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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
September 30, 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,
72,154,356
shares outstanding as of November 7, 2023.
2
POPULAR INC
INDEX
Part I – Financial Information
Page
Item 1. Financial Statements
Unaudited Consolidated Statements of Financial Condition
at September 30, 2023
and
December 31, 2022
6
Unaudited Consolidated Statements of Operations for
the quarters
and nine months ended September 30, 2023
and 2022
7
Unaudited Consolidated Statements of Comprehensive
Income (Loss) for the
quarters and nine months ended September 30,
2023 and 2022
8
Unaudited Consolidated Statements of Changes in
Stockholders’ Equity for the
quarters and nine months ended September 30,
2023 and 2022
9
Unaudited Consolidated Statements of Cash Flows for
the nine months
ended September 30, 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
133
Item 3. Quantitative and Qualitative Disclosures about
Market Risk
182
Item 4. Controls and Procedures
182
Part II – Other Information
Item 1. Legal Proceedings
182
Item 1A. Risk Factors
182
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds
183
Item 3. Defaults Upon Senior Securities
183
Item 4. Mine Safety Disclosures
183
Item 5. Other Information
183
Item 6. Exhibits
183
Signatures
185
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
inflation, 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;
●
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
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;
4
●
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, liquidity,
resolution-
related requirements and the impact of proposed
capital standards on our capital ratios;
●
additional or special
Federal Deposit Insurance
Corporation (“FDIC”) assessments, including
the special assessments
being proposed by the FDIC to recover the losses to the deposit insurance fund (“DIF”) resulting from the receiverships
of Silicon Valley Bank and Signature Bank;
●
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]
September 30,
December 31,
(In thousands, except share information)
2023
2022
Assets:
Cash and due from banks
$
535,335
$
469,501
Money market investments:
Time deposits with other banks
6,389,437
5,614,595
Total money market investments
6,389,437
5,614,595
Trading account debt securities, at fair value:
Other trading account debt securities
30,988
27,723
Debt securities available-for-sale, at fair
value:
Pledged securities with creditors’ right to repledge
72,062
129,203
Other debt securities available-for-sale
17,057,796
17,675,171
Debt securities held-to-maturity, at amortized cost:
Pledged securities with creditors’ right to repledge
27,047
26,496
Other debt securities held-to-maturity
8,275,035
8,498,870
Debt securities held-to-maturity (fair
value 2023 - $
8,065,067
; 2022 - $
8,440,196
)
8,302,082
8,525,366
Less – Allowance for credit losses
6,057
6,911
Debt securities held-to-maturity, net
8,296,025
8,518,455
Equity securities (realizable value 2023 -
$
191,605
; 2022 - $
196,665
)
190,688
195,854
Loans held-for-sale, at fair value
5,239
5,381
Loans held-in-portfolio
34,369,775
32,372,925
Less – Unearned income
340,462
295,156
Allowance for credit losses
711,068
720,302
Total loans held-in-portfolio, net
33,318,245
31,357,467
Premises and equipment, net
534,384
498,711
Other real estate
82,322
89,126
Accrued income receivable
257,833
240,195
Mortgage servicing rights, at fair value
119,030
128,350
Other assets
2,032,565
1,847,813
Goodwill
804,428
827,428
Other intangible assets
10,559
12,944
Total assets
$
69,736,936
$
67,637,917
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing
$
15,201,374
$
15,960,557
Interest bearing
48,136,226
45,266,670
Total deposits
63,337,600
61,227,227
Assets sold under agreements to repurchase
93,071
148,609
Other short-term borrowings
-
365,000
Notes payable
1,004,649
886,710
Other liabilities
844,008
916,946
Total liabilities
65,279,328
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;
104,740,311
shares issued (2022 -
104,657,522
) and
72,127,595
shares outstanding (2022 -
71,853,720
)
1,048
1,047
Surplus
4,797,364
4,790,993
Retained earnings
4,189,865
3,834,348
Treasury stock - at cost,
32,612,716
shares (2022 -
32,803,802
)
(2,018,870)
(2,030,178)
Accumulated other comprehensive loss, net
of tax
(2,533,942)
(2,524,928)
Total stockholders’ equity
4,457,608
4,093,425
Total liabilities and stockholders’ equity
$
69,736,936
$
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 September 30,
Nine months ended September 30,
(In thousands, except per share information)
2023
2022
2023
2022
Interest income:
Loans
$
596,886
$
481,088
$
1,708,216
$
1,354,124
Money market investments
99,286
36,966
265,785
67,172
Investment securities
148,614
133,181
403,814
331,421
Total interest income
844,786
651,235
2,377,815
1,752,717
Interest expense:
Deposits
294,121
60,897
730,824
113,507
Short-term borrowings
1,478
921
5,987
1,249
Long-term debt
15,167
9,798
43,660
30,168
Total interest expense
310,766
71,616
780,471
144,924
Net interest income
534,020
579,619
1,597,344
1,607,793
Provision for credit losses
45,117
39,637
129,946
33,499
Net interest income after provision for credit losses
488,903
539,982
1,467,398
1,574,294
Non-interest income:
Service charges on deposit accounts
37,318
40,006
109,777
122,528
Other service fees
93,407
86,402
277,748
244,987
Mortgage banking activities (Refer to Note 10)
5,393
9,448
15,109
35,888
Net (loss) gain, including impairment on equity securities
(1,319)
(1,448)
1,165
(7,651)
Net gain (loss) on trading account debt securities
219
(274)
632
(946)
Net loss on sale of loans on loans held-for-sale, including
valuation adjustments
(44)
-
(44)
-
Adjustments
to indemnity reserves on loans sold
(187)
1,715
(31)
1,140
Other operating income
24,762
290,645
77,625
342,651
Total non-interest income
159,549
426,494
481,981
738,597
Operating expenses:
Personnel costs
193,152
193,843
583,380
529,627
Net occupancy expenses
28,100
27,420
81,304
78,357
Equipment expenses
8,905
8,735
26,878
25,798
Other taxes
8,590
15,966
41,290
47,461
Professional fees
38,514
47,662
122,077
122,884
Technology and software expenses
72,930
68,341
213,843
213,638
Processing and transactional services
37,899
32,368
108,609
94,358
Communications
4,220
3,858
12,483
11,028
Business promotion
23,075
24,348
67,029
60,784
FDIC deposit insurance
8,932
6,610
24,600
20,445
Other real estate owned (OREO) income
(5,189)
(2,444)
(10,197)
(12,963)
Other operating expenses
23,061
39,593
70,274
81,814
Amortization of intangibles
795
795
2,385
2,481
Goodwill impairment charge
23,000
9,000
23,000
9,000
Total operating expenses
465,984
476,095
1,366,955
1,284,712
Income before income tax
182,468
490,381
582,424
1,028,179
Income tax expense
45,859
67,986
135,676
182,677
Net Income
$
136,609
$
422,395
$
446,748
$
845,502
Net Income Applicable to Common Stock
$
136,256
$
422,042
$
445,689
$
844,443
Net Income per Common Share – Basic
$
1.90
$
5.71
$
6.22
$
11.09
Net Income per Common Share – Diluted
$
1.90
$
5.70
$
6.21
$
11.07
The accompanying notes are an integral part of
these Consolidated Financial Statements.
8
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)
Quarters ended,
Nine months ended,
September 30,
September 30,
(In thousands)
2023
2022
2023
2022
Net income
$
136,609
$
422,395
$
446,748
$
845,502
Other comprehensive (loss) income before
tax:
Foreign currency translation adjustment
(976)
7,206
(220)
10,346
Adjustment of pension and postretirement
benefit plans
-
-
-
2,030
Amortization of net losses of pension and
postretirement benefit plans
4,814
3,911
14,440
11,733
Unrealized holding losses on debt securities
arising during the period
(234,827)
(876,854)
(99,360)
(2,716,474)
Amortization of unrealized losses of debt
securities transfer from available-for-
sale to held-to-maturity
43,783
-
128,726
-
Unrealized net (losses) gains on cash flow
hedges
-
392
(30)
3,903
Reclassification adjustment for net (gains)
losses included in net income
-
828
(41)
(751)
Other comprehensive (loss) income before
tax
(187,206)
(864,517)
43,515
(2,689,213)
Income tax (expense) benefit
(18,301)
93,202
(52,529)
289,951
Total other comprehensive loss, net of tax
(205,507)
(771,315)
(9,014)
(2,399,262)
Comprehensive (loss) income, net of tax
$
(68,898)
$
(348,920)
$
437,734
$
(1,553,760)
Tax effect allocated to each component of other comprehensive
(loss) income:
Quarters ended
Nine months ended,
September 30,
September 30,
(In thousands)
2023
2022
2023
2022
Adjustment of pension and postretirement
benefit plans
$
-
$
-
$
-
$
(761)
Amortization of net losses of pension and
postretirement benefit plans
(1,805)
(1,467)
(5,415)
(4,401)
Unrealized holding losses on debt securities
arising during the period
(7,740)
94,956
(21,396)
295,326
Amortization of unrealized losses of debt
securities transfer from available-for-
sale to held-to-maturity
(8,756)
-
(25,744)
-
Unrealized net (losses) gains on cash flow
hedges
-
23
11
(681)
Reclassification adjustment for net (gains)
losses included in net income
-
(310)
15
468
Income tax (expense) benefit
$
(18,301)
$
93,202
$
(52,529)
$
289,951
The accompanying notes are an integral
part of the 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
Total
Balance at June 30, 2022
$
1,046
$
22,143
$
4,576,478
$
3,311,951
$
(1,665,253)
$
(1,953,016)
$
4,293,349
Net income
422,395
422,395
Issuance of stock
1,550
1,550
Dividends declared:
Common stock
[1]
(39,973)
(39,973)
Preferred stock
(353)
(353)
Common stock purchases
[2]
74,118
(305,343)
(231,225)
Stock based compensation
362
48
410
Other comprehensive loss, net of tax
(771,315)
(771,315)
Balance at September 30, 2022
$
1,046
$
22,143
$
4,652,508
$
3,694,020
$
(1,970,548)
$
(2,724,331)
$
3,674,838
Balance at June 30, 2023
$
1,047
$
22,143
$
4,795,581
$
4,093,284
$
(2,018,611)
$
(2,328,435)
$
4,565,009
Net income
136,609
136,609
Issuance of stock
1
1,599
1,600
Dividends declared:
Common stock
[1]
(39,675)
(39,675)
Preferred stock
(353)
(353)
Common stock purchases
(250)
(250)
Stock based compensation
184
(9)
175
Other comprehensive loss, net of tax
(205,507)
(205,507)
Balance at September 30, 2023
$
1,048
$
22,143
$
4,797,364
$
4,189,865
$
(2,018,870)
$
(2,533,942)
$
4,457,608
[1]
Dividends declared per common share during the quarter
ended September 30, 2023 - $
0.55
(2022 - $
0.55
).
[2]
During July 2022,
the Corporation completed
a $
400
million accelerated
share repurchase transaction
with respect to
its common stock.
During
August 2022, the Corporation
entered into a $
231
million accelerated share
repurchase transaction with
respect to its common
stock. Both were
accounted for as treasury stock transactions. Refer to Note
18 for additional information.
10
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
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
845,502
845,502
Issuance of stock
4,285
4,285
Dividends declared:
Common stock
[1]
(124,168)
(124,168)
Preferred stock
(1,059)
(1,059)
Common stock purchases
[2]
(5,882)
(631,638)
(637,520)
Stock based compensation
3,923
13,740
17,663
Other comprehensive loss, net of tax
(2,399,262)
(2,399,262)
Balance at September 30, 2022
$
1,046
$
22,143
$
4,652,508
$
3,694,020
$
(1,970,548)
$
(2,724,331)
$
3,674,838
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
446,748
446,748
Issuance of stock
1
4,716
4,717
Dividends declared:
Common stock
[1]
(118,924)
(118,924)
Preferred stock
(1,059)
(1,059)
Common stock purchases
(4,491)
(4,491)
Stock based compensation
1,655
15,799
17,454
Other comprehensive loss, net of tax
(9,014)
(9,014)
Balance at September 30, 2023
$
1,048
$
22,143
$
4,797,364
$
4,189,865
$
(2,018,870)
$
(2,533,942)
$
4,457,608
[1]
Dividends declared per common share during the nine months
ended September 30, 2023 - $
1.65
(2022 - $
1.65
).
[2]
During the
nine months
ended September
30, 2022,
the Corporation
completed a
$
400
million
accelerated share
repurchase transaction
with
respect to
its common
stock and
entered into
an additional
$
231
million accelerated
share repurchase
transaction
with respect
to its
common
stock. Both were accounted for as a treasury stock transaction.
Refer to Note 18 for additional information.
For the period ended
September 30,
September 30,
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
82,789
55,571
Balance at end of period
104,740,311
104,634,905
Treasury stock
(32,612,716)
(31,961,561)
Common Stock – Outstanding
72,127,595
72,673,344
The accompanying notes are an integral part of these Consolidated
Financial Statements.
11
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(UNAUDITED)
Nine months ended September 30,
(In thousands)
2023
2022
Cash flows from operating activities:
Net income
$
446,748
$
845,502
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for credit losses
129,946
33,499
Goodwill impairment charges
23,000
9,000
Amortization of intangibles
2,385
2,481
Depreciation and amortization of premises and equipment
43,180
41,207
Net accretion of discounts and amortization of premiums and
deferred fees
(22,495)
39,142
Interest capitalized on loans subject to the temporary payment
moratorium or loss mitigation alternatives
(7,956)
(9,249)
Share-based compensation
15,079
14,822
Impairment charges on right-of-use and long-lived assets
-
688
Fair value adjustments on mortgage servicing rights
11,135
(2,776)
Fair value adjustment for contingent consideration
-
(9,241)
Adjustments to indemnity reserves on loans sold
31
(1,140)
Earnings from investments under the equity method, net
of dividends or distributions
(17,387)
(22,011)
Deferred income tax (benefit) expense
(13,539)
50,460
(Gain) loss on:
Disposition of premises and equipment and other productive
assets
(9,744)
(7,221)
Proceeds from insurance claims
(145)
-
Sale of loans, including valuation adjustments on loans
held-for-sale and mortgage banking activities
177
374
Disposition of stock as part of the Evertec Transactions
-
(240,412)
Sale of foreclosed assets, including write-downs
(18,137)
(24,339)
Acquisitions of loans held-for-sale
(6,678)
(118,368)
Proceeds from sale of loans held-for-sale
35,286
51,468
Net originations on loans held-for-sale
(60,285)
(191,570)
Net decrease (increase) in:
Trading debt securities
29,415
338,166
Equity securities
(7,481)
3,633
Accrued income receivable
(17,638)
(21,236)
Other assets
(981)
46,812
Net increase (decrease) in:
Interest payable
8,009
(4,936)
Pension and other postretirement benefits obligation
11,985
(2,252)
Other liabilities
(100,887)
(9,095)
Total adjustments
26,275
(32,094)
Net cash provided by operating activities
473,023
813,408
Cash flows from investing activities:
Net (increase) decrease in money market investments
(775,597)
13,562,791
Purchases of investment securities:
Available-for-sale
(12,665,449)
(18,142,424)
Held-to-maturity
(8,615)
(1,879,443)
Equity
(18,279)
(34,029)
Proceeds from calls, paydowns, maturities and redemptions
of investment securities:
Available-for-sale
13,138,765
12,066,879
Held-to-maturity
308,129
9,185
Proceeds from sale of investment securities:
Equity
30,926
34,450
Net disbursements on loans
(1,609,387)
(1,762,828)
Proceeds from sale of loans
133,078
56,611
Acquisition of loan portfolios
(556,659)
(580,625)
Return of capital from equity method investments
249
-
Payments to acquire equity method investments
(1,500)
(1,625)
Proceeds from disposition of stock as part of the Evertec Transactions
-
219,883
Acquisition of premises and equipment
(133,598)
(67,887)
Proceeds from insurance claims
145
-
Proceeds from sale of:
Premises and equipment and other productive assets
6,620
8,963
Foreclosed assets
84,446
75,719
Net cash (used in) provided by investing activities
(2,066,726)
3,565,620
12
Cash flows from financing activities:
Net increase (decrease) in:
Deposits
2,085,956
(2,177,088)
Assets sold under agreements to repurchase
(55,538)
70,847
Other short-term borrowings
(365,000)
175,000
Payments of notes payable
(321,000)
(101,000)
Principal payments of finance leases
(3,557)
(2,363)
Proceeds from issuance of notes payable
437,411
-
Proceeds from issuance of common stock
4,716
4,285
Dividends paid
(119,715)
(121,190)
Net payments for repurchase of common stock
(414)
(631,749)
Payments related to tax withholding for share-based compensation
(4,077)
(5,771)
Net cash provided by (used in) financing activities
1,658,782
(2,789,029)
Net increase in cash and due from banks, and restricted
cash
65,079
1,589,999
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
$
541,238
$
2,024,511
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
20
Note 5 -
Restrictions on cash and due from banks and
certain securities
21
Note 6 -
Debt securities available-for-sale
22
Note 7 -
Debt securities held-to-maturity
25
Note 8 -
Loans
29
Note 9 -
Allowance for credit losses – loans held-in-
portfolio
38
Note 10 -
Mortgage banking activities
74
Note 11 -
Transfers of financial assets and mortgage
servicing assets
75
Note 12 -
Other real estate owned
79
Note 13 -
Other assets
80
Note 14 -
Goodwill and other intangible assets
81
Note 15 -
Deposits
85
Note 16 -
Borrowings
86
Note 17 -
Other liabilities
88
Note 18 -
Stockholders’ equity
89
Note 19 -
Other comprehensive loss
90
Note 20 -
Guarantees
92
Note 21 -
Commitments and contingencies
94
Note 22-
Non-consolidated variable interest entities
99
Note 23 -
Related party transactions
101
Note 24 -
Fair value measurement
103
Note 25 -
Fair value of financial instruments
111
Note 26 -
Net income per common share
114
Note 27 -
Revenue from contracts with customers
115
Note 28 -
Leases
118
Note 29 -
Pension and postretirement benefits
120
Note 30 -
Stock-based compensation
121
Note 31 -
Income taxes
124
Note 32 -
Supplemental disclosure on the consolidated
statements of cash flows
128
Note 33 -
Segment reporting
129
14
Note 1 – 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
its
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:
Quarter ended
Nine months ended
30-Sep-22
30-Sep-22
Financial statement line item
As reported
Adjustments
Adjusted
As reported
Adjustments
Adjusted
Equipment expenses
$
26,626
$
(17,891)
$
8,735
75,193
(49,395)
25,798
Professional fees
112,221
(64,559)
47,662
335,590
(212,706)
122,884
Technology and
software expenses
-
68,341
68,341
-
213,638
213,638
Processing and transactional services
-
32,368
32,368
-
94,358
94,358
Communications
6,224
(2,366)
3,858
18,364
(7,336)
11,028
Other operating expenses
55,486
(15,893)
39,593
120,373
(38,559)
81,814
Net effect on operating expenses
$
200,557
$
-
$
200,557
$
549,520
$
-
$
549,520
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 2023-04,
Liabilities (Topic 405)
The
Financial Accounting
Standards Board
("FASB")
issued
Accounting
Standards
Update
(“ASU”)
2023-04
in
August
2023
which
amends
paragraphs
within
ASC
Topic
405
to
clarify
the
accounting
and
disclosure
for
obligations
to
safeguard
Crypto-Assets
held
by
an
entity
for
its
platform users.
August 2023
The
Corporation
was
not
impacted
by
the
adoption of
this
ASU
since
it does
not
hold
Crypto-Assets
for
its
platform
users.
FASB ASU 2023-03,
Presentation of Financial
Statements (Topic 205),
Income Statement—
Reporting Comprehensive
Income (Topic 220),
Distinguishing Liabilities
from Equity (Topic 480),
Equity (505), and
Compensation—Stock
Compensation (Topic 718)
The
FASB
issued
ASU
2023-03
in
July
2023 which
amends or
supersedes various
SEC
paragraphs
within
the
Codification
to
conform
to
past
SEC
announcements
and
guidance
which
updated
SAB
Topics
5.T,
14, and 6. B.
July 1, 2023
The
Corporation
was
not
impacted
by
the
adoption
of
this
ASU
since
it
codifies previous guidance.
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
since
it
does
not
use
supplier
finance
programs.
17
Recently Adopted Accounting Standards Updates
Standard
Description
Date of adoption
Effect on the financial statements
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.
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
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, 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 2023-06,
Disclosure Improvements,
Codification Amendments
in Response to the SEC’s
Disclosure Update and
Simplification Initiative
The FASB
issued ASU
2023-06 in
October
2023
which
modifies
the
disclosure
or
presentation
requirements
of
various
subtopics
in
the
Codification
with
the
purpose of aligning U.S.
GAAP requirement
with those of the SEC under Regulation S-X
and S-K.
The date on which
the SEC removes
related disclosure
requirements from
Regulation S-X or
Regulation S-K. If by
June 30, 2027, the
SEC has not
removed the
applicable
requirement from
Regulation S-X or
Regulation S-K, the
pending content of
the related
amendment will be
removed from the
Codification and will
not become
effective for any
entity.
The Corporation
does not
expect to
be
impacted
by
the
adoption
of
this
ASU
since
it
is
currently
subject
to
SEC's
current
disclosure
and
presentation
requirements under Regulation S-X and
S-K.
FASB ASU 2023-05,
Business Combinations -
Joint Venture Formations
(Subtopic 805-60)
Recognition and initial
measurement
The
FASB
issued
ASU
2023-05
in
August
2023,
which
amends ASC
subtopic
805-60
to include specific
guidance about how
joint
ventures
should
recognize
and
initially
measure
assets
contributed
and
liabilities
assumed.
The
amendments
require
that
a
joint venture,
upon formation, will
recognize
and initially measure its assets and liabilities
at fair value.
January 1, 2025
The Corporation
does not
expect to
be
impacted by the adoption of this ASU.
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.
19
Accounting Standards Updates Not Yet Adopted
Standard
Description
Date of adoption
Effect on the financial statements
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
does not
expect to
be
impacted
by
the
adoption
of
this
ASU
since
it
does not
hold common
control
leasehold
improvements,
however,
it
will consider this guidance to
determine
the
amortization
period
for
and
accounting
treatment
of
leasehold
improvements associated with common
control
leases acquired
on
or
after the
effective date.
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.
20
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).
21
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 $
2.6
billion at
September 30,
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
September
30,
2023,
the
Corporation
held
$
63
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.
22
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 September 30, 2023 and December 31,
2022.
At September 30, 2023
Gross
Gross
Weighted
Amortized
unrealized
unrealized
Fair
average
(In thousands)
cost
gains
losses
value
yield
U.S. Treasury securities
Within 1 year
$
7,041,817
$
421
$
67,663
$
6,974,575
3.51
%
After 1 to 5 years
4,364,065
-
271,553
4,092,512
1.36
After 5 to 10 years
307,852
-
45,258
262,594
1.63
Total U.S. Treasury
securities
11,713,734
421
384,474
11,329,681
2.65
Collateralized mortgage obligations - federal agencies
After 1 to 5 years
19,312
-
1,163
18,149
1.53
After 5 to 10 years
22,371
-
1,857
20,514
2.26
After 10 years
112,566
7
13,222
99,351
2.54
Total collateralized
mortgage obligations - federal agencies
154,249
7
16,242
138,014
2.37
Mortgage-backed securities
Within 1 year
1,302
-
48
1,254
3.56
After 1 to 5 years
79,987
3
4,760
75,230
2.37
After 5 to 10 years
778,578
13
71,731
706,860
2.22
After 10 years
6,264,509
177
1,386,889
4,877,797
1.65
Total mortgage-backed
securities
7,124,376
193
1,463,428
5,661,141
1.72
Other
Within 1 year
1,022
-
-
1,022
3.99
Total other
1,022
-
-
1,022
3.99
Total debt securities
available-for-sale
[1]
$
18,993,381
$
621
$
1,864,144
$
17,129,858
2.30
%
[1]
Includes $
12.9
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 $
12
.0 billion serve as collateral for
public funds.
The Corporation had unpledged Available
for Sale securities with a fair value of
$
4.2
billion that could be used to increase its
borrowing facilities.
23
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.
Securities
not
due
on
a
single
contractual
maturity
date,
such
as
mortgage-backed
securities
and
collateralized
mortgage
obligations,
are
classified
based
on
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 available-for-sale sold during the nine
months ended September 30, 2023 and 2022.
24
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
September 30, 2023 and December 31, 2022.
At September 30, 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
$
350,471
$
8,546
$
7,111,545
$
375,928
$
7,462,016
$
384,474
Collateralized mortgage obligations - federal agencies
8,212
214
127,961
16,028
136,173
16,242
Mortgage-backed securities
50,837
1,571
5,595,532
1,461,857
5,646,369
1,463,428
Total debt securities
available-for-sale in an unrealized loss position
$
409,520
$
10,331
$
12,835,038
$
1,853,813
$
13,244,558
$
1,864,144
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
September 30,
2023, the
portfolio of
available-for-sale debt
securities reflects
gross unrealized
losses of
$
1.9
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 on 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
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.
25
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 September 30,
2023 and
December
31, 2022.
At September 30, 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
$
597,876
$
597,876
$
-
$
597,876
$
-
$
9,036
$
588,840
2.55
%
After 1 to 5 years
7,516,523
6,900,125
-
6,900,125
-
193,838
6,706,287
1.39
After 5 to 10 years
817,006
730,757
-
730,757
-
26,819
703,938
1.60
Total U.S. Treasury
securities
8,931,405
8,228,758
-
8,228,758
-
229,693
7,999,065
1.49
Obligations of Puerto Rico, States and
political subdivisions
Within 1 year
4,820
4,820
13
4,807
2
17
4,792
6.17
After 1 to 5 years
20,191
20,191
154
20,037
67
266
19,838
3.80
After 5 to 10 years
845
845
28
817
-
9
808
5.80
After 10 years
39,946
39,946
5,862
34,084
2,301
3,092
33,293
1.41
Total obligations of
Puerto Rico, States and
political subdivisions
65,802
65,802
6,057
59,745
2,370
3,384
58,731
2.55
Collateralized mortgage obligations - federal
agencies
Within 1 year
15
15
-
15
-
-
15
6.44
After 10 years
1,547
1,547
-
1,547
-
251
1,296
2.87
Total collateralized
mortgage obligations -
federal agencies
1,562
1,562
-
1,562
-
251
1,311
2.90
Securities in wholly owned statutory business
trusts
After 10 years
5,960
5,960
-
5,960
-
-
5,960
6.33
Total securities
in wholly owned statutory
business trusts
5,960
5,960
-
5,960
-
-
5,960
6.33
Total debt securities
held-to-maturity [2]
$
9,004,729
$
8,302,082
$
6,057
$
8,296,025
$
2,370
$
233,328
$
8,065,067
1.50
%
[1]
Book value includes $
703
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 $
8.1
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
$
167
million that could be used to increase
its borrowing facilities.
26
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 on 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
September 30,
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
$
19
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:
27
At September 30, 2023
At December 31, 2022
(In thousands)
Securities issued by Puerto Rico municipalities
Watch
$
2,255
$
13,735
Pass
16,565
10,925
Total
$
18,820
$
24,660
At September
30, 2023,
the portfolio
of “Obligations
of Puerto
Rico, States
and political
subdivisions” also
includes $
40
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 September 30,
2023, the average
refreshed
FICO score
for the
representative sample,
comprised of
67
%
of
the
nominal value
of the
securities, used
for the
loss
estimate was
of
709
(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.
At
September 30,
2023, the
portfolio of
“Obligations of
Puerto Rico,
States
and political
subdivisions” also
includes $
7
million in
securities
issued by
the HFA
for which
the
underlying source
of
payment is
U.S. Treasury
securities. The
Corporation applies
a
zero
-credit loss
assumption for
these securities,
and
no ACL
has been
established for
these securities
given that
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. Refer to Note 2 to the Consolidated
Financial Statements in the 2022 Form 10-K for
further details.
Delinquency status
At September 30, 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 September 30, 2023 and September 30, 2022:
28
For the quarters ended September 30,
2023
2022
(In thousands)
Obligations of Puerto Rico, States and political subdivisions
Allowance for credit losses:
Beginning balance
$
6,145
$
7,495
Provision for credit losses (benefit)
(88)
(285)
Securities charged-off
-
-
Recoveries
-
-
Ending balance
$
6,057
$
7,210
For the nine months ended September 30,
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)
(854)
(886)
Securities charged-off
-
-
Recoveries
-
-
Ending balance
$
6,057
$
7,210
The
allowance
for
credit
losses
for
the
Obligations
of
Puerto
Rico,
States
and
political
subdivisions
includes
$
0.2
million
for
securities issued by municipalities of
Puerto Rico, and $
5.9
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).
29
Note 8 – Loans
For a
summary of
the accounting policies
related to loans,
interest recognition and
allowance for credit
losses refer to
Note 2
– to
the Consolidated Financial Statements included
in the 2022 Form 10-K.
During the
quarter and
nine months
ended September
30, 2023,
the Corporation
recorded purchases
(including repurchases)
of
mortgage loans amounting to
$
102
million and $
274
million, respectively,
including $
0.2
million and $
0.9
million in PCD
loans, and
consumer loans of
$
55
million and $
127
million, respectively.
During the quarter
and nine months
ended September 30,
2023, the
Corporation recorded purchases of $
79
million and $
162
million, respectively, in commercial loans.
During the
quarter and
nine months
ended September
30, 2022,
the Corporation
recorded purchases
(including repurchases)
of
mortgage
loans
amounting
to
$
66
million
and
$
219
million,
respectively,
including
$
0.3
million
and
$
4
million
in
PCD
loans,
respectively,
and
consumer
loans
of
$
135
million
and
$
349
million,
respectively.
During
the
quarter
and
nine
months
ended
September 30, 2022, the Corporation recorded purchases
of $
106
million and $
129
million, respectively, in commercial loans.
The
Corporation
performed
whole-loan
sales
involving
approximately
$
12
million
and
$
39
million
of
residential
mortgage
loans
during the
quarter and
nine months
ended September
30, 2023,
respectively (September
30, 2022
- $
17
million and
$
50
million,
respectively).
During
the
quarter
and
nine
months
ended
September
30,
2023,
the
Corporation
performed
sales
of
commercial
loans, including loan participations amounting to $
45
million and $
81
million, respectively (September 30, 2022 - $
11
million and $
54
million, respectively). During the quarter and nine months ended September 30, 2023, the Corporation performed
sales of consumer
loans amounting to $
45
million respectively.
Also, the
Corporation securitized
approximately $
1
million and
$
2
million of
mortgage loans
into Government
National Mortgage
Association (“GNMA”) mortgage-backed securities
during the quarter
and nine months
ended September 30,
2023 (for the
quarter
and nine months ended September 30, 2022 -
$
14
million and $
169
million, respectively).
Furthermore, the Corporation securitized
approximately $
10
million and $
33
million of mortgage loans into Federal National Mortgage
Association (“FNMA”) mortgage-backed
securities during the quarter and nine months ended September 30, 2023, respectively (September 30, 2022 - $
22
million and $
117
million, respectively).
Also, the
Corporation did
no
t securitize
any mortgage
loans into
Federal Home
Loan Mortgage
Corporation
(“FHLMC”) mortgage-backed securities during the nine months ended September 30, 2023 (September 30, 2022 -
$
9
million for the
nine months ended).
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
September 30, 2023 and December 31, 2022.
30
September 30, 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
$
4,407
$
176
$
184
$
4,767
$
290,047
$
294,814
$
184
$
-
Commercial real estate:
Non-owner occupied
1,274
-
15,330
16,604
2,932,277
2,948,881
15,330
-
Owner occupied
817
827
35,089
36,733
1,370,820
1,407,553
35,089
-
Commercial and industrial
4,022
1,728
24,733
30,483
4,299,335
4,329,818
21,624
3,109
Construction
-
-
6,578
6,578
163,929
170,507
6,578
-
Mortgage
241,962
100,679
430,430
773,071
5,516,197
6,289,268
187,443
242,987
Leasing
17,915
4,574
6,842
29,331
1,668,783
1,698,114
6,842
-
Consumer:
Credit cards
11,218
8,133
17,719
37,070
1,040,341
1,077,411
-
17,719
Home equity lines of credit
26
-
-
26
2,448
2,474
-
-
Personal
19,586
12,476
18,582
50,644
1,712,358
1,763,002
18,582
-
Auto
89,453
23,019
40,268
152,740
3,480,456
3,633,196
40,268
-
Other
567
388
2,152
3,107
144,425
147,532
1,885
267
Total
$
391,247
$
152,000
$
597,907
$
1,141,154
$
22,621,416
$
23,762,570
$
333,825
$
264,082
September 30, 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
$
1,332
$
-
$
404
$
1,736
$
2,031,883
$
2,033,619
$
404
$
-
Commercial real estate:
Non-owner occupied
2,628
-
734
3,362
2,082,887
2,086,249
734
-
Owner occupied
1,110
923
3,877
5,910
1,631,442
1,637,352
3,877
-
Commercial and industrial
3,000
464
3,709
7,173
2,190,091
2,197,264
3,579
130
Construction
-
-
-
-
751,605
751,605
-
-
Mortgage
946
22,313
11,980
35,239
1,260,604
1,295,843
11,980
-
Consumer:
Credit cards
-
-
-
-
17
17
-
-
Home equity lines of
credit
1,045
335
4,085
5,465
59,560
65,025
4,085
-
Personal
2,581
1,716
2,637
6,934
182,232
189,166
2,637
-
Other
113
-
402
515
10,088
10,603
402
-
Total
$
12,755
$
25,751
$
27,828
$
66,334
$
10,200,409
$
10,266,743
$
27,698
$
130
31
September 30, 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
$
5,739
$
176
$
588
$
6,503
$
2,321,930
$
2,328,433
$
588
$
-
Commercial real estate:
Non-owner occupied
3,902
-
16,064
19,966
5,015,164
5,035,130
16,064
-
Owner occupied
1,927
1,750
38,966
42,643
3,002,262
3,044,905
38,966
-
Commercial and industrial
7,022
2,192
28,442
37,656
6,489,426
6,527,082
25,203
3,239
Construction
-
-
6,578
6,578
915,534
922,112
6,578
-
Mortgage
[1]
242,908
122,992
442,410
808,310
6,776,801
7,585,111
199,423
242,987
Leasing
17,915
4,574
6,842
29,331
1,668,783
1,698,114
6,842
-
Consumer:
Credit cards
11,218
8,133
17,719
37,070
1,040,358
1,077,428
-
17,719
Home equity lines of credit
1,071
335
4,085
5,491
62,008
67,499
4,085
-
Personal
22,167
14,192
21,219
57,578
1,894,590
1,952,168
21,219
-
Auto
89,453
23,019
40,268
152,740
3,480,456
3,633,196
40,268
-
Other
680
388
2,554
3,622
154,513
158,135
2,287
267
Total
$
404,002
$
177,751
$
625,735
$
1,207,488
$
32,821,825
$
34,029,313
$
361,523
$
264,212
[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 $
115
million of residential mortgage loans insured by
FHA or guaranteed by the VA that
are no
longer accruing interest as of September 30, 2023. Furthermore,
the Corporation has approximately $
39
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 $
340
million in unearned income and exclude $
5
million in loans held-for-sale.
[3]
Includes $
13.7
billion pledged to secure credit facilities and public funds
that the secured parties are not permitted to sell or repledge
the collateral,
of which $
6.6
billion were pledged at the Federal Home Loan Bank
("FHLB") as collateral for borrowings and $
7.1
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 $
3.7
billion and $
4.6
billion, respectively, as of September
30, 2023.
32
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
33
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 September 30,
2023, mortgage loans held-in-portfolio
include $
2.1
billion (December 31, 2022
- $
2.0
billion) of loans
insured by
the
FHA,
or
guaranteed by
the
VA
of
which $
0.2
billion
(December 31,
2022
-
$
0.3
billion)
are
90
days
or
more
past
due.
The
portfolio of guaranteed loans includes
$
115
million of residential mortgage loans
in Puerto Rico that
are no longer accruing
interest
as of September 30, 2023
(December 31, 2022 - $
190
million). The Corporation has approximately $
39
million in reverse mortgage
loans in Puerto Rico which are guaranteed by FHA,
but which are currently not accruing interest at September 30, 2023 (December
31, 2022 - $
42
million).
Loans with
a delinquency
status of
90 days
past due
as of
September 30,
2023 include
$
8
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 September 30, 2023
and December 31, 2022 by
class of loans:
34
September 30, 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
$
-
$
184
$
-
$
404
$
-
$
588
Commercial real estate non-owner occupied
9,577
5,753
-
734
9,577
6,487
Commercial real estate owner occupied
24,463
10,626
3,877
-
28,340
10,626
Commercial and industrial
8,504
13,120
-
3,579
8,504
16,699
Construction
-
6,578
-
-
-
6,578
Mortgage
90,611
96,832
508
11,472
91,119
108,304
Leasing
294
6,548
-
-
294
6,548
Consumer:
HELOCs
-
-
-
4,085
-
4,085
Personal
4,562
14,020
-
2,637
4,562
16,657
Auto
1,662
38,606
-
-
1,662
38,606
Other
263
1,622
-
402
263
2,024
Total
$
139,936
$
193,889
$
4,385
$
23,313
$
144,321
$
217,202
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 September 30, 2023 include $
144
million in collateral dependent loans (December
31,
2022 -
$
177
million). The
Corporation recognized
$
3
million in
interest income
on non-accrual
loans
during the
nine months
ended September 30, 2023 (September 30, 2022
- $
3
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 September
30, 2023
and December
31,
2022:
35
September 30, 2023
(In thousands)
Real Estate
Auto
Equipment
Accounts
Receivables
Other
Total
BPPR
Commercial multi-family
$
1,289
$
-
$
-
$
-
$
-
$
1,289
Commercial real estate:
Non-owner occupied
169,357
-
-
-
-
169,357
Owner occupied
30,507
-
-
-
-
30,507
Commercial and industrial
1,086
-
-
-
19,025
20,111
Construction
8,747
-
-
-
-
8,747
Mortgage
100,127
-
-
-
-
100,127
Leasing
-
1,103
-
-
-
1,103
Consumer:
Personal
4,741
-
-
-
-
4,741
Auto
-
11,941
-
-
-
11,941
Other
-
-
-
-
310
310
Total BPPR
$
315,854
$
13,044
$
-
$
-
$
19,335
$
348,233
Popular U.S.
Commercial real estate:
Owner occupied
$
3,877
$
-
$
-
$
-
$
-
$
3,877
Commercial and industrial
-
-
160
-
1,400
1,560
Construction
5,309
-
-
-
-
5,309
Mortgage
1,073
-
-
-
-
1,073
Total Popular U.S.
$
10,259
$
-
$
160
$
-
$
1,400
$
11,819
Popular, Inc.
Commercial multi-family
$
1,289
$
-
$
-
$
-
$
-
$
1,289
Commercial real estate:
Non-owner occupied
169,357
-
-
-
-
169,357
Owner occupied
34,384
-
-
-
-
34,384
Commercial and industrial
1,086
-
160
-
20,425
21,671
Construction
14,056
-
-
-
-
14,056
Mortgage
101,200
-
-
-
-
101,200
Leasing
-
1,103
-
-
-
1,103
Consumer:
Personal
4,741
-
-
-
-
4,741
Auto
-
11,941
-
-
-
11,941
Other
-
-
-
-
310
310
Total Popular,
Inc.
$
326,113
$
13,044
$
160
$
-
$
20,735
$
360,052
36
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
37
Purchased Credit Deteriorated (PCD) Loans
The Corporation has purchased loans during
the quarter and nine months ended September 30,
2023 and 2022, 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)
For the quarter ended
September 30, 2023
For the nine months
ended September 30,
2023
Purchase price of loans at acquisition
$
227
$
759
Allowance for credit losses at acquisition
9
87
Non-credit discount / (premium) at acquisition
-
9
Par value of acquired loans at acquisition
$
236
$
855
(In thousands)
For the quarter ended
September 30, 2022
For the nine months
ended September 30,
2022
Purchase price of loans at acquisition
$
247
$
2,840
Allowance for credit losses at acquisition
59
841
Non-credit discount / (premium) at acquisition
6
131
Par value of acquired loans at acquisition
$
312
$
3,812
38
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.
As
part
of
the
Corporation’s
model
governance
procedures
a
new
model
was
implemented
for
the
U.S
commercial
real
estate
segment. The
new model
enhances techniques used
to capture
default activity
within the
Corporation’s geographical footprint.
As
part
of
the
implementation
analysis
management
evaluated
the
credit
metrics
of
the
portfolio
such
as
risk
ratings,
delinquency
levels, and low exposure to
the commercial office sector.
Qualitative reserves continue to be
maintained to address risks within
the
U. S.
commercial real
estate segment. The
new model
including qualitative reserve
accounted for
$
15
million of
PB’s reduction
in
ACL.
At
September
30,2023,
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
baseline
scenario
continues
to
be
assigned
the
highest probability, followed by the
pessimistic scenario, and then the optimistic scenario. 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
improved to
1.7%
and
2.0%
for
Puerto
Rico
and
the
United
States,
respectively, compared to 1.5% and 1.6%
in the previous quarter. The 2023 forecasted average unemployment
rate for Puerto Rico
improved to
6.1% from
6.3% in
the previous
forecast, while
in the
United States
unemployment levels
remained at
3.6%, stable
when compared to the previous forecast.
GDP growth
is expected
to slow
during 2024
for both
regions, when
compared to
2023, as
a result
of the
Fed’s monetary
policy.
2024 GDP growth is expected to
be 0.90% for Puerto Rico and
1.25% for the United States. The average
2024 unemployment rate
is expected to increase to 6.80% in Puerto Rico
and 4.03% in the United States.
The following tables present the changes in
the ACL of loans held-in-portfolio and
unfunded commitments for the quarters and nine
months ended September 30, 2023 and 2022.
39
For the quarter ended September 30, 2023
BPPR
Provision for
Allowance for
Beginning
credit losses
credit losses -
Ending
(In thousands)
Balance
(benefit)
PCD Loans
Charge-offs
Recoveries
Balances
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
4,787
$
(1,306)
$
-
$
-
$
-
$
3,481
Commercial real estate non-owner occupied
53,366
(326)
-
(27)
195
53,208
Commercial real estate owner occupied
41,901
(242)
-
(446)
280
41,493
Commercial and industrial
81,637
(4,605)
-
(2,311)
12,858
87,579
Total Commercial
181,691
(6,479)
-
(2,784)
13,333
185,761
Construction
9,554
(1,486)
-
(2,611)
-
5,457
Mortgage
82,899
(6,808)
9
(62)
3,862
79,900
Leasing
13,927
(2,287)
-
(2,292)
850
10,198
Consumer
Credit cards
71,408
9,773
-
(10,865)
2,234
72,550
Home equity lines of credit
96
(39)
-
(43)
73
87
Personal
96,046
28,964
-
(19,260)
1,957
107,707
Auto
134,247
30,880
-
(14,553)
4,862
155,436
Other
6,240
1,499
-
(494)
193
7,438
Total Consumer
308,037
71,077
-
(45,215)
9,319
343,218
Total - Loans
$
596,108
$
54,017
$
9
$
(52,964)
$
27,364
$
624,534
Allowance for credit losses - unfunded commitments:
Commercial
$
5,288
$
(400)
$
-
$
-
$
-
$
4,888
Construction
3,110
(1,768)
-
-
-
1,342
Ending balance - unfunded commitments [1]
$
8,398
$
(2,168)
$
-
$
-
$
-
$
6,230
[
1
]
[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 September 30, 2023
Popular U.S.
Provision for
Beginning
credit losses -
Ending
(In thousands)
Balance
(benefit)
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
21,392
$
(9,651)
$
-
$
1
$
11,742
Commercial real estate non-owner occupied
18,350
(4,475)
-
66
13,941
Commercial real estate owner occupied
9,506
(1,688)
(1,218)
16
6,616
Commercial and industrial
18,014
(1,109)
(1,228)
329
16,006
Total Commercial
67,262
(16,923)
(2,446)
412
48,305
Construction
1,778
3,736
-
-
5,514
Mortgage
13,194
(1,252)
-
62
12,004
Consumer
Home equity lines of credit
2,074
238
(224)
212
2,300
Personal
19,782
3,659
(5,636)
604
18,409
Other
2
39
(43)
4
2
Total Consumer
21,858
3,936
(5,903)
820
20,711
Total - Loans
$
104,092
$
(10,503)
$
(8,349)
$
1,294
$
86,534
Allowance for credit losses - unfunded commitments:
Commercial
$
1,348
$
197
$
-
$
-
$
1,545
Construction
1,797
3,658
-
-
5,455
Consumer
50
4
-
-
54
Ending balance - unfunded commitments [1]
$
3,195
$
3,859
$
-
$
-
$
7,054
[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 September 30, 2023
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
$
26,179
$
(10,957)
$
-
$
-
$
1
$
15,223
Commercial real estate non-owner occupied
71,716
(4,801)
-
(27)
261
67,149
Commercial real estate owner occupied
51,407
(1,930)
-
(1,664)
296
48,109
Commercial and industrial
99,651
(5,714)
-
(3,539)
13,187
103,585
Total Commercial
248,953
(23,402)
-
(5,230)
13,745
234,066
Construction
11,332
2,250
-
(2,611)
-
10,971
Mortgage
96,093
(8,060)
9
(62)
3,924
91,904
Leasing
13,927
(2,287)
-
(2,292)
850
10,198
Consumer
Credit cards
71,408
9,773
-
(10,865)
2,234
72,550
Home equity lines of credit
2,170
199
-
(267)
285
2,387
Personal
115,828
32,623
-
(24,896)
2,561
126,116
Auto
134,247
30,880
-
(14,553)
4,862
155,436
Other
6,242
1,538
-
(537)
197
7,440
Total Consumer
329,895
75,013
-
(51,118)
10,139
363,929
Total - Loans
$
700,200
$
43,514
$
9
$
(61,313)
$
28,658
$
711,068
Allowance for credit losses - unfunded commitments:
Commercial
$
6,636
$
(203)
$
-
$
-
$
-
$
6,433
Construction
4,907
1,890
-
-
-
6,797
Consumer
50
4
-
-
-
54
Ending balance - unfunded commitments [1]
$
11,593
$
1,691
$
-
$
-
$
-
$
13,284
[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 nine months ended September 30, 2023
BPPR
Impact of
Provision for
Allowance for
Net write
down
Beginning
Adopting
credit losses
credit losses -
Ending
(In thousands)
Balance
ASU 2022-02
(benefit)
PCD Loans
Charge-off
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
5,210
$
-
$
(1,730)
$
-
$
-
$
1
$
-
$
3,481
Commercial real estate non-owner occupied
52,475
-
860
-
(636)
509
-
53,208
Commercial real estate owner occupied
48,393
(1,161)
(7,409)
-
(525)
2,195
-
41,493
Commercial and industrial
68,217
(552)
8,378
-
(4,979)
16,515
-
87,579
Total Commercial
174,295
(1,713)
99
-
(6,140)
19,220
-
185,761
Construction
2,978
-
5,090
-
(2,611)
-
-
5,457
Mortgage
117,344
(33,556)
(15,113)
87
(1,205)
12,343
-
79,900
Leasing
20,618
(35)
(7,023)
-
(6,249)
2,887
-
10,198
Consumer
Credit cards
58,670
-
35,901
-
(27,998)
6,578
(601)
72,550
Home equity lines of credit
103
-
(107)
-
(111)
202
-
87
Personal
96,369
(7,020)
60,347
-
(49,441)
7,452
-
107,707
Auto
129,735
(21)
45,108
-
(34,770)
15,384
-
155,436
Other
15,433
-
3,297
-
(11,855)
563
-
7,438
Total Consumer
300,310
(7,041)
144,546
-
(124,175)
30,179
(601)
343,218
Total - Loans
$
615,545
$
(42,345)
$
127,599
$
87
$
(140,380)
$
64,629
$
(601)
$
624,534
Allowance for credit losses - unfunded commitments:
Commercial
$
4,336
$
-
$
552
$
-
$
-
$
-
$
-
$
4,888
Construction
2,022
-
(680)
-
-
-
-
1,342
Ending balance - unfunded commitments [1]
$
6,358
$
-
$
(128)
$
-
$
-
$
-
$
-
$
6,230
[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 nine months ended September 30, 2023
Popular U.S.
Impact of
Provision for
Beginning
Adopting
credit losses -
Ending
(In thousands)
Balance
ASU 2022-02
(benefit)
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
21,101
$
-
$
(9,363)
$
-
$
4
$
11,742
Commercial real estate non-owner occupied
19,065
-
(7,108)
-
1,984
13,941
Commercial real estate owner occupied
8,688
-
(738)
(1,395)
61
6,616
Commercial and industrial
12,227
-
5,943
(3,808)
1,644
16,006
Total Commercial
61,081
-
(11,266)
(5,203)
3,693
48,305
Construction
1,268
-
4,246
-
-
5,514
Mortgage
17,910
(2,098)
(3,993)
-
185
12,004
Consumer
Credit cards
-
-
1
(1)
-
-
Home equity lines of credit
2,439
-
(419)
(419)
699
2,300
Personal
22,057
(1,140)
10,019
(14,093)
1,566
18,409
Other
2
-
134
(143)
9
2
Total Consumer
24,498
(1,140)
9,735
(14,656)
2,274
20,711
Total - Loans
$
104,757
$
(3,238)
$
(1,278)
$
(19,859)
$
6,152
$
86,534
Allowance for credit losses - unfunded commitments:
Commercial
$
1,175
$
-
$
370
$
-
$
-
$
1,545
Construction
1,184
-
4,271
-
-
5,455
Consumer
88
-
(34)
-
-
54
Ending balance - unfunded commitments [1]
$
2,447
$
-
$
4,607
$
-
$
-
$
7,054
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
44
For the nine months ended September 30, 2023
Popular Inc.
Impact
Provision for
Allowance
for
Net write
down
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
$
-
$
(11,093)
$
-
$
-
$
5
$
-
$
15,223
Commercial real estate non-owner occupied
71,540
-
(6,248)
-
(636)
2,493
-
67,149
Commercial real estate owner occupied
57,081
(1,161)
(8,147)
-
(1,920)
2,256
-
48,109
Commercial and industrial
80,444
(552)
14,321
-
(8,787)
18,159
-
103,585
Total Commercial
235,376
(1,713)
(11,167)
-
(11,343)
22,913
-
234,066
Construction
4,246
-
9,336
-
(2,611)
-
-
10,971
Mortgage
135,254
(35,654)
(19,106)
87
(1,205)
12,528
-
91,904
Leasing
20,618
(35)
(7,023)
-
(6,249)
2,887
-
10,198
Consumer
Credit cards
58,670
-
35,902
-
(27,999)
6,578
(601)
72,550
Home equity lines of credit
2,542
-
(526)
-
(530)
901
-
2,387
Personal
118,426
(8,160)
70,366
-
(63,534)
9,018
-
126,116
Auto
129,735
(21)
45,108
-
(34,770)
15,384
-
155,436
Other
15,435
-
3,431
-
(11,998)
572
-
7,440
Total Consumer
324,808
(8,181)
154,281
-
(138,831)
32,453
(601)
363,929
Total - Loans
$
720,302
$
(45,583)
$
126,321
$
87
$
(160,239)
$
70,781
$
(601)
$
711,068
Allowance for credit losses - unfunded commitments:
Commercial
$
5,511
$
-
$
922
$
-
$
-
$
-
$
-
$
6,433
Construction
3,206
-
3,591
-
-
-
-
6,797
Consumer
88
-
(34)
-
-
-
-
54
Ending balance - unfunded commitments [1]
$
8,805
$
-
$
4,479
$
-
$
-
$
-
$
-
$
13,284
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
45
For the quarter ended September 30, 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
$
3,522
$
682
$
-
$
-
$
-
$
4,204
Commercial real estate non-owner occupied
50,393
2,689
-
-
368
53,450
Commercial real estate owner occupied
49,472
(5,438)
-
(24)
2,419
46,429
Commercial and industrial
50,160
9,145
-
(4,794)
3,181
57,692
Total Commercial
153,547
7,078
-
(4,818)
5,968
161,775
Construction
3,074
1,181
-
-
-
4,255
Mortgage
130,030
(11,648)
59
(1,720)
3,885
120,606
Leasing
19,037
2,115
-
(2,191)
853
19,814
Consumer
Credit cards
45,339
12,353
-
(6,669)
2,186
53,209
Home equity lines of credit
90
(128)
-
-
129
91
Personal
74,799
17,139
-
(9,963)
1,736
83,711
Auto
137,222
(770)
-
(11,238)
3,863
129,077
Other
17,439
1,374
-
(610)
193
18,396
Total Consumer
274,889
29,968
-
(28,480)
8,107
284,484
Total - Loans
$
580,577
$
28,694
$
59
$
(37,209)
$
18,813
$
590,934
Allowance for credit losses - unfunded commitments:
Commercial
$
2,032
$
868
$
-
$
-
$
-
$
2,900
Construction
1,534
349
-
-
-
1,883
Ending balance - unfunded commitments [1]
$
3,566
$
1,217
$
-
$
-
$
-
$
4,783
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
46
For the quarter ended September 30, 2022
Popular U.S.
Provision for
Beginning
credit losses
Ending
(In thousands)
Balance
(benefit)
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
20,571
$
1,138
$
-
$
8
$
21,717
Commercial real estate non-owner occupied
14,284
11,187
-
2
25,473
Commercial real estate owner occupied
9,076
(120)
-
26
8,982
Commercial and industrial
12,152
(717)
(720)
1,195
11,910
Total Commercial
56,083
11,488
(720)
1,231
68,082
Construction
3,839
(1,895)
-
-
1,944
Mortgage
18,275
(370)
-
23
17,928
Consumer
Home equity lines of credit
3,455
(1,340)
(47)
954
3,022
Personal
19,520
2,901
(1,528)
291
21,184
Other
1
41
(48)
8
2
Total Consumer
22,976
1,602
(1,623)
1,253
24,208
Total - Loans
$
101,173
$
10,825
$
(2,343)
$
2,507
$
112,162
Allowance for credit losses - unfunded commitments:
Commercial
$
1,317
$
(201)
$
-
$
-
$
1,116
Construction
1,961
(650)
-
-
1,311
Consumer
60
37
-
-
97
Ending balance - unfunded commitments [1]
$
3,338
$
(814)
$
-
$
-
$
2,524
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
47
For the quarter ended September 30, 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
$
24,093
$
1,820
$
-
$
-
$
8
$
25,921
Commercial real estate non-owner occupied
64,677
13,876
-
-
370
78,923
Commercial real estate owner occupied
58,548
(5,558)
-
(24)
2,445
55,411
Commercial and industrial
62,312
8,428
-
(5,514)
4,376
69,602
Total Commercial
209,630
18,566
-
(5,538)
7,199
229,857
Construction
6,913
(714)
-
-
-
6,199
Mortgage
148,305
(12,018)
59
(1,720)
3,908
138,534
Leasing
19,037
2,115
-
(2,191)
853
19,814
Consumer
Credit cards
45,339
12,353
-
(6,669)
2,186
53,209
Home equity lines of credit
3,545
(1,468)
-
(47)
1,083
3,113
Personal
94,319
20,040
-
(11,491)
2,027
104,895
Auto
137,222
(770)
-
(11,238)
3,863
129,077
Other
17,440
1,415
-
(658)
201
18,398
Total Consumer
297,865
31,570
-
(30,103)
9,360
308,692
Total - Loans
$
681,750
$
39,519
$
59
$
(39,552)
$
21,320
$
703,096
Allowance for credit losses - unfunded commitments:
Commercial
$
3,349
$
667
$
-
$
-
$
-
$
4,016
Construction
3,495
(301)
-
-
-
3,194
Consumer
60
37
-
-
-
97
Ending balance - unfunded commitments [1]
$
6,904
$
403
$
-
$
-
$
-
$
7,307
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial
Condition.
48
For the nine months ended September 30, 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
$
1,154
$
-
$
-
$
-
$
4,204
Commercial real estate non-owner occupied
45,211
7,024
-
(30)
1,245
53,450
Commercial real estate owner occupied
54,176
(13,907)
-
(977)
7,137
46,429
Commercial and industrial
49,491
6,784
-
(5,660)
7,077
57,692
Total Commercial
151,928
1,055
-
(6,667)
15,459
161,775
Construction
1,641
1,803
-
-
811
4,255
Mortgage
138,286
(28,129)
841
(4,408)
14,016
120,606
Leasing
17,578
3,807
-
(4,094)
2,523
19,814
Consumer
Credit cards
43,499
21,688
-
(18,770)
6,792
53,209
Home equity lines of credit
98
(213)
-
(164)
370
91
Personal
71,022
32,353
-
(25,069)
5,405
83,711
Auto
154,498
(10,793)
-
(26,766)
12,138
129,077
Other
15,612
3,590
-
(1,555)
749
18,396
Total Consumer
284,729
46,625
-
(72,324)
25,454
284,484
Total - Loans
$
594,162
$
25,161
$
841
$
(87,493)
$
58,263
$
590,934
Allowance for credit losses - unfunded commitments:
Commercial
$
1,751
$
1,149
$
-
$
-
$
-
$
2,900
Construction
2,388
(505)
-
-
-
1,883
Ending balance - unfunded commitments [1]
$
4,139
$
644
$
-
$
-
$
-
$
4,783
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
49
For the nine months ended September 30, 2022
Popular U.S.
Provision for
Beginning
credit losses
Ending
(In thousands)
Balance
(benefit)
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
25,418
$
(3,721)
$
-
$
20
$
21,717
Commercial real estate non-owner occupied
22,246
3,208
-
19
25,473
Commercial real estate owner occupied
6,053
2,681
-
248
8,982
Commercial and industrial
10,160
1,036
(1,244)
1,958
11,910
Total Commercial
63,877
3,204
(1,244)
2,245
68,082
Construction
4,722
(3,910)
-
1,132
1,944
Mortgage
16,192
1,756
(68)
48
17,928
Consumer
Credit cards
-
(10)
-
10
-
Home equity lines of credit
3,708
(2,974)
(99)
2,387
3,022
Personal
12,700
11,604
(3,985)
865
21,184
Other
5
144
(172)
25
2
Total Consumer
16,413
8,764
(4,256)
3,287
24,208
Total - Loans
$
101,204
$
9,814
$
(5,568)
$
6,712
$
112,162
Allowance for credit losses - unfunded commitments:
Commercial
$
1,384
$
(268)
$
-
$
-
$
1,116
Construction
2,337
(1,026)
-
-
1,311
Consumer
37
60
-
-
97
Ending balance - unfunded commitments [1]
$
3,758
$
(1,234)
$
-
$
-
$
2,524
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
50
For the nine months ended September 30, 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
$
(2,567)
$
-
$
-
$
20
$
25,921
Commercial real estate non-owner occupied
67,457
10,232
-
(30)
1,264
78,923
Commercial real estate owner occupied
60,229
(11,226)
-
(977)
7,385
55,411
Commercial and industrial
59,651
7,820
-
(6,904)
9,035
69,602
Total Commercial
215,805
4,259
-
(7,911)
17,704
229,857
Construction
6,363
(2,107)
-
-
1,943
6,199
Mortgage
154,478
(26,373)
841
(4,476)
14,064
138,534
Leasing
17,578
3,807
-
(4,094)
2,523
19,814
Consumer
Credit cards
43,499
21,678
-
(18,770)
6,802
53,209
Home equity lines of credit
3,806
(3,187)
-
(263)
2,757
3,113
Personal
83,722
43,957
-
(29,054)
6,270
104,895
Auto
154,498
(10,793)
-
(26,766)
12,138
129,077
Other
15,617
3,734
-
(1,727)
774
18,398
Total Consumer
301,142
55,389
-
(76,580)
28,741
308,692
Total - Loans
$
695,366
$
34,975
$
841
$
(93,061)
$
64,975
$
703,096
Allowance for credit losses - unfunded commitments:
Commercial
$
3,135
$
881
$
-
$
-
$
-
$
4,016
Construction
4,725
(1,531)
-
-
-
3,194
Consumer
37
60
-
-
-
97
Ending balance - unfunded commitments [1]
$
7,897
$
(590)
$
-
$
-
$
-
$
7,307
[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 period ended at September 30, 2023
amounted to $
17
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 and
nine months
ended
September
30,2023.
Loans
modified
to
borrowers
under
financial
difficulties
that
were
fully
paid
down,
charged-off
or
foreclosed upon by period end are not reported.
51
Loan Modifications Made to Borrowers Experiencing Financial
Difficulty for the quarter ended September 30,2023
Interest Rate Reduction
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at
September
30,2023
% of total class
of Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
CRE owner occupied
$
141,807
10.07
%
$
-
-
%
$
141,807
4.66
%
Commercial and industrial
43
-
%
-
-
%
43
-
%
Mortgage
76
-
%
-
-
%
76
-
%
Consumer:
Credit cards
154
0.01
%
-
-
%
154
0.01
%
Personal
247
0.01
%
-
-
%
247
0.01
%
Total
$
142,327
0.60
%
$
-
-
%
$
142,327
0.42
%
Term Extension
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at
September
30,2023
% of total class
of Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
CRE non-owner occupied
$
8,760
0.30
%
$
-
-
%
$
8,760
0.17
%
CRE owner occupied
2,667
0.19
%
10,847
0.66
%
13,514
0.44
%
Commercial and industrial
16,535
0.38
%
-
-
%
16,535
0.25
%
Mortgage
17,057
0.27
%
933
0.07
%
17,990
0.24
%
Consumer:
Personal
122
0.01
%
-
-
%
122
0.01
%
Total
$
45,141
0.19
%
$
11,780
0.11
%
$
56,921
0.17
%
Other-Than-Insignificant Payment Delays
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at
September
30,2023
% of total class
of Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
CRE owner occupied
$
8,980
0.64
%
$
-
-
%
$
8,980
0.29
%
Commercial and industrial
3,287
0.08
%
-
-
%
3,287
0.05
%
Total
$
12,267
0.05
%
$
-
-
%
$
12,267
0.04
%
Combination - Term extension
and Interest Rate Reduction
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at
September
30,2023
% of total class
of Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
CRE non-owner occupied
$
18,705
0.63
%
$
-
-
%
$
18,705
0.37
%
CRE owner occupied
14,683
1.04
%
-
-
%
14,683
0.48
%
Commercial and industrial
558
0.01
%
-
-
%
558
0.01
%
Mortgage
7,691
0.12
%
-
-
%
7,691
0.10
%
Consumer:
Personal
815
0.05
%
11
0.01
%
826
0.04
%
Total
$
42,452
0.18
%
$
11
-
%
$
42,463
0.12
%
Combination -
Other-Than-Insignificant Payment Delays and Interest Rate
Reduction
Puerto Rico
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at
September
30,2023
% of total class
of Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
CRE non-owner occupied
$
182
0.01
%
$
-
-
%
$
182
-
%
Commercial and industrial
78
-
%
-
-
%
78
-
%
Consumer:
Credit cards
195
-
%
-
-
%
195
0.02
%
Total
$
455
-
%
$
-
-
%
$
455
-
%
52
Loan Modifications Made to Borrowers Experiencing Financial
Difficulty for the nine months ended September
30,2023
Interest Rate Reduction
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
CRE owner occupied
$
141,807
10.07
%
$
-
-
%
$
141,807
4.66
%
Commercial and industrial
43
-
%
-
-
%
43
-
%
Mortgage
302
-
%
-
-
%
302
-
%
Consumer:
Credit cards
565
0.05
%
-
-
%
565
0.05
%
Personal
540
0.03
%
3
-
%
543
0.03
%
Other
3
-
%
-
-
%
3
-
%
Total
$
143,260
0.60
%
$
3
-
%
$
143,263
0.42
%
Term Extension
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
CRE non-owner occupied
$
33,059
1.12
%
$
-
-
%
$
33,059
0.66
%
CRE owner occupied
4,293
0.30
%
26,509
1.62
%
30,802
1.01
%
Commercial and industrial
38,713
0.89
%
-
-
%
38,713
0.59
%
Construction
2,169
1.27
%
5,309
0.71
%
7,478
0.81
%
Mortgage
41,916
0.67
%
5,423
0.42
%
47,339
0.62
%
Consumer:
Personal
196
0.01
%
129
0.07
%
325
0.02
%
Auto
36
-
%
-
-
%
36
-
%
Total
$
120,382
0.51
%
$
37,370
0.36
%
$
157,752
0.46
%
Principal Forgiveness
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
CRE owner occupied
$
18
-
%
$
-
-
%
$
18
-
%
Total
$
18
-
%
$
-
-
%
$
18
-
%
Other-Than-Insignificant Payment Delays
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
CRE non-owner occupied
$
1,736
0.06
%
$
-
-
%
$
1,736
0.03
%
CRE owner occupied
12,833
0.91
%
13,556
0.83
%
26,389
0.87
%
Commercial and industrial
4,653
0.11
%
828
0.04
%
5,481
0.08
%
Mortgage
137
-
%
-
-
%
137
-
%
Consumer:
Other
31
0.02
%
-
-
%
31
0.02
%
Total
$
19,390
0.08
%
$
14,384
0.14
%
$
33,774
0.10
%
53
Combination - Term extension
and Interest Rate Reduction
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
CRE non-owner occupied
$
18,705
0.63
%
$
-
-
%
$
18,705
0.37
%
CRE owner occupied
14,784
1.05
%
-
-
%
14,784
0.49
%
Commercial and industrial
614
0.01
%
-
-
%
614
0.01
%
Mortgage
29,044
0.46
%
407
0.03
%
29,451
0.39
%
Consumer:
Personal
1,711
0.10
%
43
0.02
%
1,754
0.09
%
Auto
27
-
%
-
-
%
27
-
%
Total
$
64,885
0.27
%
$
450
-
%
$
65,335
0.19
%
Combination - Other-Than-Insignificant Payment Delays
and Interest Rate Reduction
Puerto Rico
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
CRE non-owner occupied
$
182
0.01
%
$
-
-
%
$
182
-
%
Commercial and industrial
153
-
%
-
-
%
153
-
%
Consumer:
Credit cards
587
0.05
%
-
-
%
587
0.05
%
Total
$
922
-
%
$
-
-
%
$
922
-
%
Combination - Other-Than-Insignificant Payment Delays
and Principal Forgiveness
Puerto Rico
Popular U.S.
Popular, Inc.
(In thousands)
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
September
30,2023
% of total class of
Financing
Receivable
CRE owner occupied
$
195
0.01
%
$
-
-
%
$
195
0.01
%
Total
$
195
-
%
$
-
-
%
$
195
-
%
54
The following table describes the financial effect of the
modifications made to borrowers experiencing
financial difficulties:
For the quarter ended September 30, 2023
Interest rate reduction
Loan Type
Financial Effect
CRE Non-owner occupied
Reduced weighted-average contractual interest rate from
9
.0% to
7.2
%.
CRE Owner occupied
Reduced weighted-average contractual interest rate from
8.4
% to
6.6
%.
Commercial and industrial
Reduced weighted-average contractual interest rate from
12.5
% to
7.6
%.
Mortgage
Reduced weighted-average contractual interest rate from
5.7
% to
4.2
%.
Consumer:
Credit cards
Reduced weighted-average contractual interest rate from
19.6
% to
3.6
%.
Personal
Reduced weighted-average contractual interest rate from
17
.0% to
9.1
%.
Term extension
Loan Type
Financial Effect
CRE Non-owner occupied
Added a weighted-average of
28
months to the life of loans.
CRE Owner occupied
Added a weighted-average of
1
year to the life of loans.
Commercial and industrial
Added a weighted-average of
3
year to the life of loans.
Mortgage
Added a weighted-average of
11
years to the life of loans.
Consumer:
Personal
Added a weighted-average of
7
years to the life of loans.
Other than insignificant payment delay
Loan Type
Financial Effect
CRE Non-owner occupied
Added a weighted-average of
7
months to the life of loans.
CRE Owner occupied
Added a weighted-average of
10
months to the life of loans.
Commercial and industrial
Added a weighted-average of
7
months to the life of loans.
Consumer:
Credit cards
Added a weighted-average of
29
months to the life of loans.
55
For the nine months ended September 30, 2023
Interest rate reduction
Loan Type
Financial Effect
CRE Non-owner occupied
Reduced weighted-average contractual interest rate from
9
.0% to
7.2
%.
CRE Owner occupied
Reduced weighted-average contractual interest rate from
8.4
% to
6.6
%.
Commercial and industrial
Reduced weighted-average contractual interest rate from
14
.0% to
7.7
%.
Mortgage
Reduced weighted-average contractual interest rate from
5.7
% to
4.2
%.
Consumer:
Credit cards
Reduced weighted-average contractual interest rate from
18
.0% to
4.3
%.
Personal
Reduced weighted-average contractual interest rate from
18
.0% to
9.7
%.
Auto
Reduced weighted-average contractual interest rate from
12.64
% to
12.62
%.
Other
Reduced weighted-average contractual interest rate from
18
.0% to 0.0%.
Term extension
Loan Type
Financial Effect
CRE Non-owner occupied
Added a weighted-average of
19
months to the life of loans.
CRE Owner occupied
Added a weighted-average of
1
year to the life of loans.
Commercial and industrial
Added a weighted-average of
2
years to the life of loans.
Construction
Added a weighted-average of
6
months to the life of loans.
Mortgage
Added a weighted-average of
11
years to the life of loans.
Consumer:
Personal
Added a weighted-average of
7
years to the life of loans.
Auto
Added a weighted-average of
3
years to the life of loans.
Principal forgiveness
Loan Type
Financial Effect
CRE Owner occupied
Reduced the amortized cost basis of the loans by $
0.1
million.
Other than insignificant payment delay
Loan Type
Financial Effect
CRE Non-owner occupied
Added a weighted-average of
12
months to the life of loans.
CRE Owner occupied
Added a weighted-average of
8
months to the life of loans.
Commercial and industrial
Added a weighted-average of
8
months to the life of loans.
Mortgage
Added a weighted-average of
40
months to the life of loans.
Consumer:
Credit cards
Added a weighted-average of
26
months to the life of loans.
Other
Added a weighted-average of
11
months to the life of loans.
56
The following table
presents, by class, the
performance of loans that
have been modified in
the last nine months
at September 30,
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 September 30, 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
$
-
$
-
$
122
$
122
$
53,560
$
53,682
$
-
$
122
CRE Owner occupied
-
-
2,488
2,488
171,442
173,930
-
2,488
Commercial and industrial
-
-
1,735
1,735
42,441
44,176
729
1,006
Construction
-
-
-
-
2,169
2,169
-
-
Mortgage
4,913
2,572
22,291
29,776
41,623
71,399
4,196
18,095
Consumer:
Credit cards
117
87
130
334
818
1,152
93
37
Personal
48
19
550
617
1,830
2,447
-
550
Auto
-
-
11
11
52
63
-
11
Other
-
-
31
31
3
34
31
-
Total
$
5,078
$
2,678
$
27,358
$
35,114
$
313,938
$
349,052
$
5,049
$
22,309
[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 September 30, 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
$
-
$
-
$
-
$
-
$
40,065
$
40,065
$
-
$
-
Commercial and industrial
-
-
-
-
828
828
-
-
Construction
-
-
-
-
5,309
5,309
-
-
Mortgage
-
-
334
334
5,496
5,830
103
231
Consumer:
Personal
-
-
129
129
46
175
-
129
Total
$
-
$
-
$
463
$
463
$
51,744
$
52,207
$
103
$
360
[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.
57
Popular Inc.
For the period ended September 30, 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
$
-
$
-
$
122
$
122
$
53,560
$
53,682
$
-
$
122
CRE Owner occupied
-
-
2,488
2,488
211,507
213,995
-
2,488
Commercial and industrial
-
-
1,735
1,735
43,269
45,004
729
1,006
Construction
-
-
-
-
7,478
7,478
-
-
Mortgage
4,913
2,572
22,625
30,110
47,119
77,229
4,299
18,326
Consumer:
Credit cards
117
87
130
334
818
1,152
93
37
Personal
48
19
679
746
1,876
2,622
-
679
Auto
-
-
11
11
52
63
-
11
Other
-
-
31
31
3
34
31
-
Total
$
5,078
$
2,678
$
27,821
$
35,577
$
365,682
$
401,259
$
5,152
$
22,669
[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.
During
the
nine
months
ended September
30,
2023,
five
loans
with
an
aggregate
unpaid
principal balance
of
$
6.6
million
were
restructured into
multiple notes
(“Note A
/ B
split”)
,
compared to
three
loans with
an aggregate
unpaid principal
balance of
$
2.7
million during
the nine months
ended September 30,
2022.
No
charge-offs were
recorded as
part of Note
A /
B splits
during 2023
and 2022. These
loans were restructured after
analyzing the borrowers’ capacity
to repay the
debt, collateral and ability to
perform
under the modified terms.
Payment
default
is
defined
as
a
restructured
loan
becoming
90
days
past
due
after
being
modified,
foreclosed
or
charged-off,
whichever occurs first.
During the quarter
and nine months
ended September 30,
2023, the outstanding
balance of loans
modified
for borrowers
under financial difficulties that were subject to payment default during the nine
months preceding the default date was
$
5
million and $
6
million, respectively.
For the quarter ended September 30, 2023,
extension of maturity and the combination of reduction
of interest rate and extension of
maturity
amounted
to
$
4
million
and
$
1
million,
respectively,
of
the
outstanding
balance
of
loans
modified
for
borrowers
under
financial difficulties
that were
subject to
payment default
during the
nine months
preceding the
default date.
For the
nine months
ended
September
30,
2023,
extension
of
maturity
and
the
combination
of
reduction
of
interest
rate
and
extension
of
maturity
amounted
to
$
5
million
and
$
1
million,
respectively,
of
the
outstanding
balance
of
loans
modified
for
borrowers
under
financial
difficulties that were subject to payment default during
the nine months preceding the default date.
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.
58
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 and
nine
months ended September 30, 2022. Loans modified
as TDRs for the U.S. operations are considered
insignificant to the Corporation.
Popular Inc.
For the quarter ended September 30, 2022
For the nine months ended September 30, 2022
Reduction in
interest rate
Extension of
maturity
date
Combination of
reduction in
interest rate and
extension of
maturity date
Other
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
-
-
2
-
-
1
2
2
Commercial real estate owner occupied
1
3
-
2
2
9
1
2
Commercial and industrial
-
3
-
-
3
8
1
11
Mortgage
2
63
210
2
6
128
715
3
Leasing
-
-
-
-
-
-
1
-
Consumer:
Credit cards
7
-
-
10
31
-
-
32
Personal
28
4
1
-
82
60
1
1
Auto
-
-
-
-
-
1
-
-
Total
38
73
213
14
124
207
721
51
The following table presents, by class, quantitative
information related to loans modified as TDRs
during the quarter and nine
months ended September 30, 2022.
Popular, Inc.
For the quarter ended September 30, 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
2
$
1,327
$
1,326
$
10
Commercial real estate owner occupied
6
2,488
2,471
(47)
Commercial and industrial
3
123
117
7
Mortgage
277
28,990
30,192
1,032
Consumer:
Credit cards
17
157
154
1
Personal
33
542
539
146
Total
338
$
33,627
$
34,799
$
1,149
59
Popular, Inc.
For the nine months ended September 30, 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
5
$
4,779
$
4,777
$
15
Commercial real estate owner occupied
14
15,594
15,567
(2,120)
Commercial and industrial
23
49,625
49,425
2,067
Mortgage
852
93,773
96,918
3,143
Leasing
1
14
12
2
Consumer:
Credit cards
63
567
599
8
Personal
144
2,223
2,297
411
Auto
1
28
28
5
Total
1,103
$
166,603
$
169,623
$
3,531
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.
Popular Inc.
Defaulted during the quarter ended
September 30, 2022
Defaulted during the nine months ended
September 30, 2022
(In thousands)
Loan count
Recorded investment as
of first default date
Loan count
Recorded Investment as of
first default date
Commercial real estate owner occupied
1
$
560
1
$
560
Commercial and industrial
2
1,165
5
3,661
Mortgage
35
3,500
73
9,200
Leasing
1
5
1
5
Consumer:
Credit cards
4
32
24
185
Personal
15
160
34
558
Total
58
$
5,422
138
$
14,169
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 September
30, 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:
60
September 30, 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
$
-
$
-
$
-
$
-
$
4,132
$
4,291
$
-
$
-
$
8,423
Special Mention
-
-
-
-
-
5,817
-
-
5,817
Substandard
-
-
-
-
-
3,048
100
-
3,148
Pass
38,060
139,784
22,604
20,572
29,751
26,368
287
-
277,426
Total commercial
multi-family
$
38,060
$
139,784
$
22,604
$
20,572
$
33,883
$
39,524
$
387
$
-
$
294,814
Commercial real estate non-owner occupied
Watch
$
2,611
$
345
$
14,870
$
22,895
$
14,387
$
42,474
$
-
$
-
$
97,582
Special Mention
652
-
25,120
63
65,283
55,662
3,563
-
150,343
Substandard
19,724
1,356
-
2,243
-
25,986
-
-
49,309
Pass
215,640
881,595
555,185
363,551
44,464
584,724
6,488
-
2,651,647
Total commercial
real estate non-
owner occupied
$
238,627
$
883,296
$
595,175
$
388,752
$
124,134
$
708,846
$
10,051
$
-
$
2,948,881
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
609
$
-
$
27
$
-
$
-
$
636
Commercial real estate owner occupied
Watch
$
1,673
$
11,674
$
25,306
$
8,021
$
3,578
$
65,433
$
900
$
-
$
116,585
Special Mention
-
16,697
6,082
143,558
996
56,793
13,069
-
237,195
Substandard
916
15,967
2,130
324
657
71,111
-
-
91,105
Doubtful
-
-
-
-
-
225
-
-
225
Pass
54,152
188,715
234,029
52,294
26,558
396,965
9,730
-
962,443
Total commercial
real estate owner
occupied
$
56,741
$
233,053
$
267,547
$
204,197
$
31,789
$
590,527
$
23,699
$
-
$
1,407,553
Year-to-Date gross
write-offs
$
-
$
4
$
-
$
-
$
1
$
520
$
-
$
-
$
525
Commercial and industrial
Watch
$
5,085
$
20,271
$
6,051
$
2,791
$
16,548
$
78,294
$
78,361
$
-
$
207,401
Special Mention
85
3,519
3,549
6,157
2,057
42,415
10,696
-
68,478
Substandard
5,698
2,011
6,457
19,449
2,130
34,171
33,556
-
103,472
Doubtful
-
-
-
54
-
30
-
-
84
Loss
-
-
-
-
-
-
354
-
354
Pass
679,029
688,800
522,132
246,230
132,643
265,712
1,415,483
-
3,950,029
Total commercial
and industrial
$
689,897
$
714,601
$
538,189
$
274,681
$
153,378
$
420,622
$
1,538,450
$
-
$
4,329,818
Year-to-Date gross
write-offs
$
784
$
184
$
140
$
317
$
398
$
287
$
2,869
$
-
$
4,979
Construction
Watch
$
-
$
17,156
$
8,693
$
-
$
-
$
-
$
20,485
$
-
$
46,334
Substandard
-
6,578
-
2,169
-
-
$
-
-
8,747
Pass
14,035
21,688
33,249
11,843
2,308
1,056
31,247
-
115,426
Total construction
$
14,035
$
45,422
$
41,942
$
14,012
$
2,308
$
1,056
$
51,732
$
-
$
170,507
Year-to-Date gross
write-offs
$
-
$
2,611
$
-
$
-
$
-
$
-
$
-
$
-
$
2,611
Mortgage
Substandard
$
-
$
161
$
515
$
372
$
2,923
$
76,022
$
-
$
-
$
79,993
Pass
537,050
443,989
430,508
262,407
167,447
4,367,874
-
-
6,209,275
Total mortgage
$
537,050
$
444,150
$
431,023
$
262,779
$
170,370
$
4,443,896
$
-
$
-
$
6,289,268
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
1,205
$
-
$
-
$
1,205
61
September 30, 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
$
146
$
2,269
$
1,912
$
923
$
946
$
568
$
-
$
-
$
6,764
Loss
-
48
-
-
29
-
-
-
77
Pass
508,378
522,978
341,119
180,280
101,777
36,741
-
-
1,691,273
Total leasing
$
508,524
$
525,295
$
343,031
$
181,203
$
102,752
$
37,309
$
-
$
-
$
1,698,114
Year-to-Date gross
write-offs
$
391
$
2,638
$
1,871
$
530
$
473
$
346
$
-
$
-
$
6,249
Consumer:
Credit cards
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
17,717
$
-
$
17,717
Loss
-
-
-
-
-
-
2
-
2
Pass
-
-
-
-
-
-
1,059,692
-
1,059,692
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
1,077,411
$
-
$
1,077,411
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
27,998
$
-
$
27,998
HELOCs
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
2,474
$
-
$
2,474
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
-
$
2,474
$
-
$
2,474
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
111
$
-
$
111
Personal
Substandard
$
677
$
4,223
$
2,077
$
604
$
1,217
$
8,854
$
-
$
1,104
$
18,756
Loss
30
10
48
-
25
21
-
-
134
Pass
700,994
562,370
210,731
66,531
71,178
109,046
-
23,262
1,744,112
Total Personal
$
701,701
$
566,603
$
212,856
$
67,135
$
72,420
$
117,921
$
-
$
24,366
$
1,763,002
Year-to-Date gross
write-offs
$
1,055
$
23,867
$
13,973
$
3,395
$
3,834
$
2,305
$
-
$
1,012
$
49,441
Auto
Substandard
$
3,213
$
12,306
$
11,389
$
8,665
$
7,369
$
3,735
$
-
$
-
$
46,677
Loss
11
118
18
55
32
25
-
-
259
Pass
941,464
964,237
770,038
449,165
299,099
162,257
-
-
3,586,260
Total Auto
$
944,688
$
976,661
$
781,445
$
457,885
$
306,500
$
166,017
$
-
$
-
$
3,633,196
Year-to-Date gross
write-offs
$
3,625
$
16,278
$
8,276
$
4,353
$
2,238
$
-
$
-
$
-
$
34,770
Other consumer
Substandard
$
-
$
28
$
-
$
82
$
17
$
1,151
$
267
$
-
$
1,545
Loss
-
-
137
-
-
499
-
-
636
Pass
30,668
24,809
15,498
5,941
3,537
3,843
61,055
-
145,351
Total Other
consumer
$
30,668
$
24,837
$
15,635
$
6,023
$
3,554
$
5,493
$
61,322
$
-
$
147,532
Year-to-Date gross
write-offs
$
20
$
117
$
80
$
133
$
53
$
11,452
$
-
$
-
$
11,855
Total BPPR
$
3,759,991
$
4,553,702
$
3,249,447
$
1,877,239
$
1,001,088
$
6,531,211
$
2,765,526
$
24,366
$
23,762,570
62
September 30, 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
$
-
$
742
$
-
$
3,672
$
51,264
$
59,944
$
-
$
-
$
115,622
Special Mention
-
-
867
1,178
-
16,681
-
-
18,726
Substandard
-
-
-
-
14,747
16,003
-
-
30,750
Pass
69,117
525,927
367,965
233,949
216,481
450,809
4,273
-
1,868,521
Total commercial
multi-family
$
69,117
$
526,669
$
368,832
$
238,799
$
282,492
$
543,437
$
4,273
$
-
$
2,033,619
Commercial real estate non-owner occupied
Watch
$
-
$
5,500
$
4,228
$
729
$
10,991
$
44,329
$
-
$
-
$
65,777
Special Mention
-
-
-
-
1,333
68,433
-
-
69,766
Substandard
-
-
-
8,112
1,718
3,210
-
-
13,040
Pass
369,327
542,901
205,752
245,659
116,282
447,229
10,516
-
1,937,666
Total commercial
real estate non-
owner occupied
$
369,327
$
548,401
$
209,980
$
254,500
$
130,324
$
563,201
$
10,516
$
-
$
2,086,249
Commercial real estate owner occupied
Watch
$
-
$
-
$
78,483
$
1,177
$
-
$
124,940
$
-
$
-
$
204,600
Special Mention
-
-
-
3,809
6,114
114
-
-
10,037
Substandard
-
481
-
-
7,288
49,957
-
-
57,726
Pass
221,117
357,451
322,609
112,290
76,200
266,381
8,941
-
1,364,989
Total commercial
real estate owner
occupied
$
221,117
$
357,932
$
401,092
$
117,276
$
89,602
$
441,392
$
8,941
$
-
$
1,637,352
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
1,395
$
-
$
-
$
1,395
Commercial and industrial
Watch
$
2,594
$
8,238
$
3,940
$
1,024
$
1,208
$
3,748
$
9,507
$
-
$
30,259
Special Mention
368
621
1,074
37
171
47
-
-
2,318
Substandard
-
259
209
186
1,773
1,867
2,428
-
6,722
Pass
94,717
276,872
366,679
326,315
176,132
495,831
421,419
-
2,157,965
Total commercial
and industrial
$
97,679
$
285,990
$
371,902
$
327,562
$
179,284
$
501,493
$
433,354
$
-
$
2,197,264
Year-to-Date gross
write-offs
$
247
$
221
$
1,994
$
-
$
1,307
$
-
$
39
$
-
$
3,808
Construction
Watch
$
-
$
-
$
18,542
$
-
$
-
$
-
$
-
$
-
$
18,542
Special Mention
-
-
-
-
-
34,562
-
-
34,562
Substandard
-
-
5,213
3,214
-
2,095
-
-
10,522
Pass
180,508
305,886
121,838
28,119
50,844
784
-
-
687,979
Total construction
$
180,508
$
305,886
$
145,593
$
31,333
$
50,844
$
37,441
$
-
$
-
$
751,605
Mortgage
Substandard
$
-
$
-
$
-
$
-
$
2,168
$
9,812
$
-
$
-
$
11,980
Pass
75,875
226,204
291,991
237,859
179,085
272,849
-
-
1,283,863
Total mortgage
$
75,875
$
226,204
$
291,991
$
237,859
$
181,253
$
282,661
$
-
$
-
$
1,295,843
63
September 30, 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
$
-
$
-
$
-
$
-
$
-
$
-
$
17
$
-
$
17
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
17
$
-
$
17
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
1
$
-
$
1
HELOCs
Substandard
$
-
$
-
$
-
$
-
$
-
$
1,906
$
-
$
1,046
$
2,952
Loss
-
-
-
-
-
99
-
1,034
1,133
Pass
-
-
-
-
-
7,592
40,796
12,552
60,940
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
9,597
$
40,796
$
14,632
$
65,025
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
419
$
-
$
-
$
419
Personal
Substandard
$
327
$
1,183
$
379
$
88
$
121
$
218
$
-
$
-
$
2,316
Loss
69
13
-
-
-
238
-
-
320
Pass
36,704
110,755
28,371
3,750
5,358
1,592
-
-
186,530
Total Personal
$
37,100
$
111,951
$
28,750
$
3,838
$
5,479
$
2,048
$
-
$
-
$
189,166
Year-to-Date gross
write-offs
$
137
$
9,218
$
3,319
$
518
$
758
$
143
$
-
$
-
$
14,093
Other consumer
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
402
$
-
$
402
Pass
20
-
-
-
-
-
10,181
-
10,201
Total Other
consumer
$
20
$
-
$
-
$
-
$
-
$
-
$
10,583
$
-
$
10,603
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
143
$
-
$
143
Total Popular U.S.
$
1,050,743
$
2,363,033
$
1,818,140
$
1,211,167
$
919,278
$
2,381,270
$
508,480
$
14,632
$
10,266,743
64
September 30, 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
$
-
$
742
$
-
$
3,672
$
55,396
$
64,235
$
-
$
-
$
124,045
Special Mention
-
-
867
1,178
-
22,498
-
-
24,543
Substandard
-
-
-
-
14,747
19,051
100
-
33,898
Pass
107,177
665,711
390,569
254,521
246,232
477,177
4,560
-
2,145,947
Total commercial
multi-family
$
107,177
$
666,453
$
391,436
$
259,371
$
316,375
$
582,961
$
4,660
$
-
$
2,328,433
Commercial real estate non-owner occupied
Watch
$
2,611
$
5,845
$
19,098
$
23,624
$
25,378
$
86,803
$
-
$
-
$
163,359
Special Mention
652
-
25,120
63
66,616
124,095
3,563
-
220,109
Substandard
19,724
1,356
-
10,355
1,718
29,196
-
-
62,349
Pass
584,967
1,424,496
760,937
609,210
160,746
1,031,953
17,004
-
4,589,313
Total commercial
real estate non-
owner occupied
$
607,954
$
1,431,697
$
805,155
$
643,252
$
254,458
$
1,272,047
$
20,567
$
-
$
5,035,130
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
609
$
-
$
27
$
-
$
-
$
636
Commercial real estate owner occupied
Watch
$
1,673
$
11,674
$
103,789
$
9,198
$
3,578
$
190,373
$
900
$
-
$
321,185
Special Mention
-
16,697
6,082
147,367
7,110
56,907
13,069
-
247,232
Substandard
916
16,448
2,130
324
7,945
121,068
-
-
148,831
Doubtful
-
-
-
-
-
225
-
-
225
Pass
275,269
546,166
556,638
164,584
102,758
663,346
18,671
-
2,327,432
Total commercial
real estate owner
occupied
$
277,858
$
590,985
$
668,639
$
321,473
$
121,391
$
1,031,919
$
32,640
$
-
$
3,044,905
Year-to-Date gross
write-offs
$
-
$
4
$
-
$
-
$
1
$
1,915
$
-
$
-
$
1,920
Commercial and industrial
Watch
$
7,679
$
28,509
$
9,991
$
3,815
$
17,756
$
82,042
$
87,868
$
-
$
237,660
Special Mention
453
4,140
4,623
6,194
2,228
42,462
10,696
-
70,796
Substandard
5,698
2,270
6,666
19,635
3,903
36,038
35,984
-
110,194
Doubtful
-
-
-
54
-
30
-
-
84
Loss
-
-
-
-
-
-
354
-
354
Pass
773,746
965,672
888,811
572,545
308,775
761,543
1,836,902
-
6,107,994
Total commercial
and industrial
$
787,576
$
1,000,591
$
910,091
$
602,243
$
332,662
$
922,115
$
1,971,804
$
-
$
6,527,082
Year-to-Date gross
write-offs
$
1,031
$
405
$
2,134
$
317
$
1,705
$
287
$
2,908
$
-
$
8,787
65
September 30, 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
$
-
$
17,156
$
27,235
$
-
$
-
$
-
$
20,485
$
-
$
64,876
Special Mention
-
-
-
-
-
34,562
-
-
34,562
Substandard
-
6,578
5,213
5,383
-
2,095
-
-
19,269
Pass
194,543
327,574
155,087
39,962
53,152
1,840
31,247
-
803,405
Total construction
$
194,543
$
351,308
$
187,535
$
45,345
$
53,152
$
38,497
$
51,732
$
-
$
922,112
Year-to-Date gross
write-offs
$
-
$
2,611
$
-
$
-
$
-
$
-
$
-
$
-
$
2,611
Mortgage
Substandard
$
-
$
161
$
515
$
372
$
5,091
$
85,834
$
-
$
-
$
91,973
Pass
612,925
670,193
722,499
500,266
346,532
4,640,723
-
-
7,493,138
Total mortgage
$
612,925
$
670,354
$
723,014
$
500,638
$
351,623
$
4,726,557
$
-
$
-
$
7,585,111
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
1,205
$
-
$
-
$
1,205
Leasing
Substandard
$
146
$
2,269
$
1,912
$
923
$
946
$
568
$
-
$
-
$
6,764
Loss
-
48
-
-
29
-
-
-
77
Pass
508,378
522,978
341,119
180,280
101,777
36,741
-
-
1,691,273
Total leasing
$
508,524
$
525,295
$
343,031
$
181,203
$
102,752
$
37,309
$
-
$
-
$
1,698,114
Year-to-Date gross
write-offs
$
391
$
2,638
$
1,871
$
530
$
473
$
346
$
-
$
-
$
6,249
66
September 30, 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
$
-
$
-
$
-
$
-
$
-
$
-
$
17,717
$
-
$
17,717
Loss
-
-
-
-
-
-
2
-
2
Pass
-
-
-
-
-
-
1,059,709
-
1,059,709
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
1,077,428
$
-
$
1,077,428
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
27,999
$
-
$
27,999
HELOCs
Substandard
$
-
$
-
$
-
$
-
$
-
$
1,906
$
-
$
1,046
$
2,952
Loss
-
-
-
-
-
99
-
1,034
1,133
Pass
-
-
-
-
-
7,592
43,270
12,552
63,414
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
9,597
$
43,270
$
14,632
$
67,499
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
419
$
111
$
-
$
530
Personal
Substandard
$
1,004
$
5,406
$
2,456
$
692
$
1,338
$
9,072
$
-
$
1,104
$
21,072
Loss
99
23
48
-
25
259
-
-
454
Pass
737,698
673,125
239,102
70,281
76,536
110,638
-
23,262
1,930,642
Total Personal
$
738,801
$
678,554
$
241,606
$
70,973
$
77,899
$
119,969
$
-
$
24,366
$
1,952,168
Year-to-Date gross
write-offs
$
1,192
$
33,085
$
17,292
$
3,913
$
4,592
$
2,448
$
-
$
1,012
$
63,534
Auto
Substandard
$
3,213
$
12,306
$
11,389
$
8,665
$
7,369
$
3,735
$
-
$
-
$
46,677
Loss
11
118
18
55
32
25
-
-
259
Pass
941,464
964,237
770,038
449,165
299,099
162,257
-
-
3,586,260
Total Auto
$
944,688
$
976,661
$
781,445
$
457,885
$
306,500
$
166,017
$
-
$
-
$
3,633,196
Year-to-Date gross
write-offs
$
3,625
$
16,278
$
8,276
$
4,353
$
2,238
$
-
$
-
$
-
$
34,770
Other consumer
Substandard
$
-
$
28
$
-
$
82
$
17
$
1,151
$
669
$
-
$
1,947
Loss
-
-
137
-
-
499
-
-
636
Pass
30,688
24,809
15,498
5,941
3,537
3,843
71,236
-
155,552
Total Other
consumer
$
30,688
$
24,837
$
15,635
$
6,023
$
3,554
$
5,493
$
71,905
$
-
$
158,135
Year-to-Date gross
write-offs
$
20
$
117
$
80
$
133
$
53
$
11,452
$
143
$
-
$
11,998
Total Popular Inc.
$
4,810,734
$
6,916,735
$
5,067,587
$
3,088,406
$
1,920,366
$
8,912,481
$
3,274,006
$
38,998
$
34,029,313
67
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
68
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 BPPR
$
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
69
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
70
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
71
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
72
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
73
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
74
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 September 30,
Nine months ended September 30,
(In thousands)
2023
2022
2023
2022
Mortgage servicing fees, net of fair value adjustments:
Mortgage servicing fees
$
8,025
$
9,126
$
25,083
$
27,635
Mortgage servicing rights fair value adjustments
(2,793)
(499)
(10,385)
2,846
Total mortgage
servicing fees, net of fair value adjustments
5,232
8,627
14,698
30,481
Net (loss) gain on sale of loans, including valuation on
loans held-for-sale
(335)
1,124
(133)
(374)
Trading account profit (loss):
Unrealized gains on outstanding derivative positions
45
-
160
-
Realized gains (losses) on closed derivative positions
494
(240)
661
6,325
Total trading account
profit (loss)
539
(240)
821
6,325
Losses on repurchased loans, including interest advances
(43)
(63)
(277)
(544)
Total mortgage
banking activities
$
5,393
$
9,448
$
15,109
$
35,888
[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.
75
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 and nine months ended September
30, 2023 and
2022 because they did not contain any credit recourse
arrangements.
The
following tables
present the
initial fair
value of
the
assets obtained
as
proceeds from
residential mortgage
loans securitized
during the quarters and nine months ended September
30, 2023 and 2022:
Proceeds Obtained During the Quarter Ended September
30, 2023
(In thousands)
Level 1
Level 2
Level 3
Initial Fair Value
Assets
Trading account debt securities:
Mortgage-backed securities - GNMA
$
-
$
1,421
$
-
$
1,421
Mortgage-backed securities - FNMA
-
10,178
-
10,178
Total trading account
debt securities
$
-
$
11,599
$
-
$
11,599
Mortgage servicing rights
$
-
$
-
$
301
$
301
Total
$
-
$
11,599
$
301
$
11,900
Proceeds Obtained During the Nine months Ended September
30, 2023
(In thousands)
Level 1
Level 2
Level 3
Initial Fair Value
Assets
Trading account debt securities:
Mortgage-backed securities - GNMA
$
-
$
2,488
$
-
$
2,488
Mortgage-backed securities - FNMA
-
33,470
-
33,470
Total trading account
debt securities
$
-
$
35,958
$
-
$
35,958
Mortgage servicing rights
$
-
$
-
$
945
$
945
Total
$
-
$
35,958
$
945
$
36,903
Proceeds Obtained During the Quarter Ended September
30, 2022
(In thousands)
Level 1
Level 2
Level 3
Initial Fair Value
Assets
Trading account debt securities:
Mortgage-backed securities - GNMA
$
-
$
14,190
$
-
$
14,190
Mortgage-backed securities - FNMA
-
21,685
-
21,685
Total trading account
debt securities
$
-
$
35,875
$
-
$
35,875
Mortgage servicing rights
$
-
$
-
$
809
$
809
Total
$
-
$
35,875
$
809
$
36,684
76
Proceeds Obtained During the Nine months Ended September
30, 2022
(In thousands)
Level 1
Level 2
Level 3
Initial Fair Value
Assets
Trading account debt securities:
Mortgage-backed securities - GNMA
$
-
$
169,352
$
-
$
169,352
Mortgage-backed securities - FNMA
-
117,015
-
117,015
Mortgage-backed securities - FHLMC
-
8,505
-
8,505
Total trading account
debt securities
$
-
$
294,872
$
-
$
294,872
Mortgage servicing rights
$
-
$
-
$
5,179
$
5,179
Total
$
-
$
294,872
$
5,179
$
300,051
During
the
nine
months
ended
September
30,
2023,
the
Corporation
retained
servicing
rights
on
whole
loan
sales
involving
approximately
$
39
million
in
principal
balance
outstanding
(September
30,
2022
-
$
50
million),
with
net
realized
gains
of
approximately $
0.6
million
(September 30,
2022 -
gains of
$
0.8
million). All
loan sales
performed during
the
nine months
ended
September 30, 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 nine months ended September
30,
2023 and 2022.
Residential MSRs
(In thousands)
September 30, 2023
September 30, 2022
Fair value at beginning of period
$
128,350
$
121,570
Additions
1,814
6,195
Changes due to payments on loans
[1]
(7,569)
(8,178)
Reduction due to loan repurchases
(468)
(646)
Changes in fair value due to changes in valuation model inputs
or assumptions
(1,828)
11,556
Other
(1,269)
44
Fair value at end of period
[2]
$
119,030
$
130,541
[1] Represents changes due to collection / realization
of expected cash flows over time.
[2] At September 30, 2023, PB had MSRs amounting to
$
1.9
million (September 30, 2022 - $
2.0
million).
During the
quarter ended June
30, 2023
the Corporation
terminated a servicing
agreement,
in which it
acted as sub-servicer
for a
third
party,
for
a
portfolio
with
an
unpaid
principal
balance
of
approximately
$
260
million
and
a
related
MSR
fair
value
of
approximately $
2
million.
The transaction did not result in a material
effect on the financial results of the Corporation.
Residential mortgage loans serviced for others were $
10.1
billion at September 30, 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 September
30, 2023, those
weighted average mortgage servicing
fees were
0.31
%
77
(September
30,
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 and nine months ended September 30,
2023 and 2022 were as follows:
Quarters ended
Nine months ended
September 30, 2023
September 30, 2022
September 30, 2023
September 30, 2022
BPPR
PB
BPPR
PB
BPPR
PB
BPPR
PB
Prepayment speed
7.3
%
7.0
%
5.5
%
7.2
%
7.1
%
7.1
%
5.2
%
8.4
%
Weighted average life (in years)
9.2
8.0
9.5
8.2
9.2
8.0
9.7
7.7
Discount rate (annual rate)
9.6
%
11.0
%
10.7
%
10.0
%
9.6
%
10.7
%
10.5
%
9.8
%
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
September 30,
December 31,
September 30,
December 31,
(In thousands)
2023
2022
2023
2022
Fair value of servicing rights
$
40,346
$
41,548
$
78,684
$
86,802
Weighted average life (in years)
6.6
6.8
6.7
6.9
Weighted average prepayment speed (annual
rate)
6.0
%
5.9
%
7.0
%
7.0
%
Impact on fair value of 10% adverse change
$
(728)
$
(730)
$
(1,491)
$
(1,602)
Impact on fair value of 20% adverse change
$
(1,427)
$
(1,433)
$
(2,924)
$
(3,143)
Weighted average discount rate (annual rate)
11.2
%
11.2
%
10.9
%
11.0
%
Impact on fair value of 10% adverse change
$
(1,387)
$
(1,485)
$
(2,842)
$
(3,256)
Impact on fair value of 20% adverse change
$
(2,688)
$
(2,876)
$
(5,508)
$
(6,304)
78
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 September
30, 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
September
30,
2023,
the
Corporation
had
recorded
$
8
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 nine months ended
September 30, 2023, the Corporation repurchased approximately
$
34
million (September 30, 2022 -
$
49
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.
79
Note 12 – Other real estate owned
The following
tables present
the activity
related to
Other Real
Estate Owned
(“OREO”),
for the
quarters and
nine months
ended
September 30, 2023 and 2022.
For the quarter ended September 30, 2023
OREO
OREO
(In thousands)
Commercial/Construction
Mortgage
Total
Balance at beginning of period
$
11,819
$
74,397
$
86,216
Write-downs in value
(123)
(567)
(690)
Additions
257
14,795
15,052
Sales
(900)
(17,356)
(18,256)
Ending balance
$
11,053
$
71,269
$
82,322
For the quarter ended September 30, 2022
OREO
OREO
(In thousands)
Commercial/Construction
Mortgage
Total
Balance at beginning of period
$
14,250
$
77,887
$
92,137
Write-downs in value
(84)
(376)
(460)
Additions
1,711
13,975
15,686
Sales
(1,984)
(12,065)
(14,049)
Other adjustments
-
(75)
(75)
Ending balance
$
13,893
$
79,346
$
93,239
For the nine months ended September 30, 2023
OREO
OREO
(In thousands)
Commercial/Construction
Mortgage
Total
Balance at beginning of period
$
12,500
$
76,626
$
89,126
Write-downs in value
(362)
(1,587)
(1,949)
Additions
1,524
54,625
56,149
Sales
(2,626)
(58,277)
(60,903)
Other adjustments
17
(118)
(101)
Ending balance
$
11,053
$
71,269
$
82,322
For the nine months ended September 30, 2022
OREO
OREO
(In thousands)
Commercial/Construction
Mortgage
Total
Balance at beginning of period
$
15,017
$
70,060
$
85,077
Write-downs in value
(934)
(949)
(1,883)
Additions
5,230
53,878
59,108
Sales
(5,528)
(43,110)
(48,638)
Other adjustments
108
(533)
(425)
Ending balance
$
13,893
$
79,346
$
93,239
80
Note 13 − Other assets
The caption of other assets in the consolidated
statements of financial condition consists of the following
major categories:
(In thousands)
September 30, 2023
December 31, 2022
Net deferred tax assets (net of valuation allowance)
$
896,426
$
953,676
Investments under the equity method
234,408
210,001
Prepaid taxes
47,837
39,405
Other prepaid expenses
42,977
33,384
Capitalized software costs
79,393
81,862
Derivative assets
23,348
19,229
Trades receivable from brokers and counterparties
37,674
35,099
Receivables from investments maturities
301,000
125,000
Principal, interest and escrow servicing advances
50,881
41,916
Guaranteed mortgage loan claims receivable
44,836
59,659
Operating ROU assets (Note 28)
117,879
125,573
Finance ROU assets (Note 28)
17,917
18,884
Others
137,989
104,125
Total other assets
$
2,032,565
$
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
September 30, 2023
Software development costs
$
69,318
$
24,920
$
44,398
Software license costs
47,747
25,006
22,741
Cloud computing arrangements
22,771
10,517
12,254
Total Capitalized
software costs [1] [2]
$
139,836
$
60,443
$
79,393
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 are 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 September 30,
Nine months ended September 30,
(In thousands)
2023
2022
2023
2022
Software development and license costs
$
16,820
$
14,589
$
47,962
$
39,357
Cloud computing arrangements
923
983
2,685
3,010
Total amortization
expense
$
17,743
$
15,572
$
50,647
$
42,367
81
Note 14 – Goodwill and other intangible assets
The changes in
the carrying amount
of goodwill for
the nine months
ended September 30, 2023
and 2022, allocated
by reportable
segments, were as follows (refer to Note 33 for
the definition of the Corporation’s reportable segments):
September 30, 2023
Balance at
Goodwill on
Goodwill
Balance at
(In thousands)
January 1, 2023
acquisition
impairment
September 30, 2023
Banco Popular de Puerto Rico
$
436,383
$
-
$
-
$
436,383
Popular U.S.
391,045
-
(23,000)
368,045
Total Popular,
Inc.
$
827,428
$
-
$
(23,000)
$
804,428
September 30, 2022
Balance at
Goodwill on
Goodwill
Balance at
(In thousands)
January 1, 2022
acquisition
impairment
September 30, 2022
Banco Popular de Puerto Rico
$
320,248
$
116,135
$
-
$
436,383
Popular U.S.
400,045
-
(9,000)
391,045
Total Popular,
Inc.
$
720,293
$
116,135
$
(9,000)
$
827,428
The goodwill recognized during the quarter
ended September 30, 2022 in the
reportable segment of Banco Popular de Puerto
Rico
of $
116.1
million was related to
the Evertec Transactions,
as defined in Note 23
to the Consolidated Financial Statements
included
in this Form 10-Q.
During the third quarter
of 2023, the Corporation recorded
an impairment of
$
23
million as a result
of its annual
goodwill impairment test
related to its
U.S. based equipment
leasing subsidiary,
Popular Equipment Finance
(“PEF”),
due to lower
forecasted cash flows
and an increase
in the rate
used to discount
cash flows.
During 2022 the
Corporation recognized a
goodwill
impairment of $
9
million related to
Popular Equipment Finance
(“PEF”) , as
a result of
a decrease in
the projected earnings
of this
business unit.
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
September 30, 2023
Core deposits
$
12,810
$
10,995
$
1,815
Other customer relationships
14,286
6,302
7,984
Total other intangible
assets
$
27,096
$
17,297
$
9,799
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
During the
quarter ended
September 30,
2023, the
Corporation recognized
$
0.8
million in
amortization expense
related to
other
intangible assets with definite useful lives (September 30, 2022 - $
0.8
million). During the nine months ended September 30, 2023,
the Corporation
recognized $
2.4
million in
amortization related to
other intangible assets
with definite useful
lives (September 30,
2022 - $
2.5
million).
82
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
$
794
Year 2024
2,938
Year 2025
1,750
Year 2026
1,440
Year 2027
959
Later years
1,918
Results of the Annual Goodwill Impairment Test
The Corporation’s goodwill and
other identifiable intangible assets having
an indefinite useful life
are tested for impairment,
at least
annually and
on a
more frequent basis
if events
or circumstances indicate
impairment could have
taken place. Such
events could
include,
among others,
a significant
adverse change
in the
business climate,
an adverse
action by
a regulator,
an unanticipated
change in the competitive environment and a decision
to change the operations or dispose of a
reporting unit.
Management
monitors
events
or
changes
in
circumstances
between
annual
tests
to
determine
if
these
events
or
changes
in
circumstances would more likely than not reduce
the fair value of its reporting units below their carrying
amounts.
The Corporation
performed the
annual goodwill
impairment evaluation
for the
entire organization
during the
third quarter
of 2023
using July 31, 2023 as the annual evaluation date. The reporting units
utilized for this evaluation were those that are one level below
the business segments,
which are the
legal entities within the
reportable segment. The Corporation
follows push-down accounting,
as such all goodwill is assigned to the reporting
units when carrying out a business combination.
In determining the fair value of each reporting unit, the Corporation generally uses a combination of methods, including market price
multiples
of
comparable
companies
and
transactions,
as
well
as
discounted
cash
flow
analysis.
Management
evaluates
the
particular circumstances
of each
reporting unit
in order
to determine
the most
appropriate valuation methodology
and the
weights
applied
to
each
valuation
methodology,
as
applicable.
The
Corporation
evaluates
the
results
obtained
under
each
valuation
methodology to
identify and
understand the
key
value drivers
in order
to
ascertain that
the
results obtained
are
reasonable and
appropriate
under
the
circumstances.
Elements
considered
include
current
market
and
economic
conditions,
developments
in
specific lines of business, and any particular
features in the individual reporting units.
The computations
require management
to make
estimates and
assumptions. Critical
assumptions that
are used
as part
of these
evaluations include:
●
a selection of comparable publicly traded companies,
based on nature of business, location and
size;
●
a selection of comparable acquisitions;
●
the discount rate applied to future earnings, based
on an estimate of the cost of equity;
●
the potential future earnings of the reporting unit;
and
●
the market growth and new business assumptions.
For purposes of the market comparable companies’ approach, valuations were determined by calculating
average price multiples of
relevant value drivers from a group of
companies that are comparable to the reporting
unit being analyzed and applying those price
multiples
to
the
value
drivers
of
the
reporting
unit.
Management
uses
judgment
in
the
determination
of
which
value
drivers
are
considered more appropriate for each reporting unit.
Comparable companies’ price multiples represent minority-based multiples and
thus, a
control premium
adjustment is
added to
the comparable
companies’ market
multiples applied
to the
reporting unit’s
value
drivers.
For purposes
of the
market comparable transactions’
approach, valuations had
been previously determined
by the
Corporation by
calculating
average
price
multiples
of
relevant
value
drivers
from
a
group
of
transactions
for
which
the
target
companies
are
comparable to the reporting unit being analyzed and
applying those price multiples to the value drivers
of the reporting unit.
83
For purposes
of the
discounted cash flows
(“DCF”) approach, the
valuation is
based on
estimated future cash
flows. The
financial
projections
used
in
the
DCF
valuation
analysis
for
each
reporting
unit
are
based
on
the
most
recent
(as
of
the
valuation
date)
financial
projections presented
to
the
Corporation’s Asset
/
Liability Management
Committee (“ALCO”).
The
growth assumptions
included
in
these
projections
are
based
on
management’s
expectations for
each
reporting
unit’s
financial
prospects
considering
economic and industry conditions as well
as particular plans of each entity
(i.e. restructuring plans, de-leveraging, etc.). The cost
of
equity used to
discount the cash flows
was calculated using the
Ibbotson Build-Up Method and
ranged from
12.30
% to
16.96
% for
the 2023 analysis. The Ibbotson Build-Up Method
builds up a cost of equity
starting with the rate of
return of a “risk-free” asset (20-
year U.S. Treasury
note) and adds
to it additional
risk elements such as
equity risk premium, size
premium, industry risk
premium,
and a
specific geographic risk
premium (as applicable).
The resulting discount
rates were
analyzed in terms
of reasonability given
the current market conditions.
The results of the BPPR annual goodwill impairment test as of July 31, 2023
indicated that the average estimated fair value using all
valuation methodologies exceeded BPPR’s equity value by approximately $
3.7
billion or
468
% compared to $
3.1
billion or
245
%, for
the annual
goodwill impairment test
completed as
of July
31, 2022. PB’s
annual goodwill impairment
test results
as of
such dates
indicated that the average estimated fair value using all valuation methodologies exceeded PB’s equity value by approximately $
129
million or
8
%, compared to $
670
million or
41
%, for the annual goodwill impairment test completed as of July 31, 2022. Accordingly,
no impairment was recognized for BPPR or PB. The goodwill balance of BPPR and PB, as legal entities, represented approximately
93
% of the Corporation’s total goodwill balance as of
the July 31, 2023 valuation date.
An
impairment of
$
23
million was
recognized by
the Corporation
from the
annual test
as of
July 31,
2023 related
to PEF
due to
lower forecasted
cash flows
and an
increase in
the rate
used to
discount cash
flows.
During 2022
the Corporation
recognized a
goodwill impairment of $
9
million related to PEF,
as a result of
a decrease in the
projected earnings of this
business unit. The PEF
goodwill balance as of September 30, 2023 amounted
to $
17
million (December 31, 2022 - $
40
million).
Furthermore,
as
part
of
the
analyses,
management
performed
a
reconciliation
of
the
aggregate
fair
values
determined
for
the
reporting units to the market capitalization of the Corporation concluding that the
fair value results determined for the reporting units
in the July 31, 2023 annual assessment were reasonable.
The goodwill
impairment evaluation
process requires
the Corporation
to
make estimates
and assumptions
with regard
to the
fair
value
of
the
reporting
units.
Actual
values
may
differ
significantly
from
these
estimates.
Such
differences
could
result
in
future
impairment of goodwill that would, in turn, negatively
impact the Corporation’s results of operations and the
reporting units where the
goodwill is recorded. Particularly for reporting units with recognized impairments or where the
estimated fair value approximates the
equity value,
future decreases
in fair
value estimates
could result
in additional
impairment charges.
Additionally,
declines in
the
Corporation’s
market
capitalization and
adverse economic
conditions
sustained
over
a
longer
period of
time
negatively
affecting
forecasted earnings could increase the risk of goodwill
impairment in the future.
A decline in
the Corporation’s stock
price related to
global and/or regional macroeconomic
conditions, a deterioration in
the Puerto
Rico
or
the
U.S.
economies,
increases
in
the
rate
to
discount
future
cash
flows,
and
lower
future
earnings
estimates
could,
individually or
in the
aggregate, have a
material impact on
the determination of
the fair value
of our reporting
units, which could
in
turn
result
in
an
impairment of
goodwill in
the
future.
An
impairment of
goodwill would
result
in
a non-cash
expense,
net
of
tax
impact. A charge to earnings related to a goodwill
impairment would not materially impact regulatory
capital calculations.
The following tables present the gross amount
of goodwill and accumulated impairment losses
by reportable segments.
84
September 30, 2023
Balance at
Balance at
September 30,
Accumulated
September 30,
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
196,411
368,045
Total Popular,
Inc.
$
1,004,640
$
200,212
$
804,428
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
85
Note 15 – Deposits
Total deposits as of the end of the periods presented consisted of:
(In thousands)
September 30, 2023
December 31, 2022
Savings accounts
$
15,305,838
$
14,746,329
NOW, money market and other interest
bearing demand deposits
24,622,430
23,738,940
Total savings, NOW,
money market and other interest bearing demand
deposits
39,928,268
38,485,269
Certificates of deposit:
Under $250,000
5,263,696
4,235,651
$250,000 and over
2,944,262
2,545,750
Total certificates
of deposit
8,207,958
6,781,401
Total interest bearing
deposits
$
48,136,226
$
45,266,670
Non- interest bearing deposits
$
15,201,374
$
15,960,557
Total deposits
$
63,337,600
$
61,227,227
A summary of certificates of deposits by maturity at
September 30, 2023 follows:
(In thousands)
2023
$
2,635,150
2024
2,819,295
2025
975,844
2026
752,202
2027
406,993
2028 and thereafter
618,474
Total certificates of
deposit
$
8,207,958
At September 30, 2023, the Corporation had brokered
deposits amounting to $
1.7
billion (December 31, 2022 - $
1.1
billion).
The aggregate amount
of overdrafts in
demand deposit accounts that
were reclassified to loans
was $
3.5
million at September
30,
2023 (December 31, 2022 - $
6.3
million).
At September 30, 2023, Puerto Rico public sector deposits amounted to $
17.8
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.
86
Note 16 – Borrowings
Assets sold under agreements to repurchase
Assets sold under agreements to repurchase amounted
to $
93
million at September 30, 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
September 30, 2023
December 31, 2022
Repurchase
Repurchase
(In thousands)
liability
liability
U.S. Treasury securities
Within 30 days
$
12,736
$
410
After 30 to 90 days
13,199
30,739
After 90 days
18,180
17,521
Total U.S. Treasury
securities
44,115
48,670
Mortgage-backed securities
Within 30 days
28,211
98,984
After 30 to 90 days
-
791
After 90 days
20,499
-
Total mortgage-backed
securities
48,710
99,775
Collateralized mortgage obligations
Within 30 days
246
164
Total collateralized
mortgage obligations
246
164
Total
$
93,071
$
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 September
30, 2023,
compared to
$
365
million in
FHLB Advances
at
December 31, 2022.
87
Notes Payable
The following table presents the composition of notes
payable at September 30, 2023 and December
31, 2022.
(In thousands)
September 30, 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
4.17
%
$
412,632
$
389,282
Unsecured senior debt securities
maturing on
2028
paying interest
semiannually
at a fixed rate of
7.25
%, net of debt issuance costs of $
6,322
[1]
393,678
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 $
295
198,339
198,319
Total notes payable
$
1,004,649
$
886,710
Note: Refer to the 2022 Form 10-K for rates information
at December 31, 2022.
[1] On March 13, 2023, the Corporation issued $
400
million aggregate principal amount of
7.25
% Senior Notes due
2028
(the “2028 Notes”) in an
underwritten public offering. The Corporation used a
portion of the net proceeds of the 2028 Notes offering
to redeem, on August 14, 2023, the
outstanding $
300
million aggregate principal amount of its
6.125
% Senior Notes which were due on September
2023
. The redemption price was
equal to
100
% of the principal amount plus accrued and unpaid
interest through the redemption date.
A breakdown of borrowings by contractual maturities
at September 30, 2023 is included in the table
below.
Assets sold under
(In thousands)
agreements to
repurchase
Notes payable
Total
2023
$
54,393
$
22,261
$
76,654
2024
38,678
91,943
130,621
2025
-
139,920
139,920
2026
-
74,500
74,500
Later years
-
676,025
676,025
Total borrowings
$
93,071
$
1,004,649
$
1,097,720
At
September
30,
2023
and
December 31,
2022,
the
Corporation had
FHLB
borrowing facilities
whereby the
Corporation could
borrow up to
$
4.4
billion and $
3.3
billion, respectively,
of which $
0.4
billion and $
0.8
billion, respectively,
were used. In
addition, at
September 30, 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 September
30, 2023, the Corporation
has a borrowing
facility at the
discount window of the
Federal Reserve Bank of
New
York
amounting to
$
4.6
billion (December 31,
2022 -
$
1.4
billion), which remained
unused at
September 30, 2023
and December
31, 2022.
The facility is a collateralized source of credit
that is highly reliable even under difficult market
conditions.
88
Note 17 − Other liabilities
The caption of other liabilities in the consolidated
statements of financial condition consists of the following
major categories:
(In thousands)
September 30, 2023
December 31, 2022
Accrued expenses
$
266,300
$
337,284
Accrued interest payable
47,297
39,288
Accounts payable
84,501
76,456
Dividends payable
39,793
39,525
Trades payable
14,761
9,461
Liability for GNMA loans sold with an option to repurchase
8,298
14,271
Reserves for loan indemnifications
6,941
7,520
Reserve for operational losses
28,723
39,266
Operating lease liabilities (Note 28)
129,023
137,290
Finance lease liabilities (Note 28)
23,180
24,737
Pension benefit obligation
6,050
8,290
Postretirement benefit obligation
118,121
118,336
Others
71,020
65,222
Total other liabilities
$
844,008
$
916,946
89
Note 18 – Stockholders’ equity
As
of
September
30,
2023,
stockholders’
equity
totaled
$
4.5
billion.
During
the
nine
months
ended
September
30,
2023,
the
Corporation declared cash dividends of $
1.65
(2022 - $
1.65
) per common share amounting to $
118.9
million (2022 - $
124.2
million).
The quarterly dividend declared to stockholders of record as of the close of business on
September 8, 2023
was paid on
October 2,
2023
.
Accelerated share repurchase transaction (“ASR”)
On August
24, 2022,
the Corporation
entered into
a $
231
million ASR
transaction with
respect to
its common
stock (the
“August
ASR Agreement”), which
was accounted for
as a treasury
transaction. As a
result of the
receipt of the
initial
2,339,241
shares, the
Corporation recognized in stockholders’ equity approximately $
185
million in treasury stock and $
46
million as a reduction of capital
surplus. The Corporation completed the transaction on December 7, 2022 and received
840,024
additional shares of common stock
and
recognized
approximately
$
60
million
as
treasury
stock
with
a
corresponding
increase
in
its
capital
surplus.
In
total,
the
Corporation repurchased a total of
3,179,265
shares at an average purchased price of $
72.6583
under the August ASR Agreement.
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 (the
“March ASR
Agreement”),
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.
90
Note 19 – Other comprehensive loss
The following
table presents
changes in
accumulated other
comprehensive loss
by component
for the
quarters and
nine months
ended September 30, 2023 and 2022.
Changes in Accumulated Other Comprehensive Loss
by Component [1]
Quarters ended
Nine months ended
September 30,
September 30,
(In thousands)
2023
2022
2023
2022
Foreign currency translation
Beginning Balance
$
(55,979)
$
(64,167)
$
(56,735)
$
(67,307)
Other comprehensive (loss) income
(976)
7,206
(220)
10,346
Net change
(976)
7,206
(220)
10,346
Ending balance
$
(56,955)
$
(56,961)
$
(56,955)
$
(56,961)
Adjustment of pension and
postretirement benefit plans
Beginning Balance
$
(138,319)
$
(152,837)
$
(144,335)
$
(158,994)
Other comprehensive income before reclassifications
-
-
-
1,269
Amounts reclassified from accumulated other
comprehensive loss for amortization of net losses
3,009
2,444
9,025
7,332
Net change
3,009
2,444
9,025
8,601
Ending balance
$
(135,310)
$
(150,393)
$
(135,310)
$
(150,393)
Unrealized net holding losses
on debt securities
Beginning Balance
$
(2,134,137)
$
(1,735,370)
$
(2,323,903)
$
(96,120)
Other comprehensive loss
(242,567)
(781,898)
(120,756)
(2,421,148)
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
35,027
-
102,982
-
Net change
(207,540)
(781,898)
(17,774)
(2,421,148)
Ending balance
$
(2,341,677)
$
(2,517,268)
$
(2,341,677)
$
(2,517,268)
Unrealized net (losses) gains
on cash flow hedges
Beginning Balance
$
-
$
(642)
$
45
$
(2,648)
Other comprehensive (loss) income before
reclassifications
-
415
(19)
3,222
Amounts reclassified from accumulated other
comprehensive income (loss)
-
518
(26)
(283)
Net change
-
933
(45)
2,939
Ending balance
$
-
$
291
$
-
$
291
Total
$
(2,533,942)
$
(2,724,331)
$
(2,533,942)
$
(2,724,331)
[1]
All amounts presented are net of tax.
91
The following table
presents the amounts
reclassified out of
each component of
accumulated other comprehensive loss
during the
quarters and nine months ended September 30,
2023 and 2022.
Reclassifications Out of Accumulated Other Comprehensive
Loss
Quarters ended
Nine months ended
Affected Line Item in the
September 30,
September 30,
(In thousands)
Consolidated Statements of Operations
2023
2022
2023
2022
Adjustment of pension and postretirement benefit plans
Amortization of net losses
Other operating expenses
$
(4,814)
$
(3,911)
$
(14,440)
$
(11,733)
Total before tax
(4,814)
(3,911)
(14,440)
(11,733)
Income tax benefit
1,805
1,467
5,415
4,401
Total net of tax
$
(3,009)
$
(2,444)
$
(9,025)
$
(7,332)
Unrealized net holding losses on debt securities
Amortization of unrealized net losses of debt
securities transferred to held-to-maturity
Interest income from investment securities
$
(43,783)
$
-
$
(128,726)
$
-
Total before tax
(43,783)
-
(128,726)
-
Income tax expense
8,756
-
25,744
-
Total net of tax
$
(35,027)
$
-
$
(102,982)
$
-
Unrealized net (losses) gains on cash flow hedges
Forward contracts
Mortgage banking activities
$
-
$
(609)
$
41
$
1,249
Interest rate swaps
Other operating income
-
(219)
-
(498)
Total before tax
-
(828)
41
751
Income tax benefit
-
310
(15)
(468)
Total net of tax
$
-
$
(518)
$
26
$
283
Total reclassification
adjustments, net of tax
$
(38,036)
$
(2,962)
$
(111,981)
$
(7,049)
92
Note 20 – Guarantees
At September 30,
2023, the Corporation
recorded a liability
of $
1
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 September 30, 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 and
nine months ended September
30, 2023,
the Corporation repurchased
approximately $
0.4
million and $
2
million, respectively,
of unpaid principal
balance in mortgage
loans
subject
to
the
credit
recourse
provisions
(September
30,
2022
-
$
1
million
and
$
6
million,
respectively).
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 September
30, 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 and nine months
ended September 30, 2023 and 2022.
Quarters ended September 30,
Nine months ended September 30,
(In thousands)
2023
2022
2023
2022
Balance as of beginning of period
$
6,223
$
9,095
$
6,897
$
11,800
Provision (benefit) for recourse liability
228
(1,718)
52
(2,067)
Net charge-offs
(54)
(184)
(552)
(2,540)
Balance as of end of period
$
6,397
$
7,193
$
6,397
$
7,193
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.
The loan
repurchase activity under
these indemnity
agreements
for
the
quarter
and
nine
months ended
September
30,
2023
as
well
as
the
liability
for
estimated
losses
at
period
end
was
not
considered material for the Corporation.
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 September 30, 2023, the
Corporation serviced
$
10.1
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
of
the
foreclosure
proceedings
and
the
Corporation would
not
receive
any
future
servicing
income
with
respect
to
that
loan.
At
September
30,
2023,
the
outstanding
balance
of
funds
advanced
by
the
Corporation
under
such
mortgage
loan
servicing
agreements
was approximately
$
51
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.
93
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
September 30,
2023 and
December 31,
2022. In
addition, at
September 30,
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.
94
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)
September 30, 2023
December 31, 2022
Commitments to extend credit:
Credit card lines
$
5,720,469
$
5,853,990
Commercial and construction lines of credit
4,374,553
4,425,825
Other consumer unused credit commitments
250,571
250,271
Commercial letters of credit
3,083
3,351
Standby letters of credit
53,089
27,868
Commitments to originate or fund mortgage loans
25,104
45,170
At
September 30,
2023
and
December 31,
2022, the
Corporation maintained
a
reserve of
approximately $
13.3
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 September 30,
2023 and December
31, 2022, the
Corporation also maintained
other non-credit commitments
for approximately
$
3.3
million and $
4.8
million, respectively, 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 September 30, 2023, the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities
totaled $
362
million, of which
$
333
million were outstanding
($
374
million and $
327
million at December
31, 2022). Of
the amount
outstanding,
$
314
million
consists
of
loans
and
$
19
million
are
securities
($
302
million
and
$
25
million
at
December 31,
2022).
Substantially all
of the
amount outstanding
at September
30, 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
September
30,
2023,
76
%
of
the
Corporation’s
exposure
to
municipal
loans
and
securities was concentrated in the municipalities of
San Juan, Guaynabo, Carolina and Caguas.
95
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 September 30, 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
29
-
29
29
Total Central
Government
40
-
40
40
Municipalities
Within 1 year
4,820
13,217
18,037
43,037
After 1 to 5 years
13,155
141,519
154,674
158,674
After 5 to 10 years
845
112,169
113,014
113,014
After 10 years
-
46,823
46,823
46,823
Total Municipalities
18,820
313,728
332,548
361,548
Total Direct Government
Exposure
$
18,860
$
313,728
$
332,588
$
361,588
In
addition,
at
September
30,
2023,
the
Corporation
had
$
242
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
$
195
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 September
30,
2023, $
40
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, $
1.7
billion of
residential mortgages,
$
10
million of
Small Business
Administration (“SBA”)
loans under
the Paycheck
Protection Program (“PPP”) and
$
72
million commercial loans were
insured or guaranteed
by the U.S.
Government or its agencies
at September 30, 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 September 30, 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 September
30, 2023,
the Corporation
has operations
in the
British Virgin
Islands (“BVI”),
which was
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
96
approximately
$
201
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 $
18.4
million as
of
September
30,
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
97
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
order dismissing the complaint. On March 23, 2023,
Plaintiffs filed a Petition for Rehearing and/or Rehearing
en Banc
.
On August 29, 2023, the U.S. Court of Appeals for the First Circuit entered an Order denying Plaintiff’s Petition for Rehearing and/or
Rehearing
en
Banc.
The
formal
mandate
of
the
U.S.
Court
of
Appeals
remanding
the
case
to
the
lower
court
was
issued
on
September 6, 2023. This matter is now closed.
Insufficient Funds and Overdraft Fees Class Actions
Popular
was
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
overdraft fees
(“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
in
October
2022,
the
parties
reached a
settlement in
principle on
a class-wide
basis subject
to
final
court
approval. In
January 2023,
the
parties filed
before the Court a
motion for preliminary approval
of the settlement agreement
and, on March 31,
2023, the Court issued
an order
granting preliminary approval of the settlement agreement.
The Court scheduled the final approval hearing
for September 8, 2023.
On
September
8,
2023,
the
Court
held
a
hearing
to
consider
the
final
approval
of
the
class
settlement
agreement
and,
on
September 29, 2023, the Court issued an Opinion and Order granting final approval to the settlement agreement. The matter is now
closed.
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
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. In
June 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, the Court allowed PB
to file its Motion
to Compel Arbitration, which it
did in September 2022. Plaintiff
opposed such motion
in October 2022, and PB filed its reply in November
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. PB filed its appeal brief
on April 5, 2023
and Plaintiff
filed his opposition
brief on July
5, 2023. PB
filed its
reply brief on
July 26,
2023.
The matter is
now fully briefed
and
pending resolution.
98
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
led to
regulatory inquiries,
customer complaints
and
arbitrations for
most broker-dealers
in Puerto
Rico, including
Popular Securities.
Popular Securities
received numerous
customer
complaints since 2013 and, as
of September 30, 2023, remained
named as a respondent in
six (
6
) pending arbitration proceedings
with
initial
claimed
amounts
of
approximately $
5.88
million
in
the
aggregate.
Popular
Securities
and
claimants
in
five
(
5
)
of
the
pending six (
6
) arbitration proceedings, however,
have reached settlements in
principle and agreements related
thereto have been
executed with two (
2
) of such claimants. Popular Securities expects
to complete the execution of the
remaining agreements, and to
resolve the one (
1
) pending unsettled arbitration proceeding ($
1.3
million in claimed amounts) by the end
of the first quarter of 2024.
99
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 September 30,
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 September 30, 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 September 30, 2023 and
December 31, 2022.
100
(In thousands)
September 30, 2023
December 31, 2022
Assets
Servicing assets:
Mortgage servicing rights
$
93,884
$
99,614
Total servicing
assets
$
93,884
$
99,614
Other assets:
Servicing advances
$
6,419
$
6,157
Total other assets
$
6,419
$
6,157
Total assets
$
100,303
$
105,771
Maximum exposure to loss
$
100,303
$
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 $
7.4
billion at September 30, 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
September 30,
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 September 30,
2023.
101
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
$
1.5
million
in
dividends from its investment in Evertec during
the nine months ended September 30, 2022.
On July
1, 2022,
BPPR completed
the acquisition
of certain
assets from
Evertec Group,
LLC (“Evertec
Group”) to
service certain
BPPR channels, in exchange for shares of Evertec held by BPPR. The transaction was accounted for as a business combination. In
connection with this transaction, BPPR also entered into amended and restated service agreements with Evertec Group pursuant to
which Evertec
Group continues
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,
together with the
aforementioned business acquisition (the
"Evertec Transactions").
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. In connection with the
Evertec Transactions
and
related
accounting adjustments,
the
Corporation recorded
an aggregate
pre-tax
gain of
$
257.7
million considering
the initial
exchange of Evertec shares as well as the
sale of the remaining shares.
The following
table presents
the Corporation’s
proportionate share
of Evertec’s
income (loss)
and changes
in stockholders’
equity
for the quarter and nine months ended September
30, 2022.
Quarter ended
Nine months ended
(In thousands)
September 30, 2022
September 30, 2022
Share of income from the investment in Evertec [1]
$
257,712
$
269,539
Share of other changes in Evertec's stockholders' equity
-
3,168
Share of Evertec's changes in equity recognized in income
$
257,712
$
272,707
[1]
The
Gain
from
Evertec
Transactions
and
related
accounting
adjustments
are
reflected
within
other
operating
income
in
the
accompanying
consolidated financial
statements.
The Corporation
recognized an
additional $
17.3
million as an
operating expense
in connection with
the Evertec
Transactions.
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 nine
months ended September 30,
2022. Items that represent
expenses to the
Corporation are presented with parenthesis.
Nine months ended
(In thousands)
September 30, 2022 [1]
Category
Interest expense on deposits
$
(267)
Interest expense
ATH and credit cards interchange
income from services to Evertec
13,955
Other service fees
Rental income charged to Evertec
3,258
Net occupancy
Processing fees on services provided by Evertec
(128,681)
Professional fees
Other services provided to Evertec
420
Other operating expenses
Total
$
(111,315)
[1] Includes activity through June 30, 2022.
Centro Financiero BHD, S.A.
102
At September
30, 2023,
the Corporation
had a
15.84
% equity
interest in
Centro Financiero BHD,
S.A. (“BHD”),
one of
the largest
banking
and
financial
services
groups
in
the
Dominican
Republic.
During
the
nine
months
ended
September
30,
2023,
the
Corporation recorded
$
38
million
in
equity
pickup
from
its
investment
in
BHD
(September
30,
2022
-
$
28
million),
which
had
a
carrying amount
of $
223.7
million at
September 30,
2023 (December
31, 2022
- $
199.8
million). The
Corporation received
$
14.1
million in cash dividend distributions and
$
2.1
million in stock dividends during the
nine months ended September 30,
2023 from its
investment in BHD (September 30, 2022 - $
16
million cash dividends).
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
nine
months
ended September
30,
2023
administrative fees
charged
to
these
investment
companies
amounted
to
$
1.7
million (September 30,
2022 -
1.9
million) and waived
fees amounted to
$
0.7
million (September 30,
2022 - $
0.7
million), for a
net
fee of $
1
million (September 30, 2022 - $
1.2
million).
103
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 September 30, 2023 and December
31, 2022:
104
At September 30, 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
$
3,871,643
$
7,458,038
$
-
$
-
$
11,329,681
Collateralized mortgage obligations - federal
agencies
-
138,014
-
-
138,014
Mortgage-backed securities
-
5,660,488
653
-
5,661,141
Other
-
22
1,000
-
1,022
Total debt securities
available-for-sale
$
3,871,643
$
13,256,562
$
1,653
$
-
$
17,129,858
Trading account debt securities, excluding
derivatives:
U.S. Treasury securities
$
15,644
$
-
$
-
$
-
$
15,644
Obligations of Puerto Rico, States and political
subdivisions
-
57
-
-
57
Collateralized mortgage obligations
-
42
10
-
52
Mortgage-backed securities
-
14,747
137
-
14,884
Other
-
-
188
-
188
Total trading account
debt securities, excluding
derivatives
$
15,644
$
14,846
$
335
$
-
$
30,825
Equity securities
$
-
$
35,026
$
-
$
286
$
35,312
Mortgage servicing rights
-
-
119,030
-
119,030
Loans held-for-sale
-
5,239
-
-
5,239
Derivatives
-
23,511
-
-
23,511
Total assets measured
at fair value on a
recurring basis
$
3,887,287
$
13,335,184
$
121,018
$
286
$
17,343,775
Liabilities
Derivatives
$
-
$
(21,747)
$
-
$
-
$
(21,747)
Total liabilities measured
at fair value on a
recurring basis
$
-
$
(21,747)
$
-
$
-
$
(21,747)
105
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 September 30,2023.
(In thousands)
September 30, 2023
Aggregate Unpaid
Fair Value
Principal Balance
Difference
Loans held for sale
$
5,239
$
5,364
$
(125)
No
loans held for sell were 90 or more days past
due or on nonaccrual status as of September 30,2023.
During the quarter and nine months ended September 30,2023, the Corporation recognized an unrealized gain of $
23
thousand and
an unrealized loss of $
104
thousand, respectively, 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.
106
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
and
nine
months
ended
September
30,
2023
and
2022
and
excludes
nonrecurring fair
value
measurements of assets no longer outstanding as of
the reporting date.
Nine months ended September 30, 2023
(In thousands)
Level 1
Level 2
Level 3
Total
NONRECURRING FAIR VALUE
MEASUREMENTS
Assets
Write-downs
Loans
[1]
$
-
$
-
$
9,113
$
9,113
$
(3,087)
Other real estate owned
[2]
-
-
5,457
5,457
(1,012)
Other foreclosed assets
[2]
-
-
44
44
(14)
Total assets measured
at fair value on a nonrecurring basis
$
-
$
-
$
14,614
$
14,614
$
(4,113)
[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.
Nine months ended September 30, 2022
(In thousands)
Level 1
Level 2
Level 3
Total
NONRECURRING FAIR VALUE
MEASUREMENTS
Assets
Write-downs
Loans
[1]
$
-
$
-
$
9,933
$
9,933
$
(9,580)
Loans held-for-sale
[2]
-
-
8,080
8,080
(224)
Other real estate owned
[3]
-
-
3,067
3,067
(940)
Other foreclosed assets
[3]
-
-
30
30
(1)
Long-lived assets held-for-sale
[4]
-
-
686
686
(688)
Total assets measured
at fair value on a nonrecurring basis
$
-
$
-
$
21,796
$
21,796
$
(11,433)
[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.
[4] Represents the fair value of long-lived assets held-for-sale
that were written down to their fair value.
107
The following tables present the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarters
and nine months ended September 30, 2023 and
2022.
Quarter ended September 30, 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 June 30, 2023
$
655
$
1,000
$
56
$
163
$
191
$
121,249
$
123,314
Gains (losses) included in earnings
-
-
-
-
(3)
(2,793)
(2,796)
Gains (losses) included in OCI
(2)
-
-
-
-
-
(2)
Additions
-
-
-
-
-
574
574
Settlements
-
-
(46)
(26)
-
-
(72)
Balance at September 30, 2023
$
653
$
1,000
$
10
$
137
$
188
$
119,030
$
121,018
Changes in unrealized gains (losses) included
in earnings relating to assets still held at
September 30, 2023
$
-
$
-
$
-
$
-
$
4
$
(381)
$
(377)
Nine months ended September 30, 2023
MBS
Other
MBS
Other
classified
securities
CMOs
classified
securities
as debt
classified as
classified
as trading
classified
securities
debt securities
as trading
account
as trading
Mortgage
available-
available-
account debt
debt
account debt
servicing
Total
(In thousands)
for-sale
for-sale
securities
securities
securities
rights
assets
Balance at January 1, 2023
$
711
$
1,000
$
113
$
215
$
207
$
128,350
$
130,596
Gains (losses) included in earnings
-
-
-
(2)
(19)
(10,386)
(10,407)
Gains (losses) included in OCI
(8)
-
-
-
-
-
(8)
Additions
-
-
4
-
-
1,814
1,818
Sales
-
-
-
-
-
(1,269)
(1,269)
Settlements
(50)
-
(107)
(76)
-
521
288
Balance at September 30, 2023
$
653
$
1,000
$
10
137
$
188
$
119,030
$
121,018
Changes in unrealized gains (losses) included
in earnings relating to assets still held at
September 30, 2023
$
-
$
-
$
-
$
(1)
$
22
$
(1,828)
$
(1,807)
108
Quarter ended September 30, 2022
MBS
Other
Other
classified
securities
CMOs
securities
as debt
classified as
classified
classified
securities
debt securities
as trading
as trading
Mortgage
available-
available-
account debt
account debt
servicing
Total
Contingent
Total
(In thousands)
for-sale
for-sale
securities
securities
rights
assets
consideration
liabilities
Balance at
June 30, 2022
$
779
$
500
$
152
$
264
$
129,877
$
131,572
$
(9,241)
$
(9,241)
Gains (losses) included in earnings
-
-
(1)
(9)
(499)
(509)
9,241
9,241
Gains (losses) included in OCI
(18)
-
-
-
-
(18)
-
-
Additions
-
500
3
-
1,163
1,666
-
-
Settlements
(50)
-
(19)
-
-
(69)
-
-
Balance at September 30, 2022
$
711
$
1,000
$
135
$
255
$
130,541
$
132,642
$
-
$
-
Changes in unrealized gains
(losses) included in earnings
relating to assets still held at
September 30, 2022
$
-
$
-
$
(1)
$
7
$
1,984
$
1,990
$
-
$
-
Nine months ended September 30, 2022
MBS
Other
Other
classified
securities
CMOs
securities
as debt
classified as
classified
classified
securities
debt securities
as trading
as trading
Mortgage
available-
available-
account debt
account debt
servicing
Total
Contingent
Total
(In thousands)
for-sale
for-sale
securities
securities
rights
assets
consideration
liabilities
Balance at January 1,
2022
$
826
$
-
$
198
$
280
$
121,570
$
122,874
$
(9,241)
$
(9,241)
Gains (losses) included in earnings
-
-
(2)
(25)
2,776
2,749
9,241
9,241
Gains (losses) included in OCI
(15)
-
-
-
-
(15)
-
-
Additions
-
1,000
5
-
6,195
7,200
-
-
Settlements
(100)
-
(66)
-
-
(166)
-
-
Balance at September 30, 2022
$
711
$
1,000
$
135
$
255
$
130,541
$
132,642
$
-
$
-
Changes in unrealized gains
(losses) included in earnings
relating to assets still held at
September 30, 2022
$
-
$
-
$
(2)
$
14
$
11,556
$
11,568
$
-
$
-
109
Gains and losses
(realized and unrealized)
included in earnings
for the
quarters
and nine months
ended September 30,
2023 and
2022 for
Level 3
assets and
liabilities included
in the
previous tables
are reported
in the
consolidated statement
of operations
as
follows:
Quarter ended September 30, 2023
Nine months ended September 30, 2023
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
$
(2,793)
$
(381)
$
(10,386)
$
(1,828)
Trading account profit (loss)
(3)
4
(21)
21
Total
$
(2,796)
$
(377)
$
(10,407)
$
(1,807)
Quarter ended September 30, 2022
Nine months ended September 30, 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
$
(499)
$
1,984
$
2,776
$
11,556
Trading account profit (loss)
(10)
6
(27)
12
Other operating income
9,241
-
9,241
-
Total
$
8,732
$
1,990
$
11,990
$
11,568
110
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 September 30, 2023 and 2022.
Fair value at
September 30,
(In thousands)
2023
Valuation technique
Unobservable inputs
Weighted average (range) [1]
CMO's - trading
$
10
Discounted cash flow model
Weighted average life
0.2
years (
0.2
-
0.3
years)
Yield
4.9
%
Prepayment speed
7.3
%
Other - trading
$
188
Discounted cash flow model
Weighted average life
2.5
years
Yield
12.0%
Prepayment speed
10.8%
Loans held-in-portfolio
$
9,044
[2]
External appraisal
Haircut applied on
external appraisals
7.2
% (
5.0
% -
10.0
%)
Other real estate owned
$
325
[3]
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.
[3]
Other real estate owned in which haircuts were not applied
to external appraisals were excluded from this table.
Fair value at
September 30,
(In thousands)
2022
Valuation technique
Unobservable inputs
Weighted average (range) [1]
CMO's - trading
$
135
Discounted cash flow model
Weighted average life
0.5
years (
0.2
-
0.7
years)
Yield
4.9
% (
4.9
% -
5.4
%)
Prepayment speed
10.7
% (
10.1
% -
18.5
%)
Other - trading
$
255
Discounted cash flow model
Weighted average life
2.9
years
Yield
12.0%
Prepayment speed
10.8%
Loans held-in-portfolio
$
4,473
[2]
External appraisal
Haircut applied on
external appraisals
16.1
% (
5
.0% -
25
.0%)
Other real estate owned
$
289
[3]
External appraisal
Haircut applied on
external appraisals
27
% (
5
.0% -
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.
[3]
Other real estate owned in which haircuts were not applied
to external appraisals were excluded from this table.
111
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
September
30,
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.
112
September 30, 2023
Carrying
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
Financial Assets:
Cash and due from banks
$
535,335
$
535,335
$
-
$
-
$
-
$
535,335
Money market investments
6,389,437
6,383,534
5,903
-
-
6,389,437
Trading account debt securities, excluding
derivatives
[1]
30,825
15,644
14,846
335
-
30,825
Debt securities available-for-sale
[1]
17,129,858
3,871,643
13,256,562
1,653
-
17,129,858
Debt securities held-to-maturity:
U.S. Treasury securities
$
8,228,758
$
-
$
7,999,065
$
-
$
-
$
7,999,065
Obligations of Puerto Rico, States and political
subdivisions
59,745
-
6,866
51,865
-
58,731
Collateralized mortgage obligation-federal agency
1,562
-
1,296
15
-
1,311
Securities in wholly owned statutory business trusts
5,960
-
5,960
-
-
5,960
Total debt securities
held-to-maturity
$
8,296,025
$
-
$
8,013,187
$
51,880
$
-
$
8,065,067
Equity securities:
FHLB stock
$
50,358
$
-
$
50,358
$
-
$
-
$
50,358
FRB stock
99,064
-
99,064
-
-
99,064
Other investments
41,266
-
35,026
6,871
286
42,183
Total equity securities
$
190,688
$
-
$
184,448
$
6,871
$
286
$
191,605
Loans held-for-sale
$
5,239
$
-
$
5,239
$
-
$
-
$
5,239
Loans held-in-portfolio
33,318,245
-
-
31,646,073
-
31,646,073
Mortgage servicing rights
119,030
-
-
119,030
-
119,030
Derivatives
23,511
-
23,511
-
-
23,511
September 30, 2023
Carrying
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
Financial Liabilities:
Deposits:
Demand deposits
$
55,129,643
$
-
$
55,129,643
$
-
$
-
$
55,129,643
Time deposits
8,207,957
-
7,835,985
-
-
7,835,985
Total deposits
$
63,337,600
$
-
$
62,965,628
$
-
$
-
$
62,965,628
Assets sold under agreements to repurchase
$
93,071
$
-
$
93,050
$
-
$
-
$
93,050
Notes payable:
FHLB advances
$
412,632
$
-
$
388,483
$
-
$
-
$
388,483
Unsecured senior debt securities
393,678
-
402,324
-
-
402,324
Junior subordinated deferrable interest debentures
(related to trust preferred securities)
198,339
-
180,183
-
-
180,183
Total notes payable
$
1,004,649
$
-
$
970,990
$
-
$
-
$
970,990
Derivatives
$
21,747
$
-
$
21,747
$
-
$
-
$
21,747
[1]
Refer to Note 24 to the Consolidated Financial Statements
for the fair value by class of financial asset and its hierarchy
level.
113
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 September
30, 2023
and December
31, 2022
is $
10.3
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
September 30,
2023 and
December 31,
2022 is
$
56
million and
$
31
million, respectively,
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.
114
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 and nine
months ended September 30, 2023 and 2022:
Quarters ended September 30,
Nine months ended September 30,
(In thousands, except per share information)
2023
2022
2023
2022
Net income
$
136,609
$
422,395
$
446,748
$
845,502
Preferred stock dividends
(353)
(353)
(1,059)
(1,059)
Net income applicable to common stock
$
136,256
$
422,042
$
445,689
$
844,443
Average common shares outstanding
71,794,934
73,955,184
71,676,630
76,173,783
Average potential dilutive common shares
23,168
102,148
59,884
130,436
Average common shares outstanding - assuming dilution
71,818,102
74,057,332
71,736,514
76,304,219
Basic EPS
$
1.90
$
5.71
$
6.22
$
11.09
Diluted EPS
$
1.90
$
5.70
$
6.21
$
11.07
For the quarters
and nine months
ended September 30,
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.
115
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 and nine months ended September 30,
2023 and 2022
.
Quarter ended September 30,
Nine months ended September 30,
(In thousands)
2023
2023
BPPR
Popular U.S.
BPPR
Popular U.S.
Service charges on deposit accounts
$
34,740
$
2,578
$
102,145
$
7,632
Other service fees:
Debit card fees
13,364
213
39,689
654
Insurance fees, excluding reinsurance
11,487
1,535
34,437
4,130
Credit card fees, excluding late fees and membership
fees
36,362
340
110,928
1,255
Sale and administration of investment products
6,820
-
19,454
-
Trust fees
6,540
-
19,304
-
Total revenue from
contracts with customers [1]
$
109,313
$
4,666
$
325,957
$
13,671
[1]
The amounts include intersegment transactions of $
1.2
million and $
5
million, respectively, for the
quarter and nine months ended September 30,
2023.
Quarter ended September 30,
Nine months ended September 30,
(In thousands)
2022
2022
BPPR
Popular U.S.
BPPR
Popular U.S.
Service charges on deposit accounts
$
37,047
$
2,959
$
114,025
$
8,503
Other service fees:
Debit card fees
11,912
221
36,134
660
Insurance fees, excluding reinsurance
9,985
1,210
30,005
3,906
Credit card fees, excluding late fees and membership
fees
34,369
313
99,376
948
Sale and administration of investment products
5,952
-
17,760
-
Trust
fees
5,680
-
18,187
-
Total revenue from
contracts with customers [1]
$
104,945
$
4,703
$
315,487
$
14,017
[1]
The amounts include intersegment transactions of $(
0.6
) million and $
4.4
million, respectively, for the quarter
and nine months ended September
30, 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
116
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
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
117
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.
118
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
31.30
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:
September 30, 2023
(In thousands)
Remaining
2023
2024
2025
2026
2027
Later
Years
Total Lease
Payments
Less:
Imputed
Interest
Total
Operating Leases
$
7,690
$
30,084
$
27,214
$
18,806
$
13,571
$
50,056
$
147,421
$
(18,398)
$
129,023
Finance Leases
2,061
3,991
4,084
3,839
2,468
9,346
25,789
(2,609)
23,180
The following table presents the lease cost recognized
by the Corporation in the Consolidated
Statements of Operations as follows:
Quarters ended September 30,
Nine months ended September 30,
(In thousands)
2023
2022
2023
2022
Finance lease cost:
Amortization of ROU assets
$
1,071
$
643
$
2,966
$
2,088
Interest on lease liabilities
219
261
749
848
Operating lease cost
7,924
7,498
23,578
22,785
Short-term lease cost
101
231
322
399
Variable lease cost
49
33
150
86
Sublease income
(20)
(9)
(46)
(28)
Total lease cost
[1]
$
9,344
$
8,657
$
27,719
$
26,178
[1]
Total lease cost
is recognized as part of net occupancy expense, except
for the net gain recognized from sale and leaseback
transactions which
was included as part of other operating income.
119
The
following
table
presents
supplemental
cash
flow
information
and
other
related
information
related
to
operating
and
finance
leases.
Nine months ended September 30,
(Dollars in thousands)
2023
2022
Cash paid for amounts included in the measurement of
lease liabilities:
Operating cash flows from operating leases
$
23,218
$
22,389
Operating cash flows from finance leases
749
848
Financing cash flows from finance leases
3,557
2,363
ROU assets obtained in exchange for new lease obligations:
Operating leases
$
4,864
$
1,937
Finance leases
1,796
556
Weighted-average remaining lease term:
Operating leases
7.3
years
7.4
years
Finance leases
7.8
years
8.4
years
Weighted-average discount rate:
Operating leases
3.2
%
2.8
%
Finance leases
3.8
%
4.3
%
As
of
September
30,
2023,
the
Corporation
has
additional
operating
leases
contracts
that
have
not
yet
commenced
with
an
undiscounted contract amount of $
4.1
million, which will have lease terms ranging
from
10
to
20
years.
120
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 September 30,
Quarter ended September 30,
(In thousands)
2023
2022
2023
2022
Personnel Cost:
Service cost
$
-
$
-
$
48
$
121
Other operating expenses:
Interest cost
7,886
4,800
1,520
983
Expected return on plan assets
(8,591)
(8,847)
-
-
Amortization of prior service cost/(credit)
-
-
-
-
Amortization of net loss
5,367
3,911
(553)
-
Total net periodic
pension cost
$
4,662
$
(136)
$
1,015
$
1,104
Pension Plans
OPEB Plan
Nine months ended September 30,
Nine months ended September 30,
(In thousands)
2023
2022
2023
2022
Personnel Cost:
Service cost
$
-
$
-
$
143
$
364
Other operating expenses:
Interest cost
23,661
14,399
4,561
2,948
Expected return on plan assets
(25,774)
(26,541)
-
-
Amortization prior service cost/(credit)
-
-
-
-
Amortization of net loss
16,099
11,733
(1,659)
-
Total net periodic
pension cost
$
13,986
$
(409)
$
3,045
$
3,312
The Corporation paid the following contributions to the plans for the nine months ended September 30, 2023 and expects to pay the
following contributions for the year ending December
31, 2023.
For the nine months ended
For the year ending
(In thousands)
September 30, 2023
December 31, 2023
Pension Plans
$
171
$
228
OPEB Plan
$
4,896
$
5,924
121
Note 30 - Stock-based compensation
Incentive Plan
On May 12, 2020,
the shareholders 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 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”)
goal.
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
metric
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 metrics 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.
122
(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
251,658
66.79
Performance Shares Quantity Adjustment
16,374
76.07
Vested
(232,717)
66.38
Forfeited
(16,082)
55.56
Non-vested at September 30, 2023
301,196
$
58.14
During
the
quarter
ended
September
30,
2023,
no
shares
of
restricted
stock
(September
30,
2022
–
1,888
)
were
awarded
to
management under
the Incentive
Plan.
During the
quarters ended
September
30, 2023
and
2022,
no
performance shares
were
awarded to management
under the Incentive
Plan.
For the nine
months ended September
30, 2023,
200,303
shares of
restricted
stock
(September
30,
2022
–
137,934
)
and
51,355
performance
shares
(September
30,
2022
-
56,857
)
were
awarded
to
management under the Incentive Plan.
During
the
quarter
ended
September
30,
2023,
the
Corporation
recognized
$
2.0
million
of
restricted
stock
expense
related
to
management
incentive
awards,
with
a
tax
benefit
of
$
0.4
million
(September
30,
2022
-
$
1.5
million,
with
a
tax
benefit
of
$
0.3
million). For the nine months ended September 30, 2023,
the Corporation recognized $
9.7
million of restricted stock expense related
to management
incentive awards,
with a
tax benefit
of $
1.5
million (September
30, 2022
- $
8.9
million, with
a tax
benefit of
$
1.5
million).
For
the
nine
months
ended September
30,
2023,
the
fair
market
value
of
the
restricted
stock
and
performance shares
vested was $
11.3
million at grant
date and $
14.1
million at vesting date.
This differential triggers
a windfall of
$
1.0
million that was
recorded as
a reduction
on income
tax expense.
During the
quarter ended
September 30,
2023 the
Corporation recognized
$
0.1
million of performance shares benefit, with
a tax expense of $
8
thousand due to performance shares target adjustment
(September
30,
2022
-
$
0.3
million,
with
a
tax
benefit of
$
13
thousand).
For
the
nine
months
ended
September 30,
2023, the
Corporation
recognized $
3.6
million of performance shares expense, with a tax
benefit of $
0.1
million (September 30, 2022 - $
4.3
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 September 30, 2023 was $
13.6
million and is expected to be recognized over a
weighted-average period of
1.6
years.
The following table summarizes the restricted stock
activity under the Incentive Plan for members of
the Board of Directors:
(Not in thousands)
RSUs / Unrestricted
stock
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
37,712
55.05
Vested
(37,712)
55.05
Forfeited
-
-
Non-vested at September 30, 2023
$
-
$
-
123
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
unrestricted stock
or RSUs
at each
Directors election.
If RSUs
are elected,
the Directors
may defer
the delivery
of the
shares of
common stock
underlying the
RSUs award
until 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 a reinvested dividend
equivalent.
For 2023
and 2022,
Directors elected
RSUs and
unrestricted stock.
During the
quarter ended
September 30,
2023,
1,384
RSUs
and
no
unrestricted
stocks
were
granted
to
the
Directors
(September
30,
2022
-
857
RSUs)
and
the
Corporation
recognized
expense related
to these
shares of
$
0.1
million with
a tax
benefit of
$
16
thousand (September
30, 2022
- $
0.1
million with
a tax
benefit
of
$
25
thousand).
For
the
nine
months
ended
September
30,
2023,
the
Corporation
granted
35,412
RSUs
and
2,300
unrestricted stocks
to the
Directors (September 30,
2022 -
24,409
RSUs) and
the Corporation
recognized $
2.1
million of
expense
related to these shares, with
a tax benefit of $
0.4
million, (September 30, 2022 - $
1.9
million, with a tax benefit
of $
0.4
million). The
fair value at vesting date of the shares vested
during the nine months ended September 30, 2023
for the Directors was $
2.1
million.
124
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
September 30, 2023
September 30, 2022
(In thousands)
Amount
% of pre-tax
income
Amount
% of pre-tax
income
Computed income tax expense at statutory rates
$
68,426
38
%
$
183,893
38
%
Net benefit of tax exempt interest income
(22,862)
(13)
(35,403)
(8)
Effect of income subject to preferential tax rate
(199)
-
(109,588)
(22)
Deferred tax asset valuation allowance
1,355
1
3,724
1
Difference in tax rates due to multiple jurisdictions
(2,839)
(2)
(7,147)
(2)
Unrecognized tax benefits
-
-
(1,503)
-
State and local taxes
2,436
1
3,726
1
Others
(458)
-
30,284
6
Income tax expense
$
45,859
25
%
$
67,986
14
%
Nine months ended
September 30, 2023
September 30, 2022
(In thousands)
Amount
% of pre-tax
income
Amount
% of pre-tax
income
Computed income tax expense at statutory rates
$
218,409
38
%
$
385,567
38
%
Net benefit of tax exempt interest income
(72,080)
(13)
(112,669)
(12)
Effect of income subject to preferential tax rate
(775)
-
(116,630)
(11)
Deferred tax asset valuation allowance
(2,217)
-
9,662
1
Difference in tax rates due to multiple jurisdictions
(11,879)
(3)
(20,457)
(2)
Unrecognized tax benefits
-
-
(1,503)
-
State and local taxes
8,829
2
10,957
1
Others
(4,611)
(1)
27,750
3
Income tax expense
$
135,676
23
%
$
182,677
18
%
For the quarter and nine months
ended September 30, 2023, the Corporation recorded an income
tax expense of $
45.9
million and
$
135.7
million,
respectively,
compared
to
$
68.0
million
and
$
182.7
million
for
the
respective
periods
of
2022.
The
decrease
in
income tax
expense was
due in
essence to
a lower
pre-tax income,
including lower
volume of
income subject
to preferential
tax
rates, for the quarter and nine months ended September
30, 2023.
The following table presents a breakdown of the
significant components of the Corporation’s deferred tax assets
and liabilities.
125
September 30, 2023
(In thousands)
PR
US
Total
Deferred tax assets:
Tax credits available
for carryforward
$
261
$
10,754
$
11,015
Net operating loss and other carryforward available
123,196
644,007
767,203
Postretirement and pension benefits
46,823
-
46,823
Allowance for credit losses
242,095
26,366
268,461
Depreciation
5,972
6,445
12,417
FDIC-assisted transaction
152,665
-
152,665
Lease liability
29,056
20,237
49,293
Unrealized net loss on investment securities
218,866
27,119
245,985
Difference in outside basis from pass-through entities
38,439
-
38,439
Mortgage Servicing Rights
14,685
-
14,685
Other temporary differences
30,804
7,395
38,199
Total gross deferred
tax assets
902,862
742,323
1,645,185
Deferred tax liabilities:
Intangibles
83,961
50,392
134,353
Right of use assets
26,655
17,506
44,161
Deferred loan origination fees/cost
1,990
1,944
3,934
Loans acquired
19,698
-
19,698
Other temporary differences
6,053
422
6,475
Total gross deferred
tax liabilities
138,357
70,264
208,621
Valuation allowance
140,033
401,318
541,351
Net deferred tax asset
$
624,472
$
270,741
$
895,213
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
126
The net deferred tax asset
shown in the table above
at September 30, 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 $
1.2
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 September
30, 2023
the net
deferred tax
asset of
the U.S.
operations amounted
to $
672
million with
a valuation
allowance of
approximately $
401
million, for
a net
deferred tax
asset after
valuation allowance
of approximately
$
271
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
period ended September 30, 2023. While the pre-tax income for the
nine-month
period ended in
September 2023 is
lower when compared
to the same
period last year,
these results, when
combined with recent
historical results, still demonstrated
financial stability for the U.S. operations.
The 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
inflationary
pressures
and
global
geopolitical
uncertainty,
that have
resulted in
a reduction
of pre-tax
income for
the year
2023. As
of September
30, 2023,
after weighting
all
positive
and
negative
evidence,
the
Corporation concluded
that
it
is
more
likely
than
not
that
approximately
$
271
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, the pre-tax earnings forecast, any new
tax initiative, and other factors, including net income
versus forecast,
targeted loan
growth, net
interest income margin,
changes in
deposit costs,
allowance for credit
losses, charge
offs, NPLs
inflows
and NPA balances, to assess the future realization of the deferred tax asset.
At September 30, 2023, the Corporation’s net deferred tax
assets related to its Puerto Rico operations
amounted to $
624
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 period
ended September
30, 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 period
ended September 30, 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 $
140
million as of September 30, 2023.
The reconciliation of unrecognized tax benefits, excluding
interest, was as follows:
127
(In millions)
2023
2022
Balance at
January 1
$
2.5
$
3.5
Balance at
March 31
$
2.5
$
3.5
Balance at
June 30
$
2.5
$
3.5
Reduction as a result of lapse of statute of limitations
- July through September
-
(1.1)
Balance at September 30
$
2.5
$
2.4
At September
30, 2023,
the total
amount of
accrued interest
recognized in
the statement
of financial
condition amounted
to $
2.7
million
(December
31,
2022
-
$
2.6
million).
The
total
interest
expense
recognized
at
September
30,
2023
was
$
79
thousand,
(September 30, 2022– $
202
thousand). Management determined that at September 30, 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 $
4.4
million at September 30, 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 anticipates a
reduction in the
total amount of
unrecognized tax benefits within
the next
12
months amounting to $
1.5
million.
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 September 30, 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.
128
Note 32 – Supplemental disclosure on the consolidated
statements of cash flows
Additional disclosures on cash flow information and
non-cash activities for the nine months ended
September 30, 2023 and
September 30, 2022 are listed in the following table:
(In thousands)
September 30, 2023
September 30, 2022
Non-cash activities:
Loans transferred to other real estate
$
48,704
$
50,359
Loans transferred to other property
53,021
38,066
Total loans transferred
to foreclosed assets
101,725
88,425
Loans transferred to other assets
15,738
6,631
Financed sales of other real estate assets
7,617
6,231
Financed sales of other foreclosed assets
38,136
29,505
Total financed sales
of foreclosed assets
45,753
35,736
Financed sale of premises and equipment
59,345
31,894
Transfers from premises and equipment to
long-lived assets held-for-sale
-
1,126
Transfers from loans held-in-portfolio to
loans held-for-sale
55,497
11,522
Transfers from loans held-for-sale to loans
held-in-portfolio
3,772
25,706
Loans securitized into investment securities
[1]
35,958
294,872
Trades receivable from brokers and counterparties
11,823
12,973
Trades payable to brokers and counterparties
14,761
5,793
Net change in receivables from investments maturities
176,000
-
Recognition of mortgage servicing rights on securitizations
or asset transfers
1,814
6,195
Loans booked under the GNMA buy-back option
2,805
3,984
Capitalization of lease right of use asset
14,672
4,453
Acquisition of software intangible assets
-
28,650
Goodwill on acquisition
-
116,135
Total stock consideration
related to Evertec transactions
-
144,785
[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)
September 30, 2023
September 30, 2022
Cash and due from banks
$
509,538
$
1,937,638
Restricted cash and due from banks
25,797
79,674
Restricted cash in money market investments
5,903
7,199
Total cash and due
from banks, and restricted cash
[2]
$
541,238
$
2,024,511
[2]
Refer to Note 5 - Restrictions on cash and due from banks
and certain securities for nature of restrictions.
129
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:
130
2023
For the quarter ended September 30, 2023
Intersegment
(In thousands)
BPPR
Popular U.S.
Eliminations
Net interest income
$
453,879
$
87,445
$
1
Provision for credit losses (benefit)
51,899
(6,644)
-
Non-interest income
144,691
5,894
(134)
Amortization of intangibles
484
311
-
Goodwill impairment charge
-
23,000
-
Depreciation expense
12,880
1,962
-
Other operating expenses
369,738
58,341
(134)
Income tax expense
40,861
5,358
-
Net income
$
122,708
$
11,011
$
1
Segment assets
$
57,039,000
$
12,806,630
$
(448,100)
For the quarter ended September 30, 2023
Reportable
(In thousands)
Segments
Corporate
Eliminations
Total Popular,
Inc.
Net interest income (expense)
$
541,325
$
(7,305)
$
-
$
534,020
Provision for credit losses (benefit)
45,255
(138)
-
45,117
Non-interest income
150,451
10,179
(1,081)
159,549
Amortization of intangibles
795
-
-
795
Goodwill impairment charge
23,000
-
-
23,000
Depreciation expense
14,842
381
-
15,223
Other operating expenses
427,945
180
(1,159)
426,966
Income tax expense (benefit)
46,219
(396)
36
45,859
Net income
$
133,720
$
2,847
$
42
$
136,609
Segment assets
$
69,397,530
$
5,554,370
$
(5,214,964)
$
69,736,936
For the nine months ended September 30, 2023
Intersegment
(In thousands)
BPPR
Popular U.S.
Eliminations
Net interest income
$
1,356,774
$
265,033
$
2
Provision for credit losses
126,952
3,328
-
Non-interest income
435,966
18,165
(404)
Amortization of intangibles
1,453
932
-
Goodwill impairment charge
-
23,000
-
Depreciation expense
36,424
5,661
-
Other operating expenses
1,119,522
182,809
(404)
Income tax expense
120,996
16,184
-
Net income
$
387,393
$
51,284
$
2
Segment assets
$
57,039,000
$
12,806,630
$
(448,100)
For the nine months ended September 30, 2023
Reportable
Total
(In thousands)
Segments
Corporate
Eliminations
Popular, Inc.
Net interest income (expense)
$
1,621,809
$
(24,465)
$
-
$
1,597,344
Provision for credit losses (benefit)
130,280
(334)
-
129,946
Non-interest income
453,727
32,905
(4,651)
481,981
Amortization of intangibles
2,385
-
-
2,385
Goodwill impairment charge
23,000
-
-
23,000
Depreciation expense
42,085
1,095
-
43,180
Other operating expenses
1,301,927
(146)
(3,391)
1,298,390
Income tax expense (benefit)
137,180
(1,006)
(498)
135,676
Net income
$
438,679
$
8,831
$
(762)
$
446,748
Segment assets
$
69,397,530
$
5,554,370
$
(5,214,964)
$
69,736,936
131
2022
For the quarter ended September 30, 2022
Intersegment
(In thousands)
BPPR
Popular U.S.
Eliminations
Net interest income
$
488,123
$
98,874
$
1
Provision for credit losses
29,813
10,011
-
Non-interest income
262,587
15,203
(137)
Amortization of intangibles
484
311
-
Goodwill impairment charge
-
9,000
-
Depreciation expense
11,862
1,693
-
Other operating expenses
396,655
57,127
(135)
Income tax expense
48,209
10,628
-
Net income
$
263,687
$
25,307
$
(1)
Segment assets
$
59,640,784
$
11,106,409
$
(319,999)
For the quarter ended September 30, 2022
Reportable
(In thousands)
Segments
Corporate
Eliminations
Total Popular,
Inc.
Net interest income (expense)
$
586,998
$
(7,379)
$
-
$
579,619
Provision for credit losses (benefit)
39,824
(187)
-
39,637
Non-interest income
277,653
148,228
613
426,494
Amortization of intangibles
795
-
-
795
Goodwill impairment charge
9,000
-
-
9,000
Depreciation expense
13,555
298
-
13,853
Other operating expenses
453,647
(46)
(1,154)
452,447
Income tax expense
58,837
8,469
680
67,986
Net income
$
288,993
$
132,315
$
1,087
$
422,395
Segment assets
$
70,427,194
$
5,341,051
$
(5,038,570)
$
70,729,675
For the nine months ended September 30, 2022
Intersegment
(In thousands)
BPPR
Popular U.S.
Eliminations
Net interest income
$
1,351,086
$
278,825
$
3
Provision for credit losses
24,941
8,580
-
Non-interest income
542,826
26,076
(410)
Amortization of intangibles
1,453
1,028
-
Goodwill impairment charge
-
9,000
-
Depreciation expense
35,054
5,272
-
Other operating expenses
1,069,512
166,677
(407)
Income tax expense
141,113
33,917
-
Net income
$
621,839
$
80,427
$
-
Segment assets
$
59,640,784
$
11,106,409
$
(319,999)
For the nine months ended September 30, 2022
Reportable
Total
(In thousands)
Segments
Corporate
Eliminations
Popular, Inc.
Net interest income (expense)
$
1,629,914
$
(22,121)
$
-
$
1,607,793
Provision for credit losses (benefit)
33,521
(22)
-
33,499
Non-interest income
568,492
174,060
(3,955)
738,597
Amortization of intangibles
2,481
-
-
2,481
Goodwill impairment charge
9,000
-
-
9,000
Depreciation expense
40,326
881
-
41,207
Other operating expenses
1,235,782
(149)
(3,609)
1,232,024
Income tax expense
175,030
7,802
(155)
182,677
Net income
$
702,266
$
143,427
$
(191)
$
845,502
Segment assets
$
70,427,194
$
5,341,051
$
(5,038,570)
$
70,729,675
132
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 mainland
United States
include commercial
lending activities.
BPPR’s commercial
lending activities
in the
U.S.,
through
its
New
York
Branch,
include
periodic
loan
participations
with
PB.
During
the
quarter
and
nine
months
ended,
BPPR
participated
in
loans
originated
by
PB
totaling
$
10
million
and
$
33
million,
respectively
(2022
-
$
69
million
and
$
160
million,
respectively). At September 30, 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
nine months ended
September 30, 2023,
the BPPR segment
generated
approximately $
86.0
million (2022 - $
45.0
million) in revenues from its operations in the
United States, including net interest income
and other service
fees. In the
Virgin Islands, the
BPPR segment offers
banking products, including
loans and deposits.
The BPPR
segment
generated $
33.6
million in
revenues during
the
nine months
ended September
30, 2023
(2022 -
$
34.6
million) from
its
operations in the U.S. and British Virgin Islands.
Geographic Information
Quarter ended
Nine months ended
(In thousands)
September 30, 2023
September 30, 2022
September 30, 2023
September 30, 2022
Revenues:
[1]
Puerto Rico
$
539,985
$
852,149
$
1,623,963
$
1,940,457
United States
131,698
133,071
389,463
347,614
Other
21,886
20,893
65,899
58,319
Total consolidated
revenues
$
693,569
$
1,006,113
$
2,079,325
$
2,346,390
[1]
Total revenues include
net interest income, service charges on deposit accounts,
other service fees, mortgage banking activities, net
(loss) gain,
including impairment on equity securities, net gain (loss) on
trading account debt securities, net loss on sale of loans,
including valuation
adjustments on loans held-for-sale, adjustments to indemnity
reserves on loans sold, and other operating income.
Selected Balance Sheet Information:
(In thousands)
September 30, 2023
December 31, 2022
Puerto Rico
Total assets
$
54,259,904
$
53,541,427
Loans
21,866,754
20,884,442
Deposits
52,035,227
51,138,790
United States
Total assets
$
14,218,288
$
12,718,775
Loans
11,625,969
10,643,964
Deposits
9,605,215
8,182,702
Other
Total assets
$
1,258,744
$
1,377,715
Loans
541,829
554,744
Deposits
[1]
1,697,158
1,905,735
[1]
Represents deposits from BPPR operations located in the
U.S. and British Virgin Islands.
133
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.
OVERVIEW
Table 1 provides selected financial data and performance indicators for the quarters ended
September 30, 2023 and 2022.
134
Table 1 - Financial Highlights
Financial Condition Highlights
Ending balances at
Average for the nine months ended
(In thousands)
September
30, 2023
December 31,
2022
Variance
September
30, 2023
September
30, 2022
Variance
Money market investments
$
6,389,437
$
5,614,595
$
774,842
$
6,965,588
$
10,969,361
$
(4,003,773)
Investment securities
25,653,616
26,553,317
(899,701)
27,463,370
29,429,998
(1,966,628)
Loans
34,034,552
32,083,150
1,951,402
32,732,877
29,965,064
2,767,813
Earning assets
66,077,605
64,251,062
1,826,543
67,161,835
70,364,423
(3,202,588)
Total assets
69,736,936
67,637,917
2,099,019
70,209,477
73,456,562
(3,247,085)
Deposits
63,337,600
61,227,227
2,110,373
62,304,083
65,486,523
(3,182,440)
Borrowings
1,097,720
1,400,319
(302,599)
1,274,682
1,046,350
228,332
Total liabilities
65,279,328
63,544,492
1,734,836
64,430,204
67,498,698
(3,068,494)
Stockholders’ equity
4,457,608
4,093,425
364,183
5,779,273
5,957,864
(178,591)
Note: 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.
Operating Highlights
Quarters ended September 30,
Nine months ended September 30,
(In thousands, except per share information)
2023
2022
Variance
2023
2022
Variance
Net interest income
$
534,020
$
579,619
$
(45,599)
$
1,597,344
$
1,607,793
$
(10,449)
Provision for credit losses
(benefit)
45,117
39,637
5,480
129,946
33,499
96,447
Non-interest income
159,549
426,494
(266,945)
481,981
738,597
(256,616)
Operating expenses
465,984
476,095
(10,111)
1,366,955
1,284,712
82,243
Income before income tax
182,468
490,381
(307,913)
582,424
1,028,179
(445,755)
Income tax expense
45,859
67,986
(22,127)
135,676
182,677
(47,001)
Net income
$
136,609
$
422,395
$
(285,786)
$
446,748
$
845,502
$
(398,754)
Net income applicable to common stock
$
136,256
$
422,042
$
(285,786)
$
445,689
$
844,443
$
(398,754)
Net income per common share – basic
$
1.90
$
5.71
$
(3.81)
$
6.22
$
11.09
$
(4.87)
Net income per common share – diluted
$
1.90
$
5.70
$
(3.80)
$
6.21
$
11.07
$
(4.86)
Dividends declared per common share
$
0.55
$
0.55
$
―
$
1.65
$
1.65
$
―
Quarters ended September 30,
Nine months ended September 30,
Selected Statistical Information
2023
2022
2023
2022
Common Stock Data
End market price
$
63.01
72.06
$
63.01
72.06
Book value per common share at period end
61.49
50.26
61.49
50.26
Profitability Ratios
Return on assets
0.75
%
2.31
%
0.84
%
1.54
%
Return on common equity
8.17
27.72
9.13
19.02
Net interest spread
2.37
3.16
2.52
2.95
Net interest spread (taxable equivalent) - Non-GAAP
2.54
3.55
2.70
3.29
Net interest margin
3.07
3.32
3.14
3.05
Net interest margin (taxable equivalent) - Non-GAAP
3.24
3.71
3.32
3.39
Capitalization Ratios
Average equity to average assets
8.26
%
8.36
%
8.23
%
8.11
%
Common equity Tier 1 capital
16.81
16.04
16.81
16.04
Tier I capital
16.88
16.10
16.88
16.10
Total capital
18.67
17.92
18.67
17.92
Tier 1 leverage
8.41
7.65
8.41
7.65
135
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 interest related
to these assets,
the
interest
has
been
converted
to
a
taxable
equivalent
basis,
using
the
applicable
statutory
income
tax
rates
for
each
period.
According to the
Puerto Rico
tax law,
a portion of
interest cost, based
on an equal
proportion of tax-exempt assets
to total assets,
and an
allocation of
general and
administrative expenses
should be
attributed to
exempt income,
reducing the
benefit of
the tax
exempt income, and as such
the disallowance of such
deduction is considered in the
taxable equivalent computation. The effective
yield, on
a taxable
equivalent basis, will
vary depending on
the level
of these expenses
that are
attributed to the
available exempt
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 September 30, 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 September 30, 2023
●
For the quarter ended September 30, 2023, the Corporation recorded net income of $ 136.6 million, compared to net income of
$ 422.4
million for
the same
quarter of
the previous
year.
Net interest
margin for
the second
quarter of
2023 was
3.07%, a
decrease of 25 basis points when compared to
3.32% for the same quarter of the previous year,
mainly due to higher deposits
cost,
principally from
the
Puerto Rico
public sector
and
in
the
U.S.
,
which was
partially
offset
by
higher yield
from
money
market investments
and loans. On
a taxable
equivalent basis, the
net interest margin
was 3.24%, compared
to 3.71% for
the
same quarter of the
previous year. For
the quarter ended September 30, 2023,
the Corporation recorded a provision for
credit
losses of
$45.1 million, compared
to $39.6
million for the
same quarter of
the previous year.
The higher provision
for 2023
is
attributed to
higher loan
volumes, migrations
in credit
scores
and changes
in
economic variables
related to
consumer loan
portfolios. Non-interest income was
$159.5 million for the
quarter,
a decrease of
$266.9 million when compared
to the quarter
ended September 30,
2022, mainly due
to lower other
operating income, driven
by the gain
of $257.7 million
from the sale
of
Evertec
Inc.
shares
in
connection
with
the
business
acquisition
in
exchange
for
shares
and
the
Corporation’s
sale
of
its
remaining Evertec
shares,
(together the
“Evertec Transaction
s”)
recognized during
the
quarter ended
September 30,
2022.
Operating expenses were lower by $10.1 million
principally due to lower other operating
expenses and professional fees.
●
Total
assets at September 30, 2023 amounted to $69.7 billion, compared to $67.6 billion, at
December 31, 2022. The increase
was mainly
due to
higher money
market investments,
driven by
the increase
in deposits,
and loan
growth,
partially offset
by
lower debt securities available-for-sale and held-to-maturity.
●
Total
deposits at September 30, 2023 increased by $2.1 billion when
compared to deposits at December 31, 2022, mainly due
to higher Puerto Rico public sector deposits by
$2.6 billion.
●
Stockholders’ equity totaled $4.5
billion at September 30, 2023, an increase of $364.2 million when compared to December 31,
2022, principally
due to
net income for
the nine-months
ended September 30,
2023 of
$446.7 million, the
amortization of the
unrealized losses from securities
previously reclassified to HTM
as described above of
$103.0 million, and the
positive impact
from the
adoption of a
new accounting standard
during the year
of $28.8 million,
partially offset
by dividends declared
for the
nine-month period and the after-tax impact of
the unfavorable variance in net unrealized
losses in the portfolio of available-for-
sale securities of $120.8 million. At September 30, 2023, the Corporation’s tangible book value per common share was $50.20,
an increase of $5.23 from December 31, 2022 due
mainly to the increase in Stockholders’ equity during
the period.
136
●
Regulatory capital ratios continued to be strong. As of September
30, 2023, the Corporation’s common equity tier 1 capital ratio
was 16.81%, the tier 1 leverage ratio was 8.41%,
and the total capital ratio was 18.67%. Refer
to Table 9 for capital ratios.
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.
137
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 September
30, 2023 was $534.0
million, compared to $579.6
million in the same
quarter
of
2022, a
decrease of
$45.6 million.
Net interest
income on
a taxable
equivalent basis
for the
third quarter
of 2023
was $563.7
million compared to $646.6 million in the third
quarter of 2022. The decrease in the taxable equivalent net
interest income is related
to lower income from tax free
investment securities and higher disallowed interest expense in the Puerto
Rico tax computation. The
latter results from the increase in the Corporation’s interest
expense that is attributable to the tax-exempt
income.
Net interest margin for the quarter was 3.07% compared to 3.32% in the third quarter of 2022 or a decrease of 25 basis points. On a
taxable equivalent basis,
net interest margin for
the third quarter
of 2023 was
3.24%, compared to
3.71% for the
same quarter the
prior year. The main variances in net interest income on a taxable
equivalent basis were:
Negative variances:
●
Higher interest
expense on
deposits by
$233.2 million
due to
the increase
in interest
rates that
has resulted
in a
higher
cost in
most deposit
categories in
both BPPR
and PB;
but particularly
from Puerto
Rico government
deposits for
BPPR
which are mostly market linked
Partially offset by:
●
Higher interest income
from money market,
investment, and trading securities
by $40.5 million
driven mainly by
a higher
yield of money market
investments, which reflects the increase in
the Federal funds rate
of 525 basis points
since March
2022, partially offset by
a lower average volume of
$2.9 billion, driven by a higher
volume of loans and a
lower volume of
deposits
●
Higher
interest
income
from
loans
by
$115.7
million
resulting
from
an
increase
in
average
loans
by
$2.7
billion reflecting increases
in both PB and
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 85
basis points. The categories
with the highest impact
were commercial loans with
an increase of
$72.7 million
in interest
income, or
112
basis points,
and consumer
loans which
increased $21.6
million in
interest income, or 165 basis points.
Net interest income
for the BPPR
segment amounted to
$453.9 million for
the third quarter
of 2023, compared
to $488.1 million
in
the third quarter of
2022. Net interest margin decreased
to 3.14% compared to
3.27% in the third
quarter of 2022. The decrease
in
net interest income
of $34.2 million
was mainly driven
by a higher
interest expense on
deposits by $182.3
million, mainly from
the
P.R.
public sector
deposits,
partially offset
by higher
volume and
yield on
loans and
higher yield
on investment
securities, money
market investments and trading securities. The cost of
interest-bearing deposits increased 180 basis points to 2.25% from
0.45% in
138
the same
quarter of
2022. Total
deposit costs
for the
quarter increased
by 134
basis points,
from 0.34%
in the
second quarter
of
2022 to 1.68%.
Net interest income for PB was $87.4 million
for the quarter ended September 30, 2023,
compared to $98.9 million during the third
quarter of 2022, a decrease of $11.4 million. Net interest margin decreased
94 basis points when compared to the
third quarter of
2022 to 2.90%. The decrease in net interest
margin was mostly driven by a higher
cost of deposits, partially offset by the increase in
loan volume and yield of loans due to origination
of loans in a higher interest rate environment
and the repricing of adjustable-rate
loans. The cost of interest-bearing deposits was
3.31% compared to 0.85%, or an increase of
246 basis points, while total deposit
cost was 2.84% compared to 0.67% in the
third quarter of 2022.
139
Table 2 - Analysis of Levels & Yields
on a Taxable Equivalent Basis
(Non-GAAP)
Quarter ended September 30,
Variance
Average Volume
Average Yields / Costs
Interest
Attributable to
2023
2022
Variance
2023
2022
Variance
2023
2022
Variance
Rate
Volume
(In millions)
(In thousands)
$
7,292
$
6,721
$
571
5.40
%
2.18
%
3.22
%
Money market investments
$
99,285
$
36,966
$
62,319
$
58,920
$
3,399
28,396
31,859
(3,463)
2.31
2.33
(0.02)
Investment securities [1]
165,319
186,847
(21,528)
(1,510)
(20,018)
34
40
(6)
4.43
6.09
(1.66)
Trading securities
375
617
(242)
(150)
(92)
Total money market,
investment and trading
35,722
38,620
(2,898)
2.95
2.31
0.64
securities
264,979
224,430
40,549
57,260
(16,711)
Loans:
16,611
14,750
1,861
6.64
5.52
1.12
Commercial
277,977
205,237
72,740
44,889
27,851
865
835
30
8.99
6.38
2.61
Construction
19,580
13,431
6,149
5,667
482
1,669
1,503
166
6.50
5.90
0.60
Leasing
27,142
22,154
4,988
2,405
2,583
7,504
7,264
240
5.42
5.42
-
Mortgage
101,700
98,348
3,352
93
3,259
3,147
2,818
329
13.39
11.74
1.65
Consumer
105,042
83,407
21,635
11,164
10,471
3,657
3,562
95
8.47
7.93
0.54
Auto
78,055
71,226
6,829
4,889
1,940
33,453
30,732
2,721
7.24
6.39
0.85
Total loans
609,496
493,803
115,693
69,107
46,586
$
69,175
$
69,352
$
(177)
5.02
%
4.12
%
0.90
%
Total earning assets
$
874,475
$
718,233
$
156,242
$
126,367
$
29,875
Interest bearing deposits:
$
25,652
$
25,993
$
(341)
3.31
%
0.56
%
2.75
%
NOW and money market [2]
$
213,957
$
36,448
$
177,509
$
178,787
$
(1,278)
14,875
15,514
(639)
0.73
0.20
0.53
Savings
27,373
7,966
19,407
20,380
(973)
7,986
6,957
1,029
2.62
0.94
1.68
Time deposits
52,791
16,484
36,307
29,147
7,160
48,513
48,464
49
2.41
0.50
1.91
Total interest bearing
deposits
294,121
60,898
233,223
228,314
4,909
15,038
15,872
(834)
Non-interest bearing demand
deposits
63,551
64,336
(785)
1.84
0.38
1.46
Total deposits
294,121
60,898
233,223
228,314
4,909
108
155
(47)
5.45
2.36
3.09
Short-term borrowings
1,478
921
557
976
(419)
Other medium and
1,172
913
259
5.20
4.29
0.91
long-term debt
15,167
9,798
5,369
1,050
4,319
Total interest bearing
49,793
49,532
261
2.48
0.57
1.91
liabilities (excluding demand
deposits)
310,766
71,617
239,149
230,340
8,809
4,344
3,948
396
Other sources of funds
$
69,175
$
69,352
$
(177)
1.78
%
0.41
%
1.37
%
Total source of funds
310,766
71,617
239,149
230,340
8,809
Net interest margin/
3.24
%
3.71
%
(0.47)
%
income on a taxable
equivalent basis (Non-
GAAP)
563,709
646,616
(82,907)
$
(103,973)
$
21,066
2.54
%
3.55
%
(1.01)
%
Net interest spread
Net interest spread
29,689
66,997
(37,308)
Net interest margin/ income
3.07
%
3.32
%
(0.25)
%
non-taxable equivalent basis
(GAAP)
$
534,020
$
579,619
$
(45,599)
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.
140
Net interest
income for
the nine-months
period ended
September 30,
2023 was
$1.6 billion,
or $10.4
million lower
than the
same
period in
2022. Taxable
equivalent net
interest income
was $1.7
billion, a
decrease of
$97.8 million
when compared
to the
same
period in 2022. Net interest margin was 3.14%, an increase of 9
basis points when compared to 3.05% in 2022. The increase in net
interest margin was mainly driven by a higher yield on earning assets due to a higher interest rate environment. Net interest margin,
on
a
taxable
equivalent basis,
for
the
nine-months ended
September
30,
2023,
was 3.32%,
a
decrease
of
7
basis
points
when
compared to the 3.39%
for the same period
of 2022. The drivers
of the variances in
net interest income for
the nine-months period
are:
Negative variances:
●
Higher interest
expense from
deposits by
$617.3 million
mainly due
to the
increase in
interest rates
that has
resulted in
a
higher cost in most deposit categories in both BPPR and PB; but particularly from Puerto Rico government deposits for BPPR
which are mostly market linked.
Partially offset by:
●
Higher interest
income from
investment securities,
trading
and money
market investments
by
$182.5 resulting
from
higher
yield of the
portfolio by 96
basis points mainly
driven by money
market investments, driven
by the short-term
investments in
rising rate interest environment.
●
Higher interest income from commercial loans by
$227.0 million due to higher yield by
124 basis points and higher volume of
$2.0 billion, increasing in BPPR and PB.
●
Higher interest
income from
consumer loans
by $73.6
million mostly
due to
a higher
average volume of
personal loans
and
credit cards.
●
Higher interest income from construction loans by
$16.9 million due to higher yield by 292 basis
points.
Prepayment penalties, late fees collected and the
amortization of premiums on purchased loans
are included as part of the loan
yield. Interest income related to these items for the
nine-months ended September 30, 2023, amounted
to $16.9 million, compared
to $36.3 million in the same period of 2022.
The decrease of $19.4 million is mainly related
to lower amortized fees resulting from
the forgiveness of PPP loans during 2022, lower amortization
of premium on auto loans purchased and
resulting from the
cancellation of PCD loans.
141
Table 3 – Analysis of Levels & Yields
on a Taxable Equivalent Basis
from Continuing Operations (Non-GAAP)
For the nine months ended September 30,
Variance
Average Volume
Average Yields / Costs
Interest
Attributable to
2023
2022
Variance
2023
2022
Variance
2023
2022
Variance
Rate
Volume
(In millions)
(In thousands)
$
6,966
$
10,969
$
(4,003)
5.10
%
0.82
%
4.28
%
Money market investments
$
265,785
$
67,172
$
198,613
$
231,496
$
(32,883)
28,205
29,371
(1,166)
2.18
2.16
0.02
Investment securities [1]
460,641
475,088
(14,447)
4,862
(19,309)
32
59
(27)
4.52
6.23
(1.71)
Trading securities
1,084
2,725
(1,641)
(621)
(1,020)
Total money market,
investment and trading
35,203
40,399
(5,196)
2.76
1.80
0.96
securities
727,510
544,985
182,525
235,737
(53,212)
Loans:
16,206
14,245
1,961
6.50
5.26
1.24
Commercial
787,381
560,408
226,973
143,107
83,866
778
781
(3)
8.79
5.87
2.92
Construction
51,178
34,305
16,873
17,017
(144)
1,630
1,447
183
6.31
5.92
0.39
Leasing
77,135
64,225
12,910
4,440
8,470
7,434
7,315
119
5.45
5.33
0.12
Mortgage
303,777
292,253
11,524
6,712
4,812
3,082
2,670
412
13.10
11.44
1.66
Consumer
302,050
228,401
73,649
35,342
38,307
3,603
3,507
96
8.31
8.03
0.28
Auto
223,929
210,623
13,306
7,455
5,851
32,733
29,965
2,768
7.13
6.20
0.93
Total loans
1,745,450
1,390,215
355,235
214,073
141,162
$
67,936
$
70,364
$
(2,428)
4.86
%
3.67
%
1.19
%
Total earning assets
$
2,472,960
$
1,935,200
$
537,760
$
449,810
$
87,950
Interest bearing deposits:
$
24,407
$
26,385
$
(1,978)
2.93
%
0.26
%
2.67
%
NOW and money market [2]
$
534,567
$
52,072
$
482,495
$
488,704
$
(6,209)
14,889
16,100
(1,211)
0.62
0.18
0.44
Savings
69,262
21,430
47,832
52,158
(4,326)
7,603
6,913
690
2.23
0.77
1.46
Time deposits
126,995
40,005
86,990
71,425
15,565
46,899
49,398
(2,499)
2.08
0.31
1.77
Total interest bearing
deposits
730,824
113,507
617,317
612,287
5,030
15,405
16,088
(683)
Non-interest bearing demand
deposits
62,304
65,486
(3,182)
1.57
0.23
1.34
Total deposits
730,824
113,507
617,317
612,287
5,030
160
124
36
5.02
1.34
3.68
Short-term borrowings
5,987
1,249
4,738
4,298
440
Other medium and
1,140
948
192
5.12
4.25
0.87
long-term debt
43,660
30,168
13,492
7,506
5,986
Total interest bearing
48,199
50,470
(2,271)
2.16
0.38
1.78
liabilities (excluding demand
deposits)
780,471
144,924
635,547
624,091
11,456
4,332
3,806
526
Other sources of funds
$
67,936
$
70,364
$
(2,428)
1.54
%
0.28
%
1.26
%
Total source of funds
780,471
144,924
635,547
624,091
11,456
3.32
%
3.39
%
(0.07)
%
Net interest margin/ income
on a taxable equivalent basis
(Non-GAAP)
1,692,489
1,790,276
(97,787)
$
(174,281)
$
76,494
2.70
%
3.29
%
(0.59)
%
Net interest spread
Taxable equivalent
adjustment
95,145
182,483
(87,338)
3.14
%
3.05
%
0.09
%
Net interest margin/ income
non-taxable equivalent basis
(GAAP)
$
1,597,344
$
1,607,793
$
(10,449)
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.
142
Provision for Credit Losses - Loans Held-in-Portfolio
and Unfunded Commitments
For the
quarter ended
September 30,
2023, the
Corporation recorded an
expense of
$45.2 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 September 30,
2023 was
$43.5 million, compared
to a
provision expense of
$39.5 million for
the quarter
ended
September 30, 2022.
The provision expense
was driven by
the consumer loan
portfolio, mainly Auto and
Personal Loans, partially
offset by reductions in the provision expense for
commercial loans. Changes in credit quality,
higher volumes, and the impact of the
macroeconomic scenario contributed to the higher provision
expense for the consumer loans segment. The implementation
of a new
ACL
model
for
the
U.
S.
commercial
real
estate
loan
segments,
as
well
as
higher
recoveries,
contributed
to
the
reduction
in
provision expense
for the
commercial loan
segment. The
provision related
to unfunded
commitments for
the third
quarter of
2023
was $1.7 million, compared to a provision expense
of $0.4 million for the same period of 2022.
As
part
of
the
Corporation’s
model
governance
procedures
a
new
model
was
implemented
for
the
U.S
commercial
real
estate
segment. The
new model
enhances techniques used
to capture
default activity
within the
Corporation’s geographical footprint.
As
part
of
the
implementation
analysis
management
evaluated
the
credit
metrics
of
the
portfolio
such
as
risk
ratings,
delinquency
levels, and low exposure to
the commercial office sector.
Qualitative reserves continue to be
maintained to address risks within
the
U. S.
commercial real
estate segment. The
new model
including qualitative reserve
accounted for $15
million of
PB’s reduction
in
ACL.
For the
quarter ended
September 30,
2023, the
Corporation recorded
a provision
for credit
loss of
$54.0 million
for loans-held-in-
portfolio for the
BPPR segment, compared to
a provision expense of
$28.7 million for
the quarter ended
September 30, 2022.
The
Popular
U.S.
segment
recorded
a
reserve
release
of
$10.5
million
for
the
quarter
ended
September
30,
2023,
compared
to
a
provision of $10.8 million for the same quarter in
2022.
For the nine-months ended September 30,2023, the Corporation recorded a
provision for credit loss of $130.8 million for its
reserve
for credit
losses related
to loans
held-in-portfolio and
unfunded commitments.
The provision
expense related
to the
loans-held-in-
portfolio for
the nine-months
ended September 30,2023
was $126.3
million, compared
to a
provision of
$35.0 million for
the nine-
months ended September
30,2022. The higher
provision in 2023
is attributable to
higher loan volumes,
migrations in credit
scores
and changes in economic
variables related to consumer loan
portfolios, partially offset by changes
in economic variables related to
mortgage
loan
portfolios.
The
provision
for
unfunded
commitments
for
the
nine-months
ended
September
30,2023
reflected
an
expense of $4.5 million, compared to a provision
benefit of $0.6 million for the same period
of 2022.
The
provision for
credit
losses
for
the
BPPR
segment
was
an
expense
of
$127.6
million
for
the
nine-months ended
September
30,2023,
compared
to
a
provision
of
$25.2
million
for
the
nine-months
ended
September
30,2022.
The
Popular
U.S.
segment
recorded a reserve release of $1.3 million for the
nine-months ended September 30,2023, compared to a provision expense of $9.8
million for the same period in 2022.
At
September 30,
2023, the
total
allowance for
credit
losses for
loans held-in-portfolio
amounted to
$711.1
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
2.09%
at
September 30,
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 TDRs
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
At September 30, 2023,
the total allowance for
credit losses for this
portfolio amounted to $6.1
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.
143
Non-Interest Income
Non-interest
income
amounted to
$159.5
million
for
the
quarter ended
September
30,
2023, compared
to
$426.5 million
for
the
same quarter of the previous year. The main factors that contributed
to the variance in non-interest income were:
●
lower other operating income by $265.9 million mainly due
to the gain on sale related to the investment
in Evertec Transactions
recognized in July 2022; and
●
an unfavorable variance of $4.1 million mainly due
to fair value adjustments of mortgage servicing
rights (“MSRs”);
partially offset by:
●
higher other service fees by $7.0 million mainly due
to an increase in credit cards transaction volume related
fee income.
Non-interest income amounted to $482.0 million for the nine months ended September 30, 2023, compared to $738.6 million for the
same period
of the
previous year.
Non-Interest income
was impacted
by Evertec
Transactions and
the related
adjustment. Other
factors that contributed to the variance
in non-interest income were:
●
an unfavorable variance of $20.8 million mainly due
to fair value adjustments of mortgage servicing rights
(“MSRs”);
partially offset by:
●
higher other service fees by $32.8 million mainly due
to an increase in credit cards transaction volume
related fee income.
144
Operating Expenses
Operating
expenses
amounted
to
$466.0
million
for
the
quarter
ended
September
30,
2023,
a
decrease
of
$10.1
million,
when
compared with the same quarter of 2022. The
variance in operating expenses was driven primarily
by:
●
lower incentive compensation and profit-sharing accrual
by $14.5 million;
●
lower other
taxes expense
by $7.4
million mainly
due to
the reversal
of an
accrual related
to regulatory
examination fees
in
BPPR by $8.2 million;
●
lower professional
fees
by $9.1
million mainly
due to
lower advisory
expenses by
$7.2 million
resulting from
an increase
in
projects related to the Corporation’s transformation initiative
that are being managed with internal personnel; and
●
lower other
operating expenses
by $14.9
million mainly
due to
the effect
of prior
year expense
of $17.3 million
related to
the
Evertec Transactions;
partially offset
by
higher pension
plan cost
by
$4.8 million
as a
result
of
annual changes
in actuarial
assumptions;
partially offset by:
●
higher salaries
expense by
$11.9
million as
a result
of merit
and market
related increases,
minimum salary
increases during
the first quarter of 2023 and higher headcount;
●
higher technology
and software
expenses by $4.6
million mainly
due to
higher software amortization
expense by
$1.7 million
and higher programming services and application hosting
expenses by $1.9 million;
●
higher processing and
transactional services by
$5.5 million mainly due
to incentives received
during July 2022
related to the
ATH Network Participation Agreement entered into in connection with the Evertec
Business Acquisition Transaction;
and
●
the
goodwill impairment
charge
related
to
our
U.S.
based
leasing
subsidiary
of
$23
million
recorded in
2023,
due
to
lower
forecasted
cash
flows
and
an
increase
in
the
rate
used
to
discount
cash
flows,
compared
to
an
impairment
of
$9
million
recorded in 2022, an unfavorable variance of $14
million.
Operating expenses
amounted to
$1.4 billion
for the
nine months
ended September
30, 2023,
an increase
of $82.2
million when
compared with the same period of 2022, driven primarily
by:
●
higher personnel costs
by $53.8 million
mainly due
to higher
salaries by
$61.7 million
as a
result of merit
and market related
increases, minimum
salary increases
during the
first quarter
of 2023
and higher
headcount, an
increase in
health insurance
costs
by
$6.5
million,
and
higher
payroll
taxes
and
other
compensation
expenses
by
$16.1
million;
partially
offset
by
a
decrease in incentive compensation and profit-sharing
accrual by $30.3 million;
●
higher processing and transactional services expenses by $14.3 million mainly due
to broad based retail customers' debit card
replacement costs
incurred during the
second quarter
of 2023
of $2.8
million, higher credit
and debit card
processing related
fees by
$2.7 million
and higher
merchant processing
fees by
$5.6 million
mainly due
to incentives
received during July
2022
related
to
the
ATH
Network
Participation
Agreement
entered
into
in
connection
with
the
Evertec
Business
Acquisition
Transaction;
●
higher business
promotion expenses
by $6.2
million mainly
due to
higher customer
rewards programs
expense in
our credit
card business by $6.7 million;
●
higher FDIC deposit
insurance expense by
$4.2 million mainly
due to amendments
to the Deposit
Insurance Fund restoration
plan implemented
by the
FDIC that
increased base
deposit assessment
rate by
2 basis
points, annually;
partially offset
by a
decrease
in
the
assessment
rate
driven
by
the
adoption
of
the
Financial
Accounting
Standards
Board
(‘’FASB’’)
issued
Accounting Standards Update (‘’ASU’’) 2022-02; and
145
●
a higher goodwill impairment charge by $14.0 million
as discussed above.
partially offset by:
●
lower other
taxes expense
by $6.2
million mainly
due to
the reversal
of an
accrual related
to regulatory
examination fees
in
BPPR; and
●
lower
other
operating
expenses
by
$11.5
million
mainly
due
to
the
effect
of
prior
year
expense
related
to
the
Evertec
Transactions
of
$17.3 million
and
$6.4
million
of
lower sundry
losses;
partially
offset
by
higher
pension plan
cost
by
$14.4
million due to changes in actuarial assumption.
The Corporation embarked on a
broad-based multi-year, technological and
business process transformation during the second
half
of 2022. As part of this transformation, we
aim to expand our 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
financial
statements
and
related
disclosures have been reclassified to conform to
the current presentation.
Table 4 - Operating Expenses
Quarters ended September 30,
Nine months ended September 30,
(In thousands)
2023
2022
Variance
2023
2022
Variance
Personnel costs:
Salaries
$
127,832
$
115,887
$
11,945
$
378,126
$
316,407
$
61,719
Commissions, incentives and other bonuses
27,670
42,209
(14,539)
86,025
116,319
(30,294)
Pension, postretirement and medical insurance
16,985
17,120
(135)
49,871
43,633
6,238
Other personnel costs, including payroll taxes
20,665
18,627
2,038
69,358
53,268
16,090
Total personnel
costs
193,152
193,843
(691)
583,380
529,627
53,753
Net occupancy expenses
28,100
27,420
680
81,304
78,357
2,947
Equipment expenses
8,905
8,735
170
26,878
25,798
1,080
Other taxes
8,590
15,966
(7,376)
41,290
47,461
(6,171)
Professional fees
38,514
47,662
(9,148)
122,077
122,884
(807)
Technology and
software expenses
72,930
68,341
4,589
213,843
213,638
205
Processing and transactional services:
Credit and debit cards
13,762
13,531
231
37,896
35,177
2,719
Other processing and transactional services
24,137
18,837
5,300
70,713
59,181
11,532
Total processing
and transactional services
37,899
32,368
5,531
108,609
94,358
14,251
Communications
4,220
3,858
362
12,483
11,028
1,455
Business promotion:
Rewards and customer loyalty programs
15,988
14,344
1,644
44,962
38,294
6,668
Other business promotion
7,087
10,004
(2,917)
22,067
22,490
(423)
Total business
promotion
23,075
24,348
(1,273)
67,029
60,784
6,245
FDIC deposit insurance
8,932
6,610
2,322
24,600
20,445
4,155
Other real estate owned (OREO) income
(5,189)
(2,444)
(2,745)
(10,197)
(12,963)
2,766
Other operating expenses:
Operational losses
5,504
7,145
(1,641)
16,584
23,031
(6,447)
All other
17,557
32,448
(14,891)
53,690
58,783
(5,093)
Total other operating
expenses
23,061
39,593
(16,532)
70,274
81,814
(11,540)
Amortization of intangibles
795
795
-
2,385
2,481
(96)
Goodwill impairment charge
23,000
9,000
14,000
23,000
9,000
14,000
Total operating
expenses
$
465,984
$
476,095
$
(10,111)
$
1,366,955
$
1,284,712
$
82,243
146
Table 5 - Operating Expenses
Reclassification
Quarter ended
Nine months ended
30-Sep-22
30-Sep-22
Financial statement line item
As reported
Adjustments
Adjusted
As reported
Adjustments
Adjusted
Equipment expenses
$
26,626
$
(17,891)
$
8,735
$
75,193
$
(49,395)
$
25,798
Professional fees
112,221
(64,559)
47,662
335,590
(212,706)
122,884
Technology and
software expenses
-
68,341
68,341
-
213,638
213,638
Processing and transactional services
-
32,368
32,368
-
94,358
94,358
Communications
6,224
(2,366)
3,858
18,364
(7,336)
11,028
Other operating expenses
55,486
(15,893)
39,593
120,373
$
(38,559)
$
81,814
Net effect on other operating expenses
$
200,557
$
-
$
200,557
$
549,520
$
-
$
549,520
Income Taxes
For the quarter and nine months ended September 30, 2023, the Corporation recorded an income tax expense of $45.9
and $135.7
million, respectively, with an effective
tax rate (ETR) of 25.1%, and $23.3%, respectively, compared
to income tax expense of $68.0
million and $182.7 million with an effective tax rate of
13.9% and 17.8% for the quarter and nine
months ended September 30, 2022,
respectively.
The decrease in
income tax expense
for the
quarter and nine
months period ended
September 30, 2023,
reflects the
impact of lower pre-tax income, including lower
volume of income subject to preferential tax rates.
At September 30, 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.
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 $2.8 million for the
quarter ended September 30, 2023, compared with
a net income
of $132.3 million for the same quarter of the previous
year. The decrease in net income was mainly attributed to the $128.8
million in
after-tax gains
recognized by
the Corporation
as a
result of
the Evertec
stock sale
and related
accounting adjustments during
the
quarter ended September
30, 2022. For
the nine months
ended September 30,
2023, the Corporate
group reported net
income of
$8.8 million, compared to a
net income of $143.4 million for
the same period of the
previous year. The decrease
in net income was
due to
impact on 2022
of the
Evertec Stock Sale
and related accounting
adjustments; and attributed
to the
equity pickup of
$21.2
million
for
the
nine
months
ended
September
30,2022
from
the
investment
in
Evertec,
Inc.
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
$122.7 million for
the quarter ended
September
30, 2023, compared with
net income of $263.7
million for the same
quarter of the previous year.
The factors that contributed to
the
variance in the financial results included the following:
●
Lower net interest income by $34.2 million mainly
due to:
147
●
higher interest
expense on
deposits by
$182.3 million
mainly due
to higher
costs on
the market-linked
Puerto
Rico
government
deposits, and
the
higher interest
rate
environment’s
impact on
the cost
of
NOW accounts,
time deposits, and savings deposits,
partially offset by
●
higher
interest
income
from
money
market
and
investment
securities
by
$67.4
million
mainly
due
to
higher
yields driven by the increase in interest rates,
●
higher interest income
from loans by
$80.8 million mainly
due to higher
yields from commercial
and consumer
loans,
primarily
personal
loans,
credit
cards
and
auto
loans
due
to
the
increase
in
rates,
as
well
as
higher
average balances across all portfolios except construction
loans,
The net interest margin
for the quarter ended
September 30, 2023 was 3.14%
compared to 3.27% for the
same quarter in the
previous year. The decrease in net interest margin is driven by higher
cost of deposits and the
earnings assets mix;
●
A provision
for loan
losses expense of
$51.9 million, compared
to a
provision expense of
$29.8 million in
quarter ended
September 30,
2022, or
an unfavorable
variance of
$22.1 million
mainly driven
by the
consumer loan
segment, mainly
auto and personal loans; partially offset by reductions
in the provision for commercial loans;
●
Non-interest income was lower by $117.7 million mainly due to:
●
lower
other
operating
income
by
$118.4
million
mostly
due
to
lower
earnings
as
a
result
of
the
Evertec
Transactions
during the quarter ended September 30,2022;
●
lower income
from mortgage
banking activities
by $4.0
million mainly
due to
an unfavorable
variance of
$3.4
million in the fair value adjustment of mortgage service
rights.
●
lower service charges on
deposit accounts by $2.3
million, mainly due to
lower ACH fees due
to the change in
policy of eliminating insufficient fund fees and modifying
overdraft fees implemented in the third quarter
of 2022,
partially offset by
●
Higher other
service fees
by $8.4
million mainly
due to
higher credit
card fees
by $2.9
million and
debit card
fees by
$1.5 million mainly
as a result
of higher transactional volume
and higher merchant
acquiring fees from
the revenue sharing agreement with Evertec Inc. by
$0.4 million.
●
Lower operating expenses by $25.7 million mostly
due to:
●
lower other
operating expenses
by
$27.9 million
mainly due
to
a $17.3
million charge
related to
the Evertec
Transactions
on the
third quarter
of 2022
and lower
charges allocated
from the
Corporate segment
group by
$9.3 million; partially offset by $4.4 million of higher pension
expense based on actuarial assumptions;
●
lower
other
operating
taxes
expenses
by
$7.7
million
mainly
due
to
the
reversal
of
an
accrual
related
to
regulatory examination fees in BPPR by $8.2 million;
●
lower personnel costs by $0.1 million driven by
lower profit-sharing expense by $8.3 million;
●
lower business
promotions by
$0.5 million
mainly due
to lower
donations expense
related to
natural disasters
response and other donations;
●
higher net recoveries from OREO by $2.6 million
mainly due to an increase in units sold;
148
partially offset by
●
higher
processing
and
transactional
services
by
$5.3
million
mainly
due
to
higher
credit
and
debit
card
processing expense as result of higher transactional
volumes;
●
higher technology
and software
expenses by
$2.8 million
in part
due to
expense savings
associated with
the
acquired services from Evertec during the quarter ended
September 30,2022;
●
higher professional fees of $3.8 million mainly due
to costs associated with regulatory and compliance
efforts;
●
Lower income tax expense by $7.3 million is
mainly due lower income before tax.
For
the
nine
months
ended
September
30,2023,
the
BPPR
segment
recorded
net
income
of
$387.4
million
compared
to
a
net
income of $621.8 million for the same period of the previous year. The results for the nine months ended September 30,2023 reflect
a provision
expense of the
reserve for credit
losses of $127.0
million, reflective of
higher loan volumes,
migrations in credit
scores
and changes
in economic
variables related
to consumer
loan portfolios,
compared to
a provision
expense of
$24.9 million
for the
nine months-period ended September 30,2022.
The other factors that contributed to the variance in the financial results
included the
following:
●
Higher net interest income by $5.7 million mainly
due to:
●
higher
interest
income
from
money market
and
investment securities
by
$249.3 million
mainly
due
to
higher
yields
from
money market
investments,
U.S.
Treasury
securities and
mortgage
backed
securities due
to
the
increase in rates,
●
higher interest
income from
loans by
$246.5 million
mainly due
to higher
average balance
from
all portfolios
except construction loans and higher yields due to the
increase in rates;
partially offset by
●
higher interest
expense on
deposits by
$489.5 million
mainly due
to higher
costs on
the market-linked
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 nine
months ended September 30,2023 was 2.67% compared to 2.49% for the
same quarter in
the previous
year.
The increase
in net
interest margin
is driven
by the
earning assets
mix;
partially offset
by higher
cost
of
deposits.
●
An unfavorable variance of $102.0 million on the provision for loan
losses, due to higher loan volumes, migrations in credit
scores and changes in economic variables related
to consumer loan portfolios,
●
Non-interest income was lower by $106.9 million mainly
due to:
●
Lower other operating income by $109.7 million
mostly as result of the Evertec Transactions on 2022;
●
Lower income from mortgage banking activities by $20.3 million mainly due to an unfavorable variance of $15.3
million
in
the
fair
value
adjustment
of
mortgage
service
rights
and
lower
gains
of
$5.5
million
on
hedging
activities.
●
Lower
service
charges
on
deposit
accounts
by
$11.9
million
principally
due
to
lower
returned
ACH
fees
by
$10.6
million
due
to
the
change
in
policy
of
eliminating
insufficient
fund
fees
and
modifying
overdraft
fees
implemented in the third quarter of 2022.
149
partially offset by
●
higher other service fees by $32.7 million mainly due to higher credit card fees by $14.0 million and higher debit
card fees by $3.5 million as a result of higher interchange transactional volumes; and higher merchant acquiring
fees related to the revenue sharing agreement with
Evertec by $7.9 million;
●
Higher operating expenses by $51.4 million mostly due
to:
●
higher
personnel
costs
by
$36.5 million
due
to
salaries
adjustments
as
a
result
of
merit
and
market
related
adjustments, minimum
salaries increases
during the
first quarter
2023, higher
headcount, higher
payroll taxes
and
increase
in
pension
and
health
insurance
costs
by
$5.5
million;
partially
offset
by
a
decrease
in
profit
sharing accrual by $19.9 million and a decrease
in incentive compensation by $1.3 million;
●
higher professional fees
by $13.8 million
mainly due
to costs
associated with initiatives
focused on
regulatory,
compliance and cyber security efforts as well as the transformation
initiative;
●
higher
business
promotions
by
$6.4
million
due
to
higher
customer
rewards
expense
related
to
higher
transactional volumes;
partially offset by
●
lower other
operating expenses
by
$17.4 million
mainly due
to
a $17.3
million charge
related to
the Evertec
Transactions
for the nine months ended
September 30,2022 and lower sundry
losses mortgage by $5.2 million
mainly due
to
a reserve
release adjustment
recorded in
2022; partially
offset
by higher
pension plan
cost
by
$13.2
million
due
to
changes
in
actuarial
assumptions
and
higher
charges
allocated
from
the
Corporate
segment group by $1.2 million, mainly from higher
personnel costs;
●
lower net recoveries from
OREO by $3.2 million
mainly due to lower
gain on sale
of mortgage and commercial
properties;
●
higher
processing
and
transactional
services
by
$14.1
million
mainly
due
to
higher
credit
and
debit
card
processing expense as result of higher transactional
volumes,
partially offset by
●
lower
other
operating
taxes
expenses
by
$6.8
million
mostly
due
to
the
reversal
of
an
accrual
related
to
regulatory examination fees in BPPR by $8.2 million;
●
lower technology
and software
expenses by
$3.3 million
due
in part
to savings
associated with
the acquired
services from Evertec during 2022.
●
Lower income tax expense by $20.1 million is mainly
due lower income before tax.
Popular U.S.
For
the
quarter
ended
September
30,
2023,
the
reportable
segment
of
Popular
U.S.
reported
a
net
income
of
$11.0
million,
compared with a net income of $25.3 million for
the same quarter of the previous year. The factors that contributed to
the variance in
the financial results included the following:
●
Lower
net interest income by $11.4 million due to:
150
●
higher interest
expense on
deposits by
$58.6 million
mainly
due
to
higher interest
rates
and
higher average
balance of time deposits primarily gathered through
its direct online channel,
partially offset by
●
higher interest
income from
loans by
$35.0 million,
mainly from
growth in
the commercial
portfolio as
well as
higher yields due to increase in rates;
and
●
higher interest income
from money market
and investment securities
by $12.9 million
due to
higher yields due
to the increase in market rates.
The
net
interest
margin
for
the
quarter ended
September
30,
2023
was
2.90%
compared
to
3.84%
for
the
same
quarter in
the
previous year.
●
An unfavorable variance of
$16.7 million on the
provision for loan losses
and unfunded commitments reflecting a
release
for
credit
losses
of
$6.6
million
for
the
third
quarter
of
2023
due
to
the
implementation
of
a
new
model
for
the
U.S.
commercial
real
estate
portfolio,
compared
to
a
provision
expense
of
$10.0
million
recorded
in
the
quarter
ended
September 30,2022;
●
Higher operating expenses by $15.5 million mostly due
to:
●
the goodwill impairment
charge related to
our U.S. based
leasing subsidiary of
$23.0 million recorded
in 2023,
due to
lower forecasted
cash flows
and an
increase in
the rate
used to
discount cash
flows, compared
to an
impairment of $9.0 million recorded in 2022, an
unfavorable variance of $14.0 million;
●
higher
other
operating
expenses
by
$0.6
million
mainly
due
to
a
reversal
in
sundry
loss
reserve
registered
during
the
quarter
ended
September
30,2022;
partially
offset
by
a
lower
charges
allocated
from
Corporate
segment group by $0.7 million;
partially offset by
●
lower personnel costs by $0.8 million due to
lower commissions and incentive expense;
●
Lower income tax expense by $5.3 million is related
to a lower income before tax.
For the
nine months
ended September
30, 2023,
the reportable
segment of
Popular U.S.
recorded a
net income
of $51.3
million,
compared with a net income of $80.4 million for the same period of the previous year.
The factors that contributed to the variance in
the financial results included the following:
●
Lowest net interest income by $13.8 million due
to:
●
higher interest expense on deposits by $150.2 million mainly due to higher rates and higher average balance of
time deposits primarily gathered through its direct online
channel;
partially offset by
●
higher interest
income from
loans by
$107.7 million, mainly
from growth
in the
commercial portfolio as
well as
higher yields due to increase in rates;
and
●
higher income
from money
market and
investment securities
by $32.3
million due
to higher
yields and
higher
average balance;
151
The net
interest margin for
the nine
months ended September
30,2023 was 3.08%
compared to
3.72%
for the
same period
in the
previous year.
●
An
unfavorable variance
of
$5.3
million
on
the
provision for
loan
losses
and
unfunded
commitments,
reflective
of
the
updated
macroeconomic
scenarios
offset
by
the
reserve
decrease
due
to
the
implementation
of
the
new
model
for
commercial real estate loans, as discussed above;
●
Higher operating expenses by $30.4 million mostly due
to:
●
the goodwill impairment
charge related to
our U.S. based
leasing subsidiary of
$23.0 million recorded
in 2023,
due to
lower forecasted
cash flows
and an
increase in
the rate
used to
discount cash
flows, compared
to an
impairment of $9.0 million recorded in 2022,
an unfavorable variance of $14.0 million;
●
higher personnel costs by $4.9 million due to salary adjustments;
●
higher other
operating expenses
by $6.0
million due
to higher
charges allocated
from the
Corporate segment
group by $2.3 million, mainly from higher personnel
costs.
●
Lower income tax expense by $17.7 million due
to a lower income before tax.
FINANCIAL CONDITION ANALYSIS
Assets
The Corporation’s total assets were $69.7
billion at September 30, 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 approximately
$774.8 million
at September
30, 2023,
compared to
December 31,
2022,
mainly
due to
the
increase deposits.
Debt securities
available-for-sale decreased
$674.5 million
reflecting repayment,
maturities,
and an increase in
the unrealized loss of
$105.3 million. Debt securities held-to-maturity decreased by
$222.4 million at September
30, 2023, reflecting maturities of U.S. Treasury securities, and the amortization of
$128.7 million of the discount related to securities
previously reclassified from
the available-for-sale to
held-to-maturity,
which have 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
and to
Note 7
to the
Consolidated Financial Statements for additional
information with respect to
the Corporation’s debt securities
available-for-sale and
held-to-maturity.
152
Loans
Refer to Table
6 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 approximately
$2.0 billion to $34.0
billion at September 30,
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 6 - Loans Ending Balances
(In thousands)
September 30, 2023
December 31, 2022
Variance
Loans held-in-portfolio:
Commercial
Commercial multi-family
$
2,328,433
$
2,321,713
$
6,720
Commercial real estate non-owner occupied
5,035,130
4,499,670
535,460
Commercial real estate owner occupied
3,044,905
3,078,549
(33,644)
Commercial and industrial
6,527,082
5,839,200
687,882
Total Commercial
16,935,550
15,739,132
1,196,418
Construction
922,112
757,984
164,128
Leasing
1,698,114
1,585,739
112,375
Mortgage
7,585,111
7,397,471
187,640
Consumer
Credit cards
1,077,428
1,041,870
35,558
Home equity lines of credit
67,499
71,916
(4,417)
Personal
1,952,168
1,823,579
128,589
Auto
3,633,196
3,512,530
120,666
Other
158,135
147,548
10,587
Total Consumer
6,888,426
6,597,443
290,983
Total loans held-in
-portfolio
$
34,029,313
$
32,077,769
$
1,951,544
Loans held-for-sale:
Mortgage
$
5,239
$
5,381
$
(142)
Total loans held-for-sale
$
5,239
$
5,381
$
(142)
Total loans
$
34,034,552
$
32,083,150
$
1,951,402
153
Other assets
Other assets amounted to
$2.0 billion at
September 30, 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
September 30, 2023 and December 31, 2022.
Liabilities
The Corporation’s total
liabilities were $65.3 billion
at September 30,
2023, an increase of
$1.7 billion, compared to
$63.5 billion at
December 31, 2022, mainly due to an increase in
deposits as discussed below.
Deposits and Borrowings
The composition of the Corporation’s financing to total assets
at September 30, 2023 and December 31,
2022 is included in Table 7.
Table 7 - Financing to Total
Assets
September 30,
December 31,
% increase (decrease)
% of total assets
(In millions)
2023
2022
from 2022 to 2023
2023
2022
Non-interest bearing deposits
$
15,201
$
15,960
(4.8)
%
21.8
%
23.6
%
Interest-bearing core deposits
43,599
41,600
4.8
62.5
61.5
Other interest-bearing deposits
4,537
3,667
23.7
6.5
5.4
Repurchase agreements
93
149
(37.6)
0.1
0.2
Other short-term borrowings
-
365
N.M.
-
0.5
Notes payable
1,005
887
13.3
1.5
1.3
Other liabilities
844
917
(8.0)
1.2
1.4
Stockholders’ equity
4,458
4,093
8.9
6.4
6.1
Deposits
The
Corporation’s
deposits
totaled
$63.3
billion
at
September
30,
2023,
compared
to
$61.2
billion
at
December
31,
2022.
The
deposits increase
of
$2.1 billion
was
mainly
in public
sector accounts
at
BPPR coupled
with an
increase in
time
deposits at
PB
gathered through
its direct
channel,
partially offset
by a
decrease in
non-interest bearing
demand deposit
accounts at
both BPPR
and
PB.
At September
30, 2023,
Puerto Rico
public sector
deposits amounted
to
$17.8 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”).
As
of
September
30,
2023,
approximately
28%
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 8 for a breakdown of the Corporation’s deposits at September 30, 2023 and
December 31, 2022.
154
Table 8 - Deposits Ending Balances
(In thousands)
September 30, 2023
December 31, 2022
Variance
Demand deposits
[1]
$
27,942,782
$
26,382,605
$
1,560,177
Savings, NOW and money market deposits (non-brokered)
26,452,382
27,265,156
(812,774)
Savings, NOW and money market deposits (brokered)
734,479
798,064
(63,585)
Time deposits (non-brokered)
7,264,156
6,442,886
821,270
Time deposits (brokered CDs)
943,801
338,516
605,285
Total deposits
$
63,337,600
$
61,227,227
$
2,110,373
[1] Includes interest and non-interest bearing demand deposits.
At September 30, 2023, non-interest bearing
deposits were $15.2 billion (December
31, 2022-$16.0 billion)
Borrowings
The Corporation’s
borrowings totaled $1.1
billion at September
30, 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 September
30,
2023, an
increase of
$364.2 million
when compared
to
December 31,
2022,
principally
due
to
net
income
for
the
nine-months
ended
September
30,
2023
of
$446.7
million,
the
amortization
of
the
unrealized losses
from securities
previously reclassified
to held-to-maturity
as described
above of
$103.0 million,
and the
positive
impact
from
the
adoption of
the new
accounting standard
related to
loan
modifications during
the year
of
$28.8
million, partially
offset by dividends declared
for the nine-month period and
the after-tax impact of the
unfavorable variance in net unrealized losses
in
the
portfolio
of
available-for-sale
securities
of
$120.8
million.
Refer
to
the
Consolidated
Statements
of
Financial
Condition,
Comprehensive Income and of Changes in Stockholders’
Equity for information on the composition of
stockholders’ equity.
155
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 September 30,
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
9,
which include
common equity
tier 1,
Tier
1 capital,
total capital
and leverage
capital as of September 30, 2023 and December
31, 2022.
Table 9 - Capital Adequacy
Data
(Dollars in thousands)
September 30, 2023
December 31, 2022
Common equity tier 1 capital:
Common stockholders equity - GAAP basis
$
4,435,465
$
4,071,282
CECL transitional amount
[1]
84,751
127,127
AOCI related adjustments due to opt-out election
2,476,987
2,468,193
Goodwill, net of associated deferred tax liability (DTL)
(668,764)
(691,560)
Intangible assets, net of associated DTLs
(10,559)
(12,944)
Deferred tax assets and other deductions
(311,164)
(322,412)
Common equity tier 1 capital
$
6,006,716
$
5,639,686
Additional tier 1 capital:
Preferred stock
22,143
22,143
Additional tier 1 capital
$
22,143
$
22,143
Tier 1 capital
$
6,028,859
$
5,661,829
Tier 2 capital:
Trust preferred securities subject to phase in as
tier 2
192,674
192,674
Other inclusions (deductions), net
448,137
431,144
Tier 2 capital
$
640,811
$
623,818
Total risk-based capital
$
6,669,670
$
6,285,647
Minimum total capital requirement to be well capitalized
$
3,573,131
$
3,441,589
Excess total capital over minimum well capitalized
$
3,096,539
$
2,844,058
Total risk-weighted
assets
$
35,731,312
$
34,415,889
Total assets for leverage
ratio
$
71,695,320
$
70,287,610
Risk-based capital ratios:
Common equity tier 1 capital
16.81
%
16.39
%
Tier 1 capital
16.87
16.45
Total capital
18.67
18.26
Tier 1 leverage
8.41
8.06
[1] The CECL transitional amount includes the impact
of Popular's adoption of the new CECL accounting standard
on January 1, 2020.
156
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 September 30, 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 September
30, 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 September 30, 2023,
the Corporation has $10 million in PPP loans and no
loans were pledged 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
September
30,
2023
as
compared to December 31, 2022 was mainly due
to the nine months period earnings, partially offset
by higher risk-weighted assets
driven by the increase in loans held-in-portfolio.
The increase in leverage capital ratio was mainly
due to the period earnings.
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
10 provides
a reconciliation of
total stockholders’ equity
to tangible common
equity and total
assets to
tangible assets
as of
September 30, 2023, and December 31, 2022.
157
Table 10 - Reconciliation
of Tangible Common Equity
and Tangible Assets
(In thousands, except share or per share information)
September 30, 2023
December 31, 2022
Total stockholders’
equity
$
4,457,608
$
4,093,425
Less: Preferred stock
(22,143)
(22,143)
Less: Goodwill
(804,428)
(827,428)
Less: Other intangibles
(10,559)
(12,944)
Total tangible common
equity
$
3,620,478
$
3,230,910
Total assets
$
69,736,936
$
67,637,917
Less: Goodwill
(804,428)
(827,428)
Less: Other intangibles
(10,559)
(12,944)
Total tangible assets
$
68,921,949
$
66,797,545
Tangible common
equity to tangible assets
5.25
%
4.84
%
Common shares outstanding at end of period
72,127,595
71,853,720
Tangible book value
per common share
$
50.20
$
44.97
Quarterly average
Total stockholders’
equity [1]
$
6,636,364
$
6,161,634
Less: Preferred Stock
(22,143)
(22,143)
Less: Goodwill
(827,177)
(827,427)
Less: Other intangibles
(11,083)
(13,440)
Total tangible common
equity
$
5,775,961
$
5,298,624
Return on average tangible common equity
9.36
%
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.
158
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 $17.1 billion
as of September 30,
2023. Other assets subject
to market
risk include loans
held-for-sale, which amounted to
$5 million, mortgage servicing
rights (“MSRs”) which amounted
to $119
million,
and securities classified as “trading”, which amounted
to $31 million, as of September 30, 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 September
30, 2023
and December
31, 2022,
assuming a
static balance
sheet and
parallel changes
over flat spot rates over a one-year time horizon:
159
Table 11
- Net Interest Income Sensitivity (One Year
Projection)
September 30, 2023
December 31, 2022
(Dollars in thousands)
Amount Change
Percent Change
Amount Change
Percent Change
Change in interest rate
+400 basis points
$
26,390
1.21
%
$
(38,402)
(1.75)
%
+200 basis points
13,661
0.63
(18,003)
(0.82)
+100 basis points
7,426
0.34
(7,748)
(0.35)
-100 basis points
25,732
1.18
8,778
0.40
-200 basis points
28,315
1.30
9,296
0.42
The
results
of
the
NII
simulations
at
December
31,
2022
in
the
table
above
have
been
adjusted
from
those
reported
in
the
Corporation’s
Form
10-K
to
reflect
the
effect
of
changes
in
modeling
assumptions
in
down
rate
scenario
simulations
for
certain
variable
rate
loans.
Specifically,
the
yield
on
certain
variable
rate
loans
that
did
not
have
contractual
periodic
floors,
were
not
correctly repricing in the down rate simulations.
Although as a result of such adjustment the magnitude of the Corporation’s sensitivity to decreases in interest rates becomes lower,
as
of
December
31,
2022,
the
NII
simulations
continue
to
show
that
the
Corporation
had
a
neutral
to
slightly
liability
sensitive
position driven
by the
rapid increase
in short-term
interest rates
throughout the
year and
its impact
on Puerto
Rico public
sector
deposits which are indexed to
market rates, as well
as the deployment of cash
to fund loan growth
and purchase investments. The
results as
of such
date suggest
that changes
in net
interest income
are driven
by changes
in liability
costs, primarily
Puerto Rico
public sector
deposits. 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 of September 30, 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 driven
by an
increase in
overnight Fed
Funds and
short-term U.S
Treasury Bills
(“T- Bills”)
on the
asset side
partially
offset by
higher Puerto
Rico public
sector deposits
which are
indexed to
market rates.
These results
suggest that
changes in
the
Corporation’s net
interest income sensitivity
are driven by
changes in the
composition of the
investment portfolio as
the term
bond
portfolio
continues
to
run
off
and
get
reinvested in
short-term
investments such
as
T-Bills.
Additionally,
variation
in
liability cost,
primarily driven by
Puerto Rico public
sector deposits that
represented $17.8 billion
or 28% of
deposits as of
September 30, 2023,
also impact the sensitivity
profile.
In declining rate scenarios net
interest income would increase as
the decline in the cost
of these
deposit generates a greater benefit than
the changes in assets yields.
In rising rate scenarios, Popular’s net
interest income is also
impacted by its large proportion
of Puerto Rico public sector
deposit, however the repricing of assets
as they either reset
or mature
lead to an increase in net interest income.
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
160
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 September 30, 2023, the Corporation held trading securities
with a fair value of $31 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 12, the
trading
portfolio
consists
principally
of
mortgage-backed
securities
and
U.S.
Treasuries,
which
at
September
30,
2023
were
investment grade securities.
Table 12 - Trading
Portfolio
September 30, 2023
December 31, 2022
(Dollars in thousands)
Amount
Weighted
Average Yield
[1]
Amount
Weighted
Average Yield
[1]
Mortgage-backed securities
$
14,884
5.70
%
$
14,223
5.79
%
U.S. Treasury securities
15,644
4.71
13,069
3.26
Collateralized mortgage obligations
52
5.28
160
5.51
Puerto Rico government obligations
57
0.43
64
0.45
Interest-only strips
188
12.00
207
12.00
Other (includes related trading derivatives)
163
5.60
-
-
Total
$
30,988
5.23
%
$
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 $0.3
million for the
last week in
September 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
161
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.
Deposits, including
customer deposits,
brokered deposits
and public
funds deposits,
continue to
be the
most significant
source of
funds for the Corporation, funding
91% of the Corporation’s total assets at September 30, 2023 and December 31, 2022.
The ratio
of
total
ending
loans
to
deposits
was
54%
at
September
30,
2023
and
52%
at
December
31,
2022.
In
addition
to
traditional
deposits, the Corporation maintains borrowing arrangements, which amounted to approximately $1.1 billion in outstanding balances
at September
30, 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
third quarter
of 2023
the Corporation
had no
material incremental
use of
its available
liquidity sources.
At September
30,2023,
the
Corporation’s
available
liquidity
increased
to
$18.8
billion
from
$17.0
billion
on
December
31,
2022.
The
liquidity
sources of the Corporation at September 30,2023
are presented in Table 13:
Table 13 - Liquidity Sources
30-Sep-23
31-Dec-22
(Dollars 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)
$
5,533,314
$
850,248
$
6,383,562
$
5,240,100
$
367,966
$
5,608,066
Unpledged securities
3,927,353
273,313
4,200,666
7,494,189
326,599
7,820,788
FHLB borrowing capacity
2,236,318
1,420,913
3,657,231
1,389,579
722,005
2,111,584
Discount window of the Federal Reserve
Bank borrowing capacity
2,559,938
1,994,936
4,554,874
1,090,308
329,385
1,419,693
Total available liquidity
$
14,256,923
$
4,539,410
$
18,796,333
$
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.
162
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.
Deposits are
a key
source of
funding. Refer
to Table
8 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
interest-bearing
transactional
deposit
accounts,
non-interest
bearing
deposits,
and
savings
deposits.
Core
deposits
exclude
brokered deposits and certificate of
deposits over $250,000. Core
deposits, excluding P.R.
public funds that are
fully collateralized,
have
historically
provided
the
Corporation with
a
sizable
source
of
relatively stable
and
low-cost funds.
P.R.
public funds,
while
linked to
market interest
rates, provide
a stable
source of
funding with
an attractive
earnings spread.
Core deposits
totaled $58.8
billion, or
93% of
total deposits,
at September
30, 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 September
30, 2023,
compared with
90% at
December
31, 2022.
The distribution by maturity of certificates of deposits with denominations of $250,000 and
over at September 30, 2023 is presented
in the table that follows:
Table 14 - Distribution by
Maturity of Certificate of Deposits of $250,000 and Over
(In thousands)
3 months or less
$
1,836,911
Over 3 to 12 months
723,996
Over 1 year to 3 years
217,399
Over 3 years
165,956
Total
$
2,944,262
The Corporation had
$1.7 billion in
brokered deposits at September
30, 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 September 30,
2023, total public
sector deposits were $17.8 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 September 30, 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
163
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
higher
potential
liquidity
risk.
Table
15
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
15,
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
September
30,2023,
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
$11.3
billion
or
21%
at
BPPR
and
$2.4
billion
or
23%
at
Popular
U.S.,
compared
to
available
liquidity sources of $ 14.3 billion at BPPR and
$ 4.5 billion at Popular U.S.
164
Table 15 - Deposits
30-Sep-23
Popular, Inc.
(Dollars in thousands)
BPPR
% of Total
Popular U.S.
% of Total
(Consolidated)
% of Total
Deposits:
Deposits balances under $250,000 [1]
$
23,971,025
45
%
$
6,965,757
67
%
$
30,936,782
49
%
Transactional deposits balances over
$250,000
9,396,047
17
%
2,056,655
20
%
11,452,702
18
%
Time deposits balances over $250,000
1,948,475
4
%
297,277
3
%
2,245,752
3
%
Uninsured foreign deposits
403,206
1
%
-
-
%
403,206
1
%
Collateralized public funds
18,012,588
33
%
286,570
3
%
18,299,158
29
%
Intercompany deposits
107,293
-
%
696,101
7
%
-
-
%
Total deposits
$
53,838,634
100
%
$
10,302,360
100
%
$
63,337,600
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.
(Dollars 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.
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
$592
million
at
September
30,
2023
and
$497
million
at
December 31, 2022.
The contractual maturities of the BHCs notes payable
at September 30, 2023 are presented in Table 16.
165
Table 16
- Distribution of BHC's Notes Payable by Contractual
Maturity
Year
(In thousands)
2028
$
393,678
Later years
198,339
Total
$
592,017
As of
September 30,
2023, the
BHCs had
cash and
money markets
investments totaling
$368 million
and borrowing
potential of
$222 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
used a
portion of
the net
proceeds of
the 2028
Notes offering
to redeem,
on August 14,
2023, the outstanding
$300 million aggregate
principal amount of
its outstanding 6.125%
Senior Notes which were
due on September 2023.
For the remainder of
year 2023, debt service
at the BHCs is
approximately $11
million. 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.
During the
nine
months
ended
September
30,
2023,
Popular,
Inc.
made
capital
contributions
to
its
wholly
owned
subsidiaries
of
$1.3
million
to
Popular Impact Fund and $0.2 million to Popular
Global Solutions.
Dividends
During
the
nine
months
ended
September
30,
2023,
the
Corporation
declared
cash
dividends
of
$1.65
per
common
share
outstanding ($118.9 million in the aggregate). The dividends for the Corporation’s Series A preferred stock amounted to $1.1 million.
During the nine months ended September 30, 2023, the BHCs received
dividends amounting to $150 million from BPPR, $50 million
from PNA and $4 million from its non-banking
subsidiaries. In addition, during the nine months ended September 30,
2023, Popular
International Bank Inc.,
wholly owned subsidiary of
Popular, Inc.,
received $14.1 million in
cash dividends and
$2.1 million in
stock
dividends from its investment in BHD.
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 $ 6.4 billion at September 30,2023,
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
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
$ 4.2
billion at
September 30,
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).
166
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
May
11,
2023,
the
Federal
Deposit
Insurance
Corporation
(“FDIC”)
released
a
proposed
rule
that
would
impose
special
assessments
to
recover
the
losses
to
the
deposit
insurance
fund
(“DIF”)
resulting
from
the
FDIC’s
use,
in
March
2023,
of
the
systemic risk exception to the least-cost resolution test under
the Federal Deposit Insurance Act in connection with the receiverships
of Silicon Valley Bank and Signature Bank.
The
FDIC
stated
that
it
currently
estimates
those
assessed
losses
to
total
$15.8
billion
and
that
the
amount
of
the
special
assessments would be adjusted as the loss
estimate changes. Under the proposed rule, the assessment base would
be an insured
depository institution’s (“IDI”)
estimated uninsured deposits, as
reported in the
IDI’s December 31,
2022 Call Report,
excluding the
first
$5
billion
in
estimated
uninsured
deposits.
For
a
holding
company
that
has
more
than
one
IDI
subsidiary,
such
as
the
Corporation, the $5 billion exclusion would be
allocated among the company’s IDI subsidiaries
in proportion to each IDI’s
estimated
uninsured deposits. The special assessments would be collected at an
annual rate of approximately 12.5 basis points per year (3.13
basis points per quarter) over eight quarters in 2024 and 2025, with the first assessment period beginning January 1, 2024 (with
the
first
assessment
payment
due
by
June
28,
2024).
Under
the
proposed
rule,
the
estimated
loss
pursuant
to
the
systemic
risk
determination
would be
periodically adjusted,
and
the
FDIC
would retain
the
ability to
cease
collection
early,
extend the
special
assessment collection period and impose
a final shortfall special
assessment on a one-time basis. In
their December 31, 2022
Call
Reports, BPPR and PB reported estimated uninsured deposits of approximately $28.1 billion and $3.5 billion, respectively.
Although
the proposal could be changed, the assessments, as proposed, would
be recorded as an expense in the period in which this
change
is enacted.
Such expense
would significantly affect
noninterest expense and
the results
of operations for
the quarter
in which
it is
recognized. If the
final rule is
adopted as proposed,
the special assessment
for the
Corporation is estimated
at approximately $66
million. The actual assessment may vary as a result
of the final rule, including any changes to the calculation
methodology.
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
167
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
September 30, 2023
and December 31,
2022, and the
results of their
operations for the
nine months period
ended September 30,
2023
and
September
30,
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.
168
Table 17 - Summarized Statement
of Condition
(In thousands)
September 30, 2023
December 31, 2022
Assets
Cash and money market investments
$
367,808
$
203,083
Investment securities
28,426
24,815
Accounts receivables from non-obligor subsidiaries
12,296
16,853
Other loans (net of allowance for credit losses of $17 (2022
- $370))
27,255
27,826
Investment in equity method investees
5,268
5,350
Other assets
56,678
45,278
Total assets
$
497,731
$
323,205
Liabilities and Stockholders' deficit
Accounts payable to non-obligor subsidiaries
$
11,302
$
3,709
Notes payable
592,017
497,428
Other liabilities
108,535
112,847
Stockholders' deficit
(214,123)
(290,779)
Total liabilities and
stockholders' deficit
$
497,731
$
323,205
Table 18 - Summarized Statement
of Operations
For the period ended
(In thousands)
September 30, 2023
September 30, 2022
Income:
Dividends from non-obligor subsidiaries
$
154,000
$
454,000
Interest income from non-obligor subsidiaries and affiliates
12,280
594
(Losses) earnings from investments in equity method investees
(82)
15,698
Other operating income
2,293
136,140
Total income
$
168,491
$
606,432
Expenses:
Services provided by non-obligor subsidiaries and affiliates
(net of
reimbursement by subsidiaries for services provided by parent
of
$161,333 (2022 - $157,754))
$
16,593
$
12,697
Other operating expenses
20,706
19,399
Total expenses
$
37,299
$
32,096
Net income
$
131,192
$
574,336
During the nine months period ended
September 30, 2022, the Obligor group recorded
$1.5 million of distributions from
its
direct equity
method investees.
During the
nine months
period ended
September 30,
2023, the
obligor group
recorded a
$50.0
million
of
dividend
dsitribution from
a
non-obligor subsidiary
wich
was
recorded as
a
reduction to
the
investment
(2022 - $53.5 million).
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
169
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
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 nine
months ended
September 30,
2023, BPPR declared cash dividends
of $150 million. At September
30, 2023, BPPR can declare
a dividend of approximately $402
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 $7.8
million in
deposits at
September 30, 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
$27.8
million
at
September
30,
2023.
The
Corporation
could
be
required
to
post
additional
collateral
under
the
170
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.
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
3.3% year-over-year increase
and a
0.2% month-over-month decrease
in August
2023. 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
3.7%
during
the
12-month
period
ended
September 2023.
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 3.3%
during the
12-month
period
ended September
2023.
The
rate
of
inflation has
gradually decreased from
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-
171
court process that incorporates many of the
powers and provisions of the U.S. Bankruptcy Code
and permits adjustment of a broad
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 the
Puerto
Rico
Industrial
Development
Company
recently
commenced
a
solicitation
process
to
restructure
its
revenue
bonds
in
a
proceeding under Title VI of 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
were scheduled
to
be ultimately
eliminated by
fiscal year
2025
as
part
of the
fiscal
measures required
by
the Oversight
Board. However,
over the
past
years, the
Oversight Board
has
authorized and
funded
new
appropriations
and
investments
to
offset
the
decline
in
intergovernmental
transfers
to
municipalities.
Beyond
those
sources
of
alternate funding, municipalities have
also received significant federal
disaster and COVID-relief funding in
recent years. According
to the
latest Puerto
Rico fiscal
plan certified
by the
Oversight Board,
taken together,
the funding
available to
municipalities in
the
near-term is substantial. The fiscal
plan notes, however, that
the desired progress to achieve
fiscal discipline and implement critical
reforms has not been achieved,
and that municipalities must work with
the Executive branch to analyze
the financial needs of
each
individual municipality and focus on the necessary enhancements in municipal shared services and other
municipal and government
initiatives. Pursuant to
the fiscal plan,
once the transformational measures
and milestones related to
these initiatives are
achieved,
additional funding from the central government may be
made available to municipalities to improve fiscal
sustainability.
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 September
30, 2023,
the Corporation’s
direct exposure
to PR
Government Entities
totaled $362
million, of
which $333
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, $314 million
consists of loans and
$19 million are securities ($302
million and $25 million,
respectively,
at December 31,
2022). All
of the
Corporation’s direct exposure
outstanding at September
30, 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
September 30,
2023,
76% of
the Corporation’s
exposure to
municipal loans
and securities
was concentrated
in the
municipalities of
San Juan,
Guaynabo, Carolina
and Caguas.
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
September
30,
2023,
the
Corporation
had
$242
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
$195
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
172
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
September
30,
2023,
$40
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.
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
September
30,
2023,
BPPR
had
$17.8
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 September 30,
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
was
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
September
30,
2023,
it
has
a
loan
portfolio
amounting
to
approximately
$201
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, $1.7 billion
of residential mortgages, $10 million of SBA loans under the
Paycheck Protection Program (“PPP”) and $72 million
commercial loans were insured or guaranteed by
the U.S. Government or its
agencies at September 30, 2023 (compared to
$1.6 billion, $38 million and $72 million, respectively, at December 31,
2022).
173
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
third quarter
of 2023,
the Corporation
continued to
reflect stable
credit quality
metrics. Non-performing
loans (“NPLs”)
and net charge offs (“NCOs”) continued below historical pre-pandemic averages. Consumer portfolios, however, reflected increased
delinquencies and NCOs for the quarter primarily due
to the expected continued credit normalization.
We continue to closely monitor
changes in the macroeconomic environment and on
borrower performance, especially our unsecured consumer loans, given higher
interest
rates
and
inflationary
pressures.
However,
management
believes
that
the
improvements
over
recent
years
in
risk
management practices and the
risk profile of
the Corporation’s loan portfolios
positions Popular to continue
to operate successfully
under the current environment.
Total
NPAs
decreased
by
$85
million
when
compared
with
December
31,
2022.
Total
non-performing
loans
held-in-portfolio
(“NPLs”)
decreased
by
$78
million
from
December
31,
2022.
BPPR’s
NPLs
decreased
by
$68
million,
mainly
driven
by
lower
mortgage,
consumer
and
commercial
NPLs
by
$55
million,
$11
million,
and
$10
million
respectively,
in
part
offset
by
higher
construction NPLs
by $7
million.
The consumer
NPLs decrease
was mostly
driven by
a $11
million line
of credit
charge-off on
a
single relationship,
while the
construction NPLs
increase was
driven by
a $9
million relationship,
which impairment
amount of
$3
million was
charged-off during
the third
quarter of
2023.
Popular U.S.
NPLs decreased
by $10
million from
December 31,
2022,
mainly driven by
lower mortgage NPLs by
$9 million. On September
30, 2023, the
ratio of NPLs to
total loans held-in-portfolio was
1.1% compared to 1.4%, at December 31,
2022. Other real estate owned loans (“OREOs”) decreased by
$7 million. On September
30,
2023,
NPLs secured
by
real estate
amounted to
$255 million
in
the Puerto
Rico
operations and
$23
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
$10.4 billion
at September
30, 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
$635 million
of our
total loan
portfolio.
The exposure is
mainly comprised of
low- to
mid- rise
properties with average
loan size
of
$2.1 million and is well diversified across tenant
type.
CRE NPLs amounted to $56 million at September 30, 2023, compared with $54 million at December 31, 2022. The
CRE NPL ratios
for the BPPR
and Popular U.S. segments were
1.09% and 0.09%, respectively,
at September 30, 2023, compared
with 1.04% and
0.12%, respectively, at December 31, 2022.
In
addition
to
the
NPLs
included
in
Table
21,
at
September
30,
2023,
there
were
$519
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
quarter ended
September 30,
2023, total
inflows of
NPLs held-in-portfolio,
excluding consumer
loans, decreased
by $12
million, when compared to the inflows for the same period in 2022. Inflows of NPLs held-in-portfolio at the BPPR segment increased
slightly by $2 million, compared to the same period in
2022. Inflows of NPLs held-in-portfolio at the Popular
U.S. segment decreased
by $14 million from the same period in 2022,
mainly driven by lower commercial inflows.
174
Table 19 - Non-Performing
Assets
September 30, 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
Commercial multi-family
$
184
$
404
$
588
-
%
$
242
$
-
$
242
-
%
Commercial real estate non-owner
occupied
15,330
734
16,064
0.3
23,662
1,454
25,116
0.6
Commercial real estate owner
occupied
35,089
3,877
38,966
1.3
23,990
5,095
29,085
0.9
Commercial and industrial
21,624
3,579
25,203
0.4
34,277
4,319
38,596
0.7
Total Commercial
72,227
8,594
80,821
0.5
82,171
10,868
93,039
0.6
Construction
6,578
-
6,578
0.7
-
-
-
-
Leasing
6,842
-
6,842
0.4
5,941
-
5,941
0.4
Mortgage
187,443
11,980
199,423
2.6
242,391
20,488
262,879
3.6
Consumer
Home equity lines of credit
-
4,085
4,085
6.1
-
4,110
4,110
5.7
Personal
18,582
2,637
21,219
1.1
18,082
1,958
20,040
1.1
Auto
40,268
-
40,268
1.1
40,978
-
40,978
1.2
Other Consumer
1,885
402
2,287
1.4
12,446
8
12,454
8.4
Total Consumer
60,735
7,124
67,859
1.0
71,506
6,076
77,582
1.2
Total non-performing
loans held-in-
portfolio
333,825
27,698
361,523
1.1
%
402,009
37,432
439,441
1.4
%
Other real estate owned (“OREO”)
82,115
207
82,322
88,773
353
89,126
Total non-performing
assets
[1]
$
415,940
$
27,905
$
443,845
$
490,782
$
37,785
$
528,567
Accruing loans past due 90 days or
more
[2]
$
264,082
$
130
$
264,212
$
351,248
$
366
$
351,614
Ratios:
Non-performing assets to total assets
0.75
%
0.20
%
0.64
%
0.89
%
0.30
%
0.78
%
Non-performing loans held-in-portfolio
to loans held-in-portfolio
1.40
0.27
1.06
1.78
0.39
1.37
Allowance for credit losses to loans
held-in-portfolio
2.63
0.84
2.09
2.73
1.10
2.25
Allowance for credit losses to non-
performing loans, excluding held-for-
sale
187.08
312.42
196.69
153.12
279.86
163.91
[1] There were no non-performing loans held-for-sale
as of September 30, 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 $115
million of
residential mortgage
loans insured
by FHA
or guaranteed
by the
VA
that are
no longer
accruing interest
as of
September 30,
2023 (December
31, 2022
- $190
million).
Furthermore,
the Corporation
has approximately
$39 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).
175
Table 20 - Activity in Non
-Performing Loans Held-in-Portfolio (Excluding Consumer
Loans)
For the quarter ended September 30, 2023
For the nine months ended September 30, 2023
(Dollars in thousands)
BPPR
Popular U.S.
Popular, Inc.
BPPR
Popular U.S.
Popular, Inc.
Beginning balance
$
292,219
$
26,187
$
318,406
$
324,562
$
31,356
$
355,918
Plus:
New non-performing loans
37,393
5,827
43,220
128,011
23,446
151,457
Advances on existing non-performing loans
-
12
12
-
155
155
Less:
Non-performing loans transferred to OREO
(5,657)
-
(5,657)
(25,777)
(58)
(25,835)
Non-performing loans charged-off
(3,354)
(2,446)
(5,800)
(4,854)
(4,837)
(9,691)
Loans returned to accrual status / loan collections
(54,353)
(9,006)
(63,359)
(155,694)
(29,488)
(185,182)
Ending balance NPLs
$
266,248
$
20,574
$
286,822
$
266,248
$
20,574
$
286,822
Table 21 - Activity in Non
-Performing Loans Held-in-Portfolio (Excluding Consumer
Loans)
For the quarter ended September 30, 2022
For the nine months ended September 30, 2022
(Dollars in thousands)
BPPR
Popular U.S.
Popular, Inc.
BPPR
Popular U.S.
Popular, Inc.
Beginning balance
$
381,163
$
27,638
$
408,801
$
454,419
$
27,501
$
481,920
Plus:
New non-performing loans
35,258
19,704
54,962
117,909
38,621
156,530
Advances on existing non-performing loans
-
67
67
-
2,817
2,817
Less:
Non-performing loans transferred to OREO
(5,956)
-
(5,956)
(30,893)
(85)
(30,978)
Non-performing loans charged-off
(5,223)
(48)
(5,271)
(7,192)
(337)
(7,529)
Loans returned to accrual status / loan collections
(65,021)
(9,400)
(74,421)
(194,022)
(30,556)
(224,578)
Ending balance NPLs
$
340,221
$
37,961
$
378,182
$
340,221
$
37,961
$
378,182
Table 22 - Activity in Non
-Performing Commercial Loans Held-in-Portfolio
For the quarter ended September 30, 2023
For the nine months ended September 30, 2023
(Dollars in thousands)
BPPR
Popular U.S.
Popular, Inc.
BPPR
Popular U.S.
Popular, Inc.
Beginning balance
$
88,716
$
11,610
$
100,326
$
82,171
$
10,868
$
93,039
Plus:
New non-performing loans
2,736
1,324
4,060
22,533
11,674
34,207
Advances on existing non-performing loans
-
7
7
-
35
35
Less:
Non-performing loans transferred to OREO
(138)
-
(138)
(446)
-
(446)
Non-performing loans charged-off
(969)
(2,446)
(3,415)
(2,237)
(4,837)
(7,074)
Loans returned to accrual status / loan
collections
(18,118)
(1,901)
(20,019)
(29,794)
(9,146)
(38,940)
Ending balance NPLs
$
72,227
$
8,594
$
80,821
$
72,227
$
8,594
$
80,821
176
Table 23 - Activity in Non
-Performing Commercial Loans Held-in-Portfolio
For the quarter ended September 30, 2022
For the nine months ended September 30, 2022
(Dollars in thousands)
BPPR
Popular U.S.
Popular, Inc.
BPPR
Popular U.S.
Popular, Inc.
Beginning balance
$
96,493
$
7,446
$
103,939
$
120,047
$
5,532
$
125,579
Plus:
New non-performing loans
5,913
14,965
20,878
13,706
25,289
38,995
Advances on existing non-performing loans
-
12
12
-
2,518
2,518
Less:
Non-performing loans transferred to OREO
(352)
-
(352)
(4,318)
-
(4,318)
Non-performing loans charged-off
(4,534)
(48)
(4,582)
(5,741)
(210)
(5,951)
Loans returned to accrual status / loan collections
(10,072)
(5,947)
(16,019)
(36,246)
(16,701)
(52,947)
Ending balance NPLs
$
87,448
$
16,428
$
103,876
$
87,448
$
16,428
$
103,876
Table 24 - Activity in Non
-Performing Construction Loans Held-in-Portfolio
For the quarter ended September 30, 2023
For the nine months ended September 30, 2023
(Dollars in thousands)
BPPR
Popular U.S.
Popular, Inc.
BPPR
Popular U.S.
Popular, Inc.
Beginning balance
$
9,284
$
-
$
9,284
$
-
$
-
$
-
Plus:
New non-performing loans
-
-
-
9,284
-
9,284
Less:
Non-performing loans charged-off
(2,537)
-
(2,537)
(2,537)
-
(2,537)
Loans returned to accrual status / loan collections
(169)
-
(169)
(169)
-
(169)
Ending balance NPLs
$
6,578
$
-
$
6,578
$
6,578
$
-
$
6,578
Table 25 - Activity in Non
-Performing Construction Loans Held-in-Portfolio
For the quarter ended September 30, 2022
For the nine months ended September 30, 2022
(Dollars in thousands)
BPPR
Popular U.S.
Popular, Inc.
BPPR
Popular U.S.
Popular, Inc.
Beginning balance
$
-
$
-
$
-
$
485
$
-
$
485
Less:
Loans returned to accrual status / loan collections
-
-
-
(485)
-
(485)
Ending balance NPLs
$
-
$
-
$
-
$
-
$
-
$
-
177
Table 26 - Activity in Non
-Performing Mortgage Loans Held-in-Portfolio
For the quarter ended September 30, 2023
For the nine months ended
September 30,
2023
(Dollars in thousands)
BPPR
Popular
U.S.
Popular, Inc.
BPPR
Popular U.S.
Popular, Inc.
Beginning balance
$
194,219
$
14,577
$
208,796
$
242,391
$
20,488
$
262,879
Plus:
New non-performing loans
34,657
4,503
39,160
96,194
11,772
107,966
Advances on existing non-performing loans
-
5
5
-
120
120
Less:
Non-performing loans transferred to OREO
(5,519)
-
(5,519)
(25,331)
(58)
(25,389)
Non-performing loans charged-off
152
-
152
(80)
-
(80)
Loans returned to accrual status / loan
collections
(36,066)
(7,105)
(43,171)
(125,731)
(20,342)
(146,073)
Ending balance NPLs
$
187,443
$
11,980
$
199,423
$
187,443
$
11,980
$
199,423
Table 27 - Activity in Non
-Performing Mortgage Loans Held-in-Portfolio
For the quarter ended September 30, 2022
For the nine months ended September 30, 2022
(Dollars in thousands)
BPPR
Popular
U.S.
Popular, Inc.
BPPR
Popular U.S.
Popular, Inc.
Beginning balance
$
284,670
$
20,192
$
304,862
$
333,887
$
21,969
$
355,856
Plus:
New non-performing loans
29,345
4,739
34,084
104,203
13,332
117,535
Advances on existing non-performing loans
-
55
55
-
299
299
Less:
Non-performing loans transferred to OREO
(5,604)
-
(5,604)
(26,575)
(85)
(26,660)
Non-performing loans charged-off
(689)
-
(689)
(1,451)
(127)
(1,578)
Loans returned to accrual status / loan collections
(54,949)
(3,453)
(58,402)
(157,291)
(13,855)
(171,146)
Ending balance NPLs
$
252,773
$
21,533
$
274,306
$
252,773
$
21,533
$
274,306
178
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 on September 30, 2023 and December 31,
2022, are presented below.
Table 28 - Loan Delinquen
cies
(Dollars in thousands)
September 30, 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
Commercial multi-family
$
6,503
$
2,328,433
0.28
%
$
2,844
$
2,321,713
0.12
%
Commercial real estate
non-owner occupied
19,966
5,035,130
0.40
26,969
4,499,670
0.60
Commercial real estate
owner occupied
42,643
3,044,905
1.40
30,059
3,078,549
0.98
Commercial and industrial
37,656
6,527,082
0.58
59,604
5,839,200
1.02
Total Commercial
106,768
16,935,550
0.63
119,476
15,739,132
0.76
Construction
6,578
922,112
0.71
-
757,984
-
Leasing
29,331
1,698,114
1.73
21,487
1,585,739
1.36
Mortgage
[1]
808,310
7,585,111
10.66
937,253
7,397,471
12.67
Consumer
Credit cards
37,070
1,077,428
3.44
24,065
1,041,870
2.31
Home equity lines of credit
5,491
67,499
8.13
4,684
71,916
6.51
Personal
57,578
1,952,168
2.95
45,299
1,823,579
2.48
Auto
152,740
3,633,196
4.20
129,089
3,512,530
3.68
Other
3,622
158,135
2.29
13,264
147,548
8.99
Total Consumer
256,501
6,888,426
3.72
216,401
6,597,443
3.28
Loans held-for-sale
-
5,239
-
-
5,381
-
Total
$
1,207,488
$
34,034,552
3.55
%
$
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 September
30, 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
179
level of
the allowance
for credit
losses. Consequently,
the business
financial condition,
liquidity,
capital, and
results of
operations
could also be affected.
The
ACL
incorporated
updates macroeconomic
scenarios
for
Puerto
Rico
and
the
United
States.
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,
and then the optimistic scenario.
The
2023
annualized GDP
growth in
the
baseline scenario
improved to
1.7%
and
2.0%
for
Puerto
Rico
and
the
United
States,
respectively, compared to 1.5% and 1.6%
in the previous quarter. The 2023 forecasted average unemployment rate for
Puerto Rico
improved to
6.1% from
6.3% in
the previous
forecast, while
in the
United States
unemployment levels
remained at
3.6%, stable
when compared to the previous forecast.
At September
30, 2023,
the allowance
for credit
losses amounted
to $711
million, a
decrease of
$9 million,
when compared
with
December 31, 2022.
In PB the
ACL decreased by
$18 million from
December 31, 2022,
while in BPPR
the ACL increased
by $9
million. 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 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
$51
million,
while the
ACL
for
Popular
U.S
decreased
by
$15
million
from
December 31,
2022. The
increase in
BPPR
were mostly
driven by
higher reserves
for the
auto
and personal
loans
portfolios attributable to
credit normalization, changes
in macroeconomic scenarios,
and loan growth,
partially offset by
changes in
the
assignments
of
probability
weights
to
macroeconomic
scenarios,
as
previously
mentioned,
and
reductions
in
qualitative
reserves.
In
PB,
the
ACL
decrease was
mostly
due
to
the
implementation of
a
new
model for
the U.S.
commercial real
estate
portfolio. The new model is based on more granular regional
information for the Corporation’s portfolio and accounted for $15 million
of PB’s reduction in ACL.
As
part
of
the
Corporation’s
model
governance
procedures
a
new
model
was
implemented
for
the
U.S
commercial
real
estate
segment. The new model
enhances techniques used to capture default
activity within the Corporation’s geographical footprint.
This
enhancement is considered a change
in estimate. As part of
the implementation analysis management evaluated the
credit metrics
of
the
portfolio
such
as
risk
ratings,
delinquency
levels,
and
low
exposure
to
the
commercial
office
sector.
Qualitative
reserves
continue to be maintained to address risks within
the U. S. commercial real estate segment.
The Corporation’s ratio of the allowance for
credit losses to loans held-in-portfolio was 2.09% on
September 30, 2023, compared to
2.25% on December 31,
2022.
The ratio of the
allowance for credit losses
to NPLs held-in-portfolio stood at
196.7%, compared to
163.9% on December 31, 2022.
The provision for
credit losses for
the period ended
September 30, 2023,
amounted to an
expense of $44
million, compared to
an
expense of $40 million for the period ended September 30, 2022. The provision expense related to the loans-held-in-portfolio for the
nine-month period ended
September 30, 2023
was $126 million,
compared to an
expense of $35
million for the
nine-month period
ended
September
30,2022,
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.
180
Table 29 - Allowance for Credit
Losses - Loan Portfolios
September 30, 2023
(Dollars in thousands)
Total ACL
Total loans held-
in-portfolio
ACL to loans held-
in-portfolio
Total non-
performing loans
held-in-portfolio
ACL to non-
performing loans
held-in-portfolio
Commercial
Commercial multi-family
$
15,223
$
2,328,433
0.65
%
588
N.M.
Commercial real estate non-owner occupied
67,149
5,035,130
1.33
%
16,064
418.01
%
Commercial real estate owner occupied
48,109
3,044,905
1.58
%
38,966
123.46
%
Commercial and industrial
103,585
6,527,082
1.59
%
25,203
411.00
%
Total Commercial
$
234,066
$
16,935,550
1.38
%
80,821
289.61
%
Construction
10,971
922,112
1.19
%
6,578
166.78
%
Leasing
10,198
1,698,114
0.60
%
6,842
149.05
%
Mortgage
91,904
7,585,111
1.21
%
199,423
46.08
%
Consumer
Credit cards
72,550
1,077,428
6.73
%
-
N.M.
%
Home equity lines of credit
2,387
67,499
3.54
%
4,085
58.43
%
Personal
126,116
1,952,168
6.46
%
21,219
594.35
%
Auto
155,436
3,633,196
4.28
%
40,268
386.00
%
Other Consumer
7,440
158,135
4.70
%
2,287
325.32
%
Total Consumer
$
363,929
$
6,888,426
5.28
%
67,859
536.30
%
Total
$
711,068
$
34,029,313
2.09
%
361,523
196.69
%
N.M - Not meaningful.
Table 30 - Allowance for Credit
Losses - Loan Portfolios
December 31, 2022
(Dollars in thousands)
Total ACL
Total loans held-
in-portfolio
ACL to loans held-
in-portfolio
Total non-
performing loans
held-in-portfolio
ACL to non-
performing loans
held-in-portfolio
Commercial
Commercial multi-family
$
26,311
$
2,321,713
1.13
%
242
N.M.
Commercial real estate non-owner occupied
71,540
4,499,670
1.59
%
25,116
284.84
%
Commercial real estate owner occupied
57,081
3,078,549
1.85
%
29,085
196.26
%
Commercial and industrial
80,444
5,839,200
1.38
%
38,596
208.43
%
Total Commercial
$
235,376
$
15,739,132
1.50
%
93,039
252.99
%
Construction
4,246
757,984
0.56
%
-
N.M.
Leasing
20,618
1,585,739
1.30
%
5,941
347.05
%
Mortgage
135,254
7,397,471
1.83
%
262,879
51.45
%
Consumer
Credit cards
58,670
1,041,870
5.63
%
-
N.M.
Home equity lines of credit
2,542
71,916
3.53
%
4,110
61.85
%
Personal
118,426
1,823,579
6.49
%
20,040
590.95
%
Auto
129,735
3,512,530
3.69
%
40,978
316.60
%
Other Consumer
15,435
147,548
10.46
%
12,454
123.94
%
Total Consumer
$
324,808
$
6,597,443
4.92
%
77,582
418.66
%
Total
$
720,302
$
32,077,769
2.25
%
439,441
163.91
%
N.M - Not meaningful.
181
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 and nine months ended September 30, 2023
and 2022.
Table 31 - Annualized Net Charge
-offs (Recoveries) to Average Loans
Held-in-Portfolio
Quarters ended
September 30, 2023
September 30, 2022
BPPR
Popular U.S.
Popular Inc.
BPPR
Popular U.S.
Popular Inc.
Commercial
(0.48)
%
0.10
%
(0.21)
%
(0.06)
%
(0.03)
%
(0.05)
%
Construction
6.11
―
1.21
―
―
―
Mortgage
(0.25)
(0.02)
(0.21)
(0.14)
(0.01)
(0.12)
Leasing
0.35
―
0.35
0.36
―
0.36
Consumer
2.20
7.42
2.41
1.34
0.47
1.30
Total annualized
net charge-offs
(recoveries) to average loans held-in-
portfolio
0.44
%
0.28
%
0.39
%
0.34
%
(0.01)
%
0.24
%
Nine months ended
September 30, 2023
September 30, 2022
BPPR
Popular U.S.
Popular Inc.
BPPR
Popular U.S.
Popular Inc.
Commercial
(0.20)
%
0.03
%
(0.10)
%
(0.15)
%
(0.02)
%
(0.09)
%
Construction
2.14
―
0.45
(0.67)
(0.24)
(0.33)
Mortgage
(0.24)
(0.02)
(0.20)
(0.21)
―
(0.18)
Leasing
0.28
―
0.28
0.14
―
0.14
Consumer
1.96
5.65
2.12
1.06
0.44
1.03
Total annualized
net charge-offs
(recoveries) to average loans held-in-
portfolio
0.44
%
0.19
%
0.36
%
0.18
%
(0.02)
%
0.13
%
NCOs for
the quarter
ended September 30,
2023 amounted to
$33 million, increasing
by $15
million when compared
to the
same
period in
2022. The
BPPR segment
increased by
$7 million
mainly driven
by higher
consumer NCOs
by $16
million, reflective
of
post-pandemic credit
normalization, in
part offset
by lower
commercial NCOs
by $9
million, mainly
due to
$10.8 million
recovery
from a
commercial loan pay-off
during the third
quarter of 2023.
The PB segment
NCOs increased by
$7 million,
mainly driven by
higher consumer and commercial NCOs by $5 million
and $3 million, respectively.
NCOs for
the nine
months ended
September 30,
2023 amounted
to $89
million, increasing
by $61
million when
compared to
the
same period in 2022. The BPPR segment increased by $47
million mainly driven by higher consumer NCOs by $47 million, primarily
due
to
the
expected continued
credit
normalization, coupled
with
an $11
million
line
of
credit
charge-off
on
a single
relationship
during the first
quarter of 2023.
The PB segment
NCOs increased by
$15 million, mainly
driven by higher
consumer NCOs by
$11
million.
Loan Modifications
For the
nine months
ended September
30, 2023,
modified loans
to borrowers
with financial
difficulty amounted
to $401
million, of
which $377 million are in accruing status. The BPPR segment’s modifications to borrowers with financial difficulty amounted to $349
million, mainly comprised
of commercial and
mortgage loans of
$272
million and
$71 million, respectively.
A total
of $48 million
of
182
the mortgage modifications
were related to
government guaranteed loans.
The Popular U.S.
segment’s modifications to
borrowers
with financial difficulty amounted to $52 million, of
which $41 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) and
15d-15(e) under the Securities Exchange Act of 1934 (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 September 30, 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.
183
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 September
30, 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 September 30,
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
July 1 - July 31
3,744
$
59.12
-
$-
August 1 - August 31
-
-
-
-
September 1 - September 30
272
67.94
-
-
Total
4,016
$
59.72
-
-
[1] Includes 3,744 and 272
shares of the Corporation’s
common stock acquired by
the Corporation during July
2023 and September 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.
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Rule 10b5-1 Trading Plans or Other Preplanned Trading Arrangements
Certain
of
our
officers
or
directors have
made
elections to
participate in
,
and are
participating in,
our dividend
reinvestment and
purchase plan, the Company
stock fund associated with
our 401(k) plans and/or
the Company stock fund
associated with our non-
qualified
deferred
compensation plans
and
have
shares
withheld
to
cover
withholding
taxes
upon
the
vesting
of
equity
awards,
which may be designed to satisfy
the affirmative defense conditions of
Rule 10b5-1 under the Exchange Act
or may constitute non-
Rule 10b5–1
trading arrangements
(as defined in Item 408(c) of Regulation
S-K).
184
Item 6.
Exhibits
Exhibit Index
Exhibit No
Exhibit Description
3.1
Amended and Restated By-laws of Popular, Inc. (incorporated by reference to Exhibit 3.1 of Popular,
Inc.’s Current Report on Form 8-K dated September 28, 2023 and filed on October 3, 2023)
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 September 30,
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.
185
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: November 9, 2023
By: /s/ Carlos J. Vázquez
Carlos J. Vázquez
Executive Vice President &
Chief Financial Officer
Date: November 9, 2023
By: /s/ Jorge J. García
Jorge J. García
Senior Vice President & Corporate Comptroller