
$
1,229
Construction
1,184
-
94
-
-
1,278
Consumer
88
-
(26)
-
-
62
Ending balance - unfunded commitments [1]
$
2,447
$
-
$
122
$
-
$
-
$
2,569
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
40
For the quarter ended March 31, 2023
Popular Inc.
Impact
Provision for
Allowance
for
Beginning
of adopting
credit losses
credit losses -
Ending
(In thousands)
Balance
ASU 2022-02
(benefit)
PCD Loans
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
26,311
$
-
$
(947)
$
-
$
-
$
2
$
25,366
Commercial real estate non-owner occupied
71,540
-
(1,677)
-
-
1,987
71,850
Commercial real estate owner occupied
57,081
(1,161)
(2,954)
-
(3)
1,534
54,497
Commercial and industrial
80,444
(552)
12,347
-
(2,106)
2,133
92,266
Total Commercial
235,376
(1,713)
6,769
-
(2,109)
5,656
243,979
Construction
4,246
-
84
-
-
-
4,330
Mortgage
135,254
(35,654)
841
68
(846)
4,814
104,477
Leasing
20,618
(35)
734
-
(1,417)
1,090
20,990
Consumer
Credit Cards
58,670
-
15,571
-
(8,677)
2,389
67,953
HELOCs
2,542
-
(751)
-
(176)
338
1,953
Personal
118,426
(8,160)
15,295
-
(17,750)
1,918
109,729
Auto
129,735
(21)
8,319
-
(12,118)
4,914
130,829
Other
15,435
-
284
-
(11,060)
221
4,880
Total Consumer
324,808
(8,181)
38,718
-
(49,781)
9,780
315,344
Total - Loans
$
720,302
$
(45,583)
$
47,146
$
68
$
(54,153)
$
21,340
$
689,120
Allowance for credit losses - unfunded commitments:
Commercial
$
5,511
$
-
$
618
$
-
$
-
$
-
$
6,129
Construction
3,206
-
18
-
-
-
3,224
Consumer
88
-
(26)
-
-
-
62
Ending balance - unfunded commitments [1]
$
8,805
$
-
$
610
$
-
$
-
$
-
$
9,415
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
41
For the quarter ended March 31, 2022
BPPR
Provision for
Allowance for
Beginning
credit losses
credit losses -
Ending
(In thousands)
Balance
(benefit)
PCD Loans
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
3,050
$
385
$
-
$
-
$
-
$
3,435
Commercial real estate non-owner occupied
45,211
6,244
-
-
184
51,639
Commercial real estate owner occupied
54,176
(10,091)
-
(118)
3,060
47,027
Commercial and industrial
49,491
(7,225)
-
(409)
1,513
43,370
Total Commercial
151,928
(10,687)
-
(527)
4,757
145,471
Construction
1,641
357
-
-
416
2,414
Mortgage
138,286
(10,528)
612
(1,321)
4,313
131,362
Leasing
17,578
386
-
(407)
841
18,398
Consumer
Credit Cards
43,499
3,701
-
(5,683)
2,265
43,782
HELOCs
98
(16)
-
(90)
94
86
Personal
71,022
1,613
-
(6,858)
1,777
67,554
Auto
154,498
2,693
-
(8,878)
4,017
152,330
Other
15,612
(180)
-
(556)
338
15,214
Total Consumer
284,729
7,811
-
(22,065)
8,491
278,966
Total - Loans
$
594,162
$
(12,661)
$
612
$
(24,320)
$
18,818
$
576,611
Allowance for credit losses - unfunded commitments:
Commercial
$
1,751
$
(104)
$
-
$
-
$
-
$
1,647
Construction
2,388
(464)
-
-
-
1,924
Ending balance - unfunded commitments [1]
$
4,139
$
(568)
$
-
$
-
$
-
$
3,571
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
42
For the quarter ended March 31, 2022
Popular U.S.
Provision for
Allowance for
Beginning
credit losses
credit losses -
Ending
(In thousands)
Balance
(benefit)
PCD Loans
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
25,418
$
(2,770)
$
-
$
-
$
7
$
22,655
Commercial real estate non-owner occupied
22,246
(6,851)
-
-
3
15,398
Commercial real estate owner occupied
6,053
3,836
-
-
112
10,001
Commercial and industrial
10,160
453
-
(127)
632
11,118
Total Commercial
63,877
(5,332)
-
(127)
754
59,172
Construction
4,722
(1,725)
-
-
1,128
4,125
Mortgage
16,192
1,632
-
-
20
17,844
Consumer
Credit Cards
-
(9)
-
-
9
-
HELOCs
3,708
(992)
-
(10)
919
3,625
Personal
12,700
4,616
-
(1,218)
313
16,411
Other
5
66
-
(77)
10
4
Total Consumer
16,413
3,681
-
(1,305)
1,251
20,040
Total - Loans
$
101,204
$
(1,744)
$
-
$
(1,432)
$
3,153
$
101,181
Allowance for credit losses - unfunded commitments:
Commercial
$
1,384
$
(66)
$
-
$
-
$
-
$
1,318
Construction
2,337
(202)
-
-
-
2,135
Consumer
37
(7)
-
-
-
30
Ending balance - unfunded commitments [1]
$
3,758
$
(275)
$
-
$
-
$
-
$
3,483
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
43
For the quarter ended March 31, 2022
Popular Inc.
Provision for
Allowance for
Beginning
credit losses
credit losses -
Ending
(In thousands)
Balance
(benefit)
PCD Loans
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
28,468
$
(2,385)
$
-
$
-
$
7
$
26,090
Commercial real estate non-owner occupied
67,457
(607)
-
-
187
67,037
Commercial real estate owner occupied
60,229
(6,255)
-
(118)
3,172
57,028
Commercial and industrial
59,651
(6,772)
-
(536)
2,145
54,488
Total Commercial
215,805
(16,019)
-
(654)
5,511
204,643
Construction
6,363
(1,368)
-
-
1,544
6,539
Mortgage
154,478
(8,896)
612
(1,321)
4,333
149,206
Leasing
17,578
386
-
(407)
841
18,398
Consumer
Credit Cards
43,499
3,692
-
(5,683)
2,274
43,782
HELOCs
3,806
(1,008)
-
(100)
1,013
3,711
Personal
83,722
6,229
-
(8,076)
2,090
83,965
Auto
154,498
2,693
-
(8,878)
4,017
152,330
Other
15,617
(114)
-
(633)
348
15,218
Total Consumer
301,142
11,492
-
(23,370)
9,742
299,006
Total - Loans
$
695,366
$
(14,405)
$
612
$
(25,752)
$
21,971
$
677,792
Allowance for credit losses - unfunded commitments:
Commercial
$
3,135
$
(170)
$
-
$
-
$
-
$
2,965
Construction
4,725
(666)
-
-
-
4,059
Consumer
37
(7)
-
-
-
30
Ending balance - unfunded commitments [1]
$
7,897
$
(843)
$
-
$
-
$
-
$
7,054
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
Modifications
A
modification
constitutes
a
change
in
loan
terms
in
the
form
of
principal
forgiveness,
an
interest
rate
reduction,
other
than-
insignificant payment delay, term extension or combination of the above made
to a borrower experiencing financial difficulty.
The amount
of outstanding
commitments to
lend additional
funds to
debtors owing
receivables whose
terms have
been modified
during the quarter ended at March 31, 2023 amounted
to $
7
million related to the commercial loan portfolio.
The following tables show the amortized cost basis of the loans modified to borrowers experiencing financial difficulties at the end of
the reporting
period disaggregated
by class
of financing
receivable and
type
of concession
granted for
the quarter
ended March
31,2023. Loans modified to borrowers under financial difficulties that were fully paid down, charged-off
or foreclosed upon by period
end are not reported.
44
Loan Modifications Made to Borrowers Experiencing
Financial Difficulty for the quarter ended March 31,2023
Interest Rate Reduction
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
Mortgage
$
227
0.00
%
$
-
0.00
%
$
227
0.00
%
Consumer:
Credit cards
497
0.05
%
-
0.00
%
497
0.05
%
Personal
172
0.01
%
-
0.00
%
172
0.01
%
Other
3
0.00
%
-
0.00
%
3
0.00
%
Total
$
899
0.00
%
$
-
0.00
%
$
899
0.00
%
Term Extension
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
CRE owner occupied
$
1,754
0.12
%
$
-
0.00
%
$
1,754
0.06
%
Commercial and industrial
3,705
0.09
%
-
0.00
%
3,705
0.06
%
Construction
-
0.00
%
3,518
0.65
%
3,518
0.50
%
Mortgage
14,521
0.24
%
1,853
0.14
%
16,374
0.22
%
Consumer:
Personal
26
0.00
%
54
0.02
%
80
0.00
%
Total
$
20,006
0.09
%
$
5,425
0.06
%
$
25,431
0.08
%
Other-Than-Insignificant Payment Delays
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
CRE non-owner occupied
$
1,751
0.06
%
$
-
0.00
%
$
1,751
0.04
%
CRE owner occupied
13,156
0.88
%
13,744
0.90
%
26,900
0.89
%
Commercial and industrial
1,411
0.04
%
864
0.04
%
2,275
0.04
%
Consumer:
Other
33
0.03
%
-
0.00
%
33
0.02
%
Total
$
16,351
0.07
%
$
14,608
0.15
%
$
30,959
0.10
%
Combination - Term extension
and Interest Rate Reduction
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at March
31,2023
% of total class of
Financing
Receivable
CRE owner occupied
$
101
0.01
%
$
-
0.00
%
$
101
0.00
%
Mortgage
10,473
0.17
%
328
0.03
%
10,801
0.15
%
Consumer:
Personal
422
0.03
%
-
0.00
%
422
0.02
%
Auto
29
0.00
%
-
0.00
%
29
0.00
%
Total
$
11,025
0.05
%
$
328
0.00
%
$
11,353
0.04
%
45
The following table describes the financial effect of the
modifications made to borrowers experiencing
financial difficulties:
For the quarter ended March 31, 2023
Interest rate reduction
Loan Type
Financial Effect
CRE Owner occupied
Reduced weighted-average contractual interest rate from
6.00
% to
5.25
%.
Mortgage
Reduced weighted-average contractual interest rate from
5.69
% to
4.17
%.
Consumer:
Credit cards
Reduced weighted-average contractual interest rate from
17.76
% to
4.47
%.
Personal
Reduced weighted-average contractual interest rate from
16.97
% to
9.11
%.
Auto
Reduced weighted-average contractual interest rate from
12.64
% to
12.62
%.
Other
Reduced weighted-average contractual interest rate from
17.99
% to
0
%.
Term extension
Loan Type
Financial Effect
CRE Owner occupied
Added a weighted-average
2
years to the life of loans, which reduced monthly
payment amount for the borrowers.
Commercial and industrial
Added a weighted-average
5
months to the life of loans, which reduced monthly
payment amount for the borrowers.
Construction
Added a weighted-average
6
months to the life of loans, which reduced monthly
payment amount for the borrowers.
Mortgage
Added a weighted-average
10
years to the life of loans, which reduced monthly payment
amount for the borrowers.
Consumer:
Personal
Added a weighted-average
6
years to the life of loans, which reduced monthly
payment amount for the borrowers.
Auto
Added a weighted-average
2
years to the life of loans, which reduced monthly
payment amount for the borrowers.
Other than insignificant payment delay
Loan Type
Financial Effect
CRE Non-owner occupied
Added a weighted-average
12
months to the life of loans, which reduced monthly
payment amount for the
borrowers.
CRE Owner occupied
Added a weighted-average
7
months to the life of loans, which reduced monthly
payment amount for the borrowers.
Commercial and industrial
Added a weighted-average
9
months to the life of loans, which reduced monthly
payment amount for the borrowers.
Consumer:
Other
Added a weighted-average
11
months to the life of loans, which reduced monthly
payment amount for the
borrowers.
46
The following table presents, by class, the performance
of loans that have been modified in the last
three months at March 31, 2023.
The
past
due
90
days
or
more
categories includes
all
loans modified
classified
as
non-accruing
at
the
time
of
the
modification.
These loans will continue in non-accrual status, and presented as past
due 90 days or more, until the borrower has
demonstrated a
willingness and ability to
make the restructured loan
payments (at least six
months of sustained
performance after the modification
(or one year for loans providing for
quarterly or semi-annual payments)) and management has concluded that it
is probable that the
borrower would not be in payment default in the
foreseeable future.
BPPR
For the period ended March 31, 2023
Past Due 90 days or more [1]
(In thousands)
30-59 days
60-89 days
Past due 90
days or more
Total past
due
Current
Total
With Payment
Default
Without
Payment Default
CRE Non-owner occupied
$
-
$
-
$
-
$
-
$
1,751
$
1,751
$
-
$
-
CRE Owner occupied
-
-
1,803
1,803
13,208
15,011
209
1,594
Commercial and industrial
-
-
142
142
4,974
5,116
28
114
Mortgage
1,202
180
7,518
8,900
16,321
25,221
-
7,518
Consumer:
Credit cards
21
46
96
163
334
497
96
-
Personal
6
-
232
238
382
620
-
232
Auto
-
-
-
-
29
29
-
-
Other
-
-
33
33
3
36
-
33
Total
$
1,229
$
226
$
9,824
$
11,279
$
37,002
$
48,281
$
333
$
9,491
[1] Loans that were in non-accrual status at the time
of modification are presented as past due until the borrower
has demonstrated a willingness and ability
to make the restructured loan payments. Payment default
is defined as a restructured loan becoming 90 days past
due after being modified, foreclosed or
charged-off, whichever occurs first. The recorded investment
as of period end is inclusive of all partial paydowns
and charge-offs since the modification
date. Loans modified with financial difficulty that
were fully paid down, charged-off or foreclosed upon
by period end are not reported.
Popular U.S.
For the period ended March 31, 2023
Past Due 90 days or more [1]
(In thousands)
30-59 days
60-89 days
Past due 90
days or more
Total past
due
Current
Total
With Payment
Default
Without
Payment Default
CRE Owner occupied
$
-
$
-
$
-
$
-
$
13,744
$
13,744
$
-
$
-
Commercial and industrial
-
-
-
-
864
864
-
-
Construction
-
-
-
-
3,518
3,518
-
-
Mortgage
-
-
104
104
2,077
2,181
-
104
Consumer:
Personal
-
-
54
54
-
54
-
54
Total
$
-
$
-
$
158
$
158
$
20,203
$
20,361
$
-
$
158
[1] Loans that were in non-accrual status at the time
of modification are presented as past due until the borrower
has demonstrated a willingness and ability
to make the restructured loan payments. Payment default
is defined as a restructured loan becoming 90 days past
due after being modified, foreclosed or
charged-off, whichever occurs first. The recorded investment
as of period end is inclusive of all partial paydowns
and charge-offs since the modification
date. Loans modified with financial difficulty that
were fully paid down, charged-off or foreclosed upon
by period end are not reported.
47
Popular Inc.
For the period ended March 31, 2023
Past Due 90 days or more [1]
(In thousands)
30-59 days
60-89 days
Past due 90
days or more
Total past
due
Current
Total
With Payment
Default
Without
Payment Default
CRE Non-owner occupied
$
-
$
-
$
-
$
-
$
1,751
$
1,751
$
-
$
-
CRE Owner occupied
-
-
1,803
1,803
26,952
28,755
209
1,594
Commercial and industrial
-
-
142
142
5,838
5,980
28
114
Construction
-
-
-
-
3,518
3,518
-
-
Mortgage
1,202
180
7,622
9,004
18,398
27,402
-
7,622
Consumer:
Credit cards
21
46
96
163
334
497
96
-
Personal
6
-
286
292
382
674
-
286
Auto
-
-
-
-
29
29
-
-
Other
-
-
33
33
3
36
-
33
Total
$
1,229
$
226
$
9,982
$
11,437
$
57,205
$
68,642
$
333
$
9,649
[1] Loans that were in non-accrual status at the time
of modification are presented as past due until the borrower
has demonstrated a willingness and ability
to make the restructured loan payments.
Payment default is defined as a restructured loan becoming
90 days past due after being modified, foreclosed
or
charged-off, whichever occurs first. The recorded inve
stment as of period end is inclusive of all partial
paydowns and charge-offs since the modification
date. Loans modified with financial difficulty that
were fully paid down, charged-off or foreclosed upon
by period end are not reported.
48
The
activity
of
modified
loans
to
borrowers
under
financial
difficulties
that
were
subject
to
payment
default
and
that
had
been
modified during the
quarter ended March 31,
2023 was considered immaterial
for the Corporation.
Payment default is defined
as a
restructured loan becoming 90 days past due after
being modified, foreclosed or charged-off, whichever occurs
first.
Legacy TDR Modifications
A modification of
a loan, prior
to ASU 2022-02,
constituted a troubled
debt restructuring (TDR)
when a borrower
was experiencing
financial difficulty
and the
modification constituted
a concession.
For a
summary of
the legacy
accounting policy
related to
TDRs,
refer to the Summary of Significant Accounting Policies
included in Note 2 to the 2022 Form 10-K.
The outstanding
balance of
loans classified
as TDRs
amounted to
$
1.6
billion at
December 31,
2022. The
amount of
outstanding
commitments to
lend additional
funds to
debtors owing
loans whose
terms have
been modified
in TDRs
amounted to
$
12
million
related to the commercial loan portfolio at December 31,
2022.
The following table presents
the outstanding balance of
loans classified as TDRs
according to their accruing
status and the related
allowance at December 31, 2022.
December 31, 2022
(In thousands)
Accruing
Non-Accruing
Total
Related
Allowance
Loans held-in-portfolio:
Commercial
$
269,784
$
54,641
$
324,425
$
18,451
Mortgage
[1]
1,169,976
86,790
1,256,766
58,819
Leasing
1,154
24
1,178
43
Consumer
54,395
7,883
62,278
13,577
Loans held-in-portfolio
$
1,495,309
$
149,338
$
1,644,647
$
90,890
[1] At December 31, 2022, accruing mortgage loan TDRs include
$
725
million guaranteed by U.S. sponsored entities
at BPPR.
The
following table
presents
the
loan count
by
type
of
modification for
those
loans modified
in
a TDR
during the
quarter ended
March 31, 2022. Loans modified as TDRs for the
U.S. operations are considered insignificant to
the Corporation.
For the quarter ended March 31, 2022
Reduction in
interest rate
Extension of
maturity date
Combination of
reduction in interest
rate and extension of
maturity date
Other
Commercial real estate non-owner occupied
-
-
-
1
Commercial real estate owner occupied
1
1
-
-
Commercial and industrial
1
5
-
11
Mortgage
1
34
288
1
Consumer:
Credit cards
15
-
-
15
Personal
25
20
-
-
Auto
-
1
-
-
Total
43
61
288
28
49
The following table presents, by class, quantitative
information related to loans modified as TDRs
during the quarter ended March
31, 2022.
Popular, Inc.
For the quarter ended March 31, 2022
(In thousands)
Loan count
Pre-modification outstanding
recorded investment
Post-modification
outstanding recorded
investment
Increase (decrease) in the
allowance for loan losses as
a result of modification
Commercial real estate non-owner occupied
1
$
3,400
$
3,400
$
-
Commercial real estate owner occupied
2
729
727
-
Commercial and industrial
17
49,346
49,155
2,030
Mortgage
324
34,876
35,592
1,020
Consumer:
Credit cards
30
248
273
5
Personal
45
729
728
130
Auto
1
28
28
5
Total
420
$
89,356
$
89,903
$
3,190
The following table presents, by
class, TDRs that were subject to
payment default and that had been modified
as a TDR during the
twelve months preceding the default date.
Payment default is defined as a restructured loan becoming 90 days past due after being
modified,
foreclosed
or
charged-off,
whichever
occurs
first.
The
recorded
investment
as
of
period
end
is
inclusive
of
all
partial
paydowns
and
charge-offs
since
the
modification
date.
Loans
modified
as
a
TDR
that
were
fully
paid
down,
charged-off
or
foreclosed upon by period end are not reported.
Defaulted during the quarter ended March 31, 2022
(In thousands)
Loan count
Recorded investment as of first default date
Mortgage
6
$
1,870
Consumer:
Credit cards
16
127
Personal
12
128
Total
34
$
2,125
Credit Quality
The risk
rating system
provides for
the assignment
of ratings
at the
obligor level
based on
the financial
condition of
the borrower.
The
risk rating
analysis process
is
performed at
least
once a
year
or more
frequently if
events or
conditions change
which may
deteriorate the credit quality.
In the case of
consumer and mortgage loans, these
loans are classified considering their
delinquency
status at the end of the reporting period.
The following tables present the amortized cost basis, net of unearned income, of
loans held-in-portfolio based on the Corporation’s
assignment
of
obligor
risk
ratings
as
defined
at
March
31,
2023
and
December
31,
2022
and
the
gross
write-offs
recorded
by
vintage year. For
the definitions of the obligor risk ratings,
refer to the Credit Quality section of
Note 9 to the Consolidated Financial
Statements included in the 2022 Form 10-K:
50
March 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
BPPR
Commercial:
Commercial multi-family
Watch
$
6,867
$
-
$
-
$
-
$
18,365
$
4,378
$
-
$
-
$
29,610
Special mention
-
-
-
-
-
2,651
-
-
2,651
Substandard
-
-
-
-
-
3,234
100
-
3,334
Pass
28,087
138,361
22,771
20,740
16,039
30,943
270
-
257,211
Total commercial
multi-family
$
34,954
$
138,361
$
22,771
$
20,740
$
34,404
$
41,206
$
370
$
-
$
292,806
Commercial real estate non-owner occupied
Watch
$
-
$
348
$
11,102
$
13,622
$
14,506
$
68,267
$
-
$
-
$
107,845
Special Mention
-
-
29,425
19,841
63,115
49,505
5,000
-
166,886
Substandard
-
8,802
-
2,607
18,488
20,454
-
-
50,351
Pass
76,455
857,954
578,637
368,293
38,120
631,836
9,106
-
2,560,401
Total commercial
real estate non-
owner occupied
$
76,455
$
867,104
$
619,164
$
404,363
$
134,229
$
770,062
$
14,106
$
-
$
2,885,483
Commercial real estate owner occupied
Watch
$
-
$
11,755
$
4,457
$
9,329
$
4,148
$
95,445
$
600
$
-
$
125,734
Special Mention
-
9
2,417
1,534
6,147
66,300
13,834
-
90,241
Substandard
-
16,087
6,078
784
712
80,734
-
-
104,395
Doubtful
-
-
-
-
-
438
-
-
438
Pass
19,721
222,551
255,853
200,352
29,877
440,518
7,823
-
1,176,695
Total commercial
real estate owner
occupied
$
19,721
$
250,402
$
268,805
$
211,999
$
40,884
$
683,435
$
22,257
$
-
$
1,497,503
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
3
$
-
$
-
$
3
Commercial and industrial
Watch
$
2,151
$
21,021
$
1,994
$
2,889
$
18,406
$
76,544
$
42,623
$
-
$
165,628
Special Mention
-
1,578
5,168
20,849
1,076
53,511
5,785
-
87,967
Substandard
5,418
766
1,137
1,813
2,588
29,834
44,565
-
86,121
Doubtful
-
-
-
28
-
37
-
-
65
Pass
228,133
758,835
578,791
275,748
164,951
328,693
1,259,501
-
3,594,652
Total commercial
and industrial
$
235,702
$
782,200
$
587,090
$
301,327
$
187,021
$
488,619
$
1,352,474
$
-
$
3,934,433
Year-to-Date gross
write-offs
$
172
$
-
$
54
$
609
$
-
$
5
$
767
$
-
$
1,607
Construction
Watch
$
-
$
35,764
$
4,792
$
-
$
-
$
-
$
-
$
-
$
40,556
Substandard
-
-
-
9,657
-
-
$
-
-
9,657
Pass
-
16,381
36,334
11,790
2,306
-
38,325
-
105,136
Total construction
$
-
$
52,145
$
41,126
$
21,447
$
2,306
$
-
$
38,325
$
-
$
155,349
Mortgage
Substandard
$
-
$
107
$
166
$
481
$
3,255
$
90,003
$
-
$
-
$
94,012
Pass
117,402
452,532
445,012
280,846
201,346
4,525,534
-
-
6,022,672
Total mortgage
$
117,402
$
452,639
$
445,178
$
281,327
$
204,601
$
4,615,537
$
-
$
-
$
6,116,684
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
846
$
-
$
-
$
846
51
March 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
BPPR
Leasing
Substandard
$
-
$
1,065
$
1,819
$
623
$
1,293
$
1,250
$
-
$
-
$
6,050
Loss
-
54
-
-
-
-
-
-
54
Pass
193,921
595,135
399,400
218,226
130,385
71,173
-
-
1,608,240
Total leasing
$
193,921
$
596,254
$
401,219
$
218,849
$
131,678
$
72,423
$
-
$
-
$
1,614,344
Year-to-Date gross
write-offs
$
-
$
640
$
634
$
94
$
-
$
49
$
-
$
-
$
1,417
Consumer:
Credit cards
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
12,058
$
-
$
12,058
Loss
-
-
-
-
-
-
3
-
3
Pass
-
-
-
-
-
-
1,034,114
-
1,034,114
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
1,046,175
$
-
$
1,046,175
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
8,676
$
-
$
8,676
HELOCs
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
2,865
$
-
$
2,865
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
-
$
2,865
$
-
$
2,865
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
33
$
-
$
-
$
33
Personal
Substandard
$
-
$
1,879
$
2,078
$
545
$
1,493
$
10,640
$
-
$
1,073
$
17,708
Loss
-
105
141
17
32
2
-
-
297
Pass
225,516
734,207
281,093
89,554
100,679
137,702
-
26,162
1,594,913
Total Personal
$
225,516
$
736,191
$
283,312
$
90,116
$
102,204
$
148,344
$
-
$
27,235
$
1,612,918
Year-to-Date gross
write-offs
$
2
$
5,105
$
4,533
$
1,372
$
1,449
$
1,119
$
-
$
-
$
13,580
Auto
Substandard
$
-
$
8,772
$
11,611
$
9,978
$
8,858
$
5,505
$
-
$
-
$
44,724
Loss
-
50
9
21
16
-
-
-
96
Pass
292,535
1,094,296
895,350
539,897
381,528
269,514
-
-
3,473,120
Total Auto
$
292,535
$
1,103,118
$
906,970
$
549,896
$
390,402
$
275,019
$
-
$
-
$
3,517,940
Year-to-Date gross
write-offs
$
83
$
6,034
$
3,168
$
1,633
$
1,200
$
-
$
-
$
-
$
12,118
Other consumer
Substandard
$
-
$
-
$
-
$
90
$
18
$
550
$
170
$
-
$
828
Loss
-
-
-
-
-
263
-
-
263
Pass
7,750
28,099
16,877
6,725
4,002
5,788
59,680
-
128,921
Total Other
consumer
$
7,750
$
28,099
$
16,877
$
6,815
$
4,020
$
6,601
$
59,850
$
-
$
130,012
Year-to-Date gross
write-offs
$
-
$
6
$
-
$
-
$
1
$
11,000
$
-
$
-
$
11,007
Total Puerto Rico
$
1,203,956
$
5,006,513
$
3,592,512
$
2,106,879
$
1,231,749
$
7,101,246
$
2,536,422
$
27,235
$
22,806,512
52
March 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
Popular U.S.
Commercial:
Commercial multi-family
Watch
$
-
$
747
$
-
$
6,182
$
61,528
$
44,317
$
-
$
-
$
112,774
Special mention
-
-
-
1,181
-
22,401
-
-
23,582
Substandard
-
-
-
-
14,893
10,661
-
-
25,554
Pass
10,788
507,984
398,506
234,898
227,384
496,971
5,110
-
1,881,641
Total commercial
multi-family
$
10,788
$
508,731
$
398,506
$
242,261
$
303,805
$
574,350
$
5,110
$
-
$
2,043,551
Commercial real estate non-owner occupied
Watch
$
-
$
-
$
2,155
$
1,241
$
3,339
$
52,379
$
-
$
-
$
59,114
Special Mention
-
-
-
-
1,347
75,149
-
-
76,496
Substandard
-
-
2,844
2,138
1,750
3,420
-
-
10,152
Pass
28,126
549,487
204,917
246,309
108,845
474,644
7,102
-
1,619,430
Total commercial
real estate non-
owner occupied
$
28,126
$
549,487
$
209,916
$
249,688
$
115,281
$
605,592
$
7,102
$
-
$
1,765,192
Commercial real estate owner occupied
Watch
$
-
$
-
$
-
$
1,191
$
-
$
55,949
$
-
$
-
$
57,140
Special Mention
-
-
-
3,860
6,192
892
-
-
10,944
Substandard
-
-
-
-
7,365
45,975
-
-
53,340
Pass
47,027
361,856
417,522
114,090
77,271
376,040
5,854
-
1,399,660
Total commercial
real estate owner
occupied
$
47,027
$
361,856
$
417,522
$
119,141
$
90,828
$
478,856
$
5,854
$
-
$
1,521,084
Commercial and industrial
Watch
$
2,320
$
11,947
$
2,532
$
1,474
$
1,783
$
8,747
$
3,641
$
-
$
32,444
Special Mention
-
1,174
1,296
279
267
73
3
-
3,092
Substandard
255
584
176
134
4,219
2,089
3,477
-
10,934
Loss
-
55
-
38
315
-
-
-
408
Pass
15,362
224,336
368,242
356,952
190,287
531,348
331,804
-
2,018,331
Total commercial
and industrial
$
17,937
$
238,096
$
372,246
$
358,877
$
196,871
$
542,257
$
338,925
$
-
$
2,065,209
Year-to-Date gross
write-offs
$
257
$
218
$
1
$
8
$
13
$
2
$
-
$
-
$
499
Construction
Watch
$
-
$
-
$
12,364
$
-
$
6,909
$
37,626
$
-
$
-
$
56,899
Substandard
-
-
-
1,423
-
9,260
-
-
10,683
Pass
9,512
208,550
134,923
46,418
73,785
2,877
-
-
476,065
Total construction
$
9,512
$
208,550
$
147,287
$
47,841
$
80,694
$
49,763
$
-
$
-
$
543,647
Mortgage
Substandard
$
-
$
-
$
1,595
$
-
$
3,608
$
9,516
$
-
$
-
$
14,719
Pass
26,786
230,092
299,773
243,692
181,334
292,827
-
-
1,274,504
Total mortgage
$
26,786
$
230,092
$
301,368
$
243,692
$
184,942
$
302,343
$
-
$
-
$
1,289,223
53
March 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
Popular U.S.
Consumer:
Credit cards
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
21
$
-
$
21
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
21
$
-
$
21
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
1
$
-
$
1
HELOCs
Substandard
$
-
$
-
$
-
$
-
$
-
$
2,162
$
20
$
1,551
$
3,733
Loss
-
-
-
-
-
111
-
775
886
Pass
-
-
-
-
-
8,645
41,072
12,686
62,403
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
10,918
$
41,092
$
15,012
$
67,022
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
143
$
-
$
-
$
143
Personal
Substandard
$
-
$
1,035
$
226
$
86
$
175
$
188
$
-
$
-
$
1,710
Loss
-
93
107
45
23
528
-
-
796
Pass
20,044
147,255
39,982
5,756
10,285
2,323
-
-
225,645
Total Personal
$
20,044
$
148,383
$
40,315
$
5,887
$
10,483
$
3,039
$
-
$
-
$
228,151
Year-to-Date gross
write-offs
$
-
$
2,331
$
1,191
$
271
$
281
$
96
$
-
$
-
$
4,170
Other consumer
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
514
$
-
$
514
Pass
-
-
-
-
-
-
8,247
-
8,247
Total Other
consumer
$
-
$
-
$
-
$
-
$
-
$
-
$
8,761
$
-
$
8,761
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
53
$
-
$
-
$
53
Total Popular U.S.
$
160,220
$
2,245,195
$
1,887,160
$
1,267,387
$
982,904
$
2,567,118
$
406,865
$
15,012
$
9,531,861
54
March 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
Popular, Inc.
Commercial:
Commercial multi-family
Watch
$
6,867
$
747
$
-
$
6,182
$
79,893
$
48,695
$
-
$
-
$
142,384
Special mention
-
-
-
1,181
-
25,052
-
-
26,233
Substandard
-
-
-
-
14,893
13,895
100
-
28,888
Pass
38,875
646,345
421,277
255,638
243,423
527,914
5,380
-
2,138,852
Total commercial
multi-family
$
45,742
$
647,092
$
421,277
$
263,001
$
338,209
$
615,556
$
5,480
$
-
$
2,336,357
Commercial real estate non-owner occupied
Watch
$
-
$
348
$
13,257
$
14,863
$
17,845
$
120,646
$
-
$
-
$
166,959
Special Mention
-
-
29,425
19,841
64,462
124,654
5,000
-
243,382
Substandard
-
8,802
2,844
4,745
20,238
23,874
-
-
60,503
Pass
104,581
1,407,441
783,554
614,602
146,965
1,106,480
16,208
-
4,179,831
Total commercial
real estate non-
owner occupied
$
104,581
$
1,416,591
$
829,080
$
654,051
$
249,510
$
1,375,654
$
21,208
$
-
$
4,650,675
Commercial real estate owner occupied
Watch
$
-
$
11,755
$
4,457
$
10,520
$
4,148
$
151,394
$
600
$
-
$
182,874
Special Mention
-
9
2,417
5,394
12,339
67,192
13,834
-
101,185
Substandard
-
16,087
6,078
784
8,077
126,709
-
-
157,735
Doubtful
-
-
-
-
-
438
-
-
438
Pass
66,748
584,407
673,375
314,442
107,148
816,558
13,677
-
2,576,355
Total commercial
real estate owner
occupied
$
66,748
$
612,258
$
686,327
$
331,140
$
131,712
$
1,162,291
$
28,111
$
-
$
3,018,587
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
3
$
-
$
-
$
3
Commercial and industrial
Watch
$
4,471
$
32,968
$
4,526
$
4,363
$
20,189
$
85,291
$
46,264
$
-
$
198,072
Special Mention
-
2,752
6,464
21,128
1,343
53,584
5,788
-
91,059
Substandard
5,673
1,350
1,313
1,947
6,807
31,923
48,042
-
97,055
Doubtful
-
-
-
28
-
37
-
-
65
Loss
-
55
-
38
315
-
-
-
408
Pass
243,495
983,171
947,033
632,700
355,238
860,041
1,591,305
-
5,612,983
Total commercial
and industrial
$
253,639
$
1,020,296
$
959,336
$
660,204
$
383,892
$
1,030,876
$
1,691,399
$
-
$
5,999,642
Year-to-Date gross
write-offs
$
429
$
218
$
55
$
617
$
13
$
7
$
767
$
-
$
2,106
55
March 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
Popular, Inc.
Construction
Watch
$
-
$
35,764
$
17,156
$
-
$
6,909
$
37,626
$
-
$
-
$
97,455
Substandard
-
-
-
11,080
-
9,260
-
-
20,340
Pass
9,512
224,931
171,257
58,208
76,091
2,877
38,325
-
581,201
Total construction
$
9,512
$
260,695
$
188,413
$
69,288
$
83,000
$
49,763
$
38,325
$
-
$
698,996
Mortgage
Substandard
$
-
$
107
$
1,761
$
481
$
6,863
$
99,519
$
-
$
-
$
108,731
Pass
144,188
682,624
744,785
524,538
382,680
4,818,361
-
-
7,297,176
Total mortgage
$
144,188
$
682,731
$
746,546
$
525,019
$
389,543
$
4,917,880
$
-
$
-
$
7,405,907
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
846
$
-
$
-
$
846
Substandard
$
-
$
1,065
$
1,819
$
623
$
1,293
$
1,250
$
-
$
-
$
6,050
Loss
-
54
-
-
-
-
-
-
54
Pass
193,921
595,135
399,400
218,226
130,385
71,173
-
-
1,608,240
Total leasing
$
193,921
$
596,254
$
401,219
$
218,849
$
131,678
$
72,423
$
-
$
-
$
1,614,344
Year-to-Date gross
write-offs
$
-
$
640
$
634
$
94
$
-
$
49
$
-
$
-
$
1,417
56
March 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
Popular, Inc.
Consumer:
Credit cards
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
12,058
$
-
$
12,058
Loss
-
-
-
-
-
-
3
-
3
Pass
-
-
-
-
-
-
1,034,135
-
1,034,135
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
1,046,196
$
-
$
1,046,196
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
8,677
$
-
$
8,677
HELOCs
Substandard
$
-
$
-
$
-
$
-
$
-
$
2,162
$
20
$
1,551
$
3,733
Loss
-
-
-
-
-
111
-
775
886
Pass
-
-
-
-
-
8,645
43,937
12,686
65,268
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
10,918
$
43,957
$
15,012
$
69,887
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
176
$
-
$
-
$
176
Personal
Substandard
$
-
$
2,914
$
2,304
$
631
$
1,668
$
10,828
$
-
$
1,073
$
19,418
Loss
-
198
248
62
55
530
-
-
1,093
Pass
245,560
881,462
321,075
95,310
110,964
140,025
-
26,162
1,820,558
Total Personal
$
245,560
$
884,574
$
323,627
$
96,003
$
112,687
$
151,383
$
-
$
27,235
$
1,841,069
Year-to-Date gross
write-offs
$
2
$
7,436
$
5,724
$
1,643
$
1,730
$
1,215
$
-
$
-
$
17,750
Auto
Substandard
$
-
$
8,772
$
11,611
$
9,978
$
8,858
$
5,505
$
-
$
-
$
44,724
Loss
-
50
9
21
16
-
-
-
96
Pass
292,535
1,094,296
895,350
539,897
381,528
269,514
-
-
3,473,120
Total Auto
$
292,535
$
1,103,118
$
906,970
$
549,896
$
390,402
$
275,019
$
-
$
-
$
3,517,940
Year-to-Date gross
write-offs
$
83
$
6,034
$
3,168
$
1,633
$
1,200
$
-
$
-
$
-
$
12,118
Other consumer
Substandard
$
-
$
-
$
-
$
90
$
18
$
550
$
684
$
-
$
1,342
Loss
-
-
-
-
-
263
-
-
263
Pass
7,750
28,099
16,877
6,725
4,002
5,788
67,927
-
137,168
Total Other
consumer
$
7,750
$
28,099
$
16,877
$
6,815
$
4,020
$
6,601
$
68,611
$
-
$
138,773
Year-to-Date gross
write-offs
$
-
$
6
$
-
$
-
$
1
$
11,053
$
-
$
-
$
11,060
Total Popular Inc.
$
1,364,176
$
7,251,708
$
5,479,672
$
3,374,266
$
2,214,653
$
9,668,364
$
2,943,287
$
42,247
$
32,338,373
57
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
Years
Total
BPPR
Commercial:
Commercial multi-family
Watch
$
-
$
-
$
-
$
18,508
$
-
$
4,687
$
-
$
-
$
23,195
Special mention
-
-
-
-
-
2,692
-
-
2,692
Substandard
-
-
-
-
-
3,326
100
-
3,426
Pass
137,411
22,850
20,821
16,145
24,640
30,193
-
-
252,060
Total commercial
multi-family
$
137,411
$
22,850
$
20,821
$
34,653
$
24,640
$
40,898
$
100
$
-
$
281,373
Commercial real estate non-owner occupied
Watch
$
173
$
36,228
$
14,045
$
14,942
$
7,777
$
99,269
$
-
$
-
$
172,434
Special Mention
-
4,361
19,970
7,517
-
25,540
-
-
57,388
Substandard
8,933
-
3,209
19,004
25,490
21,064
-
-
77,700
Pass
855,839
585,690
294,086
94,056
35,105
568,893
16,136
-
2,449,805
Total commercial
real estate non-
owner occupied
$
864,945
$
626,279
$
331,310
$
135,519
$
68,372
$
714,766
$
16,136
$
-
$
2,757,327
Commercial real estate owner occupied
Watch
$
2,296
$
5,271
$
9,447
$
4,275
$
31,649
$
71,568
$
-
$
-
$
124,506
Special Mention
10
284
1,684
6,578
1,076
61,460
-
-
71,092
Substandard
16,205
6,177
802
800
770
84,205
-
-
108,959
Doubtful
-
-
-
-
-
505
-
-
505
Pass
227,404
258,473
274,333
30,691
68,029
407,322
16,742
-
1,282,994
Total commercial
real estate owner
occupied
$
245,915
$
270,205
$
286,266
$
42,344
$
101,524
$
625,060
$
16,742
$
-
$
1,588,056
Commercial and industrial
Watch
$
32,376
$
2,185
$
15,493
$
18,829
$
15,483
$
51,602
$
56,508
$
-
$
192,476
Special Mention
2,537
2,479
5,770
1,139
6,767
46,040
6,283
-
71,015
Substandard
789
1,276
1,600
3,138
11,536
40,636
46,226
-
105,201
Doubtful
-
-
29
-
75
75
-
-
179
Loss
-
-
-
-
-
-
144
-
144
Pass
793,662
684,647
211,013
177,265
65,197
292,173
1,203,536
-
3,427,493
Total commercial
and industrial
$
829,364
$
690,587
$
233,905
$
200,371
$
99,058
$
430,526
$
1,312,697
$
-
$
3,796,508
Construction
Watch
$
35,446
$
3,116
$
98
$
-
$
-
$
-
$
141
$
-
$
38,801
Substandard
-
-
9,629
-
-
-
-
-
9,629
Pass
13,044
34,387
15,961
2,262
-
-
32,957
-
98,611
Total construction
$
48,490
$
37,503
$
25,688
$
2,262
$
-
$
-
$
33,098
$
-
$
147,041
Mortgage
Substandard
$
-
$
574
$
687
$
3,926
$
4,227
$
93,959
$
-
$
-
$
103,373
Pass
449,286
451,027
285,026
204,170
237,007
4,380,390
-
-
6,006,906
Total mortgage
$
449,286
$
451,601
$
285,713
$
208,096
$
241,234
$
4,474,349
$
-
$
-
$
6,110,279
Leasing
Substandard
$
953
$
1,491
$
941
$
1,172
$
1,127
$
215
$
-
$
-
$
5,899
Loss
-
-
-
21
-
21
-
-
42
Pass
672,294
428,889
237,939
146,231
79,451
14,994
-
-
1,579,798
Total leasing
$
673,247
$
430,380
$
238,880
$
147,424
$
80,578
$
15,230
$
-
$
-
$
1,585,739
58
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
Years
Total
BPPR
Consumer:
Credit cards
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
11,907
$
-
$
11,907
Loss
-
-
-
-
-
-
3
-
3
Pass
-
-
-
-
-
-
1,029,921
-
1,029,921
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
1,041,831
$
-
$
1,041,831
HELOCs
Pass
-
$
-
$
-
$
-
$
-
$
-
$
2,954
-
2,954
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
-
$
2,954
$
-
$
2,954
Personal
Substandard
$
1,330
$
2,001
$
764
$
1,774
$
503
$
10,831
$
-
$
1,285
$
18,488
Loss
-
-
53
20
31
10
-
1
115
Pass
841,564
320,809
103,337
117,568
46,555
109,543
-
27,708
1,567,084
Total Personal
$
842,894
$
322,810
$
104,154
$
119,362
$
47,089
$
120,384
$
-
$
28,994
$
1,585,687
Auto
Substandard
$
6,764
$
11,171
$
10,466
$
10,243
$
4,597
$
2,382
$
-
$
-
$
45,623
Loss
23
41
48
25
7
14
-
-
158
Pass
1,156,654
961,571
588,200
426,169
248,328
85,827
-
-
3,466,749
Total Auto
$
1,163,441
$
972,783
$
598,714
$
436,437
$
252,932
$
88,223
$
-
$
-
$
3,512,530
Other consumer
Substandard
$
-
$
-
$
100
$
593
$
543
$
242
$
10,902
$
-
$
12,380
Loss
-
-
-
-
263
40
-
-
303
Pass
29,557
17,439
6,967
4,201
4,553
1,942
60,238
-
124,897
Total Other
consumer
$
29,557
$
17,439
$
7,067
$
4,794
$
5,359
$
2,224
$
71,140
$
-
$
137,580
Total Puerto Rico
$
5,284,550
$
3,842,437
$
2,132,518
$
1,331,262
$
920,786
$
6,511,660
$
2,494,698
$
28,994
$
22,546,905
59
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
Years
Total
Popular U.S.
Commercial:
Commercial multi-family
Watch
$
750
$
917
$
6,218
$
85,579
$
9,633
$
52,835
$
-
$
-
$
155,932
Special mention
-
-
1,198
-
14,491
8,372
-
-
24,061
Substandard
-
-
-
9,305
7,373
2,941
-
-
19,619
Pass
503,010
399,397
238,903
210,295
138,723
347,615
2,785
-
1,840,728
Total commercial
multi-family
$
503,760
$
400,314
$
246,319
$
305,179
$
170,220
$
411,763
$
2,785
$
-
$
2,040,340
Commercial real estate non-owner occupied
Watch
$
-
$
2,167
$
13,622
$
3,355
$
26,931
$
29,849
$
-
$
-
$
75,924
Special Mention
-
-
-
1,353
-
75,269
-
-
76,622
Substandard
-
2,864
2,149
3,220
1,429
4,722
-
-
14,384
Pass
552,258
209,338
211,449
109,781
100,065
383,409
9,113
-
1,575,413
Total commercial
real estate non-
owner occupied
$
552,258
$
214,369
$
227,220
$
117,709
$
128,425
$
493,249
$
9,113
$
-
$
1,742,343
Commercial real estate owner occupied
Watch
$
-
$
-
$
1,197
$
1,079
$
6,095
$
55,005
$
-
$
-
$
63,376
Special Mention
-
-
3,886
-
-
901
-
-
4,787
Substandard
-
-
-
7,403
11,165
33,586
-
-
52,154
Pass
363,655
422,959
114,988
82,971
119,565
258,881
7,157
-
1,370,176
Total commercial
real estate owner
occupied
$
363,655
$
422,959
$
120,071
$
91,453
$
136,825
$
348,373
$
7,157
$
-
$
1,490,493
Commercial and industrial
Watch
$
12,328
$
2,218
$
2,022
$
2,049
$
8,438
$
532
$
4,291
$
-
$
31,878
Special Mention
1,262
1,130
314
244
60
-
3
-
3,013
Substandard
260
935
74
4,278
315
1,829
1,408
-
9,099
Loss
292
525
1
75
192
3
-
-
1,088
Pass
185,318
341,855
368,398
202,301
171,528
376,045
352,169
-
1,997,614
Total commercial
and industrial
$
199,460
$
346,663
$
370,809
$
208,947
$
180,533
$
378,409
$
357,871
$
-
$
2,042,692
Construction
Watch
$
-
$
12,085
$
-
$
6,979
$
18,310
$
34,126
$
-
$
-
$
71,500
Special Mention
-
3
-
-
-
-
-
-
3
Substandard
-
-
1,423
-
6,540
2,095
-
-
10,058
Pass
164,272
146,062
91,486
93,118
10,863
23,581
-
-
529,382
Total construction
$
164,272
$
158,150
$
92,909
$
100,097
$
35,713
$
59,802
$
-
$
-
$
610,943
Mortgage
Substandard
$
-
$
2,009
$
3,478
$
4,048
$
1,156
$
9,798
$
-
$
-
$
20,489
Pass
236,595
303,204
243,468
183,846
58,026
241,564
-
-
1,266,703
Total mortgage
$
236,595
$
305,213
$
246,946
$
187,894
$
59,182
$
251,362
$
-
$
-
$
1,287,192
60
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
Years
Total
Popular U.S.
Consumer:
Credit cards
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
39
$
-
$
39
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
39
$
-
$
39
HELOCs
Substandard
$
-
$
-
$
-
$
-
$
-
$
2,146
$
20
$
1,402
$
3,568
Loss
-
-
-
-
-
4
-
538
542
Pass
-
-
-
-
-
9,169
41,724
13,959
64,852
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
11,319
$
41,744
$
15,899
$
68,962
Personal
Substandard
$
621
$
454
$
149
$
238
$
70
$
6
$
-
$
-
$
1,538
Loss
-
-
-
-
-
421
-
-
421
Pass
165,153
46,320
7,339
13,443
2,021
1,657
-
-
235,933
Total Personal
$
165,774
$
46,774
$
7,488
$
13,681
$
2,091
$
2,084
$
-
$
-
$
237,892
Other consumer
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
8
$
-
$
8
Pass
-
-
-
-
-
-
9,960
-
9,960
Total Other
consumer
$
-
$
-
$
-
$
-
$
-
$
-
$
9,968
$
-
$
9,968
Total Popular U.S.
$
2,185,774
$
1,894,442
$
1,311,762
$
1,024,960
$
712,989
$
1,956,361
$
428,677
$
15,899
$
9,530,864
61
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
Years
Total
Popular, Inc.
Commercial:
Commercial multi-family
Watch
$
750
$
917
$
6,218
$
104,087
$
9,633
$
57,522
$
-
$
-
$
179,127
Special mention
-
-
1,198
-
14,491
11,064
-
-
26,753
Substandard
-
-
-
9,305
7,373
6,267
100
-
23,045
Pass
640,421
422,247
259,724
226,440
163,363
377,808
2,785
-
2,092,788
Total commercial
multi-family
$
641,171
$
423,164
$
267,140
$
339,832
$
194,860
$
452,661
$
2,885
$
-
$
2,321,713
Commercial real estate non-owner occupied
Watch
$
173
$
38,395
$
27,667
$
18,297
$
34,708
$
129,118
$
-
$
-
$
248,358
Special Mention
-
4,361
19,970
8,870
-
100,809
-
-
134,010
Substandard
8,933
2,864
5,358
22,224
26,919
25,786
-
-
92,084
Pass
1,408,097
795,028
505,535
203,837
135,170
952,302
25,249
-
4,025,218
Total commercial
real estate non-
owner occupied
$
1,417,203
$
840,648
$
558,530
$
253,228
$
196,797
$
1,208,015
$
25,249
$
-
$
4,499,670
Commercial real estate owner occupied
Watch
$
2,296
$
5,271
$
10,644
$
5,354
$
37,744
$
126,573
$
-
$
-
$
187,882
Special Mention
10
284
5,570
6,578
1,076
62,361
-
-
75,879
Substandard
16,205
6,177
802
8,203
11,935
117,791
-
-
161,113
Doubtful
-
-
-
-
-
505
-
-
505
Pass
591,059
681,432
389,321
113,662
187,594
666,203
23,899
-
2,653,170
Total commercial
real estate owner
occupied
$
609,570
$
693,164
$
406,337
$
133,797
$
238,349
$
973,433
$
23,899
$
-
$
3,078,549
Commercial and industrial
Watch
$
44,704
$
4,403
$
17,515
$
20,878
$
23,921
$
52,134
$
60,799
$
-
$
224,354
Special Mention
3,799
3,609
6,084
1,383
6,827
46,040
6,286
-
74,028
Substandard
1,049
2,211
1,674
7,416
11,851
42,465
47,634
-
114,300
Doubtful
-
-
29
-
75
75
-
-
179
Loss
292
525
1
75
192
3
144
-
1,232
Pass
978,980
1,026,502
579,411
379,566
236,725
668,218
1,555,705
-
5,425,107
Total commercial
and industrial
$
1,028,824
$
1,037,250
$
604,714
$
409,318
$
279,591
$
808,935
$
1,670,568
$
-
$
5,839,200
62
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
Years
Total
Popular, Inc.
Construction
Watch
$
35,446
$
15,201
$
98
$
6,979
$
18,310
$
34,126
$
141
$
-
$
110,301
Special Mention
-
3
-
-
-
-
-
-
3
Substandard
-
-
11,052
-
6,540
2,095
-
-
19,687
Pass
177,316
180,449
107,447
95,380
10,863
23,581
32,957
-
627,993
Total construction
$
212,762
$
195,653
$
118,597
$
102,359
$
35,713
$
59,802
$
33,098
$
-
$
757,984
Mortgage
Substandard
$
-
$
2,583
$
4,165
$
7,974
$
5,383
$
103,757
$
-
$
-
$
123,862
Pass
685,881
754,231
528,494
388,016
295,033
4,621,954
-
-
7,273,609
Total mortgage
$
685,881
$
756,814
$
532,659
$
395,990
$
300,416
$
4,725,711
$
-
$
-
$
7,397,471
Leasing
Substandard
$
953
$
1,491
$
941
$
1,172
$
1,127
$
215
$
-
$
-
$
5,899
Loss
-
-
-
21
-
21
-
-
42
Pass
672,294
428,889
237,939
146,231
79,451
14,994
-
-
1,579,798
Total leasing
$
673,247
$
430,380
$
238,880
$
147,424
$
80,578
$
15,230
$
-
$
-
$
1,585,739
63
December 31, 2022
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2022
2021
2020
2019
2018
Prior
Years
Total
Popular, Inc.
Consumer:
Credit cards
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
11,907
$
-
$
11,907
Loss
-
-
-
-
-
-
3
-
3
Pass
-
-
-
-
-
-
1,029,960
-
1,029,960
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
1,041,870
$
-
$
1,041,870
HELOCs
Substandard
$
-
$
-
$
-
$
-
$
-
$
2,146
$
20
$
1,402
$
3,568
Loss
-
-
-
-
-
4
-
538
542
Pass
-
-
-
-
-
9,169
44,678
13,959
67,806
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
11,319
$
44,698
$
15,899
$
71,916
Personal
Substandard
$
1,951
$
2,455
$
913
$
2,012
$
573
$
10,837
$
-
$
1,285
$
20,026
Loss
-
-
53
20
31
431
-
1
536
Pass
1,006,717
367,129
110,676
131,011
48,576
111,200
-
27,708
1,803,017
Total Personal
$
1,008,668
$
369,584
$
111,642
$
133,043
$
49,180
$
122,468
$
-
$
28,994
$
1,823,579
Auto
Substandard
$
6,764
$
11,171
$
10,466
$
10,243
$
4,597
$
2,382
$
-
$
-
$
45,623
Loss
23
41
48
25
7
14
-
-
158
Pass
1,156,654
961,571
588,200
426,169
248,328
85,827
-
-
3,466,749
Total Auto
$
1,163,441
$
972,783
$
598,714
$
436,437
$
252,932
$
88,223
$
-
$
-
$
3,512,530
Other consumer
Substandard
$
-
$
-
$
100
$
593
$
543
$
242
$
10,910
$
-
$
12,388
Loss
-
-
-
-
263
40
-
-
303
Pass
29,557
17,439
6,967
4,201
4,553
1,942
70,198
-
134,857
Total Other
consumer
$
29,557
$
17,439
$
7,067
$
4,794
$
5,359
$
2,224
$
81,108
$
-
$
147,548
Total Popular Inc.
$
7,470,324
$
5,736,879
$
3,444,280
$
2,356,222
$
1,633,775
$
8,468,021
$
2,923,375
$
44,893
$
32,077,769
64
Note 10 – Mortgage banking activities
Income
from
mortgage
banking
activities
includes
mortgage
servicing
fees
earned
in
connection
with
administering
residential
mortgage
loans
and
valuation
adjustments
on
mortgage
servicing
rights.
It
also
includes
gain
on
sales
and
securitizations
of
residential mortgage
loans, losses
on repurchased
loans, including
interest advances,
and trading
gains and
losses on
derivative
contracts
used
to
hedge
the
Corporation’s
securitization
activities.
In
addition,
fair
value
valuation
adjustments
to
residential
mortgage loans held for sale, if any, are recorded as part of the mortgage
banking activities.
The following table presents the components of mortgage
banking activities:
Quarters ended March 31,
(In thousands)
2023
2022
Mortgage servicing fees, net of fair value adjustments:
Mortgage servicing fees
$
8,689
$
9,323
Mortgage servicing rights fair value adjustments
(1,376)
1,088
Total mortgage
servicing fees, net of fair value adjustments
7,313
10,411
Net gain (loss) on sale of loans, including valuation on loans
held-for-sale
[1]
263
(1,534)
Trading account (loss) profit:
Unrealized (loss) gains on outstanding derivative positions
(131)
2
Realized gains on closed derivative positions
56
4,135
Total trading account
(loss) profit
(75)
4,137
Losses on repurchased loans, including interest advances
(101)
(149)
Total mortgage
banking activities
$
7,400
$
12,865
[1]
Effective on January 1, 2023, loans held-for-sale
are stated at fair value. Prior to such date, loans held-for-sale
were stated
at lower-of-cost-or-market.
65
Note 11 – Transfers of financial assets and mortgage servicing assets
The
Corporation
typically
transfers
conforming
residential
mortgage
loans
in
conjunction
with
GNMA,
FNMA
and
FHLMC
securitization transactions
whereby the
loans are
exchanged for
cash or
securities and
servicing rights.
As seller,
the Corporation
has made
certain representations
and warranties
with respect
to the
originally transferred
loans and,
in the
past, has
sold certain
loans
with
credit
recourse
to
a
government-sponsored
entity,
namely
FNMA.
Refer
to
Note
20
to
the
Consolidated
Financial
Statements for a description of such arrangements.
No
liabilities were incurred as a result of these securitizations during the quarters ended March 31, 2023 and 2022 because they did
not contain
any credit
recourse arrangements.
During the
quarter ended
March 31,
2023, the
Corporation recorded
a net
gain of
$
0.1
million (March 31, 2022 - a net gain of $
1.1
million) related to the residential mortgage
loans securitized.
The
following tables
present the
initial fair
value of
the
assets obtained
as
proceeds from
residential mortgage
loans securitized
during the quarters ended March 31, 2023 and
2022:
Proceeds Obtained During the Quarter Ended March
31, 2023
(In thousands)
Level 1
Level 2
Level 3
Initial Fair Value
Assets
Trading account debt securities:
Mortgage-backed securities - GNMA
$
-
$
1,067
$
-
$
1,067
Mortgage-backed securities - FNMA
-
9,899
-
9,899
Total trading account
debt securities
$
-
$
10,966
$
-
$
10,966
Mortgage servicing rights
$
-
$
-
$
278
$
278
Total
$
-
$
10,966
$
278
$
11,244
Proceeds Obtained During the Quarter Ended March
31, 2022
(In thousands)
Level 1
Level 2
Level 3
Initial Fair Value
Assets
Trading account debt securities:
Mortgage-backed securities - GNMA
$
-
$
77,894
$
-
$
77,894
Mortgage-backed securities - FNMA
-
57,690
-
57,690
Mortgage-backed securities - FHLMC
-
7,118
-
7,118
Total trading account
debt securities
$
-
$
142,702
$
-
$
142,702
Mortgage servicing rights
$
-
$
-
$
2,409
$
2,409
Total
$
-
$
142,702
$
2,409
$
145,111
During the quarter ended March 31, 2023, the Corporation retained servicing rights on whole loan sales involving approximately $
10
million in principal
balance outstanding (March 31,
2022 - $
19
million), with net
realized gains of approximately
$
0.2
million (March
31, 2022 -
gains of $
0.2
million). All loan
sales performed during the
quarters ended March 31,
2023 and 2022
were without credit
recourse agreements.
The Corporation recognizes as assets the rights to service loans for others,
whether these rights are purchased or result from asset
transfers such as sales and securitizations. These mortgage
servicing rights (“MSRs”) are measured at fair
value.
The
Corporation
uses
a
discounted
cash
flow
model
to
estimate
the
fair
value
of
MSRs.
The
discounted
cash
flow
model
incorporates
assumptions
that
market
participants
would
use
in
estimating
future
net
servicing
income,
including
estimates
of
prepayment speeds, discount rate, cost to service, escrow account earnings, contractual servicing fee income, prepayment and late
fees, among other considerations. Prepayment speeds are
adjusted for the loans’ characteristics and portfolio behavior.
The following
table presents
the changes
in MSRs
measured using
the fair
value method
for the
quarters ended
March 31,
2023
and 2022.
66
Residential MSRs
(In thousands)
March 31, 2023
March 31, 2022
Fair value at beginning of period
$
128,350
$
121,570
Additions
501
2,771
Changes due to payments on loans
[1]
(2,422)
(2,983)
Reduction due to loan repurchases
(240)
(252)
Changes in fair value due to changes in valuation model inputs
or assumptions
1,286
4,252
Fair value at end of period
[2]
$
127,475
$
125,358
[1] Represents changes due to collection / realization of expected cash flows over time.
[2] At March 31, 2023, PB had MSRs amounting to $
2
.0 million (March 31, 2022 - $
1.8
million).
Residential mortgage loans serviced for others were
$
10.9
billion at March 31, 2023 (December 31,
2022 - $
11.1
billion).
Net mortgage servicing fees, a component of mortgage banking activities in the Consolidated Statements of Operations, include the
changes from period to period in the fair value of the MSRs, including changes due to collection / realization of expected cash flows.
The banking
subsidiaries receive servicing
fees based
on a
percentage of the
outstanding loan balance.
These servicing fees
are
credited
to
income
when
they
are
collected.
At
March
31,
2023,
those
weighted
average
mortgage
servicing
fees
were
0.31
%
(March 31, 2022 -
0.31
%). Under these servicing agreements, the banking subsidiaries do not generally earn significant prepayment
penalty fees on the underlying loans serviced.
The section
below includes
information on
assumptions used
in the
valuation model
of the
MSRs, originated
and purchased.
Key
economic assumptions used
in measuring the
servicing rights derived
from loans securitized
or sold by
the Corporation during
the
quarters ended March 31, 2023 and 2022 were
as follows:
Quarters ended
March 31, 2023
March 31, 2022
BPPR
PB
BPPR
PB
Prepayment speed
6.7
%
7.3
%
5.2
%
10.0
%
Weighted average life (in years)
8.9
8.0
9.4
6.9
Discount rate (annual rate)
9.5
%
10.5
%
10.3
%
10.0
%
Key
economic
assumptions
used
to
estimate
the
fair
value
of
MSRs
derived
from
sales
and
securitizations
of
mortgage
loans
performed
by
the
banking
subsidiaries
and
servicing
rights
purchased
from
other
financial
institutions,
and
the
sensitivity
to
immediate changes in those assumptions, were as follows
as of the end of the periods reported:
Originated MSRs
Purchased MSRs
March 31,
December 31,
March 31,
December 31,
(In thousands)
2023
2022
2023
2022
Fair value of servicing rights
$
41,143
$
41,548
$
86,332
$
86,802
Weighted average life (in years)
6.7
6.8
6.9
6.9
Weighted average prepayment speed (annual
rate)
6.0
%
5.9
%
7.0
%
7.0
%
Impact on fair value of 10% adverse change
$
(707)
$
(730)
$
(1,557)
$
(1,602)
Impact on fair value of 20% adverse change
$
(1,387)
$
(1,433)
$
(3,056)
$
(3,143)
Weighted average discount rate (annual rate)
11.3
%
11.2
%
11.0
%
11.0
%
Impact on fair value of 10% adverse change
$
(1,449)
$
(1,485)
$
(3,192)
$
(3,256)
Impact on fair value of 20% adverse change
$
(2,806)
$
(2,876)
$
(6,182)
$
(6,304)
67
The sensitivity analyses presented in the table above for servicing rights are hypothetical and should be used with caution. As the
figures indicate, changes in fair value based on a 10 and 20 percent variation in assumptions generally cannot be extrapolated
because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the sensitivity tables
included herein, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without
changing any other assumption. In reality, changes in one factor may result in changes in another (for example, increases in market
interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities.
At
March
31,
2023,
the
Corporation
serviced
$
0.6
billion
in
residential
mortgage
loans
with
credit
recourse
to
the
Corporation
(December 31, 2022 - $
0.6
billion). Also refer to Note 20 to the Consolidated Financial Statements for information on changes in the
Corporation’s liability of estimated losses related to loans
serviced with credit recourse.
Under the GNMA
securitizations, the Corporation, as
servicer, has
the right to
repurchase (but not the
obligation), at its
option and
without
GNMA’s
prior
authorization,
any
loan
that
is
collateral
for
a
GNMA
guaranteed
mortgage-backed
security
when
certain
delinquency
criteria
are
met.
At
the
time
that
individual
loans
meet
GNMA’s
specified
delinquency
criteria
and
are
eligible
for
repurchase, the Corporation is deemed to have regained effective control over these loans if the Corporation was the pool issuer. At
March 31,
2023, the Corporation had
recorded $
7
million in
mortgage loans on
its Consolidated Statements
of Financial Condition
related
to
this
buy-back
option
program
(December
31,
2022
-
$
14
million).
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. As long as the Corporation continues to service
the
loans
that
continue
to
be
collateral
in
a
GNMA
guaranteed
mortgage-backed
security,
the
MSR
is
recognized
by
the
Corporation.
During the quarter ended March 31,
2023, the Corporation repurchased approximately $
18
million (March 31, 2022 -
$
19
million) of
mortgage
loans
from
its
GNMA
servicing
portfolio.
The
determination
to
repurchase
these
loans
was
based
on
the
economic
benefits of the
transaction, which results in
a reduction of
the servicing costs
for these severely
delinquent loans, mainly
related to
principal and interest advances. The risk associated with
the loans is reduced due to their
guaranteed nature. The Corporation may
place these loans under modification programs offered by FHA, VA or United States Department of Agriculture (USDA)
or other loss
mitigation programs offered by the Corporation,
and once brought back to current status, these may be either retained in portfolio or
re-sold in the secondary market.
68
Note 12 – Other real estate owned
The following tables present the
activity related to Other Real Estate
Owned (“OREO”),
for the quarters
ended March 31, 2023 and
2022.
For the quarter ended March 31, 2023
OREO
OREO
(In thousands)
Commercial/Construction
Mortgage
Total
Balance at beginning of period
$
12,500
$
76,626
$
89,126
Write-downs in value
(194)
(751)
(945)
Additions
1,023
18,675
19,698
Sales
(941)
(15,099)
(16,040)
Other adjustments
-
(118)
(118)
Ending balance
$
12,388
$
79,333
$
91,721
For the quarter ended March 31, 2022
OREO
OREO
(In thousands)
Commercial/Construction
Mortgage
Total
Balance at beginning of period
$
15,017
$
70,060
$
85,077
Write-downs in value
(364)
(328)
(692)
Additions
2,687
19,240
21,927
Sales
(1,980)
(13,543)
(15,523)
Other adjustments
108
(330)
(222)
Ending balance
$
15,468
$
75,099
$
90,567
69
Note 13 − Other assets
The caption of other assets in the consolidated
statements of financial condition consists of the following
major categories:
(In thousands)
March 31, 2023
December 31, 2022
Net deferred tax assets (net of valuation allowance)
$
907,689
$
953,676
Investments under the equity method
210,923
210,001
Prepaid taxes
34,585
39,405
Other prepaid expenses
32,131
33,384
Capitalized software costs
80,097
81,862
Derivative assets
19,365
19,229
Trades receivable from brokers and counterparties
10,638
35,099
Receivables from investments maturities
25,000
125,000
Principal, interest and escrow servicing advances
56,952
41,916
Guaranteed mortgage loan claims receivable
59,738
59,659
Operating ROU assets (Note 28)
119,895
125,573
Finance ROU assets (Note 28)
19,856
18,884
Others
126,416
104,125
Total other assets
$
1,703,285
$
1,847,813
The Corporation regularly incurs in
capitalizable costs associated with software development or
licensing which are recorded within
the Other Assets line item in the accompanying Consolidated Statements of Financial Condition.
In addition, the Corporation incurs
costs
associated
with
hosting
arrangements
that
are
service
contracts
that
are
also
recorded
within
Other
Assets.
The
hosting
arrangements can
include capitalizable
implementation costs
that are
amortized during
the term
of the
hosting arrangement.
The
following
table
summarizes
the
composition
of
acquired
or
developed
software
costs
as
well
as
costs
related
to
hosting
arrangements:
Gross Carrying
Accumulated
Net
Carrying
(In thousands)
Amount
Amortization
Value
March 31, 2023
Software development costs
$
65,817
$
19,930
$
45,887
Software license costs
41,298
18,658
22,640
Cloud computing arrangements
21,244
9,674
11,570
Total Capitalized
software costs [1] [2]
$
128,359
$
48,262
$
80,097
December 31, 2022
Software development costs
$
63,609
$
16,803
$
46,806
Software license costs
37,165
14,164
23,001
Cloud computing arrangements
20,745
8,690
12,055
Total Capitalized
software costs [1] [2]
$
121,519
$
39,657
$
81,862
[1]
Software intangible assets is presented as part of Other
Assets in the Consolidated Statements of Financial
Condition.
[2]
The tables above excludes assets which have been fully
amortized.
Total
amortization expense for
all capitalized software
and hosting arrangement
cost, reflected as
part of
technology and software
expenses in the consolidated statement of operations,
is as follows:
Quarters ended March 31,
(In thousands)
2023
2022
Software development and license costs
$
14,991
$
11,755
Cloud computing arrangements
984
958
Total amortization
expense
$
15,975
$
12,713
70
Note 14 – Goodwill and other intangible assets
Goodwill
There were
no
changes in the carrying amount of goodwill for
the quarters ended March 31, 2023 and 2022.
The following tables present the gross amount of
goodwill and accumulated impairment losses by
reportable segments:
March 31, 2023
Balance at
Balance at
March 31,
Accumulated
March 31,
2023
impairment
2023
(In thousands)
(gross amounts)
losses
(net amounts)
Banco Popular de Puerto Rico
$
440,184
$
3,801
$
436,383
Popular U.S.
564,456
173,411
391,045
Total Popular,
Inc.
$
1,004,640
$
177,212
$
827,428
December 31, 2022
Balance at
Balance at
December 31,
Accumulated
December 31,
2022
impairment
2022
(In thousands)
(gross amounts)
losses
(net amounts)
Banco Popular de Puerto Rico
$
440,184
$
3,801
$
436,383
Popular U.S.
564,456
173,411
391,045
Total Popular,
Inc.
$
1,004,640
$
177,212
$
827,428
Other Intangible Assets
The following table reflects the components of
other intangible assets subject to amortization:
Gross Carrying
Accumulated
Net
Carrying
(In thousands)
Amount
Amortization
Value
March 31, 2023
Core deposits
$
12,810
$
10,355
$
2,455
Other customer relationships
14,286
5,352
8,934
Total other intangible
assets
$
27,096
$
15,707
$
11,389
December 31, 2022
Core deposits
$
12,810
$
10,034
$
2,776
Other customer relationships
14,286
4,878
9,408
Total other intangible
assets
$
27,096
$
14,912
$
12,184
71
During the
quarter ended
March 31,
2023,
the
Corporation recognized
$
0.8
million
in
amortization expense
related to
intangible
assets with definite useful lives (March 31, 2022
- $
0.9
million).
The following
table presents
the estimated
amortization of
the intangible
assets with
definite useful
lives for
each of
the following
periods:
(In thousands)
Remaining 2023
$
2,384
Year 2024
2,938
Year 2025
1,750
Year 2026
1,440
Year 2027
959
Later years
1,918
72
Note 15 – Deposits
Total deposits as of the end of the periods presented consisted of:
(In thousands)
March 31, 2023
December 31, 2022
Savings accounts
$
15,168,450
$
14,746,329
NOW, money market and other interest
bearing demand deposits
22,438,462
23,738,940
Total savings, NOW,
money market and other interest bearing demand
deposits
37,606,912
38,485,269
Certificates of deposit:
Under $250,000
4,690,631
4,235,651
$250,000 and over
2,715,495
2,545,750
Total certificates
of deposit
7,406,126
6,781,401
Total interest bearing
deposits
$
45,013,038
$
45,266,670
Non- interest bearing deposits
$
15,940,850
$
15,960,557
Total deposits
$
60,953,888
$
61,227,227
A summary of certificates of deposits by maturity at
March 31, 2023 follows:
(In thousands)
2023
$
3,522,720
2024
1,753,093
2025
818,396
2026
512,800
2027
456,013
2028 and thereafter
343,104
Total certificates of
deposit
$
7,406,126
At March 31, 2023, the Corporation had brokered
deposits amounting to $
1.2
billion (December 31, 2022 - $
1.1
billion).
The aggregate amount of overdrafts in demand
deposit accounts that were reclassified to loans was
$
5.4
million at March 31, 2023
(December 31, 2022 - $
6.3
million).
At March
31, 2023,
Puerto Rico
public sector
deposits amounted
to
$
15.5
billion. Puerto
Rico public
sector deposits
are interest
bearing
accounts.
Public
deposit
balances
are
difficult
to
predict.
For
example,
the
receipt
by
the
Puerto
Rico
Government
of
hurricane recovery related Federal assistance and seasonal
tax collections could increase public deposit balances at BPPR.
On the
other hand,
the amount and
timing of
reductions in balances
are likely to
be impacted by,
for example, the
speed at
which federal
assistance is
distributed,
the financial
condition, liquidity
and cash
management practices
of the
Puerto Rico
Government and
its
instrumentalities
and
the
implementation
of
fiscal
and
debt
adjustment
plans
approved
pursuant
to
PROMESA
or
other
actions
mandated
by
the
Fiscal
Oversight
and
Management
Board
for
Puerto
Rico
(the
“Oversight
Board”).
Generally,
these
deposits
require
that
the
bank
pledge
high
credit
quality
securities
as
collateral, therefore,
liquidity
risk
arising from
public sector
deposit
outflows are lower.
73
Note 16 – Borrowings
Assets sold under agreements to repurchase
Assets sold under agreements to repurchase amounted
to $
123
million at March 31, 2023 and $
149
million at December 31, 2022.
The Corporation’s
repurchase transactions are
overcollateralized with the
securities detailed in
the table
below.
The Corporation’s
repurchase
agreements
have
a
right
of
set-off
with
the
respective
counterparty
under
the
supplemental
terms
of
the
master
repurchase agreements.
In an
event of
default,
each party
has a
right of
set-off against
the other
party for
amounts owed
in the
related
agreement
and
any
other
amount
or
obligation
owed
in
respect
of
any
other
agreement
or
transaction
between
them.
Pursuant to the
Corporation’s accounting policy,
the repurchase agreements
are not offset
with other repurchase
agreements held
with the same counterparty.
The following table
presents information related to
the Corporation’s repurchase
transactions accounted for as
secured borrowings
that are collateralized with
debt securities available-for-sale, debt securities
held-to-maturity, other assets
held-for-trading purposes
or which have been obtained under agreements to resell.
It is the Corporation’s policy to maintain effective control over assets
sold
under agreements
to repurchase;
accordingly,
such securities
continue to
be carried
on the
Consolidated Statements
of Financial
Condition.
Repurchase agreements accounted for as secured borrowings
March 31, 2023
December 31, 2022
Repurchase
Repurchase
(In thousands)
liability
liability
U.S. Treasury securities
Within 30 days
$
17,521
$
410
After 30 to 90 days
21,607
30,739
After 90 days
8,788
17,521
Total U.S. Treasury
securities
47,916
48,670
Mortgage-backed securities
Within 30 days
25,106
98,984
After 30 to 90 days
791
791
After 90 days
49,474
-
Total mortgage-backed
securities
75,371
99,775
Collateralized mortgage obligations
Within 30 days
212
164
Total collateralized
mortgage obligations
212
164
Total
$
123,499
$
148,609
Repurchase agreements in this portfolio
are generally short-term, often overnight.
As such our risk
is very limited.
We manage the
liquidity risks arising from secured
funding by sourcing funding globally from
a diverse group of counterparties, providing
a range of
securities collateral and pursuing longer durations,
when appropriate.
Other short-term borrowings
There
were
no
other
short-term
borrowings
outstanding
at
March
31,
2023,
compared
to
$
365
million
in
FHLB
Advances
at
December 31, 2022.
74
Notes Payable
The following table presents the composition of notes
payable at March 31, 2023 and December
31, 2022.
(In thousands)
March 31, 2023
December 31, 2022
Advances with the FHLB with maturities ranging from
2023
through
2029
paying interest at
monthly
fixed rates ranging from
0.39
% to
3.18
%
$
388,282
$
389,282
Unsecured senior debt securities with maturities ranging
from
2023
to
2028
paying interest
semiannually
at fixed rates ranging from
6.125
% to
7.25
%, net of debt issuance costs of $
7,481
692,519
299,109
Junior subordinated deferrable interest debentures (related to
trust preferred securities) maturing on
2034
with fixed interest rates ranging from
6.125
% to
6.564
%, net of debt issuance costs of $
308
198,326
198,319
Total notes payable
$
1,279,127
$
886,710
Note: Refer to the 2022 Form 10-K for rates information
at December 31, 2022.
A breakdown of borrowings by contractual maturities
at March 31, 2023 is included in the table
below.
Assets sold under
(In thousands)
agreements to
repurchase
Notes payable
Total
2023
$
118,894
$
341,687
$
460,581
2024
4,605
91,943
96,548
2025
-
139,920
139,920
2026
-
74,500
74,500
Later years
-
631,077
631,077
Total borrowings
$
123,499
$
1,279,127
$
1,402,626
At March
31, 2023
and December 31,
2022, the
Corporation had FHLB
borrowing facilities whereby
the Corporation could
borrow
up to
$
3.4
billion and $
3.3
billion, respectively,
of which $
0.4
billion and $
0.8
billion, respectively,
were used. In
addition, at March
31, 2023 and December 31, 2022, the Corporation had placed $
0.3
billion and $
0.4
billion, respectively, of the available FHLB credit
facility as collateral for
municipal letters of credit
to secure deposits. The
FHLB borrowing facilities are
collateralized with
securities
and loans held-in-portfolio, and do not have restrictive
covenants or callable features.
Also, at March 31,
2023, the Corporation has a
borrowing facility at the discount
window of the Federal Reserve Bank
of New York
amounting to
$
1.5
billion (December 31,
2022 -
$
1.4
billion), which remained
unused at March
31, 2023
and December
31, 2022.
The facility is a collateralized source of credit that
is highly reliable even under difficult market conditions.
75
Note 17 − Other liabilities
The caption of other liabilities in the consolidated
statements of financial condition consists of the following
major categories:
(In thousands)
March 31, 2023
December 31, 2022
Accrued expenses
$
286,567
$
337,284
Accrued interest payable
36,442
39,288
Accounts payable
87,642
76,456
Dividends payable
39,586
39,525
Trades payable
402
9,461
Liability for GNMA loans sold with an option to repurchase
7,086
14,271
Reserves for loan indemnifications
6,472
7,520
Reserve for operational losses
37,165
39,266
Operating lease liabilities (Note 28)
131,438
137,290
Finance lease liabilities (Note 28)
25,729
24,737
Pension benefit obligation
7,544
8,290
Postretirement benefit obligation
118,308
118,336
Others
64,139
65,222
Total other liabilities
$
848,520
$
916,946
76
Note 18 – Stockholders’
equity
As of March 31,
2023, stockholders’ equity totaled $
4.5
billion. During the quarter
ended March 31, 2023, the
Corporation declared
cash dividends of $
0.55
(2022 - $
0.55
) per common share amounting to
$
39.6
million (2022 - $
42.0
million). The quarterly dividend
declared to stockholders of record as of the close
of business on
March 20, 2023
was paid on
April 3, 2023
.
Accelerated share repurchase transaction (“ASR”)
On
March
1,
2022,
the
Corporation announced
that
on
February 28,
2022
it
entered
into
a
$
400
million
ASR
transactions
with
respect to
its common
stock, which
was accounted
for as
a treasury
transaction. As
a result
of the
receipt of
the initial
3,483,942
shares,
the
Corporation
recognized
in
stockholders’
equity
approximately
$
320
million
in
treasury
stock
and
$
80
million
as
a
reduction of capital surplus.
The Corporation completed the
transaction on July
12, 2022 and received
1,582,922
additional shares
of
common stock
and
recognized $
120
million in
treasury stock
with a
corresponding increase
in its
capital surplus.
In
total, the
Corporation repurchased a total of
5,066,864
shares at an average purchased price of $
78.9443
under the ASR.
77
Note 19 – Other comprehensive loss
The following
table presents
changes in
accumulated other
comprehensive loss
by component
for the
quarters ended
March 31,
2023 and 2022.
Changes in Accumulated Other Comprehensive Loss
by Component [1]
Quarters ended March 31,
(In thousands)
2023
2022
Foreign currency translation
Beginning Balance
$
(56,735)
$
(67,307)
Other comprehensive loss
(5,245)
(2,858)
Net change
(5,245)
(2,858)
Ending balance
$
(61,980)
$
(70,165)
Adjustment of pension and
postretirement benefit plans
Beginning Balance
$
(144,335)
$
(158,994)
Other comprehensive loss before reclassifications
-
1,269
Amounts reclassified from accumulated other comprehensive
loss for
amortization of net losses
3,008
2,444
Net change
3,008
3,713
Ending balance
$
(141,327)
$
(155,281)
Unrealized net holding losses on
debt securities
Beginning Balance
$
(2,323,903)
$
(96,120)
Other comprehensive income (loss) before reclasifications
191,752
(1,075,830)
Amounts reclassified from accumulated other comprehensive loss
for
amortization of net unrealized losses of debt securities
transferred from
available-for-sale to held-to-maturity
33,633
-
Net change
225,385
(1,075,830)
Ending balance
$
(2,098,518)
$
(1,171,950)
Unrealized net gains on cash
flow hedges
Beginning Balance
$
45
$
(2,648)
Other comprehensive (loss) income before reclassifications
(19)
3,139
Amounts reclassified from accumulated other comprehensive
gains
(26)
(333)
Net change
(45)
2,806
Ending balance
$
-
$
158
Total
$
(2,301,825)
$
(1,397,238)
[1] All amounts presented are net of tax.
78
The following table
presents the amounts
reclassified out of
each component of
accumulated other comprehensive loss
during the
quarters ended March 31, 2023 and 2022.
Reclassifications Out of Accumulated Other Comprehensive
Loss
Affected Line Item in the
Quarters ended March 31,
(In thousands)
Consolidated Statements of Operations
2023
2022
Adjustment of pension and postretirement benefit plans
Amortization of net losses
Other operating expenses
$
(4,813)
$
(3,911)
Total before tax
(4,813)
(3,911)
Income tax benefit
1,805
1,467
Total net of tax
$
(3,008)
$
(2,444)
Unrealized holding losses on debts securities
Amortization of unrealized net losses of debt
securities transferred to held-to-maturity
Investment securities
$
(42,040)
$
-
Total before tax
(42,040)
-
Income tax benefit
8,407
-
Total net of tax
$
(33,633)
$
-
Unrealized net gains on cash flow hedges
Forward contracts
Mortgage banking activities
$
41
$
978
Interest rate swaps
Other operating income
$
-
$
(279)
Total before tax
41
699
Income tax expense
(15)
(366)
Total net of tax
$
26
$
333
Total reclassification
adjustments, net of tax
$
(36,615)
$
(2,111)
79
Note 20 – Guarantees
At
March
31,
2023
the
Corporation
had
a
liability
of
$
0.2
million
(December
31,
2022
-
$
0.3
million),
which
represents
the
unamortized balance of the obligations
undertaken in issuing the
guarantees under the standby letters
of credit. Management does
not anticipate any material losses related to these
instruments.
From time to time, the Corporation securitized mortgage loans into guaranteed mortgage-backed securities subject to limited, and in
certain instances, lifetime credit
recourse on the loans
that serve as
collateral for the
mortgage-backed securities. The Corporation
has not
sold any
mortgage loans
subject to
credit recourse
since 2009.
At March
31, 2023,
the Corporation
serviced $
0.6
billion
(December 31,
2022 -
$
0.6
billion) in residential
mortgage loans
subject to
credit recourse
provisions, principally loans
associated
with FNMA
and FHLMC
residential mortgage
loan securitization
programs. In
the event
of any
customer default,
pursuant to
the
credit recourse
provided, the
Corporation is
required to
repurchase the
loan or
reimburse the
third party
investor for
the incurred
loss.
The
maximum
potential
amount
of
future
payments
that
the
Corporation
would
be
required
to
make
under
the
recourse
arrangements
in
the
event
of
nonperformance by
the
borrowers
is
equivalent
to
the
total
outstanding
balance
of
the
residential
mortgage
loans
serviced
with
recourse
and
interest,
if
applicable.
During
the
quarter
ended
March
31,
2023,
the
Corporation
repurchased approximately $
1
million of unpaid principal balance in mortgage loans subject to the credit recourse provisions (March
31,
2022
-
$
3
million).
In
the
event
of
nonperformance
by
the
borrower,
the
Corporation
has
rights
to
the
underlying
collateral
securing the
mortgage loan. The
Corporation suffers
ultimate losses on
these loans when
the proceeds from
a foreclosure sale
of
the property underlying
a defaulted mortgage
loan are less
than the outstanding
principal balance of
the loan plus
any uncollected
interest
advanced
and
the
costs
of
holding
and
disposing
the
related
property.
At
March
31,
2023
the
Corporation’s
liability
established to cover the estimated credit loss exposure related to loans sold
or serviced with credit recourse amounted to $
6
million
(December 31, 2022 - $
7
million).
The following table shows the changes in the Corporation’s liability of estimated losses related to loans serviced with credit recourse
provisions during the quarters ended March 31, 2023
and 2022.
Quarters ended March 31,
(In thousands)
2023
2022
Balance as of beginning of period
$
6,897
$
11,800
Provision (benefit) for recourse liability
(654)
46
Net charge-offs
(379)
(1,511)
Balance as of end of period
$
5,864
$
10,335
When the
Corporation sells or
securitizes mortgage loans,
it generally makes
customary representations and
warranties regarding
the characteristics of the loans
sold. To
the extent the loans do
not meet specified characteristics, the Corporation may
be required
to
repurchase such
loans
or
indemnify for
losses
and
bear
any
subsequent
loss
related
to
the
loans.
During
the
quarter
ended
March 31,
2023, the
Corporation purchased
$
134
thousand under
representation and
warranty arrangements
compared to
$
927
thousand
during the
quarter ended
March
31,
2022. A
substantial amount
of
these
loans reinstate
to
performing status
or
have
mortgage insurance, and thus the ultimate losses
on the loans are not deemed significant.
From
time
to
time, the
Corporation sells
loans and
agrees to
indemnify the
purchaser for
credit
losses
or
any
breach
of
certain
representations and warranties made in connection with
the sale. At March 31,
2023, the Corporation’s liability for
estimated losses
associated
with
indemnifications
and
representations
and
warranties
related
to
loans
sold
by
BPPR
amounted
to
$
0.6
million
(December 31, 2022 - $
0.6
million).
Servicing agreements
relating to
the mortgage-backed
securities programs
of FNMA,
FHLMC and
GNMA, and
to mortgage
loans
sold or serviced to certain other investors, including FHLMC,
require the Corporation to advance funds to make
scheduled payments
of principal,
interest, taxes
and insurance,
if such
payments have
not been
received from
the borrowers.
At March
31, 2023,
the
Corporation serviced
$
10.9
billion in
mortgage loans
for third-parties,
including the
loans serviced
with credit
recourse (December
31, 2022
- $
11.1
billion). The
Corporation generally
recovers funds
advanced pursuant
to these
arrangements from
the mortgage
owner, from
liquidation proceeds when the
mortgage loan is foreclosed
or, in
the case of
FHA/VA loans,
under the applicable FHA
and
VA
insurance
and
guarantees
programs.
However,
in
the
meantime,
the
Corporation
must
absorb
the
cost
of
the
funds
it
advances
during
the
time
the
advance
is
outstanding.
The
Corporation
must
also
bear
the
costs
of
attempting
to
collect
on
delinquent and defaulted mortgage loans. In
addition, if a defaulted loan
is not cured, the mortgage
loan would be canceled as
part
80
of the foreclosure proceedings and the Corporation
would not receive any future servicing income with
respect to that loan. At March
31,
2023,
the
outstanding
balance
of
funds
advanced
by
the
Corporation under
such
mortgage
loan
servicing
agreements
was
approximately
$
57
million
(December
31,
2022
-
$
42
million).
To
the
extent
the
mortgage
loans
underlying
the
Corporation’s
servicing portfolio experience
increased delinquencies, the Corporation
would be required
to dedicate additional
cash resources to
comply with its obligation to advance funds as well
as incur additional administrative costs related
to increases in collection efforts.
Popular,
Inc. Holding
Company (“PIHC”) fully
and unconditionally guarantees
certain borrowing
obligations issued by
certain of
its
100
% owned consolidated
subsidiaries amounting to
$
94
million at March
31, 2023 and
December 31, 2022.
In addition, at
March
31,
2023
and
December
31,
2022,
PIHC
fully
and
unconditionally
guaranteed
on
a
subordinated
basis
$
193
million
of
capital
securities (trust preferred securities) issued by
wholly-owned issuing trust entities to the
extent set forth in the
applicable guarantee
agreement. Refer
to Note
18 to
the Consolidated
Financial Statements
in the
2022 Form
10-K for
further information
on the
trust
preferred securities.
81
Note 21 – Commitments and contingencies
Off-balance sheet risk
The Corporation
is a
party to
financial instruments
with off-balance
sheet credit
risk in
the normal
course of
business to
meet the
financial needs of its customers. These financial instruments
include loan commitments, letters of credit and standby
letters of credit.
These instruments involve,
to varying
degrees, elements of
credit and
interest rate
risk in
excess of
the amount
recognized in
the
consolidated statements of financial condition.
The
Corporation’s
exposure
to
credit
loss
in
the
event
of
nonperformance
by
the
other
party
to
the
financial
instrument
for
commitments to extend credit, standby
letters of credit and financial
guarantees is represented by the
contractual notional amounts
of those instruments. The
Corporation uses the same
credit policies in
making these commitments and conditional
obligations as it
does for those reflected on the consolidated statements
of financial condition.
Financial instruments with
off-balance sheet credit
risk, whose contract
amounts represent potential credit
risk as of
the end of
the
periods presented were as follows:
(In thousands)
March 31, 2023
December 31, 2022
Commitments to extend credit:
Credit card lines
$
5,956,261
$
5,853,990
Commercial and construction lines of credit
4,727,401
4,425,825
Other consumer unused credit commitments
249,773
250,271
Commercial letters of credit
1,982
3,351
Standby letters of credit
28,938
27,868
Commitments to originate or fund mortgage loans
36,662
45,170
At March
31, 2023
and December
31, 2022,
the Corporation
maintained a
reserve of
approximately $
9.4
million and
$
8.8
million,
respectively, for potential losses associated with unfunded loan commitments
related to commercial
and construction lines of credit.
Other commitments
At March 31,
2023 and December 31,
2022, the Corporation also
maintained other non-credit commitments for
approximately $
4.8
million, primarily for the acquisition of other investments.
Business concentration
Since the Corporation’s business activities are concentrated primarily in Puerto Rico, its results of operations and financial condition
are dependent
upon the
general trends
of the
Puerto Rico
economy and,
in particular,
the residential
and commercial
real estate
markets. The concentration
of the Corporation’s
operations in Puerto Rico
exposes it to
greater risk than other
banking companies
with a wider geographic base. Its
asset and revenue composition by geographical area
is presented in Note 33
to the Consolidated
Financial Statements.
Puerto
Rico
has
faced
significant
fiscal
and
economic
challenges
for
over
a
decade.
In
response
to
such
challenges,
the
U.S.
Congress enacted the
Puerto Rico Oversight
Management and Economic Stability
Act (“PROMESA”) in
2016, which, among
other
things,
established
the
Oversight
Board
and
a
framework
for
the
restructuring
of
the
debts
of
the
Commonwealth,
its
instrumentalities and
municipalities.
The
Commonwealth and
several
of
its
instrumentalities have
commenced
debt
restructuring
proceedings under
PROMESA. As
of the
date of
this report,
while municipalities
have been
designated as
covered entities
under
PROMESA,
no
municipality
has
commenced,
or
has
been
authorized
by
the
Oversight
Board
to
commence,
any
such
debt
restructuring proceeding under PROMESA.
At
March 31,
2023, the
Corporation’s
direct exposure
to
the Puerto
Rico
government and
its
instrumentalities and
municipalities
totaled $
353
million, of which
$
324
million were outstanding
($
374
million and $
327
million at December
31, 2022). Of
the amount
outstanding,
$
302
million
consists
of
loans
and
$
22
million
are
securities
($
302
million
and
$
25
million
at
December 31,
2022).
Substantially all
of the
amount outstanding
at March
31, 2023
and December
31, 2022
were obligations from
various Puerto
Rico
municipalities. In most cases, these were “general obligations” of a municipality, to
which the applicable municipality has pledged its
good
faith,
credit
and
unlimited taxing
power,
or
“special
obligations”
of
a
municipality,
to
which
the
applicable
municipality
has
pledged other revenues. At March 31, 2023,
73
% of the Corporation’s exposure to municipal loans and securities
was concentrated
in the municipalities of San Juan, Guaynabo, Carolina
and Bayamón.
82
The following table details the loans and investments representing the Corporation’s direct exposure to
the Puerto Rico government
according to their maturities as of March 31, 2023:
(In thousands)
Investment
Portfolio
Loans
Total Outstanding
Total Exposure
Central Government
After 1 to 5 years
$
10
$
-
$
10
$
10
After 5 to 10 years
1
-
1
1
After 10 years
30
-
30
30
Total Central
Government
41
-
41
41
Municipalities
Within 1 year
4,730
20,243
24,973
24,973
After 1 to 5 years
15,805
101,009
116,814
145,814
After 5 to 10 years
1,025
131,202
132,227
132,227
After 10 years
-
49,831
49,831
49,831
Total Municipalities
21,560
302,285
323,845
352,845
Total Direct Government
Exposure
$
21,601
$
302,285
$
323,886
$
352,886
In addition, at March
31, 2023, the Corporation had
$
245
million in loans insured
or securities issued by
Puerto Rico governmental
entities but for
which the principal
source of
repayment is non-governmental
($
251
million at December
31, 2022). These
included
$
204
million
in
residential
mortgage
loans
insured
by
the
Puerto
Rico
Housing
Finance
Authority
(“HFA”),
a
governmental
instrumentality
that
has
been
designated
as
a
covered
entity
under
PROMESA
(December
31,
2022
-
$
209
million).
These
mortgage loans
are secured
by first
mortgages on
Puerto Rico
residential properties
and the
HFA
insurance covers
losses in
the
event of a
borrower default and upon
the satisfaction of certain
other conditions. The Corporation
also had at March
31, 2023, $
41
million in
bonds issued by
HFA which
are secured by
second mortgage loans
on Puerto Rico
residential properties, and
for which
HFA also provides
insurance to cover losses in the
event of a borrower default and
upon the satisfaction of certain other
conditions
(December 31,
2022 -
$
42
million). In
the event
that the
mortgage loans
insured by
HFA
and held
by the
Corporation directly
or
those serving
as collateral
for the
HFA
bonds default
and the
collateral is
insufficient to
satisfy the
outstanding balance
of these
loans,
HFA’s
ability
to
honor
its
insurance
will
depend, among
other factors,
on
the
financial
condition
of
HFA
at
the
time
such
obligations
become
due
and
payable. The
Corporation does
not consider
the
government guarantee
when
estimating the
credit
losses
associated
with
this
portfolio.
Although
the
Governor
is
currently
authorized
by
local
legislation
to
impose
a
temporary
moratorium on the financial obligations of the HFA, a moratorium on
such obligations has not been imposed as of
the date hereof.
BPPR’s
commercial loan
portfolio also
includes loans
to
private borrowers
who
are service
providers, lessors,
suppliers or
have
other relationships with the government. These
borrowers could be negatively affected by
the Commonwealth’s fiscal crisis and
the
ongoing
Title
III
proceedings
under
PROMESA.
Similarly,
BPPR’s
mortgage
and
consumer
loan
portfolios
include
loans
to
government
employees
and
retirees,
which
could
also
be
negatively
affected
by
fiscal
measures
such
as
employee
layoffs
or
furloughs or reductions in pension benefits.
In
addition, $
1.6
billion of
residential mortgages,
$
27
million of
Small Business
Administration (“SBA”)
loans under
the Paycheck
Protection Program (“PPP”) and
$
73
million commercial loans were
insured or guaranteed
by the U.S.
Government or its agencies
at March 31, 2023 (compared to $
1.6
billion, $
38
million and $
72
million, respectively, at December 31, 2022). The Corporation also
had U.S. Treasury
and obligations from the
U.S. Government, its
agencies or government sponsored
entities within the
portfolio
of
available-for-sale and held-to-maturity securities as described
in Note 6 and 7 to the Consolidated Financial
Statements.
At
March
31,
2023, the
Corporation has
operations in
the
United
States
Virgin
Islands
(the
“USVI”) and
has
approximately
$
28
million
in
direct
exposure
to
USVI
government
entities
(December
31,
2022
-
$
28
million).
The
USVI
has
been
experiencing
a
number of
fiscal and
economic challenges
that could
adversely affect
the ability
of its
public corporations
and instrumentalities
to
service their outstanding debt obligations.
At March
31, 2023,
the Corporation
has operations
in the
British Virgin
Islands (“BVI”),
which has
been negatively affected
by the
COVID-19
pandemic,
particularly
as
a
reduction
in
the
tourism
activity
which
accounts
for
a
significant
portion
of
its
economy.
Although
the
Corporation
has
no
significant
exposure
to
a
single
borrower
in
the
BVI,
it
has
a
loan
portfolio
amounting
to
83
approximately
$
210
million
comprised
of
various
retail
and
commercial
clients,
compared
to
a
loan
portfolio
of
$
214
million
at
December 31, 2022.
Legal Proceedings
The
nature
of
Popular’s
business
ordinarily
generates
claims,
litigation,
investigations,
and
legal
and
administrative
cases
and
proceedings
(collectively,
“Legal Proceedings”).
When the
Corporation determines
that
it
has
meritorious
defenses to
the
claims
asserted, it vigorously defends itself. The Corporation will consider the settlement of cases (including cases where it has meritorious
defenses) when, in management’s judgment,
it is in the
best interest of the Corporation
and its stockholders to do
so. On at least
a
quarterly basis, Popular assesses its liabilities and contingencies relating
to outstanding Legal Proceedings utilizing the most current
information
available.
For
matters
where
it
is
probable
that
the
Corporation
will
incur
a
material
loss
and
the
amount
can
be
reasonably estimated,
the Corporation
establishes an
accrual for
the loss.
Once established,
the accrual
is adjusted
on at
least a
quarterly
basis
to
reflect
any
relevant
developments,
as
appropriate.
For
matters
where
a
material
loss
is
not
probable,
or
the
amount of the loss cannot be reasonably estimated,
no accrual is established.
In certain cases,
exposure to loss
exists in
excess of any
accrual to the
extent such loss
is reasonably possible,
but not
probable.
Management believes and
estimates that the
range of reasonably
possible losses (with
respect to those
matters where such
limits
may be
determined, in
excess of amounts
accrued) for current
Legal Proceedings ranged
from $
0
to approximately $
16.04
million
as
of
March
31,
2023.
In
certain
cases,
management
cannot
reasonably
estimate
the
possible
loss
at
this
time.
Any
estimate
involves significant judgment, given the
varying stages of the
Legal Proceedings (including the fact
that many of them
are currently
in preliminary stages), the
existence of multiple
defendants in several of
the current Legal Proceedings
whose share of liability
has
yet to be determined, the numerous unresolved issues in
many of the Legal Proceedings, and the inherent uncertainty
of the various
potential
outcomes
of
such
Legal
Proceedings.
Accordingly,
management’s
estimate
will
change
from
time-to-time,
and
actual
losses may be more or less than the current estimate.
While the
outcome of
Legal Proceedings
is inherently
uncertain, based
on information
currently available,
advice of
counsel, and
available
insurance
coverage,
management
believes
that
the
amount
it
has
already
accrued
is
adequate
and
any
incremental
liability arising from
the Legal Proceedings
in matters in
which a loss
amount can be
reasonably estimated will not
have a material
adverse effect
on the Corporation’s
consolidated financial position.
However, in
the event
of unexpected future
developments, it is
possible that
the ultimate
resolution of
these matters
in a
reporting period, if
unfavorable, could have
a material
adverse effect
on
the Corporation’s consolidated financial position for that period.
Set forth below is a description of the Corporation’s
significant Legal Proceedings.
BANCO POPULAR DE PUERTO RICO
Mortgage-Related Litigation
BPPR was
named a
defendant in
a putative
class action
captioned Yiries
Josef Saad
Maura v.
Banco Popular,
et al.
on behalf
of
residential
customers
of
the
defendant
banks
who
have
allegedly
been
subject
to
illegal
foreclosures
and/or
loan
modifications
through
their
mortgage
servicers.
Plaintiffs
contend
that
when
they
sought
to
reduce
their
loan
payments,
defendants
failed
to
provide them with such reduced loan payments, instead subjecting them to lengthy loss mitigation processes while filing foreclosure
claims
against
them
in
parallel,
all
in
violation
of
the
Truth
In
Lending
Act
(“TILA”),
the
Real
Estate
Settlement
Procedures
Act
(“RESPA”),
the Equal
Credit Opportunity Act
(“ECOA”), the
Fair Credit
Reporting Act
(“FCRA”), the
Fair Debt
Collection Practices
Act (“FDCPA”)
and other consumer-protection laws
and regulations. Plaintiffs did
not include a specific
amount of damages in
their
complaint. After waiving service
of process, BPPR filed
a motion to
dismiss the complaint
(as did most
co-defendants, separately).
BPPR
further
filed
a
motion
to
oppose
class
certification,
which the
Court
granted
in
September
2018.
In
April
2019,
the
Court
entered an
Opinion and
Order granting
BPPR’s and
several other
defendants’ motions
to dismiss
with prejudice.
Plaintiffs filed
a
Motion for Reconsideration in April 2019, which Popular timely opposed. In September 2019, the Court issued an Amended Opinion
and Order dismissing plaintiffs’ claims against all
defendants, denying the reconsideration requests and other pending motions, and
issuing final
judgment.
In October
2019, plaintiffs
filed a
Motion for
Reconsideration of
the Court’s
Amended Opinion
and Order,
which was denied
in December 2019.
In January
2020, plaintiffs filed
a Notice
of Appeal to
the U.S. Court
of Appeals for
the First
Circuit.
Plaintiffs filed their
appeal brief in
July 2020, Appellees
filed their brief
in September 2020,
and Appellants filed
their reply
brief in January 2021. On March
13, 2023, the U.S. Court of
Appeals for the First Circuit entered
judgment affirming the trial court’s
84
order dismissing
the complaint.
On
March 23,
2023, Plaintiffs
filed
a
Petition for
Rehearing and/or
Rehearing en
Banc,
which is
pending resolution.
Insufficient Funds and Overdraft Fees Class Actions
In February
2020, BPPR
was served
with a
putative class
action complaint captioned
Soto-Melendez v.
Banco Popular
de Puerto
Rico, filed before the United States District
Court for the District of Puerto Rico.
The complaint alleges breach of contract, breach of
the covenant of good faith and fair dealing
and unjust enrichment due to BPPR’s purported practice of (a)
assessing more than one
insufficient funds fee (“NSF Fees”) on the
same ACH “item” or transaction and (b) charging
both NSF Fees and overdraft fees (“OD
Fees”) on
the same
ACH item
or transaction,
and is
filed on
behalf of
all persons
who during
the applicable
statute of
limitations
period
were
charged
NSF
Fees
and/or
OD
Fees
pursuant
to
these
purported
practices.
In
April
2020,
BPPR
filed
a
motion
to
dismiss the case. In April
2021, the Court issued an order granting
in part and denying in part
BPPR’s motion to dismiss; the
unjust
enrichment claim
was dismissed,
whereas the
breach of
contract and
covenant of
good faith
and fair
dealing claims
survived the
motion.
In March
2022, BPPR
was also
named as
a defendant
on a
putative class
action complaint captioned
Orama-Caraballo v.
Banco
Popular,
filed before
the U.S.
District Court
for the
District of
Puerto Rico
by the
same Plaintiffs’
attorneys of
the Soto-Melendez
complaint. Similar to the claims set forth in the Soto-Melendez complaint, Plaintiffs allege breach of contract, breach of the covenant
of good faith and
fair dealing, and unjust enrichment
due to the bank’s
purported practice of (a) assessing more
than one NSF Fee
on
the
same
“item” and
(b)
charging
both
NSF
Fees
and
OD
Fees
on
the
same
“item”
but
included
allegations
with
respect
to
“checks” in addition to ACH payments.
During a
mediation hearing
held in
April 2022,
the parties
in both
the Soto
Melendez and
Orama-Caraballo complaints
reached a
settlement in principle on a
class-wide basis subject to final court
approval. The parties filed before the
Court a notice of settlement
and a
request to
stay the
proceedings in
both cases
and, on
August 15,
2022, the
parties submitted
the class
action settlement
agreement for the Court's preliminary approval.
On November 23, 2022, the Court issued an
order granting preliminary approval of
the settlement
agreement and,
on
March 14,
2023, it
held a
hearing granting
final
approval to
the settlement
agreement. These
matters are now closed.
Popular was also named as
a defendant on a putative class
action complaint captioned Golden v.
Popular, Inc. filed
in March 2020
before
the
U.S.
District
Court
for
the
Southern
District
of
New
York,
seeking
damages,
restitution
and
injunctive
relief.
Plaintiff
alleged breach
of contract,
violation
of
the covenant
of
good faith
and
fair
dealing, unjust
enrichment and
violation
of
New York
consumer protection law
due to Popular’s
purported practice of
charging OD
Fees on transactions
that, under plaintiffs’
theory,
do
not overdraw the
account. Plaintiff described Popular’s
purported practice of charging
OD Fees as
“Authorize Positive, Purportedly
Settle
Negative”
(“APPSN”)
transactions
and
alleged
that
Popular
assesses
OD
Fees
over
authorized
transactions
for
which
sufficient funds
are held for
settlement.
In August 2020,
Popular filed a
Motion to Dismiss
on several grounds,
including failure to
state a
claim against
Popular,
Inc. and
improper venue.
In October
2020, Plaintiff
filed a
Notice of
Voluntary
Dismissal before the
U.S. District Court for the Southern District of New York and, simultaneously, filed an identical complaint in the U.S. District Court for
the
District
of
the
Virgin
Islands
against
Popular,
Inc.,
Popular
Bank
and
BPPR.
In
November
2020,
Plaintiff
filed
a
Notice
of
Voluntary
Dismissal against
Popular,
Inc.
and Popular
Bank following
a Motion
to
Dismiss filed
on behalf
of such
entities, which
argued failure
to state
a claim
and lack
of minimum
contacts of
such parties
with the
U.S.V.I.
district court
jurisdiction. BPPR,
the
only defendant remaining in the case, was served
with process in November 2020 and filed
a Motion to Dismiss in January 2021.
In
October
2021,
the
District
Court,
notwithstanding that
BPPR’s
Motion
to
Dismiss
remained
pending
resolution,
held
an
initial
scheduling
conference
and,
thereafter,
issued
a
trial
management
order
where
it
scheduled
the
deadline
for
all
discovery
for
November 2022, and several other
trial-related deadlines for June 2023.
During a mediation hearing held
on October 14, 2022, the
parties in the
Golden action reached a
settlement in principle
on a class-wide
basis subject to
final court approval.
On October 19,
2022, the
parties filed
before the
Court a
notice of
settlement and
a request
to stay
the proceedings
while Plaintiffs
submitted a
motion for the
preliminary approval of the
class action settlement. On
January 19, 2023, the
parties filed the motion
for preliminary
approval
of
the
settlement
agreement.
On
March
31,
2023,
the
Court
issued
an
order
granting
preliminary
approval
of
the
settlement agreement and scheduled the final approval
hearing for September 8, 2023.
On January
31, 2022,
Popular was
also named
as a
defendant on
a putative
class action
complaint captioned
Lipsett v.
Popular,
Inc. d/b/a Banco Popular, filed before the U.S. District Court for the Southern District
of New York, seeking damages, restitution and
85
injunctive relief. Similar to the claims set forth in the
aforementioned Golden complaint, Plaintiff alleges breach of contract, including
violations of the covenant of good faith and
fair dealing, as a result of Popular’s purported practice of
charging OD Fees for APPSN
transactions.
The complaint further alleged that
Popular assesses OD Fees
over authorized transactions for
which sufficient funds
are held for settlement. Popular waived service of process
and filed a Motion to Compel Arbitration. In response to Popular’s
motion,
Plaintiff filed a Notice of Voluntary Dismissal in April 2022.
On May
13, 2022,
Plaintiff in
the Lipsett
complaint filed
a new
complaint captioned
Lipsett v.
Banco Popular
North America
d/b/a
Popular
Community Bank
with the
same
allegations of
his
previous complaint
against Popular.
On June
10,
2022,
after serving
Plaintiff
with a
written notice
of
election to
arbitrate the
claims
asserted in
the complaint
which went
unanswered, Popular
Bank
(“PB”) filed
a Pre-Motion
Conference motion
related to
a new
Motion to
Compel Arbitration.
After Plaintiff
responded to
the Pre-
Motion conference
motion,
on September
2,
2022, the
Court
allowed PB
to
file its
Motion to
Compel Arbitration,
which it
did on
September 8, 2022. Plaintiff opposed such motion on
October 13, 2022, and PB filed its reply
on November 3, 2022.
On December 9, 2022, the
Court issued a Decision and
Order denying PB’s Motion to
Compel Arbitration. On December 20, 2022,
PB
filed
a
Notice
of
Appeal
with the
United States
Court
of
Appeals for
the Second
Circuit.
On January
31,
2022, the
Court
of
Appeals issued
a briefing
schedule granting
PB until
April 6,
2023 to
file its
appeal brief.
The Court
of Appeals
also scheduled
a
“CAMP” mediation conference, which was held on
February 21, 2023. No settlement was reached
during the mediation. On April 5,
2023, PB filed its appeal brief and, on April 10,
2023, Plaintiff filed a scheduling request to file his opposition
brief by July 5, 2023.
Cyber Incident Related Litigation
BPPR was named
defendant in a
putative class action
complaint filed before
the U.S. District
Court for the
District of Puerto
Rico,
captioned
Rosa
E.
Rivera
Marrero
v.
Banco
Popular
de
Puerto
Rico.
Plaintiff
contends
BPPR
failed
to
properly
secure
and
safeguard
the
class
members’
personally
identifiable
information
(“PII”)
which
was
purportedly
exposed
through
a
data
breach
experienced
by
a
BPPR’s
vendor
in
June
2021.
Such
data
breach,
which
as
alleged
involved
BPPR’s
files,
occurred
via
the
exploitation
of
an
alleged vulnerability
in Accellion
FTA,
a
legacy software
product
developed by
Accellion, Inc
used by
BPPR’s
vendor. Plaintiff
further alleges that, during the data
breach, an unauthorized actor removed one
or more documents that contained
PII of the plaintiff
and purported class members. Plaintiff demands injunctive relief
requesting, among other things, BPPR to
protect
all data
collected through
the course
of its
business in
accordance with
all applicable
regulations, industry
standards and
federal,
state or local laws, as well as
an award for damages, attorneys’ fees, costs and litigation expenses. BPPR was served with
process
on May 27, 2022
and, on August 1, 2022,
filed a Motion to
Dismiss. On August 15,
2022, Plaintiff filed her
opposition to the Motion
to Dismiss and, on September 14, 2022, BPPR filed a reply in support of its Motion to Dismiss. On March 31,
2023, the U.S. District
Court for
the District
of Puerto
Rico issued
an Opinion
and Order
granting BPPR’s
Motion to
Dismiss for
lack of
jurisdiction, and
entered a judgement dismissing the complaint without prejudice.
Plaintiff’s notice of appeal is due on May 3, 2023. Since plaintiff did
not file a notice of appeal, the judgment became
final. This matter is now closed.
POPULAR SECURITIES
Puerto Rico Bonds and Closed-End Investment
Funds
The volatility
in prices
and declines
in value
that Puerto
Rico municipal
bonds and
closed-end investment
companies that
invest
primarily in
Puerto Rico
municipal bonds experienced
following August
2013 have
led to
regulatory inquiries, customer
complaints
and
arbitrations
for
most
broker-dealers
in
Puerto
Rico,
including
Popular
Securities.
Popular
Securities
has
received
customer
complaints
and,
as
of
March
31,
2023,
was
named
as
a
respondent
(among
other
broker-dealers)
in
8
pending
arbitration
proceedings with
initial claimed
amounts of
approximately $
10.4
million in
the aggregate.
While Popular
Securities believes
it has
meritorious defenses to the claims asserted in these proceedings,
it has often determined that it is in its best interest to settle certain
claims
rather
than
expend
the
money
and
resources required
to
see
such
cases
to
completion.
The
Puerto
Rico
Government’s
defaults and
non-payment of
its various
debt obligations,
as well
as the
Oversight Board
decision to
pursue restructurings
under
Title III and
Title VI of
PROMESA, have impacted the number of
customer complaints (and claimed damages) filed
against Popular
Securities concerning Puerto Rico bonds and closed-end investment companies that invest primarily in Puerto
Rico bonds. Adverse
results
in
the
arbitration
proceedings
described
above,
or
a
significant
increase
in
customer
complaints,
could
have
a
material
adverse effect on Popular.
In October 2021, a panel in an arbitration proceeding with claimed damages arising from trading losses of approximately $
30
million
ordered
Popular
Securities
to
pay
claimants
approximately
$
6.9
million
in
compensatory
damages
and
expenses.
In
November
86
2021,
the
claimants
in such
arbitration proceeding
filed
a complaint
captioned Trinidad
García v.
Popular,
Inc.
et.
al.
before the
United
States
District
Court
for
the
District
of
Puerto
Rico
against
Popular,
Inc.,
BPPR
and
Popular
Securities
(the
“Popular
Defendants”) alleging, inter alia,
that they sustained monetary
losses as a
result of the Popular
Defendants’ anticompetitive, unfair,
and
predatory
practices,
including
tying
arrangements
prohibited
by
the
Bank
Holding
Company
Act.
Plaintiffs
claim
that
the
Popular Defendants caused them to
enter a tying arrangement scheme whereby
BPPR allegedly would extend secured credit
lines
to the Plaintiffs on
the conditions that they transfer
their portfolios to Popular
Securities to be used
as pledged collateral and
obtain
additional investment
services and
products solely
from Popular
Securities, not
from any
of its
competitors. Plaintiffs
also invoke
federal
court’s
supplemental jurisdiction
to
allege
several
state
law claims
against
the Popular
Defendants, including
contractual
fault, fault in causing losses in value of the pledge collateral, breach of contract, request for specific compliance thereof,
fault in pre-
contractual negotiations, emotional distress, and punitive damages. In January 2022, Plaintiffs filed an Amended Complaint, and the
Popular Defendants were served with summons on that same date. Plaintiffs demand no less than $
390
million in damages, plus an
award for costs and attorney's fees. The
Popular Defendants filed a Motion to Dismiss
on March 21, 2022, which Plaintiffs
opposed
on June 10, 2022. Popular
filed its reply in support
of the Motion to Dismiss
on June 30, 2022, and
Plaintiffs sur-replied on July 27,
2022.
On
February 9,
2023, the
Popular Defendants
executed a
global
settlement agreement
with Plaintiffs
resolving all
controversies
between
the
parties,
including
those
arising
from
the
aforementioned
case.
After
the
parties
filed
a
stipulation
of
dismissal,
on
February 15, 2023, the United States District Court for the District of Puerto Rico issued an order dismissing the case
with prejudice
and stating that a judgment shall be entered accordingly.
This matter is now closed.
PROMESA Title III Proceedings
In
2017,
the
Oversight
Board
engaged
the
law
firm
of
Kobre &
Kim
to
carry
out
an
independent
investigation
on
behalf
of
the
Oversight Board
regarding, among
other things,
the causes
of the
Puerto Rico
financial crisis.
Popular,
Inc.,
BPPR and
Popular
Securities
(collectively,
the
“Popular Companies”)
were
served
by,
and
cooperated
with,
the
Oversight
Board
in
connection with
requests
for
the
preservation
and
voluntary
production
of
certain
documents
and
witnesses
with
respect
to
Kobre
&
Kim’s
independent
investigation.
In August
2018, Kobre & Kim
issued its
Final Report,
which contained various
references to
the Popular
Companies, including
an
allegation that
Popular Securities
participated as
an underwriter
in the
Commonwealth’s 2014
issuance of
government obligation
bonds
notwithstanding
having
allegedly
advised
against
it.
The
report
noted
that
such
allegation
could
give
rise
to
an
unjust
enrichment claim against the Corporation and could also serve as a basis to equitably subordinate claims filed by the Corporation in
the Title III proceeding to other third-party claims.
After the publication of the Final Report, the Oversight Board created a special claims committee (“SCC”) and, before the end of the
applicable two-year statute of limitations for the filing of such claims pursuant
to the U.S. Bankruptcy Code, the SCC, along
with the
Commonwealth’s
Unsecured Creditors’
Committee (“UCC”),
filed
various
avoidance, fraudulent
transfer and
other claims
against
third parties, including government vendors and
financial institutions and other professionals involved in
bond issuances then being
challenged as
invalid by the
SCC and
the UCC.
The Popular
Companies, the SCC
and the
UCC entered into
a tolling
agreement
with respect to potential claims the SCC and the UCC,
on behalf of the Commonwealth or other Title III
debtors, may assert against
the Popular Companies for the avoidance and recovery of payments and/or transfers made to the Popular Companies or as a result
of any role
of the Popular Companies
in the offering
of the aforementioned challenged
bond issuances. In January
2022, the SCC,
the UCC and the Popular Companies executed a settlement agreement as to potential claims related to the avoidance and recovery
of payments and/or
transfers made to the
Popular Companies. Potential claims
being pursued by
the SCC and
the UCC, including
claims tolled
under existing tolling
agreements, were transferred
to a
newly created Puerto
Rico Avoidance Action
Trust as
part of
the approval of the Commonwealth of Puerto Rico’s Plan
of Adjustment. On March 28, 2023, the Popular
Companies and the Puerto
Rico Avoidance Action Trust executed a settlement agreement as to potential claims related to the role of the Popular Companies in
the offering of the challenged bond issuances. This matter
is now closed.
87
Note 22 – Non-consolidated variable interest
entities
The Corporation is
involved with
three
statutory trusts which
it created to
issue trust preferred
securities to the
public. These trusts
are deemed to be variable interest entities (“VIEs”) since the equity investors at risk have no substantial decision-making rights. The
Corporation does not
hold any variable
interest in the
trusts, and therefore,
cannot be the
trusts’ primary beneficiary.
Furthermore,
the
Corporation concluded
that
it did
not
hold
a
controlling financial
interest
in
these
trusts
since the
decisions
of
the
trusts
are
predetermined through
the trust
documents and the
guarantee of
the trust
preferred securities is
irrelevant since
in substance
the
sponsor is guaranteeing its own debt.
Also, the
Corporation is
involved with
various special
purpose entities
mainly in
guaranteed mortgage
securitization transactions,
including
GNMA
and
FNMA.
The
Corporation
has
also
engaged
in
securitization
transactions
with
FHLMC,
but
considers
its
exposure
in
the
form
of
servicing
fees
and
servicing
advances
not
to
be
significant
at
March
31,
2023
.
These
special
purpose
entities
are
deemed
to
be
VIEs
since
they
lack
equity
investments
at
risk.
The
Corporation’s
continuing
involvement
in
these
guaranteed loan
securitizations includes
owning certain
beneficial interests in
the form
of securities as
well as
the servicing
rights
retained. The Corporation is not required to provide additional financial support to
any of the variable interest entities to which it has
transferred
the
financial
assets.
The
mortgage-backed
securities,
to
the
extent
retained,
are
classified
in
the
Corporation’s
Consolidated
Statements
of
Financial
Condition
as
available-for-sale
or
trading
securities.
The
Corporation
concluded
that,
essentially,
these
entities
(FNMA
and
GNMA)
control
the
design
of
their
respective
VIEs,
dictate
the
quality
and
nature
of
the
collateral, require
the underlying
insurance, set
the servicing
standards via
the servicing
guides and
can change
them at
will, and
can remove a
primary servicer with cause,
and without cause in
the case of
FNMA. Moreover, through
their guarantee obligations,
agencies (FNMA and GNMA) have the obligation
to absorb losses that could be potentially significant
to the VIE.
The
Corporation
holds
variable
interests
in
these
VIEs
in
the
form
of
agency
mortgage-backed
securities
and
collateralized
mortgage obligations, including those securities originated by the Corporation and those acquired from
third parties. Additionally, the
Corporation holds agency mortgage-backed securities
and agency collateralized mortgage obligations
issued by third party
VIEs in
which
it
has
no
other
form
of
continuing
involvement. Refer
to
Note
24
to
the
Consolidated
Financial
Statements
for
additional
information on the debt securities outstanding at March 31,
2023 and December 31, 2022, which are classified
as available-for-sale
and
trading
securities
in
the
Corporation’s
Consolidated
Statements
of
Financial
Condition.
In
addition,
the
Corporation
holds
variable
interests
in
the
form
of
servicing
fees,
since
it
retains
the
right
to
service
the
transferred
loans
in
those
government-
sponsored special purpose entities (“SPEs”) and may also purchase the right to service loans in other government-sponsored SPEs
that were transferred to those SPEs by a third-party.
The following
table presents
the carrying
amount and
classification of
the assets
related to
the Corporation’s
variable interests
in
non-consolidated VIEs
and the
maximum exposure
to loss
as a
result of
the Corporation’s
involvement as
servicer of
GNMA and
FNMA loans at March 31, 2023 and December
31, 2022.
88
(In thousands)
March 31, 2023
December 31, 2022
Assets
Servicing assets:
Mortgage servicing rights
$
98,184
$
99,614
Total servicing
assets
$
98,184
$
99,614
Other assets:
Servicing advances
$
5,942
$
6,157
Total other assets
$
5,942
$
6,157
Total assets
$
104,126
$
105,771
Maximum exposure to loss
$
104,126
$
105,771
The size of
the non-consolidated VIEs,
in which the
Corporation has a
variable interest in
the form
of servicing fees,
measured as
the total unpaid principal balance of the loans,
amounted to $
7.5
billion at March 31, 2023 (December 31, 2022 - $
7.7
billion).
The Corporation
determined that
the maximum
exposure to
loss includes
the fair
value of
the MSRs
and the
assumption that
the
servicing advances at March
31, 2023 and December
31, 2022, will not
be recovered. The agency
debt securities are not
included
as part of the maximum exposure to loss since
they are guaranteed by the related agencies.
ASU 2009-17 requires that an ongoing primary beneficiary assessment should be made to determine whether the Corporation is the
primary beneficiary of any of the VIEs it is
involved with. The conclusion on the assessment of these non-consolidated VIEs has not
changed
since
their
initial
evaluation.
The
Corporation
concluded
that
it
is
still
not
the
primary
beneficiary
of
these
VIEs,
and
therefore, these VIEs are not required to be consolidated
in the Corporation’s financial statements at March 31,
2023.
89
Note 23 – Related party transactions
The Corporation
considers its
equity method
investees as
related parties.
The following
provides information
on transactions
with
equity method investees considered related parties.
EVERTEC
Until
August
15,
2022,
the
Corporation
had
an
investment
in
Evertec,
Inc.
(“Evertec”)
which
provides
various
processing
and
information
technology services
to
the
Corporation and
its
subsidiaries
and
gave
BPPR
access to
the
ATH
network owned
and
operated
by
Evertec.
This
investment
was
accounted
for
under
the
equity
method.
The
Corporation
recorded
$
0.6
million
in
dividends from its investment in Evertec during
the quarter ended March 31, 2022.
On July 1, 2022, BPPR completed its previously announced
acquisition of certain assets from Evertec Group,
LLC (“Evertec Group”)
to
service
certain
BPPR
channels.
In
connection
with
the
Evertec
Business
Acquisition
Transaction,
BPPR
also
entered
into
amended and
restated service
agreements with
Evertec Group
pursuant to
which Evertec
Group will
continue to
provide various
information
technology
and
transaction
processing
services
to
Popular,
BPPR
and
their
respective
subsidiaries.
As
part
of
the
transaction,
BPPR
and
Evertec
entered
into
a
revenue
sharing
structure
for
BPPR
in
connection
with
its
merchant
acquiring
relationship
with
Evertec.
On
August
15,
2022,
the
Corporation completed
the
sale
of
its
remaining
shares
of
common
stock
of
Evertec. As a
result, the Corporation discontinued accounting
for its proportionate share
of Evertec’s income
(loss) and changes in
stockholder’s equity under the equity method
of accounting in the third quarter of 2022.
The following
table presents
the Corporation’s
proportionate share
of Evertec’s
income (loss)
and changes
in stockholders’
equity
for the quarter ended March 31, 2022.
Quarter ended March 31,
(In thousands)
2022
Share of income from
investment in Evertec
$
6,318
Share of other changes in Evertec's stockholders' equity
1,787
Share of Evertec's changes in equity recognized in income
$
8,105
The following table presents
the impact of transactions and
service payments between the Corporation and Evertec
(as an affiliate)
and
their
impact
on
the
results
of
operations
for
the
quarter
ended
March
31,
2022.
Items
that
represent
expenses
to
the
Corporation are presented with parenthesis.
90
Quarter ended March 31,
(In thousands)
2022
Category
Interest expense on deposits
$
(132)
Interest expense
ATH and credit cards interchange
income from services to EVERTEC
6,683
Other service fees
Rental income charged to EVERTEC
1,681
Net occupancy
Processing fees on services provided by EVERTEC
(62,222)
Professional fees
Other services provided to EVERTEC
218
Other operating expenses
Total
$
(53,772)
Centro Financiero BHD León
At March
31, 2023,
the Corporation
had a
15.84
% equity
interest in
Centro Financiero
BHD León,
S.A. (“BHD
León”), one
of the
largest banking and financial services groups in the Dominican Republic. During the quarter ended March 31, 2023, the Corporation
recorded $
9.1
million in earnings from
its investment in BHD
León (March 31,
2022 - $
7.4
million), which had a
carrying amount of
$
201.4
million
at
March
31,
2023
(December
31,
2022
-
$
199.8
million).
There
were
no
dividends
distributions
received
by
the
Corporation from its investment in BHD León, during
the quarter ended March 31, 2023 and 2022.
Investment Companies
The Corporation,
through its subsidiary Popular
Asset Management LLC (“PAM”),
provides advisory services to several
investment
companies registered
under the
Investment Company
Act of
1940 in
exchange for
a fee.
The Corporation,
through its
subsidiary
BPPR, also
provides transfer
agency services to
these investment companies.
These fees
are calculated
at an
annual rate
of the
average net
assets of the
investment company,
as defined in
each agreement. Due
to its
advisory role, the
Corporation considers
these investment companies as related parties.
For the quarter ended March 31, 2023 administrative fees charged to
these investment companies amounted to $
0.6
million (March
31, 2022 -
0.7
million) and waived fees amounted to $
0.2
million (March 31, 2022 - $
0.3
million), for a net fee of $
0.4
million (March
31, 2022 - $
0.4
million).
91
Note 24 – Fair value measurement
ASC Subtopic
820-10 “Fair
Value
Measurements and
Disclosures” establishes
a fair
value hierarchy
that prioritizes
the inputs
to
valuation techniques
used to
measure fair
value into
three levels
in order
to increase
consistency and
comparability in
fair value
measurements and disclosures. The hierarchy is broken
down into three levels based on the reliability
of inputs as follows:
●
Level 1
- Unadjusted quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to
access at
the measurement date.
Valuation
on these
instruments does not
necessitate a
significant degree of
judgment
since valuations are based on quoted prices that
are readily available in an active market.
●
Level 2
- Quoted prices other than those included in Level 1 that are observable either directly or indirectly.
Level 2 inputs
include
quoted
prices
for
similar
assets
or
liabilities
in
active
markets,
quoted
prices
for
identical
or
similar
assets
or
liabilities in
markets that
are
not active,
or other
inputs that
are
observable or
that can
be corroborated
by
observable
market data for substantially the full term of the
financial instrument.
●
Level
3
-
Inputs
are
unobservable
and
significant
to
the
fair
value
measurement.
Unobservable
inputs
reflect
the
Corporation’s own judgements about assumptions that
market participants would use in pricing the asset
or liability.
The
Corporation
maximizes
the
use
of
observable
inputs
and
minimizes
the
use
of
unobservable
inputs
by
requiring
that
the
observable inputs be used when
available. Fair value is
based upon quoted market prices
when available. If listed prices
or quotes
are
not
available,
the
Corporation
employs
internally-developed
models
that
primarily
use
market-based
inputs
including
yield
curves, interest rates,
volatilities, and credit
curves, among others.
Valuation
adjustments are limited
to those necessary
to ensure
that the financial instrument’s
fair value is adequately representative of
the price that would
be received or paid
in the marketplace.
These adjustments include amounts that reflect counterparty credit quality,
the Corporation’s credit standing, constraints on liquidity
and unobservable parameters that are applied consistently.
There have been no changes in the
Corporation’s methodologies used
to estimate the fair value of assets and liabilities from
those disclosed in the 2022 Form 10-K.
The estimated fair
value may
be subjective in
nature and may
involve uncertainties and
matters of
significant judgment for
certain
financial instruments. Changes in the underlying assumptions
used in calculating fair value could significantly affect
the results.
Fair Value on a Recurring and Nonrecurring Basis
The following fair value hierarchy tables
present information about the Corporation’s assets
and liabilities measured at fair value
on
a recurring basis at March 31, 2023 and December
31, 2022:
92
At March 31, 2023
(In thousands)
Level 1
Level 2
Level 3
Measured at NAV
Total
RECURRING FAIR VALUE
MEASUREMENTS
Assets
Debt securities available-for-sale:
U.S. Treasury securities
$
1,865,470
$
8,769,277
$
-
$
-
$
10,634,747
Collateralized mortgage obligations - federal
agencies
-
158,772
-
-
158,772
Mortgage-backed securities
-
6,377,905
655
-
6,378,560
Other
-
49
1,000
-
1,049
Total debt securities
available-for-sale
$
1,865,470
$
15,306,003
$
1,655
$
-
$
17,173,128
Trading account debt securities, excluding
derivatives:
U.S. Treasury securities
$
15,462
$
-
$
-
$
-
$
15,462
Obligations of Puerto Rico, States and political
subdivisions
-
62
-
-
62
Collateralized mortgage obligations
-
45
88
-
133
Mortgage-backed securities
-
13,779
188
-
13,967
Other
-
-
199
-
199
Total trading account
debt securities, excluding
derivatives
$
15,462
$
13,886
$
475
$
-
$
29,823
Equity securities
$
-
$
32,545
$
-
$
318
$
32,863
Mortgage servicing rights
-
-
127,475
-
127,475
Loans held-for-sale
-
11,181
-
-
11,181
Derivatives
-
19,365
-
-
19,365
Total assets measured
at fair value on a
recurring basis
$
1,880,932
$
15,382,980
$
129,605
$
318
$
17,393,835
Liabilities
Derivatives
$
-
$
(17,115)
$
-
$
-
$
(17,115)
Total liabilities measured
at fair value on a
recurring basis
$
-
$
(17,115)
$
-
$
-
$
(17,115)
93
At December 31, 2022
(In thousands)
Level 1
Level 2
Level 3
Measured at NAV
Total
RECURRING FAIR VALUE
MEASUREMENTS
Assets
Debt securities available-for-sale:
U.S. Treasury securities
$
1,908,589
$
9,272,359
$
-
$
-
$
11,180,948
Collateralized mortgage obligations - federal
agencies
-
165,196
-
-
165,196
Mortgage-backed securities
-
6,456,459
711
-
6,457,170
Other
-
60
1,000
-
1,060
Total debt securities
available-for-sale
$
1,908,589
$
15,894,074
$
1,711
$
-
$
17,804,374
Trading account debt securities, excluding
derivatives:
U.S. Treasury securities
$
13,069
$
-
$
-
$
-
$
13,069
Obligations of Puerto Rico, States and political
subdivisions
-
64
-
-
64
Collateralized mortgage obligations
-
47
113
-
160
Mortgage-backed securities
-
14,008
215
-
14,223
Other
-
-
207
-
207
Total trading account
debt securities, excluding
derivatives
$
13,069
$
14,119
$
535
$
-
$
27,723
Equity securities
$
-
$
29,302
$
-
$
330
$
29,632
Mortgage servicing rights
-
-
128,350
-
128,350
Derivatives
-
19,229
-
-
19,229
Total assets measured
at fair value on a
recurring basis
$
1,921,658
$
15,956,724
$
130,596
$
330
$
18,009,308
Liabilities
Derivatives
$
-
$
(17,000)
$
-
$
-
$
(17,000)
Total liabilities measured
at fair value on a
recurring basis
$
-
$
(17,000)
$
-
$
-
$
(17,000)
Beginning in the first quarter of 2023, the Corporation
has elected the fair value option for BPPR
mortgage loans held for sale. This
election better aligns with the management of
the portfolio from a business perspective. As of
December 31, 2022, the Corporation
had not elected the fair value option for any
of the loans in the held for sale portfolio.
Loans held-for-sale measured at fair value
Loans held-for-sale measured at fair value were priced
based on secondary market prices. These loans
are classified as Level 2.
The following table summarizes the difference between
the aggregate fair value and the aggregate
unpaid principal balance for
mortgage loans held for sale measured at fair value
as of March 31,2023.
(In thousands)
March 31, 2023
Aggregate Unpaid
Fair Value
Principal Balance
Difference
Loans held for sale
$
11,181
$
11,116
$
65
No
loans held for sell were 90 or more days past
due or on nonaccrual status as of March 31,2023.
During the quarter ended March 31,2023, the Corporation
recognized an unrealized gain of $
70
thousand for changes in the fair
value of mortgage loans held for sale for which
we elected the fair value option, that was
offset by the changes in the fair value of
the related hedging instrument, both of which
are recorded within the mortgage banking activities
line item of the accompanying
Statement of Operations.
94
The fair value information included in the following
tables is not as of period end, but as
of the date that the fair value measurement
was recorded during the quarters ended March 31,
2023 and 2022 and excludes nonrecurring
fair value measurements of assets no
longer outstanding
as of the reporting date.
Quarter ended March 31, 2023
(In thousands)
Level 1
Level 2
Level 3
Total
NONRECURRING FAIR VALUE
MEASUREMENTS
Assets
Write-downs
Loans
[1]
$
-
$
-
$
1,629
$
1,629
$
(3)
Other real estate owned
[2]
-
-
2,330
2,330
(628)
Other foreclosed assets
[2]
-
-
15
15
(4)
Total assets measured
at fair value on a nonrecurring basis
$
-
$
-
$
3,974
$
3,974
$
(635)
[1] Relates mainly to certain impaired collateral dependent loans.
The impairment was measured based on the fair value
of the collateral, which is
derived from appraisals that take into consideration prices
in observed transactions involving similar assets in similar
locations. Costs to sell are
excluded from the reported fair value amount.
[2] Represents the fair value of foreclosed real estate and
other collateral owned that were written down to their fair
value. Costs to sell are
excluded from the reported fair value amount.
Quarter ended March 31, 2022
(In thousands)
Level 1
Level 2
Level 3
Total
NONRECURRING FAIR VALUE
MEASUREMENTS
Assets
Write-downs
Loans
[1]
$
-
$
-
$
4,891
$
4,891
$
(180)
Loans held-for-sale
[2]
-
-
55,150
55,150
(675)
Other real estate owned
[3]
-
-
1,432
1,432
(495)
Total assets measured
at fair value on a nonrecurring basis
$
-
$
-
$
61,473
$
61,473
$
(1,350)
[1] Relates mainly to certain impaired collateral dependent loans.
The impairment was measured based on the fair value
of the collateral, which is
derived from appraisals that take into consideration prices
in observed transactions involving similar assets in similar
locations. Costs to sell are
excluded from the reported fair value amount.
[2] Relates to a quarterly valuation on loans held-for-sale.
Costs to sell are excluded from the reported fair value amount.
[3] Represents the fair value of foreclosed real estate and
other collateral owned that were written down to their fair
value. Costs to sell are
excluded from the reported fair value amount.
The following tables present the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarters
ended March 31, 2023 and 2022.
Quarter ended March 31, 2023
MBS
Other
CMOs
MBS
Other
classified
securities
classified
classified
securities
as debt
classified as
as trading
as trading
classified
securities
debt securities
account
account
as trading
Mortgage
available-
available-
debt
debt
account debt
servicing
Total
(In thousands)
for-sale
for-sale
securities
securities
securities
rights
assets
Balance at December 31, 2022
$
711
$
1,000
$
113
$
215
$
207
$
128,350
$
130,596
Gains (losses) included in earnings
-
-
-
(1)
(8)
(1,376)
(1,385)
Gains (losses) included in OCI
(6)
-
-
-
-
-
(6)
Additions
-
-
-
-
-
501
501
Settlements
(50)
-
(25)
(26)
-
-
(101)
Balance at March 31, 2023
$
655
$
1,000
$
88
$
188
$
199
$
127,475
$
129,605
Changes in unrealized gains (losses) included
in earnings relating to assets still held at March
31, 2023
$
-
$
-
$
-
$
-
$
9
$
1,286
$
1,295
95
Quarter ended March 31, 2022
MBS
Other
classified
CMOs
securities
as investment
classified
classified
securities
as trading
as trading
Mortgage
available-
account
account
servicing
Total
Contingent
Total
(In thousands)
for-sale
securities
securities
rights
assets
consideration
liabilities
Balance at
December 31, 2021
$
826
$
198
$
280
$
121,570
$
122,874
$
9,241
$
9,241
Gains (losses) included in earnings
-
(1)
(13)
1,017
1,003
-
-
Gains (losses) included in OCI
(8)
-
-
-
(8)
-
-
Additions
-
2
-
2,771
2,773
-
-
Settlements
(25)
(25)
-
-
(50)
-
-
Balance at March 31, 2022
$
793
$
174
$
267
$
125,358
$
126,592
$
9,241
$
9,241
Changes in unrealized gains (losses)
included in earnings relating to assets
still held at March 31, 2022
$
-
$
(1)
$
5
$
4,252
$
4,256
$
-
$
-
Gains and losses (realized and unrealized) included in earnings for the quarters ended March 31, 2023 and 2022 for
Level 3 assets
and liabilities included in the previous tables are
reported in the consolidated statements of operations
as follows:
Quarter ended March 31, 2023
Quarter ended March 31, 2022
Changes in unrealized
Changes in unrealized
Total gains
gains (losses) relating to
Total gains
gains (losses) relating to
(losses) included
assets still held at
(losses) included
assets still held at
(In thousands)
in earnings
reporting date
in earnings
reporting date
Mortgage banking activities
$
(1,376)
$
1,286
$
1,017
$
4,252
Trading account (loss) profit
(9)
9
(14)
4
Total
$
(1,385)
$
1,295
$
1,003
$
4,256
96
The following
tables include
quantitative information
about significant
unobservable inputs
used to
derive the
fair value
of Level
3
instruments, excluding those instruments
for which the
unobservable inputs were not
developed by the
Corporation such as
prices
of prior transactions and/or unadjusted third-party pricing
sources at March 31, 2023 and 2022.
Fair value at
March 31,
(In thousands)
2023
Valuation technique
Unobservable inputs
Weighted average (range) [1]
CMO's - trading
$
88
Discounted cash flow model
Weighted average life
0.3
years (
0.1
-
0.5
years)
Yield
4.9
% (
4.9
% -
5.4
%)
Prepayment speed
9.2
% (
8.3
% -
27.8
%)
Other - trading
$
199
Discounted cash flow model
Weighted average life
2.5
years
Yield
12.0%
Prepayment speed
10.8%
Loans held-in-portfolio
$
1,560
[2]
External appraisal
Haircut applied on
external appraisals
35.0
%
[1]
Weighted average of significant unobservable inputs
used to develop Level 3 fair value measurements
were calculated by relative fair value.
[2]
Loans held-in-portfolio in which haircuts were not applied
to external appraisals were excluded from this table.
Fair value at
March 31,
(In thousands)
2022
Valuation technique
Unobservable inputs
Weighted average (range) [1]
CMO's - trading
$
174
Discounted cash flow model
Weighted average life
0.7
years (
0.5
-
1
years)
Yield
3.9
% (
3.9
% -
4.5
%)
Prepayment speed
8.4
% (
0.1
% -
15.7
%)
Other - trading
$
267
Discounted cash flow model
Weighted average life
2.9
years
Yield
12.0%
Prepayment speed
10.8%
Contingent consideration
$
(9,241)
Probability weighted
discounted cash flows
Discount rate
2.52
%
Loans held-in-portfolio
$
4,653
[2]
External appraisal
Haircut applied on
external appraisals
12.6
%
[1]
Weighted average of significant unobservable inputs
used to develop Level 3 fair value measurements
were calculated by relative fair value.
[2]
Loans held-in-portfolio in which haircuts were not applied
to external appraisals were excluded from this table.
97
Note 25 – Fair value of financial instruments
The fair
value of
financial instruments
is the
amount at
which an
asset or
obligation could
be exchanged
in a
current transaction
between
willing
parties,
other
than
in
a
forced
or
liquidation
sale.
For
those
financial
instruments
with
no
quoted
market
prices
available, fair values have been estimated using present
value calculations or other valuation techniques, as well
as management’s
best judgment with respect to current economic conditions, including discount rates, estimates of future cash flows, and prepayment
assumptions. Many of these
estimates involve various assumptions and
may vary significantly from
amounts that could be
realized
in actual transactions.
The fair values
reflected herein have been
determined based on the
prevailing rate environment at
March 31, 2023
and December
31, 2022, as applicable. In different interest rate environments,
fair value estimates can differ significantly, especially for certain fixed
rate
financial
instruments.
In
addition,
the
fair
values
presented
do
not
attempt
to
estimate
the
value
of
the
Corporation’s
fee
generating businesses
and anticipated
future business
activities, that
is, they
do not
represent the
Corporation’s value
as a
going
concern. There have been
no changes in the
Corporation’s valuation methodologies and inputs
used to estimate the
fair values for
each class of financial assets and liabilities not measured
at fair value.
The following tables present the
carrying amount and estimated fair
values of financial instruments with their
corresponding level in
the fair
value hierarchy.
The aggregate
fair value
amounts of
the financial
instruments disclosed
do not
represent management’s
estimate of the underlying value of the Corporation.
98
March 31, 2023
Carrying
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
Financial Assets:
Cash and due from banks
$
462,013
$
462,013
$
-
$
-
$
-
$
462,013
Money market investments
6,098,288
6,091,115
7,173
-
-
6,098,288
Trading account debt securities, excluding
derivatives
[1]
29,823
15,462
13,886
475
-
29,823
Debt securities available-for-sale
[1]
17,173,128
1,865,470
15,306,003
1,655
-
17,173,128
Debt securities held-to-maturity:
U.S. Treasury securities
$
8,494,652
$
-
$
8,534,105
$
-
$
-
$
8,534,105
Obligations of Puerto Rico, States and political
subdivisions
55,633
-
-
57,839
-
57,839
Collateralized mortgage obligation-federal agency
16
-
-
16
-
16
Securities in wholly owned statutory business trusts
5,959
-
5,959
-
-
5,959
Total debt securities
held-to-maturity
$
8,556,260
$
-
$
8,540,064
$
57,855
$
-
$
8,597,919
Equity securities:
FHLB stock
$
49,265
$
-
$
49,265
$
-
$
-
$
49,265
FRB stock
99,134
-
99,134
-
-
99,134
Other investments
37,518
-
32,545
5,482
318
38,345
Total equity securities
$
185,917
$
-
$
180,944
$
5,482
$
318
$
186,744
Loans held-for-sale
$
11,181
$
-
$
11,181
$
-
$
-
$
11,181
Loans held-in-portfolio
31,649,253
-
-
30,066,069
-
30,066,069
Mortgage servicing rights
127,475
-
-
127,475
-
127,475
Derivatives
19,365
-
19,365
-
-
19,365
March 31, 2023
Carrying
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
Financial Liabilities:
Deposits:
Demand deposits
$
53,547,761
$
-
$
53,547,761
$
-
$
-
$
53,547,761
Time deposits
7,406,127
-
7,019,993
-
-
7,019,993
Total deposits
$
60,953,888
$
-
$
60,567,754
$
-
$
-
$
60,567,754
Assets sold under agreements to repurchase
$
123,499
$
-
$
123,487
$
-
$
-
$
123,487
Notes payable:
FHLB advances
$
388,282
$
-
$
365,862
$
-
$
-
$
365,862
Unsecured senior debt securities
692,519
-
693,253
-
-
693,253
Junior subordinated deferrable interest debentures
(related to trust preferred securities)
198,326
-
177,823
-
-
177,823
Total notes payable
$
1,279,127
$
-
$
1,236,938
$
-
$
-
$
1,236,938
Derivatives
$
17,115
$
-
$
17,115
$
-
$
-
$
17,115
[1]
Refer to Note 24 to the Consolidated Financial Statements
for the fair value by class of financial asset and its hierarchy
level.
99
December 31, 2022
Carrying
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
Financial Assets:
Cash and due from banks
$
469,501
$
469,501
$
-
$
-
$
-
$
469,501
Money market investments
5,614,595
5,607,937
6,658
-
-
5,614,595
Trading account debt securities, excluding
derivatives
[1]
27,723
13,069
14,119
535
-
27,723
Debt securities available-for-sale
[1]
17,804,374
1,908,589
15,894,074
1,711
-
17,804,374
Debt securities held-to-maturity:
U.S. Treasury securities
$
8,453,467
$
-
$
8,372,601
$
-
$
-
$
8,372,601
Obligations of Puerto Rico, States and political
subdivisions
59,010
-
-
61,617
-
61,617
Collateralized mortgage
obligation-federal agency
19
-
-
19
-
19
Securities in wholly owned statutory business trusts
5,959
-
5,959
-
-
5,959
Total debt securities
held-to-maturity
$
8,518,455
$
-
$
8,378,560
$
61,636
$
-
$
8,440,196
Equity securities:
FHLB stock
$
65,861
$
-
$
65,861
$
-
$
-
$
65,861
FRB stock
96,206
-
96,206
-
-
96,206
Other investments
33,787
-
29,302
4,966
330
34,598
Total equity securities
$
195,854
$
-
$
191,369
$
4,966
$
330
$
196,665
Loans held-for-sale
$
5,381
$
-
$
-
$
5,404
$
-
$
5,404
Loans held-in-portfolio
31,357,467
-
-
29,366,365
-
29,366,365
Mortgage servicing rights
128,350
-
-
128,350
-
128,350
Derivatives
19,229
-
19,229
-
-
19,229
December 31, 2022
Carrying
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
Financial Liabilities:
Deposits:
Demand deposits
$
54,445,825
$
-
$
54,445,825
$
-
$
-
$
54,445,825
Time deposits
6,781,402
-
6,464,943
-
-
6,464,943
Total deposits
$
61,227,227
$
-
$
60,910,768
$
-
$
-
$
60,910,768
Assets sold under agreements to repurchase
$
148,609
$
-
$
148,566
$
-
$
-
$
148,566
Other short-term borrowings
[2]
365,000
-
365,000
-
-
365,000
Notes payable:
-
FHLB advances
$
389,282
$
-
$
361,951
$
-
$
-
$
361,951
Unsecured senior debt securities
299,109
-
300,027
-
-
300,027
Junior subordinated deferrable interest debentures
(related to trust preferred securities)
198,319
-
173,938
-
-
173,938
Total notes payable
$
886,710
$
-
$
835,916
$
-
$
-
$
835,916
Derivatives
$
17,000
$
-
$
17,000
$
-
$
-
$
17,000
[1]
Refer to Note 24 to the Consolidated Financial Statements
for the fair value by class of financial asset and its hierarchy
level.
[2]
Refer to Note 16 to the Consolidated Financial Statements
for the composition of other short-term borrowings.
The notional amount
of commitments to extend
credit at March
31, 2023 and
December 31, 2022 is
$
10.9
billion and $
10.5
billion,
respectively,
and represents the
unused portion of
credit facilities
granted to customers.
The notional amount
of letters of
credit at
March 31, 2023 and December 31, 2022 is $
31
million and represents the contractual amount that is required
to be paid in the event
of nonperformance.
The fair
value of
commitments to
extend credit
and letters
of credit,
which are
based on
the fees
charged to
enter into those agreements, are not material
to Popular’s financial statements.
100
Note 26 – Net income per common share
The following table
sets forth the
computation of net
income per common
share (“EPS”), basic
and diluted, for
the quarters
ended
March 31, 2023 and 2022
:
Quarters ended March 31,
(In thousands, except per share information)
2023
2022
Net income
$
158,979
$
211,686
Preferred stock dividends
(353)
(353)
Net income applicable to common stock
$
158,626
$
211,333
Average common shares outstanding
71,541,778
78,443,706
Average potential dilutive common shares
64,418
151,757
Average common shares outstanding - assuming dilution
71,606,196
78,595,463
Basic EPS
$
2.22
$
2.69
Diluted EPS
$
2.22
$
2.69
For the quarters
ended March 31, 2023 and
2022, the Corporation calculated the impact
of potential dilutive common shares under
the
treasury
stock
method,
consistent
with
the
method
used
for
the
preparation
of
the
financial
statements
for
the
year
ended
December
31,
2022.
For
a
discussion
of
the
calculation
under
the
treasury
stock
method,
refer
to
Note
31
of
the
Consolidated
Financial Statements included in the 2022 Form 10-K.
101
Note 27 – Revenue from contracts with customers
The
following
table
presents
the
Corporation’s
revenue
streams
from
contracts
with
customers
by
reportable
segment
for
the
quarters ended March 31, 2023 and 2022
.
Quarters ended March 31,
(In thousands)
2023
2022
BPPR
Popular U.S.
BPPR
Popular U.S.
Service charges on deposit accounts
$
32,152
$
2,526
$
37,985
$
2,728
Other service fees:
Debit card fees
12,948
218
11,562
217
Insurance fees, excluding reinsurance
10,798
1,307
10,038
1,322
Credit card fees, excluding late fees and membership
fees
36,174
579
30,222
324
Sale and administration of investment products
6,558
-
5,791
-
Trust fees
5,896
-
6,149
-
Total revenue from
contracts with customers
[1]
$
104,526
$
4,630
$
101,747
$
4,591
[1] The amounts include intersegment transactions of $
1.6
million and $
1.5
million, respectively, for the
quarters ended March 31, 2023 and 2022.
Revenue from contracts with
customers is recognized when,
or as, the performance
obligations are satisfied by
the Corporation by
transferring the
promised services
to
the customers.
A
service is
transferred to
the customer
when, or
as, the
customer obtains
control
of
that
service.
A
performance obligation
may
be
satisfied over
time
or
at
a
point
in
time.
Revenue from
a
performance
obligation satisfied
over time
is recognized
based on
the services
that have
been rendered
to date.
Revenue from
a performance
obligation satisfied at a point in time
is recognized when the customer obtains control over the
service. The transaction price, or the
amount of revenue
recognized, reflects the
consideration the Corporation expects
to be entitled
to in exchange
for those promised
services. In determining the transaction price, the Corporation considers the effects of variable consideration. Variable consideration
is included
in the
transaction price
only to
the extent
it is
probable that a
significant reversal
in the
amount of
cumulative revenue
recognized will
not occur.
The Corporation
is the
principal in
a transaction
if it
obtains control
of the
specified goods
or services
before they
are transferred
to
the customer.
If the
Corporation acts
as principal,
revenues are
presented in
the gross
amount of
consideration to which it expects to
be entitled and are not
netted with any related expenses. On the
other hand, the Corporation
is
an agent if it does not control
the specified goods or services before they are transferred
to the customer. If
the Corporation acts as
an agent, revenues are presented in the amount
of consideration to which it expects to be entitled,
net of related expenses.
Following is a description of the nature and timing
of revenue streams from contracts with customers:
Service charges on deposit accounts
Service
charges
on
deposit
accounts
are
earned
on
retail
and
commercial
deposit
activities
and
include,
but
are
not
limited
to,
nonsufficient fund
fees, overdraft
fees and
checks stop
payment fees.
These transaction-based
fees are
recognized at
a point
in
time,
upon
occurrence
of
an
activity
or
event
or
upon
the
occurrence
of
a
condition
which
triggers
the
fee
assessment.
The
Corporation is acting as principal in these transactions.
Debit card fees
Debit card fees include, but are not limited to, interchange
fees, surcharging income and foreign transaction
fees.
These transaction-
based fees
are recognized at
a point in
time, upon
occurrence of an
activity or
event or upon
the occurrence of
a condition which
triggers
the
fee
assessment.
Interchange
fees
are
recognized
upon
settlement
of
the
debit
card
payment
transactions.
The
Corporation is acting as principal in these transactions.
Insurance fees
Insurance fees
include, but
are
not limited
to, commissions
and contingent
commissions.
Commissions and
fees
are
recognized
when related
policies are effective
since the Corporation
does not
have an enforceable
right to
payment for services
completed to
date.
An
allowance
is
created
for
expected
adjustments
to
commissions
earned
related
to
policy
cancellations.
Contingent
commissions
are
recorded
on
an
accrual
basis
when
the
amount
to
be
received
is
notified
by
the
insurance
company.
The
102
Corporation is acting
as an
agent since it
arranges for the
sale of
the policies and
receives commissions if,
and when, it
achieves
the sale.
Credit card fees
Credit card
fees include,
but are
not limited
to, interchange
fees, additional
card fees,
cash advance
fees, balance
transfer fees,
foreign transaction fees, and returned payments
fees. Credit card fees are
recognized at a point in
time, upon the occurrence of an
activity or
an event.
Interchange fees
are recognized
upon settlement
of the
credit card
payment transactions. The
Corporation is
acting as principal in these transactions.
Sale and administration of investment products
Fees from
the sale
and administration
of investment
products include,
but are
not limited
to, commission
income from
the sale
of
investment products, asset management fees, underwriting
fees, and mutual fund fees.
Commission income from investment products is recognized on the trade date since clearing, trade execution, and custody services
are satisfied when
the customer acquires
or disposes of
the rights to
obtain the economic
benefits of the
investment products and
brokerage contracts have no fixed duration and
are terminable at will by
either party. The
Corporation is acting as principal in these
transactions since it
performs the service
of providing the
customer with the
ability to acquire
or dispose of
the rights to
obtain the
economic benefits of investment products.
Asset
management
fees
are
satisfied
over
time
and
are
recognized
in
arrears.
At
contract
inception,
the
estimate
of
the
asset
management fee
is constrained
from the
inclusion in
the transaction
price since
the promised
consideration is
dependent on
the
market and thus
is highly susceptible
to factors
outside the manager’s
influence. As advisor,
the broker-dealer subsidiary
is acting
as principal.
Underwriting fees are
recognized at a point
in time, when
the investment products
are sold in
the open market at
a markup. When
the broker-dealer subsidiary is lead
underwriter, it is
acting as an agent. In
turn, when it is
a participating underwriter, it
is acting as
principal.
Mutual fund fees,
such as distribution fees,
are considered variable consideration
and are recognized over
time, as the
uncertainty
of the fees to be
received is resolved as NAV
is determined and investor activity occurs. The
promise to provide distribution-related
services
is
considered
a
single
performance
obligation
as
it
requires
the
provision
of
a
series
of
distinct
services
that
are
substantially the same and have the same pattern of
transfer. When the broker-dealer subsidiary is acting as a distributor, it is acting
as principal. In turn, when it acts as third-party dealer, it is acting
as an agent.
Trust fees
Trust fees
are recognized from
retirement plan, mutual fund
administration, investment management, trustee, escrow,
and custody
and
safekeeping services.
These
asset
management services
are
considered
a
single
performance obligation
as
it
requires the
provision of
a series
of distinct
services that
are substantially
the same
and have
the same
pattern of
transfer.
The performance
obligation
is
satisfied
over
time,
except
for
optional
services
and
certain
other
services
that
are
satisfied
at
a
point
in
time.
Revenues are recognized in
arrears,
when, or as,
the services are rendered.
The Corporation is
acting as principal since,
as asset
manager, it has the obligation to provide the specified service to the customer and
has the ultimate discretion in establishing the fee
paid by the customer for the specified services.
103
Note 28 – Leases
The
Corporation enters
in
the
ordinary course
of
business
into
operating and
finance
leases
for
land,
buildings
and
equipment.
These contracts generally do
not include purchase options
or residual value guarantees.
The remaining lease terms
of
0.1
to
31.8
years
considers options
to
extend the
leases for
up
to
20
years. The
Corporation identifies
leases when
it
has
both the
right to
obtain substantially all of the economic benefits from
the use of the asset and the right to direct
the use of the asset.
The Corporation
recognizes right-of-use
assets (“ROU
assets”) and
lease liabilities
related to
operating and
finance leases
in its
Consolidated Statements of Financial Condition under the caption of other assets and other liabilities, respectively. Refer to Note 13
and
Note
17
to
the
Consolidated Financial
Statements,
respectively,
for
information
on
the
balances
of
these
lease
assets
and
liabilities.
The Corporation uses the
incremental borrowing rate for
purposes of discounting lease payments
for operating and finance leases,
since it
does not have
enough information to
determine the rates
implicit in the
leases. The discount
rates are based
on fixed-rate
and
fully
amortizing
borrowing
facilities
of
its
banking
subsidiaries
that
are
collateralized.
For
leases
held
by
non-banking
subsidiaries, a credit spread is added to this rate
based on financing transactions with a
similar credit risk profile.
The following table presents the undiscounted
cash flows of operating and finance leases for
each of the following periods:
March 31, 2023
(In thousands)
Remaining
2023
2024
2025
2026
2027
Later
Years
Total Lease
Payments
Less:
Imputed
Interest
Total
Operating Leases
$
22,345
$
28,441
$
25,514
$
16,995
$
11,769
$
44,279
$
149,343
$
(17,905)
$
131,438
Finance Leases
3,404
4,631
4,743
4,402
2,468
9,346
28,994
(3,265)
25,729
The following table presents the lease cost recognized
by the Corporation in the Consolidated
Statements of Operations as follows:
Quarters ended March 31,
(In thousands)
2023
2022
Finance lease cost:
Amortization of ROU assets
$
824
$
759
Interest on lease liabilities
296
308
Operating lease cost
7,854
7,627
Short-term lease cost
73
55
Variable lease cost
56
23
Sublease income
(9)
(9)
Total lease cost
[1]
$
9,094
$
8,763
[1]
Total lease cost
is recognized as part of net occupancy expense.
104
The
following
table
presents
supplemental
cash
flow
information
and
other
related
information
related
to
operating
and
finance
leases.
Quarters ended March 31,
(Dollars in thousands)
2023
2022
Cash paid for amounts included in the measurement of
lease liabilities:
Operating cash flows from operating leases
$
7,754
$
7,506
Operating cash flows from finance leases
296
308
Financing cash flows from finance leases
804
833
ROU assets obtained in exchange for new lease obligations:
Operating leases
$
967
$
1,553
Finance leases
1,796
-
Weighted-average remaining lease term:
Operating leases
7.3
years
7.6
years
Finance leases
8.2
years
8.7
years
Weighted-average discount rate:
Operating leases
3.0
%
2.8
%
Finance leases
4.1
%
4.4
%
As of March 31, 2023, the Corporation has additional operating
leases contracts that have not yet commenced with an undiscounted
contract amount of $
6.8
million, which will have lease terms ranging
from
10
to
20
years.
105
Note 29 – Pension and postretirement benefits
The
Corporation
has
a
non-contributory
defined
benefit
pension
plan
and
supplementary
pension
benefit
restoration
plans
for
regular employees of
certain of its
subsidiaries (the “Pension
Plans”). The accrual
of benefits under
the Pension Plans
is frozen to
all
participants.
The
Corporation
also
provides
certain
postretirement
health
care
benefits
for
retired
employees
of
certain
subsidiaries (the “OPEB Plan”).
The components of net periodic cost for the Pension
Plans and the OPEB Plan for the periods presented
were as follows:
Pension Plans
OPEB Plan
Quarter ended March 31,
Quarter ended March 31,
(In thousands)
2023
2022
2023
2022
Personnel Cost:
Service cost
$
-
$
-
$
48
$
121
Other operating expenses:
Interest cost
7,887
4,800
1,520
983
Expected return on plan assets
(8,591)
(8,847)
-
-
Amortization of prior service cost/(credit)
-
-
-
-
Amortization of net loss
5,366
3,911
(553)
-
Total net periodic
pension cost
$
4,662
$
(136)
$
1,015
$
1,104
The Corporation
paid the
following contributions
to the
plans for
the three
months ended
March 31,
2023 and
expects to
pay the
following contributions for the year ending December
31, 2023.
For the three months
ended
For the year ending
(In thousands)
March 31, 2023
December 31, 2023
Pension Plans
$
57
$
228
OPEB Plan
$
1,566
$
5,924
106
Note 30 - Stock-based compensation
On May 12,
2020, the stockholders of
the Corporation approved the
Popular, Inc.
2020 Omnibus Incentive Plan,
which permits the
Corporation to
issue several
types of
stock-based compensation
to employees
and directors
of the
Corporation and/or
any of
its
subsidiaries (the
“2020 Incentive
Plan”). The
2020 Incentive
Plan replaced
the Popular,
Inc. 2004
Omnibus Incentive
Plan, which
was in effect
prior to the adoption of
the 2020 Incentive Plan (the
“2004 Incentive Plan” and, together
with the 2020 Incentive
Plan,
the “Incentive Plan”). Participants under the Incentive Plan are designated by the Talent and Compensation Committee of the Board
of Directors (or its delegate, as determined by the Board). Under the Incentive Plan, the Corporation has issued restricted stock and
performance shares to its employees and restricted
stock and restricted stock units (“RSUs”)
to its directors.
The restricted
stock granted
under the
Incentive Plan
to employees
becomes vested
based on
the employees’
continued service
with
Popular.
Unless otherwise stated in an agreement, the compensation cost associated with the shares of restricted stock
granted prior to 2021 was determined based on a two-prong vesting schedule. The first part is vested ratably over five or four years
commencing at the date of grant (“the graduated vesting portion”) and the second part is vested at termination of employment after
attainment of 55 years of age and 10 years of service or 60 years of age and 5 years of service (“the retirement vesting portion”).
The graduated vesting portion is accelerated at termination of employment after attaining the earlier of 55 years of age and 10 years
of service or 60 years of age and 5 years of service. Restricted stock granted on or after 2021 will vest ratably in equal annual
installments over a period of 4 years or 3 years, depending on the classification of the employee. The vesting schedule is
accelerated at termination of employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age
and 5 years of service.
The
performance share
awards
granted
under
the
Incentive
Plan
consist
of
the
opportunity
to
receive
shares
of
Popular,
Inc.’s
common stock provided that the Corporation achieves certain goals during a three-year performance cycle.
The goals will be based
on
two
metrics
weighted
equally:
the
Relative
Total
Shareholder
Return
(“TSR”)
and
the
Absolute
Return
on
Average
Tangible
Common Equity
(“ROATCE”).
The TSR metric
is considered to
be a
market condition under
ASC 718.
For equity settled
awards
based
on a
market condition,
the
fair value
is
determined as
of the
grant date
and
is not
subsequently revised
based on
actual
performance.
The ROATCE
metrics
is considered
to
be a
performance condition
under ASC
718.
The fair
value is
determined
based on
the probability
of achieving
the ROATCE
goal as
of each
reporting period.
The TSR
and ROATCE
metric are
equally
weighted and
work independently.
The number of shares that will ultimately vest ranges from 50% to a 150% of target based on
both market (TSR) and performance (ROATCE) conditions. The performance shares vest at the end of the three-year performance
cycle. If a participant terminates employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age
and 5 years of service, the performance shares shall continue outstanding and vest at the end of the performance cycle.
The
following
table
summarizes
the
restricted
stock
and
performance
shares
activity
under
the
Incentive
Plan
for
members
of
management.
107
(Not in thousands)
Shares
Weighted-Average
Grant Date Fair
Value
Non-vested at December 31, 2021
321,883
$
47.98
Granted
194,791
84.29
Performance Shares Quantity Adjustment
6,947
78.02
Vested
(240,033)
66.11
Forfeited
(1,625)
78.86
Non-vested at December 31, 2022
281,963
$
56.50
Granted
127,203
74.29
Performance Shares Quantity Adjustment
5,674
64.57
Vested
(128,027)
68.60
Forfeited
(12,375)
56.76
Non-vested at March 31, 2023
274,438
$
58.48
During the
quarter ended
March 31,
2023,
69,488
shares of
restricted stock
(March 31,
2022 -
52,584
) and
57,715
performance
shares (March 31, 2022 -
56,857
) were awarded to management under the
Incentive Plan.
During
the
quarter
ended
March
31,
2023,
the
Corporation
recognized
$
4.4
million
of
restricted
stock
expense
related
to
management incentive awards, with a tax benefit of
$
0.3
million (March 31, 2022 - $
4.5
million, with a tax benefit of $
0.5
million). For
the quarter ended
March 31, 2023,
the fair market
value of the
restricted stock and performance
shares vested was
$
5.8
million at
grant date and $
8.9
million at vesting date.
These differential triggers a
windfall, of $
1.1
million that was recorded
as a reduction in
income
tax
expense.
For
the
quarter
ended
March
31,
2023,
the
Corporation
recognized
$
3.6
million
of
performance
shares
expense, with a tax
benefit of $
0.1
million (March 31, 2022
- $
3.7
million, with a
tax benefit of
$
0.3
million). The total
unrecognized
compensation cost related to non-vested restricted stock awards and performance shares to members of management at March 31,
2023 was $
11.4
million and is expected to be recognized over
a weighted-average period of
1.72
years.
The following table summarizes the restricted stock
activity under the Incentive Plan for members of
the Board of Directors:
(Not in thousands)
Restricted Stock units
Weighted-Average
Grant Date Fair
Value per Unit
Non-vested at December 31, 2021
$
-
$
-
Granted
25,321
77.48
Vested
(25,321)
77.48
Forfeited
-
-
Non-vested at December 31, 2022
$
-
$
-
Granted
1,029
65.57
Vested
(1,029)
65.57
Forfeited
-
-
Non-vested at March 31, 2023
$
-
$
-
The
equity
awards
granted
to
members
of
the
Board
of
Directors
of
Popular,
Inc.
(the
“Directors”)
will
vest
and
become
non-
forfeitable on the
grant date
of such
award. Effective in
May 2019 all
equity awards granted
to the
Directors may be
paid in
either
restricted
stocks
or
RSUs,
at
the
Directors’
election.
If
RSUs
are
elected
the
Directors
may
defer
the
delivery
of
the
shares
of
common stock
underlying the
RSU award
after their
retirement. To
the extent
that cash
dividends are
paid on
the Corporation’s
outstanding common stock, the Directors
will receive an additional number of RSUs
that reflect reinvested dividend equivalent.
During the
quarter ended March
31, 2023,
1,029
RSUs were granted
to the
Directors (March 31,
2022 -
530
).
During this period,
the Corporation
recognized $
67
thousand of
restricted stock
expense related
to
these RSUs,
with a
tax
benefit of
$
13
thousand
(March 31,
2022 -
$
44
thousand, with
a tax
benefit of
$
8
thousand). The
fair value
at vesting
date of
the RSUs
vested during
the
quarter ended March 31, 2023 for Directors was
$
67
thousand
.
108
Note 31 – Income taxes
The reason for the difference between the income
tax expense applicable to income before provision
for income taxes and the
amount computed by applying the statutory tax rate
in Puerto Rico, were as follows:
Quarters ended
March 31, 2023
March 31, 2022
(In thousands)
Amount
% of pre-tax
income
Amount
% of pre-tax
income
Computed income tax expense at statutory rates
$
76,985
38
%
$
98,312
38
%
Net benefit of tax exempt interest income
(21,902)
(11)
(42,869)
(16)
Effect of income subject to preferential tax rate
(855)
-
(3,945)
(2)
Deferred tax asset valuation allowance
(4,565)
(2)
3,891
1
Difference in tax rates due to multiple jurisdictions
(5,169)
(3)
(6,493)
(2)
State and local taxes
3,355
2
3,665
1
Others
(1,535)
(1)
(2,082)
(1)
Income tax expense
$
46,314
23
%
$
50,479
19
%
For the quarter ended March 31, 2023,
the Corporation recorded an income tax expense
of $
46.3
million compared to $
50.5
million
for the
quarter ended
March 31,2022.
The decrease
in income
tax expense
was due
to a
lower pre-tax
income and
reversal of
a
valuation
allowance
on
a
tax
credit
expected
to
be
realized
on
the
U.
S.
operations
as
a
result
of
the
implementation
of
the
Corporate Alternative
Minimum
Tax.
This
positive variance
was
partially offset
by
lower benefits
on
the
exempt income,
mainly
associated with the allocation of higher interest
expense disallowance.
The following table presents a breakdown of the
significant components of the Corporation’s deferred tax assets
and liabilities.
109
March 31, 2023
(In thousands)
PR
US
Total
Deferred tax assets:
Tax credits available
for carryforward
$
261
$
4,726
$
4,987
Net operating loss and other carryforward available
121,758
655,505
777,263
Postretirement and pension benefits
47,039
-
47,039
Allowance for credit losses
238,695
30,628
269,323
Depreciation
6,033
6,257
12,290
FDIC-assisted transaction
152,665
-
152,665
Lease liability
27,995
22,427
50,422
Unrealized net loss on investment securities
235,932
20,832
256,764
Difference in outside basis from pass-through entities
32,800
-
32,800
Mortgage Servicing Rights
13,012
-
13,012
Other temporary differences
29,835
8,589
38,424
Total gross deferred
tax assets
906,025
748,964
1,654,989
Deferred tax liabilities:
Intangibles
82,103
55,415
137,518
Right of use assets
25,631
19,322
44,953
Deferred loan origination fees/cost
1,804
2,995
4,799
Loans acquired
22,134
-
22,134
Other temporary differences
6,159
422
6,581
Total gross deferred
tax liabilities
137,831
78,154
215,985
Valuation allowance
138,016
396,472
534,488
Net deferred tax asset
$
630,178
$
274,338
$
904,516
December 31, 2022
(In thousands)
PR
US
Total
Deferred tax assets:
Tax credits available
for carryforward
$
261
$
2,781
$
3,042
Net operating loss and other carryforward available
121,742
661,144
782,886
Postretirement and pension benefits
47,122
-
47,122
Allowance for credit losses
250,615
32,688
283,303
Depreciation
5,972
6,309
12,281
FDIC-assisted transaction
152,665
-
152,665
Lease liability
28,290
23,521
51,811
Unrealized net loss on investment securities
265,955
23,913
289,868
Difference in outside basis from pass-through entities
40,602
-
40,602
Mortgage Servicing Rights
13,711
-
13,711
Other temporary differences
17,122
7,815
24,937
Total gross deferred
tax assets
944,057
758,171
1,702,228
Deferred tax liabilities:
Intangibles
81,174
54,623
135,797
Right of use assets
26,015
20,262
46,277
Deferred loan origination fees/cost
1,076
2,961
4,037
Loans acquired
23,353
-
23,353
Other temporary differences
1,531
-
1,531
Total gross deferred
tax liabilities
133,149
77,846
210,995
Valuation allowance
137,863
402,333
540,196
Net deferred tax asset
$
673,045
$
277,992
$
951,037
110
The
net
deferred tax
asset
shown
in
the
table
above
at
March
31,
2023
is
reflected
in
the
consolidated statements
of
financial
condition as $
0.9
billion in net deferred tax assets in the
“Other assets” caption (December 31, 2022 - $
1.0
billion) and $
3.2
million in
deferred
tax
liabilities
in
the
“Other
liabilities”
caption
(December 31,
2022
-
$
2.6
million),
reflecting
the
aggregate
deferred
tax
assets
or
liabilities
of
individual
tax-paying
subsidiaries
of
the
Corporation
in
their
respective tax
jurisdiction, Puerto
Rico
or
the
United States.
At
March
31,
2023
the
net
deferred
tax
asset
of
the
U.S.
operations
amounted
to
$
671
million
with
a
valuation
allowance
of
approximately $
396
million, for
a net
deferred tax
asset after
valuation allowance
of approximately
$
274
million. The
Corporation
evaluates
the
realization
of
the
deferred tax
asset
on
a
quarterly
basis
by
taxing
jurisdiction. The
U.S.
operation
has
sustained
profitability for
last three
calendar years
and for
the quarter
ended March 31,
2023. These
financial results
demonstrated
financial
stability for
the U.S.
operations, despite
the climate
of uncertainty
as a
result of
global geopolitical
and health
challenges.
These
historical financial
results are objectively
verifiable positive
evidence, evaluated together
with the
positive evidence of
stable credit
metrics, in
combination with
the length
of the
expiration of
the NOLs.
On the
other hand,
the Corporation
evaluated the
negative
evidence accumulated
over the
years,
including financial
results lower
than
expectations and
challenges to
the economy
due to
global geopolitical uncertainty.
As of March 31,
2023, after weighting all
positive and negative evidence, the
Corporation concluded
that it is more likely than not that approximately $
274
million of the deferred tax asset from the U.S. operations, comprised mainly of
net operating
losses, will
be realized.
The Corporation
based this
determination on
its estimated
earnings available
to realize
the
deferred tax
asset for
the remaining
carryforward period,
together with
the historical
level of
book income
adjusted by
permanent
differences. Management
will continue
to monitor
and review
the U.S.
operation’s results
and the
pre-tax earnings
forecast on
a
quarterly
basis to
assess the
future realization
of the
deferred tax
asset.
Management will
closely monitor
factors, including,
net
income versus
forecast, targeted
loan growth,
net interest
income margin,
changes in
deposits costs,
allowance for
credit losses,
charge offs, NPLs inflows and NPA balances.
At March 31, 2023, the Corporation’s net deferred tax
assets related to its Puerto Rico operations amounted
to $
630
million.
The Corporation’s Puerto Rico Banking operation is not in a cumulative loss position and has sustained profitability for the last three
calendar
years
and
for
the
quarter
ended
March
31,
2023.
This
is
considered
a
strong
piece
of
objectively
verifiable
positive
evidence that
outweighs any negative
evidence considered by
management in the
evaluation of the
realization of
the deferred tax
asset.
Based on this evidence and management’s
estimate of future taxable income, the Corporation
has concluded that it is
more
likely than not that such net deferred tax asset of
the Puerto Rico Banking operations will be realized.
The
Holding
Company
operation
is
in
a
cumulative
loss
position,
taking
into
account
taxable
income
exclusive
of
reversing
temporary
differences, for
the
last
three
calendar
years
and for
the
quarter ended
March
31,
2023.
Management expects
these
losses will
be a
trend in
future years.
This objectively
verifiable negative
evidence is
considered by
management strong
negative
evidence that
will suggest
that income
in future
years will
be insufficient
to support
the realization
of all
deferred tax
assets. After
weighting of all
positive and negative
evidence management concluded, as
of the reporting
date, that it
is more likely
than not that
the Holding Company will not be able
to realize any portion of the
deferred tax assets. Accordingly,
the Corporation has maintained
a valuation allowance on the deferred tax asset
of $
138
million as of March 31, 2023.
The reconciliation of unrecognized tax benefits, excluding
interest, was as follows:
111
(In millions)
2023
2022
Balance at January 1
$
2.5
$
3.5
Balance at March 31
$
2.5
$
3.5
At March 31,
2023, the total amount
of accrued interest recognized
in the statement
of financial condition amounted
to $
2.6
million
(December 31, 2022 - $
2.6
million). The total interest expense recognized
at March 31, 2023 was
$
56
thousand, (March 31, 2022–
$
83
thousand).
Management determined
that
at
March
31,
2023
and
December
31,
2022
there
was
no
need
to
accrue
for
the
payment of penalties. The Corporation’s policy is to report interest related to unrecognized tax benefits in income tax expense, while
the penalties, if any, are reported in other operating expenses in the
consolidated statements of operations.
After consideration
of the
effect on
U.S. federal
tax of
unrecognized U.S.
state tax
benefits, the
total amount
of unrecognized
tax
benefits, including U.S. and Puerto Rico, that if recognized, would affect the Corporation’s effective tax rate, was approximately $
4.3
million at March 31, 2023 (December 31, 2022 - $
4.3
million).
The amount of
unrecognized tax benefits
may increase or
decrease in the
future for various
reasons including adding amounts
for
current
tax
year
positions,
expiration
of
open
income
tax
returns
due
to
the
statutes
of
limitation,
changes
in
management’s
judgment about
the level
of uncertainty,
status of
examinations, litigation
and legislative
activity and
the addition
or elimination
of
uncertain tax positions.
The Corporation does not
anticipate a reduction
in the total
amount of unrecognized tax
benefits within the
next 12 months.
The
Corporation and
its subsidiaries
file
income tax
returns in
Puerto
Rico, the
U.S. federal
jurisdiction, various
U.S. states
and
political subdivisions,
and foreign
jurisdictions. At
March 31,
2023, the
following years
remain subject
to
examination in
the
U.S.
Federal jurisdiction: 2019 and thereafter; and in
the Puerto Rico jurisdiction, 2018 and thereafter.
112
Note 32 – Supplemental disclosure on the consolidated
statements of cash flows
Additional disclosures on cash flow information and
non-cash activities for the quarters ended March
31, 2023 and March 31, 2022
are listed in the following table:
(In thousands)
March 31, 2023
March 31, 2022
Non-cash activities:
Loans transferred to other real estate
$
18,367
$
18,647
Loans transferred to other property
17,343
13,425
Total loans transferred
to foreclosed assets
35,710
32,072
Loans transferred to other assets
2,778
2,228
Financed sales of other real estate assets
3,203
2,109
Financed sales of other foreclosed assets
13,232
9,384
Total financed sales
of foreclosed assets
16,435
11,493
Financed sale of premises and equipment
14,105
11,738
Transfers from loans held-in-portfolio to
loans held-for-sale
2,475
7,607
Transfers from loans held-for-sale to loans
held-in-portfolio
1,500
786
Loans securitized into investment securities
[1]
10,966
142,702
Trades receivable from brokers and counterparties
10,307
60,186
Trades payable to brokers and counterparties
402
10,710
Receivables from investments maturities
99,620
-
Recognition of mortgage servicing rights on securitizations
or asset transfers
501
2,771
Loans booked under the GNMA buy-back option
855
4,961
Capitalization of lease right of use asset
2,699
3,689
[1]
Includes loans securitized into trading securities and subsequently
sold before quarter end.
The following table provides a reconciliation of
cash and due from banks, and restricted cash
reported within the Consolidated
Statement of Financial Condition that sum to the total of
the same such amounts shown in the Consolidated
Statement of Cash
Flows.
(In thousands)
March 31, 2023
March 31, 2022
Cash and due from banks
$
427,160
$
381,658
Restricted cash and due from banks
34,853
57,490
Restricted cash in money market investments
7,173
6,300
Total cash and due
from banks, and restricted cash
[2]
$
469,186
$
445,448
[2]
Refer to Note 5 - Restrictions on cash and due from banks
and certain securities for nature of restrictions.
113
Note 33 – Segment reporting
The
Corporation’s
corporate
structure
consists
of
two
reportable
segments
–
Banco Popular de Puerto Rico and Popular U.S.
Management determined the reportable segments based on the internal reporting used to evaluate performance and to assess
where to allocate resources.
The segments were
determined based on the
organizational structure, which focuses
primarily on the
markets the segments serve, as well as on the products
and services offered by the segments.
Banco Popular de Puerto Rico:
The Banco Popular de
Puerto Rico reportable segment
includes commercial, consumer and retail
banking operations conducted at
BPPR, including
U.S. based
activities conducted
through its
New York
Branch. It
also includes
the lending
operations of
Popular
Auto
and
Popular
Mortgage.
Other
financial
services
within
the
BPPR
segment
include
the
trust
service
units
of
BPPR,
asset
management services of Popular Asset
Management, the brokerage and investment
banking operations of Popular Securities,
and
the insurance agency and reinsurance businesses
of Popular Insurance, Popular Risk Services, Popular
Life Re, and Popular Re.
Popular U.S.:
Popular U.S. reportable segment
consists of the
banking operations of Popular
Bank (PB), Popular Insurance
Agency, U.S.A.,
and
PEF.
PB
operates through
a retail
branch network
in the
U.S. mainland
under the
name of
Popular,
and equipment
leasing and
financing services through PEF.
Popular Insurance Agency,
U.S.A. offers investment and insurance
services across the PB
branch
network.
The Corporate group
consists primarily of
the holding companies
Popular, Inc.,
Popular North America,
Popular International Bank
and certain of
the Corporation’s
investments accounted for
under the equity
method, including Evertec,
until August 15,
2022, and
Centro Financiero BHD, León.
The
accounting
policies
of
the
individual
operating
segments
are
the
same
as
those
of
the
Corporation.
Transactions
between
reportable segments are primarily conducted at market rates, resulting
in profits that are eliminated for reporting consolidated results
of operations.
The tables that follow present the results of operations
and total assets by reportable segments:
114
2023
For the quarter ended March 31, 2023
Banco Popular
Intersegment
(In thousands)
de Puerto Rico
Popular U.S.
Eliminations
Net interest income
$
449,820
$
90,086
$
1
Provision for credit losses
45,708
2,065
-
Non-interest income
147,471
6,384
(136)
Amortization of intangibles
484
311
-
Depreciation expense
11,669
1,814
-
Other operating expenses
363,715
63,317
(136)
Income tax expense
42,832
3,976
-
Net income
$
132,883
$
24,987
$
1
Segment assets
$
55,770,442
$
12,147,556
$
(541,534)
For the quarter ended March 31, 2023
Reportable
(In thousands)
Segments
Corporate
Eliminations
Total Popular,
Inc.
Net interest income (expense)
$
539,907
$
(8,251)
$
-
$
531,656
Provision for credit losses (benefit)
47,773
(136)
-
47,637
Non-interest income
153,719
9,714
(1,472)
161,961
Amortization of intangibles
795
-
-
795
Depreciation expense
13,483
359
-
13,842
Other operating expenses
426,896
230
(1,076)
426,050
Income tax expense (benefit)
46,808
(321)
(173)
46,314
Net income
$
157,871
$
1,331
$
(223)
$
158,979
Segment assets
$
67,376,464
$
5,803,751
$
(5,504,456)
$
67,675,759
115
2022
For the quarter ended March 31, 2022
Banco Popular
Intersegment
(In thousands)
de Puerto Rico
Popular U.S.
Eliminations
Net interest income
$
415,169
$
86,520
$
1
Provision for credit losses (benefit)
(13,690)
(2,019)
-
Non-interest income
135,862
5,954
(137)
Amortization of intangibles
484
407
-
Depreciation expense
11,517
1,824
-
Other operating expenses
334,878
53,639
(136)
Income tax expense
39,316
11,592
-
Net income
$
178,526
$
27,031
$
-
Segment assets
$
58,708,519
$
10,579,410
$
(167,754)
For the quarter ended March 31, 2022
Reportable
(In thousands)
Segments
Corporate
Eliminations
Total Popular,
Inc.
Net interest income (expense)
$
501,690
$
(7,378)
$
-
$
494,312
Provision for credit losses (benefit)
(15,709)
209
-
(15,500)
Non-interest income
141,679
14,265
(1,252)
154,692
Amortization of intangibles
891
-
-
891
Depreciation expense
13,341
289
-
13,630
Other operating expenses
388,381
444
(1,007)
387,818
Income tax expense (benefit)
50,908
(332)
(97)
50,479
Net income
$
205,557
$
6,277
$
(148)
$
211,686
Segment assets
$
69,120,175
$
5,490,318
$
(5,085,411)
$
69,525,082
116
Geographic Information
The following information presents selected
financial information based on the
geographic location where the Corporation conducts
its business. The
banking operations of BPPR
are primarily based in
Puerto Rico, where it
has the largest retail
banking franchise.
BPPR
also
conducts
banking
operations
in
the
U.S.
Virgin
Islands,
the
British
Virgin
Islands
and
New
York.
BPPR’s
banking
operations
in
the
United States
include co-branded
credit
cards
offerings
and commercial
lending activities.
BPPR’s
commercial
lending activities in the U.S., through its New York Branch, include periodic loan participations with
PB. As of March 31, 2023, BPPR
participated in loans
originated by PB
totaling $
316
million (December 31, 2022
- $
294
million). At March
31, 2023, total
assets for
the BPPR segment related to its operations in the United
States amounted to $
1.4
billion (December 31, 2022 - $
1.2
billion). During
the quarter
ended March
31, 2023,
the BPPR
segment generated
approximately $
25.4
million (2022
- $
12.0
million) in
revenues
from its operations in
the United States, including
net interest income, service charges
on deposit accounts and other
service fees.
In
the
Virgin
Islands,
the
BPPR
segment
offers
banking
products,
including
loans
and
deposits.
The
BPPR
segment
generated
$
11.6
million
in revenues
during the
first
quarter of
2023 (2022
- $
10.8
million) from
its
operations in
the U.S.
and British
Virgin
Islands.
Geographic Information
Quarter ended
(In thousands)
March 31, 2023
March 31, 2022
Revenues:
[1]
Puerto Rico
$
547,903
$
527,673
United States
125,045
103,174
Other
20,669
18,157
Total consolidated
revenues
$
693,617
$
649,004
[1]
Total revenues include
net interest income, service charges on deposit accounts,
other service fees, mortgage banking activities, net
gain
(loss), including impairment on equity securities, net gain (loss)
on trading account debt securities, adjustments to indemnity
reserves on loans
sold and other operating income.
Selected Balance Sheet Information:
(In thousands)
March 31, 2023
December 31, 2022
Puerto Rico
Total assets
$
52,973,724
$
53,541,427
Loans
20,970,708
20,884,442
Deposits
50,589,328
51,138,790
United States
Total assets
$
13,506,272
$
12,718,775
Loans
10,825,221
10,643,964
Deposits
8,630,394
8,182,702
Other
Total assets
$
1,195,763
$
1,377,715
Loans
553,625
554,744
Deposits
[1]
1,734,166
1,905,735
[1]
Represents deposits from BPPR operations located in the
U.S. and British Virgin Islands.
117
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This
report
includes
management’s
discussion
and
analysis
(“MD&A”)
of
the
consolidated
financial
position
and
financial
performance
of
Popular,
Inc.
(the
“Corporation”
or
“Popular”). All
accompanying
tables,
financial
statements
and
notes
included
elsewhere in this report should be considered an
integral part of this analysis.
The Corporation is a
diversified, publicly-owned financial holding company subject to the
supervision and regulation of the Board
of
Governors of the Federal Reserve System. The Corporation has
operations in Puerto Rico, the United States (“U.S.”) mainland and
the
U.S.
and
British
Virgin
Islands.
In
Puerto
Rico,
the
Corporation
provides
retail,
mortgage
and
commercial
banking
services
through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as investment
banking, broker-dealer, auto
and
equipment
leasing
and
financing,
and
insurance
services
through
specialized
subsidiaries.
In
the
U.S.
mainland,
the
Corporation provides
retail, mortgage
and
commercial banking
services, as
well as
equipment leasing
and
financing, through
its
New
York-chartered
banking
subsidiary,
Popular
Bank
(“PB”
or
“Popular U.S.”),
which
has
branches
located
in
New
York,
New
Jersey
and
Florida.
Note
33
to
the
Consolidated
Financial
Statements
presents
information
about
the
Corporation’s
business
segments.
SIGNIFICANT EVENTS
Issuance of Senior Notes
On March 13, 2023, the Corporation
issued $400 million aggregate principal amount of
7.25% Senior Notes due 2028
(the “Notes”)
in an underwritten public offering. The Corporation intends to use a portion of the proceeds of the offering of
the Notes to redeem or
repay $300 million aggregate principal amount of
its outstanding 6.125% Senior Notes due September
2023.
OVERVIEW
Table 1 provides selected financial data and performance indicators for the quarters ended
March 31, 2023 and 2022.
118
Table 1 - Financial highlights
Financial Condition Highlights
Ending Balances at
Average for the quarter ended
(In thousands)
March 31,
2023
December 31,
2022
Variance
March 31,
2023
March 31,
2022
Variance
Money market investments
$
6,098,288
$
5,614,595
$
483,693
$
5,736,352
$
14,763,104
$
(9,026,752)
Investment securities
25,951,936
26,553,317
(601,381)
28,076,090
28,540,438
(464,348)
Loans
32,349,554
32,083,150
266,404
32,048,055
29,246,344
2,801,711
Earning assets
64,399,778
64,251,062
148,716
65,860,497
72,549,886
(6,689,389)
Total assets
67,675,759
67,637,917
37,842
68,843,309
75,628,669
(6,785,360)
Deposits
60,953,888
61,227,227
(273,339)
61,145,654
67,601,597
(6,455,943)
Borrowings
1,402,626
1,400,319
2,307
1,167,845
1,079,096
88,749
Total liabilities
63,205,034
63,544,492
(339,458)
63,202,001
69,645,361
(6,443,360)
Stockholders’ equity
4,470,725
4,093,425
377,300
5,641,308
5,983,308
(342,000)
Note: Average balances exclude unrealized gains or losses on debt securities available-for-sale.
Operating Highlights
Quarter ended March 31,
(In thousands, except per share information)
2023
2022
Variance
Net interest income
$
531,656
$
494,312
$
37,344
Provision for credit losses (benefit)
47,637
(15,500)
63,137
Non-interest income
161,961
154,692
7,269
Operating expenses
440,687
402,339
38,348
Income before income tax
205,293
262,165
(56,872)
Income tax expense
46,314
50,479
(4,165)
Net income
$
158,979
$
211,686
$
(52,707)
Net income applicable to common stock
$
158,626
$
211,333
$
(52,707)
Net income per common share - basic
$
2.22
$
2.69
$
(0.47)
Net income per common share - diluted
$
2.22
$
2.69
$
(0.47)
Dividends declared per common share
$
0.55
$
0.55
$
―
Quarter ended March 31,
Selected Statistical Information
2023
2022
Common Stock Data
End market price
$
57.41
$
81.74
Book value per common share at period end
61.82
60.78
Profitability Ratios
Return on assets
0.93
%
1.14
%
Return on common equity
10.00
14.38
Net interest spread
2.68
2.69
Net interest spread (taxable equivalent) - Non-GAAP
2.92
2.98
Net interest margin
3.22
2.75
Net interest margin (taxable equivalent) - Non-GAAP
3.46
3.05
Capitalization Ratios
Average equity to average assets
8.19
%
7.91
%
Common equity Tier 1 capital
16.73
16.26
Tier I capital
16.79
16.33
Total capital
18.61
18.19
Tier 1 leverage
8.37
6.98
119
Net interest income on a taxable equivalent basis
– Non-GAAP Financial Measure
The Corporation’s
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, 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.
The
taxable equivalent
computation considers
the interest
expense and
other related
expense disallowances
required by
Puerto
Rico tax law. Thereunder, the exempt interest can be deducted up to the amount of taxable
income.
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. Net
interest
income
on
a
taxable
equivalent
basis
is
presented
with
its
different
components
in
Tables
2
and
3,
along
with
the
reconciliation to
net interest
income
(GAAP), for
the quarter
ended March
31, 2023
as compared
with the
same
period in
2022,
segregated by major categories of interest earning
assets and interest-bearing liabilities.
Non-GAAP financial measures
used by
the Corporation may
not be
comparable to
similarly named non-GAAP
financial measures
used by other companies.
Financial highlights for the quarter ended March 31, 2023
●
For the
quarter ended March
31, 2023, the
Corporation recorded net
income of $
159.0 million, compared
to net
income of $
211.7 million for the same quarter of the previous year.
Net interest margin for the first quarter of 2023 was 3.22%, an increase
of
47
basis
points
when
compared
to
2.75%
for
the
same
quarter
of
the
previous
year,
mainly
due
to
an
improvement
in
earnings assets mix,
higher interest income
from money market,
investment and trading securities
and higher interest
income
from loans,
which was
partially offset
by higher
interest expense
on deposits.
On a
taxable equivalent
basis, the
net interest
margin was
of 3.46%, compared
to 3.05%
for the
same quarter
of the previous
year. For
the quarter
ended March
31, 2023,
the Corporation
recorded a
provision for
credit losses
of $47.6
million, compared
to
a release
of $15.5
million for
the same
quarter of
the previous
year.
The higher
provision for
2023 is
attributed to
reductions in
the P.R.
Home Pricing
Index (“HPI”)
forecast, higher loan volumes and migration of consumer credit scores. The first quarter of 2022 also included releases of ACL
reserves
originally
related
to
Covid-19
economic
uncertainty.
Non-interest
income
was
$162.0
million
for
the
quarter,
an
increase of
$7.3 million
when compared
to
the quarter
ended March
31, 2022,
mainly due
to higher
other service
fees and
income from
a litigation-related
insurance claim
reimbursement.
Operating expenses
were higher
by $38.3
million principally
due to higher personnel costs, business promotion
expenses,
and higher processing and transactional
expenses.
●
Total
assets at March 31, 2023 amounted to $67.7 billion, compared to
$67.6 billion, at December 31, 2022. The increase was
mainly
due
to
higher
money
market
investments,
loans,
and
debt
securities
held-to-maturity,
partially
offset
by
lower
debt
securities available-for-sale and other assets.
●
Total
deposits at March 31,
2023 decreased by $273.3 million
when compared to deposits
at December 31, 2022, mainly
due
to lower Puerto Rico public sector deposits by $0.4 billion
and lower interest bearing retail deposits at
BPPR.
●
Stockholders’ equity
totaled $4.5
billion at
March 31,
2023, an
increase of
$377.3 million
when compared
to
December 31,
2022,
principally
due
to
net
income
for
the
quarter
of
$159.0
million,
the
after-tax
impact
of
the
favorable
variance
in
net
unrealized losses in the portfolio of available-for-sale securities of $191.8 million, the amortization of the unrealized losses from
securities
reclassified to
held-to-maturity as
described below
of
$33.6 million,
and
the
adoption of
the
new
ASU
during the
quarter of $28.8 million, partially offset by dividends
declared for the quarter.
●
At March 31, 2023, the Corporation’s tangible book value per common share was $50.15, an increase of $5.18 from December
31, 2022 due mainly to the increase in Stockholders’
equity during the period.
●
Capital ratios continued to
be strong. As
of March 31, 2023,
the Corporation’s common equity
tier 1 capital
ratio was 16.73%,
the tier 1 leverage ratio was 8.47%, and the total
capital ratio was 18.61%. Refer to Table 8 for capital ratios.
120
Refer to
the Operating
Results Analysis
and Financial
Condition Analysis
within this
MD&A for
additional discussion
of significant
quarterly variances and items impacting the financial performance
of the Corporation.
As a financial services company,
the Corporation’s earnings are significantly affected
by general business and economic conditions
in the
markets which
we serve.
Lending and
deposit activities
and fee
income generation
are influenced
by the
level of
business
spending and
investment, consumer
income, spending
and savings,
capital market
activities, competition,
customer preferences,
interest rate conditions and prevailing market rates
on competing products.
The Corporation
operates in
a highly
regulated environment
and may
be adversely
affected by
changes in
federal and
local laws
and regulations. Also, competition with other financial institutions
could adversely affect its profitability.
The
Corporation
continuously
monitors
general
business
and
economic
conditions,
industry-related
indicators
and
trends,
competition, interest rate volatility, credit
quality indicators, loan and deposit demand, operational and systems efficiencies, revenue
enhancements and changes in the regulation of financial
services companies.
The description of the Corporation’s business contained in
Item 1 of the 2022 Form 10-K, while not all inclusive,
discusses additional
information about the business of the Corporation. Readers should also refer to “Part I - Item 1A” of the 2022 Form 10-K and “Part II
- Item 1A” of this Form 10-Q for a discussion of certain risks and uncertainties to which the Corporation is subject, many
beyond the
Corporation’s control that, in addition to the other information in
this Form 10-Q, readers should consider.
The Corporation’s common stock is traded on the NASDAQ
Global Select Market under the symbol BPOP.
121
CRITICAL ACCOUNTING POLICIES / ESTIMATES
The accounting
and reporting
policies followed
by the
Corporation and
its subsidiaries
conform to
generally accepted
accounting
principles
in
the
United
States
of
America
and
general
practices
within
the
financial
services
industry.
Various
elements
of
the
Corporation’s accounting policies, by
their nature, are
inherently subject to
estimation techniques, valuation assumptions and
other
subjective assessments.
These estimates
are made
under facts
and circumstances
at a
point in
time and
changes in
those facts
and circumstances could produce actual results that
differ from those estimates.
Management has discussed
the development and
selection of the
critical accounting policies
and estimates with
the Corporation’s
Audit
Committee.
The
Corporation
has
identified
as
critical
accounting
policies
those
related
to:
(i)
Fair
Value
Measurement
of
Financial Instruments; (ii) Loans
and Allowance for Credit
Losses; (iii) Loans Acquired
with Deteriorated Credit Quality;
(iv) Income
Taxes;
(v) Goodwill and
Other Intangible Assets; and
(vi) Pension and Postretirement
Benefit Obligations. For a
summary of these
critical accounting policies and estimates, refer to that particular section in
the MD&A included in the 2022 Form
10-K. Also, refer to
Note 2
to
the Consolidated
Financial Statements
included in
the 2022
Form 10-K
for a
summary of
the Corporation’s
significant
accounting policies and
to Note
3 to
the Consolidated Financial
Statements included in
this Form
10-Q for information
on recently
adopted accounting standard updates.
OPERATING RESULTS ANALYSIS
NET INTEREST INCOME
Net interest
income for
the quarter
ended March
31, 2023
was $531.7
million, compared
to $494.3
million in
the same
quarter of
2022, an increase of $37.3 million. Net
interest income on a taxable equivalent basis for
the first quarter of 2023 was $570.4 million
compared
to
$548.1
million
in
the
first
quarter
of
2022,
an
increase
of
$22.3
million.
The
lower
positive
variance
in
the
taxable
equivalent
net
interest income
as compared
to
the
GAAP
net interest
income
is
related
to
a
higher
effective
tax
during the
first
quarter of 2023 due to a higher disallowed interest expense as a result of the increase in the Corporation’s cost of deposits. Refer to
the Income taxes discussion for further information.
Net interest margin for the quarter was 3.22% compared to 2.75% in the first quarter of 2022 or an increase of 47 basis points. On a
taxable equivalent basis,
net interest margin
for the first
quarter of 2023,
was 3.46%, compared
to 3.05% for
the same quarter
the
prior year. The main variances in net interest income on a taxable
equivalent basis were:
●
Higher interest
income from
money market,
investment and
trading securities
by $80.1
million driven
by higher
average
yield
by 128
basis points,
related to
a
higher interest
rate environment,
partially offset
by lower
volume by
$8.7 billion
linked to a lower volume
of
the Puerto Rico public sector deposits
at BPPR, as a
result of the payments made by
Puerto
Rico pursuant
to the
Plan of
Adjustment for
Puerto Rico
under Title
III of
the Puerto
Rico Oversight,
Management, and
Economic Stability Act (“PROMESA”) which became
effective on March 15, 2022 and the increase in
loan volume;
●
higher interest income
from loans
by $114.1
million resulting from
an increase
in average loans
by $2.8
billion reflecting
increases
in
both
PB
and
Banco
Popular
de
Puerto
Rico
(“BPPR”)
and
across
most
major
lending
segments.
Loan
origination in
a higher
interest rate
environment and
the repricing
of
adjustable-rate loans
resulted in
a higher
yield on
loans by 91 basis points.
The categories with the highest impact
were commercial loans with an increase of
$73.3 million
in interest income, or 124 basis points, and consumer loans which increased $25.7 million in interest income, or 165 basis
points.
Partially offset by:
●
higher interest expense
on deposits by
$168.4 million due
to the increase
in rates, mainly
from Puerto Rico
government,
commercial
deposits
and
Popular
Bank
(“PB”)
deposits,
partially
offset
by
lower
volume
of
average
interest-bearing
deposits by $6.0 billion mainly related to the
decrease on Puerto Rico government deposits, accounting for approximately
75% of the decrease in volume;
Net interest income for the BPPR segment amounted to $449.8
million for the first quarter of 2023, compared
to $415.2 million in the
first quarter
of 2022.
Net interest
margin increased
to 3.24%
compared to
2.67% in
the first
quarter of
2022. The
increase in
net
interest income
of $34.7
million was
driven by
a higher
volume on
loans and
a higher
yield on
earning assets
related to
a higher
122
interest rate environment, partially offset
by the increase in the
cost of deposits, mainly from
the P.R.
public sector and commercial
interest-bearing deposits. The cost of interest-bearing deposits increased 145 basis points to 1.61% from 0.16% in the
same quarter
of 2022. Total deposit cost for the quarter increased by 106 basis points, from 0.12%
in the first quarter of 2022 to 1.18%.
Net
interest
income
for
PB
was
$90.1
million
for
the
quarter
ended
March
31,
2023,
compared
to
$86.5
million
during
the
first
quarter of
2022, an
increase of
$3.6 million.
Net interest
margin decreased
22 basis
points when
compared to
the first
quarter of
2022 to 3.56%. The decrease in net interest margin was mostly driven by a higher cost of deposits, partially offset by the increase in
loan volume and the
repricing of adjustable-rate loans driven
by the changes in interest
rates. The cost of
interest-bearing deposits
was 2.47%
compared to
0.46%, or
an increase
of 201
basis points, while
total deposit cost
was 2.01% compared
to 0.36%
in the
first quarter of 2022.
123
Table 2 - Analysis of Levels & Yields
on a Taxable Equivalent Basis
(Non-GAAP)
Quarter ended March 31,
Variance
Average Volume
Average Yields / Costs
Interest
Attributable to
2023
2022
Variance
2023
2022
Variance
2023
2022
Variance
Rate
Volume
(In millions)
(In thousands)
$
5,736
$
14,763
$
(9,027)
4.65
%
0.18
%
4.47
%
Money market investments
$
65,724
$
6,464
$
59,260
$
65,572
$
(6,312)
28,862
28,471
391
2.22
1.95
0.27
Investment securities [1]
158,914
137,350
21,564
21,280
284
31
70
(39)
4.47
5.90
(1.43)
Trading securities
338
1,019
(681)
(206)
(475)
Total money market,
investment and trading
34,629
43,304
(8,675)
2.63
1.35
1.28
securities
224,976
144,833
80,143
86,646
(6,503)
Loans:
15,761
13,741
2,020
6.32
5.08
1.24
Commercial
245,469
172,128
73,341
45,728
27,613
732
727
5
8.40
5.45
2.95
Construction
15,155
9,758
5,397
5,320
77
1,588
1,393
195
6.12
5.95
0.17
Leasing
24,282
20,720
3,562
586
2,976
7,388
7,388
-
5.46
5.24
0.22
Mortgage
100,773
96,768
4,005
4,005
-
3,020
2,537
483
12.85
11.20
1.65
Consumer
95,715
70,062
25,653
11,118
14,535
3,559
3,460
99
8.14
8.12
0.02
Auto
71,407
69,252
2,155
169
1,986
32,048
29,246
2,802
6.97
6.06
0.91
Total loans
552,801
438,688
114,113
66,926
47,187
$
66,677
$
72,550
$
(5,873)
4.72
%
3.25
%
1.47
%
Total earning assets
$
777,777
$
583,521
$
194,256
$
153,572
$
40,684
Interest bearing deposits:
$
23,313
$
28,288
$
(4,975)
2.52
%
0.10
%
2.42
%
NOW and money market [2]
$
144,970
$
7,323
$
137,647
$
139,459
$
(1,812)
15,029
16,434
(1,405)
0.47
0.16
0.31
Savings
17,443
6,564
10,879
12,314
(1,435)
7,099
6,737
362
1.76
0.66
1.10
Time deposits
30,802
10,896
19,906
16,703
3,203
45,441
51,459
(6,018)
1.72
0.20
1.52
Total interest bearing
deposits
193,215
24,783
168,432
168,476
(44)
15,704
16,143
(439)
Non-interest bearing demand
deposits
61,145
67,602
(6,457)
1.28
0.15
1.13
Total deposits
193,215
24,783
168,432
168,476
(44)
247
91
156
4.74
0.36
4.38
Short-term borrowings
2,885
80
2,805
2,081
724
Other medium and
947
1,013
(66)
4.78
4.18
0.60
long-term debt
11,266
10,546
720
426
294
Total interest bearing
46,635
52,563
(5,928)
1.80
0.27
1.53
liabilities (excluding demand
deposits)
207,366
35,409
171,957
170,983
974
4,338
3,844
494
Other sources of funds
$
66,677
$
72,550
$
(5,873)
1.26
%
0.20
%
1.06
%
Total source of funds
207,366
35,409
171,957
170,983
974
Net interest margin/
3.46
%
3.05
%
0.41
%
income on a taxable
equivalent basis (Non-
GAAP)
570,411
548,112
22,299
$
(17,411)
$
39,710
2.92
%
2.98
%
(0.06)
%
Net interest spread
Net interest spread
38,755
53,800
(15,045)
Net interest margin/ income
3.22
%
2.75
%
0.47
%
non-taxable equivalent basis
(GAAP)
$
531,656
$
494,312
$
37,344
Note: The changes that are not due solely to volume or
rate are allocated to volume and rate based on the
proportion of the change in each category.
[1] Average balances exclude unrealized gains or losses
on debt securities available-for-sale and the unrealized
loss related to certain securities transferred from
available-for-sale to held-to-maturity.
[2] Includes interest bearing demand deposits corresponding
to certain government entities in Puerto Rico.
124
Provision for Credit Losses - Loans Held-in-Portfolio
and Unfunded Commitments
For the quarter ended March 31, 2023, the Corporation recorded an
expense of $47.8 million for its reserve for credit losses
related
to
loans
held-in-portfolio
and
unfunded
commitments.
The
provision
for
credit
loss
related
to
the
loans-held-in-portfolio
for
the
quarter ended March 31, 2023
was $47.1 million, compared to the
reserve release of $14.4 million for
the quarter ended March 31,
2022. The provision
expense was mainly driven
by reductions in
the HPI forecast,
higher loan volumes
and migration of consumer
credit scores.
The first quarter of 2022 also included releases of ACL reserves originally related to
COVID-19 economic uncertainty.
The
provision
related
to
unfunded commitments
for
the
first
quarter of
2023
was
$0.6
million,
compared
to
the
reserve
release
related to unfunded commitments of $0.8 million for the
same period of 2022.
For the quarter ended March 31, 2023, the Corporation recorded a provision for credit loss of $45.2 million for loans-held-in-portfolio
for the
BPPR segment,
compared to
a reserve
release of
$12.7 million
for the
quarter ended
March 31,
2022. The
Popular U.S.
segment recorded a provision of $1.9 million
for the quarter ended March 31, 2023, compared to
a reserve release of $1.7 million for
the same quarter in 2022.
At March 31,
2023, the total
allowance for credit
losses for loans
held-in-portfolio amounted to
$689.1 million, compared
to $720.3
million as of December 31, 2022. The ratio of the allowance for credit losses
to loans held-in-portfolio was 2.13% at March 31, 2023,
compared
to
2.25%
at
December 31,
2022.
During
the
first
quarter,
the
Corporation adopted
ASU
2022-02
which
resulted
in
a
reduction of approximately $46 million, $29 million net of tax, in the reserve related to
TDR which was recorded as an adjustment to
the beginning balance of retained earnings.
As discussed in Note 9 to
the Consolidated Financial Statements, within the process
to
estimate its
ACL, the
Corporation applies probability
weightings to the
outcomes of simulations
using Moody’s Analytics’
Baseline,
S3 (pessimistic) and S1 (optimistic) scenarios. The baseline scenario is assigned the highest probability, followed by the pessimistic
scenario
given
the
uncertainties
in
the
economic
outlook
and
downside
risk.
Refer
to
Note
9
to
the
Consolidated
Financial
Statements, for additional information on the Corporation’s
methodology to estimate its ACL. Refer to
the Credit Risk section of this
MD&A for
a detailed
analysis of
net charge-offs,
non-performing assets,
the allowance
for credit
losses and
selected loan
losses
statistics.
Provision for Credit Losses – Investment Securities
The
Corporation’s
provision
for
credit
losses
related
to
its
investment
securities
held-to-maturity
is
related
to
the
portfolio
of
obligations
from
the
Government
of
Puerto
Rico,
states
and
political
subdivisions.
For
the
quarter
ended
March
31,
2023,
the
provision for credit losses for investment securities was a reserve release of $0.1 million, compared to a $0.3 million reserve release
for the
quarter ended
March 31,
2022. At
March 31,
2023, the
total allowance
for credit
losses for
this portfolio
amounted to
$6.8
million, compared
to
$6.9 million
as
of
December 31,
2022. Refer
to
Note 7
to
Consolidated Financial
Statements
for
additional
information on the ACL for this portfolio.
125
Non-Interest Income
Non-interest
income
was
$162.0 million
for
the
first
quarter of
2023,
an
increase
of
$7.3
million
when compared
with
the
same
quarter of the previous year. The increase in non-interest income was primarily
driven by:
●
higher other service fees
by $12.9 million mainly
due to higher credit card
fees by $6.9 million
and higher debit card fees
by $1.4 million as a result of higher interchange transactional volumes
and higher other fees by $4.4 million mainly due to
the merchant
business fees
as a
result of
the revenue
sharing agreement
entered into
with Evertec,
Inc. on
July 2022;
and
●
a favorable
variance in
unrealized net
gains on
equity securities
by $3.2
million mainly
on deferred
compensation plans
that have an offsetting expense in personnel related expenses.
partially offset by
●
lower service
charges on
deposit accounts
by $6.0
million mainly
as
a
result of
the Corporation’s
initiative of
reducing
overdraft fees implemented in the third quarter of 2022;
●
lower income from mortgage banking activities by $5.5 million mainly due to an unfavorable variance of
$2.5 million in the
fair value adjustment
of mortgage servicing
rights and lower
net gains on
closed derivative positions, partially
offset by a
positive variance of $1.8 million in net gains (losses)
on the sale and valuation adjustments of mortgage
loans.
Operating Expenses
Operating expenses
for the
quarter ended
March 31,
2023
increased by
$38.3 million
when compared
with the
same
quarter of
2022, driven primarily by:
●
higher
personnel
cost
by
$31.8
million
mainly
due
to
higher
salaries
by
$26.7
million
as
a
result
of
merit
and
market
related
increases
during
2022,
minimum
salary
increases
during
the
first
quarter
of
2023
and
higher
headcount,
an
increase in
health insurance
costs by
$2.7 million,
and higher
payroll taxes
and fringe
benefits by
$6.8 million;
partially
offset by a decrease in profit-sharing accrual of $4.2
million;
●
higher business promotion expenses by $3.8 million
mainly due to higher credit cards rewards expense;
and
●
higher processing
and transactional expenses
by $3.0
million mainly due
to higher
merchant processing and
credit card
processing expenses as a result of higher
transactional volumes;
partially offset by:
●
lower professional fees by $3.4 million mainly due
to lower advisory expenses related to corporate
initiatives;
126
Table 3 - Operating Expenses
Quarters ended March 31,
(In thousands)
2023
2022
Variance
Personnel costs:
Salaries
$
125,393
$
98,673
$
26,720
Commissions, incentives and other bonuses
31,162
35,521
(4,359)
Pension, postretirement and medical insurance
15,378
12,783
2,595
Other personnel costs, including payroll taxes
26,827
20,019
6,808
Total personnel
costs
198,760
166,996
31,764
Net occupancy expenses
26,039
24,723
1,316
Equipment expenses
8,412
8,389
23
Other taxes
16,291
15,715
576
Professional fees
33,431
36,792
(3,361)
Technology and
software expenses
68,559
70,535
(1,976)
Processing and transactional services:
Credit and debit cards
12,550
11,472
1,078
Other processing and transactional services
21,359
19,481
1,878
Total processing
and transactional services
33,909
30,953
2,956
Communications
4,088
3,673
415
Business promotion:
Rewards and customer loyalty programs
12,348
10,021
2,327
Other business promotion
6,523
5,062
1,461
Total business
promotion
18,871
15,083
3,788
FDIC deposit insurance
8,865
7,372
1,493
Other real estate owned (OREO) income
(1,694)
(2,713)
1,019
Other operating expenses:
Operational losses
6,800
11,825
(5,025)
All other
17,561
12,105
5,456
Total other operating
expenses
24,361
23,930
431
Amortization of intangibles
795
891
(96)
Total operating
expenses
$
440,687
$
402,339
$
38,348
As
part
of
this
transformation,
the
Corporation
aims
to
expand
its
digital
capabilities,
modernize
our
technology
platform,
and
implement agile and
efficient business
processes across the
entire Corporation. To
facilitate the transparency
of the
progress with
the transformation initiative and to better portray the level of technology
related expenses categorized by the nature of the expense,
effective
in the
fourth quarter
of
2022,
the
Corporation has
separated technology,
professional fees
and
transactional and
items
processing related expenses as standalone expense categories in the
accompanying Consolidated Statement of Operations. There
were no
changes to
the total
operating expenses
presented.
Prior periods
amount in
the Consolidated
Financial Statements
and
related disclosures have been reclassified to conform
to the current presentation.
The following table provides the detail of
the reclassifications for each respective quarter:
127
Table 4 - Operating Expenses
Reclassification
31-Mar-22
Financial statement line item
As reported
Adjustments
Adjusted
Equipment expenses
$
23,479
$
(15,090)
$
8,389
Professional services
108,497
(71,705)
36,792
Technology and
software expenses
-
70,535
70,535
Processing and transactional services
-
30,953
30,953
Communications
6,147
(2,474)
3,673
Other expenses
36,149
(12,219)
23,930
Net effect on operating expenses
$
174,272
$
-
$
174,272
Income Taxes
For the
quarter ended March
31, 2023, the
corporation recorded an
income tax
expense of $46.3
million with
an effective tax
rate
(ETR) of 23%, compared to $50.5
million with an ETR of
19% for the same period
of 2022. The income tax expense for
the quarter
ended March 31,
2023, reflects the
impact of lower
pre-tax income, a reversal
of a valuation
allowance on a
tax credit expected to
be realized on the
U. S. operations as
a result of the
implementation of the Corporate Alternative Minimum
Tax,
and lower benefits
on the exempt income mainly due to higher
allocation of interest expense disallowance.
At
March 31,
2023, the
Corporation had
a net
deferred tax
asset amounting
to
$0.9 billion,
net of
a valuation
allowance of
$0.5
billion. The net deferred tax asset related to the U.S.
operations was $0.3 billion, net of a valuation
allowance of $0.4 billion.
The Inflation
Reduction Act of
2022 imposed
a new
corporate alternative minimum
tax (“AMT”),
effective for
taxable year
2023, to
corporations that meet a dual three-year average adjusted financial statement income (“AFSI”)
threshold of $1 billion on a worldwide
basis and $100
million for its
U.S. operations.
The AFSI is,
in general, the
GAAP net income
per financial statements
with certain
adjustments,
including foreign
taxes
and
tax
depreciation. As
of
January 1,
2023,
the
Corporation met
this
dual threshold.
The
implementation of the AMT
will not have
a material impact in
the Corporation, since any
amount paid would be
recorded as a
DTA
with no expiration period.
Refer to
Note 31
to the
Consolidated Financial
Statements for
a reconciliation
of the
statutory income
tax rate
to the
effective tax
rate and additional information on the income
tax expense and deferred tax asset balances.
REPORTABLE SEGMENT RESULTS
The Corporation’s
reportable segments
for managerial
reporting purposes
consist of
Banco Popular
de Puerto
Rico and
Popular
U.S. A Corporate group
has been defined to support the reportable
segments.
For
a
description
of
the
Corporation’s
reportable
segments,
including
additional
financial
information
and
the
underlying
management accounting process, refer to Note 33
to the Consolidated Financial Statements.
The Corporate
group reported a
net income
of $1.3
million for
the quarter
ended March
31, 2023,
compared with
a net
income of
$6.3 million for
the same
quarter of the
previous year.
The decrease in
net income was
mainly attributed to
an $8.1 million
for the
quarter
ended
March
31,2022
of
equity
pick-up
from
Evertec,
that
is
not
reflected
in
2023
as
the
Corporation
sold
its
entire
ownership stake in Evertec in August 2022.
Highlights on the earnings results for the reportable
segments are discussed below:
Banco Popular de Puerto Rico
The Banco
Popular de
Puerto Rico
reportable segment’s
net income
amounted to
$132.9 million
for the
quarter ended
March 31,
2023,
compared
with
net
income
of
$178.5
million
for
the
same
quarter of
the
previous year.
The
decrease
in
net
income
was
principally driven by the following:
128
●
Higher net interest income by $34.7 million mainly
due to:
●
higher interest income from money market and investment
securities by $92.5 million due to higher yields driven
by the increase in interest rates and higher average
balances of U.S. Treasury securities.
●
higher interest income from loans by $77.9 million mainly
due to higher average balances from commercial and
consumer loans, mainly from credit cards and personal
loans.
partially offset by
●
higher interest expense on deposits by
$135.5 million mainly due to higher
costs on the market-indexed Puerto
Rico
government
deposits,
and
the
higher interest
rate
environment’s
impact on
the cost
of
NOW accounts,
time deposits, and savings deposits.
The
net interest
margin
for
the
quarter ended
March
31,
2023
was
3.24%
compared to
2.67% for
the
same
quarter in
the
previous year. The
increase in net interest margin is
driven by higher yields from investments securities
and loans, particularly
commercial and consumer loans, due to the increase
in rates;
partially offset by higher cost of deposits.
●
A
provision for
loan losses
expense of
$45.7 million,
compared to
a
reserve release
of
$13.7 million
in
quarter ended
March 31, 2022,
or an unfavorable
variance of $59.4
million as the
2022 results included
a release of
COVID-19 related
reserves;
●
Non-interest income was higher by $11.4 million mainly due to:
●
Higher other service fees by $12.7 million mainly due to higher credit card fees as a result of higher interchange
transactional volumes;
●
Higher other
operating income
by $6.7
million mostly
due to
an insurance
policy reimbursement
gain of
$7.0
million;
partially offset by
●
lower income
from mortgage
banking activities
by $5.2
million mainly
due to
an unfavorable
variance of
$2.2
million in the fair value adjustment of mortgage service rights and lower
net gains on closed derivative positions,
partially offset by a
positive variance of $1.8 million
in net gains (losses) on
the sale and valuation
adjustments
of mortgage loans.
●
Higher operating expenses by $28.8 million mostly due
to:
●
higher personnel
costs by
$21.5 million
driven by
higher salaries
due to
minimum salary
adjustments, market
adjustments, annual salary
revisions,
and increase in headcount;
●
higher
business
promotions
by
$3.2
million
due
to
higher
customer
rewards
expense
related
to
higher
transactional volumes;
●
lower net
recoveries from OREO
by $1.2
million mainly due
to lower average
gain per loan
and a
decrease in
units sold;
●
higher other
operating expenses
by
$6.2 million
due to
$4.4 million
of
higher pension
expense calculated
by
actuaries and
higher charges
allocated from the
Corporate segment
group by
$3.1 million,
mainly from
higher
personnel costs;
129
●
higher
processing
and
transactional
services
by
$3.0
million
mainly
due
to
higher
credit
and
debit
card
processing
expense
as
result
of
higher
transactional
volumes,
reflecting
an
increase
in
customer
purchase
activity;
partially offset by
●
lower
technology
and
software
expenses
by
$3.0
million
mainly
due
to
lower
costs
associated
with
several
ongoing projects and expense savings associated with
the acquired services from the Evertec transaction.
●
Higher
income
tax
expense
by
$3.5
million
is
mainly
due
lower
benefit
on
the
exempt
income
as
a
result
of
higher
allocation of interest expense disallowance.
Popular U.S.
For the
quarter ended March
31, 2023,
the reportable
segment of
Popular U.S.
reported a
net income
of $25.0
million, compared
with
a
net income
of
$27.0 million
for the
same
quarter of
the previous
year.
The
factors that
contributed to
the variance
in the
financial results included the following:
●
Higher net interest income by $3.6 million due
to:
●
higher interest income from loans by
$36.5 million, mainly from growth in the commercial
portfolio loans as well
as higher yields due to increase in rates; and
●
higher interest income from money market and investment securities
by $6.3 million due to higher yields
due to
the increase in market rates;
partially offset by
●
higher interest
expense on
deposits by
$37.4 million
mainly
due
to
higher interest
rates
and
higher average
balance of time deposits.
The net interest
margin for the
quarter ended March 31,
2023 was 3.34% compared
to 3.56% for
the same quarter in
the previous
year.
●
An unfavorable variance of $4.1 million
on the provision for loan losses
and unfunded commitments reflecting a provision
of $2.1
million for
the first
quarter of
2023, compared to
a reserve
release of
$2.0 million
recorded in
the quarter
ended
March 31, 2022;
●
Higher operating expenses by $9.6 million mostly
due to
●
higher personnel costs by $4.5 million due to salary
merit and market adjustments;
●
higher other
operating expenses
by $2.5
million due
to higher
charges allocated
from the
Corporate segment
group by $1.2 million mainly from higher personnel costs;
partially offset by
●
Lower
income
tax
expense
by
$7.6
million
is
related
to
a
lower
income
before
tax
and
the
reversal
of
a
valuation
allowance on a tax credit expected to be realized
with the implementation of the Corporate Alternative
Minimum Tax.
130
FINANCIAL CONDITION ANALYSIS
Assets
The Corporation’s total
assets were $67.7 billion
at March 31,
2023, compared to $67.6
billion at December 31,
2022. Refer to the
Consolidated Statements of Financial Condition included
in this report for additional information.
Money market investments and debt securities available-for-sale
Money market investments increased by $483.7 million due mainly to an increase in overnight FED fund balances of
$483.1 million,
reflecting
net funding
activities
and
the
issuance of
the
$400
million
senior
notes
due
in
2028.
Debt securities
available-for-sale
decreased $631.2
million reflecting
repayment and
maturities, offset
by
a reduction
of $215.5
million in
unrealized losses
mainly
from U.S. Treasury
and mortgage-backed securities at
BPPR. Debt securities
held-to-maturity increased by
$37.8 million at
March
31,
2023,
due
mainly
to
the
amortization
of
$42.0
million
of
the
discount
related
to
securities
previously
reclassified
from
the
available-for-sale to
HTM, which
has
an offsetting
unrealized loss
included within
other comprehensive
income that
is also
being
accreted, resulting in a neutral effect to earnings.
Refer to Note 6 to the Consolidated Financial Statements for
additional information
with respect to the Corporation’s debt securities available-for-sale.
Loans
Refer to Table
5 for a
breakdown of the Corporation’s
loan portfolio. Also, refer
to Note 8 in
the Consolidated Financial Statements
for detailed information about the Corporation’s loan portfolio
composition and loan purchases and sales.
Loans held-in-portfolio increased by $260.6 million to $32.3 billion at
March 31, 2023, mainly due to an increase in commercial
loans
at both BPPR and U.S. as well as consumer
and lease financing at BPPR.
Table 5 - Loans Ending Balances
(In thousands)
March 31, 2023
December 31, 2022
Variance
Loans held-in-portfolio:
Commercial
$
16,005,261
$
15,739,132
$
266,129
Construction
698,996
757,984
(58,988)
Leasing
1,614,344
1,585,739
28,605
Mortgage
7,405,907
7,397,471
8,436
Auto
3,517,940
3,512,530
5,410
Consumer
3,095,925
3,084,913
11,012
Total loans held-in
-portfolio
$
32,338,373
$
32,077,769
$
260,604
Loans held-for-sale:
Mortgage
$
11,181
$
5,381
$
5,800
Total loans held-for-sale
$
11,181
$
5,381
$
5,800
Total loans
$
32,349,554
$
32,083,150
$
266,404
131
Other assets
Other assets
amounted to $1.7
billion at March
31, 2023, compared
to $1.8
billion at December
31, 2022. Refer
to Note
13 to the
Consolidated Financial
Statements for
a breakdown
of the
principal categories
that comprise
the caption
of “Other
Assets” in
the
Consolidated Statements of Financial Condition at
March 31, 2023 and December 31, 2022.
Liabilities
The Corporation’s
total liabilities
were $63.2
billion at
March 31,
2023, a
decrease of
$339.5 million,
compared to
$63.5 billion
at
December 31, 2022, mainly due to lower deposits
and short term borrowings as discussed below.
Deposits and Borrowings
The composition of the Corporation’s financing to total assets
at March 31, 2023 and December 31, 2022
is included in Table 6.
Table 6 - Financing to Total
Assets
March 31,
December 31,
% increase (decrease)
% of total assets
(In millions)
2023
2022
from 2022 to 2023
2023
2022
Non-interest bearing deposits
$
15,941
$
15,960
(0.1)
%
23.6
%
23.6
%
Interest-bearing core deposits
41,077
41,600
(1.3)
60.7
61.5
Other interest-bearing deposits
3,936
3,667
7.3
5.8
5.4
Repurchase agreements
123
149
(17.4)
0.2
0.2
Other short-term borrowings
-
365
N.M.
-
0.5
Notes payable
1,279
887
44.2
1.9
1.3
Other liabilities
849
917
(7.4)
1.2
1.4
Stockholders’ equity
4,471
4,093
9.2
6.6
6.1
Deposits
The Corporation’s deposits
totaled $61.0 billion
at March 31,
2023, compared to
$61.2 billion at
December 31, 2022.
The deposits
decrease of $273.3
million was mainly
in public sector
accounts as well
as interest bearing
retail deposits at
BPPR, partially offset
by an
increase at
PB, mainly from
time and
savings deposits gathered
through its
direct channel. At
March 31,
2023, Puerto Rico
public sector deposits amounted
to $15.5 billion. The
rate at which public
deposit balances may change is
uncertain and difficult to
predict. The
receipt by
the Puerto
Rico Government
of additional
hurricane recovery
related Federal
assistance and
seasonal tax
collections, could increase public deposit balances at BPPR in the
near term. The amount and timing of any reduction is
likely to be
impacted
by,
for
example,
the
speed
at
which
federal
assistance
is
distributed,
the
financial
condition,
liquidity
and
cash
management
practices
of
the
Puerto
Rico
Government
and
its
instrumentalities
and
the
implementation
of
fiscal
and
debt
adjustment plans approved
pursuant to PROMESA
or other actions
mandated by the
Fiscal Oversight and
Management Board for
Puerto Rico (the “Oversight Board”).
Approximately 25% of
the Corporation’s
deposits are public
fund deposits from
the Government of
Puerto Rico,
municipalities and
government instrumentalities
and corporations.
These deposits
are indexed
to
short-term market
rates and
fluctuate in
cost
with
changes
in
those
rates
with
a
one-quarter
lag,
in
accordance
with
contractual
terms.
As
a
result,
these
deposits’
costs
have
generally lagged
variable asset
repricing. Generally,
these
deposits require
that the
bank pledge
high credit
quality securities
as
collateral; therefore, liquidity risks arising
from public sector deposit outflows
are lower.
Refer to the Liquidity
section in this MD&A
for additional information on the Corporation’s funding
sources.
Refer to Table 7 for a breakdown of the Corporation’s deposits at March 31, 2023 and December
31, 2022.
132
Table 7 - Deposits Ending Balances
(In thousands)
March 31, 2023
December 31, 2022
Variance
Demand deposits
[1]
$
26,191,672
$
26,382,605
$
(190,933)
Savings, NOW and money market deposits (non-brokered)
26,622,020
27,265,156
(643,136)
Savings, NOW and money market deposits (brokered)
734,069
798,064
(63,995)
Time deposits (non-brokered)
6,891,051
6,442,886
448,165
Time deposits (brokered CDs)
515,076
338,516
176,560
Total deposits
$
60,953,888
$
61,227,227
$
(273,339)
[1] Includes interest and non-interest bearing demand deposits.
At March 31, 2023, non-interest bearing deposits
were $15.9 billion (December 31,
2022-$16.0 billion)
Borrowings
The Corporation’s borrowings
totaled $1.4 billion
at March 31,
2023 compared to $1.4
billion at December 31,
2022. Refer to
Note
16 to
the Consolidated
Financial Statements
for detailed
information on
the Corporation’s
borrowings. Also,
refer to
the Liquidity
section in this MD&A for additional information
on the Corporation’s funding sources.
Stockholders’ Equity
Stockholders’
equity
totaled
$4.5
billion
at
March
31,
2023,
a
increased
$377.3
million
when
compared
to
December
31,
2022,
principally due to net income for the
quarter of $159.0 million, the after-tax impact of
the favorable variance in net unrealized losses
in the portfolio of available-for-sale securities
of $191.8 million, the amortization of
the unrealized losses from securities reclassified
to HTM as described above of
$33.6 million, and the adoption of the
new ASU during the quarter
of $28.8 million, partially offset by
dividends
declared for
the
quarter.
Refer
to
the
Consolidated Statements
of
Financial Condition,
Comprehensive Income
and
of
Changes in Stockholders’ Equity for information on
the composition of stockholders’ equity.
133
REGULATORY CAPITAL
The Corporation, BPPR and PB
are subject to regulatory capital
requirements established by the Federal Reserve Board.
The risk-
based
capital
standards
applicable
to
the
Corporation,
BPPR
and
PB
(“Basel
III
capital
rules”)
are
based
on
the
final
capital
framework for strengthening international capital standards, known
as Basel III, of the Basel Committee on Banking Supervision.
As
of March 31, 2023, the Corporation’s, BPPR’s and
PB’s capital ratios continue to exceed the minimum requirements for being
“well-
capitalized” under the Basel III capital rules.
The risk-based
capital ratios
presented in
Table
8,
which include
common equity
tier 1,
Tier
1 capital,
total capital
and leverage
capital as of March 31, 2023 and December 31,
2022.
Table 8 - Capital Adequacy
Data
(Dollars in thousands)
March 31, 2023
December 31, 2022
Common equity tier 1 capital:
Common stockholders equity - GAAP basis
$
4,448,582
$
4,071,282
CECL transitional amount
[1]
84,752
127,127
AOCI related adjustments due to opt-out election
2,239,846
2,468,193
Goodwill, net of associated deferred tax liability (DTL)
(689,987)
(691,560)
Intangible assets, net of associated DTLs
(12,149)
(12,944)
Deferred tax assets and other deductions
(319,082)
(322,412)
Common equity tier 1 capital
$
5,751,962
$
5,639,686
Additional tier 1 capital:
Preferred stock
22,143
22,143
Additional tier 1 capital
$
22,143
$
22,143
Tier 1 capital
$
5,774,105
$
5,661,829
Tier 2 capital:
Trust preferred securities subject to phase in as
tier 2
192,674
192,674
Other inclusions (deductions), net
431,184
431,144
Tier 2 capital
$
623,858
$
623,818
Total risk-based capital
$
6,397,963
$
6,285,647
Minimum total capital requirement to be well capitalized
$
3,438,371
$
3,441,589
Excess total capital over minimum well capitalized
$
2,959,592
$
2,844,058
Total risk-weighted
assets
$
34,383,712
$
34,415,889
Total assets for leverage
ratio
$
68,966,230
$
70,287,610
Risk-based capital ratios:
Common equity tier 1 capital
16.73
%
16.39
%
Tier 1 capital
16.79
16.45
Total capital
18.61
18.26
Tier 1 leverage
8.37
8.06
[1] The CECL transitional amount includes the impact
of Popular's adoption of the new CECL accounting standard
on January 1, 2020.
134
The Basel III capital rules provide that
a depository institution will be deemed to be
well capitalized if it maintains a leverage ratio
of
at least 5%, a common equity Tier
1 ratio of at least 6.5%, a
Tier 1 capital ratio of
at least 8% and a total risk-based
ratio of at least
10%. Management
has determined
that
as of
March 31,
2023, the
Corporation, BPPR
and PB
continue to
exceed the
minimum
requirements for being “well-capitalized” under the Basel
III capital rules.
Pursuant
to
the
adoption
of
the
CECL
accounting
standard
on
January
1,
2020,
the
Corporation
elected
to
use
the
five-year
transition
period option
as
provided in
the
final
interim
regulatory capital
rules effective
March 31,
2020.
The
five-year
transition
period provision delays for two
years the estimated impact
of CECL on regulatory capital,
followed by a three-year
transition period
to
phase
out
the
aggregate
amount
of
the
capital
benefit
provided
during
the
initial
two-year
delay.
As
of
March
31,
2023,
the
Corporation had phased-in 50% of
the cumulative CECL deferral with
the remaining impact to
be recognized over the
remainder of
the three-year transition period.
On April 9,
2020, federal banking regulators
issued an interim final
rule to modify
the Basel III
regulatory capital rules applicable
to
banking organizations to allow
those organizations participating in
the Paycheck Protection Program
(“PPP”) established under the
Coronavirus Aid, Relief
and Economic Security
Act (the
“CARES Act”) to
neutralize the regulatory
capital effects
of participating in
the
program.
Specifically,
the
agencies
have
clarified
that
banking
organizations,
including
the
Corporation
and
its
Bank
subsidiaries, are permitted to
assign a zero
percent risk weight to
PPP loans for
purposes of determining risk-weighted
assets and
risk-based
capital
ratios.
Additionally,
in
order
to
facilitate
use
of
the
Paycheck
Protection
Program
Liquidity
Facility
(the
“PPPL
Facility”), which provides Federal Reserve Bank loans to eligible financial institutions such as the Corporation’s Bank subsidiaries to
fund PPP loans, the
agencies further clarified that,
for purposes of determining
leverage ratios, a banking
organization is permitted
to exclude from total average assets PPP loans that
have been pledged as collateral for a PPPL
Facility. As of March
31, 2023, the
Corporation has $27 million in PPP loans and no
loans were pledge as collateral for PPPL Facilities.
The increase in the common equity Tier I capital ratio, Tier I capital ratio, and total capital ratio as of March
31, 2023 as compared to
December 31,
2022 was
mainly to
the period
earnings.
The increase
in leverage
capital ratio
was mainly
due to
the decrease
in
average total assets, which mostly did not have
a significant impact on the risk-weighted assets.
Non-GAAP financial measures
The tangible common
equity, tangible
common equity ratio,
tangible assets and
tangible book value
per common share,
which are
presented
in
the
table
that
follows,
are
non-GAAP
measures.
Management
and
many
stock
analysts
use
the
tangible
common
equity ratio and tangible book value per common share in
conjunction with more traditional bank capital ratios to compare
the capital
adequacy of banking organizations with significant
amounts of goodwill or other intangible assets,
typically stemming from the use of
the
purchase
accounting
method
for
mergers
and
acquisitions.
Neither
tangible
common
equity
nor
tangible
assets
or
related
measures should be considered in
isolation or as a substitute
for stockholders' equity,
total assets or any
other measure calculated
in accordance
with GAAP.
Moreover,
the manner
in which
the Corporation
calculates its
tangible common
equity,
tangible assets
and any other related measures may differ from that of
other companies reporting measures with similar
names.
Table
9 provides
a reconciliation
of total
stockholders’ equity
to tangible
common equity
and total
assets to
tangible assets
as of
March 31, 2023, and December 31, 2022.
135
Table 9 - Reconciliation of Tangible
Common Equity and Tangible
Assets
(In thousands, except share or per share information)
March 31, 2023
December 31, 2022
Total stockholders’
equity
$
4,470,725
$
4,093,425
Less: Preferred stock
(22,143)
(22,143)
Less: Goodwill
(827,428)
(827,428)
Less: Other intangibles
(12,149)
(12,944)
Total tangible common
equity
$
3,609,005
$
3,230,910
Total assets
$
67,675,759
$
67,637,917
Less: Goodwill
(827,428)
(827,428)
Less: Other intangibles
(12,149)
(12,944)
Total tangible assets
$
66,836,182
$
66,797,545
Tangible common
equity to tangible assets
5.40
%
4.84
%
Common shares outstanding at end of period
71,965,984
71,853,720
Tangible book value
per common share
$
50.15
$
44.97
Quarterly average
Total stockholders’
equity [1]
$
6,452,889
$
6,161,634
Less: Preferred Stock
(22,143)
(22,143)
Less: Goodwill
(827,427)
(827,427)
Less: Other intangibles
(12,678)
(13,440)
Total tangible common
equity
$
5,590,641
$
5,298,624
Return on average tangible common equity
11.51
%
19.23
%
[1] Average balances exclude unrealized gains or losses
on debt securities available-for-sale and the unrealized
loss related to certain securities
transferred from available-for-sale to held-to-maturity.
136
RISK MANAGEMENT
Market / Interest Rate Risk
The financial results and capital levels of the
Corporation are constantly exposed to market, interest
rate and liquidity risks.
Market risk
refers to the
risk of a
reduction in the
Corporation’s capital due
to changes in
the market valuation
of its assets
and/or
liabilities.
Most of the assets
subject to market valuation risk
are debt securities classified as
available-for-sale. Refer to Notes 6
and 7 to the
Consolidated Financial
Statements for
further information
on the
debt
securities available-for-sale
and
held-to-maturity portfolios.
Debt securities classified
as available-for-sale amounted to
$17.2 billion as
of March 31,
2023. Other assets subject
to market risk
include loans held-for-sale, which amounted to $11
million, mortgage servicing rights (“MSRs”) which amounted to $127
million and
securities classified as “trading”, which amounted
to $30 million, as of March 31, 2023.
Interest Rate Risk (“IRR”)
The Corporation’s net interest income is subject
to various categories of interest rate risk,
including repricing, basis, yield curve and
option risks.
In managing
interest rate
risk, management may
alter the
mix of
floating and
fixed rate
assets and
liabilities, change
pricing
schedules,
adjust
maturities
through
sales
and
purchases
of
investment
securities,
and
enter
into
derivative
contracts,
among other alternatives.
Interest
rate
risk
management
is
an
active
process
that
encompasses
monitoring
loan
and
deposit
flows
complemented
by
investment and funding
activities. Effective management of
interest rate risk begins
with understanding the dynamic
characteristics
of assets and
liabilities and determining the
appropriate rate risk position
given line of
business forecasts, management objectives,
market expectations and policy constraints.
Management utilizes various tools to assess IRR, including Net Interest
Income (“NII”) simulation modeling, static gap analysis, and
Economic Value
of Equity
(“EVE”). The
three methodologies
complement each
other and
are used
jointly in
the evaluation
of the
Corporation’s IRR. NII
simulation modeling is
prepared for a
five-year period, which
in conjunction with
the EVE analysis,
provides
management a better view of long-term IRR.
Net interest
income simulation analysis
performed by legal
entity and on
a consolidated basis
is a
tool used
by the
Corporation in
estimating the
potential change
in net
interest income
resulting from
hypothetical changes
in interest
rates. Sensitivity
analysis is
calculated using a simulation model which incorporates
actual balance sheet figures detailed by maturity
and interest yields or costs.
Management assesses
interest rate
risk by
comparing various
NII simulations
under different
interest rate
scenarios that
differ in
direction of interest
rate changes, the
degree of change
and the projected
shape of the
yield curve. For
example, the types
of rate
scenarios processed during the
quarter include flat
rates, implied forwards, and
parallel and non-parallel rate
shocks. Management
also performs analyses to isolate and measure basis
and prepayment risk exposures.
The asset
and liability
management group
performs validation
procedures on
various assumptions
used as
part of
the simulation
analyses as well as validations
of results on a
monthly basis. In addition, the
model and processes used to
assess IRR are subject
to independent validations according to the guidelines
established in the Model Governance and
Validation policy.
The Corporation processes NII
simulations under interest rate
scenarios in which the
yield curve is assumed
to rise and
decline by
the same
magnitude (parallel
shifts). The
rate scenarios
considered in
these market
risk simulations
reflect instantaneous
parallel
changes
of
-100,
-200,
+100,
+200
and
+400
basis
points
during the
succeeding
twelve-month period.
Simulation
analyses
are
based on many assumptions, including relative levels of market interest rates across all yield curve points
and indexes, interest rate
spreads, loan prepayments
and deposit elasticity.
Thus, they should
not be
relied upon as
indicative of actual
results. Further,
the
estimates
do
not
contemplate
actions
that
management
could
take
to
respond
to
changes
in
interest
rates.
Additionally,
the
Corporation is also subject to
basis risk in the
repricing of its assets and
liabilities, including the basis related
to using different rate
indexes for
the repricing
of assets and
liabilities, as
well as
the effect
of pricing
lags which
may be
contractual or
due to
historical
differences
in
the
timing
of
management
responses
to
changes
in
the
rate
environment.
By
their
nature,
these
forward-looking
computations are only
estimates and may
be different from
what may actually
occur in the
future. The following
table presents the
results of the simulations at March 31, 2023 and December
31, 2022, assuming a static balance sheet
and parallel changes over flat
spot rates over a one-year time horizon:
137
Table 10 - Net Interest Income
Sensitivity (One Year Projection)
March 31, 2023
December 31, 2022
(Dollars in thousands)
Amount Change
Percent Change
Amount Change
Percent Change
Change in interest rate
+400 basis points
$
18,478
0.84
%
$
(38,548)
(1.75)
%
+200 basis points
10,292
0.47
(18,078)
(0.82)
+100 basis points
6,271
0.29
(7,787)
(0.35)
-100 basis points
36,003
1.64
41,763
1.90
-200 basis points
73,542
3.36
78,381
3.56
As of
March 31,
2023, NII
simulations show
the Corporation
has a
relatively neutral
sensitivity position
as compared
to a
slightly
liability sensitive position as of December 31, 2022. The primary reasons for the variation in sensitivity are changes in balance sheet
composition that
include
a
decrease in
Puerto
Rico
public sector
deposits
which
are
indexed
to
market
rates
combined
with
an
increase in time
deposits, as well
as loan growth
and maturities of
investments. These results suggest
that changes in
net interest
income are driven primarily by changes in liability costs, primarily
Puerto Rico public sector deposits that represented $15.5 billion
or
25%
of
deposits
as
of
March
31,
2023,
and
partly
by
portfolio
management
strategies.
In
declining
rate
scenarios
net
interest
income would increase as
the decline in the
cost of these deposits
generates a greater benefit
than the changes in
asset yields. In
rising rate scenarios Popular’s sensitivity profile
is also impacted by its
large proportion of Puerto Rico
public sector deposits which
are indexed to market rates. As short-term rates have
risen, the cost of these deposits now increases in
sync with market rates and
therefore reduce the benefit banks typically have in
rising rate environments.
The Corporation’s
loan and
investment portfolios
are subject
to
prepayment risk,
which results
from the
ability of
a third-party
to
repay debt
obligations prior
to maturity.
Prepayment risk
also could
have a
significant impact
on the
duration of
mortgage-backed
securities
and
collateralized
mortgage
obligations
since
prepayments
could
shorten
(or
lower
prepayments
could
extend)
the
weighted average life of these portfolios.
Trading
The Corporation
engages in
trading activities
in the
ordinary course
of business
at its
subsidiaries, BPPR
and Popular
Securities.
Popular Securities’
trading activities
consist primarily
of market-making
activities to
meet expected
customers’ needs
related to
its
retail brokerage business,
and purchases and sales of U.S. Government and
government sponsored securities with the objective of
realizing gains
from expected
short-term price
movements. BPPR’s
trading activities consist
primarily of
holding U.S.
Government
sponsored
mortgage-backed securities
classified
as
“trading” and
hedging
the
related
market
risk
with
“TBA”
(to-be-announced)
market
transactions.
The
objective
is
to
derive
spread
income
from
the
portfolio
and
not
to
benefit
from
short-term
market
movements. In
addition, BPPR
uses forward
contracts or
TBAs to
hedge its
securitization pipeline.
Risks related
to variations
in
interest rates
and market volatility
are hedged
with TBAs
that have
characteristics similar to
that of
the forecasted security
and its
conversion timeline.
At March 31,
2023, the Corporation held trading
securities with a fair
value of $30
million, representing approximately 0.04% of
the
Corporation’s total
assets,
compared with
$28 million
and 0.04%,
respectively,
at December
31, 2022.
As shown
in Table
11,
the
trading portfolio consists
principally of mortgage-backed
securities and U.S.
Treasuries, which
at March
31, 2023 were
investment
grade
securities.
As
of
March
31,
2023
and
December
31,
2022,
the
trading
portfolio
also
included
$0.1
million
in
Puerto
Rico
government obligations.
Trading instruments are
recognized at fair value,
with changes resulting from fluctuations
in market prices,
interest rates or
exchange rates reported in
current period earnings. The
Corporation recognized net trading
account gain of $
378
thousand and a net trading account loss of
$723 thousand, respectively, for the quarters ended March 31, 2023 and
2022.
138
Table 11
- Trading Portfolio
March 31, 2023
December 31, 2022
(Dollars in thousands)
Amount
Weighted
Average Yield
[1]
Amount
Weighted
Average Yield
[1]
Mortgage-backed securities
$
13,967
5.80
%
$
14,223
5.79
%
U.S. Treasury securities
15,462
4.14
13,069
3.26
Collateralized mortgage obligations
133
5.44
160
5.51
Puerto Rico government obligations
62
0.44
64
0.45
Interest-only strips
199
12.00
207
12.00
Other (includes related trading derivatives)
16
4.23
-
-
Total
$
29,839
4.97
%
$
27,723
4.63
%
[1] Not on a taxable equivalent basis.
The Corporation’s trading activities are
limited by internal policies. For each
of the two subsidiaries, the
market risk assumed under
trading
activities
is
measured
by
the
5-day
net
value-at-risk
(“VAR”),
with
a
confidence
level
of
99%.
The
VAR
measures
the
maximum estimated loss that may occur over a
5-day holding period, given a 99% probability.
The
Corporation’s
trading
portfolio
had
a
5-day
VAR
of
approximately
$0.4
million
for
the
last
week
in
March
2023.
There
are
numerous assumptions
and estimates
associated with
VAR
modeling, and
actual results
could differ
from these
assumptions and
estimates. Backtesting is
performed to compare
actual results
against maximum estimated
losses, in order
to evaluate
model and
assumptions accuracy.
In the opinion of management, the size and composition
of the trading portfolio does not represent
a significant source of market risk
for the Corporation.
Liquidity
The objective
of effective
liquidity management
is to
ensure that
the Corporation
has sufficient
liquidity to
meet all
of its
financial
obligations, finance
expected future
growth,
fund
planned capital
distributions and
maintain a
reasonable safety
margin for
cash
needs under
both normal
and stressed market
conditions. The Board
of Directors
is responsible
for establishing the
Corporation’s
tolerance for liquidity risk,
including approving relevant risk limits and
policies. The Board of
Directors has delegated the monitoring
of
these risks
to
the Board’s
Risk Management
Committee and
the Asset/Liability
Management Committee.
The management
of
liquidity
risk,
on
a
long-term
and
day-to-day
basis,
is
the
responsibility
of
the
Corporate
Treasury
Division.
The
Corporation’s
Corporate
Treasurer
is
responsible
for
implementing
the
policies
and
procedures
approved
by
the
Board
of
Directors
and
for
monitoring
the
Corporation’s
liquidity
position
on
an
ongoing
basis.
Also,
the
Corporate
Treasury
Division coordinates
corporate
wide
liquidity
management
strategies
and
activities
with
the
reportable
segments,
oversees
policy
breaches
and
manages
the
escalation process.
The
Financial and
Operational Risk
Management Division
is
responsible for
the independent
monitoring and
reporting of adherence with established policies.
An
institution’s liquidity
may be
pressured if,
for example,
it experiences
a sudden
and unexpected
substantial cash
outflow due
deposit outflows
(whether due
to a
loss of
confidence by
depositors, or
other reasons)
exogenous events
such as
the COVID-19
pandemic), a
downgrading of
its credit
rating, or
some other
event that
causes counterparties
to avoid
exposure to
the institution.
Factors that the Corporation does not control, such as the
economic outlook, adverse ratings of its principal markets, perceptions of
the financial services industry and regulatory changes,
could also affect its ability to obtain funding.
The Corporation
has adopted
policies and
limits to
monitor the
Corporation’s liquidity
position and
that of
its banking
subsidiaries.
Additionally, contingency funding
plans are used to
model various stress events
of different magnitudes and
affecting different time
horizons that assist
management in evaluating
the size of
the liquidity
buffers needed if
those stress events
occur. However,
such
models
may
not
predict
accurately
how
the
market
and
customers
might
react
to
every
event,
and
are
dependent
on
many
assumptions.
139
Deposits, including
customer deposits,
brokered deposits
and public
funds deposits,
continue to
be the
most significant
source of
funds for the
Corporation, funding
90% of the
Corporation’s total assets
at March 31,
2023 and 91%
at December 31,
2022.
The
ratio
of
total
ending
loans
to
deposits
was
53%
at
March
31,
2023,
compared
to
52%
at
December 31,
2022.
In
addition
to
traditional deposits, the Corporation maintains borrowing
arrangements, which amounted to approximately
$1.4 billion in outstanding
balances at
March 31,
2023 (December
31, 2022
- $1.4
billion). A
detailed description
of the
Corporation’s borrowings,
including
their terms,
is included
in Note
16 to
the Consolidated
Financial Statements. Also,
the Consolidated Statements
of Cash
Flows in
the accompanying Consolidated Financial Statements provide
information on the Corporation’s cash inflows and outflows.
The
following
sections
provide
further
information
on
the
Corporation’s
major
funding
activities
and
needs,
as
well
as
the
risks
involved in these activities.
Banking Subsidiaries
Primary
sources of
funding
for the
Corporation’s
banking subsidiaries
(BPPR and
PB
or,
collectively,
“the banking
subsidiaries”)
include
retail,
commercial
and
public
sector
deposits,
brokered
deposits,
unpledged
investment
securities,
mortgage
loan
securitization and, to a lesser extent, loan sales. In
addition, the Corporation maintains borrowing facilities with the FHLB and at the
discount window
of the
Federal Reserve
Bank of
New York
(the “FRB”)
and has
a considerable
amount of
collateral pledged
that
can be used to raise funds under these facilities.
During the first quarter of 2023 the Corporation had
no material incremental use of its available liquidity sources. At
March 31,2023,
the Corporation’s available liquidity
increased to $18.3 billion from
$17.0 billion on December
31, 2022. The liquidity sources
of the
Corporation at March 31,2023 are presented in
Table 12:
Table 12 - Liquidity Sources
31-Mar-23
31-Dec-22
(In thousands)
BPPR
Popular U.S.
Total
BPPR
Popular U.S.
Total
Unpledged securities and unused funding
sources:
Money market (excess funds at the
Federal Reserve Bank)
$
5,181,531
$
909,613
$
6,091,144
$
5,240,100
$
367,966
$
5,608,066
Unpledged securities
7,690,887
273,980
7,964,867
7,494,189
326,599
7,820,788
FHLB borrowing capacity
1,623,246
1,127,316
2,750,562
1,389,579
722,005
2,111,584
Discount window of the Federal Reserve
Bank borrowing capacity
1,132,411
331,753
1,464,164
1,090,308
329,385
1,419,693
Total available liquidity
$
15,628,075
$
2,642,662
$
18,270,737
$
15,214,176
$
1,745,955
$
16,960,131
Refer
to
Note
16
to
the
Consolidated
Financial
Statements
for
additional
information
of
the
Corporation’s
borrowing
facilities
available through its banking subsidiaries.
The principal
uses of
funds for
the banking
subsidiaries include
loan originations,
investment portfolio
purchases, loan
purchases
and repurchases, repayment of outstanding obligations (including deposits), advances on certain serviced portfolios and operational
expenses. Also, the
banking subsidiaries assume liquidity
risk related to collateral
posting requirements for certain
activities mainly
in
connection
with
contractual
commitments,
recourse
provisions,
servicing
advances,
derivatives
and
credit
card
licensing
agreements.
The banking
subsidiaries maintain
sufficient funding
capacity to
address large
increases in
funding requirements
such as
deposit
outflows.
The
Corporation has
established
liquidity
guidelines
that
require
the
banking
subsidiaries
to
have
sufficient
liquidity
to
cover all short-term borrowings and a portion of deposits.
The Corporation’s ability to compete
successfully in the marketplace for
deposits, excluding brokered deposits, depends on various
factors, including pricing, service, convenience
and financial stability as
reflected by operating results and
financial condition, credit
ratings (by
nationally recognized credit
rating agencies), customer
confidence, and
importantly,
FDIC deposit
insurance coverage.
Deposits at all of the Corporation’s banking subsidiaries are federally insured
(subject to FDIC limits) and this is expected to mitigate
the potential effect of the aforementioned risks.
140
Deposits are a
key source of
funding as they
tend to be
less volatile than institutional
borrowings and their cost
is less sensitive
to
changes in
market rates.
Refer to
Table
7 for
a breakdown
of deposits
by major
types. Core
deposits are
generated from
a large
base
of
consumer,
corporate
and
public
sector
customers.
Core
deposits
include certificate
of
deposit
under
$250,000,
all
non-
interest bearing deposits, and
savings deposits.
Core deposits exclude brokered
deposits. Core deposits have
historically provided
the Corporation
with a
sizable source
of relatively
stable and
low-cost funds.
Core deposits
totaled $57.0
billion, or
94% of
total
deposits, at March
31, 2023, compared
with $57.6 billion,
or 94% of
total deposits, at
December 31, 2022.
Core deposits financed
89% of the Corporation’s earning assets at March 31,
2023, compared with 90% at December 31,
2022.
The distribution
by maturity of
certificates of
deposits with denominations
of $250,000 and
over at
March 31,
2023 is
presented in
the table that follows:
Table 13 - Distribution by
Maturity of Certificate of Deposits of $250,000 and Over
(In thousands)
3 months or less
$
1,768,494
Over 3 to 12 months
589,257
Over 1 year to 3 years
210,633
Over 3 years
147,111
Total
$
2,715,495
The
Corporation
had
$1.2
billion
in
brokered
deposits
at
March
31,
2023,
which
financed
approximately
2%
of
its
total
assets
(December 31, 2022 -
$1.1 billion and 2%,
respectively).
In the event that
any of the Corporation’s
banking subsidiaries’ regulatory
capital
ratios fall
below those
required
by
a well-capitalized
institution or
are subject
to capital
restrictions by
the regulators,
that
banking subsidiary faces
the risk of
not being able
to raise or
maintain brokered deposits
and faces limitations
on the rate
paid on
deposits, which
may hinder
the Corporation’s
ability to
effectively compete
in its
retail markets
and could
affect its
deposit raising
efforts.
Deposits from the public sector represent an important source of funds for the Corporation. As of March 31, 2023, total public sector
deposits were $15.5 billion,
compared to $15.8 billion at December 31, 2022. Generally, these deposits require that the bank pledge
high credit quality securities as collateral; therefore, liquidity risks arising from public sector deposit outflows are lower given that the
bank receives its
collateral in return.
This, now unpledged,
collateral can either
be financed via
repurchase agreements or
sold for
cash.
However,
there
are
some
timing
differences
between the
time
the
deposit
outflow occurs
and
when the
bank receives
its
collateral. Additionally,
the Corporation mainly
utilizes fixed-rate U.S.
Treasury debt
securities as collateral.
While these securities
have limited credit risk, they are subject to market
value risk based on changes in the interest rate environment.
When interest rates
increase, the value of this collateral decreases and could result in the Corporation having to provide additional collateral to cover the
same
amount
of
deposit
liabilities.
This
additional
collateral
could
reduce
unpledged
securities
otherwise
available
as
liquidity
sources to the Corporation.
At March 31, 2023, management believes that the banking subsidiaries had sufficient current and projected
liquidity sources to meet
their
anticipated
cash
flow
obligations,
as
well
as
special
needs
and
off-balance
sheet
commitments,
in
the
ordinary
course
of
business and have sufficient
liquidity resources to address a
stress event. Although the
banking subsidiaries have historically been
able to replace
maturing deposits and advances,
no assurance can
be given that
they would be
able to replace
those funds in
the
future if the
Corporation’s financial condition
or general market
conditions were to
deteriorate. The Corporation’s
financial flexibility
will
be
severely constrained
if
the
banking subsidiaries
are
unable to
maintain access
to
funding
or
if
adequate
financing is
not
available to accommodate future financing needs at acceptable interest rates. The
banking subsidiaries also are required to deposit
cash or qualifying securities to meet margin requirements on repurchase
agreements and other collateralized borrowing facilities. To
the extent that
the value of securities
previously pledged as collateral
declines because of market
changes, the Corporation will
be
required to
deposit additional cash
or securities to
meet its
margin requirements, thereby
adversely affecting its
liquidity. Finally,
if
management
is
required
to
rely
more
heavily
on
more
expensive
funding
sources
to
meet
its
future
growth,
revenues
may
not
increase proportionately to cover costs. In this
case, profitability would be adversely affected.
The Corporation
monitors uninsured
deposits under
applicable FDIC
regulations.
Additionally,
the Corporation
monitors accounts
with balances over $250,000.
While the Corporation has a
diverse deposit base from retail, commercial,
corporate and government
clients,
as
well
as
wholesale funding
sources such
as
brokered deposits,
it
considers
balance
in
excess
of
$250,000 to
have a
141
higher
potential
liquidity
risk.
Table
14
reflects
the
aggregate
balance
in
deposit
accounts
in
excess
of
$250,000,
including
collateralized public funds and deposits outside of the
U.S. and its territories.
Collateralized public funds, as presented in Table
14,
represent public
deposit balances from
governmental entities in
the U.S. and
its territories, including
Puerto Rico
and the U.S.V.I.,
that are collateralized based
on such jurisdictions’ applicable collateral
requirements. On March 31,2023,
deposits with balances in
excess
of
$250,000,
excluding
foreign
deposits
(mainly
deposits
in
the
British
Virgin
Islands)
intercompany
deposits
and
collateralized
public
funds,
were
$11.4
billion
or
22%
at
BPPR
and
$2.4
billion
or
25%
at
Popular
U.S.,
compared
to
available
liquidity sources of $15.6 billion at BPPR and $2.6
billion at Popular U.S.
Table 14 - Deposits
31-Mar-23
Popular, Inc.
(In thousands)
BPPR
% of Total
Popular U.S.
% of Total
(Consolidated)
% of Total
Deposits:
Deposits balances under $250,000 [1]
$
24,823,608
47
%
$
5,979,010
62
%
$
30,802,618
51
%
Transactional deposits balances over
$250,000
9,503,850
18
%
2,151,732
22
%
11,655,582
19
%
Time deposits balances over $250,000
1,869,792
4
%
255,322
3
%
2,125,114
3
%
Uninsured foreign deposits
412,444
1
%
-
-
%
412,444
1
%
Collateralized public funds
15,712,622
30
%
245,508
3
%
15,958,130
26
%
Intercompany deposits
134,110
-
%
986,943
10
%
-
-
%
Total deposits
$
52,456,426
100
%
$
9,618,515
100
%
$
60,953,888
100
%
[1] Includes the first $250,000 in balances of transactional
and time deposit accounts with balances in excess
of $250,000.
31-Dec-22
Popular, Inc.
(In thousands)
BPPR
% of Total
Popular U.S.
% of Total
(Consolidated)
% of Total
Deposits
Deposits balances under $250,000 [1]
$
24,505,697
46
%
$
5,231,417
60
%
$
29,737,114
49
%
Transactional deposits balances over
$250,000
9,957,877
19
%
2,674,841
31
%
12,632,718
21
%
Time deposits balances over $250,000
1,920,455
4
%
167,067
2
%
2,087,522
3
%
Uninsured foreign deposits
425,855
1
%
-
-
%
425,855
1
%
Collateralized public funds
16,233,342
31
%
$
110,676
1
%
$
16,344,018
27
%
Intercompany deposits
135,172
-
%
482,167
6
%
-
-
%
Total deposits
$
53,178,398
100
%
$
8,666,168
100
%
$
61,227,227
100
%
[1] Includes the first $250,000 in balances of transactional
and time deposit accounts with balances in excess
of $250,000.
Bank Holding Companies
The principal
sources of
funding for
the BHCs,
which are
Popular,
Inc.
(holding company
only) and
PNA, include
cash on
hand,
investment
securities,
dividends
received from
banking
and
non-banking subsidiaries,
asset sales,
credit
facilities
available from
affiliate banking subsidiaries and proceeds from potential securities offerings.
Dividends from banking and non-banking subsidiaries
are subject to various regulatory limits
and authorization requirements that are further described
below and that may limit the
ability
of those subsidiaries to act as a source of
funding to the BHCs.
142
The
principal
use
of
these
funds
includes
the
repayment
of
debt,
and
interest
payments
to
holders
of
senior
debt
and
junior
subordinated
deferrable
interest
(related
to
trust
preferred
securities),
the
payment
of
dividends
to
common
stockholders,
repurchases of the Corporation’s securities and capitalizing its
banking subsidiaries.
The outstanding balance of notes
payable at the BHCs
amounted to $891 million at
March 31, 2023 and
$497 million at December
31, 2022.
The contractual maturities of the BHCs notes payable
at March 31, 2023 are presented in Table 15.
Table 15
- Distribution of BHC's Notes Payable by Contractual
Maturity
Year
(In thousands)
2023
$
299,426
Later years
591,419
Total
$
890,845
The Corporation’s
6.125% unsecured
senior debt
securities mature
in September
of 2023.
As of
March 31,
2023, the
BHCs had
cash
and
money markets
investments totaling
$593
million
and
borrowing potential
of
$211
million
from
its
secured
facility
with
BPPR. The BHCs’ liquidity position continues to be adequate
with sufficient cash on hand, investments and other sources of liquidity
which are expected to be enough to meet all interest
payments and dividend obligations during the
foreseeable future. On March 13,
2023,
the
Corporation
issued
$400
million
aggregate
principal
amount
of
7.25%
Senior
Notes
due
2028
(the
“Notes”)
in
an
underwritten public offering. The Corporation intends to use a portion of the proceeds
of the offering to redeem or repay $300 million
aggregate principal
amount of
its
outstanding 6.125%
Senior
Notes due
September 2023.
For the
remainder of
year
2023, debt
service at
the BHCs
is approximately
$40 million,
including $8
million from
the 6.125%
unsecured senior
debt through
maturity in
September
2023.
Additionally,
the
Corporation’s
latest
quarterly
dividend
was
$0.55
per
share
or
approximately
$40
million
per
quarter.
The BHCs have in
the past borrowed in the
corporate debt market primarily to finance
their non-banking subsidiaries and refinance
debt obligations. These
sources of funding
are more costly
due to the
fact that
two out of
the three principal
credit rating agencies
rate the Corporation below “investment grade”, which
affects the Corporation’s cost and
ability to raise funds in
the capital markets.
Factors that the Corporation
does not control, such
as the economic outlook,
interest rate volatility,
inflation, disruptions in the
debt
market, among others,
could also affect
its ability to
obtain funding. The
Corporation has an
automatic shelf registration
statement
filed and effective
with the Securities and Exchange
Commission, which permits the Corporation
to issue an
unspecified amount of
debt or equity securities.
Non-Banking Subsidiaries
The
principal
sources
of
funding
for
the
non-banking
subsidiaries
include
internally
generated
cash
flows
from
operations,
loan
sales, repurchase agreements, capital
injections and borrowed funds
from their direct
parent companies or the
holding companies.
The principal uses of funds for the non-banking
subsidiaries include repayment of maturing debt,
operational expenses and payment
of dividends to the
BHCs. The liquidity needs
of the non-banking subsidiaries
are minimal since most
of them are
funded internally
from operating cash flows or from intercompany borrowings
or capital contributions from their holding companies.
Dividends
During the
quarter ended March
31, 2023,
the Corporation
declared cash
dividends of
$0.55 per common
share outstanding ($40
million in the
aggregate). The dividends for the
Corporation’s Series A preferred
stock amounted to $0.4
million. During the quarter
ended
March
31,
2023,
the
BHCs
received
dividends
amounting
to
$50
million
from
BPPR.
Dividends
from
BPPR
constitute
Popular, Inc.’s primary source of liquidity.
Other Funding Sources and Capital
In addition
to cash
reserves held
at the
FRB that
totaled $
6.1 billion
at March
31,2023,
the debt
securities portfolio
provides an
additional
source
of
liquidity,
which
may
be
realized
through
either
securities
sales,
collateralized
borrowings
or
repurchase
agreements.
The
Corporation’s
debt
securities
portfolio
consists
primarily
of
liquid
U.S.
government
debt
securities,
U.S.
government
sponsored
agency
debt
securities,
U.S.
government
sponsored
agency
mortgage-backed
securities,
and
U.S.
government
sponsored
agency
collateralized
mortgage
obligations
that
can
be
used
to
raise
funds
in
the
repo
markets.
The
143
availability
of
the
repurchase
agreement
would
be
subject
to
having
sufficient
unpledged
collateral
available
at
the
time
the
transactions are to be consummated, in addition to overall liquidity and risk appetite of the various counterparties. The Corporation’s
unpledged debt securities amounted to $ 8.0 billion at March 31, 2023
and $ 7.8 billion at December 31, 2022. A substantial portion
of these
debt securities
could be
used to
raise financing
in the
U.S. money
markets or
from secured
lending sources,
subject to
changes in their fair market value and customary adjustments
(haircuts).
Additional liquidity may
be provided through
loan maturities, prepayments
and sales. The
loan portfolio can
also be used
to obtain
funding in the capital markets. In particular,
mortgage loans and some types of consumer loans, have
secondary markets which the
Corporation could use.
Off-Balance Sheet arrangements and other commitments
In the ordinary course
of business, the Corporation
engages in financial transactions that
are not recorded on
the balance sheet or
may be recorded on the balance sheet in amounts that are different than the full contract or notional amount of the transaction. As a
provider of
financial services,
the Corporation
routinely enters
into commitments
with off-balance
sheet risk
to meet
the financial
needs of
its customers. These
commitments may include
loan commitments and
standby letters of
credit. These commitments
are
subject
to
the
same
credit
policies
and
approval
process
used
for
on-balance
sheet
instruments.
These
instruments
involve,
to
varying degrees, elements
of credit and
interest rate risk
in excess of
the amount recognized
in the statement
of financial position.
Refer to
Note 21
to the
Consolidated Financial
Statements for
information on
the Corporation’s
commitments to
extent credit
and
other non-credit commitments.
Other types
of off-balance
sheet arrangements
that the
Corporation enters
in the
ordinary course
of business
include derivatives,
operating
leases
and
provision
of
guarantees,
indemnifications,
and
representation
and
warranties.
Refer
to
Note
28
to
the
Consolidated Financial Statements for information on operating leases and
to Note 20 to the
Consolidated Financial Statements for
a
detailed
discussion
related
to
the
Corporation’s
obligations
under
credit
recourse
and
representation
and
warranties
arrangements.
The Corporation monitors its cash requirements, including
its contractual obligations and debt commitments.
FDIC Special Assessments
On March
12 and
13, 2023,
following the
closures of
Silicon Valley
Bank (“SVB”)
and Signature Bank
and the
appointment of the
FDIC as the
receiver for those
banks, the FDIC announced
that, under the
systemic risk exception set
forth in the
Federal Deposit
Insurance Act (“FDIA”),
all insured and
uninsured deposits of those
banks were transferred to
the respective bridge
banks for SVB
and Signature Bank.
The FDIC
also announced
that, as
required by
the FDIA,
any losses
to the
Deposit Insurance
Fund (“DIF”)
to support
uninsured
depositors
would
be
recovered
by
a
special
assessment.
Under
the
FDIA,
the
assessment
may
be
on
insured
depository
institutions,
depository
institution
holding
companies
(with
the
concurrence
of
the
Treasury
Secretary),
or
both,
as
the
FDIC
determines to
be
appropriate.
In
March 2023
testimony
before
Congress, the
Chairman of
the
FDIC
stated
that
the
FDIC
then
preliminarily estimated the
losses to the
DIF of
resolving SVB and
Signature Bank to
be $22.5
billion in the
aggregate.
The FDIA
provides that the special assessment will be prescribed through regulation, and the Chairman also noted in the same
testimony that
the FDIC
intends to
issue a
proposed rulemaking
for the
assessment in
May 2023.
The FDIC
has discretion
with respect
to the
design and
timeframe for
any special
assessment, and,
under the
FDIA, the
FDIC may
consider the
types of
entities that
benefit
from the action taken, economic conditions, the effects on the industry, and such other factors as the FDIC deems appropriate.
The
timing, amount and
allocation of the special
assessment that will be
imposed on banking organizations
is uncertain, but
the impact
of the special assessment on our noninterest
expense and results of operations may be
material.
Financial information of guarantor and issuers of registered
guaranteed securities
The Corporation (not
including any of
its subsidiaries, “PIHC”)
is the parent
holding company of
Popular North America
“PNA” and
has other subsidiaries through which it
conducts its financial services operations. PNA is
an operating, 100% subsidiary of Popular,
Inc.
Holding Company
(“PIHC”) and
is the
holding company
of its
wholly-owned subsidiaries:
Equity One,
Inc.
and PB,
including
PB’s wholly-owned subsidiaries Popular Equipment Finance,
LLC, Popular Insurance Agency, U.S.A., and E-LOAN, Inc.
PNA
has
issued
junior
subordinated
debentures
guaranteed
by
PIHC
(together
with
PNA,
the
“obligor
group”)
purchased
by
statutory trusts
established by
the Corporation.
These debentures
were purchased
by the
statutory trust
using the
proceeds from
144
trust preferred securities issued to the public (referred to as
“capital securities”), together with the proceeds of the related issuances
of common securities of the trusts.
PIHC
fully
and
unconditionally
guarantees
the
junior
subordinated
debentures
issued
by
PNA.
PIHC’s
obligation
to
make
a
guarantee payment may be satisfied by direct
payment of the required amounts to the
holders of the applicable capital securities or
by causing the applicable trust to pay such amounts to such holders. Each guarantee does not apply to any payment of distributions
by
the
applicable
trust
except
to
the
extent
such
trust
has
funds
available
for
such
payments.
If
PIHC
does
not
make
interest
payments on the
debentures held by such
trust, such trust
will not pay
distributions on the
applicable capital securities and
will not
have
funds
available
for
such
payments.
PIHC’s
guarantee
of
PNA’s
junior
subordinated
debentures
is
unsecured
and
ranks
subordinate and junior in
right of payment to
all the PIHC’s other
liabilities in the same manner
as the applicable debentures as
set
forth in the applicable indentures; and equally with all other guarantees
that the PIHC issues. The guarantee constitutes a guarantee
of
payment
and
not
of
collection,
which means
that
the
guaranteed party
may
sue
the
guarantor to
enforce its
rights
under the
respective guarantee without suing any other person
or entity.
The
principal
sources
of
funding
for
PIHC
and
PNA
have
included
dividends
received
from
their
banking
and
non-banking
subsidiaries, asset
sales and
proceeds from
the issuance
of debt
and equity.
As further
described below,
in the
Risk to
Liquidity
section, various statutory
provisions limit the
amount of dividends
an insured depository
institution may pay
to its holding
company
without regulatory approval.
The following
summarized financial information
presents the financial
position of
the obligor
group, on a
combined basis
at March
31, 2023
and December
31, 2022,
and the
results of
their operations
for the
period ended
March 31,
2023 and
March 31,
2022.
Investments in and
equity in the
earnings from the
other subsidiaries and
affiliates that are
not members of
the obligor group
have
been excluded.
The
summarized
financial
information
of
the
obligor
group
is
presented
on
a
combined
basis
with
intercompany
balances
and
transactions
between
entities
in
the
obligor
group
eliminated.
The
obligor
group's
amounts
due
from,
amounts
due
to
and
transactions with
subsidiaries and
affiliates
have been
presented in
separate line
items, if
they are
material.
In
addition, related
parties transactions are presented separately.
145
Table 16 - Summarized Statement
of Condition
(In thousands)
March 31, 2023
December 31, 2022
Assets
Cash and money market investments
$
593,315
$
203,083
Investment securities
27,406
24,815
Accounts receivables from non-obligor subsidiaries
15,060
16,853
Other loans (net of allowance for credit losses of $215 (2022
- $370))
27,671
27,826
Investment in equity method investees
5,350
5,350
Other assets
66,733
45,278
Total assets
$
735,535
$
323,205
Liabilities and Stockholders' deficit
Accounts payable to non-obligor subsidiaries
$
10,101
$
3,709
Notes payable
890,845
497,428
Other liabilities
116,276
112,847
Stockholders' deficit
(281,687)
(290,779)
Total liabilities and
stockholders' deficit
$
735,535
$
323,205
Table 17 - Summarized Statement
of Operations
For the quarters ended
(In thousands)
March 31, 2023
March 31, 2022
Income:
Dividends from non-obligor subsidiaries
$
50,000
$
450,000
Interest income from non-obligor subsidiaries and affiliates
810
204
Earnings from investments in equity method investees
-
8,105
Other operating income
1,146
(755)
Total income
$
51,956
$
457,554
Expenses:
Services provided by non-obligor subsidiaries and affiliates
(net of
reimbursement by subsidiaries for services provided by parent
of
$56,071 (2022 - $51,707))
$
4,989
$
3,867
Other operating expenses
4,486
4,637
Total expenses
$
9,475
$
8,504
Net income
$
42,481
$
449,050
During the
quarter ended
March 31,
2022, the
obligor group
recorded $0.6
million
of
dividend receivable
from
its
direct
equity method investees.
Risks to Liquidity
Total lines of credit outstanding, or available borrowing capacity under lines of credit are not necessarily
a measure of the total credit
available
on
a
continuing
basis.
Some
of
these
lines
could
be
subject
to
collateral
requirements,
changes
to
the
value
of
the
collateral, standards of
creditworthiness, leverage ratios
and other regulatory
requirements, among other factors.
Derivatives, such
as
those
embedded
in
long-term
repurchase
transactions
or
interest
rate
swaps,
and
off-balance
sheet
exposures,
such
as
146
recourse, performance bonds
or credit card
arrangements, are subject
to collateral requirements.
As their fair
value increases, the
collateral requirements may increase, thereby reducing
the balance of unpledged securities.
The importance of
the Puerto Rico
market for the
Corporation is an
additional risk factor
that could affect
its financing activities.
In
the case
of a
deterioration in economic
and fiscal conditions
in Puerto Rico,
the credit quality
of the
Corporation could be
affected
and result
in higher
credit costs.
Refer to
the Geographic
and Government
Risk section
of this
MD&A for
some highlights
on the
current status of the Puerto Rico economy and the ongoing
fiscal crisis.
Factors that the Corporation does not control, such as the economic
outlook and credit ratings of its principal markets and regulatory
changes,
could also
affect
its
ability to
obtain funding.
In
order to
prepare for
the
possibility of
such scenario,
management
has
adopted
contingency
plans
for
raising
financing
under
stress
scenarios
when
important
sources
of
funds
that
are
usually
fully
available
are
temporarily
unavailable. These
plans call
for
using
alternate
funding
mechanisms,
such
as
the
pledging
of
certain
asset classes
and accessing
secured credit
lines and
loan facilities
put in
place with
the FHLB
and the
FRB. The
Corporation is
subject to
positive tangible
capital
requirements to
utilize secured
loan facilities
with the
FHLB that
could
result in
a limitation
of
borrowing amounts or maturity terms, even if the Corporation
exceeds well-capitalized regulatory capital levels.
The credit
ratings of
Popular’s debt
obligations are
a relevant
factor for
liquidity because
they impact
the Corporation’s
ability to
borrow
in
the
capital
markets,
its
cost
and
access
to
funding
sources.
Credit
ratings
are
based
on
the
financial
strength,
credit
quality and
concentrations in
the loan
portfolio, the
level and
volatility of
earnings, capital
adequacy,
the quality
of management,
geographic concentration
in Puerto
Rico, the
liquidity of
the balance
sheet, the
availability of
a significant
base of
core retail
and
commercial deposits, and the Corporation’s ability to access
a broad array of wholesale funding sources,
among other factors.
Furthermore,
various
statutory
provisions
limit
the
amount
of
dividends
an
insured
depository
institution
may
pay
to
its
holding
company without
regulatory approval. A
member bank must
obtain the
approval of
the Federal
Reserve Board
for any
dividend, if
the total
of all
dividends declared
by the
member bank
during the
calendar year
would exceed
the total
of its
net income
for that
year,
combined with
its retained
net income
for the
preceding two
years, after
considering those
years’ dividend
activity,
less any
required transfers to surplus or to a
fund for the retirement of any
preferred stock. During the quarter ended March 31,
2023, BPPR
declared cash dividends of $50 million. At March 31, 2023, BPPR can declare a dividend of approximately $259 million without prior
approval of the Federal Reserve Board due to its retained income, declared
dividend activity and transfers to statutory reserves over
the measurement
period.
In addition,
a member
bank may
not declare
or pay
a dividend
in an
amount greater
than its
undivided
profits as reported in its Report of Condition and Income,
unless the member bank has received the
approval of the Federal Reserve
Board. A
member bank
also may
not permit
any portion
of its
permanent capital to
be withdrawn
unless the
withdrawal has
been
approved by
the Federal
Reserve Board. Pursuant
to these
requirements, PB may
not declare
or pay
a dividend
without the
prior
approval of the
Federal Reserve Board and
the NYSDFS. The
ability of a
bank subsidiary to
up-stream dividends to its
BHC could
thus
be
impacted
by
its
financial
performance
and
capital,
including
tangible
and
regulatory
capital,
thus
potentially
limiting
the
amount
of
cash
moving
up
to
the
BHCs
from
the
banking
subsidiaries.
This
could,
in
turn,
affect
the
BHCs
ability
to
declare
dividends on its outstanding common and preferred
stock, repurchase its securities or meet its debt obligations,
for example.
The Corporation’s banking subsidiaries have historically not
used unsecured capital market borrowings to finance
its operations, and
therefore are less sensitive to the level and
changes in the Corporation’s overall credit ratings.
Obligations Subject to Rating Triggers or Collateral Requirements
The
Corporation’s
banking
subsidiaries
currently
do
not
issue
unsecured
senior
debt,
as
these
banking
subsidiaries
are
funded
primarily with
deposits and
secured borrowings.
The banking
subsidiaries had
$8.7 million
in deposits
at March
31, 2023
that are
subject to rating triggers.
In addition,
certain mortgage servicing
and custodial agreements
that BPPR
has with
third parties
include rating covenants.
In the
event of a credit rating downgrade, the third parties have the right to require the institution to engage a substitute cash custodian for
escrow
deposits
and/or
increase
collateral
levels
securing
the
recourse
obligations.
Also,
as
discussed
in
Note
20
to
the
Consolidated
Financial
Statements,
the
Corporation
services
residential
mortgage
loans
subject
to
credit
recourse
provisions.
Certain
contractual
agreements
require
the
Corporation
to
post
collateral
to
secure
such
recourse
obligations
if
the
institution’s
required
credit
ratings
are
not
maintained.
Collateral
pledged
by
the
Corporation
to
secure
recourse
obligations
amounted
to
approximately
$28.2
million
at
March
31,
2023.
The
Corporation
could
be
required
to
post
additional
collateral
under
the
agreements.
Management
expects
that
it
would
be
able
to
meet
additional
collateral
requirements
if
and
when
needed.
The
requirements
to
post
collateral under
certain
agreements or
the
loss
of
escrow deposits
could
reduce
the
Corporation’s liquidity
resources and impact its operating results.
147
Credit Risk
Geographic and Government Risk
The Corporation is exposed to geographic and government risk.
The Corporation’s assets and revenue composition by geographical
area and by business segment reporting are presented
in Note 33 to the Consolidated Financial Statements.
Commonwealth of Puerto Rico
A
significant portion
of
our financial
activities and
credit
exposure is
concentrated in
the
Commonwealth of
Puerto Rico
(“Puerto
Rico”), which has faced severe economic and fiscal
challenges in the past and may face additional
challenges in the future.
Economic Performance.
Puerto
Rico’s
economy suffered
a
severe and
prolonged recession
from
2007
to
2017,
with real
gross national
product (“GNP”)
contracting approximately 15%
during this
period. In 2017,
Hurricane María caused
significant damage and
destruction across the
island, resulting in further economic contraction. Puerto Rico’s
economy has been gradually recovering since 2018, in
part aided by
the large amount
of federal disaster
relief and recovery
assistance funds injected
into the Puerto
Rico economy in
connection with
Hurricane María
and other
recent natural
disasters. This
growth was
interrupted by
the economic
shock caused
by the
COVID-19
pandemic in 2020, but has since resumed, in part
aided by additional federal assistance from
pandemic-related stimulus measures.
The
latest
Puerto
Rico
Economic Activity
Index,
published
by
the
Economic
Development Bank
for
Puerto
Rico
(the
“Economic
Activity Index”), reflected a 0.6% and
0.2% decrease in January and February
2023, respectively, compared to
the same months in
2022. During January and February
2023, the Economic Activity Index
increased by 0.5% and 0.3%,
respectively, in
a month-over-
month basis.
The Economic Activity Index is a coincident indicator of ongoing
economic activity but not a direct measurement of real
GNP.
In February
2023, the
Puerto Rico
Planning Board
revised its
real GNP
forecast for
the current
fiscal year
(July 2022-June
2023) from 1.7% growth to 0.7% growth, citing
an anticipated deacceleration in the global economy.
While the
Puerto Rico
economy has
not directly
tracked the
United States
economy in
recent years,
many of
the external
factors
that impact
the Puerto
Rico economy
are affected
by the
policies and performance
of the
United States
economy.
These external
factors include
the level
of interest
rates and
the rate
of inflation.
Inflation in
the United
States, as
measured by the
United States
Consumer Price Index (published by the U.S.
Bureau of Labor Statistics), increased 5.0% during
the 12-month period ended March
2023, mainly driven by pent-up demand and supply-chain
disruptions caused by the pandemic.
During the same period, inflation in
Puerto Rico, as measured by the Puerto Rico Consumer Price Index (published by the Department of Labor and Human Resources
of Puerto
Rico), increased 5.1%
for similar
reasons. The rate
of inflation has
slowed down
in recent months,
following a
mid-2022
peak, as the Federal Reserve has implemented a series
of benchmark interest rate increases. The speed and
scope of the inflation
slowdown will
inform if
and how
much
interest rates
will continue
to
increase, as
well how
these changes
will
impact the
United
States and Puerto Rico economies.
Fiscal Challenges.
As the
Puerto Rico
economy contracted, the
government’s public
debt rose
rapidly,
in part
from borrowing to
cover deficits
to pay
debt service,
pension benefits and
other government
expenditures. By 2016,
the Puerto
Rico government had
over $120
billion in
combined debt and unfunded pension liabilities, had
lost access to the capital markets, and was in
the midst of a fiscal crisis.
Puerto
Rico’s
escalating fiscal
and economic
challenges
and imminent
widespread defaults
in
its
public debt
prompted the
U.S.
Congress to
enact the
Puerto Rico
Oversight, Management,
and Economic
Stability Act
(“PROMESA”) in
June 2016.
PROMESA
created the “Oversight Board” with ample powers over Puerto Rico’s fiscal and economic affairs and those of its public corporations,
instrumentalities and municipalities (collectively,
“PR Government Entities”). Pursuant
to PROMESA, the
Oversight Board will be
in
place
until
market
access
is
restored
and
balanced
budgets
are
produced
for
at
least
four
consecutive
years.
PROMESA
also
established two
mechanisms for
the restructuring
of the
obligations of
PR Government
Entities: (a)
Title III,
which provides
an in-
court process that incorporates many of the
powers and provisions of the U.S. Bankruptcy Code
and permits adjustment of a broad
148
range of obligations, and
(b) Title VI,
which provides for a
largely out-of-court process through which
modifications to financial debt
can be accepted by a supermajority of creditors
and bind holdouts.
Since 2017, Puerto Rico and several
of its instrumentalities have availed themselves
of the debt restructuring mechanisms of Titles
III and VI of PROMESA. The Puerto Rico government emerged from Title III of PROMESA in March 2022. Several instrumentalities,
including Government
Development Bank for
Puerto Rico,
the Puerto
Rico Sales
Tax
Financing Corporation, and
the Puerto
Rico
Highways
and
Transportation
Authority,
have
also
completed
debt
restructurings
under
Titles
III
or
VI
of
PROMESA.
While
the
majority
of
the
debt
has
already
been
restructured,
some
PR
Government
Entities
still
face
significant
fiscal
challenges.
For
example, the
Puerto Rico
Electric Power
Authority is
still in
the process
of restructuring
its debts
under Title
III of
PROMESA and
other PR Government
Entities, such as
the Puerto Rico
Industrial Development Company,
have defaulted on
their bonds but
have
not commenced debt restructuring proceedings under
PROMESA.
Municipalities.
Puerto Rico’s fiscal and economic challenges have
also adversely impacted its municipalities. Budgetary subsidies to municipalities
have
gradually
declined
in
recent
years
and
are
scheduled
to
be
ultimately
eliminated
by
fiscal
year
2025
as
part
of
the
fiscal
measures
required
by
the
Oversight
Board.
According
to
the
latest
Puerto
Rico
fiscal
plan
certified
by
the
Oversight
Board,
municipalities
have
made
little
to
no
progress
towards
implementing
the
fiscal
discipline
required
to
reduce
reliance
on
these
budgetary appropriations and this
lack of fiscal
management may threaten the
ability of certain
municipalities to provide
necessary
services, such as health, sanitation, public safety
and emergency services to their residents, forcing them
to prioritize expenditures.
Municipalities
are
subject
to
PROMESA
and,
at
the
Oversight
Board’s
request,
are
required
to
submit
fiscal
plans
and
annual
budgets
to
the
Oversight
Board
for
its
review
and
approval.
They
are
also
required to
seek
Oversight
Board
approval
to
issue,
guarantee
or
modify
their
debts
and
to
enter
into
contracts
with an
aggregate
value
of
$10
million
or
more.
With
the
Oversight
Board’s approval, municipalities are also eligible to avail themselves of the debt restructuring processes provided by PROMESA. To
date, however, no municipality has been subject to any such debt restructuring
process.
Exposure of the Corporation
The credit
quality of BPPR’s
loan portfolio
reflects, among other
things, the
general economic conditions
in Puerto
Rico and
other
adverse conditions affecting Puerto
Rico consumers and businesses.
Deterioration in the Puerto
Rico economy has resulted
in the
past, and could
result in the future,
in higher delinquencies, greater
charge-offs and increased losses,
which could materially affect
our financial condition and results of operations.
At March
31, 2023,
the Corporation’s
direct exposure
to PR
Government Entities
totaled $353
million, of
which $324
million were
outstanding, compared
to
$374 million
at
December 31,
2022, of
which $327
million
were outstanding.
A
deterioration in
Puerto
Rico’s fiscal and
economic situation could adversely
affect the value
of our Puerto
Rico government obligations, resulting
in losses
to
us.
Of
the
amount
outstanding,
$302
million
consists
of
loans
and
$22
million
are
securities
($302
million
and
$25
million,
respectively, at
December 31, 2022).
All of the
Corporation’s direct exposure
outstanding at March
31, 2023 were
obligations from
various
Puerto
Rico
municipalities.
In
most
cases,
these
were
“general
obligations”
of
a
municipality,
to
which
the
applicable
municipality
has
pledged its
good
faith, credit
and unlimited
taxing power,
or
“special obligations”
of
a municipality,
to
which the
applicable municipality has pledged basic property tax or sales tax revenues.
At March 31, 2023, 73% of the Corporation’s exposure
to
municipal
loans
and
securities
was
concentrated
in
the
municipalities
of
San
Juan,
Guaynabo,
Carolina
and
Bayamón.
For
additional discussion of the Corporation’s direct exposure to the Puerto
Rico government and its instrumentalities and municipalities,
refer to Note 21 – Commitments and Contingencies
to the Consolidated Financial Statements.
In addition, at March
31, 2023, the Corporation had
$245 million in loans
insured or securities issued by
Puerto Rico governmental
entities, but for
which the principal source
of repayment is
non-governmental ($251 million at December 31, 2022).
These included
$204 million in
residential mortgage loans insured
by the Puerto
Rico Housing Finance Authority
(“HFA”), a
PR Government Entity
(December 31, 2022 - $209 million). These mortgage loans are secured by first mortgages on Puerto
Rico residential properties and
the
HFA
insurance
covers
losses
in
the
event
of
a
borrower
default
and
upon
the
satisfaction
of
certain
other
conditions.
The
Corporation also
had
at
March
31,
2023,
$41
million
in bonds
issued by
HFA
which
are secured
by
second
mortgage
loans on
Puerto Rico residential properties, and for which HFA also provides insurance to
cover losses in the event of a borrower default, and
upon the satisfaction of certain
other conditions (December 31, 2022 - $42
million). In the event that
the mortgage loans insured by
HFA and held
by the Corporation directly or those serving
as collateral for the HFA
bonds default and the collateral is
insufficient to
satisfy the outstanding balance of these loans, HFA’s
ability to honor its insurance will depend, among other factors, on the financial
149
condition
of
HFA
at
the
time
such
obligations
become
due
and
payable.
The
Corporation
does
not
consider
the
government
guarantee when estimating the credit losses associated
with this portfolio.
BPPR’s
commercial loan
portfolio also
includes loans
to
private borrowers
who
are service
providers, lessors,
suppliers or
have
other relationships with the government. These borrowers could be negatively
affected by a deterioration in the fiscal
and economic
situation
of
PR
Government
Entities.
Similarly,
BPPR’s
mortgage
and
consumer
loan
portfolios
include
loans
to
government
employees
and
retirees,
which
could
also
be
negatively
affected
by
fiscal
measures,
such
as
employee
layoffs
or
furloughs
or
reductions in pension benefits, if the fiscal and economic
situation deteriorates.
As of March 31, 2023, BPPR had $15.5 billion in deposits from the Puerto Rico government, its instrumentalities, and municipalities.
The
rate
at
which
public
deposit
balances
may
decline is
uncertain and
difficult
to
predict.
The
amount
and
timing
of
any
such
reduction is
likely to
be impacted
by,
for example,
the speed
at which
federal assistance
is distributed
and the
financial condition,
liquidity and cash management practices of such entities,
as well as on the ability of BPPR to
maintain these customer relationships.
The
Corporation may
also have
direct
exposure with
regards to
avoidance and
other causes
of
action initiated
by the
Oversight
Board on behalf of the Commonwealth or other Title III debtors. For additional information regarding such exposure, refer to Note 21
to the Consolidated Financial Statements.
United States Virgin Islands
The
Corporation
has
operations
in
the
United
States
Virgin
Islands
(the
“USVI”)
and
has
credit
exposure
to
USVI
government
entities.
The USVI has
been experiencing a
number of fiscal
and economic challenges,
which could adversely
affect the
ability of its
public
corporations and instrumentalities to service their outstanding
debt obligations. PROMESA does not apply to the USVI
and, as such,
there
is
currently
no
federal
legislation
permitting
the
restructuring
of
the
debts
of
the
USVI
and
its
public
corporations
and
instrumentalities.
To
the extent that
the fiscal condition
of the USVI
continues to deteriorate, the
U.S. Congress or the
Government of the
USVI may
enact legislation allowing for the restructuring of the
financial obligations of USVI government entities or imposing
a stay on creditor
remedies, including by making PROMESA applicable
to the USVI.
At March
31, 2023,
the Corporation
had approximately
$28 million
in direct
exposure to
USVI government
entities (December 31,
2022 - $28 million).
British Virgin Islands
The Corporation has operations in the British Virgin Islands (“BVI”), which has been negatively affected by the COVID-19 pandemic,
particularly as
a reduction
in the
tourism activity
which accounts
for a
significant portion
of its
economy.
Although the
Corporation
has no
significant exposure to
a single
borrower in
the BVI,
at March 31,
2023, it
has a
loan portfolio amounting
to approximately
$210 million comprised of various retail and commercial
clients, compared to a loan portfolio of $214 million
at December 31, 2022.
U.S. Government
As further detailed in Notes
6 and 7 to the
Consolidated Financial Statements, a substantial portion of the
Corporation’s investment
securities
represented exposure
to
the
U.S.
Government in
the
form
of
U.S. Government
sponsored entities,
as
well
as
agency
mortgage-backed and U.S. Treasury securities. In addition, $1.6 billion
of residential mortgages, $27 million of SBA loans under the
Paycheck Protection Program (“PPP”) and $73 million
commercial loans were insured or guaranteed by
the U.S. Government or its
agencies at March 31, 2023 (compared to $1.6
billion, $38 million and $72 million, respectively, at December 31, 2022).
Non-Performing Assets
Non-performing assets (“NPAs”)
include primarily past-due
loans that
are no
longer accruing interest,
renegotiated loans, and
real
estate property acquired through foreclosure. A summary, including certain credit
quality metrics, is presented in Table 21.
During
the
first
quarter
of
2023,
the
Corporation continued
to
show
favorable
credit
quality
trends with
low
levels
of
NCOs
and
decreasing NPLs.
We continue
to closely
monitor changes
in the
macroeconomic environment
and borrower
performance, given
150
inflationary
pressures and
geopolitical
risks.
However,
management believes
that
the
improvement
over
recent years
in
the
risk
profile of the Corporation’s loan portfolios positions
Popular to operate successfully under the current environment.
Total
NPAs
decreased
by
$24
million
when
compared
with
December
31,
2022.
Total
non-performing
loans
held-in-portfolio
(“NPLs”)
decreased
by
$27
million
from
December
31,
2022.
BPPR’s
NPLs
decreased
by
$23
million,
mainly
driven
by
lower
mortgage and consumer NPLs
by $18 million
and $14 million, respectively,
in part offset
by higher commercial NPLs
by $9 million.
The
consumer
NPLs
decrease
was
mostly
driven
by
a
$11
million
line
of
credit
charge-off
on
a
single
relationship,
while
the
commercial
NPLs
increase
was
driven
by
a
$14
million
loan
relationship.
Popular
U.S.
NPLs
decreased
by
$4
million
from
December 31, 2022, mainly driven by lower mortgage NPLs. At March 31, 2023,
the ratio of NPLs to total loans held-in-portfolio was
1.3% compared
to 1.4%,
at December
31, 2022.
Other real
estate owned
loans (“OREOs”)
increased by
$3 million.
At March
31,
2023,
NPLs
secured
by
real
estate
amounted
to
$297
million
in
the
Puerto
Rico
operations
and
$27
million
in
Popular
U.S,
compared with $303 million and $33 million, respectively,
at December 31, 2022.
The Corporation’s commercial
loan portfolio secured
by real estate
(“CRE”) amounted to
$10.0 billion at
March 31,
2023, of which
$3.0 billion was secured
with owner occupied properties, compared
with $9.9 billion and
$3.1 billion, respectively,
at December 31,
2022. Office space
leasing exposure in
our non-owner occupied
CRE portfolio is
limited, representing only
1.9% or $608
million of
our total loan portfolio.
The exposure is mainly comprised of low- to mid- rise properties with average
loan size of $2.0 million and is
well diversified across tenant type.
CRE NPLs amounted to
$67 million at March
31, 2023, compared with
$54 million at
December 31, 2022. The CRE
NPL ratios for
the BPPR and
Popular U.S. segments
were 1.30% and 0.11%,
respectively, at
March 31, 2023, compared
with 1.04% and
0.12%,
respectively, at December 31, 2022.
In addition
to the
NPLs included
in Table
21, at
March 31,
2023, there
were $334
million of
performing loans,
mostly commercial
loans, which in management’s opinion, are currently subject to potential future classification as non-performing (December 31, 2022
- $374 million).
For the period ended March 31, 2023, total inflows of NPLs held-in-portfolio, excluding consumer loans, increased by approximately
$4
million,
when
compared
to
the
inflows
for
the
same
period
in
2022.
Inflows
of
NPLs
held-in-portfolio
at
the
BPPR
segment
increased by
$6 million compared
to the
same period in
2022, driven by
higher commercial inflows
by $10
million in
part offset
by
lower mortgage inflows by $4 million. Inflows of NPLs held-in-portfolio at the Popular U.S. segment decreased by $2 million from the
same period in 2022.
151
Table 18 - Non-Performing
Assets
March 31, 2023
December 31, 2022
(Dollars in thousands)
BPPR
Popular
U.S.
Popular,
Inc.
As a % of
loans HIP
by category
BPPR
Popular
U.S.
Popular,
Inc.
As a % of
loans HIP
by category
Commercial
$
90,952
$
11,048
$
102,000
0.6
%
$
82,171
$
10,868
$
93,039
0.6
%
Leasing
6,103
-
6,103
0.4
5,941
-
5,941
0.4
Mortgage
224,075
14,719
238,794
3.2
242,391
20,488
262,879
3.6
Auto
39,516
-
39,516
1.1
40,978
-
40,978
1.2
Consumer
18,333
7,637
25,970
0.8
30,528
6,076
36,604
1.2
Total non-performing
loans held-in-
portfolio
378,979
33,404
412,383
1.3
%
402,009
37,432
439,441
1.4
%
Other real estate owned (“OREO”)
91,345
376
91,721
88,773
353
89,126
Total non-performing
assets
[1]
$
470,324
$
33,780
$
504,104
$
490,782
$
37,785
$
528,567
Accruing loans past due 90 days or
more
[2]
$
305,638
$
245
$
305,883
$
351,248
$
366
$
351,614
Ratios:
Non-performing assets to total
assets
0.87
%
0.25
%
0.74
%
0.89
%
0.30
%
0.78
%
Non-performing loans held-in-
portfolio to loans held-in-portfolio
1.66
0.35
1.28
1.78
0.39
1.37
Allowance for credit losses to loans
held-in-portfolio
2.57
1.07
2.13
2.73
1.10
2.25
Allowance for credit losses to non-
performing loans, excluding held-for-
sale
154.89
305.69
167.11
153.12
279.86
163.91
[1] There were no non-performing loans held-for-sale
as of March 31, 2023 and December 31, 2022.
[2] It is
the Corporation’s
policy to report
delinquent residential
mortgage loans
insured by FHA
or guaranteed by
the VA
as accruing loans
past due
90 days or more as opposed to non-performing
since the principal repayment is insured.
These balances include $167 million
of residential mortgage
loans
insured
by
FHA
or
guaranteed
by
the
VA
that
are
no
longer
accruing
interest
as
of
March
31,
2023
(December
31,
2022
-
$190
million).
Furthermore, the
Corporation has
approximately
$40 million
in reverse
mortgage loans
which are
guaranteed
by FHA,
but which
are currently
not
accruing interest.
Due
to
the guaranteed
nature
of the
loans, it
is the
Corporation’s
policy
to exclude
these balances
from
non-performing
assets
(December 31, 2022 - $42 million).
152
Table 19 - Activity in Non
-Performing Loans Held-in-Portfolio (Excluding Consumer
Loans)
For the quarter ended March 31, 2023
(Dollars in thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance
$
324,562
$
31,356
$
355,918
Plus:
New non-performing loans
50,613
8,531
59,144
Advances on existing non-performing loans
-
65
65
Less:
Non-performing loans transferred to OREO
(10,873)
(58)
(10,931)
Non-performing loans charged-off
(1,176)
(216)
(1,392)
Loans returned to accrual status / loan collections
(48,099)
(13,911)
(62,010)
Ending balance NPLs
$
315,027
$
25,767
$
340,794
Table 20 - Activity in Non
-Performing Loans Held-in-Portfolio (Excluding Consumer
Loans)
For the quarter ended March 31, 2022
(Dollars in thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance
$
454,419
$
27,501
$
481,920
Plus:
New non-performing loans
44,320
7,799
52,119
Advances on existing non-performing loans
-
2,639
2,639
Less:
Non-performing loans transferred to OREO
(13,396)
(85)
(13,481)
Non-performing loans charged-off
(723)
(73)
(796)
Loans returned to accrual status / loan collections
(60,278)
(10,552)
(70,830)
Ending balance NPLs
$
424,342
$
27,229
$
451,571
Table 21 - Activity in Non
-Performing Commercial Loans Held-In-Portfolio
For the quarter ended March 31, 2023
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$
82,171
$
10,868
$
93,039
Plus:
New non-performing loans
16,594
5,719
22,313
Advances on existing non-performing loans
-
26
26
Less:
Non-performing loans transferred to OREO
(287)
-
(287)
Non-performing loans charged-off
(673)
(216)
(889)
Loans returned to accrual status / loan collections
(6,853)
(5,349)
(12,202)
Ending balance - NPLs
$
90,952
$
11,048
$
102,000
153
Table 22 - Activity in Non
-Performing Commercial Loans Held-In-Portfolio
For the quarter ended March 31, 2022
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$
120,047
$
5,532
$
125,579
Plus:
New non-performing loans
6,127
2,999
9,126
Advances on existing non-performing loans
-
2,505
2,505
Less:
Non-performing loans transferred to OREO
(3,052)
-
(3,052)
Non-performing loans charged-off
(256)
(73)
(329)
Loans returned to accrual status / loan collections
(5,084)
(5,560)
(10,644)
Ending balance - NPLs
$
117,782
$
5,403
$
123,185
Table 23 - Activity in Non
-Performing Construction Loans Held-In-Portfolio
For the quarter ended March 31, 2022
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$
485
$
-
$
485
Plus:
Less:
-
-
Loans returned to accrual status / loan collections
(485)
-
(485)
Ending balance - NPLs
$
-
$
-
$
-
Table 24 - Activity in Non
-Performing Mortgage Loans Held-in-Portfolio
For the quarter ended March 31, 2023
(Dollars in thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$
242,391
$
20,488
$
262,879
Plus:
New non-performing loans
34,019
2,812
36,831
Advances on existing non-performing loans
-
39
39
Less:
Non-performing loans transferred to OREO
(10,586)
(58)
(10,644)
Non-performing loans charged-off
(503)
-
(503)
Loans returned to accrual status / loan collections
(41,246)
(8,562)
(49,808)
Ending balance - NPLs
$
224,075
$
14,719
$
238,794
Table 25 - Activity in Non
-Performing Mortgage Loans Held-in-Portfolio
For the quarter ended March 31, 2022
(Dollars in thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$
333,887
$
21,969
$
355,856
Plus:
New non-performing loans
38,193
4,800
42,993
Advances on existing non-performing loans
-
134
134
Less:
Non-performing loans transferred to OREO
(10,344)
(85)
(10,429)
Non-performing loans charged-off
(467)
-
(467)
Loans returned to accrual status / loan collections
(54,709)
(4,992)
(59,701)
Ending balance - NPLs
$
306,560
$
21,826
$
328,386
154
Loan Delinquencies
Another key measure used to evaluate and
monitor the Corporation’s asset quality is loan
delinquencies. Loans delinquent 30 days
or more, as a percentage of their related portfolio
category at March 31, 2023 and December 31,
2022, are presented below.
Table 26 - Loan Delinquencies
(Dollars in thousands)
March 31, 2023
December 31, 2022
Loans delinquent
30 days or more
Total loans
Total delinquencies
as
a percentage of total
loans
Loans delinquent
30 days or more
Total loans
Total delinquencies
as
a percentage of total
loans
Commercial
$
197,013
$
16,005,261
1.23
%
$
119,476
$
15,739,132
0.76
%
Construction
15,246
698,996
2.18
-
757,984
-
Leasing
21,009
1,614,344
1.30
21,487
1,585,739
1.36
Mortgage
[1]
818,927
7,405,907
11.06
937,253
7,397,471
12.67
Consumer
191,886
6,613,865
2.90
216,401
6,597,443
3.28
Loans held-for-sale
-
11,181
-
-
5,381
-
Total
$
1,244,081
$
32,349,554
3.85
%
$
1,294,617
$
32,083,150
4.04
%
[1]
Loans delinquent 30 days or more includes $0.4 billion
of residential mortgage loans insured by FHA or guaranteed
by the VA as of March
31,
2023 (December 31, 2022 - $0.5 billion). Refer to Note
8 to the Consolidated Financial Statements for additional
information of guaranteed loans.
Allowance for Credit Losses Loans Held-in-Portfolio
The Corporation adopted the new CECL accounting standard effective on January 1,
2020. The allowance for credit losses (“ACL”),
represents management’s estimate
of expected credit
losses through the
remaining contractual life
of the
different loan segments,
impacted by expected
prepayments. The ACL
is maintained at
a sufficient
level to provide
for estimated credit
losses on collateral
dependent
loans
as
well
as
loans
modified
to
borrowers
with
financial
difficulty,
including
legacy
troubled
debt
restructurings,
separately
from
the
remainder
of
the
loan
portfolio.
The
Corporation’s
management
evaluates
the
adequacy
of
the
ACL
on
a
quarterly
basis.
In
this
evaluation,
management
considers
current
conditions,
macroeconomic
economic
expectations
through
a
reasonable and supportable period,
historical loss experience, portfolio composition
by loan type
and risk characteristics, results
of
periodic credit reviews
of individual loans,
and regulatory requirements, amongst
other factors. The
Corporation evaluates, at
least
on an
annual basis, the
assumptions tied to
the CECL
accounting framework, including
the reasonable
and supportable period
as
well as the reversion window.
The Corporation must rely on
estimates and exercise judgment regarding matters where
the ultimate outcome is unknown,
such as
economic developments affecting specific
customers, industries, or markets.
Other factors that can
affect management’s estimates
are
recalibration
of
statistical
models
used
to
calculate
lifetime
expected
losses,
changes
in
underwriting
standards,
financial
accounting standards and loan impairment measurements,
among others. Changes in the financial condition
of individual borrowers,
in economic
conditions, and
in the
condition of
the various
markets in
which collateral
may be
sold, may
also affect
the required
level of
the allowance
for credit
losses. Consequently,
the business
financial condition,
liquidity,
capital, and
results of
operations
could also be affected.
Given that any one
economic outlook is inherently uncertain, the
Corporation leverages multiple scenarios to estimate
its ACL. The
baseline scenario
continues to
be assigned
the highest
probability,
followed
by the
pessimistic scenario.
The baseline
scenario
assumes a 2023 annualized
GDP growth in the
baseline scenario stands at
2.1% and 1.3% for
Puerto Rico and the
United States,
respectively,
increasing from
1.3% and
0.7% in
the previous
quarter. The
2023 forecasted
average unemployment
rate continues
strong, improving quarter-over-quarter to
6.9% and 3.5%
for Puerto Rico
and the United
States, respectively,
from 7.8% and
4.0%
respectively, in the previous forecast.
At
March
31,
2023,
the
allowance
for
credit
losses
amounted
to
$689
million,
a
decrease
of
$31
million,
when
compared
with
December 31, 2022.
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02 in
March 2022, which eliminates the
accounting guidance for troubled debt
restructures (“TDRs”) and the requirement
to measure the
155
effect
of
the
concession from
a
loan
modification, for
which
the
Corporation used
a
discounted cash
flow
(“DCF”)
method.
This
impact
resulted
in
a
release
in
the
ACL
of
approximately
$46
million
presented
as
an
adjustment
to
the
beginning
balance
of
retained earnings, net of tax effect.
Excluding ASU 2022-02 impact, the
ACL for BPPR increased by
$14 million, when compared to
December 31, 2022, mostly driven
by reductions in the HPI forecast, higher loan volumes and migration of consumer credit scores. The ACL for
Popular U.S remained
essentially flat
from
December 31,
2022. quarter-over-quarter.
The Corporation’s
ratio of
the allowance
for credit
losses to
loans
held-in-portfolio was
2.13% at
March 31,
2023, compared
to 2.25%
in December
31, 2022.
The ratio
of the
allowance for
credit
losses to NPLs held-in-portfolio stood at 167.1%,
compared to 163.9% in December 31, 2022.
The provision for credit losses
for the period ended March 31,
2023, amounted to an expense of
$47 million, compared to a benefit
of
$14
million
for
the
period
ended
March
31,
2022,
as
the
prior
period
included
reductions
in
reserves
due
to
post-pandemic
improvements in the macroeconomic outlook and lower NCOs. Refer
to Note 9 – Allowance for credit losses – loans held-in-portfolio
to the Consolidated Financial Statements, and
to the Provision for Credit Losses section of this MD&A
for additional information.
Table 27 - Allowance for Credit
Losses - Loan Portfolios
March 31, 2023
(Dollars in thousands)
Commercial
Construction
Mortgage
Leasing
Consumer
Total
Total ACL
$
243,979
$
4,330
$
104,477
$
20,990
$
315,344
$
689,120
Total loans held-in
-portfolio
16,005,261
698,996
7,405,907
1,614,344
6,613,865
32,338,373
ACL to loans held-in-portfolio
1.52
%
0.62
%
1.41
%
1.30
%
4.77
%
2.13
%
Total non-performing
loans held-in-portfolio
$
102,000
$
-
$
238,794
$
6,103
$
65,486
$
412,383
ACL to non-performing loans held-in-portfolio
239.20
%
N.M.
43.75
%
343.93
%
481.54
%
167.11
%
N.M. - Not meaningful.
Table 28 - Allowance for Credit
Losses - Loan Portfolios
December 31, 2022
(Dollars in thousands)
Commercial
Construction
Mortgage
Leasing
Consumer
Total
Total ACL
$
235,376
$
4,246
$
135,254
$
20,618
$
324,808
$
720,302
Total loans held-in
-portfolio
15,739,132
757,984
7,397,471
1,585,739
6,597,443
32,077,769
ACL to loans held-in-portfolio
1.50
%
0.56
%
1.83
%
1.30
%
4.92
%
2.25
%
Total non-performing
loans held-in-portfolio
$
93,039
$
-
$
262,879
$
5,941
$
77,582
$
439,441
ACL to non-performing loans held-in-portfolio
252.99
%
N.M.
51.45
%
347.05
%
418.66
%
163.91
%
N.M. - Not meaningful.
156
Annualized net charge-offs (recoveries)
The following
tables present
annualized net charge-offs
(recoveries) to average
loans held-in-portfolio (“HIP”)
by loan
category for
the quarters ended March 31, 2023 and 2022.
Table 29
- Annualized
Net Charge-offs (Recoveries) to Average
Loans Held-in-Portfolio
Quarter ended March 31, 2023
Quarter ended March 31, 2022
BPPR
Popular U.S.
Popular, Inc.
BPPR
Popular U.S.
Popular, Inc.
Commercial
(0.06)
%
(0.13)
%
(0.09)
%
(0.23)
%
(0.04)
%
(0.14)
%
Construction
―
―
―
(1.61)
(0.72)
(0.85)
Mortgage
(0.26)
―
(0.22)
(0.19)
(0.01)
(0.16)
Leasing
0.08
―
0.08
(0.12)
―
(0.12)
Consumer
2.31
4.81
2.43
0.95
0.08
0.91
Total annualized
net charge-offs to
average loans held-in-portfolio
0.56
%
0.06
%
0.41
%
0.11
%
(0.08)
%
0.05
%
NCOs for the quarter ended March 31, 2023
amounted to $33 million, increasing by $29 million when compared to
the same period
in 2022. The
BPPR segment increased by
$26 million mainly
driven by higher consumer
NCOs by $23
million. The increase in
the
consumer NCOs was
mostly related
to $11
million line
of credit charge-off
on a single
borrower and post-pandemic
normalization.
The PB segment NCOs increased by $3 million, mainly
driven by higher consumer NCOs by $4
million.
Loan Modifications
During the
quarter ended
March 31,
2023, the
Corporation modified
loans to
borrowers with
financial difficulty
amounting to
$69
million,
of
which
$59
million
are
in
accruing
status.
The
BPPR
segment’s
modifications
to
borrowers
with
financial
difficulty
amounted to $48 million, mainly comprised of mortgage and commercial loans of $25 million and $22 million, respectively.
A total of
$18 million of the mortgage modifications were related to guaranteed loans. The
Popular U.S. segment’s modifications to borrowers
with financial difficulty amounted to $20 million, of
which $15 million were commercial loans.
Refer
to
Note
9
to
the
Consolidated
Financial
Statements
for
additional
information
on
modifications
made
to
borrowers
experiencing financial difficulties.
ADOPTION OF NEW ACCOUNTING STANDARDS AND ISSUED BUT NOT
YET EFFECTIVE ACCOUNTING STANDARDS
Refer to Note 3, “New Accounting Pronouncements”
to the Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Quantitative and qualitative disclosures for the current
period can be found in the Market Risk
section of this report, which includes
changes in market risk exposures from disclosures presented
in the 2022 Form 10-K.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Corporation’s management,
with the
participation of the
Corporation’s Chief Executive
Officer and Chief
Financial Officer,
has
evaluated
the effectiveness
of the
Corporation’s disclosure
controls and
procedures (as
such term
is defined
in Rules
13a-15(e)
157
and
15d-15(e)
under
the
Exchange
Act)
as
of
the
end
of
the
period
covered
by
this
report.
Based
on
such
evaluation,
the
Corporation’s
Chief
Executive
Officer
and
Chief
Financial
Officer
have
concluded
that,
as
of
the
end
of
such
period,
the
Corporation’s
disclosure
controls
and
procedures
are
effective
in
recording,
processing,
summarizing and
reporting,
on
a
timely
basis, information required to be disclosed by the Corporation in the reports that it files or submits under the Exchange Act and such
information
is
accumulated
and
communicated
to
management,
as
appropriate,
to
allow
timely
decisions
regarding
required
disclosures.
Internal Control Over Financial Reporting
There have been no changes in the Corporation’s internal control over financial reporting (as such term is defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act)
that occurred during the quarter ended March
31, 2023 that have materially affected,
or are
reasonably likely to materially affect, the Corporation’s internal control
over financial reporting.
Part II - Other Information
Item 1. Legal Proceedings
For a discussion of Legal Proceedings, see Note 21,
Commitments and Contingencies, to the Consolidated
Financial Statements.
Item 1A. Risk Factors
In addition to the other information set forth in
this report, you should carefully consider the risk
factors discussed under “Part I - Item
1A - Risk Factors” in our 2022 Form
10-K. These factors could materially adversely affect our business, financial condition, liquidity,
results of
operations and
capital position,
and could
cause our
actual results
to
differ
materially from
our historical
results or
the
results contemplated
by the
forward-looking statements
contained in
this report.
Also refer
to the
discussion in
“Part I
- Item
2 –
Management’s Discussion
and Analysis
of Financial
Condition and
Results of
Operations” in
this report
for additional
information
that may supplement or update the discussion
of risk factors below and in our 2022 Form
10-K.
There have been no material changes to the risk
factors previously disclosed under Item 1A of the
Corporation’s 2022 Form 10-K.
The risks described
in our 2022 Form
10-K and in
this report are not
the only risks
facing us. Additional risks
and uncertainties not
currently
known
to
us
or
that
we
currently
deem
to
be
immaterial
also
may
materially
adversely
affect
our
business,
financial
condition, liquidity, results of operations and capital position.
Item 2.
Unregistered Sales of Equity Securities and
Use of Proceeds
The Corporation did not have any unregistered
sales of equity securities during the quarter ended March
31, 2023.
Issuer Purchases of Equity Securities
The following
table sets
forth the
details of
purchases of
Common Stock
by the
Corporation during
the quarter
ended March
31,
2023:
Issuer Purchases of Equity Securities
Not in thousands
Period
Total Number of
Shares Purchased [1]
Average Price Paid per
Share
Total Number of
Shares
Purchased as Part of Publicly
Announced Plans or Programs
Approximate Dollar Value of
Shares that May Yet be
Purchased Under the Plans or
Programs
January 1 - January 31
905
$
66.48
-
$-
February 1 - February 28
-
-
-
-
March 1 - March 31
39,904
71.20
-
-
Total
40,809
$
71.10
-
-
[1] Includes 905 and 39,904
shares of the Corporation’s
common stock acquired
by the Corporation during
January 2023 and March
2023 respectively,
in connection
with the
satisfaction of
tax withholding
obligations on
vested awards
of restricted
stock or
restricted stock
units granted
to directors
and
certain employees under the Corporation’s Omnibus Incentive
Plan. The acquired shares of common stock were added
back to treasury stock.
158
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6.
Exhibits
Exhibit Index
Exhibit No
Exhibit Description
10.1
Form of Popular, Inc. 2023 Long-Term Equity Incentive Award and Agreement
(1)
22.1
Issuers of Guaranteed Securities (Incorporated by reference to Exhibit 22.1 of Popular, Inc.’s Annual
Report on Form 10-K for the year ended December 31, 2022.)
31.1
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(1)
31.2
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(1
)
32.1
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
(1)
32.2
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
(1)
101. INS
XBRL Instance Document – the instance document
does not appear in the Interactive Data File because
its XBRL tags are embedded within the Inline Document.
101.SCH
Inline Taxonomy Extension Schema Document
(1)
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
(1)
101.DEF
Inline XBRL Taxonomy Extension Definitions Linkbase Document
(1)
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
(1)
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
(1)
104
The cover page of Popular, Inc. Quarterly Report on Form 10-Q for the
quarter ended March 31, 2023,
formatted in Inline XBRL (included within the Exhibit
101 attachments)
(1)
(1)
Included herewith
Popular, Inc. has not filed as exhibits certain instruments defining
the rights of holders of debt of Popular, Inc. not
exceeding 10% of the total assets of Popular, Inc. and its consolidated
subsidiaries. Popular, Inc. hereby agrees to
furnish upon request to the Commission a copy of
each instrument defining the rights of holders
of senior and
subordinated debt of Popular, Inc., or of any of its consolidated
subsidiaries.
159
SIGNATURES
Pursuant to the
requirements of the Securities Exchange
Act of 1934, the
registrant has duly caused this
report to be signed
on its
behalf by the undersigned thereunto duly authorized.
POPULAR, INC.
(Registrant)
Date: May 10, 2023
By: /s/ Carlos J. Vázquez
Carlos J. Vázquez
Executive Vice President &
Chief Financial Officer
Date: May 10, 2023
By: /s/ Jorge J. García
Jorge J. García
Senior Vice President & Corporate Comptroller