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1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year Ended
December 31, 2023
Or
[ ]
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number:
001-34084
POPULAR, INC.
Incorporated in the Commonwealth of
Puerto Rico
IRS Employer Identification No.
66-0667416
Principal Executive Offices
209 Muñoz Rivera Avenue
Hato Rey
,
Puerto Rico
00918
Telephone Number: (
787
)
765-9800
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 Global Select Stock Market
6.125% Cumulative Monthly Income Trust Preferred
Securities
BPOPM
The
Nasdaq Global Select Stock Market
SECURITIES REGISTERED PURSUANT TO SECTION 12(g)
OF THE ACT:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
X No
.
Indicate by check mark if the registrant is not required
to file reports pursuant to Section 13 or Section
15(d) of the Act. Yes
No
X.
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.
Yes
X 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).
Yes
X No
.
Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the 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 has filed a report on
and attestation to its management’s assessment of the effectiveness of
its internal
control over
financial reporting
under Section
404(b) of
the Sarbanes-Oxley Act
(15 U.S.C.
7262(b)) by
the registered
public
accounting firm that prepared or issued its audit
report. [
X
]
If securities are registered
pursuant to Section 12(b)
of the Act, indicate
by check mark whether
the financial statements of
the registrant
included in the filing reflect the correction of an
error to previously issued financial statements.
☐
Indicate
by
check
mark
whether any
of
those
error
corrections
are
restatements
that
required
a
recovery
analysis
of
incentive-based
compensation received by any of the registrant’s executive
officers during the relevant recovery period pursuant to
§240.10D-1(b).
☐
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the
Act). Yes
No
X
As of June 30, 2023, the aggregate market
value of the Common Stock held by non-affiliates of
Popular, Inc. was approximately $
4.3
billion based upon the reported closing price of $60.52
on the Nasdaq Global Select Market on that
date.
As of February 27, 2024, there were
72,254,015
shares of Popular, Inc.’s Common Stock outstanding.
2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Popular,
Inc.’s definitive proxy
statement relating to the
2024 Annual Meeting
of Stockholders of Popular,
Inc. (the “Proxy
Statement”) are incorporated herein by reference in response to Items 10 through
14 of Part III. The Proxy Statement will be
filed with
the Securities and Exchange Commission (the “SEC”)
on or about March 27, 2024.
3
Forward-Looking Statements
This
Form
10-K 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
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
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, 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 projected
earnings, efficiencies and 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”);
●
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 other proposed
capital standards on our capital ratios;
●
additional
Federal Deposit Insurance Corporation (“FDIC”) assessments,
such as the special assessment implemented
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;
●
a deterioration in the credit quality of our
clients, customers and counterparties;
●
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;
●
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.
Moreover,
the
outcome
of
legal
and
regulatory
proceedings,
as
discussed
in
“Part
I,
Item
3.
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
“Part I, Item 1A” of this Form 10-K for a discussion
of certain risks and uncertainties to which
the Corporation is subject.
5
All forward-looking
statements included
in this
Form 10-K
are based
upon information
available to
Popular as
of the
date of
this
Form 10- K, 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
TABLE OF CONTENTS
PART I
Page
Item 1
Business
7
Item 1A
Risk Factors
24
Item 1B
Unresolved Staff Comments
38
Item 1C
Cybersecurity
38
Item 2
Properties
41
Item 3
Legal Proceedings
41
Item 4
Mine Safety Disclosures
41
PART II
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
41
Item 6
[Reserved]
44
Item 7
Management’s Discussion and Analysis of Financial Condition
and Results of
Operations
44
Item 7A
Quantitative and Qualitative Disclosures About Market
Risk
44
Item 8
Financial Statements and Supplementary Data
44
Item 9
Changes in and Disagreements with Accountants
on Accounting and Financial
Disclosure
44
Item 9A
Controls and Procedures
45
Item 9B
Other Information
45
Item 9C
Disclosure Regarding Foreign Jurisdictions that Prevent
Inspections
45
PART III
Item 10
Directors, Executive Officers and Corporate Governance
45
Item 11
Executive Compensation
46
Item 12
Security Ownership of Certain Beneficial Owners
and Management and
Related Stockholder Matters
46
Item 13
Certain Relationships and Related Transactions, and Director
Independence
46
Item 14
Principal Accountant Fees and Services
46
PART IV
Item 15
Exhibits and Financial Statement Schedules
46
Item 16
Form 10-K Summary
47
7
PART I POPULAR, INC.
ITEM 1. BUSINESS
General
Popular
is
a diversified,
publicly-owned financial
holding company,
registered under
the Bank
Holding Company
Act
of
1956, as
amended (the “BHC Act”), and subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the
“Federal Reserve Board”). Popular was incorporated in 1984 under the laws of the Commonwealth of Puerto Rico and is the
largest
financial institution
based in Puerto
Rico, with
consolidated assets of
$70.8 billion, total
deposits of
$63.6 billion
and stockholders’
equity of $5.1 billion at
December 31, 2023. At December 31,
2023, we ranked among the
50 largest U.S. bank holding companies
based on total assets according to information gathered
and disclosed by the Federal Reserve Board.
We operate in two principal markets:
●
Puerto Rico:
We
provide retail,
mortgage and
commercial banking
services through
our principal
banking subsidiary,
Banco
Popular
de
Puerto
Rico
(“Banco
Popular”
or
“BPPR”),
as
well
as
auto
and
equipment
leasing
and
financing,
investment
banking,
broker-dealer
and
insurance
services
through
specialized
subsidiaries.
BPPR’s
deposits
are
insured
under
the
Deposit Insurance
Fund (“DIF”)
of the
Federal Deposit
Insurance Corporation (“FDIC”).
The banking
operations of
BPPR are
primarily based in Puerto Rico, where BPPR has the
largest retail banking franchise.
●
Mainland
United
States:
We
provide
retail,
mortgage
and
commercial
banking
services
through
our
New
York-chartered
banking subsidiary,
Popular Bank (“PB” or
“Popular U.S.”), which has
branches in New York,
New Jersey and Florida;
as well
as investment and
insurance services, and commercial
direct financing leases through
specialized subsidiaries. PB’s deposits
are insured under the DIF of the FDIC.
●
BPPR
also
conducts
banking
operations
in
the
U.S.
Virgin
Islands,
the
British
Virgin
Islands
and
New
York.
In
addition
to
BPPR’s commercial
banking operations
in New
York
that include
direct loan
origination and
participating loans
originated by
PB,
BPPR
offers
or
holds
financial
products
on
a
National
scale
in
the
U.S.
market,
including
personal
loans
previously
originated under
the E-Loan
brand, purchased
personal loans
originated by
third parties,
and
gathering insured
institutional
deposits via online deposit gathering platforms. In the U.S. and British
Virgin Islands, BPPR offers a range of banking products,
including loans and deposits to both retail and
commercial customers.
For further information about the Corporation’s results segregated by
its reportable segments, see “Reportable Segment Results” in
the Management’s Discussion
and Analysis of
Financial Condition and Results
of Operations section
(“MD&A”) and Note
37 to the
Consolidated Financial Statements included in this Form
10-K.
Transformation Initiative:
The
Corporation
launched
a
significant,
multi-year,
broad-based
technological
and
business
process
transformation
during
the
second half of 2022. The
needs and expectations of our
clients, as well as the
competitive landscape, have evolved, compelling us
to make important investments in our technological infrastructure and adopt more agile practices. We
believe these investments will
result in an enhanced digital experience for our clients, as
well as better technology and more efficient processes for our employees,
and make us a more efficient and
profitable company, allowing us to
achieve a 14% return on tangible common equity target by
the
end of 2025.
Our technology and business transformation
will be a significant
priority for the Corporation over
the next three years
and beyond. Refer to the Overview section
of Management’s Discussion and Analysis included in
this Form 10-K for information on
recent significant events that have impacted or will
impact our current and future operations.
Lending Activities
8
We concentrate our lending activities in the following areas:
(1) Commercial.
Commercial loans are comprised of (i) commercial and industrial (“C&I”) loans and leases to commercial customers
for
use
in
normal
business
operations
and
to
finance
working
capital
needs,
equipment
purchases
or
other
projects,
and
(ii)
commercial real
estate (“CRE”) loans
(excluding construction loans)
for income-producing real
estate properties as
well as
owner-
occupied properties. C&I
loans are underwritten
individually and usually
secured with the
assets of the
company and the
personal
guarantee
of
the
business
owners. CRE
loans consist
of
loans
for
income-producing real
estate
properties and
the financing
of
owner-occupied facilities
if there
is real
estate as
collateral. Non-owner-occupied
CRE loans
are generally
made to
finance office
and
industrial buildings,
healthcare facilities,
multifamily buildings
and
retail shopping
centers
and are
repaid through
cash
flows
related to the operation, sale or refinancing of the
property.
(2) Mortgage. Mortgage
loans include residential
mortgage loans to
consumers for the
purchase or refinancing
of a
residence and
also include residential construction loans made
to individuals for the construction of refurbishment
of their residence.
(3) Consumer.
Consumer loans
are mainly
comprised of
unsecured personal
loans, credit
cards, and
automobile loans,
and to
a
lesser extent home equity lines of credit (“HELOCs”)
and other loans made by banks to individual
borrowers.
(4) Construction.
Construction loans are CRE loans to companies,
community or homeowners’ associations, or developers used for
the construction of a commercial or residential property for which repayment will be generated by the sale or permanent financing of
the property.
Our construction loan
portfolio primarily consists
of retail, residential
(land and condominiums),
office and warehouse
product types.
(5) Lease Financings. Lease financings are offered by
BPPR and are primarily comprised of automobile loans/leases made through
automotive dealerships.
Business Concentration
Since our
business activities
are currently concentrated
primarily in
Puerto Rico,
our 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 our
operations in Puerto Rico exposes us
to greater risk than other
banking companies with a
wider
geographic
base.
Our
asset
and
revenue
composition
by
geographical
area
is
presented
in
“Financial
Information
about
Geographic Areas” below and in Note 37 to the
Consolidated Financial Statements included in this
Form 10-K.
Our loan portfolio is diversified by loan category.
However, approximately 55% of our loan portfolio at December 31, 2023 consisted
of real estate-related
loans, including residential
mortgage loans, construction
loans and commercial
loans secured by
commercial
real estate. The table below presents the distribution
of our loan portfolio by loan category at
December 31, 2023.
Loan category
(Dollars in millions)
BPPR
%
PB
%
POPULAR
%
C&I
$4,796
20
$2,330
22
$7,126
20
CRE
4,695
19
5,888
56
10,583
30
Construction
170
1
789
7
959
3
Leasing
1,732
7
-
-
1,732
5
Consumer
6,726
27
243
2
6,969
20
Mortgage
6,392
26
1,304
13
7,696
22
Total
$24,511
100
$10,554
100
$35,065
100
Except for
the Corporation’s
exposure to
the Puerto
Rico Government
sector,
no individual
or single
group of
related accounts
is
considered material
in relation
to our
total assets
or deposits,
or in
relation to
our overall
business.
For a
discussion of
our loan
portfolio, our
deposits portfolio
and our
exposure to
the Government
of Puerto
Rico, see
“Financial Condition
– Loans”,
“Financial
Condition
–
Deposits”
and
“Credit
Risk
–
Geographical and
Government
Risk” in
the
MD&A
and
to
Note
24
-
Commitment and
Contingencies to the Consolidated Financial Statements
included in this Form 10-K.
9
Credit
Administration
and
Credit
Policies
Interest
from our
loan portfolios
is our
principal source
of revenue.
Whenever we
make loans,
we expose
ourselves
to
credit
risk.
Credit
risk
is
controlled
and
monitored
through
active
asset
quality
management,
including
the
use
of
lending
standards,
thorough
review
of
potential
borrowers
and through
active
asset quality
administration.
Business
activities
that
expose
us to
credit
risk are
managed
within
the
Board
of Director’s
Risk Management policy,
and the Credit Risk Tolerance
Limits policy,
which establishes
limits
that
consider
factors
such
as maintainin
g
a prudent
balance
of risk-taking
across
diversified
risk types
and business
units,
compliance
with regulator
y
guidance,
and
controlling
the
exposure
to lower
credit
quality
assets.
We maintain
comprehensive
credit policies
for all lines of
business in order
to mitigate credit
risk. Our credit
policies
are
approved by
our Board
of Directors.
These policies set
forth,
among
other
things,
the objectives, scope and
responsibilities of the
credit
management cycle.
Our
internal
written
procedures
establish
underwriting
standards
and
procedures
for
monitoring
and
evaluating
loan
portfolio
quality
and
require
prompt
identificatio
n
and
quantificatio
n
of
asset
quality
deterioration
or
potential
loss
to
ensure
the
adequacy
of
the
allowance
for
credit
losses.
These
written
procedures
establish
various
approval
and
lending
limit
levels,
ranging
from
bank
branch
or
department
officers
to
managerial
and
senior
management
levels.
Approval
levels are
primarily
determined
by the
amount,
type
of loan
and risk
characteristics
of the credit
facility.
Our
credit
policies
and
procedures
establish
documentation
requirements
for
each
loan
and
related
collateral
type,
when
applicable,
during
the
underwriting,
closing
and
monitoring
phases.
For
commercial
and
construction
loans,
during
the
initial
loan
underwriting
process,
the
credit
policies
require,
at
a
minimum,
historical
financial
statements
or
tax
returns
of
the
borrower,
an analysis
of financial
information
contained
in
a
credit
approval
package,
a
risk
rating
determination
and
reports
from
credit
agencies
and appraisal
s
for
real
estate-related
loans when applicable
.
The credit
policies
also
set
forth
the
required
closing
documentation
depending
on the
loan
and the
collateral
type.
Although
we originat
e
most
of our
loans
internally
in both
the
Puerto
Rico
and mainlan
d
United
States
markets,
we
occasionally
purchase
or
participate
in
loans
originated
by
other
financial
institutions.
When
we
purchase
or
participate
in
loans
originated
by
others,
we
conduct
the
same
underwriting
analysis
of
the borrower
s
and apply
the
same
criteria
as we do
for
loans
originated
by us. This also
includes
a review
of the
applicable
legal
documentation.
Refer
to
the
Credit
Risk
section
of
the
MD&A
included
in
this
Form
10-K
for
information
related
to
management
committees and divisions with responsibilities for establishing
policies and monitoring the Corporation’s credit risk.
Loan
extensions
,
renewals
and restructurings
Loans with
satisfactory
credit profiles
can be
extended, renewed
or restructured
.
Some commercia
l
loan facilities
are
structured
as lines
of credit, which
are mainly
one year
in term
and therefore
are required
to be renewed
annually.
Other
facilities
may be restructure
d
or extended
from time
to time based
upon changes
in the
borrower’s
business
needs,
use
of
funds,
timing
of
completion
of
projects
and
other
factors.
If
the
borrower
is
not
deemed
to
have
financial
difficulties
,
extensions,
renewals
and restructurings
are done
in the
normal
course
of busines
s
and the
loans
continue
to be recorde
d
as performing.
We
evaluate
various
factors
to
determine
if
a
borrower
is
experiencing
financial
difficulties.
Indicators
that
the
borrower
is
experiencing
financial difficultie
s
include,
for example:
(i)
the borrower
is currently
in default on
any of its debt
or it is
probable tha
t
the borrower
would be
in payment
default on
any of
its debt
in th
e
foreseeable
future
without
the modification
;
(ii)
the
borrower
has declare
d
or is in
the
process
of declarin
g
bankruptcy;
(iii)
there
is significan
t
doubt
as to
whether
the
borrower
will
continue
to
be
a
going
concern;
(iv)
the
borrower
has
securities
that
have
been
delisted,
are
in
the
process
of
being
delisted,
or
are
under threa
t
of bein
g
delisted
from
an exchange
;
(v) based
on estimates
and projection
s
that
only
encompass
the
current
business
capabilities
,
the
borrower
forecasts
that
its
entity-specifi
c
cash
flows
will
be
insufficien
t
to
service
the
debt
(both
interest
and
principal)
in
accordance
with
the
contractual
terms
of
the
existing
agreement
through
maturity;
and
(vi)
absent
the
current
modification,
the
borrower
cannot
obtain
funds
from
sources
other
than
the
existing
creditors
at
an
effective
interest
rate
equal to the current market
interest
rate for similar
debt for a non-troubled
debtor.
10
We
have
specialized
workout
officers
who
handle
the majority
of
commercial
loans
that
are
past
due
90
days
and
over,
borrowers
experiencing
financial
difficulties
,
and loans
that
are considere
d
problem
loans
based
on their
risk profile
.
As a
general
policy,
we
do
not
advance
additional
money
to
borrowers
who
have
loans
that
are
90
days
past
due
or
over.
In
commercial
and
construction
loans,
certain
exceptions
may
be approve
d
under
certain
circumstances,
including
(i) when
past
due
status
is administrativ
e
in nature,
such
as expiration
of a loan
facility
before
the
new documentatio
n
is executed,
and not as
a result
of paymen
t
or credit
issues;
(ii) to
improve
our collateral
position
or
otherwise
maximize
recovery
or
mitigate
potential
future
losses;
and
(iii)
with
respect
to
certain
entities
that,
although
related
through
common
ownership,
are
not
cross
defaulted
nor
cross-collateralized
and
are
performing
satisfactorily
under
their
respective
loan
facilities.
Such
advances
are
underwritten
and
approved
following
our
credit
policy
guidelines
and
limits,
which
are
dependent
on
the
borrower’s
financial
condition,
collateral
and guarantee,
among
others.
In addition
to the legal
lending limit
established under
applicable
state banking
law, discusse
d
in detail
below,
business
activities
that
expose the
Corporation to
credit
risk
are managed
within
guidelines described
in the
Credit
Risk Tolerance
Limits
policy.
Limits are defined for
loss and credit
performance metrics, portfolio composition and
concentration, and industry and
name-
level,
which
monitors
lending
concentration
to
a
single
borrower
or
a
group
of
related
borrowers,
including
specific
lending
limits
based
on industr
y
or other
criteria,
such
as a percentage
of the
banks’
capital.
Refer to Note 2 and Note 9 to the Consolidated Financial Statements included
in this Form 10-K, for additional information
on loan modifications to borrowers with financial difficulties.
Competition
The
financial
services
industry
in
which
we
operate
is
highly
competitive.
In
Puerto
Rico,
our
primary
market,
the
banking
business
is
highly
competitive
with
respect
to
originatin
g
loans,
acquiring
deposits
and
providing
other
banking
services.
Most
of
our
direct
competitio
n
for
our
products
and
services
comes
from
commercial
banks and
credit unions.
The
principal
competitors
for
BPPR
include
locally
based
commercial
banks
and
a
few
large
U.S.
and
foreign
banks
with
operations in
Puerto Rico.
While
the
number of
banking competitors
in Puerto
Rico
has been
reduced
in
recent years
as
a
result
of
consolidations,
these
transactions
have
allowed
some
of
our
competitors
to
gain
greater
resources,
such
as
a
broader range of products
and services.
We
also
compete
with
specialized
players
in th
e
local
financial
industry
that
are
not subjec
t
to
the
same
regulatory
restrictions
as domestic
banks
and bank holdin
g
companies.
Those
competitors
include
brokerage
firms,
mortgage
companies,
insurance
companies,
automobile
and
equipment
finance
companies,
local
and
federal
credit
unions
(locally
known
as
“cooperativas”),
credit car
d
companies,
consumer
finance
companies,
institutional
lenders
and other
financial
and non-financia
l
institutions
and
entities.
Credit
unions
generally
provide
basic
consumer
financial
services.
These
competitors
collectively
represent a significant
portion of the
market and have
a lower cost structure
and fewer regulatory
constraints.
In
the
United
States
we
continue
to
face
substantial
competitive
pressure
as
our
footprint
resides
in
the
two
large,
metropolitan markets of
New York
City / Northern
New Jersey and
the greater Miami
area.
There is a
large number of
community
and
regional
banks
along
with
national
banking
institutions
present
in
both
markets,
many
of
which
have
a
larger
amount
of
resources than us.
In both
Puerto Rico
and the
United States,
the primary
factors in
competing
for business
include
pricing,
convenience
of branch
locations
and other
delivery
methods,
range of
products offered,
and the
level of
service delivered.
We must
compete
effectively
along
all
these
parameters
to
be
successful.
We
experience
pricing
pressure
as
some
of
our
competitors
seek
to
increase
market
share
by
reducing
prices
for
services
or
the
rates
charged
on
loans,
increasing
the
interest
rates
offered
on
deposits
or offering
more flexible
terms. Increased
competition
could require
that we
increase
the rates
offered
on deposits
and
lower the rates
charged on loans,
which could adversely
affect our profitability.
Economic
factors,
along
with
legislative
and
technological
changes,
have
an
ongoing
impact
on
the
competitive
environment
within
the financia
l
services
industry.
We work
to anticipat
e
and adap
t
to dynamic
competitive
conditions
whether
through developing
and marketing
innovative
products
and services,
adopting
or developin
g
new technologie
s
that
differentiat
e
our products
and
services,
cross-marketing,
or
providing
personalized
banking
services.
We
strive
to
distinguish
ourselves
from
other
banks
and
financial
services
providers
in our
marketplace
by providin
g
a high
level
of service
to enhance
customer
11
loyalty
and to attrac
t
and retain
business.
However,
we can
provide
no assurance
as
to
the
effectiveness
of
these
efforts
on
our
future
business
or
results
of
operations,
and
as
to
our
continued
ability
to
anticipate
and
adapt
to
changing
conditions,
and
to
sufficientl
y
improve
our
services
and/or
banking
products,
in
order
to
successfully
compete
in
our
primary
service
areas.
Human Capital Management
Popular
seeks
to
embody
our
purpose
of “putting
people
at the
center
of progress”
throughout
its human
capital
management.
Attracting,
developing
and
retaining
top
talent
in
an
environment
that
promotes
wellness,
diversity,
inclusion,
learning
and
transparency
are
fundamental
pillars
of
our
long-term
strategy.
As
of
December
31,
2023,
Popular
has
approximately
9,237
employees,
none of whom
are represented
by a collective
bargaining group.
Nurturing Well-Being: Employee Health & Financial
Security
Popular believes
that the
health and
financial
wellness of
Popular’s employees
is essential
to enable
Popular to
effectively
serve
its customers
and contribute
positively
to the
communities
where it
operates.
Our health
and wellness
program includes
health,
pharmacy,
vision and
dental insurance,
as well
as other
wellness
initiatives.
Our programs
seek to
ensure that
healthcare
being
both accessible
and affordable
for our
employees,
with Popular
covering
up to
90% of
health
insurance
premiums,
a figure
that
surpasses
regional
benchmarks.
In
2023,
we
launched
a
leadership
guide
on
mental
health
to
support
leaders
in
promoting
emotional
wellness
within
their
teams
and
engaging
with
team
members
who
may
be
facing
mental
health
challenges.
Additionally,
the Corporation
promotes employee
health and
wellbeing by
encouraging
annual physical
exams and
maintaining
a
health
and
wellness
center
at
its
Puerto
Rico-based
corporate
offices
staffed
with
healthcare
providers,
where
employees
can
complete
their
physical
exam,
receive
acute
care
or visit
a nutritionist
or
psychologist
free
of charge.
Our
health
and
wellness
center received
over 15,680 visits
from employees
during 2023.
Popular
also seeks
to foster
work-life
balance by
providing
paid time
off benefits
to our
employees,
including community
service
leave,
paid
parental
leave
and
flexible
work
arrangements.
Our
hybrid
work
model,
accessible
to
approximately
half
of
our
workforce,
underscores our
commitment to
flexible work
environments.
Moreover,
we continuously
offer activities
and workshops
centered on
physical fitness
and personal financial
management.
Popular
further
provides
a 401(k)
savings
and investment
plan, in
which
98% of
employees
participate.
Popular
matches
$0.50
for every
dollar
the employee
contributes
to the
401(k)
plan,
up to
8% of
their
salary.
Moreover,
Popular
offers
a profit
-sharing
plan,
contingent
upon
the
achievement
of
pre-set
financial
goals,
to
further
align
employee
compensation
with
its
collective
success.
The
profit-sharing
plan
allows
employees
to
receive
up to
8%
of
their
eligible
compensation
(capped
at
$70,000),
of
which
the
first
4%
is
paid
in
cash
and
anything
beyond
such
percent
is
paid
to
the
employee’s
Savings
and
Investment
Plan
account. Popular
regularly
evaluates employees’
base compensation
to better
compete with
the salaries
paid in similar
positions
in
other
companies.
Our
ongoing
enhancements
to
our
employees’
compensation
includes
market-aligned
salary
adjustments,
merit increases
and raising
our hourly
pay rates to
$15 per hour
in Puerto Rico
and $16 per
hour in the Virgin
Islands as
of 2023,
and $17
per hour
in Florida
and $20 per
hour in
New York
and New Jersey
as of 2022.
In 2023,
we invested
more than
$22.5M
in enhancing
our employees’
compensation.
Empowering Growth: Our Commitment to Talent Development
We
are
committed
to
fostering
the
continuous
development
and
upskilling
of
our
employees
and
believe
it
is
fundamental
to
maintaining
our
competitive
edge.
Towards
that
end,
Popular
provides
development
opportunities
aimed
at
strengthening
our
employees’
knowledge,
abilities
and skills
to support
their
personal
growth which,
in turn,
seeks
to enhance
Popular’s
business
strategies
and
organizational
competencies.
Our
40,000
square
foot
Development
Center
in
San
Juan,
Puerto
Rico
and
our
satellite
facilities
in New
York,
South Florida,
and the Virgin
Islands offer
year-round
training sessions,
activities
and workshops.
In 2023,
we transitioned
back to
in-person
sessions,
but also
continued
offering
virtual
training
programs.
Our seven
corporate
academies
had
more
than
8,000
registrations
from
our
employees
during
2023,
approximately
1,600
more
than
in
2022.
Our
commitment
to continuous
learning
is further
supported
by offering
our employees
access to
LinkedIn
Learning,
which provides
an extensive
library
of over
16,000
e-learning
courses.
In 2023,
users
totaled
61% of
our employees,
an increase
of 24%
from
2022, for a
total of 17,006
hours logged
during the year.
12
Our
focus
on
training
and
development
has
provided
internal
growth
opportunities
to
our
workforce.
As
a
result,
the
Corporation’s
internal mobility
rate in 2023
was 36%. This
included employees
who applied
or were selected
for vacancies,
were
promoted,
or
had
lateral
movements.
Additionally,
we
invested
in
the
education
of
over
100
practitioners
through
Accelerated
Development
Programs
focused
on
data
science,
analytics,
process
excellence,
and
program
management.
The
Corporation
also
offered
its
employees
advanced
training
in
software
engineering,
including,
but
not
limited
to,
coding
and
software
development.
Leadership
development
remains
a
priority
at
Popular,
as
we
believe
it
is
vital
for
driving
results,
maintaining
employee
engagement
and achieving
our strategic
objectives.
With this
in mind,
we launched
a new
leadership
program
in 2023
focused
on
exploring
the
role
Popular’s
leaders
play
in
creating
the
right
environment
for
our
culture
to
thrive.
Our
organizational
development
strategy
aims
to
enhance
both
organizational
and
leadership
effectiveness
by
preparing
us
to
meet
future
challenges.
In
2023,
we
facilitated
organizational
development
interventions
that
focused
on
change
management,
team
alignment, and
leader effectiveness.
Enhancing Leadership Continuity through Strategic
Succession Planning
Popular’s business
strategy further
takes into
account succession
planning to
ensure effective
leadership transitions.
Succession
plans for
senior management
are developed
by the CEO
and presented
to the Board
of Directors.
Popular’s succession
planning
also
leverages
our
Executive
Talent
Management
Program
(the
“Program”)
that
seeks
to
identify
high-potential
and
high-
performing
managers,
which
are
provided
with
learning
opportunities
to
enhance
their
skills
and
prepare
them
for
senior
management positions.
Diversity, Equity and Inclusion
Popular
is
committed
to
fostering
a
diverse,
equitable
and
inclusive
workplace.
As
of
December
31,
2023,
64.5%
of
the
Corporation’s
employees were
female, and
35.5% were male.
Women accounted
for 63% of first
and mid-level
management and
36.6%
of
executive-level
management
as
of
such
date.
We
have
recently
enriched
our
talent
pool
with
the
inclusion
of
professionals
from Latin America,
thereby enhancing
multicultural
diversity
within our organization.
Central to
our diversity
efforts
is our
multidisciplinary
Diversity,
Equity and
Inclusion
(“DEI”)
Council,
which is
overseen
by our
Corporate
Diversity
Officer.
Our
DEI Policy
is committed
to attracting,
retaining
and developing
a diverse
employment
population;
fostering
a work
environment
where
employees
are
treated
equitably
and
with
respect;
and
seeking,
creating,
and
maintaining
business
relationships
with
diverse suppliers.
We
are
committed
to
fair
pay
and
conduct
related
pay
analyses
on
an
annual
basis.
The
results
for
2023
revealed
a
1.8
percentage
point
improvement
in
Puerto
Rico
and
the
Virgin
Islands
and
a
6.4
percentage
point
improvement
in
the
United
States
in
our
gender-related
pay
differences
compared
to
the
end
of
2022.
Our
commitment
to
gender
equality
has
been
recognized
in the Bloomberg
Gender Equality
Index for two
consecutive
years (2021-2022
and 2022-2023).
Our
Employee
Resource
Groups
(“ERGs”)
are
key
resources
that
support
our
DEI
strategy.
In
2023,
our
existing
ERGs
witnessed
substantial
growth
in
membership.
Popular
Pride,
our
ERG
focused
on
the
LGBTQ+
community,
seeks
to
enhance
organizational
awareness
and engagement
of LGBTQ
issues.
Network
of Women
in Popular,
focused
on empowering
women,
and
Popular
Embrace,
focused
on
functional
diversity,
also
achieved
notable
milestones,
including
partnering
with
our
human
resources
division
to
educate
and
promote
specific
wellness
initiatives
and
efforts.
Additionally,
during
2023
we
established
a
Black/African
American ERG in
the US.
Popular also
supports victims
of gender-based
violence and
provides a
special leave
of 15 days
eligible to
employees
located in
Puerto Rico
in order to
handle situations
related to gender
violence, domestic
violence or
stalking.
Employee Experience
Popular
aims
to
provide
an
exceptional
employee
experience
that
inspires
its
employees
to
deliver
outstanding
service
to
customers
and communities.
We
recognize
the
dynamic
nature
of employee
needs
and
expectations
and
have implemented
a
more
robust
approach
to measure
and
understand
the
employee’s
journey.
In
2023,
we revised
our
comprehensive
Employee
Engagement
&
Experience
Survey
program
to
(i)
increase
our
assessments
from
biennial
to
quarterly
and
annually
and
(ii)
include
additional
surveys
that
measure
the
end-to-end
employee
journey
from
recruiting
and
onboarding
to
offboarding.
We
13
believe that
the insights
received from
these surveys
have allowed
us to
introduce
people initiatives
that have
helped us
reduce
our turnover
rate to 7.9%
as of the
end of 2023,
a 2.9 percentage
point improvement
from 2022.
Our voluntary
turnover rate
also
saw a notable
decrease to
6.4%, down
2.4 percentage
points from
the previous
year.
Furthermore,
the survey
has enabled
us to
monitor
our employee
loyalty
score
and identify
initiatives
to maintain
or enhance
our current
score
of 84%,
which positions
us
within the 75th
percentile of
the Qualtrics
global benchmark
and above the
average benchmark
of the financial
industry.
Board Oversight in Human Capital
The
Talent
and
Compensation
Committee
of
the
Corporation’s
Board
of
Directors
has
oversight
responsibility
for
the
Corporation’s
human capital
management.
As part
of its
responsibilities,
the Talent
and Compensation
Committee
reviews and
advises
management
on the
Corporation’s
general
compensation
philosophy,
programs
and policies,
and
on the
Corporation’s
talent
acquisition
and development,
workforce
engagement,
succession
planning,
culture,
diversity,
equity
(including
pay equity)
and inclusion,
among other human
capital topics.
We
encourage
you
to
review
our Corporate
Sustainability
Report
published
on www.popular.com
for more
detailed
information
regarding
the Corporation’s
human capital
management
programs
and initiatives.
The information
on the
Corporation’s
website,
including
the
Corporation’s
Corporate
Sustainability
Report,
is
not,
and
will
not
be
deemed
to
be,
a
part
of
this
Form
10-K
or
incorporated
into any of the
Corporation’s
filings with
the SEC.
Regulation and Supervision
Described below are the material elements of selected laws and regulations applicable to Popular, Popular North America
(“PNA”)
and
their
respective
subsidiaries.
Such
laws
and
regulations
are
continually
under
review
by
Congress
and
state
legislatures
and
federal
and
state
regulatory
agencies.
Any
change
in
the
laws
and
regulations
applicable
to
Popular
and
its
subsidiaries could have a material effect on the
business of Popular and its subsidiaries. We will continue to
assess our businesses
and risk management and compliance practices
to conform to developments in the regulatory
environment.
General
Popular and PNA are bank holding companies subject to consolidated supervision
and regulation by the Federal Reserve
Board under
the Bank
Holding Company Act
of 1956
(as amended, the
“BHC Act”). BPPR
and PB
are subject to
supervision and
examination by applicable
federal and state
banking agencies including,
in the
case of BPPR,
the Federal Reserve
Board and the
Office of
the Commissioner
of Financial
Institutions of
Puerto Rico
(the “Office
of the
Commissioner”), and, in
the case
of PB,
the
Federal
Reserve
Board
and
the
New
York
State
Department
of
Financial
Services
(the
“NYSDFS”).
Popular’s
broker-dealer
/
investment adviser
subsidiary,
Popular Securities,
LLC (“PS”)
and investment
advisor subsidiary
Popular Asset
Management LLC
(“PAM”)
are subject
to
regulation by
the SEC,
the Financial
Industry
Regulatory Authority
(“FINRA”), and
the Securities
Investor
Protection Corporation, among others. Other of our non-bank subsidiaries conduct reinsurance and
insurance producer and agency
activities, which are
subject to other
federal, state and
Puerto Rico laws
and regulations as
well as licensing
and regulation by
the
Puerto Rico Office of the Commissioner of Insurance and,
for one insurance agency subsidiary, the NYSDFS.
Enhanced Prudential Standards
Under
the
Dodd-Frank
Wall
Street
Reform
and
Consumer
Protection
Act
(the
“Dodd-Frank
Act”),
as
modified
by
the
Economic
Growth,
Regulatory
Relief,
and
Consumer
Protection
Act
and
the
federal
banking
regulators’
2019
“Tailoring
Rules,”
banking
organizations are
categorized based
on status
as
a U.S.
G-SIB,
size
and four
other risk-based
indicators. Among
bank
holding companies with $100
billion or more in
total consolidated assets, the
most stringent standards apply
to U.S. G-SIBs,
which
are subject to Category I standards and the
least stringent standards apply to Category IV organizations, which have between $100
billion and $250 billion in total consolidated assets and less than $75 billion in all four other risk-based indicators and
which are also
not U.S. G-SIBs. Bank holding companies with total consolidated assets of $50 billion or more are subject to risk committee and risk
management requirements. As of December 31, 2023,
Popular had total consolidated assets of $70.8 billion.
Transactions with Affiliates
BPPR
and
PB
are
subject
to
restrictions
that
limit
the
amount
of
extensions
of
credit
and
certain
other
“covered
transactions” (as defined in Section
23A of the Federal
Reserve Act) between BPPR or
PB, on the
one hand, and Popular,
PNA or
any
of
our
other
non-banking
subsidiaries,
on
the
other
hand,
and
that
impose
collateralization
requirements
on
such
credit
14
extensions. A bank may not engage in any covered transaction if the aggregate amount of the bank’s covered transactions with that
affiliate would exceed 10% of
the bank’s capital stock and
surplus or the aggregate amount of
the bank’s covered transactions with
all affiliates would exceed 20% of the bank’s capital stock and surplus. In addition,
any transaction between BPPR or PB, on the one
hand, and Popular, PNA
or any of our other non-banking
subsidiaries, on the other,
is required to be carried out
on an arm’s length
basis.
Source of Financial Strength
The
Dodd-Frank Act
requires bank
holding companies,
such
as Popular
and
PNA, to
act
as
a source
of
financial
and
managerial strength to their subsidiary banks. Popular
and PNA are expected to commit resources
to support their subsidiary banks,
including at times when Popular
and PNA may not be
in a financial position to
provide such resources. Any capital loans
by a bank
holding company
to any
of its
subsidiary depository
institutions are
subordinated in
right of
payment to
depositors and
to certain
other indebtedness of such subsidiary depository institution. In the
event of a bank holding company’s bankruptcy,
any commitment
by
the
bank
holding
company
to
a
federal
banking
agency
to
maintain
the
capital
of
a
subsidiary
depository
institution
will
be
assumed by
the bankruptcy
trustee and
entitled to
a priority
of payment.
BPPR and
PB are
currently the
only insured
depository
institution subsidiaries of Popular and PNA.
Resolution Planning and Resolution-Related Requirements
A
bank holding
company with
$250 billion
or more
in total
consolidated assets
(or that
is a
Category III
firm based
on
certain risk-based indicators described in the Tailoring
Rules) is required to report periodically to the FDIC
and the Federal Reserve
Board
such
company’s
plan
for
its
rapid
and
orderly
resolution
in
the
event
of
material
financial
distress
or
failure.
In
addition,
insured depository institutions with total
assets of $50 billion or
more are required to
submit to the FDIC
periodic contingency plans
for
resolution
in
the
event
of
the
institution’s
failure.
In
2018,
the
FDIC
issued
a
moratorium
on
resolution
plans
for
insured
depository institutions
with more
than $50
billion in
assets. The
moratorium is
still in
effect for
insured depository
institutions with
more than
$50 billion
but less
than $100
billion in
assets. On
August 29,
2023, the
FDIC proposed
amendments to
the resolution
planning requirements
for insured
depository institutions
with $50
billion or
more in
total assets.
The amendments
would require
insured depository institutions with between $50 billion and
$100 billion in assets to submit informational filings on
a two-year cycle,
with an interim supplement updating key information
submitted in the off years.
On August
29, 2023,
the Federal
Reserve Board,
FDIC and
Office of
the Comptroller
of the
Currency (“OCC”)
issued a
proposed
rule
that
would
require
bank
holding
companies
and
insured
depository
institutions
with
$100
billion
or
more
in
consolidated assets (as well as their insured depository institution affiliates) to maintain minimum
amounts of eligible long-term debt
(generally, debt
that is unsecured, has
a maturity greater than one
year from issuance and satisfies
additional criteria), subject to a
three-year phase-in
period. The
proposal would
also apply
“clean holding
company” requirements
to Category
II through
IV bank
holding companies, which would, among other things, prohibit
entering into derivatives and certain other
financial contracts with third
parties.
As of December 31, 2023, Popular,
PNA, BPPR and PB’s total assets were below
the thresholds for applicability of these
rules, except that BPPR would be subject to the
FDIC’s proposed amendments to its resolution planning requirements applicable to
insured depository institutions
with more than
$50 billion but
less than $100
billion in assets
(if those amendments
are adopted as
proposed).
FDIC Insurance
Substantially all the deposits of BPPR and PB are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of
the
FDIC,
and
BPPR
and
PB
are
subject
to
FDIC
deposit
insurance
assessments
to
maintain
the
DIF.
Deposit
insurance
assessments are
based on
the average
consolidated total
assets of
the insured
depository institution
minus the
average tangible
equity of the institution during the assessment period. For larger
depository institutions with over $10 billion in assets,
such as BPPR
and PB, the FDIC uses a “scorecard” methodology, which considers CAMELS ratings, among
other measures, that seeks to capture
both the probability that an individual large institution will
fail and the magnitude of the impact on the DIF
if such a failure occurs. The
FDIC has the ability
to make discretionary adjustments to the
total score based upon significant
risk factors that are not
adequately
captured in the calculations. The initial base deposit insurance assessment rate for larger depository institutions ranges from 3 to 30
basis points on an annualized basis.
After the effect of
potential base-rate adjustments, the total base assessment rate could
range
from 1.5 to 40 basis points on an annualized
basis.
In
October
2022,
the
FDIC
finalized
a
rule
that
increased
initial
base
deposit
insurance
assessment
rates
by
2
basis
points, beginning with the first quarterly assessment period of 2023. The FDIC, as required under the Federal Deposit Insurance Act
15
(“FDIA”), established
a plan
in September
2020 to
restore the
DIF reserve
ratio to
meet or
exceed the
statutory minimum
of 1.35
percent within
eight years. The
increased assessment is
intended to improve
the likelihood that
the DIF
reserve ratio would
reach
the required minimum by the statutory deadline
of September 30, 2028.
As
of
December
31,
2023,
we
had
a
DIF
average
total
asset
less
average
tangible
equity
assessment
base
of
approximately $66 billion.
On
November 16,
2023,
the
FDIC finalized
a
rule
that
imposes
a special
assessment to
recover the
costs to
the
DIF
resulting
from
the
FDIC’s
use,
in
March
2023,
of
the
systemic
risk
exception to
the
least-cost resolution
test
under the
FDIA
in
connection with the
receiverships of Silicon
Valley Bank
and Signature Bank.
The FDIC estimated
in approving the
rule that those
assessed losses
total approximately $16.3
billion. The
rule provides
that this
loss estimate
will be
periodically adjusted, which
will
affect
the
amount
of
the
special assessment.
Under the
rule, the
assessment
base
is
the
estimated uninsured
deposits that
an
insured depository
institution reported
in its
Consolidated Reports of
Condition and Income
(“Call Report”)
at December
31, 2022,
excluding the
first
$5 billion
in estimated
uninsured deposits.
For a
holding company
that
has more
than one
insured depository
institution
subsidiary,
such
as
Popular,
the
$5
billion
exclusion
is
allocated
among
the
company’s
insured
depository
institution
subsidiaries in
proportion to
each insured
depository institution’s
estimated uninsured
deposits. The
special
assessments will
be
collected at
an annual
rate of
approximately 13.4 basis
points per year
(3.36 basis
points per
quarter) over eight
quarters in
2024
and 2025,
with the
first assessment
period beginning
January 1,
2024. Because
the estimated
loss pursuant
to the
systemic risk
determination
will
be
periodically adjusted,
the
FDIC
retains the
ability to
cease
collection
early,
extend the
special
assessment
collection period and
impose a final
shortfall special assessment
on a one-time
basis. Popular expects the
special assessments to
be
tax
deductible. The
total
of
the assessments
for Popular
is
estimated at
$71.4 million
and such
amount
was recorded
as
an
expense in
the quarter
of adoption
(the quarter
ended December
31, 2023).
As of
December 31,
2023, the
FDIC’s loss
estimate
described in the final rule
had increased by approximately $4.1 billion to $20.4
billion, or approximately 25%. If such increase
in the
FDIC’s
loss
estimate
remains
unchanged and
is
assessed
in
the
same
manner,
the
Corporation estimates
that
the
incremental
expense for the special assessments could be approximately
$18 million.
Brokered Deposits
The FDIA
and regulations
adopted thereunder
restrict the
use of
brokered deposits
and the
rate of
interest payable
on
deposits for institutions
that are less
than well capitalized.
Popular does not
believe the brokered
deposits regulations have
had or
will have a material effect on the funding or liquidity
of BPPR and PB.
Capital Adequacy
Popular, PNA,
BPPR and PB are
each required to comply
with applicable capital adequacy standards
established by the
federal
banking
agencies
(the
“Capital
Rules”),
which
implement
the
Basel
III
framework
set
forth
by
the
Basel
Committee
on
Banking Supervision (the “Basel Committee”) as
well as certain provisions of the Dodd-Frank
Act.
Among other
matters, the
Capital Rules:
(i) impose
a capital
measure called
“Common Equity
Tier
1” (“CET1”)
and the
related regulatory capital ratio of CET1 to risk-weighted assets; (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1
capital” instruments meeting
certain revised requirements;
and (iii) mandate
that most deductions/adjustments to
regulatory capital
measures be made
to CET1
and not to
the other components
of capital.
Under the Capital
Rules, for most
banking organizations,
including
Popular,
the
most
common
form
of
Additional
Tier
1
capital
is
non-cumulative
perpetual preferred
stock
and
the
most
common form of Tier
2 capital is subordinated notes and
a portion of the
allocation for loan and lease losses,
in each case, subject
to the Capital Rules’ specific requirements.
Pursuant to the Capital Rules, the minimum
capital ratios are:
4.5% CET1 to risk-weighted assets;
6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted
assets;
8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and
4% Tier 1 capital to average consolidated assets as reported
on consolidated financial statements (known as the
“leverage ratio”).
The Capital Rules also impose
a “capital conservation buffer,”
composed entirely of CET1, on top
of these minimum risk-
weighted
asset
ratios. The
capital
conservation
buffer
is
designed
to
absorb
losses
during
periods
of
economic stress.
Banking
institutions
with
a
ratio
of
CET1
to
risk-weighted
assets
above
the
minimum
but
below
the
capital
conservation
buffer
will
face
16
constraints on
dividends, equity repurchases
and compensation based
on the
amount of
the shortfall and
eligible retained
income
(that is,
four quarter trailing
net income, net
of distributions
and tax
effects not
reflected in net
income). Thus, Popular,
BPPR and
PB are required to maintain such additional capital conservation buffer of 2.5% of CET1, effectively resulting in minimum ratios of
(i)
CET1 to risk-weighted assets
of at least 7%,
(ii) Tier 1
capital to risk-weighted assets of
at least 8.5%, and
(iii) Total
capital to risk-
weighted assets of at least 10.5%.
In addition, under
prior risk-based capital rules,
the effects of
accumulated other comprehensive income
or loss (“AOCI”)
items included in stockholders’
equity (for example, marks-to-market of securities
held in the available
for sale portfolio) under
U.S.
GAAP were reversed
for the
purposes of determining
regulatory capital ratios.
Pursuant to the
Capital Rules, the
effects of certain
AOCI
items
are
not
excluded;
however,
banking
organizations
that
are
not
subject
to
Categories
I
or
II
standards
under
the
framework for
banking organizations
with $100
billion or
more in
assets, including
Popular,
BPPR and
PB, may
make a
one-time
permanent election to continue to
exclude these items. Popular,
BPPR and PB have
made this election in order
to avoid significant
variations in
the level
of capital
depending upon
the impact
of interest
rate fluctuations
on the
fair value
of their
available for
sale
securities portfolios.
The
Capital
Rules
preclude certain
hybrid
securities, such
as
trust
preferred
securities, from
inclusion
in
bank
holding
companies’ Tier 1 capital. Trust preferred securities no
longer included in Popular’s Tier 1 capital may nonetheless be included as a
component of
Tier 2 capital.
Popular has
not issued
any trust
preferred securities since
May 19,
2010. As
of December
31, 2023,
Popular has
$193 million
of trust
preferred securities
outstanding which
no longer
qualify for
Tier
1 capital
treatment, but
instead
qualify for Tier 2 capital treatment.
The Capital Rules also provide for a number of deductions
from and adjustments to CET1.
Banking organizations that are
not subject to Category
I or II standards
are subject to rules that
provide for simplified capital requirements relating
to the threshold
deductions
for
certain
mortgage
servicing
assets,
deferred
tax
assets,
investments
in
the
capital
of
unconsolidated
financial
institutions and inclusion of minority interests
in regulatory capital.
Failure
to
meet
capital
guidelines
could
subject
Popular
and
its
depository
institution
subsidiaries
to
a
variety
of
enforcement remedies, including the termination of deposit insurance by the FDIC
and to certain restrictions on our business. Refer
to “Prompt Corrective Action” below for further
discussion.
In
December 2017,
the Basel
Committee published
standards that
it
described as
the finalization
of the
Basel III
post-
crisis regulatory
reforms. Among other
things, these
standards revise
the Basel
Committee’s standardized approach
for credit
risk
(including
by
recalibrating
risk
weights
and
introducing
new
capital
requirements
for
certain
“unconditionally
cancellable
commitments,” such
as
unused credit
card
lines of
credit) and
provide
a new
standardized approach
for operational
risk capital.
Under the
current U.S.
capital rules,
operational risk
capital requirements
and a
capital floor
apply only
to advanced
approaches
institutions, and not to Popular, BPPR and PB.
On
July
27,
2023,
the
federal
banking
regulators
proposed
revisions
to
the
Capital
Rules
to
implement
the
Basel
Committee’s
2017
standards
and
make
other
changes
to
the
Capital
Rules,
including
the
ability
of
banking
organizations
in
Categories III and
IV to
elect not to
recognize most elements
of AOCI in
regulatory capital. The
proposal introduces revised
credit
risk, equity risk, operational risk, credit valuation adjustment risk and market risk requirements, among other changes. However,
the
revised capital requirements of the proposed rule would not apply to Popular, BPPR, or PB because
they have less than $100 billion
in total consolidated assets and trading assets and
liabilities below the threshold for market risk
requirements.
In
December
2018,
the
federal
banking
agencies
approved
a
final
rule
modifying
their
regulatory
capital
rules
and
providing an
option to
phase in
over a
period of
three years
the day-one
regulatory capital
effects of
the Current
Expected Credit
Loss (“CECL”) model
of ASU 2016-13.
The final
rule also revised
the agencies’
other rules to
reflect the update
to the
accounting
standards. Popular has availed itself
of the option to
phase in over a period
of three years the
day one effects on
regulatory capital
from the
adoption of
CECL. In
2020, federal
bank regulators
adopted a
rule that
allowed banking
organizations to
elect to
delay
temporarily
the
estimated
effects
of
adopting
CECL
on
regulatory
capital
until
January
2022
and
subsequently
to
phase
in
the
effects through January 2025.
Refer to the Consolidated Financial Statements in this Form 10-K., Note 21 and Table 9 of
Management’s Discussion and
Analysis for the capital ratios of Popular, BPPR and PB under Basel III. Refer
to the Consolidated Financial Statements in this Form
10-K Note 2 for more information regarding CECL.
17
Prompt Corrective Action
The
FDIA
requires,
among
other
things,
the
federal
banking
agencies
to
take
prompt
corrective
action
in
respect
of
insured
depository
institutions
that
do
not
meet
minimum
capital
requirements.
The
FDIA
establishes
five
capital
tiers:
“well
capitalized,”
“adequately
capitalized,”
“undercapitalized,”
“significantly
undercapitalized,”
and
“critically
undercapitalized”.
A
depository institution’s capital tier will depend upon how its
capital levels compare with various relevant capital
measures and certain
other factors.
An insured
depository institution will
be deemed
to be
(i) “well
capitalized” if
the institution
has a
total risk-based
capital
ratio of 10.0% or greater, a CET1 capital ratio of 6.5%
or greater, a Tier 1
risk-based capital ratio of 8.0% or greater, and a leverage
ratio of 5.0% or
greater, and is
not subject to any order
or written directive by
any such regulatory authority to
meet and maintain a
specific capital level for any capital
measure; (ii) “adequately capitalized” if the institution
has a total risk-based capital ratio
of 8.0%
or greater, a
CET1 capital ratio of 4.5%
or greater, a
Tier 1 risk-based capital
ratio of 6.0% or greater,
and a leverage ratio of
4.0%
or greater
and is
not “well
capitalized”; (iii)
“undercapitalized” if
the institution
has a
total risk-based
capital ratio
that is
less than
8.0%, a CET1 capital
ratio less than 4.5%,
a Tier 1
risk-based capital ratio of
less than 6.0% or
a leverage ratio of
less than 4.0%;
(iv) “significantly
undercapitalized” if
the institution
has a
total risk-based
capital ratio
of less
than 6.0%,
a CET1
capital ratio
less
than 3%, a Tier
1 risk-based capital ratio of less than 4.0% or
a leverage ratio of less than 3.0%;
and (v) “critically undercapitalized”
if
the
institution’s
tangible
equity
is
equal
to
or
less
than
2.0%
of
average
quarterly
tangible
assets.
An
institution
may
be
downgraded to, or deemed
to be in, a
capital category that is
lower than indicated by
its capital ratios if
it is determined to
be in an
unsafe
or
unsound
condition
or
if
it
receives
an
unsatisfactory
examination
rating
with
respect
to
certain
matters.
An
insured
depository institution’s capital category is determined solely for the purpose of applying prompt corrective action
regulations, and the
capital category
may not
constitute an
accurate representation
of the
institution’s overall
financial condition
or prospects
for other
purposes.
The FDIA generally prohibits an insured depository institution from making any capital
distribution (including payment of a
dividend) or
paying any
management fee to
its holding
company, if
the depository
institution would thereafter
be undercapitalized.
Undercapitalized
depository
institutions
are
subject
to
restrictions
on
borrowing
from
the
Federal
Reserve
System.
In
addition,
undercapitalized
depository
institutions
are
subject
to
growth
limitations
and
are
required
to
submit
capital
restoration
plans.
A
depository institution’s
holding company must
guarantee the capital
restoration plan, up
to an
amount equal to
the lesser
of 5%
of
the
depository
institution’s
assets
at
the
time
it
becomes
undercapitalized
or
the
amount
of
the
capital
deficiency,
when
the
institution fails to comply with the
plan. The federal banking agencies may not
accept a capital restoration plan without determining,
among other things,
that the plan
is based
on realistic assumptions
and is
likely to succeed
in restoring the
depository institution’s
capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it is
significantly undercapitalized.
Significantly
undercapitalized
depository
institutions
may
be
subject
to
a
number
of
requirements
and
restrictions,
including orders to
sell sufficient voting
stock to become
adequately capitalized, requirements to
reduce total assets
and cessation
of receipt
of deposits
from correspondent
banks. Critically
undercapitalized depository
institutions are
subject to
appointment of
a
receiver or conservator.
The capital-based prompt
corrective action provisions
of the FDIA
apply to
the FDIC-insured depository
institutions such
as
BPPR
and
PB,
but
they
are
not
directly
applicable
to
holding
companies
such
as
Popular
and
PNA,
which
control
such
institutions. As of December 31, 2023,
both BPPR and PB met the quantitative requirements
for ‘well capitalized’ status.
Restrictions on Dividends and Repurchases
The
principal
sources
of
funding
for
Popular
and
PNA
have
included
dividends
received
from
their
banking
and
non-
banking subsidiaries, asset sales
and proceeds from
the issuance of
debt and equity.
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 year
ended December 31, 2023, BPPR declared
cash dividends of $200
million, a portion of
which was
used by Popular for the payments of the cash dividends on its
outstanding common stock. At December 31, 2023, BPPR needed to
obtain prior approval of the Federal Reserve Board before declaring a dividend
in excess of $387 million due to its
retained income,
declared dividend activity and transfers to statutory reserves over the
three year’s ended December 31, 2023. In addition, a member
18
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.
During the year
ended December 31,
2023, PB
declared cash dividends
of $50
million, a portion
of which
was used
by
Popular for the payments of the cash dividends on
its outstanding common stock.
It is Federal Reserve Board policy that bank holding companies generally should pay dividends on common
stock only out
of net
income available to
common shareholders
over the past
year and
only if
the prospective rate
of earnings retention
appears
consistent with the organization’s current and
expected future capital needs, asset quality
and overall financial condition. Moreover,
under Federal Reserve Board policy, a bank
holding company should not maintain dividend levels that place undue pressure on the
capital of depository
institution subsidiaries or that
may undermine the bank
holding company’s ability to
be a source
of strength to
its
banking subsidiaries.
Federal Reserve
policy
also
provides that
a
bank
holding company
should
inform
the
Federal
Reserve
reasonably in advance of declaring or paying a dividend that
exceeds earnings for the period for which the dividend is
being paid or
that could result in a material adverse change
to the bank holding company’s capital structure.
The
Federal Reserve
Board
also restricts
the
ability of
banking
organizations to
conduct stock
repurchases. In
certain
circumstances, a banking organization’s repurchases
of its common stock may
be subject to a
prior approval or notice requirement
under other regulations or policies of the Federal Reserve. Any redemption or
repurchase of preferred stock or subordinated debt is
subject to the prior approval of the Federal Reserve.
Subject to compliance with certain conditions, distributions of U.S. sourced dividends to a corporation
organized under the
laws
of the
Commonwealth of
Puerto Rico
are subject
to
a withholding
tax
of 10%
instead of
the 30%
applied to
other “foreign”
corporations. Accordingly, dividends from current or accumulated earnings and profits
paid by PNA to Popular, Inc. sourced from the
U.S. operations of PB are subject to a 10%
tax withholding.
Refer to
Part II,
Item 5,
“Market for
Registrant’s Common
Equity,
Related Stockholder
Matters and
Issuer Purchases
of
Equity Securities” for further information on Popular’s
distribution of dividends and repurchases of equity
securities.
See
“Puerto
Rico
Regulation”
below
for
a
description
of
certain
restrictions
on
BPPR’s
ability
to
pay
dividends
under
Puerto Rico law.
Interstate Branching
The Dodd-Frank
Act amended
the Riegle-Neal
Interstate Banking
and Branching
Efficiency Act
of 1994
(the “Interstate
Banking
Act”)
to
authorize
national
banks
and
state
banks
to
branch
interstate
through
de
novo
branches. For
purposes
of
the
Interstate Banking Act, BPPR is treated as a state bank and is subject to the same restrictions on interstate branching as other state
banks.
Activities and Acquisitions
In general, the BHC Act limits the activities
permissible for bank holding companies to the business of banking, managing
or controlling banks and such other activities as the Federal Reserve Board has determined to be so closely related to banking as to
be
properly
incidental
thereto.
A
company
who
meets
management
and
capital
standards
and
whose
subsidiary
depository
institutions meet management,
capital and
Community Reinvestment Act
(“CRA”) standards may
elect to
be treated
as a
financial
holding company
and engage
in a
substantially broader
range of
nonbanking financial
activities, including
securities underwriting
and dealing, insurance underwriting and making
merchant banking investments in nonfinancial
companies.
In order for a bank holding company to elect to be treated as a financial
holding company, (i) all of its depository institution
subsidiaries
must
be
well capitalized
(as described
above)
and
well managed
and
(ii)
it
must
file a
declaration with
the Federal
Reserve Board that it elects to be a “financial holding
company.” As noted above, a bank
holding company electing to be a financial
holding company must itself be and remain
well capitalized and well managed. The Federal Reserve Board’s
regulations applicable
to bank holding companies separately define
“well capitalized” for bank holding companies,
such as Popular,
to require maintaining
a tier 1 capital
ratio of at least
6% and a total capital
ratio of at least 10%.
Popular and PNA have elected
to be treated as
financial
holding
companies.
A
depository
institution
is
deemed
to
be
“well
managed”
if,
at
its
most
recent
inspection,
examination
or
subsequent review
by the
appropriate federal banking
agency (or
the appropriate state
banking agency), the
depository institution
received
at
least
a
“satisfactory”
composite
rating
and
at
least
a
“satisfactory”
rating
for
the
management
component
of
the
19
composite
rating.
If,
after
becoming
a
financial
holding
company,
the
company
fails
to
continue
to
meet
any
of
the
capital
or
management requirements
for financial
holding company
status, the
company
must
enter into
a confidential
agreement with
the
Federal
Reserve
Board
to
comply
with
all
applicable capital
and
management
requirements.
If
the
company
does
not
return
to
compliance
within
180
days,
the
Federal
Reserve
Board
may
extend
the
agreement
or
may
order
the
company
to
divest
its
subsidiary banks or the
company may discontinue, or
divest investments in companies
engaged in, activities permissible only
for a
bank holding company that has elected to be treated as a financial
holding company. In addition, if a depository institution subsidiary
controlled by a financial holding company does not
maintain a CRA rating of at least “satisfactory,” the financial holding company
will
be subject to restrictions on certain new activities
and acquisitions.
The Federal Reserve Board
may in certain circumstances limit
our ability to conduct
activities and make acquisitions that
would otherwise be permissible for
a financial holding company.
Furthermore, a financial holding company must obtain
prior written
approval from the Federal Reserve Board before acquiring a nonbank company with $10 billion or more in total consolidated assets.
In addition, we
are required to
obtain prior Federal
Reserve Board approval
before engaging in
certain banking and
other financial
activities both in the United States and abroad.
The “Volcker
Rule” adopted
as part
of the
Dodd-Frank Act
restricts the
ability of
Popular and
its subsidiaries,
including
BPPR and PB as
well as non-banking subsidiaries, to
sponsor or invest in
“covered funds,” including private funds,
or to engage in
certain types
of proprietary
trading. Popular
and its
subsidiaries generally
do not
engage in
the businesses
subject to
the Volcker
Rule; therefore, the Volcker Rule does not have a material effect on our
operations.
Anti-Money Laundering Initiative and the USA PATRIOT Act
A major focus of governmental policy relating to financial institutions in
recent years has been aimed at combating money
laundering and
terrorist financing.
The USA
PATRIOT
Act of
2001 (the
“USA PATRIOT
Act”) strengthened
the ability
of the
U.S.
government to help prevent, detect and prosecute international money
laundering and the financing of terrorism. Title
III of the USA
PATRIOT
Act imposed
significant compliance
and due
diligence obligations,
created new
crimes and
penalties and
expanded the
extra-territorial jurisdiction of the United States. Failure of a financial institution to comply with the USA PATRIOT Act’s requirements
could have serious legal and reputational consequences
for the institution.
The
Anti-Money
Laundering
Act
of
2020
(“AMLA”),
which
amended
the
Bank
Secrecy
Act
(the
“BSA”),
is
intended
to
comprehensively
reform
and
modernize
U.S.
anti-money
laundering
laws.
Among
other
things,
the
AMLA
codifies
a
risk-based
approach to anti-money laundering compliance for financial institutions; requires the U.S. Department of the Treasury to
promulgate
priorities
for
anti-money
laundering
and
countering
the
financing
of
terrorism
policy;
requires
the
development
of
standards
for
testing technology and
internal processes for BSA
compliance; expands enforcement-
and investigation-related authority,
including
a
significant
expansion
in
the
available
sanctions
for
certain
BSA
violations;
and
expands
BSA
whistleblower
incentives
and
protections. Many of
the statutory provisions
in the AMLA
will require additional
rulemakings, reports and
other measures, and
the
impact
of
the
AMLA
will
depend on,
among
other
things,
rulemaking and
implementation guidance.
In
June
2021,
the
Financial
Crimes Enforcement Network, a bureau of
the U.S. Department of the
Treasury,
issued the priorities for anti-money laundering
and
countering the
financing of
terrorism policy
required under AMLA.
The priorities
include: corruption, cybercrime,
terrorist financing,
fraud, transnational crime, drug trafficking, human trafficking and
proliferation financing.
Federal regulators
regularly examine BSA/Anti-Money
Laundering and sanctions
compliance to
enhance their
adequacy
and effectiveness, and the frequency and extent of such examinations
and related remedial actions have been
increasing.
Community Reinvestment Act
The
CRA
requires
banks
to
help
serve
the
credit
needs
of
their
communities,
including
extending
credit
to
low-
and
moderate-income individuals
and geographies.
Should
Popular
or our
bank
subsidiaries
fail
to
serve
adequately
the community,
potential penalties may include regulatory denials of applications to expand branches, relocate offices or branches, add subsidiaries
and affiliates, expand
into new financial activities
and merge with or
purchase other financial institutions.
On October 24, 2023,
the
OCC,
the
Federal
Reserve
Board,
and
the
FDIC
jointly
issued
a
final
rule
to
modernize
the
federal
banking
agencies’
CRA
regulations and respond to changes in the
banking industry. Among other
items, the final rule introduces new tests
under which the
performance of banks will
be assessed and includes
data collection and reporting requirements,
many of which are
applicable only
to banks with over
$10 billion in assets, such
as BPPR and PB.
The effective date of
the final rule is
April 1, 2024; however,
banks
will not be required to begin complying with certain provisions
of the final rule until January 1, 2026, with data reporting requirements
becoming applicable on January 1, 2027.
20
Interchange Fees Regulation
The Federal Reserve Board
has established standards for
debit card interchange fees
and prohibited network exclusivity
arrangements and routing restrictions. The
maximum permissible interchange fee that
an issuer may receive
for an electronic debit
transaction is
the sum
of
21 cents
per transaction
and 5
basis points
multiplied by
the value
of
the transaction.
Additionally,
the
Federal Reserve
Board allows
for an
upward adjustment
of
no more
than 1
cent
to
an issuer’s
debit card
interchange fee
if the
issuer develops and implements policies and procedures
reasonably designed to achieve certain fraud-prevention
standards.
In
October
2023,
the
Federal
Reserve
Board
proposed
amendments
to
its
rules
on
interchange
fees.
The
proposed
changes would establish a
maximum permissible interchange fee of
no more than
14.4 cents per transaction
plus four basis points
multiplied by
the value
of the
transaction. The
fraud prevention
adjustment would
be increased
to 1.3
cents per
transaction. The
proposed rule would also establish an automatic update of the interchange fee cap every other year based on a survey of debit card
issuers.
Consumer Financial Protection Act of 2010
The Consumer
Financial Protection
Bureau (the
“CFPB”) supervises
“covered persons”
(broadly defined
to include
any
person offering or
providing a consumer financial
product or service and
any affiliated service
provider) for compliance with
federal
consumer financial laws. The CFPB
also has the broad power
to prescribe rules applicable to
a covered person or service
provider
identifying
as
unlawful,
unfair,
deceptive,
or
abusive
acts
or
practices
in
connection
with
any
transaction
with
a
consumer
for
a
consumer financial product or service, or the offering of
a consumer financial product or service. We are subject to examination and
regulation by the CFPB.
On October
19, 2023,
the CFPB
proposed a
new rule
to implement
Section 1033
of the
Consumer Financial
Protection
Act
that
would require
a provider
of
payment accounts
or
products, such
as a
bank, to
make data
available to
consumers upon
request regarding the products or services they obtain from the provider. Any such data
provider would also have to make such data
available to third
parties, with the consumer’s
express authorization and through
an interface that satisfies
formatting, performance
and security standards, for the purpose of such third parties providing the consumer with financial products or services requested by
the
consumer.
Data
that
would
be
required
to
be
made
available under
the
rule
would
include
transaction
information,
account
balance, account
and routing
numbers, terms and
conditions, upcoming bill
information, and certain
account verification data.
The
proposed
rule
is
intended
to
give
consumers
control
over
their
financial
data,
including
with
whom
it
is
shared,
and
encourage
competition in the provision of consumer financial products or services. For banks with at least $850 million and less than $50 billion
in
total
assets,
compliance
with
the
proposed
rule’s
requirements
would
be
required
approximately
two
and
a
half
years
after
adoption of the final rule. For
banks with at least $50 billion and
less than $500 billion in total
assets, compliance with the proposed
rule’s requirements would be required approximately
one year after adoption of the final rule.
On
January
17,
2024,
the
CFPB
proposed
a
rule
that
would
significantly
reform
the
regulatory
framework
governing
overdraft practices applicable
to banks such
as BPPR and
PB that have
more than $10
billion in assets.
The proposed rule
would
modify
or
eliminate
several
long-standing
exclusions
from
requirements
generally
applicable
to
consumer
credit
that
previously
exempted certain overdraft practices.
The proposal would also generally require banks to restructure many overdraft fees, overdraft
lines
of credit,
and other
overdraft practices
as separate
consumer credit
accounts that
would be
subject to
those requirements.
These changes
to the
regulatory framework could
result in
BPPR and
PB, among
other things,
facing higher
compliance costs
in
charging
overdraft
fees,
experiencing
a
decreased
ability
to
recover
amounts
extended
as
overdraft
protection,
reducing
the
availability of overdraft protection, and/or charging lower
overdraft fees.
Office of Foreign Assets Control Regulation
The
U.S.
Treasury
Department
Office
of
Foreign
Assets
Control
(“OFAC”)
administers
economic
sanctions
that
affect
transactions
with
designated
foreign
countries,
nationals
and
others.
The
OFAC-administered
sanctions
targeting
countries
take
many
different
forms.
Generally,
however,
they
contain
one
or
more
of
the
following
elements:
(i)
restrictions
on
trade
with
or
investment in a sanctioned country; and (ii) a blocking
of assets in which the government of the
sanctioned country or other specially
designated nationals have an interest, by prohibiting
transfers of property subject to U.S. jurisdiction (including
property in the United
States or the possession or control of U.S.
persons outside of the United States). Blocked assets (e.g., property
and bank deposits)
cannot
be
paid
out,
withdrawn, set
off
or
transferred
in
any
manner without
a
license
from
OFAC.
Failure
to
comply
with these
sanctions could have serious legal and reputational
consequences.
21
Protection of Customer Personal Information and
Cybersecurity
The privacy
provisions of
the Gramm-Leach-Bliley Act
of 1999
generally prohibit financial
institutions, including
us, from
disclosing nonpublic personal financial information of consumer customers to third
parties for certain purposes (primarily marketing)
unless
customers
have
the
opportunity
to
opt
out
of
the
disclosure.
The
Fair
Credit
Reporting
Act
restricts
information
sharing
among affiliates for marketing purposes and governs
the use and provision of information to consumer
reporting agencies.
The federal
banking regulators have
also issued guidance
and proposed rules
regarding cybersecurity that
are intended
to
enhance cyber
risk management
standards among
financial institutions.
A
financial institution
is expected
to
establish lines
of
defense
and
to
maintain
risk
management
processes
that
are
designed
to
address
the
risk
posed
by
compromised
customer
credentials. A
financial institution’s
management is
expected to
maintain sufficient
business continuity
planning processes
for the
rapid
recovery,
resumption
and
maintenance
of
the
institution’s
operations
after
a
cyber-attack
involving
destructive
malware.
A
financial
institution
is
also
expected
to
develop
appropriate
processes
to
enable
recovery
of
data
and
business
operations
and
address rebuilding
network capabilities
and restoring
data if
the institution
or its
critical service
providers fall
victim to
this type
of
cyber-attack. If
we fail
to observe
the regulatory
guidance, we
could be
subject to
various regulatory
sanctions, including financial
penalties. In November 2021, the U.S. federal bank regulatory
agencies issued a final rule requiring banking
organizations, including
Popular,
PNA,
BPPR and
PB,
to
notify their
primary federal
banking regulator
within
36 hours
of
determining that
a “notification
incident”
has
occurred.
A
notification
incident
is
a
“computer-security
incident”
that
has
materially
disrupted
or
degraded,
or
is
reasonably likely
to materially
disrupt or
degrade, the
banking organization’s
ability to
deliver services
to
a material
portion of
its
customer base,
jeopardize the viability
of key
operations of the
banking organization, or
impact the stability
of the
financial sector.
The final rule also requires specific and immediate
notifications by bank service providers that
become aware of similar incidents.
State and foreign regulators
have also been increasingly active
in implementing privacy and cybersecurity
standards and
regulations. Several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and
providing detailed requirements with respect to these
programs, including data encryption requirements. In New York,
the NYSDFS
requires
financial
institutions
regulated
by
the
NYSDFS,
including
PB,
to,
among
other
things,
(i)
establish
and
maintain
a
cybersecurity program designed
to enhance the
confidentiality, integrity
and availability of
their information systems;
(ii) implement
and maintain a written
cyber security policy setting forth
policies and procedures for the
protection of their information systems
and
nonpublic
information;
and
(iii)
designate
a
Chief
Information
Security
Officer.
On
November
1,
2023,
the
NYSDFS
adopted
amendments to
its
cybersecurity regulations
that
represent
a
significant
update
to
the
regulation of
cybersecurity practices.
The
amendments
generally
fall
within
the
following
five
categories:
(i)
increased
mandatory
controls
associated
with
common
attack
vectors,
(ii)
enhanced
requirements
for
privileged
accounts,
(iii)
enhanced
notification
obligations,
(iv)
expansion
of
cyber
governance
practices
and
(v)
additional cybersecurity
requirements for
larger companies.
Most
of
the
amendments
will
become
effective 180 days after adoption.
On
July
6,
2023,
the
SEC
adopted
new
rules
that
would
require
registrants,
such
as
Popular,
to
(i)
report
material
cybersecurity incidents
on Form
8-K and,
(ii) disclose
in Annual
Report on
Form 10-K
cybersecurity policies
and procedures
and
governance practices, including at the board and
management levels.
Many states and foreign
governments have also recently implemented or
modified their data breach notification
and data
privacy
requirements. The
California Consumer
Privacy Act
(“CCPA”)
imposes privacy
compliance obligations
with regard
to
the
collection,
use
and
disclosure of
personal
information of
California residents,
and the
November 2020
amendment to
the
CCPA
creates the California Privacy Protection Agency, a watchdog privacy agency, and further expands the scope of businesses covered
by the law
and certain rights relating
to personal information. The
substantive obligations under the
2020 amendment to the
CCPA
became effective
on January
1, 2023.
In European
Union, the
General Data
Protection Regulation heightens
privacy compliance
obligations
and
imposes
strict
standards
for
reporting
data
breaches.
We
expect
this
trend
to
continue
and
are
continually
monitoring developments in the jurisdictions in which
we operate.
See
“Puerto
Rico
Regulation”
below
for
a
description
of
legislations
and
regulations
on
information
privacy
and
cybersecurity in Puerto Rico.
Climate-Related and ESG Developments
In
recent
years,
federal,
state
and
international
lawmakers
and
regulators
have
increased
their
focus
on
financial
institutions’
and
other
companies’
risk
oversight,
disclosures
and
practices
in
connection
with
climate
change
and
other
environmental, social and
governance (“ESG”) matters.
For example,
on October
24, 2023, the
Federal Reserve, FDIC,
and OCC
finalized
interagency
guidance
on
principles
for
climate-related
financial
risk
management
applicable
to
regulated
financial
22
institutions with more
than $100 billion
in total consolidated
assets. The principles
are intended to
support efforts by
large financial
institutions to
focus on key
aspects of climate-related
financial risk management
and cover six
areas: (1)
governance; (2) policies,
procedures,
and
limits; (3)
strategic planning;
(4)
risk
management; (5)
data,
risk measurement,
and reporting;
and
(6)
scenario
analysis.
On
December
21,
2022,
the
NYSDFS
proposed
guidance
on
climate-related
financial
risk
management
applicable
to
NYSDFS-regulated banking
and mortgage
organizations, including
PB.
The
proposed guidance
would address
material financial
risks related to
climate change faced
by these organizations in
the context of
risk assessment, risk management,
and risk appetite
setting. On March 21, 2022, the SEC issued a proposed rule on the enhancement and
standardization of climate-related disclosures
for investors. The
proposed rule would
require public issuers,
including the Company,
to significantly expand
the scope of
climate-
related disclosures in
their SEC filings.
The SEC
also announced plans
to propose rules
to require enhanced
disclosure regarding
human capital management and board diversity for
public issuers.
Incentive Compensation
The Federal Reserve Board reviews, as
part of its regular,
risk-focused examination process, the incentive compensation
arrangements of
banking organizations, such
as Popular,
that are
not “large,
complex banking
organizations.” Deficiencies will
be
incorporated into
the
organization’s supervisory
ratings, which
can
affect
the
organization’s ability
to
make
acquisitions and
take
other
actions. Enforcement
actions may
be taken
against
a
banking
organization if
its
incentive compensation
arrangements, or
related
risk-management
control
or
governance
processes,
pose
a
risk
to
the
organization’s
safety
and
soundness
and
the
organization is not taking prompt and effective measures
to correct the deficiencies.
The
Federal
Reserve
Board,
OCC
and
FDIC
have
issued
comprehensive
final
guidance
on
incentive
compensation
policies intended to discourage excessive risk-taking in
the incentive compensation policies of banking organizations
in order to not
undermine
the
safety
and
soundness
of
such
organizations.
The
guidance,
which
covers
all
employees
that
have
the
ability
to
materially affect
the risk
profile of an
organization, either individually
or as
part of
a group,
is based
upon the key
principles that
a
banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond
the
organization’s
ability
to
effectively
identify
and
manage
risks,
(ii)
be
compatible
with
effective
internal
controls
and
risk
management, and (iii)
be supported by
strong corporate governance,
including active and
effective oversight
by the
organization’s
board of directors.
The Dodd-Frank Act requires the U.S. financial regulators, including the Federal Reserve Board, the other federal banking
agencies
and
the
SEC,
to
adopt
rules
prohibiting
incentive-based
payment
arrangements that
encourage
inappropriate
risks
by
providing excessive
compensation or
that could
lead to
a material
financial loss
at specified
regulated entities
having at
least $1
billion in total
assets (including Popular,
PNA, BPPR and
PB). The U.S.
financial regulators proposed revised
rules in 2016,
which
have not been finalized.
In October
2022, the SEC
adopted a final
rule requiring securities
exchanges to adopt
rules mandating, in
the case of
a
restatement, the
recovery or
“clawback” of
excess incentive-based
compensation paid
to current
or former
executive officers
and
requiring listed
issuers to
disclose any
recovery analysis where
recovery is
triggered by
a restatement.
The excess
compensation
would be based
on the amount
the executive officer
would have received
had the incentive-based
compensation been determined
using the restated
financials. The Nasdaq
Stock Market’s listing
standards pursuant to the
SEC’s rule became
effective October 2,
2023. Popular’s clawback policy adopted in accordance
with these listing standards is included as
Exhibit 97.1.
Regulation of Broker-Dealers
Our subsidiary,
PS, is a
registered broker-dealer with the
SEC and subject to
regulation and examination by
the SEC as
well
as
FINRA
and
other
self-regulatory
organizations.
These
regulations
cover
a
broad
range
of
issues,
including
capital
requirements;
sales
and
trading
practices;
use
of
client
funds
and
securities;
the
conduct
of
directors,
officers
and
employees;
record-keeping and recording;
supervisory procedures to
prevent improper trading
on material
non-public information; qualification
and
licensing
of
sales
personnel;
and
limitations
on
the
extension
of
credit
in
securities
transactions.
In
addition
to
federal
registration, state securities
commissions require the
registration of certain
broker-dealers. PS is
registered with 35
U.S. state and
territory securities commissions.
Regulation of Reinsurers, Insurance Producers and Agents
Popular’s subsidiaries that are engaged in
insurance agency and producer activities are
subject to regulatory supervision
by the Puerto
Rico Office of
the Commissioner of Insurance
and to insurance laws
and regulations requiring licensing
of insurance
producers and
agents. Popular’s
reinsurance subsidiaries
are subject
to
licensure and
regulatory supervision
by the
Puerto Rico
23
Office of the Commissioner of Insurance and
to insurance laws and regulations requiring, among
other things, minimum capital and
solvency standards, financial reporting, restrictions on
the amount of dividends payable, record
keeping and examinations.
Puerto Rico Regulation
As
a
commercial
bank
organized
under
the
laws
of
Puerto
Rico,
BPPR
is
subject
to
supervision,
examination
and
regulation by the Office of the Commissioner of Financial Institutions, pursuant to the Puerto Rico Banking Act of 1933, as amended
(the “Banking Law”).
Section 27
of the
Banking Law
requires that
at
least ten
percent (10%)
of the
yearly net
income of
BPPR be
credited
annually to a reserve
fund. The apportionment must be
done every year until the
reserve fund is equal to
the total of paid-in
capital
on common and preferred stock. During 2023, $44.5
million was transferred to the statutory reserve
account.
Section
27
of
the
Banking
Law
also
provides that
when
the
expenditures
of
a
bank
are
greater
than
its
receipts, the
excess of the
former over the latter
must be charged against
the undistributed profits of
the bank, and the
balance, if any,
must be
charged against
the reserve
fund.
If the
reserve fund
is
not sufficient
to
cover such
balance in
whole or
in part,
the outstanding
amount must be charged against
the capital account and no
dividend may be declared until capital
has been restored to its
original
amount and the reserve fund to 20% of the original
capital.
Section 16 of the
Banking Law requires every
bank to maintain a
legal reserve that, except
as otherwise provided by
the
Office of
the Commissioner,
may not be
less than 20%
of its
demand liabilities, excluding
government deposits (federal,
state and
municipal) that
are secured
by collateral.
If a
bank is
authorized to
establish one
or more
bank branches
in a
state of
the United
States or in a foreign country, where such branches are subject to the reserve requirements of that state
or country, the Office of the
Commissioner
may
exempt
said
branch
or
branches
from
the
reserve
requirements
of
Section
16.
Pursuant
to
an
order
of
the
Federal
Reserve
Board
dated
November
24,
1982,
BPPR
has
been
exempted
from
the
reserve
requirements
of
the
Federal
Reserve
System
with
respect
to
deposits
payable
in
Puerto
Rico.
Accordingly,
BPPR
is
subject
to
the
reserve
requirement
prescribed by the Banking Law. During 2023, BPPR was in compliance
with the statutory reserve requirement.
Section 17 of the Banking Law permits a bank to make loans to
any one person, firm, partnership or corporation, up to an
aggregate amount of
fifteen percent (15%)
of the paid-in
capital and reserve fund
of the bank.
As of December
31, 2023, the
legal
lending limit
for BPPR
under this
provision was
approximately $341
million. In
the case
of loans
which are
secured by
collateral
worth at
least 25% more
than the amount
of the
loan, the
maximum aggregate amount
of such secured
loans is
increased to
one
third of
the paid-in capital
of the bank,
plus its reserve
fund. In no
event may the
total of unsecured
and secured loans
to any one
person, firm, partnership or corporation exceed an aggregate amount of 33 1/3% of the paid-in capital and reserve fund of the bank.
If the institution is well capitalized and had been rated
1 in the last examination performed by the Office
of the Commissioner or any
regulatory agency,
its legal
lending limit
shall also
include 15%
of 50%
of its
undivided profits
and for
loans secured
by collateral
worth at
least 25%
more than
the amount
of the
loan, the
capital of
the bank
shall also
include 33
1/3% of
50% of
its undivided
profits. Institutions rated 2
in their last
regulatory examination may include this
additional component in their
legal lending limit
only
with the previous authorization of the Office of the Commissioner. There are no restrictions under Section 17 on the amount of loans
that are wholly secured
by bonds, securities and
other evidence of indebtedness
of the Government of
the United States or
Puerto
Rico,
or
by
current
debt
bonds,
not
in
default,
of
municipalities
or
instrumentalities
of
Puerto
Rico.
During
2023,
BPPR
was
in
compliance with the lending limit requirements of Section
17 of the Banking Law.
Section
14
of
the
Banking Law
authorizes a
bank to
conduct certain
financial
and
related
activities directly
or
through
subsidiaries, including finance leasing of personal property and originating and servicing
mortgage loans. BPPR engages in finance
leasing through
its wholly-owned
subsidiary,
Popular Auto,
LLC, which
is organized
and operates
in Puerto
Rico. The
origination
and servicing of mortgage loans is conducted by
Popular Mortgage, a division of BPPR.
With
respect to
information privacy,
Puerto
Rico
law
requires businesses
to
implement information
security
controls to
protect
consumers’
personal
information
from
breaches,
as
well
as
to
provide
notice
of
any
breach
to
affected
customers.
In
addition, as
noted above
in “Regulation
of
Reinsurers, Insurance
Producers and
Agents”, Popular’s
reinsurance subsidiaries
are
subject to
licensure and regulatory
supervision by the
Puerto Rico Office
of the
Commissioner of Insurance
and to insurance
laws
and regulations.
24
Available Information
We maintain an
Internet website at www.popular.com.
Via the “Investor
Relations” link at our
website, our annual reports
on
Form 10-K,
quarterly reports
on
Form 10-Q,
current
reports on
Form 8-K
and amendments
to
such
reports filed
or furnished
pursuant to Section 13(a) or
15(d) of the Securities Exchange Act
of 1934, as amended (the
“Exchange Act”), are available, free
of
charge, as
soon as
reasonably practicable
after such
forms are
electronically filed
with, or
furnished to,
the SEC.
The SEC
also
maintains an
internet website at
http://www.sec.gov that
contains reports, proxy
and information statements,
and other information
regarding issuers that file electronically with the
SEC. You may obtain copies of our filings on the SEC site.
We have
adopted a
written code
of ethics
that applies
to all
directors, officers
and employees
of Popular,
including our
principal executive officer
and senior financial
officers, in accordance
with Section 406
of the Sarbanes-Oxley
Act of 2002
and the
rules
of
the
SEC
promulgated
thereunder.
Our
Code
of
Ethics
is
available
on
our
corporate
website,
www.popular.com,
in
the
section entitled “Corporate Governance.” In the event that we make changes to, or provide waivers from, the provisions of this Code
of Ethics that
the SEC requires
us to disclose,
we intend to
disclose these events
on our corporate
website in such
section. In
the
Corporate Governance
section
of our
corporate
website,
we
have also
posted the
charters
for
our Audit
Committee, Talent
and
Compensation
Committee,
Risk
Management
Committee,
Corporate
Governance
and
Nominating
Committee
and
Technology
Committee, as well as our Corporate Governance Guidelines. In addition, information concerning
purchases and sales of our equity
securities by our executive officers and directors is
posted on our website.
All
website
addresses
given
in
this
document
are
for
information
only
and
are
not
intended
to
be
active
links
or
to
incorporate any website information into this Form
10-K.
ITEM 1A. RISK FACTORS
We, like
other financial institutions,
face risks
inherent to
our business,
financial condition, liquidity,
results of
operations
and
capital
position.
These
risks
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.
The risks described in
this report are not the
only risks we face. Additional
risks and uncertainties not currently
known by
us
or
that
we
currently
deem
to
be
immaterial,
or
that
are
generally
applicable
to
all
financial
institutions,
may
also
materially
adversely affect our business, financial condition, liquidity, results of operations or capital
position.
ECONOMIC AND MARKET RISKS
Weakness in
the economy,
particularly in
Puerto Rico,
where a
significant portion
of our
business is
concentrated, has
adversely impacted us in the past and may adversely
impact us in the future.
We have been, and will continue to be, impacted by global and local
economic and market conditions, including weakness
in the
economy,
disruptions and
volatility in
the financial
markets, inflation,
monetary and
fiscal policies,
public policy,
geopolitical
conflicts, business and consumer sentiment and unemployment. A significant portion of our business is concentrated
in Puerto Rico,
which accounted for approximately 77% of
our assets and 81% of
our deposits as of December 31,
2023 and 78% of our
revenues
for the
year ended
December 31,
2023. As
a result,
our financial
condition and
results of
operations are
highly dependent
on the
general
trends
of
the
Puerto
Rico
economy
and
other
conditions
affecting
Puerto
Rico
consumers
and
businesses.
The
concentration of
our operations in
Puerto Rico
exposes us to
greater risks than
other banking companies
with a
wider geographic
base.
Puerto Rico
has faced significant
economic and fiscal
challenges in the
past, including a
severe recession that
began in
2007 and
persisted for
over a
decade and
an acute
fiscal crisis
that led
the Puerto
Rico government
to file
for a
form
of federal
bankruptcy protection
in 2017.
Puerto Rico’s
fiscal and
economic challenges
have in
the past
adversely affected
our customers,
resulting
in
higher
delinquencies,
charge-offs
and
increased
losses
for
us.
While
Puerto
Rico’s
economy
has
been
gradually
recovering
and
the
Puerto
Rico
government
emerged
from
bankruptcy
in
2022,
Puerto
Rico
still
faces
economic
and
fiscal
challenges.
Moreover,
Puerto
Rico
has
historically
received
a
significant
amount
of
federal
funds
through
non-recurring
appropriations, particularly to cover costs associated with its health insurance program, and Puerto Rico’s recent economic recovery
has
been partially
driven by
significant federal
disaster relief
and stimulus
funding. Therefore,
the Puerto
Rico economy
is highly
susceptible
to
changes
in
federal
public
policy
towards
Puerto
Rico.
Public
policy
changes
that
result
in
a
reduction
of
federal
funding for Puerto
Rico, or in
delays in the
receipt of such funding,
could significantly impact Puerto
Rico’s economy.
A weakening
of the Puerto
Rico economy or other
adverse economic conditions affecting
Puerto Rico consumers and
businesses could result in
25
decreased demand
for our
products or services,
deterioration in the
credit quality
of our
customers, higher
delinquencies, charge-
offs or increased losses, all of which could adversely affect
our financial condition and results of operations.
We are
also exposed
to risks
related to
the state
of the
local economies
of the
other markets
in which
we do
business,
such as New York and Florida, and to the state of the global and U.S. economy and financial
markets. Global financial markets have
recently
experienced periods
of
extraordinary disruption
and volatility,
exacerbated by
geopolitical conflicts,
the
U.S.
debt-ceiling
situation,
high
levels
of
inflation
and
rapid
increases
in
interest
rates.
Inflationary
pressures
increased
certain
of
our
expenses
(including our
personnel expenses)
and adversely
affected consumer
sentiment. Central
bank responses
to inflationary
pressures
led to higher
market interest rates
and, in turn,
lower activity levels across
U.S. and global financial
markets. These circumstances
resulted in,
and could
continue to
result in,
reductions in
the value
of
our investments.
If these
conditions persist
or worsen,
our
results of operations, financial position and liquidity
could be materially and adversely affected.
Changes
in
interest
rates
and
credit
spreads
can
adversely
impact
our
financial
condition,
including
our
investment
portfolio,
since
a
significant
portion
of
our
business involves
borrowing
and
lending
money,
and
investing in
financial
instruments.
Our business
and financial
performance are
impacted by
market interest
rates and
movements in
those rates.
Since a
high percentage of our assets and liabilities are interest bearing or otherwise sensitive in value to changes in interest rates, changes
in interest rates, in the shape of the yield curve or in spreads between different types of rates, have had and could in the future have
a material impact on our results
of operations and the values of our
assets and liabilities, including our investment portfolio.
Interest
rates are
highly sensitive
to many
factors over
which we
have no
control and
which we
may not
be able
to anticipate
adequately,
including general
economic conditions
and the
monetary and
tax policies
of various
governmental bodies,
particularly the
Federal
Reserve Board.
Increasing levels of inflation, driven
by pent-up demand and supply-chain disruptions caused
by the COVID-19 pandemic
and the war in Ukraine, led
the Federal Market Committee of the Federal Reserve Board
(the “FOMC”) to execute a series of sharp
benchmark interest
rate increases
beginning in
the first
quarter of
2022. While
the
FOMC has
indicated that
it
may conclude
its
interest rate hike cycle, the amount and pace of any reduction in interest rates remains uncertain. Higher interest rates could lead to
fewer originations of
commercial and residential
real estate loans,
loss of deposits,
a misalignment in
the pricing of
short-term and
long-term
borrowings,
less
liquidity
in
the
financial
markets
and
higher
funding
costs.
Furthermore,
higher
interest
rates
could
negatively affect
the payment
performance on
loans linked
to variable
interest rates
to the
extent borrowers
are unable
to afford
higher interest
payments, which
could result
in higher
delinquencies. Inflationary
pressure arising
from increases
in interest
rates
may also affect
borrowers’ financial condition and
their ability to
pay their debts
when due. Additionally,
if the interest
rates we pay
on
our
deposits
and
other
borrowings
were
to
increase
at
a
faster
rate
than
the
interest
rates
we
receive
on
loans
and
other
investments,
our
net
interest
income,
and,
therefore,
our
earnings,
could
be
adversely
affected.
All
of
these
outcomes
could
adversely affect our earnings, liquidity and capital levels.
The
rapid
rise
in
interest
rates
in
2022
resulted
in
approximately
$2.5
billion
in
unrealized
mark-to-market
losses
on
available-for-sale securities held in our investment securities portfolio. In October 2022, we transferred U.S. Treasury securities with
a fair value of approximately $6.5 billion (par value of
$7.4 billion), and with accumulated unrealized losses of $873 million, from our
available-for-sale portfolio to
our held-to-maturity portfolio.
While the size
of our unrealized
mark-to-market losses on
available-for-
sale
securities
had
been
reduced
to
$1.4
billion
as
of
December
31,
2023,
if
interest
rates
were
to
again
rise
rapidly
or
for
a
prolonged period, we may accumulate significant additional mark-to-market
losses on investment securities in our available-for-sale
portfolio, which may adversely affect our tangible capital
and impact our ability to return capital to our
stockholders.
For a discussion of the Corporation’s
interest rate sensitivity, please refer
to the “Risk Management” section of the MD&A
in this Form 10-K.
BUSINESS RISKS
Negative
changes
in
the
financial
condition
of
our
clients
have
adversely
impacted
us
in
the
past
and
may
adversely
impact us in the future.
A significant portion of
our business involves lending money,
which exposes us to
credit risk and
risk of loss if
borrowers
do
not
repay
their
loans,
leases, credit
cards
or
other
credit
obligations.
The
performance of
these
credit
portfolios
significantly
affects our
financial condition
and results
of operations.
We have
in the
past been
adversely affected
by negative
changes in
the
financial condition of our clients due to weakness in
the Puerto Rico and U.S. economy. If the current economic environment were to
26
deteriorate, more customers may have difficulty in repaying their credit obligations, which may result in higher levels
of credit losses
and reserves for credit losses.
We are exposed to
increased credit risks and credit losses
to the extent our clients are
concentrated by industry segment
or type of client.
Our credit risk and credit
losses can increase to the extent
our loans are concentrated in borrowers engaged in
the same
or similar
activities or
in borrowers
who as
a group
may be
uniquely or
disproportionately affected
by certain
economic or
market
conditions. We have significant
exposure to borrowers in certain
economic sectors, such as residential
and commercial real estate,
hospitality and healthcare. Challenging economic or market conditions that affect
the industries or types of clients to
which we have
significant exposure could result in higher credit
losses and adversely affect our financial condition
and results of operations.
We also
have direct
lending and
investment exposure
to Puerto
Rico government
entities, which
have faced
significant
fiscal challenges.
At December
31, 2023,
our exposure
to the
Puerto Rico
government consisted
of $362
million in
direct lending
exposure to Puerto
Rico municipalities and
$238 million in
loans insured or
securities issued by
Puerto Rico governmental
entities
but for
which the
principal source
of repayment
is non-governmental.
We also
have indirect
lending exposure
to the
Puerto Rico
government in the
form of loans
to private borrowers
who are service
providers, lessors, suppliers
or have other
relationships with
the Puerto Rico government. While the overall fiscal situation
of the Puerto Rico government has improved in recent years,
including
as
result
of
the
government
and
certain
of
its
instrumentalities
having
restructured
their
debt
obligations,
some
Puerto
Rico
government entities, including certain municipalities, still face significant
fiscal challenges. A deterioration in the fiscal situation of the
Puerto Rico
government and its
instrumentalities, and in
particular in the
fiscal situation
of the
Puerto Rico
municipalities to
which
we have direct lending exposure, could result in
higher credit losses and reserves for credit losses. For
a discussion of risks related
to the Corporation’s credit exposure to the Puerto Rico
and USVI governments, see the Geographic and
Government Risk section in
the MD&A section of this Form 10-K.
Deterioration in the
values of real
properties securing our commercial, mortgage
loan and construction portfolios
have in
the past resulted, and may in the future result,
in increased credit losses and harm our results
of operations.
As of
December 31,
2023, approximately
55% of
our loan
portfolio consisted
of loans
secured by
real estate
collateral
(comprised of 30% in commercial loans, 22% in residential
mortgage loans and 3% in construction loans). The
value of the collateral
securing such loans is dependent upon economic conditions in the area in which the collateral is located. Weakness in the economy
of some of the
markets we serve has in
the past resulted in significant
declines in the value of
the real properties securing our
loan
portfolio, leading to increased credit losses. If the value of
the real estate properties securing our loan portfolio declines again in
the
future, we may be
required to increase our
provisions for loan losses
and allowance for loan
losses. Any such increase could
have
an adverse effect on
our financial condition and results of
operations. For more information on the credit
quality of our construction,
commercial and mortgage portfolio, see the Credit
Risk section of the MD&A included in this
Form 10-K.
We
are
exposed
to
credit
risk
from
mortgage
loans
that
have
been
sold
or
are
being
serviced
subject
to
recourse
arrangements.
Popular
is
generally
at
risk
for
mortgage
loan
defaults
from
the
time
it
funds
a
loan
until
the
time
the
loan
is
sold
or
securitized into a
mortgage-backed security.
However, we
have retained part
of the credit
risk on sales
of mortgage loans
through
recourse
arrangements,
and
we
also
service
certain
mortgage
loan
portfolios
with
recourse.
At
December
31,
2023,
we
were
exposed to credit risk with respect to $0.6 billion in residential mortgage loans sold
or serviced subject to credit recourse provisions,
consisting principally of loans associated with the Fannie Mae and
Freddie Mac programs. Pursuant to such recourse provisions,
we
are required to repurchase the loan or reimburse the third-party investor for the incurred loss in the event of a customer default. The
maximum potential amount of future payments that
we 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. In
the
event
of
nonperformance by
the borrower,
we
have
rights
to
the
underlying collateral
securing the
mortgage loan.
During 2023,
we repurchased
approximately $2
million in
mortgage loans
subject to
credit recourse
provisions. As
of December
31, 2023,
our liability
established to
cover the
estimated credit
loss exposure
related to
loans sold
or
serviced with credit recourse amounted to $4 million. We may suffer losses on these loans if 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
of the related property.
Defective and repurchased loans may harm our business
and financial condition.
27
In
connection
with
the
sale
and
securitization
of
mortgage
loans,
we
are
required
to
make
a
variety
of
customary
representations
and
warranties regarding
Popular
and
the
loans
being
sold
or
securitized.
Our
obligations with
respect to
these
representations and warranties are generally outstanding for the
life of the loan, and they
relate to, among other things, compliance
with
laws
and
regulations,
underwriting
standards,
the
accuracy
of
information
in
the
loan
documents
and
loan
file
and
the
characteristics
and
enforceability of
the
loan.
A
loan
that
does
not
comply
with
the
secondary
market’s
requirements
may
take
longer to
sell, impact
our ability
to securitize
the loans
or pledge
the loans
as collateral
for borrowings,
or be
unsalable or
salable
only
at
a
significant
discount.
Moreover,
if
any
such
loan
is
sold
before
we
detect
non-compliance,
we
may
be
obligated
to
repurchase the loan and bear any associated loss directly,
or we may be obligated to indemnify the purchaser against any loss.
We
seek to
minimize repurchases and
losses from defective
loans by correcting
flaws, if possible,
and selling or
re-selling such loans.
However,
if
we
were
to
suffer
significant
losses
from
defective
and
repurchased
loans,
our
results
of
operations
and
financial
condition could be materially impacted.
If we are
unable to maintain
or grow our
deposits, we may
be subject to
paying higher funding costs
and our net
interest
income may decrease.
We rely primarily
on bank deposits as
a low cost and
stable source of funding
for our lending activities
and the operation
of
our
business.
Therefore,
our
funding
costs
are
largely
dependent
on
our
ability
to
maintain
and
grow
our
deposits.
As
our
competitors have raised the
interest rates they pay
on deposits, our
funding costs have increased,
as we have
needed to increase
the rates we
pay to our depositors
to avoid losing deposits
and to procure new
ones. Rising interest rates
have also led customers
to move their funds to alternative investments that
pay higher interest rates.
Additionally, periods of market stress
or lack of market
or customer confidence in financial institutions may result in
a loss of customer deposits, especially to the
extent those deposits are
in excess of the FDIC-insured limit of $250,000. As of
December 31, 2023, we had $14.6 billion of deposits (other
than collateralized
public funds, which represent public deposit balances from governmental entities in the U.S. and its territories, including Puerto Rico
and the United States Virgin Islands, that are collateralized based on such jurisdictions’
applicable collateral requirements) in excess
of the FDIC-insured limit. As deposits decrease, we
may need to rely on more
expensive sources of funding. Furthermore, we have
a
significant
amount
of
deposits
from
the
Puerto
Rico
government,
its
instrumentalities
and
municipalities
($18.1
billion,
or
approximately 28% of our
total deposits, as of
December 31, 2023), and
the amount of these
deposits may fluctuate depending on
the financial
condition and
liquidity of
these entities,
as well
as on
our ability
to maintain
these customer
relationships. Under
the
terms of
BPPR’s deposit
pricing agreement
with Puerto
Rico public
sector,
public fund
deposit rates
are market
linked with
a lag
minus a
specified spread.
Therefore, as
market rates
rise, we
are required
to sequentially
increase the
rates we
pay our
public
deposits. If
we are unable
to maintain or
grow our deposits
for any
reason, we may
be subject to
paying higher funding
costs and
our net interest income may decrease.
OPERATIONAL RISKS
We
and our
third-party providers
have been,
and expect
in the
future to
continue to
be, subject
to cyber-attacks,
which
could cause substantial harm and have an adverse
effect on our business and results of operations.
Cybersecurity
risks
for
large
financial
institutions
such
as
Popular
have
increased
significantly
in
recent
years
in
part
because of
the proliferation
of new
technologies, such
as mobile
banking, artificial
intelligence and
the ability
to conduct
instant
financial transactions anywhere
globally, growing
geo-political threats, such
as the ongoing
wars in Ukraine
and in the
Gaza Strip,
and the increased sophistication and activities of
organized crime, hackers, terrorists, nation-states, hacktivists and other parties. In
the ordinary
course of
business, we
rely on
electronic communications
and information
systems to
conduct our
operations and
to
transmit
and
store
sensitive
data.
We
employ
a
layered
defensive approach
that
employs
people, processes
and
technology
to
manage and
maintain cybersecurity
controls through
a variety
of preventative
and detective
tools that
monitor, block,
and provide
alerts
regarding suspicious
activity
and
identify suspected
advanced persistent
threats.
Notwithstanding our
defensive measures
and
the
significant
resources
we
devote
to
protect
the
security
of
our
systems,
there
is
no
assurance
that
all
of
our
security
measures will be effective at all times, especially as the threats from cyber-attacks are continuous and severe. The risk of a security
breach due
to a
cyber-attack could
increase in
the future
as we
continue to
expand our
mobile banking
and other
internet-based
product
offerings,
the
use
of
the
cloud
for
system
development
and
hosting
and
internal
use
of
internet-based
products
and
applications.
We
continue to
detect and
identify attacks
that are
becoming more
sophisticated and
increasing in
volume, as
well as
attackers
that
respond
rapidly
to
changes
in
defensive
countermeasures. The
most
significant
cyber-attack
risks
that
we
or
our
critical service providers may face include, but are not limited to,
e-fraud, denial-of-service (DDoS), ransomware, computer intrusion
and
the
exploitation of
software zero-day
vulnerabilities that
might result
in
disruption of
services
and in
the
exposure or
loss of
customer
or
proprietary
data.
Loss
from
e-fraud
occurs
when
cybercriminals
compromise
our
systems
or
the
systems
of
our
28
customers and extract
funds from customer’s
credit cards or
bank accounts, including
through brute force,
password spraying and
credential
stuffing
attacks
directed
at
gaining
unauthorized
access
to
individual
accounts.
Denial-of-service
attacks
intentionally
disrupt
the
ability
of
legitimate
users,
including
customers
and
employees,
to
access
networks,
websites
and
online
resources.
Computer intrusion attempts either direct or through social engineering (pretext calls), supply chain compromise, email, text or voice
messages, including using brand impersonation (regularly referred
to as phishing, vishing, smishing
and quishing), have resulted in
and may continue to result in the compromise of sensitive customer data, such as account numbers, credit cards and social security
numbers,
and
could
present
significant
reputational, legal
and
regulatory costs
to
Popular
if
successful.
The
emergence of
new
technologies such as artificial intelligence and quantum
computing are further expected to exacerbate
the risk of cyber-attacks.
Our
customer-facing
platforms
are
also
routinely
attacked
by
threat
actors
aiming
to
gain
unauthorized
access
to
our
clients’ accounts.
Popular has
recently implemented
certain defensive
measures in
response to
brute force
attacks on
one of
our
platforms which resulted in certain
of our customers log-in credentials
and information being exposed. As
a result, Popular notified,
as required
or otherwise
deemed appropriate,
customers identified
as affected
by the
incident. We
have to
date not
experienced
material losses in connection with these attacks. Cyber-security risks have also been recently exacerbated by the discovery of zero-
day vulnerabilities in widely distributed third party software,
such as the vulnerability identified in the Apache
log4j in December 2021
and in the MOVEit file transfer application in
May 2023, which could affect Popular’s or any
of its service provider’s systems.
The
increased
use
of
remote
access
and
third-party
video
conferencing
solutions
to
enable
work-from-home
arrangements for employees and facilitate
the use of digital
channels by our customers,
has also increased our
exposure to cyber-
attacks. In
addition, a
third party
could misappropriate
confidential information
obtained by
intercepting signals
or communications
from mobile devices
used by Popular’s customers
or employees. Recent events,
including the wars
in Ukraine and
the Gaza Strip,
have also
illustrated increased
geo-political factors
and the
risks related
to supply-chain
compromises and
de-stabilizing activities
linked to
nation-state sponsored
activity as
an increasing
trend to
monitor actively.
Risks and
exposures related
to cyber
security
attacks are expected to remain high for the foreseeable future due to
the rapidly evolving nature and sophistication of these threats,
including the
rise in
the use
of cyber-attacks
as geopolitical
weapons. Although
we are
regularly targeted
by unauthorized
threat-
actor activity, including denial-of-service attacks, we have not, to date, experienced
any material losses as a result of cyber-attacks.
A material compromise or circumvention of the security of our systems could
have serious negative consequences for us,
including
significant
disruption
of
our
operations
and
those
of
our
clients,
customers
and
counterparties,
misappropriation
of
confidential information
of us
or that
of our
clients, customers,
counterparties or
employees, or
damage to
computers or
systems
used
by
us
or
by
our
clients,
customers
and
counterparties,
and
could
result
in
violations
of
applicable
privacy
and
other
laws,
financial loss
to us
or to
our customers,
loss of
confidence in
our security
measures, customer
dissatisfaction, significant litigation
exposure and harm to
our reputation, all of
which could have a
material adverse effect
on us. For example,
if personal, non-public,
confidential
or
proprietary
information
in
our
possession
were
to
be
mishandled,
misused
or
stolen,
we
could
suffer
significant
regulatory consequences, reputational damage
and financial loss.
Such mishandling, misuse
or misappropriation could include,
for
example, if such information
were provided to parties
who are not permitted
to have the
information, either by fault
of our systems,
by our employees
or counterparties, or
where such information
is intercepted or
otherwise inappropriately taken by
our employees
or third parties.
The
extent
of
a
particular
cyber-attack
and
the
steps
that
we
may
need
to
take
to
investigate
the
attack
may
not
be
immediately
clear,
and
it
may
take
a
significant
amount
of
time
before
such
an
investigation
can
be
completed.
While
such
an
investigation is ongoing, Popular may not necessarily know the full extent
of the harm caused by the cyber-attack, and that
damage
may continue to spread.
These factors may inhibit
our ability to provide
rapid, full and reliable
information about the cyber-attack to
our clients,
customers, counterparties
and regulators,
as well
as the
public. Moreover,
new regulations may
require us
to disclose
information about a cybersecurity event before
it has been resolved or
fully investigated. Furthermore, it may not
be clear how best
to
contain
and
remediate
the
potential
harm
caused
by
the
cyber-attack,
and
certain
errors
or
actions
could
be
repeated
or
compounded before they are discovered and remediated. Cyber-attacks could cause interruptions
in our operations and result in the
incurrence
of
significant
costs,
including those
related
to
forensic analysis
and
legal counsel,
each of
which may
be
required to
ascertain the extent
of any potential
harm to our
customers, or employees, or
damage to our information
systems and any
legal or
regulatory obligations that
may result therefrom.
Any cyber incidents
could also result
in, among other
things, increased regulatory
scrutiny
and adverse
regulatory or
civil
litigation consequences.
For a
discussion of
the guidance
and rules
that federal
banking
regulators
have
released
or
proposed
regarding
cybersecurity
and
cyber
risk
management
standards,
see
“Regulation
and
Supervision” in
Part
I,
Item
1 —
Business,
included in
the
Form 10-K
for the
year
ended December
31,
2023. Any
or
all
of
the
foregoing factors could further increase the impact
of the incident and thereby the costs and consequences
of a cyber-attack.
We also
rely on
third parties
for the
performance of
a significant
portion of
our information
technology functions and
the
29
provision of information security,
technology and business process services. As a result, a
successful compromise or circumvention
of
the security
of
the systems
of these
third-party service
providers could
have serious
negative consequences
for us,
including
compromise
of
our
systems,
misappropriation of
our
confidential
information
or
that
of
our
clients,
customers,
counterparties
or
employees,
or
other
negative
implications
identified
above
with
respect
to
a
cyber-attack
on
our
systems,
which
could
have
a
material
adverse effect
on
us.
Cyber-attacks at
third-party service
providers
are
also
becoming increasingly
common,
and,
as
a
result, cybersecurity risks relating to our vendors have
increased. The most important of these third-party service providers
for us is
Evertec. Certain risks particular to Evertec and
our dependence on third parties are discussed
under “We rely on other companies to
provide key components of our business infrastructure, including certain of our core financial transaction processing and information
technology and
security services, which
exposes us
to a
number of operational
risks that
could have
a material
adverse effect
on
us”
in
the
Operational
Risks
section
of
Item
1A
in
this
Form
10-K.
During
2021,
we
determined
that,
as
a
result
of
the
widely
reported breach of
Accellion, Inc.’s File
Transfer Appliance tool,
which was being
used at the time
of such breach
by a U.S.-based
third-party advisory services vendor of
Popular, personal information of
certain Popular customers was compromised. During
2023,
personal information of Popular customer data was compromised in a data breach incident that impacted MOVEit, the third-party file
transfer
platform
used
by
one
of
our
services
providers.
In
both
instances,
Popular
notified,
as
required
or
otherwise
deemed
appropriate, customers identified
as affected
by the incident.
Although these incidents
did not have
a material effect
on Popular or
its financial condition,
our networks and
systems were not
impacted, and our third-party
service providers agreed to
cover external
remediation
costs
associated
therewith,
a
compromise
of
the
personal
information
of
our
customers
maintained
by
third
party
vendors
could
result
in
significant
regulatory
consequences,
reputational
damage
and
financial
loss
to
us.The
success
of
our
business depends
in part
on the
continuing ability
of these
(and other)
third parties
to perform
these functions
and services
in a
timely
and
satisfactory
manner,
which
performance
could
be
disrupted
or
otherwise
adversely
affected
due
to
failures
or
other
information security
events originating at
the third
parties or at
the third parties’
suppliers or vendors
(so-called “fourth party
risk”).
We
may
not
be
able
to
effectively
directly
monitor
or
mitigate
fourth-party
risk,
in
particular
as
it
relates
to
the
use
of
common
suppliers or vendors by the third parties that perform
functions and services for us.
As
cyber
threats
continue
to
evolve,
we
expect
to
expend
significant
additional
resources
to
continue
to
modify
or
enhance our
layers of
defense or
to investigate
and remediate
additional information
security vulnerabilities
or incidents.
System
enhancements and
updates also
create risks
associated with
implementing new
systems and
integrating them
with existing
ones,
including risks associated with supply chain compromises
and the software development lifecycle of the
systems used by us and our
service providers. Due
to the complexity
and interconnectedness of information
technology systems, the
process of enhancing
our
layers
of
defense can
itself
create
a
risk
of
systems
disruptions
and
security
issues.
In
addition,
addressing
certain
information
security vulnerabilities, such as
hardware-based vulnerabilities, may affect
the performance of our
information technology systems.
The ability of our
hardware and software providers to deliver
patches and updates to mitigate vulnerabilities
in a timely manner
can
introduce additional risks, particularly when a vulnerability is being actively exploited by threat actors. Moreover,
our efforts to timely
mitigate vulnerabilities and
manage such risks,
given the rise
in number and
urgency of
required patches and
third-party software,
including “zero-day vulnerabilities”, as
well as the obsolescence
in some of our
hardware and software, may
impact our day-to-day
operations,
the
availability
of
our
systems
and
delay
the
deployment
of
technology
enhancements
and
innovation.
The
obsolescence in any of our hardware or
software may limit our ability to mitigate vulnerabilities.
If Popular’s operational systems,
or those of
external parties on which
Popular’s businesses depend, are
unable to meet
the requirements of our
businesses and operations or bank
regulatory standards, or if they
fail, have other significant
shortcomings
or are impacted by cyber-attacks, Popular could
be materially and adversely affected.
Unforeseen or
catastrophic events,
including
extreme weather
events and
other natural
disasters, man-made
disasters,
acts of violence or
war, or the
emergence of pandemics or epidemics, could
cause a disruption in our
operations or other
consequences that could have a material adverse
effect on our financial condition and results
of operations.
A
significant
portion
of
our
operations
are
located
in
the
Caribbean
and
Florida,
a
region
susceptible
to
hurricanes,
earthquakes and other
similar events. In
2017, Puerto Rico,
USVI and BVI
were severely impacted
by Hurricanes Irma
and María,
which resulted in significant disruption to our operations and adversely affected
our clients in these markets, and in 2022, Hurricane
Fiona impacted the
southwest area of
Puerto Rico,
adversely affecting our
customers in
that region. Other
types of
unforeseen or
catastrophic events, including
pandemics, epidemics, man-made
disasters, or acts
of violence or
war, or
the fear that
such events
could
occur,
could
also
adversely
impact
our
operations
and
financial
results.
For
example,
in
2020,
the
COVID-19
pandemic
severely
impacted
global
health,
financial
markets,
consumer
spending
and
global
economic
conditions,
and
caused
significant
disruption
to
businesses worldwide,
including
our
business
and
those
of
our
customers, service
providers
and
suppliers.
Future
unforeseen or
catastrophic events,
including new
pandemic events, and
actions taken
by governmental authorities
and other third
parties in
response to such
events, could again
adversely affect
our operations, cause
economic and market
disruption, adversely
30
impact the ability of borrowers to
timely repay their loans, or affect
the value of any collateral
held by us, any of which
could have a
material adverse
effect on
our business,
financial condition
or results
of operations.
The frequency,
severity and
impact of
future
unforeseen or catastrophic events is difficult to
predict. While we maintain insurance against natural disasters and other unforeseen
events, including coverage
for business interruption,
the insurance may
not be sufficient
to cover all
of the
damage from any
such
event, and there is no insurance against the disruption that a catastrophic event could produce to the markets that we serve and the
potential negative impact to economic activity.
Climate change could have a material adverse
impact on our business operations and that
of our clients and customers.
Our business and
the activities and
operations of our
clients and customers
may be disrupted
by global climate
change.
Potential physical risks
from climate change
include the increase
in the
frequency and severity
of weather
events, such as
storms
and
hurricanes,
and
long-term
shifts
in
climate
patterns, such
as
sustained
higher
and
lower
temperatures,
sea
level
rise,
heat
waves
and
droughts,
among
others.
Our
geographic
concentration
in
localities,
including
Puerto
Rico,
the
U.S.V.I.,
B.V.I.
and
Florida, particularly
susceptible to
risks arising
from climate
change, including
severe hurricanes
and sea
level rise,
heighten the
threat we
face from
climate change. Additionally,
the impact
of climate
change in
the markets
that we
operate and
in other
global
markets may
have the
effect of
increasing the
costs or
reducing the
availability of
insurance needed
for our
business operations.
Climate change may also create transitional risks resulting from a shift to a low-carbon economy.
These transition risks may include
changes in the legal and regulatory landscape, technology, consumer sentiment and preferences, and market demands that seek to
mitigate the
effects
of climate
change. Changes
in the
legal
and regulatory
landscape may
additionally increase
our compliance
costs.
These
climate-driven
changes
could
have
a
material
adverse
impact
on
asset
values
and
on
our
business
and
financial
performance and those of our clients and customers.
We
rely
on
other
companies
to
provide
key
components
of
our
business
infrastructure,
including
certain
of
our
core
financial
transaction
processing
and
information
technology
and
security
services,
which
exposes
us
to
a
number
of
operational risks that could have a material
adverse effect on us.
Third parties provide key components of our business operations, such
as data processing, information security, recording
and monitoring transactions,
online banking interfaces and
services, Internet connections and
network access. The most
important
of these third-party
service providers for
us is Evertec.
Although the Evertec
Business Acquisition Transaction
narrowed the scope
of
services
which
we
are
dependent
on
Evertec to
obtain
and
released
us
from
exclusivity
restrictions
that
limited
our
ability
to
engage other third-party
providers of financial
technology services, we
are still dependent
on Evertec for
the provision of
essential
services
to
our
business,
including
certain
of
our
core
financial
transaction
processing
and
information
technology
and
security
services. As
a
result, we
are
particularly exposed
to
the operational
risks
of Evertec,
including those
relating to
a
breakdown or
failure of Evertec’s systems or internal controls environment. Over the course of
our relationship with Evertec, we have experienced
interruptions
and
delays
in
key
services
provided
by
Evertec,
as
well
as
cyber
events,
as
a
result
of
system
breakdowns,
misconfigurations,
human
error,
application
obsolescence
and
dependency
on
shared
infrastructure
components,
which
have
in
certain cases
also
led to
exposure of
BPPR customer
information. Our
ability to
cure
legacy obsolescence
in the
hardware and
software we
procure from
Evertec, as
well as
to effect
the segregation
of our
shared infrastructure,
is expected
to be
lengthy and
complex,
which
exacerbates
our
exposure
to
resulting
operational,
including
cybersecurity,
risks.
See
“The
transition
to
new
financial services
technology providers,
and the
replacement of
services currently
provided to
us
by Evertec,
will be
lengthy and
complex” in the Operational Risks section of Item 1A
in this Form 10-K below.
While we
select third-party
vendors carefully
and have
increased our
oversight of
these relationships,
we do
not control
the
actions
of
our
vendors.
Any
problems
caused
by
these
vendors,
including
those
resulting
from
disruptions
in
the
services
provided, vulnerabilities in or breaches
of the vendor’s systems, failure of
the vendor to handle
current or higher volumes,
failure of
the vendor
to provide services
for any
reason or
poor performance of
services, or
failure of
the vendor to
notify us of
a reportable
event in a timely manner,
could adversely affect our ability to deliver products and services to
our customers and otherwise conduct
our
business,
result in
potential liability
to
clients
and customers,
result in
the
imposition of
fines,
penalties or
judgments by
our
regulators, lead to
exposure of BPPR
customer information or
harm to our
reputation, any of
which could materially
and adversely
affect us.
The inability
of our
third-party service
providers to
timely address
evolving cybersecurity threats
may further
exacerbate
these risks. Financial or operational difficulties of a third-party vendor could also
hurt our operations if those difficulties interfere with
the vendor’s ability to serve us. Replacing these
third-party vendors, when possible, could also create significant
delay and expense.
Accordingly, the use of third parties creates an unavoidable inherent risk to
our business operations.
The transition to new financial services technology providers, and the replacement of services currently provided to
us by
Evertec, will be lengthy and complex.
31
Switching from
one vendor
of core
bank processing
and related
technology and
security services
to
one
or more
new
vendors
is
a
complex
process
that
carries
business
and
financial
risks.
The
implementation
cycle
for
such
a
transition
can
be
lengthy and require significant financial and
management resources from us. Such
a transition can also expose us,
and our clients,
to
increased
costs
(including
conversion
costs),
business
disruption,
as
well
as
operational
and
cybersecurity
risks.
Upon
the
transition of all or
a portion of existing services
provided by Evertec to a
new financial services technology provider,
either (i) at the
end of the term of the Second Amended and Restated
Master Services Agreement (the “MSA”) and related
agreements or (ii) earlier
upon the
termination of any
service for
convenience under the
MSA, these transition
risks could result
in an
adverse effect
on our
business, financial condition and results of operations. Although Evertec
has agreed to provide certain transition assistance to
us in
connection with
the termination of
the MSA,
we are
ultimately dependent on
their ability
to provide
those services
in a
responsive
and competent manner. Furthermore, we
may require transition assistance from Evertec beyond the term of
the MSA, delaying and
lengthening any transition process away from Evertec
while increasing related costs.
Under the
MSA, we
are able
to terminate
services for
convenience with
180 days’
prior notice.
We expect
to exercise
during the
term of
the MSA
the right
to terminate
certain services
for convenience
and to
transition such
services to
other service
providers prior to the expiration
of the MSA, subject to
complying with the revenue minimums contemplated in
the MSA and certain
other conditions. In
practice, in order
to switch
to a
new provider for
a particular service,
we will have
to commence procuring
and
working on
a transition
process for
such service
significantly in
advance of
its termination
and, in
any case,
much earlier
than the
automatic renewal notice date or the expiration date of
the MSA, and such process may extend beyond the current
term of the MSA.
Furthermore, if
we
are
unsuccessful or
decide not
to
complete
the transition
after
expending significant
funds
and
management
resources, it could also result in an adverse
effect on our business, financial condition and results
of operations.
LEGAL AND REGULATORY RISKS
Our
businesses
are
highly
regulated,
and
the
laws
and
regulations
that
apply
to
us
have
a
significant
impact
on
our
business and operations.
We are subject to extensive and evolving
regulation under U.S. federal, state and Puerto Rico laws that
govern almost all
aspects of our operations and
limit the businesses in which
we may be engaged,
including regulation, supervision and examination
by federal, state
and foreign banking
authorities. These laws
and regulations have
expanded significantly over an
extended period
of
time
and
are
primarily
intended
for
the
protection
of
consumers,
borrowers
and
depositors.
Compliance
with
these
laws
and
regulations has resulted, and will continue to
result, in significant costs.
Additional
laws
and
regulations
may
be
enacted
or
adopted
in
the
future
that
could
significantly
affect
our
powers,
authority
and
operations and
which could
have a
material adverse
effect
on
our
financial condition
and
results
of
operations. In
particular,
we
could
be
adversely
impacted
by
changes
in
laws
and
regulations,
or
changes
in
the
application,
interpretation
or
enforcement of
laws and
regulations, that proscribe
or institute more
stringent restrictions on
certain financial
services activities
or
impose new
requirements relating to
the impact of
business activities on
ESG concerns, the
management of
risks associated with
those concerns and
the offering of
products intended to achieve
ESG-related objectives. In
addition, new laws or
regulations could
require
significant
system
and
process
changes
that
require
systems
upgrades
and
could
limit
our
ability
to
meet
adoption
timeframes or pursue our
innovation roadmap. If we
do not appropriately comply
with current or future
laws or regulations, we
may
be subject to
fines, penalties or
judgements, or to
material regulatory restrictions
on our
business, which could
also materially and
adversely affect our financial condition and results of operations.
In 2023, the federal
banking regulators proposed revisions to the
U.S. capital rules and new
long-term debt requirements
for banking organizations with $100 billion or more in
assets.
If finalized as proposed, the revisions to the capital
rules and the new
long-term
debt
requirements
are
expected
to
generally
increase
capital
requirements
and
expenses,
including
interest
and
noninterest expense, for large banking organizations.
In addition, during 2023, the federal banking regulators
indicated that they are
considering revisions to liquidity requirements applicable to
banking organizations with $100 billion or
more in light of
the failures of
three large banks in March and May 2023.
Any such revisions could require large banks to change the
size and composition of their
liquidity portfolios, which could have adverse effects on
net interest income and net interest margin.
The
pending
and
anticipated
proposals
reflect
a
trend
of
increasingly
stringent
regulatory
requirements
for
banking
organizations
with assets
of
$100
billion
or
more,
relative
to
smaller
banking
organizations, as
well
as
less differentiation
in
the
requirements applicable among banking organizations with $100 billion or more in assets.
Although Popular currently has less than
$100
billion
in
assets,
actual, anticipated
or
potential changes
in
regulatory requirements
for
banking organizations
with at
least
$100 billion in assets could
result in Popular deciding not to
pursue growth opportunities that would result
in its assets approaching
or exceeding
that threshold,
or if
Popular’s assets
do exceed
that threshold,
a need
for Popular
to increase
its regulatory
capital,
32
issue
substantial
amounts
of
long-term
debt
or
incur
other
significant
expenses
in
order
to
satisfy
applicable
regulatory
requirements.
Our participation
(or lack
of participation)
in certain
governmental programs,
such as
the Paycheck
Protection Program
(“PPP”) enacted
in response
to the
COVID-19 pandemic,
also exposes
us to
increased legal
and regulatory
risks. We
have also
been and could continue to
be exposed to adverse
action for the violation of
applicable legal requirements or the improper
conduct
of our employees in connection with such loans. For example, on January 24, 2023, Popular Bank consented to the imposition of an
order from
the Federal
Reserve Board
requiring it
to
pay a
$2.3 million
civil money
penalty to
settle certain
findings arising
from
Popular Bank’s approval of six Payment Protection Program
loans.
We
are from
time to
time subject
to information
requests, investigations
and other
regulatory enforcement
proceedings
from departments and agencies of the U.S. and Puerto Rico
governments, including those that investigate compliance
with
U.S. sanctions and consumer protection laws and regulations, which may
expose us to significant penalties and collateral
consequences, and could result in higher compliance
costs or restrictions on our operations.
We
from
time-to-time
self-report
compliance
matters
to,
or
receive
requests
for
information
from,
departments
and
agencies
of
the
U.S.
and
Puerto
Rico
governments,
including
with
respect
to
compliance
with
consumer
protection
laws
and
regulations.
For
example,
BPPR
has
in
the
past
received
requests
for
information,
such
as
subpoenas
and
civil
investigative
demands
from
U.S.
government
regulators,
including
concerning
add-ons
on
consumer
products,
real
estate
appraisals
and
residential and
construction loans
in Puerto
Rico. BPPR
has also
self-identified and
reported to
applicable regulators
compliance
matters related to U.S. sanctions, as well as mortgage,
credit reporting and other consumer lending practices.
Incidents of this nature and investigations or examinations by governmental authorities have resulted in the past, and may
in the
future result, in
judgments, settlements, fines,
enforcement actions, penalties
or other sanctions
adverse to the
Corporation,
which could materially and adversely affect the
Corporation’s business, financial condition or results of operations, or cause
serious
reputational
harm.
Any
such
settlements
or
orders
that
we
enter
into,
or
that
regulatory
authorities
impose
on
us
could
require
enhancements
to
our
procedures
and
controls
and
entail
significant
operational
and
compliance
costs.
Furthermore,
issues
or
delays in
satisfying the
requirements of
a regulatory
settlement or
action on
a timely
basis could
result in
additional penalties
and
enforcement actions, which could be significant. In connection with the resolution of regulatory proceedings, enforcement authorities
may seek admissions of wrongdoing and, in some cases, criminal pleas, which
could lead to increased exposure to private litigation,
loss of clients or customers, and restrictions on offering certain products or
services. In addition, responding to information-gathering
requests,
investigations
and
other
regulatory
proceedings,
regardless
of
the
ultimate
outcome
of
the
matter,
could
be
time-
consuming, expensive and divert management attention
from our business.
Financial services
institutions such
as Popular
have been
subject to
heightened expectations
and regulatory
scrutiny in
recent years.
Our regulators’
oversight is
not limited
to banking
and financial
services laws
but extends
to other
significant laws
such as those related to anti
money laundering, anti-bribery and anti-corruption laws. Further,
regulators in the performance of their
supervisory and enforcement
duties, have significant
discretion and power
to prevent or
remedy what they
deem to be
unsafe and
unsound
practices
or
violations
of
laws
by
banks
and
bank
holding
companies.
Therefore,
the
outcome
of
any
investigative
or
enforcement action, which may take years and be
material to Popular, may be difficult to predict or estimate.
Complying with economic and trade sanctions programs
and anti-money laundering laws and regulations
can increase our
operational
and
compliance
costs
and
risks.
If
we,
and
our
subsidiaries,
affiliates
or
third-party
service
providers,
are
found to
have failed
to comply
with applicable
economic and
trade sanctions
programs and
anti-money laundering
laws
and
regulations,
we
could
be
exposed
to
fines,
sanctions
and
penalties,
and
other
regulatory
actions,
as
well
as
governmental investigations.
As
a
federally
regulated
financial
institution,
we
must
comply
with
regulations
and
economic
and
trade
sanctions
and
embargo
programs
administered by
the
Office
of
Foreign
Assets
Control
(“OFAC”)
of
the
U.S.
Treasury,
as
well
as
anti-money
laundering laws and regulations, including those under
the Bank Secrecy Act.
Economic and trade sanctions regulations and programs administered by OFAC prohibit U.S.-based entities from entering
into or facilitating
unlicensed transactions with, for
the benefit of,
or in some
cases involving the
property and property interests
of,
persons,
governments or
countries
designated by
the
U.S.
government under
one
or
more
sanctions
regimes,
and
also
prohibit
transactions
that
provide
a
benefit
that
is
received in
a
country
designated
under
one
or
more
sanctions
regimes.
We
are
also
subject to
a variety
of reporting
and other
requirements under
the Bank
Secrecy Act,
including the
requirement to
file suspicious
activity and currency
transaction reports, that
are designed to
assist in
the detection
and prevention of
money laundering, terrorist
financing
and
other
criminal
activities.
In
addition,
as
a
financial
institution
we
are
required
to,
among
other
things,
identify
our
33
customers, adopt formal
and comprehensive anti-money
laundering programs, scrutinize
or altogether prohibit
certain transactions
of special concern, and be prepared to respond to inquiries from U.S.
law enforcement agencies concerning our customers and
their
transactions. Failure
by the
Corporation, its
subsidiaries, affiliates
or
third-party service
providers to
comply with
these
laws
and
regulations
could
have
serious
legal
and
reputational
consequences
for
the
Corporation,
including
the
possibility
of
regulatory
enforcement
or
other
legal
action,
including
significant
civil
and
criminal
penalties.
We
also
incur
higher
costs
and
face
greater
compliance risks in
structuring and operating
our businesses to comply
with these requirements. The
markets in which
we operate
heighten these costs and risks.
We have established risk-based policies and procedures and employed software designed to
assist us and our personnel
in complying
with these
applicable laws
and regulations.
Even if
the appropriate
controls are
in place,
there can
be no
assurance
that
our
policies
and
procedures will
prevent
us
from
blocking
and
rejecting
all
applicable
transactions
of
our
customers
or
our
customers’ customers
that may
involve a
sanctioned person,
government or
country.
Any failure
to detect
and prevent
any such
transaction
could
result
in
a
violation
of
applicable
laws
and
regulations
and
adversely
affect
our
reputation,
business,
financial
condition and results of operations.
From time
to time
we have
identified and
voluntarily self-disclosed
to OFAC
transactions that
were not
timely identified,
blocked
or
rejected
by
our
policies,
controls
and
procedures
for
screening
transactions
that
might
violate
the
regulations
and
economic and
trade sanctions
programs administered
by OFAC.
For example,
during the
second quarter
of 2022,
BPPR entered
into
a
settlement
agreement
with
OFAC
with
respect
to
certain
transactions
processed
on
behalf
of
two
employees
of
the
Government
of
Venezuela,
in
apparent
violation
of
U.S.
sanctions
against
Venezuela.
Popular
agreed
to
pay
approximately
$256,000 to settle the
apparent violations, which had been
self-disclosed to OFAC.
There can be no
assurances that any failure
to
comply with
U.S. sanctions
and embargoes,
or
with anti-money
laundering laws
and
regulations, will
not result
in material
fines,
sanctions or other penalties being imposed on us.
Furthermore, if
the policies,
controls, and
procedures of
one of
the Corporation’s
third-party service
providers, together
with our
third-party oversight
of such
providers, do
not prevent
it from
violating applicable
laws and
regulations in
transactions in
which it engages, such violations could adversely affect its
ability to provide services to us.
We are
subject to
regulatory capital
adequacy requirements, and
if we
fail to
meet these
requirements our
business and
financial condition will be adversely affected.
Under regulatory capital adequacy requirements, and other
regulatory requirements, Popular and our banking
subsidiaries
must
meet
requirements
that
include
quantitative
measures
of
assets,
liabilities
and
certain
off-balance
sheet
items,
subject
to
qualitative
judgments
by
regulators
regarding
components,
risk
weightings
and
other
factors.
If
we
fail
to
meet
these
minimum
capital
requirements
and
other
regulatory
requirements,
our
business
and
financial
condition
will
be
materially
and
adversely
affected. If
a financial
holding company
fails to
maintain well-capitalized
status under
the regulatory
framework, or
is deemed
not
well managed
under regulatory
exam procedures, or
if it
experiences certain
regulatory violations, its
status as
a financial
holding
company and its
related eligibility for
a streamlined review
process for acquisition
proposals, and its
ability to offer
certain financial
products, may be
compromised and its
financial condition and
results of operations
could be adversely
affected. The failure
of any
depository
institution
subsidiary
of
a
financial
holding
company
to
maintain
well-capitalized
or
well-managed
status
could
have
similar consequences.
In
addition, federal
regulators
have proposed
revisions to
increase capital
requirements for
banking organizations
with
$100 billion or more in assets. If adopted, such standards may in the future affect us. See “Our businesses are highly regulated, and
the laws
and regulations
that apply
to us
have a
significant impact
on our
business and
operations” in
the Legal
and Regulatory
Risks section of Item 1A in this Form 10-K.
Increases in FDIC insurance premiums may
have a material adverse effect on our earnings.
Substantially
all
the
deposits
of
BPPR
and
PB
are
subject
to
insurance
up
to
applicable
limits
by
the
FDIC’s
deposit
insurance fund
(“DIF”) and, as
a result, BPPR
and PB
are subject to
FDIC deposit
insurance assessments. On
October 18, 2022,
the FDIC
finalized a
rule that
increased initial
base deposit
insurance assessment
rates by
2 basis
points, beginning
with the
first
quarterly assessment period of 2023. In addition, in November 2023, the FDIC finalized a rule that imposes a special assessment to
recover the costs to the DIF resulting from the FDIC’s
use, in March 2023, of the systemic risk exception to
the least-cost resolution
test
under
the
FDIA
in
connection
with
the
receiverships
of
Silicon
Valley
Bank
and
Signature
Bank.
The
exact
amount
of
this
assessment will be determined when the FDIC terminates
the related receiverships considered in the final
rule. Accordingly, the final
special assessment
amount and collection
period may change
as the
estimated cost
is periodically adjusted
or if
the total
amount
collected varies.
34
We
are generally
unable to
control the
amount of
premiums or
additional assessments
that we
are required
to pay
for
FDIC insurance. If there
are additional bank or financial
institution failures, our level of
non-performing assets increases, or our
risk
profile changes
or our
capital position
is impaired,
we may
be required
to pay
even higher
FDIC premiums.
Any future
additional
increases in
FDIC premiums,
assessment rates
or special
assessments may
materially adversely
affect our
results of
operations.
See the “Supervision
and Regulation—FDIC Insurance” discussion
in Item 1.
Business of this
Form 10-K for
additional information
related to the FDIC’s deposit insurance assessments applicable
to BPPR and PB.
The
resolution
of
pending
litigation
and
regulatory
proceedings,
if
unfavorable,
could
have
material
adverse
financial
effects or cause significant reputational harm to
us, which, in turn, could seriously harm
our business prospects.
We
face
legal
risks
in
our
businesses,
and
the
volume
of
claims
and
amount
of
damages
and
penalties
claimed
in
litigation
and
regulatory
proceedings
against
financial
institutions
remains
high.
Substantial
legal
liability
or
significant
regulatory
action
against
us
could
have
material adverse
financial
effects
or
cause
significant
reputational harm
to
us,
which
in
turn
could
seriously
harm
our
business
prospects.
For
further
information
relating
to
our
legal
risk,
see
Note
24
-
“Commitments
&
Contingencies”, to the Consolidated Financial Statements
in this Form 10-K.
LIQUIDITY RISKS
We
are subject
to liquidity
risks arising
from market
events or
disruptions and
instances of
low
investor and
depositor
confidence. Furthermore, actions by the rating agencies
or decreases in our capital levels may have adverse
effects on our
liquidity and business, including by raising the
cost of our obligations or affecting our ability
to borrow.
We must
maintain adequate liquidity
and funding sources
to support
our operations, fund
customer deposit withdrawals,
repay
borrowings
and
debt,
comply
with
our
financial
obligations,
fund
planned
capital
distributions
and
meet
regulatory
requirements.
The
Corporation’s
most
significant
source
of
funds
are
bank
deposits,
including
customer
deposits
and
brokered
deposits.
In
addition
to
deposits,
sources
of
liquidity
include
secured
borrowing
arrangements,
such
as
those
with
the
Federal
Reserve Bank of
New York
and the Federal
Home Loan Bank
of New York
(“FHLBNY”), unpledged securities from
our investment
portfolio, the capital markets and proceeds from loan
sales or securitizations.
Popular’s
liquidity
and
ability
to
fund
and
operate
its
business
could
be
materially
adversely
affected
by
a
variety
of
conditions and
factors, some
of which
are out
of Popular’s control.
For example,
market events
or disruptions,
such as
periods of
market stress and
low investor confidence in
financial institutions could result
in deposit withdrawals,
especially to the
extent those
deposits are in excess of the FDIC-insured limit of $250,000.
As of December 31, 2023, we had $14.6 billion of deposits (other than
collateralized
public
funds,
which
represent
public
deposit
balances
from
governmental
entities
in
the
U.S.
and
its
territories,
including Puerto Rico
and the
United States Virgin
Islands, that are
collateralized based on
such jurisdictions’
applicable collateral
requirements) in excess of
the FDIC-insured limit. We
may also suffer outflows
of customer deposits due
to competition from
other
banks or
alternative investments.
In addition, in
periods of stress,
we may
not be able
to access existing
funding sources, access
the capital markets or to sell or securitize loans or
other assets, or to access such sources or to
sell or securitize assets on favorable
terms.
In addition, actions
by the rating agencies
could raise the cost
of our borrowings, since
lower rated securities are
usually
required by the
market to pay
higher rates than
obligations of higher credit
quality. Our
credit ratings were
reduced substantially in
2009 and, although one of
the three major rating agencies upgraded our
senior unsecured rating back to
“investment grade” during
2021,
the
remaining
two
rating
agencies
have
not
upgraded
their
current
“non-investment
grade”
rating.
The
market
for
non-
investment
grade securities
is
much
smaller
and
less
liquid than
for investment
grade securities.
If
we
were to
attempt
to
issue
preferred stock
or debt
securities into
the capital
markets, it
is possible
that there
would not
be sufficient
demand to
complete a
transaction or
that the
cost could
be substantially
higher than
for more
highly rated
securities. If
Popular is
unable to
access the
capital markets on favorable terms, our liquidity
may be adversely affected.
Changes in our ratings and capital levels could affect our
relationships with some creditors and limit our
access to funding.
For example,
having negative
tangible capital
may impact
our ability
to
access some
sources of
wholesale funding.
The Federal
Housing Finance
Agency restricts the
FHLBNY from
lending to
members of
the FHLBNY
with negative
tangible capital
unless the
member’s primary banking regulator makes a written request to the
FHLBNY to maintain access to borrowings. Both BPPR
and PB
have secured borrowing facilities with the FHLBNY
and had outstanding exposures of $2.5 billion and
$1.7 billion respectively as of
December 31, 2023. Losing
access to the FHLBNY
borrowing facilities could adversely impact
liquidity at the banking
subsidiaries.
Additionally, if
BPPR or PB
cease to be
well-capitalized, the FDIA and
regulations adopted thereunder would
restrict their ability
to
accept brokered deposits and limit the rate of
interest payable on deposits.
35
Our banking
subsidiaries also
have recourse
obligations under certain
agreements with
third parties,
including servicing
and custodial agreements, that include ratings covenants. Upon failure to maintain the required credit ratings,
the third parties could
have
the
right
to
require
us
to
engage
a
substitute
fund
custodian
and
increase
collateral
levels
securing
recourse
obligations.
Collateral
pledged by
us
to
secure
recourse
obligations approximated
$27.1 million
on
December 31,
2023.
While management
expects that we would be able to meet any additional
collateral requirements if and when needed, the requirements
to post collateral
under certain agreements or the loss of custodian
funds could reduce our liquidity resources and
impact our results of operations.
As a holding company, we depend on dividends and distributions from our
subsidiaries for liquidity.
As a bank holding company,
we depend primarily on dividends from
our banking and other operating subsidiaries
to fund
our cash needs, including to capitalize our subsidiaries. Our banking subsidiaries, BPPR and PB, are limited by law in their ability to
make dividend
payments and other
distributions to
us based
on their earnings,
dividend history,
and capital
position. Based on
its
current financial condition,
PB may
not declare or
pay a
dividend without the
prior approval of
the Federal Reserve
Board and
the
NYSDFS. A
failure by
our banking subsidiaries
to generate
sufficient income
and free
cash flow to
make dividend
payments to
us
may
affect
our
ability to
fund
our cash
needs, which
could have
a negative
impact on
our financial
condition, liquidity,
results
of
operation or capital position. Such failure could also affect
our ability to pay dividends to our stockholders and to
repurchase shares
of our common stock. We have in the past suspended dividend payments
on our common stock and preferred stock during times of
economic uncertainty,
and there
can be
no assurance
that we
will be
able to
continue to
declare dividends to
our stockholders
in
any future periods.
An
impact
on
the
tangible
capital
levels
of
our
operating
subsidiaries,
could
also
limit
the
amount
of
capital
we
may
upstream to the holding company. Tangible
capital levels have in the past been, and may in the
future be, adversely affected by the
impact of
rapidly rising interest
rates on investment
securities in our
available-for-sale portfolio. For
a discussion of
risks related to
changes in interest
rates, see “Changes
in interest rates
and credit spreads
can adversely impact
our financial condition,
including
our investment portfolio, since a significant portion of
our business involves borrowing and lending money,
and investing in financial
instruments” in Item 1A of this Form 10-K.
We also depend
on dividends from our
banking and other operating subsidiaries
to pay debt service
on outstanding debt
and to repay maturing debt. Our ability to
declare such dividends would be subject to regulatory requirements and could
require the
prior approval of the Federal Reserve Board.
STRATEGIC RISKS
Potential acquisitions of businesses or
loan portfolios could increase some
of the risks that
we face, and may
be delayed
or prohibited due to regulatory constraints.
To
the extent
permitted by
our applicable
regulators, we
may pursue
strategic acquisition
opportunities. Acquiring
other
businesses, however, involves various risks,
including potential exposure to unknown or contingent liabilities of the
target company,
exposure
to
potential
asset
quality
issues
of
the
target
company,
potential
disruption
to
our
business,
the
possible
loss
of
key
employees and customers of
the target company,
and difficulty in
estimating the value of
the target company.
If we pay
a premium
over book or
market value in
connection with an
acquisition, some dilution of
our tangible book
value and net
income per common
share
may
occur
in
connection with
any
future
transaction. Furthermore,
failure
to
realize the
expected
revenue increases,
cost
savings, increases in geographic or product presence, or other projected benefits from an acquisition could have a material adverse
effect on our business, financial condition and results of
operations.
Similarly,
acquiring
loan
portfolios
involves
various
risks.
When
acquiring
loan
portfolios,
management
makes
assumptions and
judgments about
the collectability
of the
loans, including
the creditworthiness
of borrowers
and the
value of
the
real
estate and
other assets
serving
as collateral
for the
repayment of
secured loans.
In
estimating the
extent of
the losses,
we
analyze
the
loan
portfolio
based
on
historical
loss
experience,
volume
and
classification
of
loans,
volume
and
trends
in
delinquencies
and
nonaccruals,
local
economic
conditions,
and
other
pertinent
information.
If
our
assumptions
are
incorrect,
however,
our actual
losses could
be higher
than estimated
and increased
loss reserves
may be
required, which
would negatively
affect our results of operations.
Finally, certain
acquisitions by financial institutions,
including us, are
subject to approval
by a variety
of federal and
state
regulatory agencies.
Regulatory approvals
could be
delayed, impeded,
restrictively conditioned
or denied.
We may
fail to
pursue,
evaluate
or
complete
strategic
and
competitively
significant
acquisition
opportunities
as
a
result
of
our
inability,
or
perceived
or
anticipated inability,
to obtain regulatory
approvals in a
timely manner,
under reasonable conditions or
at all. Difficulties
associated
36
with
potential
acquisitions
that
may
result
from
these
factors
could
have
a
material
adverse
effect
on
our
business,
financial
condition and results of operations.
We
have
embarked
on
a
broad-based
multi-year,
technological
and
business
process
transformation.
The
failure
to
achieve
the
goals
of
the
transformation
project,
the
inability
to
maintain
project
expenses
within
current
estimates
or
delays in
executing our plans
to implement the
transformation project, may
materially and adversely
affect our business,
financial condition, results of operations, or
cause reputational harm.
The
Corporation
has
embarked
on
a
broad-based
multi-year,
technological
and
business
process
transformation.
Our
technology and
business transformation
will be
a significant
priority for
the Corporation
over the
next two
years and
beyond. We
expect the
expenses tied
to this
transformation project,
which will
continue through
at least
2025, to
result in
an enhanced
digital
experience for our clients, as well as better technology
and more efficient processes for our employees.
To
execute the
transformation project,
we plan
to expand
our digital
capabilities, modernize
our technology
foundation,
and
implement
agile
and
efficient
business
processes
across
the
entire
company.
We
may
not
succeed
in
executing
the
transformation project, may fail
to properly estimate cost
of the same, or
may experience delays in
executing our plans, which
may
in turn
cause the
Corporation to
incur costs
exceeding our
current estimates
or disrupt
our operations,
including our
technological
services to our customers, or fall short
of our projected earnings targets driven by these
efforts. To
the extent that these disruptions
persist over time and/or recur, this could negatively impact our competitive
position, require additional expenditures, and/or harm
our
relationships
with
our
customers
and
thus
may
materially
and
adversely
affect
our
business,
financial
condition,
results
of
operations, or cause reputational harm.
We face significant and increasing competition in the
rapidly evolving financial services industry.
We
operate
in
a
highly competitive
environment, in
which we
compete
on
the
basis
of
a
number of
factors,
including
customer
service,
quality
and
variety
of
products
and
services,
price,
interest
rates
on
loans
and
deposits, innovation,
technology,
ease of
use, reputation,
and transaction
execution. While
our main
competition continues
to come
from other
Puerto
Rico banks and financial institutions, we face increased competition from non-Puerto Rico institutions as emerging technologies and
the growth
of e-commerce
have significantly
reduced geographic
barriers.
These technologies
have also
made it
easier for
non-
depositary institutions
to offer
products and
services that
traditionally were
banking products
and allowed
non-traditional financial
service
providers and
technology companies
to
provide electronic
and
internet-based financial
solutions
and services.
Increased
competition could create pressure to lower prices, fees, commissions or
credit standards on our products and services, which could
adversely affect our
financial condition and results
of operations. Increased competition could
also create pressure to
raise interest
rates on deposits, which could also impact our
financial condition and results of operations.
If we are unable to
meet constant technological changes and react quickly to
meet new industry standards, including as a
result
of our
continued dependence
on
Evertec, we
may
be unable
to
enhance our
current services
and introduce
new
products and
services in
a timely
and cost-effective
manner,
placing us
at a
competitive disadvantage
and significantly
affecting our business, financial condition and
results of operations.
To compete effectively,
we need to constantly enhance and modify our products and services and introduce new products
and
services
to
attract
and
retain
clients
or
to
match
products
and
services
offered
by
our
competitors,
including
technology
companies and
other nonbank
firms that
are engaged
in providing
similar products
and services.
Although the
Evertec Business
Acquisition Transaction eliminated certain
provisions of a previous Master Services
Agreement with Evertec that required
us to use
Evertec exclusively to develop and implement new or
enhanced products and services, and is expected to
improve Popular’s ability
to manage and control the development of the customer channels supported by the assets acquired as part of the Evertec Business
Acquisition Transaction (the
“Acquired Assets”), Popular expects that
it will continue to
depend on Evertec’s technology services
to
operate and
control current
products and services
and to
implement future products
and services, making
our success dependent
on
Evertec’s
ability
to
timely
complete
and
introduce
these
enhancements
and
new
products
and
services
in
a
cost-effective
manner.
Our
ability
to
enhance
our
customer
channels
is
also
dependent
on
Evertec
timely
delivering
the
core
application
programming interfaces
(“Core APIs”)
that meet
BPPR’s requirements,
which Evertec
has committed
to develop
under the
MSA.
The
Core
APIs
are
necessary
for
BPPR
to
connect
future
enhancements
to
the
Acquired
Assets
to
existing
Evertec
core
applications.
Some
of
our
competitors
rely
on
financial
services
technology
and
outsourcing
companies
that
are
much
larger
than
Evertec, serve a
greater number of
clients than Evertec,
and may have
better technological capabilities and
product offerings than
Evertec.
Furthermore,
financial
services
technology
companies
typically
make
capital
investments
to
develop
and
modify
their
product
and
service
offerings
to
facilitate
their
customers’
compliance
with
the
extensive
and
evolving
regulatory
and
industry
37
requirements,
and
in
most cases
such
costs
are
borne
by
the
technology provider.
Because
of
our
contractual
relationship with
Evertec, and because Popular is the
sole customer of certain of
Evertec’s services and products, we
have in the past borne
the full
cost of such developments and modifications and
may be required to do so in the future, subject
to the terms of the MSA.
Moreover,
the terms,
speed, scalability,
and functionality
of certain
of Evertec’s
technology services
are not
competitive
when compared
to offerings
from its
competitors. Evertec’s
failure to
sufficiently invest
in and
upscale its
technology and
services
infrastructure to
meet the
rapidly changing
technology demands
of our
industry may
result in
us being
unable to
meet
customer
expectations and
attract or
retain customers.
Furthermore, Evertec’s
strategy and
investments may
also be
refocused away
from
Popular towards
other strategic
initiatives as
a result
of the
Evertec Business
Acquisition Transaction.
Any such
impact could,
in
turn, reduce Popular’s revenues, place us in a competitive
disadvantage and significantly affect our business, financial
condition and
results of
operations. While the
closing of
the Evertec
Business Acquisition Transaction
narrowed the scope
of services
which we
are dependent on
Evertec to
obtain and released
us from
exclusivity restrictions that
limited our
ability to
engage other third-party
providers of financial technology services, it also resulted in extensions of certain existing commercial agreements with Evertec and,
as a result, have prolonged the duration of our exposure
to the risks presented by Evertec’s technological capabilities and
its failures
to enhance its products and services and otherwise meet evolving demands. We may also be exposed to heightened business risks
in connection with our dependency on Evertec with respect to BPPR’s merchant acquiring business, which exclusivity was extended
until 2035,
and with
respect to the
ATH
Network, which commitment
BPPR extended until
2030, in
light of the
pace of technology
changes and competition in the payments industry.
The ability to attract and retain qualified employees
is critical to our success.
Our
success
depends,
in
large
part,
on
our
ability
to
attract
and
retain
qualified
employees.
Competition
for
qualified
candidates is intense and has
increased recently as a result
of a tighter labor market. Increased
competition may lead to difficulties
in
attracting
or
retaining qualified
employees, which
may,
in turn,
lead to
significant challenges
in the
execution
of
our
business
strategies and
have an
adverse effect
on the
quality of the
service we
provide to
the customers
and communities we
serve. Such
challenges could
adversely affect
our business,
operations and
financial condition.
In addition,
increased competition
may lead
to
higher compensation
packages and
more flexible
work arrangements.
We may
also be
required to
hire employees
outside of
our
market
areas
for
certain
positions
that
require
specific
expertise,
which
could
result
in
employment
and
tax
compliance-related
expenses, challenges and
risks. In
addition, flexible
work arrangements, such
as remote
or hybrid
work models, have
led to
other
workplace
challenges,
including fewer
opportunities
for
face-to-face interactions
or
to
promote
a
cohesive
corporate
culture
and
heightened cybersecurity, information security and other operational risks.
Our
ability
to
attract
and
retain
qualified
employees
is
also
impacted
by
regulatory
limitations
on
our
compensation
practices, such as clawback requirements of incentive compensation, which may not affect other institutions with which we compete
for talent.
The scope
and content of
regulators’ policies
on executive compensation
continue to
develop and are
likely to
continue
evolving. Such policies and limitations on our compensation
practices could adversely affect our ability to attract, retain and motivate
talented senior leaders in support of our long-term
strategy.
OTHER RISKS
An impairment
of our
goodwill, deferred
tax assets
or amortizable
intangible assets
could adversely
affect our
financial
condition and results of operations.
As of
December 31,
2023, we
had approximately
$804 million,
$1 billion
and $102
million, respectively,
of goodwill,
net
deferred tax assets and amortizable intangible assets,
including capitalized software costs, recorded on our
balance sheet.
Under
GAAP,
goodwill
is
tested
for
impairment
at
least
annually
and
amortizable
intangible
assets
are
tested
for
impairment
when
events
or
changes
in
circumstances indicate
the
carrying value
may
not
be
recoverable. Factors
that
may
be
considered a change in circumstances, indicating that the carrying value of the goodwill or amortizable intangible assets may not be
recoverable, include
a decline in
Popular’s stock price
related to
a deterioration in
global or
local economic conditions,
declines in
our market capitalization, reduced future earnings estimates, and interest rate changes. The goodwill impairment evaluation process
requires
us
to
make
estimates
and
assumptions
with
regards
to
the
fair
value
of
our
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 our results of operations and the reporting
unit where the goodwill is recorded.
The
determination
of
whether
a
deferred
tax
asset
is
realizable
is
based
on
weighting
all
available
evidence.
The
realization
of
deferred
tax
assets, including
carryforwards
and
deductible temporary
differences,
depends upon
the
existence
of
sufficient taxable
income of the
same character during
the carryback or
carryforward period. The
analysis considers all
sources of
38
taxable income
available to
realize the
deferred tax
asset, including
the future
reversal of
existing taxable
temporary differences,
future taxable income
exclusive of reversing temporary
differences and carryforwards,
taxable income in
prior carryback years
and
tax-planning strategies. Changes in these
factors may affect
the realizability of our
deferred tax assets in
our Puerto Rico and
U.S.
operations.
If our
goodwill, deferred
tax assets
or amortizable
intangible assets
become impaired,
we may
be required
to record
a
significant charge to earnings, which could adversely
affect our financial condition and results of operations.
We could experience unexpected
losses if the estimates
or assumptions we use
in preparing our financial
statements are
incorrect or differ materially from actual results.
In preparing
our financial
statements pursuant to
U.S. GAAP,
we are
required to
make estimates
and assumptions
that
are often based
on subjective and
complex judgments about
matters that are
inherently uncertain. For example,
we use estimates
and assumptions to determine our allowance for credit losses, our
liability for contingent litigation losses, and the fair value of certain
of our
assets and
liabilities, such
as debt
securities, loans
held for
sale, MSRs,
intangible assets
and deferred
tax assets.
If such
estimates
or
assumptions are
incorrect
or
differ
materially
from
actual
results,
we
could
experience
unexpected
losses
or
other
adverse impacts, some of which could be significant.
For further information of other risks faced by
Popular please refer to the MD&A section of
this Form 10-K.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
Item 1C. Cybersecurity
The
Corporation
assesses,
identifies
and
manages
cybersecurity
risk
as
part
of
the
Corporation’s
overall
risk
management
framework, alongside
associated information
security,
anti-money laundering
and counterterrorism,
operational, fraud,
regulatory,
legal and reputational risks, among others.
The Corporation has established three management
committees that oversee and monitor different aspects of
cybersecurity risk.
●
The
Enterprise Risk
Management Committee
(the “ERM
Committee”), chaired
by
the Chief
Risk Officer,
oversees and
monitors
the
risks
included
in
the
Risk Appetite
Statement
(the
“RAS”)
of
the
Corporation’s
Risk
Management
Policy,
including cybersecurity risks.
●
The Information
Technology and
Cyber Risk
Committee (“ITCRC”),
chaired by
the Chief
Security
Officer and
the Chief
Information and
Digital Strategy
Officer, oversees
and monitors
information technology
(“IT”), privacy
and cybersecurity
risks, mitigating
actions and
controls, applicable
regulatory developments, key
risks metrics,
and IT
and cyber
incidents
that may result in operational, compliance and reputational
risks.
●
The
Operational
Risk
Committee (“ORCO”),
chaired
by
the
Chief Risk
Officer,
oversees
and
monitors
operational
risk
management activities
to ensure
the development
and consistent
application of
operational risk
policies, processes
and
procedures that
measure, limit
and manage
the Corporation's
operational risks
while maintaining
the effectiveness
and
efficiency
of
the
operating and
business
processes. As
part
of
its
responsibilities, ORCO
oversees business
continuity
matters.
The ITCRC and ORCO meet at least quarterly
and report on cybersecurity and other matters
to the ERM Committee.
The Board
has also established
a Board-level Risk
Management Committee (“RMC”),
which is responsible
for the
oversight of the
Corporation’s overall risk framework, and assists the Board in the monitoring, review and approval of the policies that measure, limit
and manage the Corporation’s risks, including cybersecurity
risk. The RMC holds periodic meetings in
which management provides
an
overview of
Popular’s cybersecurity
threat
risk management
and strategy
processes,
which includes
summaries
of
escalated
incidents
and
incident
remediation
status.
Our
Chief
Security
Officer,
Chief
Information
and
Digital
Strategy
Officer,
Chief
Information Security Officer
(“CISO”), Chief Risk
Officer and the
Financial and Operational
Risk Management Division
(the “FORM
Division”)
Manager
generally
participate
in
such
meetings.
The
RMC
is
also
responsible
for
(i)
overseeing
the
development,
implementation and
maintenance of
the Information
Security Program;
(ii) approving
the Corporation’s
risk management
program
39
and any related policies and controls; (iii) overseeing the implementation by the Corporation’s management of the Corporation’s risk
management program and
any related policies,
procedures and controls;
and (iv) reviewing
reports regarding selected
topics such
as cyber.
The
Board
in
turn
also
receives
briefings
on
cybersecurity
matters
and
risks,
including
an
annual
presentation
from
the
Chief
Security Officer and the CISO on the Corporation’s information security
program (the “Information Security Program”). In addition,
as
part of
the Board’s
director education plan,
members of the
Board take,
on an
annual basis,
a cybersecurity training
that provides
the Board with
an overview of
cybersecurity principles and
regulations that are
relevant to our
institution and the
Board’s oversight
function.
To
identify,
assess
and
manage
risks
from
cybersecurity
threats,
the
Corporation
has
established
a
three
lines
of
defense
framework. The first line of defense is composed of business line management
that identifies and manages the risks associated with
business activities, including cybersecurity
risk. The second line
of defense is
made up of members
of the Corporation’s
Corporate
Risk
Management
Group
and
the
Corporate
Security
Group
(the
“CSG”)
who,
among
other
things,
measure
and
report
on
the
Corporation’s
risk
activities.
In
such
line
of
defense,
the
FORM
Division,
within
the
Corporate
Risk
Management
Group,
is
responsible for (i) establishing baseline metrics that measure, monitor,
limit and manage the framework that identifies and manages
multiple
and
cross-enterprise
risks,
including
cybersecurity
risks;
and
(ii)
articulating
the
RAS
and
supporting
metrics,
including
those
related
to
operational
risk,
business
continuity,
disaster
recovery
and
third-party
management
oversight
processes.
Meanwhile, Popular’s Cyber Security Division (the
“CSD”), which is headed by
the CISO and reports to
the CSG, is responsible for
the development of strategies, policies and programs to assess and mitigate cybersecurity risks. Members of the CSD (including the
CISO)
and
FORM
Division
report
on
and
escalate
privacy,
IT
and
cybersecurity
risks
to
management committees,
such
as
the
ITCRC, ORCO and ERM Committee, and, if appropriate, to the RMC and the Board of Directors, as required under relevant policies
and
procedures.
Lastly,
the
third
line
of
defense
consists
of
the
Corporate
Auditing
Division,
which
independently
provides
assurance regarding the effectiveness of the risk framework
and reports directly to the Audit Committee
of the Board.
Popular
monitors
various vectors
of
threats
and
utilizes
open-source intelligence
forums
and
communities such
as
the
Financial
Services
Information
Sharing
and
Analysis
Center
and
the
Cybersecurity
and
Infrastructure
Security
Agency,
among
others,
to
receive
threat
intelligence
feeds
which
are
reviewed
by
the
CSD.
As
cybersecurity
threats
are
identified,
they
are
evaluated
to
assess the
level of
exposure and the
potential risk
to Popular.
The ITCRC
and the
ERM Committee discuss
and track
the threats
identified in internal assessments and scans or in third-party reports. Depending on the evolution and materiality of the
threat, these
are escalated to the RMC as appropriate.
The CSD
develops the
Information Security Program,
which considers and
evaluates risks
posed by
cybersecurity threats,
events
and
activities
impacting
the
industry
and
the
Corporation.
The
Information
Security
Program
outlines
the
Corporation’s
overall
strategy and
governance to
protect the
confidentiality,
integrity and
availability of
information and
prevent access
by unauthorized
personnel.
The
Information Security
Program
is
based
on standards
and
controls set
by the
National Institute
of
Standards and
Technology
(“NIST”),
including
the
NIST’s
Framework
for
Improving
Critical
Infrastructure
Cybersecurity.
Popular
leverages
the
Cyber Assessment Tool
(the “CAT”),
a tool
based on
NIST standards and
controls developed by
the Federal
Financial Institutions
Examination Council, in order to
measure the Corporation’s cybersecurity preparedness and
maturity levels.
The CAT
assessment
results are integrated into the overall Information
Security Program.
The CSD
also manages the
Incident Response Program
(“IRP”) of the
Corporation and is
in charge of
overseeing, assessing and
managing cyber
incidents. The
IRP outlines
the measures
Popular must
take to
prepare for,
detect, respond
to and
recover from
cybersecurity
incidents,
which
include
processes
to
triage,
assess
severity
for,
escalate,
contain,
investigate
and
remediate
incidents, as well as to comply with potentially
applicable legal obligations and mitigate brand
and reputational damage.
The Corporation also undertakes the below listed
additional activities in its effort
to maintain regulatory compliance, identify,
assess
and manage its material risks from cybersecurity
threats, and to protect against, detect and
respond to cybersecurity incidents:
●
Conduct
tabletop
exercises
that
simulate
cybersecurity
incidents
to
raise
awareness
and
enhance
Popular’s
responsive
measures;
●
Assess how business
and corporate strategies, new
products, technology deployments, external
events and the
evolution of
threats impact
the Corporation’s
information security
controls in
order to
determine if
they require
any additional
resources,
technology or processes;
●
Discuss cybersecurity risks with law enforcements, peer
groups, industry forums and trade associations;
40
●
Provide training
to all
Popular employees
upon hiring
and annually
thereafter on
cybersecurity and
customer data
handling
and use requirements;
●
Offer training and awareness campaigns to customers and employees
based on their role;
●
Conduct
phishing
simulations
for
employees,
with
escalation
protocols
for
employees
that
fail
such
tests
to
enhance
awareness and responsiveness to such possible
threats;
●
Offer learning and development opportunities to employees
who handle and manage cybersecurity matters;
●
Carry cyber insurance to provide protection against
potential losses arising from cybersecurity incidents;
and
●
Monitor emerging
legal and
regulatory requirements
and implement
changes to
our processes,
policies and
statements, as
necessary.
Popular engages
third parties
to assist
in certain
cybersecurity matters. In
particular, Popular
uses the expertise
of third
parties to
perform specialized assessments to test its systems, such as periodic
penetration testing, that provide insights into the effectiveness
of its
controls. Popular
also engages
third parties
to provide
computer forensics
and investigations
services as
needed to
assess
and
address
actual
or
potential
cybersecurity
incidents.
In
addition,
Popular
hires
third
parties
to
provide
the
first
level
security
monitoring of Popular’s external and internal
networks.
Popular’s Outsourced
Risk Management
Policy
outlines the
management of
risks
associated with
the Corporation’s
use
of third-
party service
providers, and
the CSG
assesses the
impact and
level of
cybersecurity and
privacy risk
of such
providers. Popular
performs due diligence on
third parties and monitors third
parties that have access to
its systems, data or facilities
that house such
systems or data on a periodic basis. Popular’s due
diligence determines how often vendor assessments are performed
on such third
party. Popular also conducts
periodic application and vendor assessments for third-party providers and their products. Furthermore,
Popular requires third parties that have access to its systems, data or facilities that house such systems or data to take a training on
cybersecurity at least annually.
Under the heading “We and our third-party providers have been, and expect in the future to continue to be, subject to cyber-attacks,
which could cause
substantial harm and
have an adverse
effect on our
business and results
of operations.” and
“We rely on
other
companies to
provide key components
of our
business infrastructure, including
certain of
our core financial
transaction processing
and information
technology and
security services,
which exposes
us to
a number
of
operational risks
that could
have a
material
adverse effect on us.” included as part of our risk factor disclosures in Item 1A in this Form 10-K, which disclosures are incorporated
by reference herein,
we describe whether
and how risks
from identified cybersecurity
threats, including as
a result of
any previous
cybersecurity
incidents,
could
have
materially
affected
or
are
reasonably
likely
to
materially
affect
us,
including
our
business
strategy, results of operations, or financial condition.
The CSG operates under the direction of the Chief Security Officer. The Chief Security Officer has over 35 years of experience. She
has
over
10
years
of
experience in
information technology
and
cybersecurity
matters,
including
the
oversight
of
the
Information
Security Program
and the
design and
execution of
the information security
audit plan
of the
Corporation. She is
a Certified Public
Accountant that
also holds
a Juris
Doctor degree
and Series
7 and
Series 27
certifications. She
holds the
title of
Executive Vice
President and
Chief Security
Officer and
has been
in her
role since
2018. Prior
to that,
she served
as Senior
Vice President
and
General Auditor of
the Corporation from
November 2012 to April
2018. Before 2012, she
served in various
risk related functions of
the Corporation.
The
CISO
has
over
25
years
of
prior
work
experience
in
various
roles
in
major
financial
institutions
involving
leading
top-level
cybersecurity governance
strategy and
initiatives, integrating
security
governance into
the overall
business strategy
and advising
boards of directors on cyber risks and cybersecurity standards. He has been a certified information security professional
since 2007.
He holds the title of CISO and Cybersecurity Division
Manager and has been in his role since 2019.
The Corporate Risk
Management Group operates under
the direction of
the Chief Risk
Officer. The
Chief Risk Officer
has over 30
years of experience. He holds the title
of Executive Vice President and Chief Risk Officer
and has been in his role since
2011. Prior
to joining the Corporation, he served for 17 years as Chief Financial Officer, Head of Retail Bank and Mortgage Operations, Head of
Commercial and
Construction Mortgage
and Head
of Interest
Rate Risk,
among other
positions, for
other banks.
He holds
a BS
with a major in Computer Engineering and an
MBA with majors in Finance and Accounting.
The
FORM Division
Manager has
over 28
years
of
experience. She
holds the
title
of Senior
Vice President
and FORM
Division
Manager
and
has
been
in
her
role
since
March
2022.
Prior
to
that
she
held
positions
for
16
years
as
Operational
and
IT
Risk
Director,
Head
of
ERM
and
Operational Risk,
and
Chief
Information Security
Officer
for
other
banks. She
also
held
positions in
41
Internal
Audit
and
IT
Management
for
other
industries
throughout
her
career.
She
holds
a
BBA
with
majors
in
Accounting
and
Information Systems, and a Master of Science in Information
Technology Management.
ITEM 2. PROPERTIES
As of December 31, 2023, BPPR operated 162 branches, of which 68 were owned and 94 were leased premises, and PB
operated 40 branches
of which 3
were owned and
37 were on
leased premises. Also,
the Corporation had
576 ATMs
operating in
Puerto
Rico,
23
in
the
Virgin
Islands
and
100
in
the
U.S.
Mainland.
The
principal
properties
owned
by
Popular
for
banking
operations
and
other services
are
described
below.
Our
management believes
that
each
of
our
facilities
is
well
maintained
and
suitable for its purpose.
Puerto Rico
Popular Center, the twenty-story Popular and BPPR headquarters building, located
at 209 Muñoz Rivera Avenue, Hato Rey,
Puerto
Rico.
Popular Center North Building, a three-story building, on
the same block as Popular Center.
Popular Street Building, a parking and office building located
at Ponce de León Avenue and Popular Street, Hato
Rey, Puerto Rico.
Cupey Center
Complex,
one building, three-stories
high, two
buildings, two-stories high
each, and
two buildings three-stories
high
each located in Cupey, Río Piedras, Puerto Rico.
Old San Juan Building, a twelve-story structure
located in Old San Juan, Puerto Rico.
Guaynabo Corporate Office Park Building, a two-story building
located in Guaynabo, Puerto Rico.
Altamira Building,
a nine-story office building located in Guaynabo,
Puerto Rico.
El Señorial Center, a four-story office building and a two-story branch building
located in Río Piedras, Puerto Rico.
Ponce de León 167 Building, a five-story office building
located in Hato Rey, Puerto Rico.
U.S. & British Virgin Islands
BPPR Virgin Islands Center, a three-story building located in St. Thomas,
U.S. Virgin Islands.
Popular Center -Tortola,
a four-story building located in Tortola, British Virgin Islands.
ITEM 3. LEGAL PROCEEDINGS
For a discussion
of Legal proceedings,
see Note 24,
“Commitments and Contingencies”, to
the Consolidated Financial Statements
in this Form 10-K.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
PART II
ITEM
5.
MARKET
FOR
REGISTRANT’S
COMMON
EQUITY,
RELATED
STOCKHOLDER
MATTERS
AND
ISSUER
PURCHASES OF EQUITY SECURITIES
Common Stock
Popular’s Common Stock is traded on
the Nasdaq Global Select Market under the symbol “BPOP”.
42
During 2023, the Corporation declared cash dividends in the total
amount of $2.27 per common share outstanding,
for an
aggregate amount of $163.7 million. The Common Stock ranks junior to all series of
Preferred Stock as to dividend rights and rights
on liquidation,
dissolution or
winding up
of Popular.
Our ability
to declare
or pay
dividends on,
or purchase,
redeem or
otherwise
acquire, the Common
Stock is subject
to certain restrictions
in the event
that Popular fails
to pay or
set aside full
dividends on the
Preferred Stock for the latest dividend period.
On July 12, 2022, the Corporation completed an accelerated share repurchase (“ASR”) program for the repurchase of an
aggregate $400
million of
Popular’s common stock
for which
an initial
delivery of
3,483,942 shares
were delivered
in March
2022
(the
“March
ASR
Agreement”).
Upon
the
final
settlement
of
the
March
ASR
Agreement,
the
Corporation
received
an
additional
1,582,922
shares
of
common
stock.
The
Corporation
repurchased a
total
of
5,066,864 shares
at
an
average
purchase
price
of
$78.9443, which were recorded as treasury
stock by $440 million under the March ASR
Agreement.
On December
7, 2022
the Corporation
completed the
settlement of
another ASR
Agreement for
the repurchase
of an
aggregate $231
million of
Popular’s common stock,
for which
an initial
2,339,241 shares
were delivered
on August
26, 2022
(the
“August ASR Agreement”). Upon the final settlement of the ASR Agreement, the Corporation received an additional 840,024 shares
of common
stock. The
Corporation repurchased
a total
of 3,179,265
shares at
an average
purchase price
of $72.66,
which were
recorded as treasury stock by $245 million under
the August ASR Agreement.
Additional information concerning legal or
regulatory restrictions on the payment
of dividends by Popular,
BPPR and PB
is contained under the caption “Regulation and Supervision”
in Item 1 herein.
As
of
February
27,
2024,
Popular
had
6,564
stockholders
of
record
of
the
Common
Stock,
not
including
beneficial
owners whose shares
are held in
record names
of brokers
or other
nominees. The last
sales price
for the
Common Stock
on that
date was $84.07 per share.
Preferred Stock
Popular has 30,000,000 shares of
authorized Preferred Stock that may
be issued in one
or more series, and the
shares
of each series
shall have such
rights and preferences as
shall be fixed
by the Board
of Directors when authorizing
the issuance of
that particular series. Popular’s Preferred Stock
issued and outstanding at December 31, 2023
consisted of:
●
885,726 shares of 6.375% non-cumulative monthly income Preferred Stock, Series A, no par value, liquidation preference
value of $25 per share.
All series of
Preferred Stock are pari
passu. Dividends on each
series of Preferred Stock
are payable if declared
by our
Board
of
Directors.
Our
ability
to
declare
and
pay
dividends
on
the
Preferred
Stock
is
dependent
on
certain
Federal
regulatory
considerations,
including
the
guidelines
of
the
Federal
Reserve
Board
regarding
capital
adequacy
and
dividends.
The
Board
of
Directors is not obligated to declare dividends and
dividends do not accumulate in the event
they are not paid.
Monthly
dividends
on
the
Preferred
Stock
amounted
to
a
total
of
$1.4
million
for
the
year
2023.
There
can
be
no
assurance that any dividends will be declared on
the Preferred Stock in any future periods.
Dividend Reinvestment and Stock Purchase Plan
Popular offers
a dividend
reinvestment and
stock purchase
plan for
our stockholders
that allows
them to
reinvest their
dividends in
shares of
the Common Stock
at a
5% discount
from the
average market
price at
the time
of the
issuance, as well
as
purchase shares of Common Stock directly from Popular
by making optional cash payments at prevailing
market prices.
Equity Based Plans
On May
12, 2020, the
stockholders of
the Corporation
approved the Popular,
Inc. 2020
Omnibus Incentive Plan,
which
permits the
Corporation to issue
several types of
stock-based compensation to
employees and directors
of the Corporation
and/or
any of its subsidiaries (the “2020 Incentive Plan”). The 2020 Incentive Plan replaced the Popular, Inc. 2004 Omnibus Incentive Plan,
which was in
effect prior to
the adoption of the
2020 Incentive Plan.
As of December 31,
2023, the maximum number of
shares of
43
common stock remaining available for future issuance under this plan was 3,144,461. For information about
the securities remaining
available for issuance under our equity-based plans,
refer to Part III, Item 12.
Purchases of Equity Securities
The following table sets forth the details of purchases of Common Stock by the Corporation during the quarter ended December 31,
2023:
Issuer Purchases of Equity Securities
Not in thousands
Period
Total Number of
Shares Purchased [1]
Average Price Paid
per Share
Total Number of
Shares
Purchased as Part of Publicly
Announced Plans or Programs
Maximum Number of
Shares that May Yet be
Purchased Under the
Plans or Programs
October 1 – October 31
174
$62.92
-
-
November 1 – November 30
-
-
-
-
December 1 – December 31
498
67.95
-
-
Total December 31, 2023
672
$66.65
-
-
[1] Includes 174 and 498 shares of the Corporation's
common stock acquired by the Corporation during
October and December 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.
Equity Compensation Plans
For information about our equity compensation plans,
refer to Part III, Item 12.
Stock Performance Graph (1)
The graph
below compares
the cumulative
total stockholder
return during
the measurement
period with
the cumulative
total return, assuming reinvestment of dividends, of
the Nasdaq Bank Index and the Nasdaq Composite
Index.
The
cumulative
total
stockholder
return
was
obtained
by
dividing
(i)
the
cumulative
amount
of
dividends
per
share,
assuming dividend reinvestment since the measurement point, December 31, 2018, plus (ii) the change
in the per share price since
the measurement date, by the share price at
the measurement date.
44
Comparison of Five-Year Cumulative Total Return (TSR)
Assumes all dividends were reinvested
Base Year:
December 31,
2018 = $100
(1) Unless Popular specifically states otherwise, this Stock Performance Graph shall not be deemed to be incorporated by
reference
and
shall
not
constitute
soliciting
material
or
otherwise
be
considered
filed
under
the
Securities
Act
of
1933
or
the
Securities Exchange Act of 1934.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this item is included in
this Form 10-K, commencing on page 54.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The information regarding the
market risk of our
investments appears under the caption
“Risk Management”, on page
84
within Management’s Discussion and Analysis of Financial
Condition and Results of Operations in this
Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item appears under the caption “Statistical Summaries” on pages 111
to 113 of this Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
45
Not Applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our
management,
with
the
participation
of
our
Chief
Executive
Officer
and
Chief
Financial
Officer,
has
evaluated
the
effectiveness
of
our
disclosure
controls
and
procedures
(as
such
term
is
defined
in
Rules
13a-15(e)
and
15d-15(e)
under
the
Exchange Act) as
of the end
of the period covered
by this report.
Based on such
evaluation, our Chief Executive
Officer and Chief
Financial
Officer
have
concluded
that,
as
of
the
end
of
such
period,
our
disclosure
controls
and
procedures
are
effective
in
recording, processing, summarizing and
reporting, on a timely
basis, information required to
be disclosed by Popular
in the reports
that
we
file
or
submit
under
the
Exchange
Act
and
such
information
is
accumulated
and
communicated
to
management,
as
appropriate, to allow timely decisions regarding required
disclosures.
Assessment on Internal Control over Financial Reporting
Information relating to our assessment on
internal control over financial reporting is presented under the
captions “Report
of
Management
on
Internal
Control
Over
Financial
Reporting”
and
“Report
of
Independent
Registered
Public
Accounting
Firm”
located on pages 114 and 115 of this Form 10-K.
Changes in Internal Control over Financial Reporting
There have
been no
changes in
our 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 December 31, 2023, that have materially affected, or
are reasonably likely to materially affect, our internal control
over financial reporting.
ITEM 9B. OTHER INFORMATION
Rule 10b5-1 Trading Plans or Other Preplanned Trading Arrangements
Certain of
our officers
or directors have
made and
may from time
to time
make 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).
ITEM 9C. DISCLOSURE REGARDING FOREIGN
JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
information
contained
under
the
captions
“Security
Ownership
of
Certain
Beneficial
Owners
and
Management”,
“Delinquent Section
16(a) Reports”,
“Corporate Governance”, “Nominees
for Election
as Directors”
and “Executive
Officers” in
the
Proxy Statement
are incorporated herein
by reference.
Information about our
Code of
Ethics, which
applies to
our senior
financial
officers, is included in “Business — Available Information” in Part
I of this Form 10-K.
46
ITEM 11. EXECUTIVE COMPENSATION
The
information
in
the
Proxy
Statement
under
the
caption
“Executive
and
Director
Compensation,”
including
the
“Compensation
Discussion
and
Analysis,”
the
“2023
Executive
Compensation
Tables
and
Compensation
Information”
and
the
“Compensation
of
Non-Employee
Directors,”
and
under
the
caption
“Committees
of
the
Board
–
Talent
and
Compensation
Committee – Talent and Compensation Committee Interlocks and Insider Participation” is
incorporated herein by reference.
ITEM
12.
SECURITY
OWNERSHIP
OF
CERTAIN
BENEFICIAL
OWNERS
AND
MANAGEMENT
AND
RELATED
STOCKHOLDERS MATTERS
The information under
the captions “Principal Shareholders”
and “Shares Beneficially Owned
by Directors and
Executive
Officers” in the Proxy Statement is incorporated herein by
reference.
The following tables sets forth information as
of December 31, 2023 regarding securities remaining available for issuance
to directors and eligible employees under our
equity-based compensation plans.
Plan Category
Plan
Number of Securities
Remaining Available
for Future Issuance
Under Equity Compensation
Plan
Equity compensation plan approved by security holders
2020 Omnibus Incentive Plan
3,144,461
Total
3,144,461
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The
information
under
the
caption
“Board
of
Directors
and
Nominees’
Independence”
and
“Certain
Relationships
and
Transactions” in the Proxy Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding principal accountant fees and services is set forth under Proposal 3 – Ratification of Appointment of
Independent Registered Public Accounting Firm in
the Proxy Statement, which is incorporated herein
by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a). The following financial statements and reports are
included on pages 115 through 268 in this Form10K.
(1)
Financial Statements
Report of Independent Registered Public Accounting
Firm (
PCAOB ID
238
)
Consolidated Statements of Financial Condition as of
December 31, 2023 and 2022
Consolidated Statements of Operations for each of
the years in the three-year period ended December
31, 2023
47
Consolidated
Statements
of
Comprehensive
Income
(Loss)
for
each
of
the
years
in
the
three-year
period
ended
December 31, 2023
Consolidated
Statements
of
Changes
in
Stockholders’
Equity
for
each
of
the
years
in
the
three-year
period
ended
December 31, 2023
Consolidated Statements of Cash Flows for each of
the years in the three-year period ended
December 31, 2023
Notes to Consolidated Financial Statements
(2)
Financial
Statement
Schedules:
No
schedules
are
presented
because
the
information
is
not
applicable
or
is
included
in
the
Consolidated Financial Statements described in (a) (1)
above or in the notes thereto.
(3) Exhibits
ITEM 16. FORM 10-K SUMMARY
None.
The exhibits listed on the Exhibits Index below are
filed herewith or are incorporated herein by
reference.
48
Exhibit Index
3.1
Restated Certificate of Incorporation of Popular, Inc. (incorporated by reference to Exhibit 3.1 of the Corporation’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2020).
3.2
Amended and Restated Bylaws 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).
4.1
Specimen of Physical Common Stock Certificate of Popular, Inc. (incorporated by reference to Exhibit 4.1 of Popular,
Inc.’s Current Report on Form 8-K dated May 29, 2012 and filed on May 30, 2012).
4.2
Certificate of Designation of Popular, Inc.’s 6.375% Non-Cumulative Monthly Income Preferred Stock, 2003 Series A
(incorporated by reference to Exhibit 3.3 of Popular, Inc.’s Form 8-A filed on February 25, 2003).
4.3
Form of certificate representing Popular, Inc.’s 6.375% Non-Cumulative Monthly Income Preferred Stock, 2003 Series A
(incorporated by reference to Exhibit 4.1 of Popular, Inc.’s Form 8-A filed on February 25, 2003).
4.4
Senior Indenture of Popular, Inc., dated as of February 15, 1995, as supplemented by the First Supplemental Indenture
thereto, dated as of May 8, 1997, each between Popular, Inc. and The Bank of New York Mellon, as successor trustee
(incorporated by reference to Exhibit 4(d) to the Registration Statement on Form S-3, File No. 333-26941, of Popular,
Inc., Popular International Bank, Inc., and Popular North America, Inc., filed on May 12, 1997).
4.5
Second Supplemental Indenture of Popular, Inc., dated as of August 5, 1999, between Popular, Inc. and The Bank of
New York Mellon, as successor trustee (incorporated by reference to Exhibit 4(e) to Popular, Inc.’s Current Report on
Form 8-K dated August 5, 1999 and filed on August 17, 1999).
4.6
Subordinated Indenture of Popular, Inc., dated as of November 30, 1995, between Popular, Inc. and The Bank of New
York Mellon, as successor trustee (incorporated by reference to Exhibit 4(e) to the Registration Statement on Form S-3,
File No. 333- 26941, of Popular, Inc., Popular International Bank, Inc. and Popular North America, Inc., filed on May 12,
1997).
4.7
Senior Indenture of Popular North America, Inc., dated as of October 1, 1991, as supplemented by the First
Supplemental Indenture thereto, dated as of February 28, 1995, and by the Second Supplemental Indenture thereto,
dated as of May 8, 1997, each among Popular North America, Inc., Popular, Inc., as guarantor, and The Bank of New
York Mellon, as successor trustee (incorporated by reference to Exhibit 4(f) to the Registration Statement on Form S-3,
File No. 333-26941, of Popular, Inc., Popular International Bank, Inc. and Popular North America, Inc., filed on May 12,
1997).
4.8
Third Supplemental Indenture of Popular North America, Inc., dated as of August 5, 1999, among Popular North
America, Inc., Popular, Inc., as guarantor, and The Bank of New York Mellon, as successor trustee (incorporated by
reference to Exhibit 4(h) to Popular, Inc.’s Current Report on Form 8-K, dated August 5, 1999, as filed on August 17,
1999).
4.9
Junior Subordinated Indenture of Popular, Inc., dated as of October 31, 2003, between Popular, Inc. and The Bank of
New York Mellon, as successor trustee (incorporated by reference to Exhibit 4.2 of Popular, Inc.’s Current Report on
Form 8-K, dated October 31,2003 and filed on November 4, 2003).
4.10
Description of Popular, Inc.’s securities registered pursuant to Section 12 of the Securities Exchange Act. (1)
49
10.1
Popular, Inc. 2020 Omnibus Incentive Plan (incorporated by reference to Exhibit 4.4 of Popular, Inc.’s Form S-8 filed on
May 12, 2020). *
10.2
Form of Compensation Agreement for Directors Elected Chairman of a Committee (incorporated by reference to Exhibit
10.1 of Popular, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004). *
10.3
Form of Compensation Agreement for Directors not Elected Chairman of a Committee (incorporated by reference to
Exhibit 10.2 of Popular, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004). *
10.4
Compensation Agreement for Alejandro M. Ballester as director of Popular, Inc., dated January 28, 2010 (incorporated
by reference to Exhibit 10.9 of Popular, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2009). *
10.5
Compensation Agreement for Carlos A. Unanue as director of Popular, Inc., dated January 28, 2010 (incorporated by
reference to Exhibit 10.10 of Popular, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2009). *
10.6
Compensation Agreement for C. Kim Goodwin as director of Popular, Inc., dated May 10, 2011 (incorporated by
reference to Exhibit 10.1 of Popular, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011). *
10.7
Compensation Agreement for Joaquin E. Bacardi, III as director of Popular, Inc., dated April 30, 2013 (incorporated by
reference to Exhibit 10.2 of Popular, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013). *
10.8
Compensation Agreement for John. W. Diercksen as director of Popular, Inc., dated October 18, 2013 (incorporated by
reference to Exhibit 10.13 of Popular, Inc.’s Annual Report on 10-K for the year ended December 31, 2013). *
10.9
Form of 2015 Long-Term Equity Incentive Award and Agreement (incorporated by reference to Exhibit 10.1 of Popular,
Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015). *
10.10
Form of 2016 Long-Term Equity Incentive Award and Agreement (incorporated by reference to Exhibit 10.27 of Popular,
Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015). *
10.11
Form of Director Compensation Letter, Election Form and Restricted Stock Agreement, effective April 26, 2016
(incorporated by reference to Exhibit 10.1 of Popular, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2016). *
10.12
Form of 2017 Long-Term Equity Incentive Award and Agreement (incorporated by reference to Exhibit 10.1 of Popular,
Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017). *
10.13
Long-Term Equity Incentive Award and Agreement for Ignacio Alvarez, dated as of June 22, 2017 (incorporated by
reference to Exhibit 10.1 of Popular, Inc.’s Quarterly report on Form 10-Q for the quarter ended June 30, 2017). *
10.14
Form of Popular, Inc. 2018 Long-Term Equity Incentive Award and Agreement (incorporated by reference to Exhibit
10.1 of Popular, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018). *
50
10.15
Director Compensation Letter, Election Form and Restricted Stock Agreement for Myrna M. Soto, dated June 22, 2018
(incorporated by reference to Exhibit 10.1 of Popular, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June
30, 2018). *
10.16
Director Compensation Letter, Election Form and Restricted Stock Agreement for Robert Carrady, dated December 29,
2018 (incorporated by reference to Exhibit 10.25 of Popular, Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2018). *
10.17
Form of Director Compensation Letter, Election Form and Restricted Stock Unit Award Agreement, effective May 7,
2019 (incorporated by reference to Exhibit 10.26 of Popular, Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2018). *
10.18
Form of Popular, Inc. 2019 Long-Term Equity Incentive Award and Agreement (incorporated by reference to Exhibit
10.1 of Popular, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019). *
10.19
Director Compensation Letter, Election Form and Restricted Stock Unit Award Agreement for Richard L. Carrión, dated
July 1, 2019 (incorporated by reference to Exhibit 10.1 of Popular, Inc.’s Annual Report on Form 10-Q for the quarter
ended September 30, 2019). *
10.20
Form of Popular, Inc. 2020 Long-Term Equity Incentive Award and Agreement (incorporated by reference to Exhibit
10.1 of Popular, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020). *
10.21
Form of Director Compensation Election Form and Restricted Stock Unit Award Agreement, effective May 12, 2020
(incorporated by reference to Exhibit 10.2 of Popular, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June
30, 2020). *
10.22
Form of Popular, Inc. 2021 Long-Term Equity Incentive Award and Agreement (incorporated by reference to Exhibit
10.1 of Popular, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021). *
10.23
Form of Director Compensation Letter, Election Form and Restricted Stock Unit Award Agreement for Betty DeVita and
José R. Rodriguez, effective June 25, 2021 (incorporated by reference to Exhibit 10.1 of Popular, Inc.’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2021). *
10.24
Form of Popular, Inc. 2022 Long-Term Equity Incentive Award and Agreement (incorporated by reference to Exhibit
10.1 of Popular, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022). *
51
10.25
Asset Purchase Agreement, dated as of February 24, 2022, among Evertec, Inc. and Evertec Group, LLC, Popular,
Inc. and Banco Popular de Puerto Rico (incorporated by reference to Exhibit 2.1 of Popular, Inc.’s Current Report on
Form 8-K dated and filed on February 24, 2022).
10.26
Second Amended and Restated Master Service Agreement, dated as of July 1, 2022, among Popular, Inc., Banco
Popular de Puerto Rico, and Evertec Group, LLC and its Subsidiaries (Incorporated by reference to Exhibit 99.1 on
Form 8-K filed on July 1, 2022.)
10.27
Form of Popular, Inc. 2023 Long-Term Equity Incentive Award and Agreement (incorporated by reference to Exhibit
10.1 of Popular, Inc’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023). *
10.28
Award Agreement, dated as of December 7, 2023, by and between Carlos J. Vázquez and Popular, Inc.* (1)
10.29
Services Agreement, dated as of December 7, 2023, by and between Carlos J. Vázquez and Popular, Inc.* (1)
21.1
Schedule of Subsidiaries of Popular, Inc. (1)
22.1
Issuers of Guaranteed Securities (1)
23.1
Consent of Independent Registered Public Accounting Firm. (1)
31.1
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
31.2
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. (1)(2)
32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. (1)(2)
97.1
Compensation Recoupment Policy of Popular, Inc. dated June 23, 2023. (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. (1)
101.SCH
Inline XBRL 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. Annual Report on Form 10-K for the
year ended December 31, 2023, formatted in
Inline XBRL (included within the Exhibit 101 attachments)
(1)
(1)
Included herewith
(2)
Furnished herewith. This
exhibit shall not
be deemed “filed”
for purposes of
Section 18 of
the Securities Exchange
Act of 1934, or otherwise subject
to the liability of that Section,
and shall not be deemed incorporated into
any filing
under the Securities Act of 1933 or the
Securities Exchange Act of 1934.
*
This exhibit is a management contract or compensatory
plan or arrangement.
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.
52
Financial Review and
Supplementary Information
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
54
Statistical Summaries
111
Report of Management on Internal Control Over Financial
Reporting
114
Report of Independent Registered Public
Accounting Firm
115
Consolidated Statements of Financial Condition as of
December 31, 2023 and 2022
118
Consolidated Statements of Operations for the
years ended December 31, 2023, 2022 and
2021
119
Consolidated Statements of Comprehensive
Income (Loss) for the years ended December 31,
2023, 2022
and 2021
120
Consolidated Statements of Changes in Stockholders’
Equity for the years ended December 31, 2023,
2022 and
2021
121
Consolidated Statements of Cash Flows for the
years ended December 31, 2023, 2022 and
2021
122
Notes to Consolidated Financial Statements
124
Signatures
269
53
Management’s Discussion and
Analysis of Financial Condition
and Results of Operations
Forward-Looking Statements
54
Overview
55
Critical Accounting Policies / Estimates
60
Statement of Operations Analysis
66
Net Interest Income
66
Provision for Credit Losses
69
Non-Interest Income
69
Operating Expenses
70
Income Taxes
72
Fourth Quarter Results
72
Reportable Segment Results
73
Statement of Financial Condition Analysis
75
Assets
75
Liabilities
77
Stockholders’ Equity
79
Regulatory Capital
80
Risk Management
84
Market / Interest Rate Risk
84
Liquidity
88
Enterprise Risk Management
108
Adoption of New Accounting Standards and Issued
but
Not Yet Effective Accounting Standards
110
Statistical Summaries
Statements of Financial Condition
111
Statements of Operations
112
Average Balance Sheet and Summary of Net Interest
Income
113
54
FORWARD-LOOKING STATEMENTS
This
Form
10-K 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
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 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,
or the
fear of
any such
event occurring,
any of
which could
cause adverse
consequences for
our business,
including,
but
not
limited
to,
disruptions
in
our
operations;
our
ability
to
achieve
the
expected
benefits
from
our
transformation
initiative, including
our ability
to achieve
projected earnings,
efficiencies and
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”);
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 other proposed capital standards on our capital
ratios; additional Federal
Deposit Insurance
Corporation (“FDIC”)
assessments, such
as
the special
assessment implemented
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;
a deterioration in the
credit quality of
our clients, customers
and
counterparties;
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,
55
damages, penalties, fines, enforcement actions and reputational damage resulting from pending or future litigation and regulatory or
government
investigations
or
actions;
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.
Moreover,
the
outcome
of
legal
and
regulatory
proceedings,
as
discussed
in
“Part
I,
Item
3.
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
“Part I, Item 1A” of this Form 10-K for a discussion
of certain risks and uncertainties to which
the Corporation is subject.
All forward-looking
statements included
in this
Form 10-K
are based
upon information
available to
Popular as
of the
date of
this
Form 10- K, 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.
OVERVIEW
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,
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 37 to the Consolidated Financial
Statements presents information about the Corporation’s business
segments.
YEAR 2023 SIGNIFICANT EVENTS
Issuance and Redemption of Senior Notes
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 due
September 2023. The
redemption price was equal to 100% of the principal
amount plus accrued and unpaid interest
through the redemption date.
FDIC Special Assessment
On
November
16,
2023,
the
Federal
Deposit
Insurance
Corporation
(“FDIC”)
approved
a
final
rule
that
imposes
a
special
assessment (the “FDIC
Special Assessment”) 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 several failed banks.
Under the final rule, the assessment base for
the special assessment is equal to 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 Popular, the $5 billion exclusion is allocated among
the company’s IDI
subsidiaries in proportion to
each IDI’s estimated
uninsured deposits. The special
assessments will be collected
at an annual
rate of approximately 13.4
basis points per year
(3.35 basis points per
quarter) over eight quarters
in 2024 and
2025,
with
the
first
assessment
period
beginning
January
1,
2024.
In
their
December
31,
2022
Call
Reports,
BPPR
and
PB
reported
estimated uninsured deposits of
approximately $28.1 billion, including $16.2
billion in fully
collateralized public sector deposits,
and
$3.5 billion,
respectively.
The Corporation
recorded an
expense of
$71.4 million,
$45.3 million
net of
tax,
in the
fourth quarter
of
2023, representing the full amount of the assessment.
56
By statute, the FDIC is required to recover the loss
arising from the use of a systemic risk determination
through one or more special
assessments. As of
December 31, 2023,
the FDIC’s
loss estimate described
in the
final rule
had increased by
approximately $4.1
billion to $20.4 billion, or
approximately 25%.
The exact amount of losses will
be determined when the FDIC terminates the
related
receiverships considered
in the
final rule.
Accordingly,
the special
assessment amount
and collection
period may
change as
the
estimated
loss
is
periodically
adjusted
or
if
the
total
amount
collected
varies.
If
the most recent
increase
in
the
FDIC’s
estimate remains unchanged and is assessed
in the same manner,
the Corporation estimates that
the incremental expense for
the
FDIC Special Assessment could be approximately
$18 million.
Increase in quarterly common stock dividends
During the fourth quarter of 2023, the Corporation declared a quarterly common stock cash dividend of $0.62 per share, an increase
of $0.07, or 13%, compared to the $0.55 per
share declared by the Corporation in the third
quarter of 2023.
57
Table 1 - Selected Financial Data
Years ended December
31,
(Dollars in thousands, except per common share data)
2023
2022
2021
CONDENSED STATEMENTS
OF OPERATIONS
Interest income
$
3,245,307
$
2,465,911
$
2,122,637
Interest expense
1,113,783
298,552
165,047
Net interest income
2,131,524
2,167,359
1,957,590
Provision for credit losses (benefit)
208,609
83,030
(193,464)
Non-interest income
650,724
897,062
642,128
Operating expenses
1,898,100
1,746,420
1,549,275
Income tax expense
134,197
132,330
309,018
Net income
$
541,342
$
1,102,641
$
934,889
Net income applicable to common stock
$
539,930
$
1,101,229
$
933,477
PER COMMON SHARE DATA
Net income per common share - basic
$
7.53
$
14.65
$
11.49
Net income per common share - diluted
7.52
14.63
11.46
Dividends declared
2.27
2.20
1.75
Common equity per share
71.03
56.66
74.48
Market value per common share
82.07
66.32
82.04
Outstanding shares:
Average - basic
71,710,265
75,147,263
81,263,027
Average - assuming dilution
71,791,692
75,274,003
81,420,154
End of period
72,153,621
71,853,720
79,851,169
AVERAGE BALANCES
Net loans
[1]
$
33,164,960
$
30,405,281
$
29,074,036
Earning assets
68,175,022
69,729,933
68,088,675
Total assets
71,234,236
72,808,604
71,168,650
Deposits
62,546,480
64,716,404
63,102,916
Borrowings
1,227,094
1,119,878
1,255,495
Total stockholders'
equity
6,600,603
6,009,225
5,777,652
PERIOD END BALANCE
Net loans
[1]
$
35,069,272
$
32,083,150
$
29,299,725
Allowance for credit losses - loans portfolio
729,341
720,302
695,366
Earning assets
67,216,816
64,251,062
72,103,862
Total assets
70,758,155
67,637,917
75,097,899
Deposits
63,618,243
61,227,227
67,005,088
Borrowings
1,078,332
1,400,319
1,155,166
Total stockholders'
equity
5,146,953
4,093,425
5,969,397
SELECTED RATIOS
Net interest margin (non-taxable equivalent basis)
3.13
%
3.11
%
2.88
%
Net interest margin (taxable equivalent basis) -Non-GAAP
3.31
3.46
3.19
Return on assets
0.76
1.51
1.31
Return on common equity
8.21
18.39
16.22
Tier I capital
16.36
16.45
17.49
Total capital
18.13
18.26
19.35
[1] Includes loans held-for-sale.
58
Non-GAAP financial measures
Net interest income on a taxable equivalent basis
Net
interest
income,
on
a
taxable
equivalent
basis,
is
presented
with
its
different
components
in
Table
3
for
the
year
ended
December 31,
2023
as compared
with
the same
period in
2022, segregated
by
major categories
of
interest
earning assets
and
interest-bearing liabilities.
The 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,
and
certain
obligations
of
the
Commonwealth
of
Puerto
Rico
and
its
agencies
and
assets
held
by
the
Corporation’s international
banking entities.
To
facilitate the
comparison of
all interest
related to
these assets,
the interest
income
has
been
converted
to
a
taxable
equivalent
basis,
using
the
applicable
statutory
income
tax
rates
for
each
period.
The
taxable
equivalent computation
considers the
interest expense
and other
related expense
disallowances required
by the
Puerto Rico
tax
law. Under Puerto Rico tax law,
the exempt interest can be deducted up to the amount of taxable
income. Net interest income, on a
taxable
equivalent
basis,
is
a
non-GAAP
financial
measure.
Management
believes
that
this
presentation
provides
meaningful
information since it facilitates the comparison of revenues
arising from taxable and exempt sources.
Net interest
income, on
a taxable
equivalent basis,
as used
by the
Corporation may
not be
comparable to
similarly named
non-
GAAP financial measures used by other companies.
Financial highlights for the year ended December 31,
2023
The discussion
that follows
provides highlights
of the
Corporation’s results
of
operations for
the year
ended December
31, 2023
compared to the results of
operations of 2022. It also
provides some highlights with respect to
the Corporation’s financial condition,
credit
quality,
capital and
liquidity.
Table
2 presents
a three-year
summary of
the components
of
net income
as a
percentage of
average total
assets.
For a
discussion of our
2022 results
of operations compared
with 2021,
see “Management’s
Discussion and
Analysis of Financial Condition and Results of Operations”
in our Form 10-K for the year ended December
31, 2022.
59
Table 2 - Components of Net
Income as a Percentage of Average Total
Assets
2023
2022
2021
Net interest income
2.99
%
2.98
%
2.75
%
Provision for credit (losses) benefit
(0.29)
(0.11)
0.27
Mortgage banking activities
0.03
0.06
0.07
Net gain (loss) and valuation adjustments on investment
securities
0.01
(0.01)
-
Other non-interest income
0.87
1.18
0.83
Total net interest
income and non-interest income, net of provision
for credit losses
3.61
4.10
3.92
Operating expenses
(2.66)
(2.40)
(2.18)
Income before income tax
0.95
1.70
1.74
Income tax expense
(0.19)
(0.19)
(0.43)
Net income
0.76
%
1.51
%
1.31
%
The Corporation’s net income for the year ended December 31, 2023 amounted to $541.3 million, compared to a net income of $1.1
billion for 2022.
Net interest
income for the
year ended December
31, 2023 was
$2.1
billion, a
decrease of $35.8
million when compared
to 2022.
The decrease
in net
interest income was
mainly driven
by higher
interest expense from
deposits,
mainly due
to higher
cost of
the
Puerto
Rico government
deposits and
the increase
in cost
of Popular
U.S. deposits.
The net
interest margin
for the
year ended
December
31,
2023
was
3.13%
compared
to
3.11%
for
the
same
period
in
2022,
driven
by
a
full
year
impact,
on
the
cost
of
deposits, of the
increase, in 2022,
of 400 basis
points in the
Federal Funds Rate
and an additional
100 basis points
in 2023. On
a
taxable
equivalent basis,
net interest
margin
was
3.31% in
2023, compared
to
3.46% in
2022. Refer
to
the
Net Interest
Income
section of this MD&A for additional information.
The
Corporation’s
total
provision for
credit
losses
of
$208.6
million
for
the
year
ended
December
31,
2023,
compared
to
$83.0
million for
2022. The
higher expense
for the
year 2023
was driven
by higher
reserves in
our consumer
and commercial
portfolios
mostly
due
to
changes
in
credit
quality
and
higher
loan
volumes.
The
Corporation’s
consumer
loans
portfolios
continued
to
experience
credit
quality
normalization.
While,
non-performing
loans
(“NPLs”)
and
net
charge
offs
(“NCOs”)
continued
below
historical pre-pandemic
averages,
consumer portfolios,
however,
reflected credit
quality deterioration
in certain
areas, particularly
the unsecured personal loans and credit cards portfolios, with delinquencies and NCOs near or exceeding pre-pandemic levels. The
auto loans portfolio
also showed credit
normalization, however,
metrics remained below
pre-pandemic levels. The
commercial and
mortgage portfolios continue to operate with historically low levels of NCOs and NPLs. Non-performing assets totaled $438.0 million
at
December 31,
2023, reflecting
a decrease
of $90.5
million when
compared to
December 31,
2022.
Refer to
the Provision
for
Credit Losses and Credit Risk sections of this
MD&A for information on the allowance for credit losses,
non-performing assets, loan
modifications to borrowers with financial difficulties,
net charge-offs and credit quality metrics.
Non-interest
income
for
the
year
ended
December
31,
2023
amounted
to
$650.7
million,
a
decrease
of
$246.3
million,
when
compared with 2022, mostly
due to the
$257.7 million gain related to
the Evertec Transactions
and related accounting adjustments
during 2022. Refer to the Non-Interest Income section of this MD&A for additional information on the major variances of the different
categories of non-interest income.
Total
operating expenses amounted to $1.9 billion for the year 2023, reflecting an increase of
$151.7 million, when compared to the
same
period
in
2022,
mainly
due
to
the
FDIC
Special
Assessment
of
$71.4
million,
higher
personnel
costs
reflecting
salary
increases and a higher headcount,
a higher goodwill impairment charge in our U.S. based equipment leasing subsidiary,
and higher
processing and transactional services expenses.
Refer to the Operating Expenses section of
this MD&A for additional information.
Income tax expense
amounted to $134.2 million
for the year
ended December 31, 2023,
compared with an
income tax expense of
$132.3 million for
the previous year.
The income tax
expense for the
year was impacted
by the composition
and source of
taxable
income, including lower tax exempt income and lower income
subject to preferential tax rates. The income tax expense of
year 2022
benefited from the partial reversal of $68.2 million
of the deferred tax assets valuation allowance of the
U. S. operations, the sale of
60
Evertec
shares,
taxable
at
a
preferential rate,
and
a
higher tax
exempt
income
net
of
disallowance.
Refer
to
the
Income
Taxes
section in this MD&A and Note 35 to the
Consolidated Financial Statements for additional
information on income taxes.
At December
31, 2023,
the Corporation’s
total assets
were $70.8
billion, compared
with $67.6
billion at
December 31,
2022. The
increase of $3.1 billion is
mainly driven by an
increase in loans held-in-portfolio mainly in
the commercial,
consumer, and mortgage
portfolios. Refer to the Statement of Financial Condition
Analysis section of this MD&A for additional information.
Deposits amounted to
$63.6 billion at
December 31, 2023,
compared with $61.2
billion at December
31, 2022.
Table
8 presents a
breakdown of
deposits by major
categories. The
increase in
deposits was
mainly due
to higher
Puerto Rico
public funds at
BPPR
and time deposits at
PB. The Corporation’s borrowings amounted
to $1.1 billion at
December 31, 2023, compared to
$1.4 billion at
December
31,
2022.
Refer
to
Note
17
to
the
Consolidated
Financial
Statements
for
detailed
information
on
the
Corporation’s
borrowings.
Refer
to
Table
7
in
the
Statement
of
Financial
Condition
Analysis
section
of
this
MD&A
for
the
percentage
allocation
of
the
composition of the Corporation’s financing to total assets.
Stockholders’ equity amounted to $5.1
billion at December 31, 2023,
compared to $4.1 billion at
December 31, 2022. The increase
was
principally
due
to
lower
accumulated
unrealized
losses
on
debt
securities
available-for-sale,
lower
accumulated
unrealized
losses
on
debt
securities
previously
reclassified to
held-to-maturity,
and the
net income
for
the
year,
partially
offset
by
declared
dividends. The Corporation and its banking subsidiaries continue to be
well-capitalized at December 31, 2023. The Common Equity
Tier 1 Capital ratio at December 31, 2023 was 16.30%, compared
to 16.39% at December 31, 2022.
For further discussion of operating results, financial
condition and business risks refer to the narrative
and tables included herein.
The shares of the Corporation’s common stock are traded
on the Nasdaq Global Select Market under the symbol
BPOP.
CRITICAL ACCOUNTING POLICIES / ESTIMATES
The accounting and
reporting policies followed by
the Corporation and its
subsidiaries conform with generally
accepted accounting
principles in
the United
States of America
(“GAAP”) and
general practices within
the financial services
industry. The
Corporation’s
significant
accounting policies
are described
in
detail in
Note 2
to the
Consolidated Financial
Statements and
should
be
read in
conjunction with this section.
Critical accounting policies
require management to
make estimates and
assumptions, which involve significant
judgment about the
effect of matters
that are inherently uncertain
and that involve a
high degree of subjectivity.
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. The
following MD&A
section is
a summary
of what
management considers
the Corporation’s
critical accounting
policies and estimates.
Fair Value Measurement of Financial Instruments
The Corporation
currently measures
at fair
value on
a recurring
basis its
trading debt
securities, debt
securities available-for-sale,
certain equity securities,
derivatives and mortgage servicing
rights. Occasionally,
the Corporation is
required to record
at fair value
other assets
on a
nonrecurring basis,
such as
loans held-for-sale, loans
held-in-portfolio that
are collateral
dependent and
certain
other assets. These nonrecurring fair value
adjustments typically result from the application of lower of
cost or fair value accounting
or write-downs of individual assets.
The
Corporation categorizes
its
assets and
liabilities measured
at fair
value under
the three-level
hierarchy.
The level
within the
hierarchy is based on whether the inputs to
the valuation methodology used for fair value measurement
are observable.
The
Corporation
requires
the
use
of
observable
inputs
when
available,
in
order
to
minimize
the
use
of
unobservable
inputs
to
determine fair value. The inputs or methodologies used for valuing securities are
not necessarily an indication of the risk associated
with investing
in those
securities. The
amount of
judgment involved
in estimating
the fair
value of
a financial
instrument depends
61
upon the availability of
quoted market prices or observable market
parameters. In addition, it may
be affected by other
factors such
as the
type of instrument,
the liquidity of
the market for
the instrument, transparency
around the inputs
to the valuation,
as well
as
the
contractual
characteristics
of
the
instrument.
Broker
quotes
used
for
fair
value
measurements
inherently
reflect
any
lack
of
liquidity in the market since they represent an exit
price from the perspective of the market participants.
Trading Debt Securities and Debt Securities Available-for-Sale
The
majority
of
the
values
for
trading
debt
securities
and
debt
securities
available-for-sale
are
obtained
from
third-party
pricing
services and
are validated
with alternate
pricing sources
when available.
Securities not
priced by
a secondary
pricing source
are
documented
and
validated
internally
according
to
their
significance
to
the
Corporation’s
financial
statements.
Management
has
established materiality thresholds according to the investment class to monitor and investigate material deviations in prices obtained
from the primary pricing service provider and the
secondary pricing source used as support for
the valuation results.
Inputs are evaluated to
ascertain that they consider current
market conditions, including the
relative liquidity of the
market. When a
market quote
for a
specific security
is not
available, the
pricing service
provider generally
uses observable
data to
derive an
exit
price
for
the
instrument,
such
as
benchmark
yield
curves
and
trade
data
for
similar
products.
To
the
extent
trading
data
is
not
available, the
pricing service provider
relies on specific
information including dialogue
with brokers,
buy side clients,
credit ratings,
spreads to
established benchmarks and
transactions on similar
securities, to
draw correlations based
on the
characteristics of
the
evaluated instrument. If
for any
reason the pricing
service provider cannot
observe data required
to feed
its model,
it discontinues
pricing the instrument.
Furthermore, management assesses the fair value of its
portfolio of investment securities at least on a quarterly
basis. Securities are
classified
in
the
fair
value
hierarchy
according
to
product
type,
characteristics
and
market
liquidity.
At
the
end
of
each
period,
management assesses the valuation hierarchy for each asset or liability measured. The fair
value measurement analysis performed
by
the
Corporation
includes
validation
procedures
and
review
of
market
changes,
pricing
methodology,
assumption
and
level
hierarchy changes, and evaluation of distressed transactions.
Refer to
Note 28
to the
Consolidated Financial Statements for
a description of
the Corporation’s
valuation methodologies used
for
the assets and liabilities measured at fair value.
Loans and Allowance for Credit Losses
Interest on loans is accrued and recorded as
interest income based upon the principal amount
outstanding.
Non-accrual loans are those loans on which the
accrual of interest is discontinued. When a loan is
placed on non-accrual status, all
previously
accrued
and
unpaid interest
is
charged against
interest
income
and
the
loan
is
accounted for
either
on
a cash-basis
method or
on the
cost-recovery method.
Loans designated
as non-accruing
are returned
to accrual
status when
the Corporation
expects repayment of the remaining contractual principal and interest.
The determination as to the ultimate collectability of the loan’s
balance may involve management’s judgment in the evaluation of
the borrower’s financial condition and
prospects for repayment.
Refer to
the MD&A
section titled
Credit Risk,
particularly the
Non-performing assets
sub-section, for
a detailed
description of
the
Corporation’s non-accruing and charge-off policies by major loan
categories.
One of
the most
critical and
complex accounting
estimates is
associated with
the determination
of the
allowance for
credit losses
(“ACL”).
The
Corporation
establishes
an
ACL
for
its
loan
portfolio
based
on
its
estimate
of
credit
losses
over
the
remaining
contractual term
of the
loans, adjusted
for expected
prepayments, in
accordance with
Accounting Standards
Codification (“ASC”)
Topic
326.
An
ACL
is
recognized
for
all
loans
including
originated
and
purchased
loans,
since
inception,
with
a
corresponding
charge
to
the
provision
for
credit
losses,
except
for
purchased
credit
deteriorated
(“PCD”)
loans
as
explained
below.
The
Corporation follows a methodology to establish the ACL which includes a reasonable and
supportable forecast period for estimating
credit
losses,
considering
quantitative
and
qualitative
factors
as
well
as
the
economic
outlook.
As
part
of
this
methodology,
management evaluates
various macroeconomic
scenarios provided
by third
parties. At
December 31,
2023, management
applied
probability weights to the outcome of the selected
scenarios.
The
Corporation
has
designated
as
collateral
dependent
loans
secured
by
collateral
when
foreclosure
is
probable
or
when
foreclosure is
not probable but
the practical expedient
is used.
The practical expedient
is used
when repayment is
expected to
be
provided
substantially
by
the
sale
or
operation
of
the
collateral
and
the
borrower is
experiencing financial
difficulty.
The
ACL
of
collateral dependent loans
is measured based
on the fair
value of the
collateral less costs
to sell. The
fair value of
the collateral is
62
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.
In
addition, refer
to the
Credit Risk
section of
this MD&A
for detailed
information on
the Corporation’s
collateral value
estimation for
other real estate.
Loans Acquired with Deteriorated Credit Quality
PCD loans are defined as those with evidence of a more-than-insignificant
deterioration in credit quality since origination. PCD loans
are initially recorded
at its purchase
price plus an
estimated ACL. Upon
the acquisition of
a PCD loan,
the Corporation recognizes
the
estimate
of
the
expected
credit
losses
over
the
remaining
contractual
term
of
each
individual
loan
as
an
ACL
with
a
corresponding addition to the
loan purchase price. The
amount of the purchased
premium or discount which
is not related to
credit
risk
is
amortized
over
the
life
of
the
loan
through
net
interest
income
using
the
effective
interest
method
or
a
method
that
approximates the effective interest method. Changes in
expected credit losses are recorded as an
increase or decrease to the ACL
with a corresponding charge
(reverse) to the provision
for credit losses in
the Consolidated Statements of
Operations. These loans
follow the same nonaccrual policies as non-PCD
loans.
Income Taxes
Income
taxes
are
accounted
for
using
the
asset
and
liability
method.
Under
this
method,
deferred
tax
assets
and
liabilities
are
recognized based
on the
future tax
consequences attributable
to temporary
differences
between the
financial statement
carrying
amounts
of
existing
assets
and
liabilities
and
their
respective
tax
basis,
and
attributable
to
operating
loss
and
tax
credit
carryforwards. Deferred tax assets
and liabilities are measured
using enacted tax rates
expected to apply in
the years in
which the
temporary differences are expected to be recovered or paid. The effect on deferred tax assets and liabilities of a change in tax
rates
is recognized in earnings in the period when
the changes are enacted.
The
calculation
of
periodic
income
taxes
is
complex
and
requires
the
use
of
estimates
and
judgments.
The
Corporation
has
recorded
two
accruals
for
income
taxes:
(i)
the
net
estimated
amount
currently
due
or
to
be
received
from
taxing
jurisdictions,
including
any
reserve
for
potential
examination
issues,
and
(ii)
a
deferred
income
tax
that
represents
the
estimated
impact
of
temporary
differences
between
how
the
Corporation
recognizes
assets
and
liabilities
under
GAAP,
and
how
such
assets
and
liabilities are
recognized under the
tax code. Differences
in the
actual outcome of
these future tax
consequences could impact
the
Corporation’s financial position
or its results
of operations. In
estimating taxes, management assesses the
relative merits and
risks
of the appropriate tax treatment of transactions taking
into consideration statutory, judicial and regulatory guidance.
A deferred
tax asset
should be
reduced by
a valuation
allowance if based
on the
weight of
all available evidence,
it is
more likely
than
not
(a
likelihood
of
more
than
50%)
that
some
portion
or
the
entire
deferred
tax
asset
will
not
be
realized.
The
valuation
allowance
should
be
sufficient
to
reduce
the
deferred
tax
asset
to
the
amount
that
is
more
likely
than
not
to
be
realized.
The
determination of whether a deferred
tax asset is realizable is
based on weighting all
available evidence, including both positive and
negative evidence.
The realization
of deferred
tax assets,
including carryforwards
and deductible
temporary differences,
depends
upon the existence of sufficient taxable income of the same character during the carryback or carryforward period. The realization of
deferred tax assets requires
the consideration of all
sources of taxable income
available to realize the
deferred tax asset, including
the
future
reversal
of
existing
temporary
differences,
future
taxable
income
exclusive
of
reversing
temporary
differences
and
carryforwards, taxable income in carryback years and
tax-planning strategies.
Management evaluates the
realization of the
deferred tax asset
by taxing jurisdiction.
The U.S. mainland
operations are evaluated
as
a whole
since a
consolidated income
tax return
is filed;
on the
other
hand, the
deferred tax
asset related
to the
Puerto
Rico
operations
is evaluated
on an
entity by
entity basis,
since
no consolidation
is
allowed in
the income
tax filing.
Accordingly,
this
evaluation
is
composed
of
three
major
components:
U.S.
mainland
operations,
Puerto
Rico
banking
operations
and
Holding
Company.
For the
evaluation of
the realization
of the
deferred tax
asset by
taxing jurisdiction,
refer to
Note 35
to the
Consolidated Financial
Statements.
63
Under the Puerto Rico Internal Revenue Code, the
Corporation and its subsidiaries are treated as separate taxable
entities and are
not entitled to file
consolidated tax returns. The Code
provides a dividends-received deduction of 100%
on dividends received from
“controlled” subsidiaries subject to taxation in Puerto Rico
and 85% on dividends received from other
taxable domestic corporations.
Changes in
the Corporation’s
estimates can occur
due to changes
in tax
rates, new business
strategies, newly
enacted guidance,
and resolution
of issues
with taxing
authorities regarding
previously taken tax
positions. Such
changes could
affect the
amount of
accrued taxes. The Corporation has made
tax payments in accordance with
estimated tax payments rules. Any remaining
payment
will not have any significant impact on liquidity
and capital resources.
The valuation
of deferred
tax assets
requires judgment
in assessing
the likely
future tax
consequences of
events that
have been
recognized
in
the
financial
statements
or
tax
returns
and
future
profitability.
The
accounting
for
deferred
tax
consequences
represents management’s best
estimate of those
future events. Changes
in management’s current
estimates, due to
unanticipated
events, could have a material impact on the
Corporation’s financial condition and results of operations.
The Corporation establishes tax liabilities or reduces tax assets for uncertain tax positions when, despite its assessment that the tax
return positions are appropriate and supportable under local tax law, the Corporation believes it may not succeed in realizing the tax
benefit of certain
positions if challenged.
In evaluating
a tax position,
the Corporation determines
whether it is
more likely than
not
that the position will be sustained upon examination, including resolution
of any related appeals or litigation processes, based on the
technical
merits
of
the
position.
The
Corporation’s
estimate
of
the
ultimate
tax
liability
contains
assumptions
based
on
past
experiences, and judgments
about potential actions
by taxing jurisdictions
as well as
judgments about the
likely outcome of
issues
that have been raised by taxing jurisdictions. The tax
position is measured as the largest amount of benefit that
is greater than 50%
likely of being
realized upon ultimate settlement.
The Corporation evaluates these
uncertain tax positions each
quarter and adjusts
the related tax liabilities or
assets in light of changing
facts and circumstances, such as the
progress of a tax audit
or the expiration
of a
statute of
limitations. The Corporation
believes the
estimates and assumptions
used to
support its
evaluation of
uncertain tax
positions are reasonable.
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. Although
the
outcome of
tax audits
is uncertain,
the Corporation
believes that
adequate amounts
of tax,
interest and penalties
have been provided
for any adjustments
that are expected
to result from
open years. From
time to time,
the
Corporation is audited
by various federal, state
and local authorities regarding
income tax matters. Although
management believes
its
approach
in
determining the
appropriate
tax
treatment
is
supportable
and
in
accordance
with
the
accounting standards,
it
is
possible that the final tax
authority will take a tax position that
is different than the tax
position reflected in the Corporation’s income
tax provision and other tax reserves. As each audit is conducted, adjustments, if any,
are appropriately recorded in the consolidated
financial
statement
in
the
period
determined.
Such
differences
could
have
an
adverse
effect
on
the
Corporation’s
income
tax
provision or
benefit, or
other tax
reserves, in
the reporting
period in
which such
determination is
made and,
consequently,
on the
Corporation’s results of operations, financial position and
/ or cash flows for such period.
Goodwill and Other Intangible Assets
The
Corporation’s
goodwill
and
other
identifiable
intangible
assets
having
an
indefinite
useful
life
are
tested
for
impairment.
Intangibles
with
indefinite
lives
are
evaluated
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.
Other
identifiable
intangible
assets
with
a
finite
useful
life
are
evaluated
periodically for impairment when events or changes
in circumstances indicate that the carrying amount
may not be recoverable.
Goodwill impairment is recognized when the carrying amount of any
of the reporting units exceeds its fair value up
to the amount of
the
goodwill.
The
Corporation
estimates
the
fair
value
of
each
reporting
unit,
consistent
with
the
requirements
of
the
fair
value
measurements
accounting
standard,
generally
using
a
combination
of
methods,
including
market
price
multiples
of
comparable
companies and
transactions, as
well as
discounted cash
flow analyses.
Subsequent reversal
of goodwill
impairment losses
is not
permitted under applicable accounting standards. For a detailed description of the annual goodwill impairment evaluation performed
by the Corporation during the third quarter of 2023,
refer to Note 15 to the Consolidated Financial
Statements.
64
Pension and Postretirement Benefit Obligations
The Corporation provides pension and
restoration benefit plans for certain employees
of various subsidiaries. The Corporation also
provides certain
health care
benefits for
retired employees of
BPPR. The
non-contributory defined pension
and benefit
restoration
plans (“the Pension Plans”) are frozen with regards
to all future benefit accruals.
The estimated
benefit costs
and obligations
of the
Pension Plans and
Postretirement Health
Care Benefit Plan
(“OPEB Plan”) are
impacted by
the use
of subjective
assumptions, which can
materially affect
recorded amounts, including
expected returns on
plan
assets,
discount
rates,
termination
rates,
retirement
rates
and
health
care
trend
rates.
Management
applies
judgment
in
the
determination of these factors, which normally undergo evaluation against current industry practice and the
actual experience of the
Corporation.
The
Corporation
uses
an
independent
actuarial
firm
for
assistance
in
the
determination
of
the
Pension
Plans
and
OPEB Plan
costs and
obligations. Detailed information
on the Plans
and related valuation
assumptions are included
in Note
30 to
the Consolidated Financial Statements.
The Corporation periodically reviews its assumption for the long-term expected return on Pension Plans
assets. The Pension Plans’
assets
fair
value
at
December
31,
2023
was
$652.4
million.
The
expected
return
on
plan
assets
is
determined
by
considering
various factors, including a total fund return estimate based on a weighted-average
of estimated returns for each asset class in each
plan.
Asset
class
returns
are
estimated
using
current
and
projected
economic
and
market
factors
such
as
real
rates
of
return,
inflation, credit spreads, equity risk premiums and
excess return expectations.
As part of the review,
the Corporation’s independent consulting actuaries performed an analysis of expected returns
based on each
plan’s expected asset
allocation for the year
2024 using the
Willis Towers
Watson US Expected
Return Estimator.
This analysis is
reviewed by the Corporation
and used as a
tool to develop expected
rates of return, together
with other data. This
forecast reflects
the actuarial firm’s view of
expected long-term rates of return for each significant asset
class or economic indicator as of January
1,
2024;
for
example, 8.5%
for
large
cap
stocks,
8.8% for
small cap
stocks,
9.0% for
international stocks,
6.0% for
long
corporate
bonds
and
5.0%
for
long
Treasury
bonds.
A
range
of
expected
investment
returns
is
developed,
and
this
range
relies
both
on
forecasts and on broad-market historical benchmarks
for expected returns, correlations, and volatilities
for each asset class.
As a consequence of recent reviews, the Corporation updated
its expected return on plan assets for year 2024
to 5.6% and 6.6% for
the Pension Plans. Expected rates of return of 5.9% and 6.5%
had been used for 2023 and 4.3% and 5.4% had been used for 2022
for
the Pension
Plans. Since
the expected
return assumption
is
on a
long-term basis,
it is
not materially
impacted by
the yearly
fluctuations (either positive or negative) in the actual
return on assets. The expected return can be materially
impacted by a change
in the plan’s asset allocation.
Net Periodic Benefit Cost
(“pension expense”) for the Pension Plans
amounted to $18.6 million in
2023. The total pension expense
included a benefit of $34.4 million for the expected
return on assets.
Pension expense is sensitive
to changes in the
expected return on assets.
For example, decreasing the expected
rate of return
for
2024 from
5.6% to
5.35% would
increase the
projected 2024
pension expense
for the
Banco Popular
de Puerto
Rico Retirement
Plan, the Corporation’s largest plan, by approximately
$1.5
million.
If
the
projected
benefit
obligation
exceeds
the
fair
value
of
plan
assets,
the
Corporation
shall
recognize
a
liability
equal
to
the
unfunded projected
benefit obligation
and vice
versa, if
the fair
value of
plan assets
exceeds the
projected benefit
obligation, the
Corporation recognizes an asset equal to the overfunded projected
benefit obligation. This asset or liability may result
in a taxable or
deductible temporary difference and its
tax effect shall be
recognized as an income tax
expense or benefit which shall
be allocated
to various components of the financial statements, including other comprehensive income (loss).
The determination of the fair value
of
pension plan
obligations involves
judgment, and
any changes
in those
estimates could
impact the
Corporation’s Consolidated
Statements of Financial
Condition. Management believes that
the fair value
estimates of the
Pension Plans assets
are reasonable
given
the
valuation
methodologies
used
to
measure
the
investments
at
fair
value
as
described
in
Note
28
to
the
Consolidated
Financial
Statements.
Also,
the
compositions
of
the
plan
assets
are
primarily
in
equity
and
debt
securities,
which
have
readily
determinable quoted market prices. The Corporation
had recorded a pension asset of $16.6
million at December 31, 2023.
The Corporation uses
the spot rate
yield curve from
the Willis Towers
Watson RATE:
Link (10/90) Model
to discount the
expected
projected
cash
flows
of
the
plans.
The
equivalent
single
weighted
average
discount
rate
ranged
from
5.02%
to
5.05%
for
the
Pension Plans and 5.10% for the OPEB Plan to determine
the benefit obligations at December 31, 2023.
65
A 50
basis point
decrease to
each of
the rates
in the
December 31,
2023 Willis
Towers
Watson RATE:
Link (10/90)
Model would
increase the
projected 2024
expense for
the Banco
Popular de
Puerto Rico
Retirement Plan
by approximately
$2.2
million. The
change would not affect the minimum required contribution
to the Pension Plans.
The OPEB Plan was unfunded (no assets were held by the plan) at December 31, 2023. The Corporation had recorded a liability for
the underfunded postretirement benefit obligation of
$117.0 million at December 31, 2023.
66
STATEMENT
OF OPERATIONS ANALYSIS
Net Interest Income
Net interest income is the interest earned from loans, debt securities and money market investments, including loan fees, minus
the
interest cost of deposits and borrowed money.
Various risk factors
affect net interest income including the economic environment in
which we operate, market related events, the mix
and size of the earning assets and
related funding, changes in volumes, repricing
characteristics, loan fees
collected, delay
charges and
interest collected on
nonaccrual loans, as
well as
strategic decisions made
by the Corporation’s management.
Net interest income for the year ended December 31, 2023 was $2.1 billion or $35.8 million lower than in 2022. Net interest income,
on a taxable equivalent basis,
for the year ended December 31,
2023
was $2.3 billion compared to
$2.4
billion in 2022, a
decrease
of $154.4 million.
The average key index rates for the years 2023 and
2022 were as follows:
2023
2022
Prime rate………………………………………………………………………………………………….
8.19%
4.86%
Fed funds rate…………………………………………………………………………………………….
5.20
1.86
3-month Treasury Bill…………………………………………………………………………………….
3.59
2.01
10-year Treasury………………………………………………………………………………………….
3.45
2.95
FNMA 30-year…………………………………………………………………………………………….
4.94
4.26
Average
outstanding securities
balances are
based upon
amortized cost
excluding any
unrealized gains
or losses
on securities.
Non-accrual
loans
have
been
included
in
the
respective
average
loans
and
leases
categories.
Loan
fees
collected,
and
costs
incurred
in
the
origination
of
loans
are
deferred
and
amortized
over
the
term
of
the
loan
as
an
adjustment
to
interest
yield.
Prepayment penalties, late fees
collected and the
amortization of premiums /
discounts on purchased loans,
including the discount
accretion on purchased credit
deteriorated loans (“PCD”), are
also included as
part of the
loan yield. Interest income
for the period
ended December
31, 2023,
included $21.0
million related
to those
items, compared
to $44.6
million for
the same
period in
2022.
The year over
year decrease is
related to lower
amortized fees resulting from
the forgiveness of
PPP loans by
$16.6 million, lower
discount amortization on commercial
loans by $5.4
million mainly driven by
lower interest from cancellation
of PCD loans
and $3.7
million lower amortization of the fair value discount
of the auto portfolios acquired in previous
years.
Table
3 presents
the
different
components
of
the
Corporation’s
net
interest
income,
on
a
taxable
equivalent
basis,
for
the
year
ended December 31,
2023, as compared
with the same
period in 2022,
segregated by major
categories of interest
earning assets
and interest-bearing liabilities. Net interest margin was 3.13% in 2023 or 2 basis points higher than the 3.11
%
reported in 2022. The
higher net interest margin for
the year is driven by
a full year impact,
on deposit costs, of the
increase, in 2022, of 425
basis points
in
the
Federal
Funds
Rate
and
an
additional
100
basis
points
in
2023.
On
a
taxable
equivalent
basis,
net
interest
margin
was 3.31% in 2023,
compared to
3.46% in
2022, a
decrease of
15 basis
points. The
main drivers
for the
decrease in
net interest
income on a taxable equivalent basis were:
Negative variances:
●
Lower interest income
from investment securities by
$48.5 million due
to
lower volume by
$1.8 billion and
lower yield by
three basis points;
●
Higher interest
expense on
deposits by
$797.2 million
due to
an increase
in interest
cost
by 170
basis
points resulting
mainly from
the higher
cost of
the Puerto
Rico government
deposits and
the increase
in cost
of Popular
U.S. deposits.
Under the
terms of
BPPR’s deposit
pricing agreement
with the
Puerto Rico
public sector,
public funds
rates are
market
linked with a lag minus a specified spread. This
source of funding still results in an attractive
spread under market rates.
Partially offset by:
67
●
Higher interest income from money market
investments by $248.5 million due to
higher interest rates by 396 basis
points,
driven by the higher interest
rate environment, as explained above, partially
offset by lower volume by
$2.5 billion, due to
lower volume of deposits and loan growth funding;
●
Higher interest income from loans by $462.5 million
due to:
●
Increase in commercial loan Interest income by $284.1 million, or 109 basis points as the origination of loans
occurs
in
a
higher
interest
rate
scenario
and
the
positive
impact
on
the
repricing
of
adjustable-rate
loans,
partially offset by
lower amortized fees
resulting from the forgiveness
of PPP loans
by $16.6 million
and lower
discount amortization on commercial loans by
$5.4 million mainly from cancellation of PCD loans,
●
Higher interest
income from
construction loans
by $23.4
million, mainly
at Popular
Bank, driven
by
higher
yield by 257 basis points and a higher
average volume of loans by $38 million,
●
Higher interest income
from auto and
lease financing portfolios
by $40.2 million
driven by
higher volume by
$175 million in the leasing portfolio and higher yields by 37 basis points in auto loans, the later increase in yield
was negatively impacted by
lower amortization of the
fair value discount of
the auto loan portfolios
acquired in
previous years,
●
Higher interest income from mortgage loans
by $23.9 million driven by
higher yield by 21 basis
points and a
higher average volume by $160 million,
●
Higher interest income from consumer
loans by $91.0 million
resulting from a higher volume
by $372 million
and higher
yield by
153 basis
points, driven
by the
increase, mainly
in P.R.
in personal
loans year
over year
and an increase in credit cards volume.
68
Table 3 – Analysis of Levels & Yields
on a Taxable Equivalent Basis
from Continuing Operations (Non-GAAP)
Year ended December 31,
Variance
Average Volume
Average Yields / Costs
Interest
Attributable to
2023
2022
Variance
2023
2022
Variance
2023
2022
Variance
Rate
Volume
(In millions)
(In thousands)
$
7,052
$
9,531
$
(2,479)
5.20
%
1.24
%
3.96
%
Money market investments
$
366,625
$
118,079
$
248,546
$
286,646
$
(38,100)
27,926
29,743
(1,817)
2.20
2.23
(0.03)
Investment securities [1]
615,758
664,278
(48,520)
(8,273)
(40,247)
32
51
(19)
4.32
5.94
(1.62)
Trading securities
1,376
3,049
(1,673)
(700)
(973)
Total money market,
investment and trading
35,010
39,325
(4,315)
2.81
2.00
0.81
securities
983,759
785,406
198,353
277,673
(79,320)
Loans:
16,469
14,562
1,907
6.55
5.46
1.09
Commercial
1,079,171
795,115
284,056
171,681
112,375
816
778
38
8.86
6.29
2.57
Construction
72,309
48,920
23,389
20,927
2,462
1,650
1,475
175
6.38
5.92
0.46
Leasing
105,309
87,274
18,035
7,203
10,832
7,482
7,322
160
5.55
5.34
0.21
Mortgage
414,992
391,133
23,859
15,212
8,647
3,115
2,743
372
13.19
11.66
1.53
Consumer
410,910
319,920
90,990
43,806
47,184
3,633
3,525
108
8.39
8.02
0.37
Auto
304,660
282,533
22,127
13,257
8,870
33,165
30,405
2,760
7.20
6.33
0.87
Total loans
2,387,351
1,924,895
462,456
272,086
190,370
$
68,175
$
69,730
$
(1,555)
4.94
%
3.89
%
1.05
%
Total earning assets
$
3,371,110
$
2,710,301
$
660,809
$
549,759
$
111,050
Interest bearing deposits:
$
24,563
$
25,884
$
(1,321)
3.10
%
0.61
%
2.49
%
NOW and money market [2]
$
761,647
$
158,664
$
602,983
$
612,470
$
(9,487)
14,900
15,886
(986)
0.68
0.20
0.48
Savings
101,334
32,400
68,934
74,110
(5,176)
7,776
6,853
923
2.41
0.90
1.51
Time deposits
187,043
61,781
125,262
100,043
25,219
47,239
48,623
(1,384)
2.22
0.52
1.70
Total interest bearing
deposits
1,050,024
252,845
797,179
786,623
10,556
15,307
16,094
(787)
Non-interest bearing demand
deposits
62,546
64,717
(2,171)
1.68
0.39
1.29
Total deposits
1,050,024
252,845
797,179
786,623
10,556
143
206
(63)
5.12
2.78
2.34
Short-term borrowings
7,329
5,737
1,592
4,506
(2,914)
Other medium and
1,109
939
170
5.09
4.26
0.83
long-term debt
56,430
39,970
16,460
9,458
7,002
Total interest bearing
48,491
49,768
(1,277)
2.30
0.60
1.70
liabilities (excluding demand
deposits)
1,113,783
298,552
815,231
800,587
14,644
4,377
3,868
509
Other sources of funds
$
68,175
$
69,730
$
(1,555)
1.63
%
0.43
%
1.20
%
Total source of funds
1,113,783
298,552
815,231
800,587
14,644
3.31
%
3.46
%
(0.15)
%
Net interest margin/ income
on a taxable equivalent basis
(Non-GAAP)
2,257,327
2,411,749
(154,422)
$
(250,828)
$
96,406
2.64
%
3.29
%
(0.65)
%
Net interest spread
Taxable equivalent
adjustment
125,803
244,390
(118,587)
3.13
%
3.11
%
0.02
%
Net interest margin/ income
non-taxable equivalent basis
(GAAP)
$
2,131,524
$
2,167,359
$
(35,835)
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.
69
Provision for Credit Losses - Loans Held-in-Portfolio
and Unfunded Commitments
For the
year ended
December 31, 2023,
the Corporation
recorded an expense
of $209.7 million
for its
allowance for credit
losses
(“ACL”) related to loans held-in-portfolio and unfunded commitments, compared with an expense of $84.2 million for
the year ended
December 31, 2022. The provision expense
related to the loans-held-in-portfolio for the year
2023 was $201.5 million, compared to
an expense
of $83.3
million for
the year
2022. The
increase in
provision expense was
driven by
higher reserves
in our
consumer
and commercial portfolios mostly due to changes in credit
quality and higher loan volumes. The provision
for unfunded commitments
for the year 2023 reflected an expense of $8.2
million, compared to an expense of $0.9 million for
the same period of 2022.
The provision expense related to loans held-in-portfolio for the BPPR segment was
$194.8 million for the year ended December 31,
2023, compared to
an expense of
$69.5 million for
the year ended
December 31, 2022,
an unfavorable variance
of $125.3 million.
The provision expense related to loans held-in-portfolio for the Popular U.S. segment was $6.7 million for the year 2023, a favorable
variance of $7.1 million, compared to an
expense of $13.8 million for the year
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, resulted in
a $7.3 million reduction of PB’s ACL.
At
December
31,
2023,
the
total
allowance
for
credit
losses
for
loans
held-in-portfolio amounted
to
$729.3
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
2.08%
at
December
31,
2023, compared
to
2.25%
at
December 31,
2022. Refer
to
Note
9
to
the
Consolidated Financial
Statements, for
additional information on the Corporation’s methodology to estimate its ACL. As discussed therein, within the process to estimate its
ACL, the Corporation applies probability weights 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.
In
addition,
refer
to
the
Credit
Risk
section
of
this
MD&A
for
a
detailed
analysis
of
net
charge-offs,
non-performing
assets,
the
allowance for credit losses and selected loan
losses statistics.
Provision for Credit Losses – Investment Securities
The
Corporation’s
provision
for
credit
losses
related
to
its
investment
securities
held-to-maturity
is
related
to
the
portfolio
of
obligations
from
the
Government
of
Puerto
Rico,
states
and
political
subdivisions.
For
the
year
ended
December
31,
2023,
the
Corporation recorded a reserve release of
$1.1 million, compared to a reserve
release of $1.2 million for the
year ended December
31, 2022. At
December 31, 2023,
the total allowance
for credit losses
for this portfolio
amounted to $5.8
million, compared to
$6.9
million as of December 31, 2022. Refer to Note 7 to the Consolidated Financial Statements for additional information on the ACL for
this portfolio.
Non-Interest Income
For the year
ended December 31, 2023,
non-interest income decreased by
$246.3 million, when compared
with the previous
year.
Factors that contributed to the variance in non-interest
income were:
●
lower other operating
income by $270.3
million mainly due to
a $257.7 million gain
recognized during the year
2022 due
to the Evertec Transactions and related accounting adjustments;
●
lower income from mortgage banking activities by $21.0 million due to the unfavorable variances
of $11.8 million and $3.5
million
in the
fair value
adjustments for
mortgage servicing
rights and
mortgage
servicing fees,
respectively,
driven by
serviced
loan
portfolio
runoff
due
to
the
Corporation's
determination
in
the
third
quarter
of
2022
to
retain
certain
guaranteed loans as held for investment,
and lower gains from closed derivative positions
by $6.0 million;
and
●
lower
service
charges
on
deposit
accounts
by
$9.7
million
due
to
lower
overdraft
related
charges,
in
part
due
to
the
Corporation’s determination to eliminate insufficient funds fees and modifying
overdraft fees effective in the third quarter of
2022;
70
partially offset by:
●
higher
other
service
fees
by
$40.4
million,
principally
at
the
BPPR
segment,
due
to
higher
credit
card
fees
by
$16.0
million, mainly due to higher customer purchase activity,
higher other fees by $11.1 million, mainly due to higher fees from
the merchant network business by
$8.3 million due to
the revenue sharing agreement entered
into in connection with the
Evertec
Transactions,
higher
debit
card
fees
by
$4.1
million,
mainly
due
to
higher volume
of
transactions,
and
higher
insurance fees by $3.8 million; and
●
favorable
variance
of
$10.8
million
on
the
fair
value
adjustments to
the
portfolio
of
equity
securities
mainly
related
to
deferred benefit plans, which have an offsetting effect recorded
as higher personnel costs.
Operating Expenses
As discussed
in the
significant events
section of
this MD&A,
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
activities
as
standalone
expense categories
in the
accompanying Consolidated
Statements
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
provides the detail of the reclassifications
for the year.
Table 4 - Operating Expenses
Reclassification
Year ended December 31,
2021
Financial statement line item
As reported
Adjustments
Adjusted
Equipment expenses
$
92,097
$
(59,178)
$
32,919
Professional fees
410,865
(284,144)
126,721
Technology and
software expenses
-
277,979
277,979
Processing and transactional services
-
121,367
121,367
Communications
25,234
(11,205)
14,029
Other operating expenses
136,988
(44,819)
92,169
Net effect on operating expenses
$
665,184
$
-
$
665,184
71
Table 5 provides a breakdown of operating expenses by major categories.
Table 5 - Operating Expenses
Years ended December
31,
(In thousands)
2023
2022
2021
Personnel costs:
Salaries
$
505,935
$
432,910
$
371,644
Commissions, incentives and other bonuses
112,657
155,889
142,212
Pension, postretirement and medical insurance
67,469
56,085
52,077
Other personnel costs, including payroll taxes
91,984
74,880
65,869
Total personnel
costs
778,045
719,764
631,802
Net occupancy expenses
111,586
106,169
102,226
Equipment expenses
37,057
35,626
32,919
Other taxes
55,926
63,603
56,783
Professional fees
161,142
172,043
126,721
Technology and
software expenses
290,615
291,902
277,979
Processing and transactional services:
Credit and debit cards
44,578
45,455
40,383
Other processing and transactional services
93,492
81,690
80,984
Total processing
and transactional services
138,070
127,145
121,367
Communications
16,664
14,885
14,029
Business promotion:
Rewards and customer loyalty programs
59,092
51,832
38,919
Other business promotion
35,834
37,086
34,062
Total business
promotion
94,926
88,918
72,981
FDIC deposit insurance
105,985
26,787
25,579
Other real estate owned (OREO) income
(15,375)
(22,143)
(14,414)
Other operating expenses:
Operational losses
23,505
32,049
38,391
All other
73,774
77,397
53,778
Total other operating
expenses
97,279
109,446
92,169
Amortization of intangibles
3,180
3,275
9,134
Goodwill impairment charge
23,000
9,000
-
Total operating
expenses
$
1,898,100
$
1,746,420
$
1,549,275
Personnel costs to average assets
1.09
%
0.99
%
0.89
%
Operating expenses to average assets
2.66
2.40
2.18
Employees (full-time equivalent)
9,088
8,813
8,351
Average assets per employee (in millions)
$7.84
$8.26
$8.52
Operating expenses
for the
year ended
December 31,
2023 totaled
$1.9 billion,
which included
$71.4 million
related to
the FDIC
Special Assessment, an increase of $151.7 million when
compared with the previous year.
Excluding the effect of the FDIC
Special
Assessment, total expenses for 2023 were $1.8
billion, an increase of $80.2
million, when compared with the previous year.
During
the
year
2023,
the
Corporation
incurred
approximately
$21.5
million
in
transformation
related
costs,
compared
to
$24.6
million
incurred during the second half of the year
2022. The other variances in operating expenses
for the year were driven primarily by:
●
higher
personnel
costs
by
$58.3
million
mainly
due
to
higher
salaries
expense
by
$73.0
million
as
a
result
of
market
adjustments,
annual
salary
revisions
and
an
increase
in
headcount,
an
increase
in
health
insurance
costs
by
$11.7
million, higher payroll taxes and other compensation
expenses by $17.1 million; partially offset
by a decrease in incentive
compensation and profit-sharing accrual by $45.3
million;
72
●
a higher goodwill impairment expense by $14.0 million, related to
our U.S. based leasing subsidiary for which a charge
of
$23 million was
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 as a result of a decrease
in the projected earnings.
●
higher other processing and transactional services expenses by $11.8 million mainly
due to broad based retail customers'
debit card replacement costs incurred during the second quarter
of 2023,
the impact of $3.5 million of incentives
received
during
July
2022
related
to
the
ATH
Network
Participation
Agreement
entered
into
in
connection
with
the
Evertec
Business Acquisition and an increase by $2.6
million in service charges related to point of sale debit
card transactions;
●
higher customer
reward program expense
in our
credit card
business by
$7.3 million,
reflecting an
increase in
customer
purchase activity;
●
higher net occupancy expense by $5.4 million mainly due to an increase in buildings’ insurance premiums and higher rent
expense related to the space occupied by Popular Bank;
and
●
lower
other
real
estate
owned
(OREO)
income
by
$6.8
million
mainly
due
to
lower
gain
on
sale
of
mortgage
and
commercial properties;
These variances were partially offset by:
●
lower
other
operating expenses
by
$12.2 million
mainly
due to
the
effect
of
prior
year
expense related
to
the
Evertec
Transactions of
$17.3 million,
lower sundry
losses by
$8.5 million,
mainly related
to mortgage
claim reserves,
and $2.2
million of
impairment of
long-lived assets
recognized during
2022; partially
offset by
higher pension
plan cost
by $19.2
million due to changes in actuarial assumption.
●
lower professional
fees by
$10.9 million
mainly due
to lower
legal fees
by $2.7
million and
lower advisory
expenses by
$6.8 million from various Corporate projects, including the Corporation’s transformation
initiative, for which certain projects
are being managed with internal personnel; and
●
lower
other
taxes
expense
by
$7.7
million
mainly
due
to
the
reversal
during
2023
of
an
accrual
related
to
regulatory
examination fees in BPPR.
Income Taxes
For the
year ended
December 31,
2023, the
Corporation recorded an
income tax
expense of
$134.2 million,
compared to
$132.3
million for the
same period of
2022.
The net increase
of $1.9 million
in income tax
expense reflects the impact
of the composition
and source
of taxable
income between
both years.
For the
year 2023,
the income
before tax
was lower
than year
2022, which
would have resulted in a lower income tax expense; however, the
income tax expense of year 2022 benefited from the reversal of a
portion
of
the
deferred tax
assets valuation
allowance of
the
U.
S.
operations,
which resulted
in
an income
tax
benefit of
$68.2
million, the sale of Evertec shares, taxable at
a preferential rate, and a higher tax exempt
income net of disallowance.
At December
31, 2023,
the Corporation
had a
net deferred
tax asset
amounting to
$1 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 35
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.
Fourth Quarter Results
The Corporation recognized net
income of $94.6 million
for the quarter
ended December 31, 2023,
compared with a
net income of
$257.1 million for the same quarter of 2022.
Net interest income for the fourth quarter of
2023 amounted to $534.1 million, compared with $559.6 million for the
fourth quarter of
2022, a decrease of $25.4 million. The
decrease in net interest income was mainly
due to higher cost on deposits
partially offset by
an increase
in interest
income from
loans, mainly
due to
growth at
both BPPR
and PB
and higher
rates, and
higher income
from
73
money market investments due to higher average
balances and higher rates. The
net interest margin decreased by 20
basis points
to 3.08% mainly due to
an increase in deposit costs, particularly on Puerto
Rico public funds and time deposits
at PB. On a taxable
equivalent basis, the net interest margin for the fourth
quarter of 2023 was 3.26%, compared
to 3.64% for the fourth quarter of 2022.
The provision for credit losses was $78.7 million for the
fourth quarter of 2023, compared to a provision expense of $49.5 million
for
the fourth quarter of 2022. The increase in provision
expense reflects portfolio growth and changes
in credit quality.
Non-interest income
amounted to
$168.7 million
for the
quarter ended
December 31,
2023, compared
with $158.5
million for
the
same quarter in
2022. The increase of
$10.3 million was mainly
due to higher other
service fees by $7.7
million and higher service
charges on deposit accounts by $3.0 million
mainly due to higher non-balance compensation.
Operating expenses
totaled $531.1
million for
the quarter
ended December
31, 2023,
compared with
$461.7 million
for the
same
quarter
in
the
previous
year.
The
increase
of
$69.4
million
is
mainly
related
to
the
$71.4
million
FDIC
Special
Assessment
recognized during
the fourth
quarter of
2023; partially
offset by
lower professional
fees by
$10.1 million
mainly related
to various
corporate projects, including the transformation initiative,
for which certain areas are currently being managed
by internal personnel.
For
the
quarter
ended
December
31,
2023,
the
Corporation
recorded
an
income
tax
benefit
of
$1.5
million,
compared
with
an
income tax
benefit of
$50.3 million
for the
same quarter
of 2022.
The unfavorable
variance of
$48.9
million in
income tax
benefit,
when compared to the
fourth quarter of 2022,
was mostly attributed to
the reversal of a
portion of the deferred tax
assets valuation
allowance during the fourth
quarter of 2022, for
which we reported an
income tax benefit
of $68.2 million. During
the fourth quarter
of 2023, we reported
a lower income before tax,
mainly due to the FDIC
Special Assessment,
which resulted in a
lower income tax
expense by
approximately $42.6 million.
We also
recorded lower exempt
income and other
lower tax benefits,
both increasing the
income tax expense by $15.5 million and 7.2 million,
respectively.
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 37
to the Consolidated Financial Statements.
The Corporate group reported a net income of
$13.3 million for the year ended December 31, 2023, compared with
a net income of
$150.1
million
for
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, as defined
in Note 4 to the Consolidated Financial Statements,
and related accounting adjustments during the
year ended September 30,2022.
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 $472.0
million for the
year ended December 31,
2023, compared with $782.0 million for
the year ended December 31, 2022.
The principal factors that contributed to the
variance in
the financial results included the following:
●
Lower net
interest income
by $11.9
million due
to higher
interest expense
on deposits
by $616.0
million mainly
due to
higher costs
on the market-indexed
Puerto Rico
government deposits, and
the higher
interest rate environment’s
impact
on the cost
of NOW accounts,
time deposits and
savings deposits; partially
offset by
higher interest income
from money
market
and
investment securities
by
$287.5
million
mainly
due
to
higher
yields
driven
by
the
increase
in
rates
by
the
Federal
Reserve
and
higher
average
balances
of
U.S.
Treasury
securities;
and
higher
interest
income
from
loans
by
$317.4 million, mainly due to higher average balances mainly in commercial and consumer loans and higher
yields across
74
all the portfolios
. The BPPR segment’s net interest margin was 3.20% for 2023 compared with
3.06% for the same period
in 2022.
●
A
provision
for
loan
losses
of
$194.3
million
in
2023,
compared
to
$70.3
million
for
the
year
ended
2022,
or
an
unfavorable variance of $124.0 million,
due in part to loan growth;
●
Lower non-interest income by $93.6 million mainly
due to:
●
Lower
other
operating
income
by
$109.3
million
mostly
due
to
the
gain
recorded
as
result
of
the
Evertec
Transactions and related accounting adjustments on 2022,
●
Lower mortgage banking activities by $20.4 million, unfavorable variances in the fair value
adjustments for mortgage
serving
rights
and
mortgage
servicing
fees,
driven
by
serviced
loan
portfolio
runoff
due
to
Corporation’s
determination in the third
quarter of 2022 to
retain certain guaranteed loans
as held for
investment, and lower gains
from closed derivative positions;
●
Lower
service
charges
on
deposit
accounts
by
$8.8
million
principally
due
to
the
change
in
policy
of
eliminating
insufficient fund fees and modifying overdraft fees implemented
in the third quarter of 2022.
●
Higher operating expenses by $111.5 million, mainly due to:
●
Higher
personnel
costs
by
$37.0
million
due
to
a
higher
headcount
and
salaries
adjustments,
including
merit
increases, market
and minimum
salary adjustments
and higher
pension and
health insurance
costs; partially
offset
by a decrease in profit sharing in incentive
compensation;
●
Higher
business
promotions
by
$6.1
million
mainly
due
to
higher
customer
rewards
expense
related
to
higher
transactional volumes;
●
Higher FDIC deposit insurance expense by $68.8
million due to the FDIC Special Assessment recorded
in 2023;
●
Higher processing and transactional
services by $10.8
million mainly due
to higher credit
and debit card processing
expense as a result of higher transactional volumes,
●
Higher
professional
fees
by
$17.8
million
mainly
due
to
costs
associated
with
initiatives
focused
on
regulatory,
compliance and cyber security efforts as well as the transformation
initiative.
Partially offset by:
●
Lower other operating expenses by
$26.7 million mainly due to
$17.3 million charge related to
Evertec Transactions
on
2022
and
lower
mortgage
related
sundry
losses
by
$5.6
million
mainly
due
to
a
reserve
release
adjustment
recorded in 2022
and lower charges
allocated from the
Corporate segment group
by $9.1 million
mainly from lower
personnel costs;
partially offset by higher pension plan cost by $19.2
million due to charges in actuarial assumptions;
●
Lower technology and software
expenses by $4.5 million
mainly due in part
to savings associated with the
acquired
services from Evertec during 2022;
●
Lower
net
recoveries
from
OREO
by
$7.4
million
mainly
due
to
lower gain
on
sale
of
mortgage
and
commercial
properties.
●
Lower
income
tax
expense
by
$30.9
million
due
to
lower
income
before
tax
and
the
impact
of
the
composition
and
sources of taxable income in each year.
Popular U.S.
75
For the
year ended
December 31, 2023,
the reportable
segment of
Popular U.S.
reported net
income of
$56.3 million,
compared
with a net
income of $170.3 million for
the year ended December
31, 2022. The principal
factors that contributed to
the variance in
the financial results included the following:
●
Lower net interest income by $22.3 million mainly due to higher interest expense
on deposits by $207.3 million mainly due
to higher
rates and
higher average
balance of
time deposit
primarily gathered through
its direct
online channel,
partially
offset by
higher interest
income from
loans by
$138.1 million,
mainly from
growth in
the commercial
portfolio as
well as
higher yields due to
increases in rates, and higher
income from money market and
investment securities by $47.4 million
due to higher
yields and higher
average balance. The
Popular U.S. reportable segment’s
net interest margin
was 2.98%
for 2023 compared with 3.68% for the same period
in 2022;
●
An
unfavorable variance
of
$2.1
million
on
the
provision for
loan
losses
and
unfunded
commitments,
reflective
of
the
updated macroeconomics
scenarios offset
by the
implementation of
the new
model for
the U.S.
commercial real
estate
loans, which resulted in a reserve release of $14.6
million;
●
Lower non-interest
income
by
$7.1
million mainly
due to
the
reversal on
2022
of
$9.2 million
of
the contingent
liability
related to the acquisition of the commercial lease business
at Popular Equipment Finance;
●
Higher operating expenses by $39.0 million mainly due
to:
●
Higher personnel costs by $5.9 million due to salary
market and annual adjustments;
●
Higher occupancy expense by
$4.1 million due to
higher rental building and
an increase in
amortization mainly
due to early termination of contracts;
●
Higher
FDIC
deposit
insurance
expense
by
$10.0
million
due
to
the
FDIC
Special
Assessment
recorded
in
2023;
●
Higher other
expenses
by
$2.9 million
due to
higher charges
allocated from
the
Corporate segment
by
$1.6
million, mainly professional fees; and
●
The goodwill impairment charge related
to our U.S. based leasing subsidiary of $23.0 million
recorded in 2023,
due to lower forecast cash flows
and increase in the rate to
discount cash flows, compared to an impairment of
$9.0 million recorded in 2022, an unfavorable
variance of $14.0 million.
●
Higher income
tax
expense by
$43.4 million
due
mainly
due to
the partial
reversal of
the
deferred tax
asset valuation
allowance recorded during the fourth quarter of
2022 of $68.2 million.
STATEMENT
OF FINANCIAL CONDITION ANALYSIS
Assets
The Corporation’s total
assets were $70.8 billion
at December 31, 2023,
compared to $67.6 billion
at December 31, 2022.
Refer to
the Corporation’s Consolidated Statements of Financial Condition at December 31, 2023 and 2022 included in this Form 10-K. Also,
refer to the Statistical Summary 2023-2022 in this MD&A
for Condensed Statements of Financial Condition.
Money market investments and debt securities
Money
market
investments
increased
by
$1.4
billion
at
December 31,
2023,
when
compared
to
December
31,
2022.
This
was
impacted
by
the
increase in
deposits
of
$2.4 billion,
mainly
due
to
higher Puerto
Rico
public sector
deposits
at
BPPR and
time
deposit
at
PB.
Debt
securities
available-for-sale
decreased
by
$1.1
billion,
mainly
due
repayments
and
maturities,
while
debt
securities
held-to-maturity
decreased
by
$329.9
million.
Refer
to
Notes
6
and
7
to
the
Consolidated
Financial
Statements
for
additional information with respect to the Corporation’s debt
securities available-for-sale and held-to-maturity.
Loans
76
Refer to Table
6 for a breakdown of
the Corporation’s loan portfolio. Also,
refer to Note 8
to 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
$3.0
billion to
$35.1
billion
at
December
31,
2023,
mainly
due
to
growth in
the
commercial
portfolio of
$2.0 billion,
reflected at
both BPPR
and PB
by approximately
$1.1 billion
and $0.9
billion, respectively,
and consumer
loans at
BPPR. Consumer loans
at BPPR
increased by
$445.0 million in
the aggregate including
credit cards,
personal loans
and
auto loans. The increase in BPPR’s
consumer portfolio is aligned with the increase in
retail sales and consumer spending in Puerto
Rico
during
2023.
The
auto
loans
portfolio
at
BPPR
benefited
from
the
sustained
level
of
auto
sales
activity
on
the
island.
In
addition, mortgage
loans increased
by
$281.5 million
from the
previous year,
as the
Corporation continued
to
retain, in
portfolio,
FHA-guaranteed mortgage loans originations.
A portion of the Corporation’s $3.0 billion year over year loan growth
in 2023 was driven by its non-owner occupied commercial real
estate
and
commercial
multi-family
portfolios,
as
detailed
in
Table
6.
Due
to
market
pressures
from
shifts
to
hybrid
work
environments since
the pandemic,
particularly in
the New
York
Metro area
where the
Corporation operates,
and the
effect of
the
current higher interest rate environment, there has
been increased focus about the risks of these
categories of loans.
The Corporation’s
$5.1 billion
non-owner occupied commercial
real estate
portfolio is comprised
of $3.0
billion in
Puerto Rico
and
$2.1 billion in the U.S. and is
well diversified across a number of tenants in different industries
and segments with exposure to retail
(35%
of
non-owner
occupied
CRE),
hotels
(20%)
and
office
space
(12%)
accounting
for
two
thirds
of
the
total
exposure.
The
approximate $639 million office space
exposure represents only 1.8% of the
total loan portfolio and is
comprised mainly of mid-rise
properties with diversified tenants with average loan
size of $2 million across both the U.S. and
Puerto Rico.
Popular’s $2.4 billion commercial multi-family
portfolio represents approximately 7% of
total loans and is
concentrated in New York
Metro ($1.4 billion), South Florida
($768 million) and Puerto Rico
($185 million). In the New
York Metro
region, the Corporation has
no
exposure
to
rent
controlled
buildings.
The
majority
of
our
multi-family
loans,
in
that
region,
are
collateralized
by
underlying
buildings that count on a mix
of units subject to rent stabilized (subject
to annual capped rent increases) and market-rate
units. The
rent stabilized units represent less than 40% of
the total units in the loan portfolio with
the majority originated after 2019. The mix of
units within
a building
is common
across the
New York
Metro region
due to
tax incentives
awarded to
developers based
on rent
stabilized
units.
In
2024,
there
are
approximately
$237
million
in multi-family
loans
in
our
New
York
Metro
portfolio expected
to
reprice.
Refer to
Note 9
to the
Consolidated Financial
Statements for
additional information
on delinquency,
asset quality
and origination
vintage information of these loan segments.
The allowance for credit losses for the
loan portfolio increased by $9.0 million, net
of the impact of the adoption of
ASU 2022-02 on
January 1,
2023 (Troubled
Debt Restructuring
by Creditors),
mainly due
to changes
in credit
quality metrics
and portfolio
growth.
Refer to the Credit Quality section of the MD&A
for additional information on the Allowance for
credit losses for the loan portfolio.
77
Table 6 - Loans Ending Balances
December 31,
(In thousands)
2023
2022
Loans held-in-portfolio:
Commercial
Commercial multi-family
$
2,415,620
$
2,321,713
Commercial real estate non-owner occupied
5,087,421
4,499,670
Commercial real estate owner occupied
3,080,635
3,078,549
Commercial and industrial
7,126,121
5,839,200
Total Commercial
17,709,797
15,739,132
Construction
959,280
757,984
Leasing
1,731,809
1,585,739
Mortgage
7,695,917
7,397,471
Consumer
Credit cards
1,135,747
1,041,870
Home equity lines of credit
65,953
71,916
Personal
1,945,247
1,823,579
Auto
3,660,780
3,512,530
Other
160,441
147,548
Total Consumer
6,968,168
6,597,443
Total loans held-in
-portfolio
$
35,064,971
$
32,077,769
Loans held-for-sale:
Mortgage
$
4,301
$
5,381
Total loans held-for-sale
$
4,301
$
5,381
Total loans
$
35,069,272
$
32,083,150
Other assets
Other assets
amounted to
$2.0 billion at
December 31,
2023, an
increase of
$166.8 million compared
to $1.8
billion at
December
31, 2022. At December 31,
2023, this includes $176 million in
cash receivable from the maturities of
investment securities.
Refer to
Note 14
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 December 31, 2023 and 2022.
Liabilities
The Corporation’s
total liabilities were
$65.6 billion
at December
31, 2023,
an increase
of $2.1
billion compared to
$63.5 billion
at
December 31, 2022, mainly due to an increase in deposits as discussed below. Refer to the
Corporation’s Consolidated Statements
of Financial Condition included in this Form 10-K.
Deposits and Borrowings
The composition of the Corporation’s financing to total assets
at December 31, 2023 and 2022 is included
in Table 7.
78
Table 7 - Financing to Total
Assets
December 31,
December 31,
% increase (decrease)
% of total assets
(In millions)
2023
2022
from 2022 to 2023
2023
2022
Non-interest bearing deposits
$
15,420
$
15,960
(3.4)
%
21.8
%
23.6
%
Interest-bearing core deposits
43,571
41,600
4.7
61.6
61.5
Other interest-bearing deposits
4,627
3,667
26.2
6.5
5.4
Repurchase agreements
91
149
(38.9)
0.1
0.2
Other short-term borrowings
-
365
N.M.
-
0.5
Notes payable
987
887
11.3
1.4
1.3
Other liabilities
915
917
(0.2)
1.3
1.4
Stockholders’ equity
5,147
4,093
25.8
7.3
6.1
Deposits
The
Corporation’s
deposits
totaled
$63.6
billion
at
December
31,
2023,
compared
to
$61.2
billion
at
December
31,
2022.The
deposits increase
of $2.4
billion was mainly
in Puerto
Rico public
sector deposits
at BPPR
and time deposits
at PB.
Public sector
deposit balances amounted to $18.1 billion at December 31,
2023, compared to $15.2 billion at December 31, 2022.
The receipt by
the Puerto Rico
Government of additional
federal assistance, and
seasonal tax collections,
could increase public
deposit balances
at BPPR in
the near term.
However, 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, the financial condition, liquidity and cash management practices of the Puerto Rico Government and its instrumentalities
and
the
implementation of
fiscal and
debt
adjustment
plans approved
pursuant to
PROMESA or
other actions
mandated
by
the
Fiscal Oversight and Management Board for Puerto
Rico (the “Oversight Board”).
Approximately 28% of the
Corporation’s deposits are public
fund deposits from the
Government of Puerto Rico,
municipalities and
government instrumentalities and corporations (“public funds’’).
These public funds 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 December 31, 2023 and 2022.
Table 8 - Deposits Ending Balances
(In thousands)
2023
2022
Demand deposits
[1]
$
27,579,054
$
26,382,605
Savings, NOW and money market deposits (non-brokered)
26,817,844
27,265,156
Savings, NOW and money market deposits (brokered)
719,453
798,064
Time deposits (non-brokered)
7,546,138
6,442,886
Time deposits (brokered CDs)
955,754
338,516
Total deposits
$
63,618,243
$
61,227,227
[1] Includes interest and non-interest bearing demand deposits.
Borrowings
The
Corporation’s
borrowings
amounted
to
$1.1
billion
at
December 31,
2023,
compared
to
$1.4
billion at
December 31,
2022.
Refer to
Note 17
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.
79
Other liabilities
The Corporation’s other liabilities amounted to $0.9 billion
at December 31, 2023, consistent with the
December 31, 2022 balance.
Stockholders’ Equity
Stockholders’ equity totaled
$5.1 billion at
December 31, 2023,
an increase of
$1.1 billion when
compared to December
31, 2022.
The increase was principally due to lower accumulated unrealized gain/losses on debt securities available-for-sale by $472.5 million
and net income for the year ended December 31, 2023 of $541.3 million,
partially offset by declared dividends of $163.7 million and
$1.4
million
on
common
stock
and
preferred
stock,
respectively.
Refer
to
the
Consolidated
Statements
of
Financial
Condition,
Comprehensive Income
and of
Changes in
Stockholders’ Equity
for information
on the
composition of
stockholders’ equity.
Also,
refer
to
Note
22
to
the
Consolidated
Financial
Statements
for
a
detail
of
accumulated
other
comprehensive
income
(loss),
an
integral component of stockholders’ equity.
80
REGULATORY CAPITAL
The Corporation and its bank subsidiaries are subject to capital adequacy
standards established by the Federal Reserve Board. The
risk-based capital standards
applicable to Popular,
Inc. and the
Banks, BPPR
and PB, are
based on the
final capital framework
of
Basel III. The
capital rules of
Basel III include
a “Common Equity Tier
1” (“CET1”) capital
measure and specifies
that Tier
1 capital
consist of
CET1 and “Additional
Tier 1
Capital” instruments meeting
specified requirements. Note
21 to the
Consolidated Financial
Statements presents further
information on the
Corporation’s regulatory capital requirements,
including the regulatory capital
ratios
of its depository institutions, BPPR and PB.
An institution
is considered “well-capitalized”
if it
maintains a total
capital ratio
of 10%,
a Tier
1 capital ratio
of 8%,
a CET1 capital
ratio
of
6.5%
and
a
leverage
ratio
of
5%.
The
Corporation’s
ratios
presented
in
Table
9
show
that
the
Corporation
was
“well
capitalized” for
regulatory purposes,
the highest
classification, under
Basel III
for years
2023 and
2022. BPPR
and PB
were also
well-capitalized for all years presented.
The Basel III Capital Rules also require an additional 2.5% “capital conservation buffer”, composed entirely of CET1, on top of these
minimum risk-weighted asset ratios, which excludes the leverage ratio. The capital conservation buffer is
designed to absorb losses
during periods of
economic stress. Banking
institutions with a
ratio of CET1
to risk-weighted assets
above the minimum
but below
the capital conservation buffer will face constraints on dividends, equity repurchases, and compensation
based on the amount of the
shortfall. Popular,
BPPR and
PB are
required to
maintain this
additional capital
conservation buffer
of 2.5%
of CET1,
resulting in
minimum ratios
of (i) CET1
to risk-weighted
assets of
at least
7%, (ii) Tier
1 capital
to risk-weighted
assets of
at least
8.5%, and
(iii) Total capital to risk-weighted assets of at least 10.5%.
Table 9 presents the Corporation’s capital adequacy
information for the years 2023 and 2022.
Table 9 - Capital Adequacy
Data
At December 31,
(Dollars in thousands)
2023
2022
Risk-based capital:
Common Equity Tier 1 capital
$
6,053,315
$
5,639,686
Additional Tier 1 Capital
22,143
22,143
Tier 1 capital
$
6,075,458
$
5,661,829
Supplementary (Tier 2) capital
658,507
623,818
Total
capital
$
6,733,965
$
6,285,647
Total
risk-weighted assets
$
37,146,330
$
34,415,889
Adjusted average quarterly assets
$
71,353,184
$
70,287,610
Ratios:
Common Equity Tier 1 capital
16.30
%
16.39
%
Tier 1 capital
16.36
16.45
Total capital
18.13
18.26
Leverage ratio
8.51
8.06
Average equity to assets
[1]
9.27
8.25
Average tangible equity to assets
[1]
8.19
7.27
[1]
Average balances exclude unrealized gains or losses
on debt securities available-for-sale and unrealized
losses on debt securities transfer
to held-to-maturities
On April 1, 2020, the Corporation adopted the final rule issued by the federal banking regulatory agencies pursuant to the Economic
Growth and
Regulatory Paperwork
Reduction Act
of 1996
that simplified
several requirements
in the
agencies’ regulatory
capital
rules. These
rules simplified
the regulatory
capital requirement
for mortgage
servicing assets
(MSAs), deferred
tax assets
arising
from
temporary
differences
and
investments in
the
capital
of
unconsolidated financial
institutions
by
raising
the
CET1
deduction
threshold
from
10%
to
25%.
The
15%
CET1
deduction
threshold
which
applies
to
the
aggregate
amount
of
such
items
was
eliminated. The
rule also
requires, among
other changes,
increasing from
100% to
250% the
risk weight
to MSAs
and temporary
81
difference deferred
tax asset
not deducted
from capital.
For investments
in the
capital of
unconsolidated financial
institutions, the
risk weight would be based on the exposure category
of the investment.
The decrease in the CET1 capital ratio,
Tier 1 capital ratio
and, total capital ratio as of
December 31, 2023, compared to December
31,
2022,
was
mostly
due
to
an
increase
in
risk
weighted
assets
driven
by
the
growth
in
the
commercial
and
consumer
loan
portfolios, partially offset by the annual earnings. The increase in
the leverage capital ratio was mainly due to the increase in
capital
driven by the annual earnings, partially offset by
a slight increase in average total assets.
Pursuant
to
the
adoption
of
CECL
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 benefits
provided during the
initial two-year delay.
As of
December 31, 2023,
the Corporation had
phased-in
50% of the cumulative CECL deferral with the remaining impact to be
recognized over the remaining two years. In the first quarter of
2024, the Corporation will phase in a cumulative
75% of the deferral.
On
August
26,
2020,
federal
banking
regulators
issued
a
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 December 31,
2023,
the Corporation has $9 million in PPP loans and
no loans were pledged as collateral for PPPL
Facilities.
Table 10 reconciles the Corporation’s total common stockholders’ equity to common equity Tier 1 capital.
Table 10 - Reconciliation Common
Equity Tier 1 Capital
At December 31,
(In thousands)
2023
2022
Common stockholders’ equity
$
5,209,561
$
4,198,409
AOCI related adjustments due to opt-out election
1,831,003
2,468,193
Goodwill, net of associated deferred tax liability
(DTL)
(666,538)
(691,560)
Intangible assets, net of associated DTLs
(9,764)
(12,944)
Deferred tax assets and other deductions
(310,947)
(322,412)
Common equity tier 1 capital
$
6,053,315
$
5,639,686
Common equity tier 1 capital to risk-weighted assets
16.30
%
16.39
%
Non-GAAP financial measures
The tangible
common equity
ratio 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
of
accounting
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
generally accepted accounting principles in the United
States of America (“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.
The decrease
in the
Tangible
common
equity to
tangible assets
ratio during
2022 was
mainly related
to the
decrease in
the fair
value of
the Corporation’s
fixed rate
available for sale
debt securities
portfolio and
its impact
on the
unrealized loss component
of
82
accumulated
other
comprehensive
income
(loss)
(‘’AOCI’’).
Given
its
ability
due
to
the
Corporation’s
liquidity
position
and
its
intention to reduce the
impact on AOCI and tangible
capital of further increases in
interest rates, management changed its intent
to
hold certain securities to maturity.
Therefore, 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.
The
securities
were reclassified
at
fair value
at the
time
of
the transfer.
At
the
date of
the transfer,
these
securities
had
pre-tax
unrealized
losses
of
$873.0
million
recorded
in
AOCI.
This
fair
value
discount
is
being
accreted
to
interest
income
and
the
unrealized loss remaining in
AOCI is being amortized,
offsetting each other through
the remaining life of
the securities. There were
no realized gains or losses recorded as a result
of this transfer.
While changes
in the
amount of
unrealized gains
and losses
in AOCI
have an
impact on
the Corporation’s
and its
wholly-owned
banking
subsidiaries’
tangible
capital
ratios,
they
do
not
impact
regulatory
capital
ratios,
in
accordance
with
the
regulatory
framework.
Refer
to
Note
7
to
the
Consolidated
Financial
Statements
which
presents
information
about
the
Corporation’s
Debt
Securities Held-to-Maturity for additional details.
Table
11
provides
a
reconciliation of
total
stockholders’
equity
to
tangible
common
equity
and
total
assets
to
tangible
assets
at
December 31, 2023 and 2022.
83
Table 11
- Reconciliation of Tangible
Common Equity and Tangible
Assets
At December 31,
(In thousands, except share or per share information)
2023
2022
Total stockholders’
equity
$
5,146,953
$
4,093,425
Less: Preferred stock
(22,143)
(22,143)
Less: Goodwill
(804,428)
(827,428)
Less: Other intangibles
(9,764)
(12,944)
Total tangible common
equity
$
4,310,618
$
3,230,910
Total assets
$
70,758,155
$
67,637,917
Less: Goodwill
(804,428)
(827,428)
Less: Other intangibles
(9,764)
(12,944)
Total tangible assets
$
69,943,963
$
66,797,545
Tangible common
equity to tangible assets
6.16
%
4.84
%
Common shares outstanding at end of period
72,153,621
71,853,720
Tangible book value
per common share
$
59.74
$
44.97
Year-to-date average
Total stockholders’
equity [1]
$
5,853,276
$
5,798,407
Average unrealized (gains) losses on AFS securities
transferred to HTM
747,327
210,818
Adjusted total stockholder's equity
6,600,603
6,009,225
Less: Preferred Stock
(22,143)
(22,143)
Less: Goodwill
(821,567)
(757,133)
Less: Other intangibles
(11,473)
(17,113)
Total tangible common
equity
$
5,745,420
$
5,212,836
Average return on tangible common equity
9.40
%
21.13
%
[1] Average balances exclude unrealized gains or losses
on debt securities available-for-sale.
84
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 $16.7 billion
as of December
31, 2023. Other
assets subject to
market
risk include loans
held-for-sale, which amounted to
$4 million, mortgage servicing
rights (“MSRs”) which amounted
to $118
million,
and securities classified as “trading”, which amounted
to $32 million, as of December 31, 2023.
Interest Rate Risk (“IRR”)
The Corporation’s net interest income is subject
to various categories of interest rate risk,
including repricing, basis, yield curve and
option risks.
In managing
interest rate
risk, management may
alter the
mix of
floating and
fixed rate
assets and
liabilities, change
pricing
schedules,
adjust
maturities
through
sales
and
purchases
of
investment
securities,
and
enter
into
derivative
contracts,
among other alternatives.
Interest
rate
risk
management
is
an
active
process
that
encompasses
monitoring
loan
and
deposit
flows
complemented
by
investment and funding
activities. Effective management of
interest rate risk begins
with understanding the dynamic
characteristics
of assets and
liabilities and determining the
appropriate rate risk position
given line of
business forecasts, management objectives,
market expectations and policy constraints.
Management utilizes various tools to assess IRR, including Net Interest
Income (“NII”) simulation modeling, static gap analysis, and
Economic Value
of Equity
(“EVE”). The
three methodologies
complement each
other and
are used
jointly in
the evaluation
of the
Corporation’s IRR. NII
simulation modeling is
prepared for a
five-year period, which
in conjunction with
the EVE analysis,
provides
management a better view of long-term IRR.
Net interest
income simulation analysis
performed by legal
entity and on
a consolidated basis
is a
tool used
by the
Corporation in
estimating the
potential change
in net
interest income
resulting from
hypothetical changes
in interest
rates. Sensitivity
analysis is
calculated using a simulation model which incorporates
actual balance sheet figures detailed by maturity
and interest yields or costs.
Management assesses
interest rate
risk by
comparing various
NII simulations
under different
interest rate
scenarios that
differ in
direction of interest
rate changes, the
degree of change
and the projected
shape of the
yield curve. For
example, the types
of rate
scenarios processed during the
quarter include flat rates,
implied forwards, and parallel
and non-parallel rate shocks.
Management
also performs analyses to isolate and measure basis
and prepayment risk exposures.
The asset
and liability
management group
performs validation
procedures on
various assumptions
used as
part of
the simulation
analyses as well as validations
of results on a
monthly basis. In addition, the
model and processes used to
assess IRR are subject
to independent validations according to the guidelines
established in the Model Governance and
Validation policy.
The Corporation processes NII
simulations under interest rate
scenarios in which the
yield curve is assumed
to rise and
decline by
the same magnitude
(parallel shifts). The
rate scenarios considered in
these market risk
simulations include instantaneous parallel
changes of -100, -200,
+100, and +200 basis points
during the succeeding twelve-month period. Simulation analyses
are based on
many assumptions,
including that
the balance
sheet remains
flat, the
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 December
31, 2023
and December
31, 2022,
assuming a
static balance
sheet and parallel changes over flat spot rates over
a one-year time horizon:
85
Table 12 - Net Interest Income
Sensitivity (One Year Projection)
December 31, 2023
December 31, 2022
(Dollars in thousands)
Amount Change
Percent Change
Amount Change
Percent Change
Change in interest rate
+200 basis points
20,822
0.92
(18,003)
(0.82)
+100 basis points
11,496
0.51
(7,748)
(0.35)
-100 basis points
19,589
0.87
8,778
0.40
-200 basis points
16,971
0.75
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 2022 Form 10-K to reflect the effect of changes in certain 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
repricing according to the terms of those variable rate
loans in the down rate simulations.
Although the adjustment referred to in the preceding paragraph
results in the magnitude of the Corporation’s sensitivity to decreases
in interest rates becoming lower, as of December 31, 2022, the adjusted NII simulations continued to show that the Corporation had
a neutral to slightly liability sensitive position driven
by the rapid increase in short-term interest
rates throughout 2022.
As of December
31, 2023, NII
simulations show the
Corporation has a
neutral to slightly
asset sensitive
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,
short-term U.S Treasury Bills (“T-
Bills”) and loan portfolio
on the asset side
partially offset by higher
Puerto Rico public sector
deposits which are indexed to
market rates and an
increase in
time deposits. 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, combined
with the
increase of
approximately $3.0 billion
in loans
held in
portfolio. Additionally,
variation in
liability
cost, primarily
driven by
Puerto Rico
public sector
deposits that
represented $18.1
billion or
28% of
deposits as
of December
31,
2023,
as
well
as
an
increase
of
approximately
$1.7
billion
in
time
deposits,
also
impact
the
sensitivity
profile.
In
declining
rate
scenarios net interest income would slightly 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.
86
Table 13 - Interest Rate Sensitivity
At December 31, 2023
By repricing dates
(Dollars in thousands)
0-30 days
Within 31 -
90 days
After three
months but
within six
months
After six
months but
within nine
months
After nine
months but
within one
year
After one
year but
within two
years
After two
years
Non-
interest
bearing
funds
Total
Assets:
Money market investments
$
6,998,871
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
6,998,871
Investment and trading securities
1,849,238
3,329,068
1,173,287
1,149,164
1,096,708
4,383,968
12,478,938
(317,478)
25,142,893
Loans
5,872,869
3,321,776
1,491,687
1,497,123
1,434,984
5,044,236
16,487,918
(81,321)
35,069,272
Other assets
(2)
-
-
-
-
-
-
3,547,121
3,547,119
Total
14,720,976
6,650,844
2,664,974
2,646,287
2,531,692
9,428,204
28,966,856
3,148,322
70,758,155
Liabilities and stockholders' equity:
Savings, NOW and money market and
other interest bearing demand
deposits
19,996,702
770,508
1,081,390
999,305
924,802
3,075,028
12,848,992
-
39,696,727
Certificates of deposit
2,145,493
891,341
941,722
620,282
859,114
1,197,851
1,846,089
-
8,501,892
Federal funds purchased and assets
sold under agreements to
repurchase
44,329
38,763
8,292
-
-
-
-
-
91,384
Notes payable
21,000
-
25,000
23,570
22,373
144,214
750,791
-
986,948
Non-interest bearing deposits
-
-
-
-
-
-
-
15,419,624
15,419,624
Other non-interest bearing liabilities
-
-
-
-
-
-
-
914,627
914,627
Stockholders' equity
-
-
-
-
-
-
-
5,146,953
5,146,953
Total
$
22,207,524
$
1,700,612
$
2,056,404
$
1,643,157
$
1,806,289
$
4,417,093
$
15,445,872
$
21,481,204
$
70,758,155
Interest rate sensitive gap
(7,486,548)
4,950,232
608,570
1,003,130
725,403
5,011,111
13,520,984
(18,332,882)
-
Cumulative interest rate sensitive gap
(7,486,548)
(2,536,316)
(1,927,746)
(924,616)
(199,213)
4,811,898
18,332,882
-
-
Cumulative interest rate sensitive gap
to earning assets
(11.07)
%
(3.75)
%
(2.85)
%
(1.37)
%
(0.29)
%
7.12
%
27.12
%
-
-
Table 14, which presents the maturity distribution of earning assets, takes into consideration
prepayment assumptions.
Table 14 - Maturity Distribution
of Earning Assets
As of December 31, 2023
Maturities
After one year
After five years
through five years
through fifteen years
After fifteen years
One year
Fixed
Variable
Fixed
Variable
Fixed
Variable
(In thousands)
or less
interest rates
interest rates
interest rates
interest rates
interest rates
interest rates
Total
Money market securities
$
6,998,871
$
-
$
-
$
-
$
-
$
-
$
-
$
6,998,871
Investment and trading
securities
8,533,897
14,294,589
9,289
2,145,920
3,431
-
-
24,987,126
Loans:
Commercial
5,385,197
6,053,244
4,051,003
1,261,180
846,607
53,414
59,152
17,709,797
Construction
566,180
64,686
314,445
6,150
7,819
-
-
959,280
Leasing
467,644
1,235,563
-
28,602
-
-
-
1,731,809
Consumer
1,851,329
3,830,035
290,048
218,190
696,132
4,743
77,691
6,968,168
Mortgage
573,661
2,158,855
149,757
3,975,801
70,677
771,451
16
7,700,218
Subtotal loans
8,844,011
13,342,383
4,805,253
5,489,923
1,621,235
829,608
136,859
35,069,272
Total earning assets
$
24,376,779
$
27,636,972
$
4,814,542
$
7,635,843
$
1,624,666
$
829,608
$
136,859
$
67,055,269
Note: Equity securities available-for-sale and other investment
securities, including Federal Reserve Bank stock and
Federal Home Loan Bank stock
held by the Corporation, are not included in this table.
Loans held-for-sale have been allocated according to the
expected sale date.
87
Trading
The Corporation
engages in
trading activities
in the
ordinary course
of business
at its
subsidiaries, BPPR
and Popular
Securities.
Popular Securities’
trading activities
consist primarily
of market-making
activities to
meet expected
customers’ needs
related to
its
retail brokerage business,
and purchases and sales of U.S. Government and
government sponsored securities with the objective of
realizing gains
from expected
short-term price
movements. BPPR’s
trading activities consist
primarily of
holding U.S.
Government
sponsored
mortgage-backed securities
classified
as
“trading” and
hedging
the
related
market
risk
with
“TBA”
(to-be-announced)
market
transactions.
The
objective
is
to
derive
spread
income
from
the
portfolio
and
not
to
benefit
from
short-term
market
movements. In
addition, BPPR
uses forward
contracts or
TBAs to
hedge its
securitization pipeline.
Risks related
to variations
in
interest rates
and market volatility
are hedged
with TBAs
that have
characteristics similar to
that of
the forecasted security
and its
conversion timeline.
At December 31, 2023,
the Corporation held trading securities
with a fair value
of $32 million, representing approximately 0.05%
of
the Corporation’s total assets,
compared with $28 million and 0.04%, respectively, at December 31, 2022. As
shown in Table 15, the
trading
portfolio
consists
principally
of
mortgage-backed
securities
and
U.S.
Treasuries,
which
at
December
31,
2023
were
investment grade securities.
Table 15 - Trading
Portfolio
December 31, 2023
December 31, 2022
(Dollars in thousands)
Amount
Weighted
Average Yield
[1]
Amount
Weighted
Average Yield
[1]
Mortgage-backed securities
$
14,373
5.69
%
$
14,223
5.79
%
U.S. Treasury securities
16,859
4.29
13,069
3.26
Collateralized mortgage obligations
98
5.21
160
5.51
Puerto Rico government obligations
71
0.91
64
0.45
Interest-only strips
167
12.00
207
12.00
Total
$
31,568
4.96
%
$
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 December
31, 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.
Derivatives
Derivatives may
be
used by
the Corporation
as
part
of
its
overall interest
rate risk
management strategy
to
minimize significant
unexpected
fluctuations
in
earnings
and
cash
flows
that
are
caused
by
interest
rate
volatility.
Derivative
instruments
that
the
Corporation may use
include, among others,
interest rate caps,
indexed options, and
forward contracts. The
Corporation does not
use highly leveraged derivative instruments in its interest rate risk management strategy. Credit risk embedded in these transactions
is
reduced
by
requiring
appropriate
collateral
from
counterparties
and
entering
into
netting
agreements
whenever
possible.
All
outstanding derivatives are
recognized in the
Corporation’s Consolidated Statements
of Condition at
their fair
value. Refer to
Note
88
26 to
the Consolidated Financial
Statements for further
information on the
Corporation’s involvement in
derivative instruments and
hedging activities.
Foreign Exchange
The Corporation holds
an interest in
BHD León
in the
Dominican Republic, which
is an investment
accounted for under
the equity
method. The
Corporation’s carrying value
of the
equity interest in
BHD León
approximated $
225.9 million at
December 31, 2023.
This business is conducted in
the country’s foreign currency.
The resulting foreign currency translation
adjustment, from operations
for which the functional
currency is other than
the U.S. dollar,
is reported in accumulated
other comprehensive income (loss) in
the
consolidated
statements
of
condition,
except
for
highly-inflationary
environments
in
which
the
effects
would
be
included
in
the
consolidated statements
of
operations. At
December 31,
2023, the
Corporation had
approximately $
65 million in
an unfavorable
foreign currency translation
adjustment as part
of accumulated other
comprehensive income (loss),
compared with an
unfavorable
adjustment of $ 57 million at December 31,
2022 and $ 67 million at December 31,
2021.
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, including
exogenous events
such
as
the
COVID-19 pandemic,
a downgrading
of its
credit rating,
or some
other event
that causes
counterparties to
avoid exposure
to the
institution. Factors
that the
Corporation does
not control,
such
as the
economic outlook,
adverse ratings
of its
principal markets,
perceptions of the financial services industry and regulatory
changes, could also affect its ability to obtain
funding.
The Corporation
has adopted
policies and
limits to
monitor the
Corporation’s liquidity
position and
that of
its banking
subsidiaries.
Additionally, contingency funding
plans are used to
model various stress events
of different magnitudes and
affecting different time
horizons that assist
management in evaluating
the size of
the liquidity buffers
needed if those
stress events
occur. However,
such
models
may
not
predict
accurately
how
the
market
and
customers
might
react
to
every
event,
and
are
dependent
on
many
assumptions.
Deposits, including
customer deposits,
brokered deposits
and public
funds deposits,
continue to
be the
most significant
source of
funds for
the Corporation,
funding
90% of
the Corporation’s
total assets
at December
31, 2023
and 91%
at December
31, 2022.
The
ratio
of
total
ending
loans
to
deposits
was
55%
at
December
31,
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 December 31, 2023 (December 31, 2022 - $1.4 billion). A detailed
description of the Corporation’s borrowings, including
their terms,
is included
in Note
17 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
89
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
fourth quarter
of 2023
the Corporation
had no
material incremental
use of
its available
liquidity sources.
At December
31,2023,
the
Corporation’s
available
liquidity
increased
to
$19.5
billion
from
$17.0
billion
on
December
31,
2022.
The
liquidity
sources of the Corporation at December 31,2023
are presented in Table 16:
Table 16 - Liquidity Sources
December 31, 2023
December 31, 2022
(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)
$
5,516,636
$
1,475,143
$
6,991,779
$
5,240,100
$
367,966
$
5,608,066
Unpledged securities
4,212,480
347,791
4,560,271
7,494,189
326,599
7,820,788
FHLB borrowing capacity
2,157,685
1,341,329
3,499,014
1,389,579
722,005
2,111,584
Discount window of the Federal Reserve
Bank borrowing capacity
2,605,674
1,818,946
4,424,620
1,090,308
329,385
1,419,693
Total available liquidity
$
14,492,475
$
4,983,209
$
19,475,684
$
15,214,176
$
1,745,955
$
16,960,131
Refer
to
Note
17
to
the
Consolidated
Financial
Statements
for
additional
information
of
the
Corporation’s
borrowing
facilities
available through its banking subsidiaries.
The principal
uses of
funds for
the banking
subsidiaries include
loan originations,
investment portfolio
purchases, loan
purchases
and repurchases, repayment of outstanding obligations (including deposits), advances on certain serviced portfolios and operational
expenses. Also, the
banking subsidiaries assume liquidity
risk related to collateral
posting requirements for certain
activities mainly
in
connection
with
contractual
commitments,
recourse
provisions,
servicing
advances,
derivatives
and
credit
card
licensing
agreements.
The banking
subsidiaries maintain
sufficient funding
capacity to
address large
increases in
funding requirements
such as
deposit
outflows.
The
Corporation has
established
liquidity
guidelines
that
require
the
banking
subsidiaries
to
have
sufficient
liquidity
to
cover all short-term borrowings and a portion of deposits.
The Corporation’s ability to compete
successfully in the marketplace for
deposits, excluding brokered deposits, depends on various
factors, including pricing, service, convenience
and financial stability as
reflected by operating results and
financial condition, credit
ratings (by
nationally recognized credit
rating agencies), customer
confidence, and
importantly,
FDIC deposit
insurance coverage.
Deposits at all of the Corporation’s banking subsidiaries are federally insured
(subject to FDIC limits) and this is expected to mitigate
the potential effect of the aforementioned risks.
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 certificates of
deposit 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 $59.0
billion, or
93% of
total deposits,
at
December 31,
2023, compared
with $57.6
billion, or
94% of
total deposits,
at December
31,
2022. Core deposits financed 88% of the Corporation’s earning assets at December 31, 2023, compared with 90% at December 31,
2022.
The distribution by maturity of certificates of deposit with denominations of $250,000 and over at December 31, 2023 is presented in
the table that follows:
90
Table 17 - Distribution by
Maturity of Certificates of Deposit of $250,000 and Over
(In thousands)
3 months or less
$
2,025,571
Over 3 to 12 months
630,145
Over 1 year to 3 years
225,165
Over 3 years
177,949
Total
$
3,058,830
For the
years ended
December 31,
2023 and
2022, average
deposits, including
brokered deposits,
represented
92% of
average
earning assets. Table 18 summarizes average deposits for the past three years.
Table 18 - Average
Total Deposits
For the years ended December 31,
(In thousands)
2023
2022
Non-interest bearing demand deposits
$
15,307,152
$
16,093,704
Savings accounts
15,265,784
16,242,457
NOW, money market and other interest
bearing demand accounts
24,208,570
25,539,909
Certificates of deposit
7,764,974
6,840,334
Total interest bearing
deposits
47,239,328
48,622,700
Total average deposits
$
62,546,480
$
64,716,404
The Corporation had
$1.7 billion in
brokered deposits at
December 31, 2023,
which financed approximately
2% of its
total assets
(December 31, 2022 -
$1.1 billion and 2%,
respectively).
In the event that
any of the Corporation’s
banking subsidiaries’ regulatory
capital
ratios fall
below those
required by
a well-capitalized
institution or
are subject
to capital
restrictions by
the regulators,
that
banking subsidiary faces
the risk of
not being able
to raise or
maintain brokered deposits
and faces limitations
on the rate
paid on
deposits, which
may hinder
the Corporation’s
ability to
effectively compete
in its
retail markets
and could
affect its
deposit raising
efforts.
Deposits from the
public sector represent
an important source
of funds for
the Corporation. As
of December 31,
2023, total
public
sector deposits were $18.1 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 December 31, 2023,
management believes that the
banking subsidiaries had sufficient current
and projected liquidity sources to
meet their anticipated cash flow obligations,
as well as special needs
and off-balance sheet commitments, in the
ordinary course of
business and have sufficient
liquidity resources to address a
stress event. Although the
banking subsidiaries have historically been
able to replace
maturing deposits and advances,
no assurance can
be given that
they would be
able to replace
those funds in
the
future if the
Corporation’s financial condition
or general market
conditions were to
deteriorate. The Corporation’s
financial flexibility
will
be
severely constrained
if
the
banking subsidiaries
are
unable to
maintain access
to
funding
or
if
adequate financing
is
not
available to accommodate future financing needs at acceptable interest rates. The
banking subsidiaries also are required to deposit
cash or qualifying securities to meet margin requirements on repurchase
agreements and other collateralized borrowing facilities. To
the extent that
the value of securities
previously pledged as collateral
declines because of market
changes, the Corporation will
be
91
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
19
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
19,
represent public
deposit balances
from governmental
entities in
the U.S.
and its
territories, including
Puerto Rico
and the
United
States Virgin Islands, that
are collateralized based on such
jurisdictions’ applicable collateral requirements. On
December 31,2023,
deposits with balances in excess of $250,000, excluding foreign deposits (mainly deposits in the British Virgin Islands) intercompany
deposits and collateralized public funds, were $ 10.6 billion or
20% at BPPR and $ 2.6 billion or
23% at Popular U.S., compared to
available liquidity sources of $ 14.5 billion at BPPR
and $ 5.0 billion at Popular U.S.
Table 19 - Deposits
31-Dec-23
Popular, Inc.
(Dollars in thousands)
BPPR
% of Total
Popular U.S.
% of Total
(Consolidated)
% of Total
Deposits:
Deposits balances under $250,000 [1]
$
23,683,475
45
%
$
7,760,363
69
%
$
31,443,838
49
%
Transactional deposits balances over
$250,000
8,632,491
16
%
2,230,978
20
%
10,863,469
17
%
Time deposits balances over $250,000
1,926,005
4
%
361,315
3
%
2,287,320
4
%
Uninsured foreign deposits
418,334
1
%
-
-
%
418,334
1
%
Collateralized public funds
18,313,612
34
%
291,670
3
%
18,605,282
29
%
Intercompany deposits
159,163
-
%
626,312
5
%
-
-
%
Total deposits
$
53,133,080
100
%
$
11,270,638
100
%
$
63,618,243
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
92
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
December
31,
2023
and
$497
million
at
December 31, 2022.
The contractual maturities of the BHCs notes payable
at December 31, 2023 are presented in
Table 20.
Table 20
- Distribution of BHC's Notes Payable by Contractual
Maturity
Year
(In thousands)
2028
$
393,937
Later years
198,346
Total
$
592,283
As
of December
31, 2023,
the BHCs
had cash
and money
markets investments
totaling $388
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 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.
Additionally,
the
Corporation’s
latest
quarterly
dividend
was
$0.62
per
share
or
approximately $45 million per quarter.
The BHCs have in
the past borrowed in the
corporate debt market primarily to finance
their non-banking subsidiaries and refinance
debt obligations. These
sources of funding
are more costly
due to the
fact that two
out of the
three principal credit
rating agencies
rate the Corporation below “investment grade”, which
affects the Corporation’s cost and
ability to raise funds in
the capital markets.
Factors that the Corporation
does not control, such
as the economic outlook,
interest rate volatility,
inflation, disruptions in the
debt
market, among others,
could also affect
its ability to
obtain funding. The
Corporation has an
automatic shelf registration
statement
filed and effective
with the Securities and Exchange
Commission, which permits the Corporation
to issue an
unspecified amount of
debt or equity securities.
Non-Banking Subsidiaries
The
principal
sources
of
funding
for
the
non-banking
subsidiaries
include
internally
generated
cash
flows
from
operations,
loan
sales, repurchase agreements, capital
injections and borrowed funds
from their direct
parent companies or the
holding companies.
The principal uses of funds for the non-banking
subsidiaries include repayment of maturing debt,
operational expenses and payment
of dividends to the
BHCs. The liquidity needs
of the non-banking subsidiaries
are minimal since most
of them are
funded internally
from operating cash flows or from intercompany borrowings
or capital contributions from their holding companies.
Dividends
During
the
year
ended
December
31,
2023,
the
Corporation
declared
cash
dividends
of
$2.27
per
common
share
outstanding
($163.7 million in the aggregate). The
dividends for the Corporation’s Series
A preferred stock amounted to $1.4
million. During the
year ended
December 31,
2023, the
BHCs received
dividends amounting
to $200
million from
BPPR, $50
million from
PNA, $14
million from PIBI
and $8
million from its
non-banking subsidiaries. In
addition, during the
year ended December
31, 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 $7.0 billion
at December 31,2023,
the debt securities portfolio provides
an
additional
source
of
liquidity,
which
may
be
realized
through
either
securities
sales,
collateralized
borrowings
or
repurchase
agreements.
The
Corporation’s
debt
securities
portfolio
consists
primarily
of
liquid
U.S.
government
debt
securities,
U.S.
93
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. In
2023, BPPR
became
an
approved
counterparty
in
the
Federal
Reserve’s
Standing
Repo
Facility.
This
allows
approved
counterparties
to
participate in
daily
auctions with
the Standing
Repo Facility
for up
to
$500
billion in
aggregate of
overnight financing
using
U.S.
Treasuries and
Agency MBS as
collateral. The Corporation’s
unpledged debt securities
amounted to $
4.6 billion at
December 31,
2023 and
$ 7.8
billion at December
31, 2022. A
substantial portion of
these debt securities
could be used
to raise
financing in the
U.S.
money markets
or from
secured lending
sources,
subject
to
changes
in
their
fair market
value and
customary
adjustments
(haircuts).
Additional liquidity may
be provided through
loan maturities, prepayments
and sales. The
loan portfolio can
also be used
to obtain
funding in the capital markets. In particular,
mortgage loans and some types of consumer loans, have
secondary markets which the
Corporation could use.
Off-Balance Sheet arrangements and other commitments
In the ordinary course
of business, the Corporation
engages in financial transactions that
are not recorded on
the balance sheet or
may be recorded on the balance sheet in amounts that are different than the full contract or notional amount of the transaction. As a
provider of
financial services,
the Corporation
routinely enters
into commitments
with off-balance
sheet risk
to meet
the financial
needs of
its customers. These
commitments may include
loan commitments and
standby letters of
credit. These commitments
are
subject
to
the
same
credit
policies
and
approval
process
used
for
on-balance
sheet
instruments.
These
instruments
involve,
to
varying degrees, elements
of credit and
interest rate risk
in excess of
the amount recognized
in the statement
of financial position.
Refer to
Note 24
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
33
to
the
Consolidated Financial Statements for information on operating leases and
to Note 23 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
November
16,
2023,
the
Federal
Deposit
Insurance
Corporation
(“FDIC”)
approved
a
final
rule
that
imposes
a
special
assessment (the “FDIC
Special Assessment”) 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 several failed banks.
Under the final rule, the assessment base for
the special assessment is equal to 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 Popular, the $5 billion exclusion is allocated among
the company’s IDI
subsidiaries in proportion to
each IDI’s estimated
uninsured deposits. The special
assessments will be collected
at an annual
rate of approximately 13.4
basis points per year
(3.35 basis points per
quarter) over eight quarters
in 2024 and
2025,
with
the
first
assessment
period
beginning
January
1,
2024.
In
their
December
31,
2022
Call
Reports,
BPPR
and
PB
reported
estimated uninsured deposits of
approximately $28.1 billion, including $16.2
billion in fully
collateralized public sector deposits,
and
$3.5 billion,
respectively.
The Corporation
recorded an
expense of
$71.4 million,
$45.3 million
net of
tax,
in the
fourth quarter
of
2023, representing the full amount of the assessment.
By statute, the FDIC is required to recover the loss
arising from the use of a systemic risk determination
through one or more special
assessments. As of
December 31, 2023,
the FDIC’s
loss estimate described
in the
final rule
had increased by
approximately $4.1
billion to $20.4 billion, or
approximately 25%.
The exact amount of losses will
be determined when the FDIC terminates the
related
receiverships considered
in the
final rule.
Accordingly,
the special
assessment amount
and collection
period may
change as
the
estimated
loss is
periodically adjusted
or
if the
total
amount collected
varies. If
the most
recent increase
in the
FDIC’s
estimate
94
remains unchanged
and is
assessed in
the same
manner,
the
Corporation estimates
that the
incremental expense
for the
FDIC
Special Assessment could be approximately $18
million.
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
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
December
31,
2023
and
December
31,
2022,
and
the
results
of
their
operations
for
the
years
ended
December
31,
2023
and
December 31, 2022. Investments in and equity in the earnings from the other subsidiaries and affiliates that
are not members of the
obligor group have been excluded.
The
summarized
financial
information
of
the
obligor
group
is
presented
on
a
combined
basis
with
intercompany
balances
and
transactions
between
entities
in
the
obligor
group
eliminated.
The
obligor
group's
amounts
due
from,
amounts
due
to
and
transactions with
subsidiaries and
affiliates
have been
presented in
separate line
items, if
they are
material.
In
addition, related
parties transactions are presented separately.
95
Table 21 - Summarized Statement
of Condition
(In thousands)
December 31, 2023
December 31, 2022
Assets
Cash and money market investments
$
388,025
$
203,083
Investment securities
29,973
24,815
Accounts receivables from non-obligor subsidiaries
14,469
16,853
Other loans (net of allowance for credit losses of $51 (2022
- $370))
26,906
27,826
Investment in equity method investees
5,265
5,350
Other assets
51,315
45,278
Total assets
$
515,953
$
323,205
Liabilities and Stockholders' deficit
Accounts payable to non-obligor subsidiaries
$
7,023
$
3,709
Notes payable
592,283
497,428
Other liabilities
114,660
112,847
Stockholders' deficit
(198,013)
(290,779)
Total liabilities and
stockholders' deficit
$
515,953
$
323,205
Table 22 - Summarized Statement
of Operations
For the years ended
(In thousands)
December 31, 2023
December 31, 2022
Income:
Dividends from non-obligor subsidiaries
$
208,000
$
458,000
Interest income from non-obligor subsidiaries and affiliates
15,579
705
(Losses) earnings from investments in equity method investees
(84)
15,688
Other operating income
4,664
145,295
Total income
$
228,159
$
619,688
Expenses:
Services provided by non-obligor subsidiaries and affiliates
(net of
reimbursement by subsidiaries for services provided by parent
of
$215,479 (2022 - $222,935))
$
13,513
$
18,467
Other operating expenses
34,978
23,607
Total expenses
$
48,491
$
42,074
Net income
$
179,668
$
577,614
During the year ended December 31, 2023,
the obligor group recorded in aggregate
$64.0 million of dividend distributions
from non-obligor subsidiaries which were
recorded as a reduction to
the investment (2022 - $72.0
million). During the year
ended December 31, 2022, the Obligor group recorded
$1.5 million of distributions from its direct equity
method investees.
In addition, during the year ended December 31, 2022,
the Obligor group recorded $228.1 million in
proceeds from the sale
of two of its direct equity method investees.
96
Risks to Liquidity
Total lines of credit outstanding, or available borrowing capacity under lines of credit are not necessarily
a measure of the total credit
available
on
a
continuing
basis.
Some
of
these
lines
could
be
subject
to
collateral
requirements,
changes
to
the
value
of
the
collateral, standards of
creditworthiness, leverage ratios
and other regulatory
requirements, among other factors.
Derivatives, such
as
those
embedded
in
long-term
repurchase
transactions
or
interest
rate
swaps,
and
off-balance
sheet
exposures,
such
as
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 year ended December 31, 2023, BPPR
declared cash dividends of $200 million. At December 31, 2023, BPPR can declare a dividend of approximately $387 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 December
31, 2023
that
are subject to rating triggers.
In addition,
certain mortgage servicing
and custodial agreements
that BPPR
has with
third parties
include rating covenants.
In the
event of a credit rating downgrade, the third parties have the right to require the institution to engage a substitute cash custodian for
escrow
deposits
and/or
increase
collateral
levels
securing
the
recourse
obligations.
Also,
as
discussed
in
Note
23
to
the
Consolidated
Financial
Statements,
the
Corporation
services
residential
mortgage
loans
subject
to
credit
recourse
provisions.
97
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
$27.1
million
at
December
31,
2023.
The
Corporation
could
be
required
to
post
additional
collateral
under
the
agreements.
Management
expects
that
it
would
be
able
to
meet
additional
collateral
requirements
if
and
when
needed.
The
requirements
to
post
collateral under
certain
agreements or
the
loss
of
escrow deposits
could
reduce
the
Corporation’s liquidity
resources and impact its operating results.
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 37 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
5.9%
year-over-year
increase
and
a
0.2%
month-over-month
decrease
in
November
2023.
The
Economic Activity Index is a coincident indicator of ongoing economic activity but not
a direct measurement of real GNP. The Puerto
Rico Planning Board estimates
that Puerto Rico’s
real GNP grew 0.8%
during fiscal year 2023
(July 2022-June 2023) and
projects
1.8% real GNP growth for fiscal year 2024 (July
2023-June-2024).
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
3.4%
during
the
12-month
period
ended
December 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
2.0%
during
the
12-month
period
ended
December
2023.
The
rate
of
inflation
gradually
decreased
from
a
mid-2022
peak,
as
the
Federal
Reserve
implemented
a
series
of
benchmark
interest
rate
increases.
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
98
place
until
market
access
is
restored
and
balanced
budgets
are
produced
for
at
least
four
consecutive
years.
PROMESA
also
established two
mechanisms for
the restructuring
of the
obligations of
PR Government
Entities: (a)
Title III,
which provides
an in-
court process that incorporates many of the
powers and provisions of the U.S. Bankruptcy Code
and permits adjustment of a broad
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,
the
Puerto
Rico
Highways
and
Transportation
Authority,
and
the
Puerto
Rico
Industrial
Development
Company,
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.
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
December 31,
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
December 31,
2023 were
obligations
from various
Puerto Rico
municipalities. In
most cases,
these were
“general obligations”
of a
municipality,
to which
the applicable
municipality
has
pledged its
good
faith, credit
and unlimited
taxing power,
or
“special obligations”
of
a municipality,
to
which the
applicable
municipality
has
pledged basic
property tax
or
sales
tax
revenues. At
December 31,
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 24 – Commitments and
Contingencies to the Consolidated Financial
Statements.
In
addition,
at
December
31,
2023,
the
Corporation
had
$238
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
$191
million
in
residential mortgage
loans
insured by
the
Puerto
Rico
Housing
Finance Authority
(“HFA”),
a PR
99
Government
Entity
(December
31,
2022
-
$209 million).
These
mortgage
loans
are
secured
by
first
mortgages
on
Puerto
Rico
residential properties
and the
HFA insurance
covers losses
in the
event of
a borrower
default and
upon the
satisfaction of
certain
other conditions. The Corporation also had at December
31, 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
December
31,
2023,
BPPR
had
$18.1
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 24
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 December
31, 2023,
the Corporation
had approximately $28
million in
direct exposure to
USVI government
entities (December
31, 2022 - $28 million).
British Virgin Islands
The
Corporation has
operations
in
the
British Virgin
Islands
(“BVI”),
which
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
December
31,
2023,
it
has
a
loan
portfolio
amounting
to
approximately
$205
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, $1.9 billion of residential mortgages, $9.2 million of SBA loans under the
Paycheck Protection Program (“PPP”) and $80 million
commercial loans were insured or guaranteed by
the U.S. Government or its
agencies at December 31, 2023 (compared
to $1.6 billion, $38 million and $72 million,
respectively, at December 31, 2022).
100
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 23.
During 2023,
the Corporation
continued to
reflect credit
quality normalization.
Non-performing loans
(“NPLs”) and
net charge
offs
(“NCOs”)
continued
below
historical
pre-pandemic
averages.
Consumer
portfolios,
however,
reflected
certain
credit
quality
deterioration,
particularly
the
personal
loans
and
credit
cards
portfolios,
with
delinquencies
and
NCOs
near
or
exceeding
pre-
pandemic levels. The auto loans
portfolio also showed credit normalization, however,
metrics remained below pre-pandemic levels.
The commercial and mortgage portfolios continue
to operate with historically low
levels of NCOs and NPLs.
We continue to closely
monitor
changes
in
the
macroeconomic
environment
and
on
borrower
performance
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 position Popular
to continue to operate successfully under the
current environment.
Total
NPAs
decreased
by
$91
million
when
compared
with
December
31,
2022.
Total
non-performing
loans
held-in-portfolio
(“NPLs”)
decreased
by
$82
million
from
December
31,
2022.
BPPR’s
NPLs
decreased
by
$73
million,
mainly
driven
by
lower
mortgage
NPLs
by
$67
million.
Popular
U.S.
NPLs
decreased
by
$9
million
from
December
31,
2022,
mainly
driven
by
lower
mortgage NPLs.
At December 31, 2023, the ratio of NPLs
to total loans held-in-portfolio was 1.0% compared to
1.4%, at December
31, 2022. Other
real estate owned
loans (“OREOs”) decreased by
$9 million. At
December 31, 2023,
NPLs secured by
real estate
amounted to
$231 million
in the
Puerto Rico
operations and
$24 million
in Popular
U.S. These
figures were
$303 million
and $33
million, respectively, at December 31, 2022.
The
Corporation’s commercial
loan portfolio
secured by
real estate
(“CRE”) amounted
to
$10.6 billion
at
December 31,
2023, of
which
$3.1
billion
was
secured
with
owner
occupied
properties,
compared
with
$9.9
billion
and
$3.1
billion,
respectively,
at
December 31, 2022. CRE NPLs amounted to
$48 million at December 31, 2023, compared
with $54 million at December 31,
2022.
The
CRE
NPL
ratios
for
the
BPPR
and
Popular
U.S.
segments
were
0.86%
and
0.13%,
respectively,
at
December
31,
2023,
compared with 1.04% and 0.12%, respectively, at December 31, 2022.
In addition to the NPLs included in Table 23, at December 31, 2023, there were $510 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
year ended
December 31,
2023, total
inflows of
NPLs held-in-portfolio,
excluding consumer
loans, remained
flat at
$213
million, when compared to the inflows for the same period in 2022. Inflows of NPLs held-in-portfolio at the BPPR segment increased
by $22
million compared
to the
same period
in 2022,
driven by
higher commercial
and construction
inflows by
$25 million
and $9
million,
respectively,
in
part
offset
by
lower
mortgage
inflows
by
$12
million.
Commercial increase
incudes
an
$18
million
inflow
during the
fourth quarter of
2023. Inflows of
NPLs held-in-portfolio at
the Popular U.S.
segment decreased by
$21 million from
the
same period in 2022, mainly driven by lower
commercial inflows.
101
Table 23 - Non-Performing
Assets
December 31, 2023
December 31, 2022
(Dollars in thousands)
BPPR
Popular U.S.
Popular, Inc.
BPPR
Popular U.S.
Popular, Inc.
Non-accrual loans:
Commercial
Commercial multi-family
$
1,991
$
-
$
1,991
$
242
$
-
$
242
Commercial real estate non-owner
occupied
8,745
1,117
9,862
23,662
1,454
25,116
Commercial real estate owner occupied
29,430
6,274
35,704
23,990
5,095
29,085
Commercial and industrial
32,826
3,772
36,598
34,277
4,319
38,596
Total Commercial
72,992
11,163
84,155
82,171
10,868
93,039
Construction
6,378
-
6,378
-
-
-
Leasing
8,632
-
8,632
5,941
-
5,941
Mortgage
175,106
11,191
186,297
242,391
20,488
262,879
Consumer
Home equity lines of credit
-
3,733
3,733
-
4,110
4,110
Personal
19,031
2,805
21,836
18,082
1,958
20,040
Auto
45,615
-
45,615
40,978
-
40,978
Other Consumer
964
1
965
12,446
8
12,454
Total Consumer
65,610
6,539
72,149
71,506
6,076
77,582
Total non-performing
loans held-in-portfolio
328,718
28,893
357,611
402,009
37,432
439,441
Other real estate owned (“OREO”)
80,176
240
80,416
88,773
353
89,126
Total non-performing
assets
[1]
$
408,894
$
29,133
$
438,027
$
490,782
$
37,785
$
528,567
Accruing loans past due 90 days or more
[2]
$
268,362
$
109
$
268,471
$
351,248
$
366
$
351,614
Non-performing loans
to loans held-in-
portfolio
1.02
%
%
1.37
Interest Lost
18,697
27,920
[1] There were no non-performing loans held-for-sale
as of December 31, 2023 and December 31, 2022.
[2] It is the Corporation’s policy to report delinquent
residential mortgage loans insured by FHA or guaranteed
by the VA as accruing
loans past due 90
days or
more as
opposed to
non-performing since
the principal
repayment is
insured.
These balances
include $106
million of
residential mortgage
loans insured
by FHA
or guaranteed
by the
VA
that are
no longer
accruing interest
as of
December 31,
2023 (December
31, 2022
- $190
million).
Furthermore,
at
December
31,2023
the
Corporation
had
approximately
$38
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).
102
Table 24 - Activity in Non
-Performing Loans Held-in-Portfolio (Excluding Consumer
Loans)
For the year ended December 31, 2023
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance
- NPLs
$
324,562
$
31,356
$
355,918
Plus:
New non-performing loans
180,426
31,484
211,910
Advances on existing non-performing loans
-
681
681
Less:
Non-performing loans transferred to OREO
(36,684)
(58)
(36,742)
Non-performing loans charged-off
(10,128)
(4,837)
(14,965)
Loans returned to accrual status / loan collections
(203,700)
(36,272)
(239,972)
Ending balance - NPLs
$
254,476
$
22,354
$
276,830
Table 25 - Activity in Non
-Performing Loans Held-in-Portfolio (Excluding Consumer
Loans)
For the year ended December 31, 2022
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$
454,419
$
27,501
$
481,920
Plus:
New non-performing loans
158,128
50,754
208,882
Advances on existing non-performing loans
-
2,825
2,825
Less:
Non-performing loans transferred to OREO
(38,580)
(85)
(38,665)
Non-performing loans charged-off
(7,413)
(9,062)
(16,475)
Loans returned to accrual status / loan collections
(241,992)
(40,577)
(282,569)
Ending balance -
NPLs
$
324,562
$
31,356
$
355,918
103
Table 26 - Activity in Non
-Performing Commercial Loans Held-In-Portfolio
For the year ended December 31, 2023
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$82,171
$10,868
$93,039
Plus:
New non-performing loans
44,542
15,533
60,075
Advances on existing non-performing loans
-
550
550
Less:
Non-performing loans transferred to OREO
(5,930)
-
(5,930)
Non-performing loans charged-off
(7,664)
(4,837)
(12,501)
Loans returned to accrual status / loan collections
(40,127)
(10,951)
(51,078)
Ending balance - NPLs
$72,992
$11,163
$84,155
Table 27 - Activity in Non
-Performing Commercial Loans Held-in-Portfolio
For the year ended December 31, 2022
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$120,047
5,532
$125,579
Plus:
New non-performing loans
19,476
33,861
53,337
Advances on existing non-performing loans
-
2,525
2,525
Less:
Non-performing loans transferred to OREO
(4,763)
-
(4,763)
Non-performing loans charged-off
(5,872)
(8,935)
(14,807)
Loans returned to accrual status / loan collections
(46,717)
(22,115)
(68,832)
Ending balance - NPLs
$82,171
$10,868
$93,039
Table 28
-
Activity in Non-Performing Construction Loans Held-In
-Portfolio
For the year ended December 31, 2023
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$-
$-
$-
New non-performing loans
9,284
-
9,284
Less:
Non-performing loans charged-off
(2,537)
-
(2,537)
Loans returned to accrual status / loan collections
(369)
-
(369)
Ending balance - NPLs
$6,378
$-
$6,378
104
Table 29 -
Activity in Non-Performing Construction Loans Held-in
-Portfolio
For the year ended December 31, 2022
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$485
$-
$485
Less:
Loans returned to accrual status / loan collections
(485)
-
(485)
Ending balance - NPLs
$-
$-
$-
Table 30 - Activity in Non
-Performing Mortgage Loans Held-in-Portfolio
For the year ended December 31,
2023
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$242,391
$20,488
$262,879
Plus:
New non-performing loans
126,600
15,951
142,551
Advances on existing non-performing loans
-
131
131
Less:
Non-performing loans transferred to OREO
(30,754)
(58)
(30,812)
Non-performing loans charged-off
73
-
73
Loans returned to accrual status / loan collections
(163,204)
(25,321)
(188,525)
Ending balance - NPLs
$175,106
$11,191
$186,297
Table 31 - Activity in Non
-Performing Mortgage Loans Held-in-Portfolio
For the year ended December 31,
2022
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$333,887
$21,969
$355,856
Plus:
New non-performing loans
138,652
16,893
155,545
Advances on existing non-performing loans
-
300
300
Less:
Non-performing loans transferred to OREO
(33,817)
(85)
(33,902)
Non-performing loans charged-off
(1,541)
(127)
(1,668)
Loans returned to accrual status / loan collections
(194,790)
(18,462)
(213,252)
Ending balance - NPLs
$242,391
$20,488
$262,879
105
Loan Delinquencies
Another key measure used to evaluate and
monitor the Corporation’s asset quality is loan
delinquencies. Loans delinquent 30 days
or
more
and
delinquencies, as
a
percentage
of
their
related
portfolio
category
at
December
31,
2023
and
2022,
are
presented
below.
Table 32 - Loan Delinquencies
(Dollars in thousands)
2023
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
$
13,657
$
2,415,620
0.57
%
$
2,844
$
2,321,713
0.12
%
Commercial real estate
non-owner occupied
17,051
5,087,421
0.34
26,969
4,499,670
0.60
Commercial real estate
owner occupied
69,239
3,080,635
2.25
30,059
3,078,549
0.98
Commercial and industrial
58,953
7,126,121
0.83
59,604
5,839,200
1.02
Total Commercial
158,900
17,709,797
0.90
119,476
15,739,132
0.76
Construction
6,378
959,280
0.66
-
757,984
-
Leasing
35,491
1,731,809
2.05
21,487
1,585,739
1.36
Mortgage
[1]
859,537
7,695,917
11.17
937,253
7,397,471
12.67
Consumer
Credit cards
46,436
1,135,747
4.09
24,065
1,041,870
2.31
Home equity lines of credit
5,465
65,953
8.29
4,684
71,916
6.51
Personal
59,682
1,945,247
3.07
45,299
1,823,579
2.48
Auto
173,119
3,660,780
4.73
129,089
3,512,530
3.68
Other
3,063
160,441
1.91
13,264
147,548
8.99
Total Consumer
287,765
6,968,168
4.13
216,401
6,597,443
3.28
Loans held-for-sale
-
4,301
-
-
5,381
-
Total
$
1,348,071
$
35,069,272
3.84
%
$
1,294,617
$
32,083,150
4.04
%
[1]
Loans delinquent 30 days or more includes $0.5 billion
of residential mortgage loans insured by FHA or guaranteed
by the VA as of December
31, 2023 (December 31, 2022 - $0.5 billion). Refer to Note
8 to the Consolidated Financial Statements for additional information
of guaranteed loans.
Allowance for Credit Losses (“ACL”)
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
for borrowers
with financial
difficulties
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 must rely on
estimates and exercise judgment regarding matters where
the ultimate outcome is unknown, such
as
economic developments affecting specific
customers, industries, or markets.
Other factors that can
affect management’s estimates
are
recalibration
of
statistical
models
used
to
calculate
lifetime
expected
losses,
changes
in
underwriting
standards,
financial
accounting standards and loan impairment measurements,
among others. Changes in the financial condition
of individual borrowers,
in economic
conditions, and
in the
condition of
the various
markets in
which collateral
may be
sold, may
also affect
the required
level of
the allowance
for credit
losses. Consequently,
the business
financial condition,
liquidity,
capital, and
results of
operations
could also be affected.
106
At December
31, 2023,
the allowance
for credit
losses amounted
to $729
million, an
increase of
$9 million,
when compared
with
December 31,
2022. The
ACL for
BPPR increased
by $24
million to
$640 million,
when compared
to December
31, 2022,
mostly
driven
by
changes
in
the
economic
scenario,
higher
loan
volumes
and
changes
in
credit
quality.
The
ACL
for
Popular
U.S.
decreased by $15
million to $89
million, when compared to
December 31, 2022, 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.
Given that any one
economic outlook is inherently uncertain, the
Corporation leverages multiple scenarios to estimate
its ACL. The
baseline scenario continues to be assigned the highest probability, followed by the pessimistic scenario. The 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.
GDP growth is expected to slow during 2024 for both
regions, when compared to 2023, as a
result of the Fed’s monetary policy. The
2024 GDP growth is expected to
be 1.2% for Puerto Rico
and 1.7% for the United
States. The average 2024 unemployment rate is
expected to increase to 6.79% in Puerto Rico and
3.95% in the United States.
The provision
for credit
losses for
the year
ended December
31, 2023,
amounted to
$201.5 million,
compared to
an expense
of
$83.3 million for the year ended December 31, 2022, mostly related to higher 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.
The following
table presents
net charge-offs
to average
loans held-in-portfolio
(“HIP”) ratios
by loan
category for
the years
ended
December 31, 2023 and 2022:
Table 33 - Net Charge-Offs
(Recoveries) to Average Loans HIP
December 31, 2023
December 31, 2022
BPPR
Popular U.S.
Popular Inc.
BPPR
Popular U.S.
Popular Inc.
Commercial
(0.10)
%
0.02
%
(0.05)
%
(0.14)
%
0.11
%
(0.02)
%
Construction
1.59
-
0.32
(0.48)
(0.19)
(0.25)
Mortgage
(0.22)
(0.02)
(0.19)
(0.26)
-
(0.22)
Leasing
0.43
-
0.43
0.26
-
0.26
Consumer
2.18
6.20
2.35
1.22
1.33
1.22
Total
0.55
%
0.19
%
0.44
%
0.23
%
0.12
%
0.20
%
NCOs for the year
ended December 31, 2023 amounted to
$146.4 million, increasing by $87.1
million when compared to the same
period in 2022. The
BPPR segment increased by
$78.6 million mainly driven
by higher consumer NCOs
by $68.3 million, reflective
of certain credit
quality deterioration, particularly
the personal loans
and credit cards
portfolios, with delinquencies
and NCOs near
or exceeding pre-pandemic levels. The auto loans portfolio also showed credit normalization, however, metrics remained below pre-
pandemic levels. The PB segment NCOs increased by
$8.5 million, mainly driven by higher consumer
NCOs by $13.5 million.
107
Table 34 - Allowance for Credit
Losses - Loan Portfolios
December 31, 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
$
13,740
$
2,415,620
0.57
%
1,991
690.11
%
Commercial real estate non-owner occupied
65,453
5,087,421
1.29
%
9,862
663.69
%
Commercial real estate owner occupied
56,864
3,080,635
1.85
%
35,704
159.27
%
Commercial and industrial
122,356
7,126,121
1.72
%
36,598
334.32
%
Total Commercial
$
258,413
$
17,709,797
1.46
%
84,155
307.07
%
Construction
12,686
959,280
1.32
%
6,378
198.90
%
Leasing
9,708
1,731,809
0.56
%
8,632
112.47
%
Mortgage
83,214
7,695,917
1.08
%
186,297
44.67
%
Consumer
Credit cards
80,487
1,135,747
7.09
%
-
N.M.
Home equity lines of credit
1,978
65,953
3.00
%
3,733
52.99
%
Personal
117,790
1,945,247
6.06
%
21,836
539.43
%
Auto
157,931
3,660,780
4.31
%
45,615
346.23
%
Other Consumer
7,134
160,441
4.45
%
965
739.27
%
Total Consumer
$
365,320
$
6,968,168
5.24
%
72,149
506.34
%
Total
$
729,341
$
35,064,971
2.08
%
357,611
203.95
%
N.M - Not meaningful.
Table 35 - 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.
Table
36
details
the
breakdown
of
the
allowance
for
credit
losses
by
loan
categories.
The
breakdown
is
made
for
analytical
purposes, and it is not necessarily indicative of
the categories in which future loan losses may occur.
108
Table 36 - Allocation of the
Allowance for Credit Losses - Loans
At December 31,
2023
2022
% of loans
% of loans
in each
in each
category to
category to
(Dollars in millions)
ACL
total loans
ACL
total loans
Commercial
Commercial multi-family
$13.7
6.9
%
$26.3
7.2
%
Commercial real estate non-owner occupied
65.4
14.5
71.5
14.0
Commercial real estate owner occupied
56.9
8.8
57.1
9.6
Commercial and industrial
122.4
20.3
80.5
18.3
Total Commercial
$258.4
50.5
%
$235.4
49.1
%
Construction
12.7
2.7
4.2
2.4
Leasing
9.7
5.0
20.6
4.9
Mortgage
83.2
21.9
135.3
23.1
Consumer
Credit cards
80.5
3.2
58.7
3.2
Home equity lines of credit
2.0
0.2
2.5
0.2
Personal
117.8
5.5
118.4
5.7
Auto
157.9
10.4
129.7
11.0
Other Consumer
7.1
0.6
15.5
0.4
Total Consumer
$365.3
19.9
%
$324.8
20.5
%
Total
[1]
$729.3
100.0
%
$720.3
100.0
%
[1] Note: For purposes of this table the term loans refers to
loans held-in-portfolio excluding loans held-for-sale.
Loan Modifications
For the twelve months ended December 31, 2023,
modified loans to borrowers with financial difficulty
amounted to $466 million, of
which $424 million were in accruing status. The
BPPR segment’s modifications to borrowers with financial
difficulty amounted to
$379 million, mainly comprised of commercial and mortgage
loans of $283 million and $91 million, respectively. A total of $60
million
of the mortgage modifications were related to government
guaranteed loans. The Popular U.S. segment’s modifications
to
borrowers with financial difficulty amounted to $87 million,
of which $75 million were commercial loans.
Refer
to
Note
9
to
the
Consolidated
Financial
Statements
for
additional
information
on
modifications
made
to
borrowers
experiencing financial difficulties.
Enterprise Risk Management
The Corporation’s
Board of
Directors has
established a
Risk Management
Committee (“RMC”)
to, among
other things,
assist the
Board in its (i) oversight of the Corporation’s overall risk framework and (ii)
to monitor, review, and approve policies to measure, limit
and manage the Corporation’s risks.
The
Corporation
has
established
a
three
lines
of
defense
framework:
(a)
business
line
management constitutes
the
first
line
of
defense by identifying
and managing the
risks associated with
business activities, (b) components
of the Risk
Management Group
and
the
Corporate
Security
Group,
among
others,
act
as
the
second
line
of
defense
by,
among
other
things,
measuring
and
reporting on the Corporation’s risk activities, and (c) the Corporate Auditing Division
,
as the third line of defense, reporting directly to
the Audit Committee of the Board, by independently providing
assurance regarding the effectiveness of the risk
framework.
109
The Enterprise Risk Management Committee (the “ERM Committee”)
is a management committee whose purpose is to oversee and
monitor Market, Interest, Liquidity,
Regulatory and Financial Compliance, BSA/AML & Sanctions, Regulatory,
Strategic, Operational
(including
Fraud
and
Third
Party
Risk,
among
others),
Information
Technology
and
Cyber
Security,
Legal,
Credit,
Climate
and
Reputational risks, as defined in the Risk Appetite Statement of
the Risk Management Policy and within the Corporation’s Enterprise
Risk Management (“ERM”) framework. The ERM Committee and the
Enterprise Risk Management Department in the Financial
and
Operational Risk Management
Division (the
“FORM Division”), in
coordination with the
Chief Risk
Officer, create
the framework
to
identify and manage multiple and cross-enterprise risks,
and to articulate the RAS and supporting
metrics.
The
Enterprise
Risk
Management
Department
has
established
a
process
to
ensure
that
an
appropriate
standard
readiness
assessment is performed before we launch a new
product or service. Similar procedures are followed with the Treasury
Division for
transactions involving the purchase and sale of
assets, and by the Mergers and Acquisitions Division
for acquisition transactions.
The Asset/Liability
Committee (“ALCO”),
composed of
senior management
representatives from
the business
lines and
corporate
functions, and the Corporate Finance Group, are responsible for planning and executing the
Corporation’s market, interest rate risk,
funding
activities
and
strategy,
as
well
as
for
implementing
approved
policies
and
procedures.
The
ALCO
also
reviews
the
Corporation’s
capital
policy
and
the
attainment
of
the
capital
management
objectives.
In
addition,
the
Financial
Risk,
Corporate
Insurance & Advisory Department independently measures,
monitors and reports compliance with
liquidity and market risk policies,
and oversees controls surrounding interest risk measurements.
The Corporate Compliance
Committee, comprised of
senior management team
members and representatives
from the Regulatory
and Financial
Compliance Division
and the
Financial Crimes
Compliance Division,
among others,
are responsible
for overseeing
and
assessing
the
adequacy
of
the
risk
management
processes
that
underlie
Popular’s
compliance
program
for
identifying,
assessing,
measuring,
monitoring,
testing,
mitigating,
and
reporting
compliance
risks.
They
also
supervise
Popular’s
reporting
obligations
under
the
compliance
program
to
ensure
the
adequacy,
consistency
and
timeliness
of
the
reporting
of
compliance-
related risks across the Corporation.
The Regulatory Affairs team is responsible for maintaining an open dialog with the banking regulatory agencies to ensure regulatory
risks are
properly identified, measured,
monitored, as well
as communicated to
the appropriate regulatory
agency as necessary
to
keep them apprised of material matters within
the purview of these agencies.
The
Credit
Strategy
Committee,
composed
of
senior
level
management
representatives
from
the
business
lines
and
corporate
functions, and the Corporate Credit Risk Management Division,
are responsible for monitoring credit risk management
activities both
at
the
corporate
level
and
across
all
Popular
subsidiaries
to
ensure
the
development
and
consistent
application
of
credit
risk
policies, processes
and procedures
that measure,
limit and
manage credit
risks, while
seeking to
maintain the
effectiveness and
efficiency of the operating and businesses processes.
The Corporation’s Operational Risk Committee (“ORCO”) composed of senior
level management representatives from the business
lines
and
corporate
functions,
provide
executive
oversight
of
the
operational
risk
management
activities
of
Popular
and
its
subsidiaries
to
ensure
the
development
and
consistent
application
of
operational
risk
policies,
processes,
and
procedures
that
measure,
limit,
and
manage
operational
risks
while
maintaining
the
effectiveness
and
efficiency
of
the
operating
and
business
processes.
The
FORM
Division,
within
the
Risk
Management
Group,
serves
as
ORCO’s
operating
arm
and
is
responsible
for
establishing baseline processes to measure, monitor, limit and manage
operational risk.
The Corporate Security Group (“CSG”), under the direction of the
Chief Security Officer, leads
all efforts pertaining to cybersecurity,
enterprise fraud and data
privacy, including
developing strategies and oversight processes with
policies and programs that mitigate
compliance, operational,
strategic, financial
and reputational
risks associated
with the
Corporation’s and
our customers’
data and
assets.
The Information Technology
and Cyber Risk
Committee, composed of senior
management representatives from the
business lines
and
corporate
functions,
the
Information
Technology
Division
and
the
CSG,
are
responsible
for
the
oversight
and
monitoring
of
information
technology
and
cybersecurity
risks,
mitigation
strategies,
actions
and
controls,
key
risk
metrics,
and
information
technology and cyber incidents that may result in operational, compliance and reputational risks.
The Chief Security Officer also co-
chairs the Information Technology & Cyber Security Risk Committee along with the Chief Information
& Digital Strategy Officer.
The Corporate Legal Division, in this context, has the responsibility
of assessing, monitoring, managing and reporting with respect to
legal risks, including those related to litigation, investigations
and other material legal matters.
The Corporation
has also
established an
ESG Committee
whose purpose
and responsibility
is to
oversee the
Corporation’s ESG
strategies and
support the
development and
consistent application
of policies,
processes and
procedures that
measure, limit
and
110
manage ESG
matters and
risks. The ESG
Committee also assesses
ESG-related considerations in
the credit
approval process of
commercial credit applications.
The processes
of strategic
risk planning
and the
evaluation of
reputational risk
are on-going
processes through
which continuous
data gathering
and analysis
are performed.
In order
to ensure
strategic risks
are properly
identified and
monitored, the
Corporate
Strategy and
Transformation Division,
which reports to
the Corporation’s
Chief Operations Officer,
performs periodic assessments
regarding corporate
strategic priority
initiatives, such as
the Corporation’s
transformation initiative
and other
emerging issues.
The
Acquisitions
and
Corporate
Investments
Division
continuously
assesses
potential
strategic
transactions.
The
Corporate
Communications
Division
is
responsible
for
the
monitoring,
management
and
implementation
of
action
plans
with
respect
to
reputational risk issues.
Popular’s capital planning process integrates the Corporation’s risk profile
as well as its strategic focus, operating
environment, and
other factors
that could
materially affect
capital adequacy
in hypothetical
highly-stressed business
scenarios. Capital
ratio targets
and triggers take into consideration the different risks evaluated
under Popular’s risk management framework.
In
addition to
establishing a
formal process
to manage
risk, our
corporate culture
is also
critical to
an effective
risk management
function.
Through our Code
of Ethics, the
Corporation provides a framework
for all our
employees to conduct themselves
with the
highest integrity.
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.
111
Statistical Summary 2023-2022
Statements of Financial Condition
At December 31,
(In thousands)
2023
2022
Assets:
Cash and due from banks
$
420,462
$
469,501
Money market investments:
Time deposits with other banks
6,998,871
5,614,595
Total money market investments
6,998,871
5,614,595
Trading account debt securities, at fair value
31,568
27,723
Debt securities available-for-sale, at fair
value
16,729,044
17,804,374
Debt securities held-to-maturity, at amortized cost
8,194,335
8,525,366
Less – Allowance for credit losses
5,780
6,911
Debt securities held-to-maturity, net
8,188,555
8,518,455
Equity securities
193,726
195,854
Loans held-for-sale, at fair value
4,301
5,381
Loans held-in-portfolio:
Loans held-in-portfolio
35,420,879
32,372,925
Less – Unearned income
355,908
295,156
Allowance for credit losses
729,341
720,302
Total loans held-in-portfolio, net
34,335,630
31,357,467
Premises and equipment, net
565,284
498,711
Other real estate
80,416
89,126
Accrued income receivable
263,433
240,195
Mortgage servicing rights, at fair value
118,109
128,350
Other assets
2,014,564
1,847,813
Goodwill
804,428
827,428
Other intangible assets
9,764
12,944
Total assets
$
70,758,155
$
67,637,917
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing
$
15,419,624
$
15,960,557
Interest bearing
48,198,619
45,266,670
Total deposits
63,618,243
61,227,227
Assets sold under agreements to repurchase
91,384
148,609
Other short-term borrowings
-
365,000
Notes payable
986,948
886,710
Other liabilities
914,627
916,946
Total liabilities
65,611,202
63,544,492
Stockholders’ equity:
Preferred stock
22,143
22,143
Common stock
1,048
1,047
Surplus
4,843,399
4,790,993
Retained earnings
4,194,851
3,834,348
Treasury stock – at cost
(2,018,957)
(2,030,178)
Accumulated other comprehensive loss, net
of tax
(1,895,531)
(2,524,928)
Total stockholders’ equity
5,146,953
4,093,425
Total liabilities and stockholders’ equity
$
70,758,155
$
67,637,917
112
Statistical Summary 2021-2023
Statements of Operations
For the years ended December 31,
(In thousands)
2023
2022
2021
Interest income:
Loans
$
2,331,654
$
1,876,166
$
1,747,827
Money market investments
366,625
118,080
21,147
Investment securities
547,028
471,665
353,663
Total interest income
3,245,307
2,465,911
2,122,637
Less - Interest expense
1,113,783
298,552
165,047
Net interest income
2,131,524
2,167,359
1,957,590
Provision for credit losses (benefit)
208,609
83,030
(193,464)
Net interest income after provision for
credit losses (benefit)
1,922,915
2,084,329
2,151,054
Mortgage banking activities
21,497
42,450
50,133
Net gain on sale of debt securities
-
-
23
Net gain (loss), including impairment, on
equity securities
3,482
(7,334)
131
Net gain (loss) on trading account debt securities
1,382
(784)
(389)
Net loss on sale of loans, including valuation
adjustments on loans held-for-sale
(115)
-
(73)
Adjustment to indemnity reserves on loans
sold
2,319
919
4,406
Other non-interest income
622,159
861,811
587,897
Total non-interest income
650,724
897,062
642,128
Operating expenses:
Personnel costs
778,045
719,764
631,802
All other operating expenses
1,120,055
1,026,656
917,473
Total operating expenses
1,898,100
1,746,420
1,549,275
Income before income tax
675,539
1,234,971
1,243,907
Income tax expense
134,197
132,330
309,018
Net Income
$
541,342
$
1,102,641
$
934,889
Net Income Applicable to Common Stock
$
539,930
$
1,101,229
$
933,477
113
Statistical Summary 2020-2022
Average Balance Sheet and Summary of
Net Interest Income
On a Taxable Equivalent
Basis*
2023
2022
2021
(Dollars in thousands)
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Assets
Interest earning assets:
Money market investments
$
7,051,718
$
366,625
5.20
%
$
9,530,698
$
118,079
1.24
%
$
15,999,741
$
21,147
0.13
%
U.S.
Treasury securities
20,305,488
441,179
2.17
21,141,431
448,961
2.12
12,396,773
266,670
2.16
Obligations of U.S.
Government
sponsored entities
-
-
-
41
2
5.66
7,972
120
1.50
Obligations of Puerto Rico, States
and political subdivisions
64,682
5,863
9.06
67,965
7,824
11.51
75,607
7,608
10.06
Collateralized mortgage obligations and
mortgage-backed securities
7,360,071
157,196
2.14
8,342,672
198,566
2.38
10,255,525
224,706
2.19
Other
196,226
11,519
5.87
190,489
8,925
4.68
194,640
9,027
4.64
Total investment securities
27,926,467
615,757
2.20
29,742,598
664,278
2.23
22,930,517
508,131
2.22
Trading account securities
31,876
1,377
4.32
51,357
3,049
5.94
84,380
4,339
5.16
Loans (net of unearned income)
33,164,961
2,387,351
7.20
30,405,280
1,924,895
6.33
29,074,036
1,794,789
6.19
Total interest earning
assets/Interest
income
$
68,175,022
$
3,371,110
4.94
%
$
69,729,933
$
2,710,301
3.89
%
$
68,088,674
$
2,328,406
3.43
%
Total non-interest
earning assets
3,059,214
3,078,671
3,079,976
Total assets
$
71,234,236
$
72,808,604
$
71,168,650
Liabilities and Stockholders' Equity
Interest bearing liabilities:
Savings, NOW,
money market and
other
interest bearing demand accounts
$
39,463,481
$
862,981
2.19
%
$
41,769,576
$
191,064
0.46
%
$
41,387,504
$
59,034
0.15
%
Time deposits
7,775,846
187,043
2.41
6,853,127
61,781
0.90
7,028,334
52,587
0.75
Federal funds purchased
6
-
5.25
7
-
3.92
1
-
0.25
Securities purchased under agreement
to resell
115,808
6,019
5.20
107,305
2,309
2.15
91,394
317
0.35
Other short-term borrowings
27,302
1,310
4.80
99,083
3,428
3.46
343
1
0.35
Notes payable
1,109,163
56,430
5.09
938,778
39,970
4.26
1,184,737
53,107
4.49
Total interest bearing
liabilities/Interest
expense
48,491,606
1,113,783
2.30
49,767,876
298,552
0.60
49,692,313
165,046
0.33
Total non-interest
bearing liabilities
16,142,027
17,031,503
15,698,685
Total liabilities
64,633,633
66,799,379
65,390,998
Stockholders' equity
6,600,603
6,009,225
5,777,652
Total liabilities and
stockholders' equity
$
71,234,236
$
72,808,604
$
71,168,650
Net interest income on a taxable
equivalent basis
$
2,257,327
$
2,411,749
$
2,163,360
Cost of funding earning assets
1.63
%
0.43
%
0.24
%
Net interest margin
3.31
%
3.46
%
3.19
%
Effect of the taxable equivalent
adjustment
125,803
244,390
205,770
Net interest income per books
$
2,131,524
$
2,167,359
$
1,957,590
*
Shows
the
effect
of
the
tax
exempt
status
of
some
loans
and
investments
on
their
yield,
using
the
applicable
statutory
income
tax
rates.
The
computation considers
the interest
expense disallowance
required by
the Puerto
Rico Internal
Revenue Code.
This adjustment
is shown
in order
to
compare the yields of the tax exempt and taxable assets
on a taxable basis.
Note: Average loan
balances include the
average balance of
non-accruing loans. No
interest income is
recognized for these
loans in accordance
with
the Corporation’s
policy.
Average
balances
exclude
unrealized
gains
or
losses
on
debt
securities
available-for-sale
and
unrealized
losses
on
debt
securities transfer to held-to-maturities.
114
Report of Management on Internal Control Over Financial
Reporting
The management of
Popular, Inc.
(the “Corporation”) is responsible
for establishing and
maintaining adequate internal control
over
financial reporting as defined in Rules 13a - 15(f) and 15d -
15(f) under the Securities Exchange Act of 1934 and for our assessment
of internal control over financial reporting. The Corporation’s internal
control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in
accordance
with
accounting
principles
generally
accepted
in
the
United
States
of
America,
and
includes
controls
over
the
preparation of
financial statements
in accordance
with the
instructions to
the Consolidated
Financial Statements
for Bank
Holding
Companies (Form FR Y-9C)
to comply with the reporting requirements of Section 112
of the Federal Deposit Insurance Corporation
Improvement Act (FDICIA). The Corporation’s internal control
over financial reporting includes those policies
and procedures that:
(i)
pertain
to
the
maintenance
of
records
that,
in
reasonable
detail,
accurately
and
fairly
reflect
the
transactions
and
dispositions of the assets of the Corporation;
(ii)
provide
reasonable
assurance
that
transactions
are
recorded
as
necessary
to
permit
preparation
of
financial
statements in accordance with accounting principles generally accepted in the United States of America, and that receipts
and expenditures of the Corporation are being made only in accordance with authorizations of management and directors
of the Corporation; and
(iii) provide reasonable assurance regarding
prevention or timely detection of
unauthorized acquisition, use or disposition
of the Corporation’s assets that could have a material effect
on the financial statements.
Because
of
its
inherent
limitations,
internal
control
over
financial
reporting
may
not
prevent
or
detect
misstatements.
Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
The management of Popular,
Inc. has assessed the
effectiveness of the Corporation’s
internal control over financial reporting
as of
December
31,
2023.
In
making
this
assessment,
management
used
the
criteria
set
forth
in
the
Internal
Control-Integrated
Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
Based on our assessment, management concluded that the Corporation maintained effective internal control over financial reporting
as of December 31, 2023 based on the
criteria referred to above.
The Corporation’s
independent registered
public accounting
firm,
PricewaterhouseCoopers LLP
,
has audited
the effectiveness
of
the Corporation’s internal control over financial reporting as of December 31, 2023,
as stated in their report dated February 29, 2024
which appears herein.
Ignacio Alvarez
Carlos J. Vázquez
President and
Executive Vice President
Chief Executive Officer
and Chief Financial Officer
115
Report of Independent Registered Public Accounting Firm
To
the
Board of Directors and Stockholders of Popular, Inc.
Opinions on the Financial Statements and Internal
Control over Financial Reporting
We
have
audited
the
accompanying
consolidated
statements
of
financial
condition
of
Popular,
Inc.
and
its
subsidiaries
(the
“Corporation”)
as
of
December
31,
2023
and
2022,
and
the
related
consolidated
statements
of
operations, comprehensive income (loss),
changes in stockholders’ equity
and cash flows for
each of the three
years
in
the
period
ended
December
31,
2023,
including
the
related
notes
(collectively
referred
to
as
the
“consolidated
financial
statements”).
We
also
have
audited
the
Corporation's
internal
control
over
financial
reporting
as
of
December
31, 2023,
based on
criteria
established in
Internal Control
- Integrated
Framework (2013)
issued
by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In
our
opinion,
the
consolidated
financial
statements
referred
to
above
present
fairly,
in
all
material
respects,
the
financial position of the Corporation as of
December 31, 2023 and 2022, and the
results of its operations and its cash
flows
for
each
of
the
three
years
in
the
period
ended
December
31,
2023
in
conformity with
accounting
principles
generally accepted
in the
United States
of America.
Also in
our opinion,
the Corporation
maintained,
in all
material
respects, effective
internal control over
financial reporting as
of December 31,
2023, based on
criteria established
in
Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The
Corporation's management
is responsible
for these
consolidated
financial statements,
for maintaining
effective
internal control
over financial
reporting, and
for its
assessment of
the effectiveness
of internal
control over
financial
reporting,
included
in
the
accompanying
Report
of
Management
on
Internal
Control
over
Financial
Reporting.
Our
responsibility is
to express opinions
on the
Corporation’s consolidated
financial statements and
on the
Corporation’s
internal
control
over
financial
reporting
based
on
our
audits.
We
are
a
public
accounting
firm
registered
with
the
Public
Company
Accounting
Oversight
Board
(United
States)
(PCAOB)
and
are
required
to
be
independent
with
respect
to
the
Corporation
in
accordance
with
the
U.S.
federal
securities
laws
and
the
applicable
rules
and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits
in accordance with the standards
of the PCAOB. Those standards
require that we plan and
perform
the audits
to obtain
reasonable assurance
about
whether the
consolidated financial
statements are
free of
material
misstatement,
whether due
to error
or
fraud, and
whether
effective
internal control
over financial
reporting
was maintained in all material respects.
Our
audits
of
the
consolidated
financial
statements
included
performing
procedures
to
assess
the
risks of
material
misstatement of the consolidated
financial statements, whether due
to error or fraud,
and performing procedures that
respond to
those risks.
Such procedures
included examining,
on a
test basis,
evidence regarding
the amounts
and
disclosures
in
the
consolidated
financial
statements.
Our
audits
also
included
evaluating
the
accounting
principles
used
and
significant
estimates
made
by
management,
as
well
as
evaluating
the
overall
presentation
of
the
consolidated
financial
statements.
Our
audit
of
internal
control
over
financial
reporting
included
obtaining
an
understanding
of
internal
control
over
financial
reporting,
assessing
the
risk
that
a
material
weakness
exists,
and
testing
and
evaluating
the
design
and
operating
effectiveness
of
internal
control
based
on
the
assessed
risk.
Our
audits also included performing such other procedures as we considered necessary in
the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
116
Definition and Limitations of Internal Control over Financial Reporting
A
company’s
internal
control
over
financial
reporting
is
a
process
designed
to
provide
reasonable
assurance
regarding
the
reliability
of
financial
reporting
and
the
preparation
of
financial
statements
for
external
purposes
in
accordance
with
generally
accepted
accounting
principles.
Management's
assessment
and
our
audit
of
Popular,
Inc.'s
internal
control
over
financial
reporting
also
included
controls
over
the
preparation
of
financial
statements
in
accordance with the instructions
to the Consolidated Financial Statements
for Bank Holding Companies
(Form FR Y-
9C)
to
comply
with
the
reporting
requirements
of
Section
112
of
the
Federal
Deposit
Insurance
Corporation
Improvement
Act
(FDICIA).
A
company’s
internal
control
over
financial
reporting
includes
those
policies
and
procedures
that (i)
pertain to
the maintenance
of records
that, in
reasonable detail,
accurately
and fairly
reflect the
transactions and
dispositions of
the assets
of the
company; (ii)
provide reasonable
assurance that
transactions are
recorded
as
necessary
to
permit
preparation
of
financial
statements
in
accordance
with
generally
accepted
accounting
principles, and
that receipts
and expenditures
of the
company are
being made
only
in accordance
with
authorizations
of
management
and
directors
of
the
company;
and
(iii)
provide
reasonable
assurance
regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of
its inherent
limitations, internal
control over
financial reporting
may not
prevent or
detect misstatements.
Also, projections of
any evaluation of effectiveness
to future periods are
subject to the risk
that controls may become
inadequate because
of changes
in conditions,
or that
the degree
of compliance
with the
policies or
procedures may
deteriorate.
Critical Audit Matters
The
critical
audit
matter
communicated
below
is
a
matter
arising
from
the
current
period
audit
of
the
consolidated
financial
statements
that
was
communicated
or
required
to
be
communicated
to
the
audit
committee
and
that
(i)
relates
to
accounts
or
disclosures
that
are
material
to
the
consolidated
financial
statements
and
(ii)
involved
our
especially challenging,
subjective, or
complex judgments.
The communication
of critical
audit matters
does not
alter
in any way our opinion on the consolidated financial statements, taken as a whole, and
we are not, by communicating
the
critical
audit
matter
below,
providing
a
separate
opinion
on
the
critical
audit
matter
or
on
the
accounts
or
disclosures to which it relates.
Allowance
for
Credit
Losses
on
Loans
Held-in-Portfolio
-
Quantitative
Models,
and
Qualitative
Adjustments
to
the
Puerto Rico Commercial Portfolios
As described in
Notes 2 and
9 to the
consolidated financial statements,
the Corporation follows
the current expected
credit
loss
(“CECL”)
model,
to
establish
and
evaluate
the
adequacy
of
the
allowance
for
credit
losses
(“ACL”)
to
provide for expected
losses in the loan
portfolio. As of December
31, 2023, the allowance
for credit losses
was $729
million
on
total
loans
of
$34
billion.
This
CECL model
establishes
a
forward-looking
methodology
that
reflects
the
expected
credit
losses over
the lives
of
financial assets.
The
quantitative modeling
framework includes
competing
risk models to generate
lifetime defaults and prepayments, and
other loan level modeling techniques
to estimate loss
severity.
As
part
of
this
methodology,
management
evaluates
various
macroeconomic
scenarios,
and
may
apply
probability
weights
to
the
outcome
of
the
selected
scenarios.
The
ACL
also
includes
a
qualitative
framework
that
addresses losses
that are
expected but
not captured
within the
quantitative modeling
framework. In
order to
identify
potential
losses
that are
not captured
through the
models, management
evaluated model
limitations as
well as
the
different risks
covered by
the variables used
in each quantitative
model.
To
complement the
analysis, management
also evaluated
sectors that
have low
levels of
historical defaults,
but current
conditions show
the potential
for future
losses.
The
principal
considerations
for
our
determination
that
performing
procedures
relating
to
the
allowance
for
credit
losses
on
loans
held-in-portfolio
quantitative
models,
and
qualitative
adjustments
to
the
Puerto
Rico
commercial
portfolios is
a critical
audit matter
are (i)
the significant
judgment by
management in
determining the
allowance for
credit losses, including
qualitative adjustments to
the
Puerto Rico commercial
portfolios, which in
turn led to
a high
degree of auditor
effort,
judgment, and subjectivity
in performing procedures
and evaluating audit
evidence relating
117
to
the
allowance
for
credit
losses,
including
management’s
selection
of
macroeconomic
scenarios
and
probability
weights applied; and (ii)
the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the
matter involved
performing procedures
and evaluating audit
evidence in
connection with
forming our
overall
opinion
on
the
consolidated
financial
statements.
These
procedures
included
testing
the
effectiveness
of
controls relating
to the
allowance for
credit losses
for loans
held-in-portfolio, including
qualitative adjustments
to the
Puerto Rico commercial portfolios. These procedures also included, among others, testing management’s process for
estimating the allowance
for credit losses by
(i) evaluating the
appropriateness of the methodology,
including models
used
for
estimating
the
ACL;
(ii)
evaluating
the
reasonableness
of
management’s
selection
of
various
macroeconomic
scenarios
including
probability
weights
applied
to
the
expected
loss
outcome
of
the
selected
macroeconomic
scenarios;
(iii)
evaluating
the
reasonableness
of
the
qualitative
adjustments
to
Puerto
Rico
commercial
portfolios allowance
for credit
losses;
and (iv)
testing the
data used
in the
allowance for
credit losses.
Professionals
with
specialized
skill
and
knowledge
were
used
to
assist
in
evaluating
the
appropriateness
of
the
methodology
and
models,
the
reasonableness
of
management’s
selection
and
weighting
of
macroeconomic
scenarios
used
to
estimate
current
expected
credit
losses
and
reasonableness
of
the
qualitative
adjustments
to
Puerto Rico commercial portfolios allowance for credit losses.
San Juan, Puerto Rico
February 29, 2024
We have served as the Corporation’s auditor since 1971, which includes periods before the Corporation became
subject to SEC reporting requirements.
CERTIFIED PUBLIC ACCOUNTANTS
(OF PUERTO RICO)
License No. LLP-216 Expires Dec. 1, 2025
Stamp E548240 of the P.R. Society of
Certified Public Accountants has been
affixed to the file copy of this report
118
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF FINANCIAL CONDITION
[UNAUDITED]
December 31,
December 31,
(In thousands, except share information)
2023
2022
Assets:
Cash and due from banks
$
420,462
$
469,501
Money market investments:
Time deposits with other banks
6,998,871
5,614,595
Total money market investments
6,998,871
5,614,595
Trading account debt securities, at fair value:
Other trading account debt securities
31,568
27,723
Debt securities available-for-sale, at fair
value:
Pledged securities with creditors’ right to repledge
72,827
129,203
Other debt securities available-for-sale
16,656,217
17,675,171
Debt securities held-to-maturity, at amortized cost:
Pledged securities with creditors’ right to repledge
27,083
26,496
Other debt securities held-to-maturity
8,167,252
8,498,870
Debt securities held-to-maturity (fair
value 2023 - $
8,159,385
; 2022 - $
8,440,196
)
8,194,335
8,525,366
Less – Allowance for credit losses
5,780
6,911
Debt securities held-to-maturity, net
8,188,555
8,518,455
Equity securities (realizable value 2023 -
$
194,641
; 2022 - $
196,665
)
193,726
195,854
Loans held-for-sale, at fair value
4,301
5,381
Loans held-in-portfolio
35,420,879
32,372,925
Less – Unearned income
355,908
295,156
Allowance for credit losses
729,341
720,302
Total loans held-in-portfolio, net
34,335,630
31,357,467
Premises and equipment, net
565,284
498,711
Other real estate
80,416
89,126
Accrued income receivable
263,433
240,195
Mortgage servicing rights, at fair value
118,109
128,350
Other assets
2,014,564
1,847,813
Goodwill
804,428
827,428
Other intangible assets
9,764
12,944
Total assets
$
70,758,155
$
67,637,917
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing
$
15,419,624
$
15,960,557
Interest bearing
48,198,619
45,266,670
Total deposits
63,618,243
61,227,227
Assets sold under agreements to repurchase
91,384
148,609
Other short-term borrowings
-
365,000
Notes payable
986,948
886,710
Other liabilities
914,627
916,946
Total liabilities
65,611,202
63,544,492
Commitments and contingencies (Refer
to Note 24)
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;
104,767,348
shares issued (2022 -
104,657,522
) and
72,153,621
shares outstanding (2022 -
71,853,720
)
1,048
1,047
Surplus
4,843,399
4,790,993
Retained earnings
4,194,851
3,834,348
Treasury stock - at cost,
32,613,727
shares (2022 -
32,803,802
)
(2,018,957)
(2,030,178)
Accumulated other comprehensive loss, net
of tax
(1,895,531)
(2,524,928)
Total stockholders’ equity
5,146,953
4,093,425
Total liabilities and stockholders’ equity
$
70,758,155
$
67,637,917
The accompanying notes are an integral part of
these Consolidated Financial Statements.
119
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF OPERATIONS
Years ended December 31,
(In thousands, except per share information)
2023
2022
2021
Interest income:
Loans
$
2,331,654
$
1,876,166
$
1,747,827
Money market investments
366,625
118,080
21,147
Investment securities
547,028
471,665
353,663
Total interest income
3,245,307
2,465,911
2,122,637
Interest expense:
Deposits
1,050,024
252,845
111,621
Short-term borrowings
7,329
5,737
319
Long-term debt
56,430
39,970
53,107
Total interest expense
1,113,783
298,552
165,047
Net interest income
2,131,524
2,167,359
1,957,590
Provision for credit losses (benefit)
208,609
83,030
(193,464)
Net interest income after provision for credit losses
(benefit)
1,922,915
2,084,329
2,151,054
Service charges on deposit accounts
147,476
157,210
162,698
Other service fees
374,440
334,009
311,248
Mortgage banking activities (Refer to Note 10)
21,497
42,450
50,133
Net gain on sale of debt securities
-
-
23
Net gain (loss), including impairment on equity securities
3,482
(7,334)
131
Net profit (loss) on trading account debt securities
1,382
(784)
(389)
Net loss on sale of loans, including valuation adjustments
on loans held-for-
sale
(115)
-
(73)
Adjustments to indemnity reserves on loans sold
2,319
919
4,406
Other operating income
100,243
370,592
113,951
Total non-interest income
650,724
897,062
642,128
Operating expenses:
Personnel costs
778,045
719,764
631,802
Net occupancy expenses
111,586
106,169
102,226
Equipment expenses
37,057
35,626
32,919
Other taxes
55,926
63,603
56,783
Professional fees
161,142
172,043
126,721
Technology and software expenses
290,615
291,902
277,979
Processing and transactional services
138,070
127,145
121,367
Communications
16,664
14,885
14,029
Business promotion
94,926
88,918
72,981
FDIC deposit insurance
105,985
26,787
25,579
Other real estate owned (OREO) income
(15,375)
(22,143)
(14,414)
Other operating expenses
97,279
109,446
92,169
Amortization of intangibles
3,180
3,275
9,134
Goodwill impairment charge
23,000
9,000
-
Total operating expenses
1,898,100
1,746,420
1,549,275
Income before income tax
675,539
1,234,971
1,243,907
Income tax expense
134,197
132,330
309,018
Net Income
$
541,342
$
1,102,641
$
934,889
Net Income Applicable to Common Stock
$
539,930
$
1,101,229
$
933,477
Net Income per Common Share – Basic
$
7.53
$
14.65
$
11.49
Net Income per Common Share – Diluted
$
7.52
$
14.63
$
11.46
The accompanying notes are an integral part of
these consolidated financial statements.
120
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
Years ended December 31,
(In thousands)
2023
2022
2021
Net income
$
541,342
$
1,102,641
$
934,889
Other comprehensive income (loss) before
tax:
Foreign currency translation adjustment
(7,793)
10,572
3,947
Adjustment of pension and postretirement
benefit plans
23,052
7,811
36,950
Amortization of net losses
19,253
15,644
20,749
Unrealized net holding gains (losses) on debt
securities arising during the period
391,633
(2,539,421)
(619,470)
Reclassification adjustment for gains included
in net income
-
-
(23)
Amortization of unrealized losses of debt
securities transfer from available-for-sale
to
held-to-maturity [1]
172,883
41,642
-
Unrealized net gains (losses) on cash flow
hedges
(30)
3,719
539
Reclassification adjustment for net (gains)
losses included in net income
(41)
(960)
1,847
Other comprehensive income (loss) before
tax
598,957
(2,460,993)
(555,461)
Income tax benefit
30,440
261,134
40,401
Total other comprehensive income (loss), net of tax
629,397
(2,199,859)
(515,060)
Comprehensive income (loss), net of tax
$
1,170,739
$
(1,097,218)
$
419,829
Tax effect allocated to each component of other comprehensive
income (loss):
Years ended December 31,
(In thousands)
2023
2022
2021
Adjustment of pension and postretirement
benefit plans
$
(8,644)
$
(2,929)
$
(13,856)
Amortization of net losses
(7,219)
(5,867)
(7,781)
Unrealized net holding gains (losses) on debt
securities arising during the period
80,854
278,324
62,468
Reclassification adjustment for gains included
in net income
-
-
5
Amortization of unrealized losses of debt
securities transferred from available-for-sale
to
held-to-maturity [1]
(34,577)
(8,328)
-
Unrealized net gains (losses) on cash flow
hedges
11
(612)
(172)
Reclassification adjustment for net (gains)
losses included in net income
15
546
(263)
Income tax benefit
$
30,440
$
261,134
$
40,401
[1] 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.
Refer to Note 7 to the Consolidated Financial
Statements for additional information.
The accompanying notes are an integral
part of these consolidated financial statements.
121
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS’ EQUITY
Accumulated
other
Common
Preferred
Retained
Treasury
comprehensive
(In thousands)
stock
stock
Surplus
earnings
stock
income (loss)
Total
Balance at December 31, 2020
$
1,045
$
22,143
$
4,571,534
$
2,260,928
$
(1,016,954)
$
189,991
$
6,028,687
Net income
934,889
934,889
Issuance of stock
1
4,673
4,674
Dividends declared:
Common stock
[1]
(142,290)
(142,290)
Preferred stock
(1,412)
(1,412)
Common stock purchases
[2]
(8,557)
(347,093)
(355,650)
Stock based compensation
4,162
11,397
15,559
Other comprehensive loss, net of tax
(515,060)
(515,060)
Transfer to statutory reserve
78,370
(78,370)
-
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
1,102,641
1,102,641
Issuance of stock
1
5,836
5,837
Dividends declared:
Common stock
[1]
(163,693)
(163,693)
Preferred stock
(1,412)
(1,412)
Common stock purchases
[3]
53,592
(691,256)
(637,664)
Stock based compensation
4,450
13,728
18,178
Other comprehensive loss, net of tax
(2,199,859)
(2,199,859)
Transfer to statutory reserve
76,933
(76,933)
-
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
541,342
541,342
Issuance of stock
1
6,310
6,311
Dividends declared:
Common stock
[1]
(163,664)
(163,664)
Preferred stock
(1,412)
(1,412)
Common stock purchases
(4,550)
(4,550)
Stock based compensation
1,581
15,771
17,352
Other comprehensive income, net of tax
629,397
629,397
Transfer to statutory reserve
44,515
(44,515)
-
Balance at December 31, 2023
$
1,048
$
22,143
$
4,843,399
$
4,194,851
$
(2,018,957)
$
(1,895,531)
$
5,146,953
[1]
Dividends declared per common share during the year ended
December 31, 2023 - $
2.27
(2022 - $
2.20
; 2021 - $
1.75
).
[2]
During the year ended December 31, 2021, the Corporation
completed a $
350
million accelerated share repurchase transaction with respect
to its
common stock, which was accounted for as a treasury stock
transaction. Refer to Note 20 for additional information.
[3]
During the year ended December 31, 2022, the Corporation
completed two accelerated share repurchase transactions
with respect to its common
stock, which were accounted for as a treasury stock transactions.
The aggregate amount of both transactions was $
631
million. Refer to Note 20
for additional information.
Years ended December
31,
Disclosure of changes in number of shares:
2023
2022
2021
Preferred Stock:
Balance at beginning and end of year
885,726
885,726
885,726
Common Stock:
Balance at beginning of year
104,657,522
104,579,334
104,508,290
Issuance of stock
109,826
78,188
71,044
Balance at end of year
104,767,348
104,657,522
104,579,334
Treasury stock
(32,613,727)
(32,803,802)
(24,728,165)
Common Stock – Outstanding
72,153,621
71,853,720
79,851,169
The accompanying notes are an integral part of these consolidated
financial statements.
122
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
Years ended December
31,
(In thousands)
2023
2022
2021
Cash flows from operating activities:
Net income
$
541,342
$
1,102,641
$
934,889
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for credit losses (benefit)
208,609
83,030
(193,464)
Goodwill impairment losses
23,000
9,000
-
Amortization of intangibles
3,180
3,275
9,134
Depreciation and amortization of premises and equipment
58,507
55,107
55,104
Net accretion of discounts and amortization of premiums and
deferred fees
(45,249)
29,120
(21,962)
Interest capitalized on loans subject to the temporary payment
moratorium or loss mitigation
alternatives
(9,868)
(11,521)
(15,567)
Share-based compensation
16,773
16,727
17,774
Impairment losses on right-of-use and long-lived assets
-
2,233
5,320
Fair value adjustments on mortgage servicing rights
12,339
(166)
10,206
Fair value adjustment for contingent consideration
-
(9,241)
-
Adjustments to indemnity reserves on loans sold
(2,319)
(919)
(4,406)
Earnings from investments under the equity method, net
of dividends or distributions
(27,450)
(29,522)
(50,942)
Deferred income tax (benefit) expense
(43,139)
(33,129)
229,371
(Gain) loss on:
Disposition of premises and equipment and other productive
assets
(12,756)
(9,453)
(18,393)
Proceeds from insurance claims
(145)
-
-
Sale of debt securities
-
-
(23)
Sale of loans, including valuation adjustments on loans
held-for-sale and mortgage banking
activities
203
252
(21,611)
Sale of equity method investment
(152)
(8,198)
-
Disposition of stock as part of the Evertec Transactions
-
(240,412)
-
Sale of foreclosed assets, including write-downs
(22,665)
(33,008)
(30,098)
Acquisitions of loans held-for-sale
(7,639)
(122,363)
(251,336)
Proceeds from sale of loans held-for-sale
44,734
64,542
95,100
Net originations on loans held-for-sale
(68,310)
(202,913)
(527,585)
Net decrease (increase) in:
Trading debt securities
33,500
353,301
741,465
Equity securities
(11,341)
54
(2,336)
Accrued income receivable
(23,238)
(62,932)
6,193
Other assets
24,200
76,589
25,022
Net increase (decrease) in:
Interest payable
19,814
6,061
(5,395)
Pension and other postretirement benefits obligation
16,092
(2,893)
(4,104)
Other liabilities
(41,410)
(20,724)
22,802
Total adjustments
145,270
(88,103)
70,269
Net cash provided by operating activities
686,612
1,014,538
1,005,158
Cash flows from investing activities:
Net (increase) decrease in money market investments
(1,383,821)
11,922,703
(5,895,789)
Purchases of investment securities:
Available-for-sale
(16,707,264)
(22,232,278)
(14,672,856)
Held-to-maturity
(8,615)
(1,879,443)
-
Equity
(18,477)
(48,921)
(16,196)
Proceeds from calls, paydowns, maturities and redemptions
of investment securities:
Available-for-sale
18,215,910
20,143,921
9,602,430
Held-to-maturity
458,806
9,826
15,700
Proceeds from sale of investment securities:
Available-for-sale
-
-
235,992
Equity
31,946
42,990
2,904
Net (disbursements) repayments on loans
(2,475,837)
(2,237,084)
469,268
Proceeds from sale of loans
135,231
141,314
203,179
Acquisition of loan portfolios
(770,493)
(753,684)
(348,179)
Payments to acquire other intangible
-
-
(905)
Payments to acquire businesses, net of cash acquired
-
-
(155,828)
Return of capital from equity method investments
249
681
6,362
Payments to acquire equity method investments
(1,500)
(1,625)
(375)
Proceeds from sale of equity method investment
152
8,198
-
Proceeds from disposition of stock as part of the Evertec Transactions
-
219,883
-
123
Acquisition of premises and equipment
(208,044)
(103,789)
(72,781)
Proceeds from insurance claims
145
-
-
Proceeds from sale of:
Premises and equipment and other productive assets
8,658
10,305
21,482
Foreclosed assets
109,547
107,203
86,942
Net cash (used in) provided by investing activities
(2,613,407)
5,350,200
(10,518,650)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits
2,365,451
(5,770,261)
10,138,617
Assets sold under agreements to repurchase
(57,225)
57,006
(29,700)
Other short-term borrowings
(365,000)
290,000
75,000
Payments of notes payable
(343,261)
(103,147)
(237,713)
Principal payments of finance leases
(5,360)
(3,346)
(2,852)
Proceeds from issuance of notes payable
441,705
-
-
Proceeds from issuance of common stock
6,311
5,837
4,674
Dividends paid
(159,860)
(161,516)
(141,466)
Net payments for repurchase of common stock
(461)
(631,893)
(350,535)
Payments related to tax withholding for share-based compensation
(4,089)
(5,771)
(5,115)
Net cash provided by (used in) financing activities
1,878,211
(6,323,091)
9,450,910
Net (decrease) increase in cash and due from banks, and
restricted cash
(48,584)
41,647
(62,582)
Cash and due from banks, and restricted cash at beginning
of period
476,159
434,512
497,094
Cash and due from banks, and restricted cash at end of period
$
427,575
$
476,159
$
434,512
The accompanying notes are an integral part of these consolidated
financial statements.
124
Notes to Consolidated Financial Statements
Note 1 -
Nature of Operations and Basis of Presentation
125
Note 2 -
Summary of Significant Accounting Policies
126
Note 3 -
New Accounting Pronouncements
137
Note 4 -
Business Combinations
143
Note 5 -
Restrictions on Cash and Due from Banks and Certain Securities
145
Note 6 -
Debt Securities Available-For-Sale
146
Note 7 -
Debt Securities Held-to-Maturity
149
Note 8 -
Loans
153
Note 9 -
Allowance for Credit Losses – Loans Held-In-Portfolio
163
Note 10 -
Mortgage Banking Activities
192
Note 11 -
Transfers of Financial Assets and Mortgage
Servicing Assets
193
Note 12 -
Premises and Equipment
196
Note 13 -
Other Real Estate Owned
197
Note 14 -
Other Assets
198
Note 15 -
Goodwill and Other Intangible Assets
199
Note 16 -
Deposits
203
Note 17 -
Borrowings
204
Note 18 -
Trust Preferred Securities
207
Note 19 -
Other Liabilities
208
Note 20 -
Stockholders’ Equity
209
Note 21 -
Regulatory Capital Requirements
211
Note 22 -
Other Comprehensive Income (Loss)
214
Note 23 -
Guarantees
216
Note 24 -
Commitments and Contingencies
218
Note 25-
Non-consolidated Variable Interest
Entities
223
Note 26 -
Derivative Instruments and Hedging Activities
225
Note 27 -
Related Party Transactions
228
Note 28 -
Fair Value Measurement
231
Note 29 -
Fair Value of Financial Instruments
239
Note 30 -
Employee Benefits
242
Note 31 -
Net Income per Common Share
250
Note 32 -
Revenue from Contracts with Customers
251
Note 33 -
Leases
253
Note 34 -
Stock-Based Compensation
255
Note 35 -
Income Taxes
258
Note 36 -
Supplemental Disclosure on the Consolidated Statements of Cash
Flows
262
Note 37 -
Segment Reporting
263
Note 38 -
Popular, Inc. (Holding company only)
Financial Information
266
125
Note 1 – Nature of Operations and basis of
Presentation
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
mainland
U.S.,
the
Corporation
provides
retail,
mortgage
and
commercial
banking
services
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, investment and insurance services and equipment
leasing and financing services through specialized
subsidiaries.
Basis of Presentation
Leveraging
the
completion
of
the
Evertec
Transactions,
as
defined
in
Note
4
to
the
Consolidated
Financial
Statements,
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
our
clients,
as
well
as
the
competitive
landscape,
have
evolved,
requiring
us
to
make
important
investments
in
our
technological
infrastructure
and
adopt
more
agile
practices.
Our
technology
and
business
transformation will be a significant priority for the Corporation
over the next three years and beyond.
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.
The following table provides the detail of
the reclassifications for the year.
Year ended December 31,
2021
Financial statement line item
As reported
Adjustments
Adjusted
Equipment expenses
$
92,097
$
(59,178)
$
32,919
Professional fees
410,865
(284,144)
126,721
Technology and
software expenses
-
277,979
277,979
Processing and transactional services
-
121,367
121,367
Communications
25,234
(11,205)
14,029
Other operating expenses
136,988
(44,819)
92,169
Net effect on operating expenses
$
665,184
$
-
$
665,184
126
Note 2 – 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.
The following is a description of the most significant
of these policies:
Principles of consolidation
The
consolidated
financial
statements
include
the
accounts
of
Popular,
Inc.
and
its
subsidiaries.
Intercompany
accounts
and
transactions have been
eliminated in consolidation. In
accordance with the
consolidation guidance for variable
interest entities, the
Corporation
would
also
consolidate
any
variable
interest
entities
(“VIEs”)
for
which
it
has
a
controlling
financial
interest;
and
therefore, it is the primary beneficiary. Assets
held in a fiduciary capacity are not assets of the Corporation and, accordingly,
are not
included in the Consolidated Statements of Financial
Condition.
Unconsolidated investments, in
which there is
at least
20% ownership and
/ or
the Corporation exercises
significant influence, are
generally
accounted
for
by
the
equity
method
with
earnings
recorded
in
other
operating
income.
Limited
partnerships
are
also
accounted for by the equity method unless the investor’s
interest is so “minor” that the limited partner may have
virtually no influence
over
partnership
operating
and
financial
policies.
These
investments
are
included
in
other
assets
and
the
Corporation’s
proportionate share of income or loss is included
in other operating income.
Statutory business trusts that are wholly-owned by the Corporation and are
issuers of trust preferred securities are not consolidated
in the Corporation’s Consolidated Financial Statements.
Business combinations
Business combinations are accounted for under the acquisition method. Under this method, assets acquired, liabilities assumed and
any noncontrolling
interest in
the acquiree
at the
acquisition date
are measured
at their
fair values
as of
the acquisition
date. The
acquisition
date
is
the
date
the
acquirer
obtains
control.
Transaction
costs
are
expensed
as
incurred.
Contingent
consideration
classified as an asset
or a liability is remeasured to
fair value at each reporting
date until the contingency is
resolved. The changes
in fair
value of
the contingent
consideration are
recognized in
earnings unless
the arrangement
is a
hedging instrument
for which
changes are
initially recognized
in other
comprehensive income
(loss). Refer
to
Note 4
for information
of
business combinations
completed by the Corporation for the years presented.
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.
Fair value measurements
The Corporation determines the fair values of its
financial instruments based on the fair value framework
established in the guidance
for Fair Value
Measurements in Accounting
Standards Codification (“ASC”)
Subtopic 820-10, which
requires an entity
to maximize
the use
of observable inputs
and minimize the
use of
unobservable inputs when
measuring fair value.
Fair value is
defined as the
exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous
market
for
the
asset
or
liability
in
an
orderly
transaction
between
market
participants
on
the
measurement
date.
The
standard
describes three
levels of
inputs that
may be
used to
measure fair
value which
are (1)
quoted market
prices for
identical assets
or
liabilities in active markets, (2) observable market-based
inputs or unobservable inputs that are corroborated
by market data, and (3)
unobservable
inputs
that
are
not
corroborated
by
market
data.
The
fair
value
hierarchy
ranks
the
quality
and
reliability
of
the
information used to determine fair values.
The
guidance
in
ASC
Subtopic
820-10
also
addresses
measuring
fair
value
in
situations
where
markets
are
inactive
and
transactions are
not orderly.
Transactions
or quoted
prices for
assets and
liabilities may
not be
determinative of
fair value
when
transactions are not
orderly, and
thus, may require
adjustments to estimate fair
value. Price quotes
based on transactions
that are
not orderly should be given
little, if any,
weight in measuring fair value. Price
quotes based on transactions that are
orderly shall be
considered
in
determining
fair
value,
and
the
weight
given
is
based
on
facts
and
circumstances.
If
sufficient
information
is
not
available to
determine if
price quotes
are based
on orderly
transactions, less
weight should
be given to
the price
quote relative
to
other transactions that are known to be orderly.
127
Investment securities
Investment securities are classified in four categories and
accounted for as follows:
●
Debt securities that
the Corporation has
the intent and
ability to hold
to maturity are
classified as debt
securities held-to-
maturity and reported
at amortized cost. An
ACL is established
for the expected credit
losses over the remaining
term of
debt securities held-to-maturity. The Corporation has established a methodology to estimate credit losses which
considers
qualitative factors,
including internal credit
ratings and
the underlying source
of repayment
in determining
the amount
of
expected
credit
losses.
Debt
securities
held-to-maturity
are
written-off
through
the
ACL
when
a
portion
or
the
entire
amount is deemed uncollectible, based on the information considered to develop expected credit losses through the life of
the
asset.
The
ACL
is
estimated
by
leveraging
the
expected
loss
framework
for
mortgages
in
the
case
of
securities
collateralized by
2
nd
lien loans
and the
commercial C&I
models for
municipal bonds.
As part
of this
framework, internal
factors are stressed,
as a qualitative
adjustment, to reflect current
conditions that are
not necessarily captured within
the
historical
loss
experience.
The
modeling
framework
includes
a
2-year
reasonable
and
supportable
period
gradually
reverting, over a
3-years horizon, to
historical information at
the model input
level. The Corporation’s
portfolio of held-to-
maturity
securities
includes
U.S. Treasury
notes
and
obligations from
the
U.S.
Government. These
securities
have
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. The
Corporation may not sell
or transfer held-to-maturity securities without
calling into question its
intent
to
hold
other
debt
securities
to
maturity,
unless
a
nonrecurring
or
unusual
event
that
could
not
have
been
reasonably anticipated has occurred.
●
Debt securities
classified as
trading securities
are reported
at fair
value, with
unrealized and
realized gains
and losses
included in non-interest income.
●
Debt
securities
classified
as
available-for-sale
are
reported
at
fair
value.
Declines
in
fair
value
below
the
securities’
amortized cost which are not related to estimated credit losses are recorded through other comprehensive income or loss,
net of
taxes. If
the Corporation intends
to sell
or believes
it is
more likely than
not that it
will be
required to sell
the debt
security,
it is
written down
to
fair value
through earnings.
Credit losses
relating to
available-for-sale debt
securities are
recorded through an
ACL, which are
limited to the
difference between the
amortized cost and the
fair value of
the asset.
The ACL is established for the expected credit losses over the remaining term of debt security. The Corporation’s portfolio
of
available-for-sale securities
is comprised
mainly
of
U.S. Treasury
notes
and
obligations from
the
U.S.
Government.
These
securities
have
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. The Corporation
monitors its securities
portfolio composition and
credit performance on a
quarterly basis to determine if
any allowance is considered necessary.
Debt securities available-
for-sale are written-off when
a portion or
the entire amount is
deemed uncollectible, based on the
information considered
to
develop expected
credit losses
through the
life of
the asset.
The specific
identification method
is used
to
determine
realized
gains
and
losses
on
debt
securities
available-for-sale,
which
are
included
in
net
(loss)
gain
on
sale
of
debt
securities in the Consolidated Statements of Operations.
●
Equity securities that have readily available fair values are reported at fair value. Equity securities that do not have readily
available fair
values are
measured at
cost, less
any impairment,
plus or
minus changes
resulting from
observable price
changes in
orderly transactions
for the
identical or
a similar
investment of
the same
issuer.
Stock that
is owned
by the
Corporation
to
comply
with
regulatory
requirements,
such
as
Federal
Reserve
Bank
and
Federal
Home
Loan
Bank
(“FHLB”) stock, is included in this category, and their realizable value equals their cost. Unrealized and realized gains and
losses and any impairment on equity securities are included in net gain (loss), including impairment on equity securities in
the Consolidated Statements
of Operations. Dividend income
from investments in
equity securities is included
in interest
income.
The
amortization
of
premiums is
deducted
and
the
accretion of
discounts is
added to
net
interest income
based on
the
interest
method
over the
outstanding period
of
the
related
securities.
Purchases and
sales
of
securities
are
recognized
on
a
trade
date
basis.
Derivative financial instruments
All derivatives are recognized on the Statements of Financial Condition at
fair value. The Corporation’s policy is not to
offset the fair
value
amounts
recognized
for
multiple
derivative
instruments
executed
with
the
same
counterparty
under
a
master
netting
128
arrangement nor to offset the fair value amounts recognized for the
right to reclaim cash collateral (a receivable) or the obligation
to
return cash collateral (a payable) arising from the
same master netting arrangement as the derivative
instruments.
For
a
cash
flow
hedge,
changes
in
the
fair
value
of
the
derivative
instrument
are
recorded
net
of
taxes
in
accumulated
other
comprehensive income (loss) and subsequently reclassified
to net income in the same period(s) that the hedged
transaction impacts
earnings. For free-standing derivative instruments,
changes in fair values are reported in current
period earnings.
Prior
to
entering
a
hedge
transaction,
the
Corporation
formally
documents
the
relationship
between
hedging
instruments
and
hedged
items,
as
well
as
the
risk
management objective
and
strategy for
undertaking various
hedge
transactions.
This
process
includes
linking all
derivative instruments
to
specific assets
and
liabilities on
the Statements
of
Financial Condition
or to
specific
forecasted transactions
or firm
commitments along
with a
formal assessment,
at both
inception of
the hedge
and on
an ongoing
basis,
as
to
the
effectiveness
of the
derivative instrument
in
offsetting
changes
in
fair
values
or
cash
flows
of
the
hedged
item.
Hedge accounting
is discontinued
when the
derivative instrument
is not
highly effective
as a
hedge, a
derivative expires,
is sold,
terminated, when it is unlikely that a forecasted transaction will
occur or when it is determined that it is
no longer appropriate. When
hedge accounting is discontinued the derivative continues
to be carried at fair value with changes in fair
value included in earnings.
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 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.
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 are
expected to
be offset
by the
changes in the fair value of the forward
contract, both of which are now recorded through
net income.
For non-exchange
traded contracts,
fair value
is based
on dealer
quotes, pricing
models, discounted
cash flow
methodologies or
similar techniques for which the determination of
fair value may require significant management judgment
or estimation.
The fair value of derivative instruments considers
the risk of non-performance by the counterparty
or the Corporation, as applicable.
The Corporation obtains or pledges collateral in
connection with its derivative activities when applicable
under the agreement
.
Loans
Loans
are
classified
as
loans
held-in-portfolio when
management has
the
intent
and
ability
to
hold
the
loan
for
the
foreseeable
future, or
until maturity
or payoff.
The foreseeable
future is
a management
judgment which
is determined
based upon
the type
of
loan,
business strategies,
current market
conditions, balance
sheet
management and
liquidity needs.
Management’s view
of
the
foreseeable future may change based on changes in these conditions. When a decision is made to sell or securitize a loan that
was
not originated or
initially acquired with the
intent to sell
or securitize, the loan
is reclassified from held-in-portfolio
into held-for-sale.
Due to changing market conditions or other strategic
initiatives, management’s intent with respect to the disposition of
the loan may
change,
and
accordingly,
loans
previously classified
as
held-for-sale may
be
reclassified into
held-in-portfolio. Loans
transferred
between loans held-for-sale and held-in-portfolio
classifications are recorded at the lower of cost or
fair value at the date of transfer.
Purchased
loans
with
no
evidence
of
credit
deterioration
since
origination
are
recorded
at
fair
value
upon
acquisition.
Credit
discounts are included in the determination of fair
value.
Loans held-in-portfolio
are reported
at their
outstanding principal
balances net
of any
unearned income,
charge-offs, unamortized
deferred fees and
costs on originated
loans, and premiums
or discounts on
purchased loans. Fees
collected and costs
incurred in
the
origination of
new
loans are
deferred and
amortized using
the interest
method or
a method
which approximates
the interest
method over the term of the loan as an adjustment
to interest yield.
Loans held-for-sale,
except for
mortgage loans
originated as
held-for-sale, are
stated at
the lower
of cost
or fair
value, cost
being
determined based
on the
outstanding loan
balance less
unearned income,
and fair
value determined,
generally in
the aggregate.
Fair value 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. The
cost basis
also includes
consideration of
deferred origination
fees and
costs, which
are recognized
in earnings
at the
time of sale.
Upon reclassification to held-for-sale,
credit related fair
value adjustments are recorded
as a reduction
in the ACL.
To
129
the extent that the loan's reduction in value
has not already been provided for in the ACL,
an additional provision for credit losses is
recorded. Subsequent to reclassification to held-for-sale, the amount, by
which cost exceeds fair value, if any,
is accounted for as a
valuation allowance
with changes
therein included
in the
determination of
net income
for the
period in
which the
change occurs.
Effective
on
January
1,
2023,
newly
originated
mortgage
loans
held-for-sale
are
reported
at
fair
value,
with
changes
recorded
through earnings.
The past due status of a loan is determined in accordance with its
contractual repayment terms. Furthermore, loans are reported as
past due when either interest or principal remains
unpaid for 30 days or more in accordance
with its contractual repayment terms.
Non-accrual loans are those loans on which the
accrual of interest is discontinued. When a loan is
placed on non-accrual status, all
previously
accrued
and
unpaid interest
is
charged against
interest
income
and
the
loan
is
accounted for
either
on
a cash-basis
method or
on the
cost-recovery method.
Loans designated
as non-accruing
are returned
to accrual
status when
the Corporation
expects repayment of the remaining contractual principal
and interest.
Recognition of interest income on commercial and construction loans is discontinued when the loans are 90 days or more in arrears
on payments of principal or interest or when other factors indicate that the collection of principal and interest is
doubtful. The portion
of
a
secured
loan
deemed
uncollectible
is
charged-off
no
later
than
365
days
past
due.
However,
in
the
case
of
a
collateral
dependent
loan,
the
excess
of
the
recorded
investment
over
the
fair
value
of
the
collateral
(portion
deemed
uncollectible)
is
generally
promptly charged-off,
but
in
any
event,
not
later
than
the
quarter
following
the
quarter
in
which
such
excess was
first
recognized.
Commercial
unsecured
loans
are
charged-off
no
later
than
180
days
past
due.
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
portion of a
mortgage loan deemed
uncollectible is charged-off
when the loan
is 180 days
past due. The
Corporation discontinues
the recognition
of interest
on residential
mortgage loans
insured by
the Federal
Housing Administration
(“FHA”) or
guaranteed by
the U.S.
Department of Veterans
Affairs (“VA”)
when 15-months
delinquent as
to principal
or interest.
The principal
repayment on
these loans is insured. Recognition of interest income on closed-end consumer loans and home equity lines of credit is discontinued
when the
loans are
90 days
or more
in arrears
on payments
of principal
or interest.
Income is
generally recognized
on open-end
consumer loans,
except for
home equity
lines
of
credit,
until
the
loans are
charged-off.
Recognition of
interest
income
for
lease
financing is ceased when
loans are 90 days
or more in arrears.
Closed-end consumer loans and leases
are charged-off when they
are 120
days in
arrears. Open-end
(revolving credit)
consumer loans
are charged-off
when 180
days in
arrears. Commercial
and
consumer overdrafts are generally charged-off no later than
60 days past their due date.
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.
Loan modifications
In
connection with
the
implementation of
the Accounting
Standards Update
(“ASU”) 2022-02,
the Corporation
modified its
policy
related to
loan modifications.
As discussed
in Note
3, the
new accounting
guidance eliminates
the recognition
and measurement
principle of troubled debt restructurings (TDRs).
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
and 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
2022-02
eliminates
the
requirement
to
use
a
discounted
cash
flow
(“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.
Refer
to
Note
9
to
the
Consolidated
Financial
Statements
for
additional
qualitative
information
on
loan
modifications
and
the
Corporation’s determination of the ACL.
Lease financing
130
The
Corporation leases
passenger and
commercial
vehicles
and
equipment
to
individual
and
corporate
customers.
The
finance
method of accounting
is used to
recognize revenue on lease
contracts that meet
the criteria specified in
the guidance for leases
in
ASC Topic
842. Aggregate
rentals due
over the
term of
the leases
less unearned
income are
included in
finance lease
contracts
receivable.
Unearned
income
is
amortized
using
a
method
which
results
in
approximate
level
rates
of
return
on
the
principal
amounts outstanding. Finance lease origination
fees and costs
are deferred and amortized
over the average life
of the lease as
an
adjustment to the interest yield.
Revenue for other leases is recognized as it becomes
due under the terms of the agreement.
Loans acquired with deteriorated credit quality
Purchased credit
deteriorated (“PCD”) loans
are defined
as those
with evidence
of a
more-than-insignificant deterioration in
credit
quality since origination.
PCD loans are initially recorded at its purchase price plus an
estimated allowance for credit losses (“ACL”).
Upon the acquisition of a PCD loan, the Corporation makes an estimate
of the expected credit losses over the remaining contractual
term
of
each individual
loan. The
estimated credit
losses over
the life
of the
loan are
recorded as
an ACL
with a
corresponding
addition to the loan purchase price. The amount of the purchased
premium or discount which is not related to credit risk
is amortized
over the life of
the loan through net
interest income using the
effective interest method or
a method that approximates the
effective
interest
method.
Changes
in
expected
credit
losses
are
recorded as
an
increase
or
decrease
to
the
ACL
with
a
corresponding
charge
(reverse)
to
the
provision
for
credit
losses
in
the
Consolidated
Statement
of
Operations.
These
loans
follow
the
same
nonaccrual policies as non-PCD loans.
Refer to Note 8
to the Consolidated Financial Statements
for additional information with respect
to loans acquired with
deteriorated
credit quality.
Accrued interest receivable
The
amortized
basis
for
loans
and
investments
in
debt
securities
is
presented
exclusive
of
accrued
interest
receivable.
The
Corporation has elected
not to establish
an ACL for
accrued interest receivable for
loans and investments
in debt securities,
given
the Corporation’s
non-accrual policies, in
which accrual
of interest is
discontinued and reversed
based on the
asset’s delinquency
status.
Allowance for credit losses – loans portfolio
The Corporation establishes an ACL
for its loan
portfolio based on its
estimate of credit losses
over the remaining contractual
term
of the loans, adjusted for expected prepayments. An ACL is recognized for all loans including originated and purchased loans, since
inception, with
a corresponding charge
to the
provision for
credit losses,
except for
PCD loans
for which
the ACL
at acquisition
is
recorded
as
an
addition
to
the
purchase
price
with
subsequent
changes
recorded
in
earnings.
Loan
losses
are
charged
and
recoveries are credited to the ACL.
The
Corporation
follows
a
methodology
to
estimate
the
ACL
which
includes
a
reasonable
and
supportable
forecast
period
for
estimating
credit
losses,
considering
quantitative
and
qualitative
factors
as
well
as
the
economic
outlook.
As
part
of
this
methodology,
management
evaluates
various
macroeconomic
scenarios
provided
by
third
parties.
At
December
31,
2023,
management
applied
probability
weights
to
the
outcome
of
the
selected
scenarios.
This
evaluation
includes
benchmarking
procedures
as
well
as
careful
analysis of
the
underlying assumptions
used to
build the
scenarios. The
application of
probability
weights include baseline, optimistic and pessimistic scenarios. The weights applied are subject to evaluation on a quarterly basis as
part
of
the
ACL’s
governance
process. The
Corporation considers
additional
macroeconomic scenarios
as
part
of
its
qualitative
adjustment framework.
The
macroeconomic variables
chosen
to
estimate credit
losses
were selected
by
combining
quantitative
procedures with
expert
judgment.
These
variables
were
determined
to
be
the
best
predictors
of
expected
credit
losses
within
the
Corporation’s
loan
portfolios and
include drivers such
as unemployment rate,
different measures
of employment levels,
house prices,
gross domestic
product
and
measures
of
disposable
income,
amongst
others.
The
loss
estimation
framework
includes
a
reasonable
and
supportable period of 2 years for PR portfolios, gradually
reverting, over a 3-years horizon, to historical macroeconomic variables at
the
model
input
level.
For
the
US
portfolio
the
reasonable
and
supportable
period
considers
the
contractual
life
of
the
asset,
impacted
by
prepayments, except
for the
US
CRE portfolio.
The US
CRE portfolio
utilizes a
2-year reasonable
and supportable
period gradually reverting, over a 3-years horizon,
to historical information at the output level.
The
Corporation
developed
loan
level
quantitative
models
distributed
by
geography
and
loan
type.
This
segmentation
was
determined
by
evaluating
their
risk
characteristics,
which
include
default
patterns,
source
of
repayment,
type
of
collateral,
and
131
lending
channels,
amongst
others.
The
modeling
framework
includes
competing
risk
models
to
generate
lifetime
defaults
and
prepayments, and other loan
level modeling techniques to estimate
loss severity.
Recoveries on future losses
are contemplated as
part
of
the
loss
severity
modeling.
These
parameters
are
estimated
by
combining
internal
risk
factors
with
macroeconomic
expectations. In
order to
generate the
expected credit
losses, the
output of
these models
is combined
with loan
level repayment
information.
The
internal
risk
factors
contemplated
within
the
models
may
include
borrowers’
credit
scores,
loan-to-value,
delinquency status, risk ratings, interest rate, loan
term, loan age and type of collateral, amongst
others.
The ACL
also includes
a qualitative
framework that
addresses two
main components:
losses that
are expected
but not
captured
within the quantitative modeling framework, and model imprecision. In order
to identify potential losses that are not captured through
the
models,
management
evaluates
model
limitations
as
well
as
the
different
risks
covered
by
the
variables
used
in
each
quantitative model. The
Corporation considers additional macroeconomic
scenarios to address
these risks. This
assessment takes
into
consideration factors
listed
as
part
of
ASC
326-20-55-4. To
complement
the
analysis, management
also
evaluates
whether
there are sectors
that have low
levels of historical
defaults, but current
conditions show the
potential for future
losses. This type
of
qualitative
adjustment
is
more
prevalent
in
the
commercial
portfolios.
The
model
imprecision
component
of
the
qualitative
adjustments
is
determined
after
evaluating
model
performance
for
these
portfolios
through
different
time
periods.
This
type
of
qualitative adjustment mainly impacts consumer portfolios.
The
Corporation
has
designated
as
collateral
dependent
loans
secured
by
collateral
when
foreclosure
is
probable
or
when
foreclosure is
not probable but
the practical expedient
is used.
The practical expedient
is used
when repayment is
expected to
be
provided
substantially
by
the
sale
or
operation
of
the
collateral
and
the
borrower is
experiencing financial
difficulty.
The
ACL
of
collateral dependent loans
is measured based
on the fair
value of the
collateral less costs
to sell. 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.
The Credit Cards
portfolio, due to
its revolving nature,
does not have
a specified maturity date.
To
estimate the average remaining
term
of
this
segment,
management evaluated
the
portfolios
payment
behavior
based
on
internal
historical data.
These payment
behaviors were
further classified
into sub-categories
that accounted
for delinquency
history and
differences between
transactors,
revolvers and customers that have exhibited mixed transactor/revolver behavior. Transactors are defined as active accounts without
any
finance
charge
in
the
last
6
months.
The
paydown
curves
generated
for
each
sub-category
are
applied
to
the
outstanding
exposure at
the measurement
date using
the first-in
first-out (FIFO)
methodology.
These amortization
patterns are
combined with
loan level default and loss severity modeling to arrive
at the ACL.
Reserve for unfunded commitments
The Corporation
establishes a
reserve for
unfunded commitments,
based on
the estimated
losses over
the remaining
term of
the
facility.
An allowance
is not
established for
commitments that
are unconditionally
cancellable by
the Corporation.
Accordingly,
no
reserve
is
established
for
unfunded commitments
related to
its
credit
cards
portfolio.
Reserve for
the
unfunded
portion
of
credit
commitments
is
presented
within
other
liabilities
in
the
Consolidated Statements
of
Financial
Condition.
Net
adjustments
to
the
reserve for unfunded commitments are
reflected in the Consolidated Statements
of Operations as provision for credit
losses for the
years ended December 31, 2023 and 2022.
Transfers and servicing of financial assets
The transfer
of an
entire financial
asset, a
group of
entire financial
assets, or
a participating interest
in an
entire financial
asset in
which the Corporation surrenders control over the assets is accounted
for as a sale
if all of the following conditions set forth in
ASC
Topic
860 are met:
(1) the assets
must be isolated
from creditors of
the transferor,
(2) the transferee
must obtain the
right (free of
conditions that constrain it
from taking advantage
of that right)
to pledge or
exchange the transferred assets,
and (3) the
transferor
cannot maintain effective control over
the transferred assets through an agreement
to repurchase them before their
maturity. When
the
Corporation
transfers
financial
assets
and
the
transfer
fails
any
one
of
these
criteria,
the
Corporation
is
prevented
from
derecognizing the transferred financial
assets and the
transaction is accounted for
as a secured
borrowing. For federal and
Puerto
Rico income
tax purposes,
the Corporation
treats the
transfers of
loans which
do not
qualify as
“true sales”
under the
applicable
accounting guidance, as sales, recognizing a deferred
tax asset or liability on the transaction.
For transfers
of financial
assets that
satisfy the
conditions to
be accounted
for as
sales, the
Corporation derecognizes
all assets
sold; recognizes all
assets obtained and liabilities
incurred in consideration as
proceeds of the
sale, including servicing
assets and
servicing liabilities, if
applicable; initially measures
at fair
value assets obtained
and liabilities incurred
in a
sale; and
recognizes in
earnings any gain or loss on the sale.
132
The guidance
on transfer
of financial
assets requires a
true sale
analysis of
the treatment
of the
transfer under state
law as
if the
Corporation was a debtor under the bankruptcy code. A true sale legal analysis includes several legally relevant factors, such as the
nature and level of recourse to the transferor, and the nature of retained interests in the loans sold. The analytical conclusion as to a
true sale
is never
absolute and
unconditional, but
contains qualifications
based on
the inherent
equitable powers
of a
bankruptcy
court, as
well as
the unsettled
state of
the common
law.
Once the
legal isolation
test has
been met,
other factors
concerning the
nature
and
extent
of
the
transferor’s
control
over
the
transferred
assets
are
taken
into
account
in
order
to
determine
whether
derecognition of assets is warranted.
The Corporation sells mortgage loans to the Government National Mortgage Association (“GNMA”)
in the normal course of business
and retains the servicing rights. The GNMA programs under which the loans
are sold allow the Corporation to repurchase individual
delinquent loans that meet certain criteria. At the Corporation’s option, and without GNMA’s prior authorization, the Corporation may
repurchase the delinquent
loan for an
amount equal to
100% of the
remaining principal balance
of the loan.
Once the Corporation
has the
unconditional ability
to repurchase
the delinquent
loan, the
Corporation is
deemed to
have regained
effective control
over
the
loan
and
recognizes
the
loan
on
its
balance
sheet
as
well
as
an
offsetting
liability,
regardless of
the
Corporation’s
intent
to
repurchase the loan.
Servicing assets
The
Corporation
periodically
sells
or
securitizes
loans
while
retaining
the
obligation
to
perform
the
servicing
of
such
loans.
In
addition,
the
Corporation
may
purchase
or
assume
the
right
to
service
loans
originated
by
others.
Whenever
the
Corporation
undertakes an
obligation to
service a
loan, management
assesses whether
a servicing
asset or
liability should
be recognized.
A
servicing
asset
is
recognized
whenever
the
compensation
for
servicing
is
expected
to
more
than
adequately
compensate
the
servicer
for
performing
the
servicing.
Likewise,
a
servicing
liability
would
be
recognized
in
the
event
that
servicing
fees
to
be
received are not
expected to adequately
compensate the Corporation
for its
expected cost. Mortgage servicing
assets recorded at
fair value are separately presented on the Consolidated
Statements of Financial Condition.
All separately recognized servicing assets are initially recognized at fair value. For subsequent measurement of
servicing rights, the
Corporation
has
elected
the
fair
value
method
for
mortgage
loans
servicing
rights
(“MSRs”).
Under
the
fair
value
measurement
method,
MSRs
are
recorded
at
fair
value
each
reporting
period,
and
changes
in
fair
value
are
reported
in
mortgage
banking
activities in the Consolidated Statement of Operations. Contractual
servicing fees including ancillary income and late
fees, as well as
fair
value
adjustments, are
reported in
mortgage
banking
activities in
the
Consolidated Statement
of
Operations. Loan
servicing
fees, which are based on a percentage of the principal balances of the
loans serviced, are credited to income as loan payments are
collected.
The fair value
of servicing rights is
estimated by using a
cash flow valuation model
which calculates the present value
of estimated
future net servicing cash flows, taking into consideration actual and expected loan prepayment rates, discount
rates, servicing costs,
and other economic factors, which are determined
based on current market conditions.
Premises and equipment
Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed on a straight-
line basis over the estimated useful life of each
type of asset. Amortization of leasehold improvements
is computed over the terms of
the respective
leases or
the estimated
useful lives
of the
improvements, whichever
is shorter.
Costs of
maintenance and
repairs
which do not
improve or extend
the life of
the respective assets
are expensed as
incurred. Costs of
renewals and betterments
are
capitalized. When assets are
disposed of, their cost
and related accumulated depreciation are removed
from the accounts and
any
gain or loss is reflected in earnings as realized
or incurred, respectively.
The Corporation
capitalizes interest
cost
incurred in
the construction
of
significant real
estate projects,
which consist
primarily of
facilities
for
its
own
use
or
intended for
lease.
The
amount
of
interest cost
capitalized is
to
be
an
allocation of
the
interest cost
incurred during the
period required to substantially
complete the asset.
The interest rate
for capitalization purposes is
to be based
on a weighted
average rate on
the Corporation’s outstanding
borrowings, unless there
is a specific
new borrowing associated
with
the asset. Interest cost capitalized for the years ended
December 31, 2023, 2022 and 2021 was not
significant.
The
Corporation
recognizes
right-of-use
assets
(“ROU
assets”)
and
lease
liabilities
relating
to
operating
and
finance
lease
arrangements in its Consolidated Statements of Financial Condition within other assets and other liabilities, respectively. For finance
leases, interest is recognized on the
lease liability separately from the amortization
of the ROU asset, whereas for
operating leases
a single lease cost
is recognized so that
the cost of the
lease is allocated over
the lease term on
a straight-line basis. Impairments
on ROU assets are evaluated under the guidance for impairment
or disposal of long-lived assets.
The Corporation recognizes gains
133
on sale and
leaseback transactions in earnings when
the transfer constitutes a
sale, and the transaction
was at fair value.
Refer to
Note 33 to the Consolidated Financial Statements
for additional information on operating and finance
lease arrangements.
Impairment of long-lived assets
The
Corporation
evaluates
for
impairment
its
long-lived
assets
to
be
held
and
used,
and
long-lived
assets
to
be
disposed
of,
whenever events or changes
in circumstances indicate that the
carrying amount of an
asset may not be recoverable
and records a
write down for the difference between the carrying amount
and the fair value less costs to sell.
Other real estate
Other
real
estate,
received
in
satisfaction
of
a
loan,
is
recorded
at
fair
value
less
estimated
costs
of
disposal.
The
difference
between the carrying amount of the loan and the fair value less cost to
sell is recorded as an adjustment to the ACL. Subsequent to
foreclosure, any
losses in
the carrying
value arising
from periodic
re-evaluations of the
properties, and any
gains or
losses on
the
sale of these properties are credited or charged to expense in the period incurred and are included as OREO expenses. The cost of
maintaining and operating such properties is expensed
as incurred.
Updated appraisals
are obtained
to adjust
the value
of the
other real
estate assets.
The frequency
depends on
the loan
type and
total credit exposure. The appraisal for a commercial or construction other real estate property with a book value
equal to or greater
than $1 million is updated annually and if lower
than $1 million it is updated every two years.
For residential mortgage properties, the
Corporation requests appraisals annually.
Appraisals
may
be
adjusted
due
to
age,
collateral
inspections,
property
profiles,
or
general
market
conditions.
The
adjustments
applied are based upon
internal information such
as other appraisals for
the type of
properties and/or loss severity
information that
can provide historical trends in the real estate market
and may change from time to time based
on market conditions.
Goodwill and other intangible assets
Goodwill is recognized when the purchase price
is higher than the fair value
of net assets acquired in business combinations
under
the purchase
method of
accounting. Goodwill
is not
amortized but
is tested
for impairment
at least
annually or
more frequently
if
events or circumstances indicate possible impairment. If the
carrying amount of any of the
reporting units exceeds its fair value, the
Corporation would be required to record an impairment
charge for the difference up to the amount of the goodwill. 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. Goodwill impairment
losses are recorded as part
of operating expenses in the Consolidated Statements
of Operations.
Other intangible assets deemed
to have an
indefinite life are
not amortized but are
tested for impairment using
a one-step process
which compares the fair value with the carrying amount of the asset.
In determining that an intangible asset has an indefinite life, the
Corporation
considers
expected
cash
inflows
and
legal,
regulatory,
contractual,
competitive,
economic
and
other
factors,
which
could limit the intangible asset’s useful life.
Other
identifiable
intangible
assets
with
a
finite
useful
life,
mainly
core
deposits,
are
amortized
using
various
methods
over
the
periods
benefited,
which
range
from
5
to
10
years.
These
intangibles are
evaluated
periodically for
impairment
when
events
or
changes in circumstances
indicate that the carrying
amount may not
be recoverable. Impairments on
intangible assets with
a finite
useful life are evaluated under the guidance for
impairment or disposal of long-lived assets.
Assets sold / purchased under agreements to repurchase
/ resell
Repurchase and resell agreements
are treated as collateralized
financing transactions and are
carried at the
amounts at which the
assets will be subsequently reacquired or resold as
specified in the respective agreements.
It is the
Corporation’s policy to take possession
of securities purchased under agreements to
resell. However, the counterparties
to
such
agreements
maintain
effective
control
over
such
securities,
and
accordingly
those
securities
are
not
reflected
in
the
Corporation’s Consolidated Statements
of Financial
Condition. The Corporation
monitors the
fair value of
the underlying
securities
as compared to the related receivable, including accrued
interest.
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.
The Corporation may require counterparties to deposit
additional collateral or return collateral pledged,
when appropriate.
Software
134
Capitalized
software
is
stated
at
cost,
less
accumulated
amortization.
Capitalized
software
includes
purchased
software
and
capitalizable application development costs associated with internally-developed software. Amortization, computed on a straight-line
method, is charged to operations
over the estimated useful life
of the software. Capitalized software is
included in “Other assets” in
the Consolidated Statement of Financial Condition.
Guarantees, including indirect guarantees of indebtedness
to others
The estimated losses to be absorbed under the credit
recourse arrangements are recorded as a liability when
the loans are sold and
are updated by
accruing or reversing expense
(categorized in the line
item “Adjustments (expense) to
indemnity reserves on loans
sold”
in
the
Consolidated
Statements
of
Operations)
throughout
the
life
of
the
loan,
as
necessary,
when
additional
relevant
information
becomes
available.
The
methodology
used
to
estimate
the
recourse
liability
considers
current
conditions,
macroeconomic expectations through a 2-years reasonable and supportable period, gradually reverting to historical macroeconomic
variables
at
the
model
input
level
over
a
3-years,
portfolio
composition
by
risk
characteristics,
amongst
other
factors.
Statistical
methods are used
to estimate the
recourse liability.
Expected loss rates
are applied to
different loan segmentations.
The expected
loss, which
represents the
amount expected
to be
lost on
a given
loan, considers
the probability
of default
and loss
severity.
The
reserve
for
the
estimated
losses
under
the
credit
recourse
arrangements
is
presented
separately
within
other
liabilities
in
the
Consolidated Statements of
Financial Condition. Refer
to Note
23 to
the Consolidated Financial
Statements for further
disclosures
on guarantees.
Treasury stock
Treasury stock is
recorded at cost and
is carried as a
reduction of stockholders’ equity in
the Consolidated Statements of Financial
Condition.
At the
date of
retirement or
subsequent reissue,
the treasury
stock account
is reduced
by
the cost
of such
stock.
At
retirement, the excess of the cost of the treasury stock over
its par value is recorded entirely to surplus. At reissuance,
the difference
between the consideration received upon issuance and
the specific cost is charged or credited to surplus.
Revenues from contract with customers
Refer
to
Note
32
for
a
detailed
description
of
the
Corporation’s
policies
on
the
recognition
and
presentation
of
revenues
from
contract with customers.
Foreign exchange
Assets and liabilities
denominated in foreign currencies
are translated to U.S.
dollars using prevailing rates
of exchange at
the end
of
the
period.
Revenues, expenses,
gains
and
losses
are
translated using
weighted
average
rates
for
the
period.
The
resulting
foreign currency translation adjustment
from operations for which
the functional currency is
other than the U.S.
dollar is reported in
accumulated
other comprehensive
income
(loss), except
for
highly inflationary
environments in
which the
effects
are
included in
other operating expenses.
The Corporation
holds interests
in Centro
Financiero BHD
León, S.A.
(“BHD León”)
in the
Dominican Republic.
The business
of
BHD León is
mainly conducted in their
country’s foreign currency.
The resulting foreign currency
translation adjustment from these
operations is reported in accumulated other comprehensive
(loss) income (loss).
Refer to the disclosure of accumulated other comprehensive
income (loss) included in Note 22.
Income taxes
The Corporation
recognizes deferred tax
assets and
liabilities for
the expected
future tax
consequences of
events that
have been
recognized in
the Corporation’s
financial statements
or tax
returns. Deferred
income tax
assets and
liabilities are
determined for
differences between financial statement and tax bases of assets and liabilities that will result in taxable or deductible
amounts in the
future.
The
computation
is
based
on
enacted
tax
laws
and
rates
applicable
to
periods
in
which
the
temporary
differences
are
expected to be recovered or settled.
The
guidance for
income
taxes
requires a
reduction of
the
carrying
amounts
of
deferred tax
assets
by
a valuation
allowance if,
based on the available evidence, it is more likely
than not (defined as a likelihood of more
than 50 percent) that such assets will not
be
realized.
Accordingly,
the
need
to
establish
valuation
allowances
for
deferred
tax
assets
is
assessed
periodically
by
the
Corporation
based
on
the
more
likely
than
not
realization
threshold
criterion.
In
the
assessment
for
a
valuation
allowance,
appropriate consideration
is given
to all
positive and
negative evidence
related to
the realization
of the
deferred tax
assets. This
assessment considers, among others,
all sources of
taxable income available to
realize the deferred tax
asset, including the future
reversal of existing temporary differences, the future taxable income
exclusive of reversing temporary differences and carryforwards,
135
taxable income in carryback years and tax-planning strategies. In making such
assessments, significant weight is given to evidence
that can be objectively verified.
The valuation
of deferred
tax assets
requires judgment
in assessing
the likely
future tax
consequences of
events that
have been
recognized in the Corporation’s financial statements or tax returns and future profitability.
The Corporation’s accounting for deferred
tax consequences represents management’s best estimate
of those future events.
Positions taken in
the Corporation’s
tax returns may
be subject to
challenge by the
taxing authorities upon
examination. Uncertain
tax positions
are initially
recognized in the
financial statements when
it is
more likely than
not (greater than
50%) that
the position
will be sustained upon examination by the tax authorities, assuming full knowledge of the position and all relevant facts.
The amount
of unrecognized tax benefit 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 statute of limitations, changes in management’s judgment about the level
of
uncertainty,
including
addition
or
elimination
of
uncertain
tax
positions,
status
of
examinations, litigation,
settlements
with
tax
authorities and legislative activity.
The Corporation accounts for the taxes collected from customers
and remitted to governmental authorities on a net
basis (excluded
from revenues).
Income
tax
expense
or
benefit
for
the
year
is
allocated
among
continuing
operations,
discontinued
operations,
and
other
comprehensive income (loss), as applicable. The amount allocated to continuing operations is the tax effect of the pre-tax income or
loss from continuing operations that occurred during the year, plus or minus
income tax effects of (a) changes in circumstances that
cause
a
change
in
judgment
about
the
realization
of
deferred
tax
assets
in
future
years,
(b)
changes
in
tax
laws
or
rates,
(c)
changes in tax status, and (d) tax-deductible
dividends paid to stockholders, subject to certain
exceptions.
Employees’ retirement and other postretirement benefit
plans
Pension costs are
computed on the
basis of accepted
actuarial methods and are
charged to current
operations. Net pension costs
are based
on various actuarial
assumptions regarding future
experience under the
plan, which include
costs for services
rendered
during the
period, interest
costs and
return on
plan assets,
as well
as deferral
and amortization
of certain
items such
as actuarial
gains or losses.
The funding policy is
to contribute to the
plan, as necessary,
to provide for services
to date and for
those expected to be
earned in
the
future.
To
the
extent
that
these
requirements
are
fully
covered
by
assets
in
the
plan,
a
contribution
may
not
be
made
in
a
particular year.
The cost
of postretirement
benefits, which
is determined
based on
actuarial assumptions
and estimates
of the
costs of
providing
these benefits in the future, is accrued during
the years that the employee renders the required
service.
The guidance for compensation
retirement benefits of ASC
Topic
715 requires the recognition
of the funded status
of each defined
pension
benefit
plan,
retiree
health
care
and
other
postretirement
benefit
plans
on
the
Consolidated
Statements
of
Financial
Condition.
Stock-based compensation
The
Corporation
opted
to
use
the
fair
value
method
of
recording
stock-based
compensation
as
described
in
the
guidance
for
employee share plans in ASC Subtopic 718-50.
Comprehensive income
Comprehensive income
(loss) is
defined as
the change
in equity
of
a business
enterprise during
a period
from
transactions and
other events
and circumstances,
except those
resulting from
investments by
owners and
distributions to
owners. Comprehensive
income (loss) is separately presented in the Consolidated
Statements of Comprehensive Income.
Net income per common share
Basic income per common share is computed by dividing net income adjusted for preferred stock dividends, including undeclared or
unpaid dividends
if cumulative,
and charges
or credits
related to
the extinguishment
of preferred
stock or
induced conversions
of
preferred stock, by the weighted average number of
common shares outstanding during the year. Diluted income per common
share
takes into consideration the weighted average common shares adjusted for the effect of stock options, restricted stock, performance
shares and warrants, if any, using the treasury stock method.
Statement of cash flows
136
For purposes of reporting cash flows, cash includes
cash on hand and amounts due from banks, including
restricted cash.
137
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) -
Amendments to SEC
Paragraphs Pursuant to
SEC Staff Accounting
Bulletin No. 121
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 (Topic 505), and
Compensation—Stock
Compensation (Topic 718)
- Amendments to SEC
Paragraphs Pursuant to
SEC Staff Accounting
Bulletin No. 120, SEC
Staff Announcement at the
March 24, 2022 EITF
Meeting, and Staff
Accounting Bulletin Topic
6.B, Accounting Series
Release 280—General
Revision of Regulation S-
X: Income or Loss
Applicable to Common
Stock
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).
138
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.
139
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
ASC
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.
140
Accounting Standards Updates Not Yet Adopted
Standard
Description
Date of adoption
Effect on the financial statements
FASB ASU 2023-09,
Income Tax ( Topic
740) -
Improvements to Income
Tax Disclosures
The
FASB
issued
ASU
2023-09
in
December
2023,
which
amends ASC
topic
740
by
enhancing
disclosures
regarding
rate
reconciliation
and
requiring
the
disclosure of
income taxes paid, income (or
loss)
from
continuing
operations
before
income
tax
expense
and
income
tax
expense
disaggregated
by
national,
state
and foreign level. Disclosures that no longer
were considered
cost
beneficial or
relevant
were removed from ASC topic 740
January 1, 2025
The Corporation
is currently
evaluating
the
impact
that
the
adoption
of
this
guidance
will
have
on
its
financial
statements
and
presentation
and
disclosures.
FASB ASU 2023-08,
Intangibles - Goodwill and
Other - Crypto Assets
(Subtopic 350-60) -
Accounting for and
Disclosure of Crypto
Assets
The
FASB
issued
ASU
2023-08
in
December
2023,
which
amends
ASC
subtopic
350-60
by
requiring
that
crypto
assets
are
measured
at
fair
value
in
the
statement
of
financial
position
each
reporting
period
with
changes
from
remeasurement
being
recognized
in
net
income.
The
ASU
also
requires
enhanced
disclosures
for
both
annual
and
interim
reporting
periods
to
provide
investors
with
relevant information
to
analyze and
assess
the
exposure
and
risk
of
significant
individual crypto asset holdings.
January 1, 2025
The Corporation does not expect to be
impacted by the adoption of this ASU
since it
does not
hold crypto-assets
for
its platform users.
FASB ASU 2023-07,
Segment Reporting (Topic
280) - Improvements to
Reportable Segment
Disclosures
The
FASB
issued
ASU
2023-07
in
November
2023,
which
amends ASC
topic
280
by
requiring
additional
disclosures
about significant segment expenses.
For fiscal years
beginning on
January 1, 2024
For interim periods
within fiscal years
beginning after
January 1, 2025
The Corporation
is currently
evaluating
the
impact
that
the
adoption
of
this
guidance
will
have
on
its
financial
statements
and
presentation
and
disclosures.
141
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, recognize and
initially
measure
its
assets
and
liabilities at
fair value.
January 1, 2025
Upon
adoption
of
this
ASU,
the
Corporation will
consider this
guidance
for
the
initial
measure
of
assets
and
liabilities
of
newly
created
joint
ventures.
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
ASC
topic
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
ASC
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
does not
expect to
be
impacted
by
the
adoption
of
this
ASU
since
it
does
not
hold
investments
in
tax equity investments.
142
Accounting Standards Updates Not Yet Adopted
Standard
Description
Date of adoption
Effect on the financial statements
FASB ASU 2023-01,
Leases (Topic 842) -
Common Control
Arrangements
The
FASB
issued
ASU
2023-01
in
March
2023,
which
amends
ASC
Topic
842
and
requires
the
amortization
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.
FASB ASU 2022-03, Fair
Value Measurement
(Topic 820) - Fair Value
Measurement of Equity
Securities Subject to
Contractual Sale
Restriction
The
FASB
issued
ASU
2022-03
in
June
2022,
which
clarifies
that
a
contractual
restriction that prohibits the sale of an equity
security is
not considered part
of the unit
of
account
of
the equity
security,
therefore, is
not
considered
in
measuring
its
fair
value.
The
ASU
also
provides
enhanced
disclosures for equity securities
subject to a
contractual sale restriction.
January 1, 2024
The
Corporation
does
not
anticipate
that
the
adoption
of
this
accounting
pronouncement
will
have
a
material
effect
in
its
consolidated
statement
of
financial
condition
and
results
of
operations.
143
Note 4
–
Business combinations
Acquisition of key customer channels and business
from Evertec
On July
1,
2022, BPPR
completed its
previously announced
acquisition of
certain assets
used by
Evertec Group,
LLC (“Evertec
Group”),
a
wholly
owned
subsidiary
of
Evertec,
Inc.
(“Evertec”),
to
service
certain
BPPR
channels
(“Business
Acquisition
Transaction”).
As
a
result
of
the closing
of
the Business
Acquisition Transaction,
BPPR
acquired
from
Evertec Group
certain critical
channels,
including
BPPR’s
retail
and
business
digital
banking
and
commercial
cash
management
applications.
In
connection
with
the
Business Acquisition Transaction, BPPR
also entered into amended and
restated service agreements with Evertec Group
pursuant
to
which
Evertec
Group
will
continue
to
provide
various
information
technology
and
transaction
processing
services
to
Popular,
BPPR and their respective subsidiaries.
Under the
amended service
agreements, Evertec
Group no
longer has
exclusive rights
to provide
certain of
Popular’s technology
services. The
amended service
agreements include
discounted pricing
and lowered
caps on
contractual pricing
escalators tied
to
the Consumer Price Index. As
part of the transaction, BPPR and Evertec
also entered into a revenue sharing
structure for BPPR in
connection
with
its
merchant
acquiring
relationship
with
Evertec.
Under
the
terms
of
the
amended
and
restated
Master
Service
Agreement (“MSA”), Evertec will be entitled to receive monthly payments
from the Corporation to the extent that Evertec’s revenues,
covered under the MSA, fall below certain agreed
annualized minimum amounts.
As consideration for the
Business Acquisition Transaction, BPPR delivered
to Evertec Group
4,589,169
shares of Evertec common
stock valued at closing at $
169.2
million (based on Evertec’s stock price on June 30, 2022 of $
36.88
). A total of $
144.8
million of the
consideration for
the transaction
was attributed
to the
acquisition of
the critical
channels of
which $
28.7
million were
attributed to
Software
Intangible
Assets
and
$
116.1
million
were
attributed
to
goodwill.
The
transaction
was
accounted
for
as
a
business
combination.
The
remaining
$
24.2
million
was
attributed
to
the
renegotiation of
the
MSA
with
Evertec
and
was
recorded
as
an
expense. The Corporation also recorded a credit of $
6.9
million in Evertec billings under the MSA during the third quarter of 2022 as
a result of the Business Acquisition Transaction, resulting in a net
expense charge of $
17.3
million.
On
August
15,
2022,
the
Corporation
completed
the
sale
of
its
remaining
7,065,634
shares
of
common
stock
of
Evertec
(the
“Evertec Stock Sale”, and collectively
with the Business Acquisition Transaction,
the “Evertec Transactions”). Following
the Evertec
Stock
Sale, Popular
no longer
owns any
Evertec common
stock. The
impact of
the
gain on
the sale
of
Evertec shares
used as
consideration
for
the
Business
Acquisition
Transaction
in
exchange
for
the
acquired
applications
on
July
1,
2022
and
the
net
expense associated with the renegotiation of the MSA, together with the Evertec Stock Sale and the related accounting adjustments
of the Evertec Transactions, resulted in an aggregate after-tax gain
of $
226.6
million, recorded during the third quarter of 2022.
The following
table presents
the fair
values of
the consideration
and major
classes of
identifiable assets
acquired by
BPPR as
of
July 1, 2022.
(In thousands)
Fair Value
Stock consideration
$
144,785
Total consideration
$
144,785
Assets:
Developed technology - Software intangible assets
$
28,650
Total assets
$
28,650
Net assets acquired
$
28,650
Goodwill on acquisition
$
116,135
The
following
is
a
description
of
the
methods
used
to
determine
the
fair
values
of
significant
assets
acquired
in
the
Business
Acquisition Transaction:
144
Developed technology – Software intangible assets
In order
to determine
the fair
value of
the developed
technology acquired,
the Corporation
considered the
guidance in
ASC Topic
820,
Fair Value
Measurements. The
Corporation used
the
cost
replacement methodology
and
estimated the
cost
that
would
be
incurred in developing the acquired technology as the assets’ fair value. In developing this
estimate, the Corporation considered the
historical direct costs as well as indirect costs and applied an inflation factor to arrive at what would be the current replacement cost.
To
this
estimated
cost,
the
Corporation
applied
an
obsolescence
factor
to
arrive
at
the
estimated
fair
value
of
the
acquired
technology.
The obsolescence
factor considered
the estimated
remaining useful
life of
the acquired
software, considering existing
and
upcoming technology
changes,
as
well
as
the
scalability
of
the
system
architecture for
further
developments. This
software
acquired
for
internal
use
is
recorded
within
Other
Assets
in
the
accompanying
Consolidated
Financial
Statements
and
will
be
amortized over its current estimated remaining useful
life of
5
years.
Goodwill
The goodwill
is the
residual difference
between the consideration
transferred to
Evertec and
the fair
value of
the assets
acquired,
net of
the liabilities assumed,
if any.
The entire amount
of goodwill is
deductible for income
tax purposes pursuant
to P.R.
Internal
Revenue Code (“IRC”) section 1033.07 over a
15
-year period.
The Corporation believes
that given the
amount of assets
acquired and the
size of
the operations acquired
in relation to
Popular’s
operations, the historical results of Evertec are not
material to Popular’s results, and thus
no pro forma information is presented.
145
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
$
2.7
billion at
December 31,
2023 (December
31,
2022
-
$
2.8
billion). Cash
and
due from
banks, as
well
as
other highly
liquid securities,
are
used to
cover
the required
average
reserve balances.
At
December
31,
2023,
the
Corporation
held
$
78
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.
146
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 December 31, 2023 and December 31, 2022.
At December 31, 2023
Gross
Gross
Weighted
Amortized
unrealized
unrealized
Fair
average
(In thousands)
cost
gains
losses
value
yield
U.S. Treasury securities
Within 1 year
$
7,103,518
$
526
$
59,415
$
7,044,629
3.51
%
After 1 to 5 years
3,598,209
84
170,209
3,428,084
1.35
After 5 to 10 years
307,512
-
33,164
274,348
1.63
Total U.S. Treasury
securities
11,009,239
610
262,788
10,747,061
2.75
Collateralized mortgage obligations - federal agencies
After 1 to 5 years
17,899
-
838
17,061
1.55
After 5 to 10 years
20,503
2
1,321
19,184
2.28
After 10 years
108,280
29
9,868
98,441
2.54
Total collateralized
mortgage obligations - federal agencies
146,682
31
12,027
134,686
2.38
Mortgage-backed securities
Within 1 year
637
-
3
634
3.72
After 1 to 5 years
82,310
11
3,536
78,785
2.34
After 5 to 10 years
792,431
75
48,250
744,256
2.28
After 10 years
6,067,353
667
1,046,909
5,021,111
1.64
Total mortgage-backed
securities
6,942,731
753
1,098,698
5,844,786
1.72
Other
Within 1 year
1,011
-
-
1,011
4.00
After 1 to 5 years
1,500
-
-
1,500
8.50
Total other
2,511
-
-
2,511
6.69
Total debt securities
available-for-sale
[1]
$
18,101,163
$
1,394
$
1,373,513
$
16,729,044
2.35
%
[1]
Includes $
12
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 $
11.1
billion serve as collateral for
public funds.
The Corporation had unpledged Available
for Sale securities with a fair value of
$
4.6
billion that could be used to increase its
borrowing facilities.
147
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
in the period
of final contractual
maturity. The
expected maturities of
collateralized mortgage obligations,
mortgage-backed securities and certain other securities may
differ from their contractual maturities
because they may be subject to
prepayments or may be called by the issuer.
The following table presents the
aggregate amortized cost and fair value of
debt securities available-for-sale at December 31, 2023
by contractual maturity.
(In thousands)
Amortized cost
Fair value
Within 1 year
$
7,105,166
$
7,046,274
After 1 to 5 years
3,699,918
3,525,430
After 5 to 10 years
1,120,446
1,037,788
After 10 years
6,175,633
5,119,552
Total debt securities
available-for-sale
$
18,101,163
$
16,729,044
At December 31, 2023,
the Corporation did not intend
to sell or believed
it was more likely than
not that it would be
required to sell
debt
securities
classified
as
available-for-sale.
There
were
no
debt
securities
available-for-sale
sold
during
the
years
ended
December 31, 2023 and December 31, 2022. During the year ended December 31, 2021, the Corporation sold U.S Treasury Notes.
The proceeds from
these sales were
$
236
million. Gross realized
gains and losses on
the sale of
debt securities available-for-sale
for the years ended December 31, 2023, 2022 and
2021 were as follows:
148
(In thousands)
2023
2022
2021
Gross realized gains
$
-
$
-
$
695
Gross realized losses
-
-
(672)
Net realized gains (losses) on sale of debt securities available
-for-sale
$
-
$
-
$
23
The
following
tables
present
the
Corporation’s
fair
value
and
gross
unrealized
losses
of
debt
securities
available-for-sale,
aggregated by investment category
and length of time
that individual securities have been
in a continuous unrealized loss
position,
at December 31, 2023 and 2022.
At December 31, 2023
Less than 12 months
12 months or more
Total
Gross
Gross
Gross
Fair
unrealized
Fair
unrealized
Fair
unrealized
(In thousands)
value
losses
value
losses
value
losses
U.S. Treasury securities
$
244,925
$
5,126
$
6,550,941
$
257,662
$
6,795,866
$
262,788
Collateralized mortgage obligations - federal agencies
5,234
35
124,930
11,992
130,164
12,027
Mortgage-backed securities
37,118
405
5,779,260
1,098,293
5,816,378
1,098,698
Total debt securities
available-for-sale in an unrealized loss position
$
287,277
$
5,566
$
12,455,131
$
1,367,947
$
12,742,408
$
1,373,513
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
December 31,
2023, the
portfolio of
available-for-sale debt
securities reflects
gross unrealized
losses of
$
1.4
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, 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.
149
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 December
31, 2023 and 2022.
At December 31, 2023
Allowance
Carrying
Value
Gross
Gross
Weighted
Amortized
Book
[1]
for Credit
Net of
unrealized
unrealized
Fair
average
(In thousands)
cost
Value
Losses
Allowance
gains
losses
value
yield
U.S. Treasury securities
Within 1 year
$
597,768
$
597,768
$
-
$
597,768
$
-
$
7,526
$
590,242
2.58
%
After 1 to 5 years
7,971,072
7,335,159
-
7,335,159
637
21,996
7,313,800
1.39
After 5 to 10 years
211,061
188,484
-
188,484
-
187
188,297
1.50
Total U.S. Treasury
securities
8,779,901
8,121,411
-
8,121,411
637
29,709
8,092,339
1.47
Obligations of Puerto Rico, States and
political subdivisions
Within 1 year
4,820
4,820
9
4,811
3
-
4,814
6.17
After 1 to 5 years
20,171
20,171
147
20,024
96
125
19,995
3.80
After 5 to 10 years
845
845
28
817
28
-
845
5.80
After 10 years
39,572
39,572
5,596
33,976
2,814
2,766
34,024
1.41
Total obligations of
Puerto Rico, States and
political subdivisions
65,408
65,408
5,780
59,628
2,941
2,891
59,678
2.55
Collateralized mortgage obligations - federal
agencies
Within 1 year
13
13
-
13
-
-
13
6.44
After 10 years
1,543
1,543
-
1,543
-
148
1,395
2.87
Total collateralized
mortgage obligations -
federal agencies
1,556
1,556
-
1,556
-
148
1,408
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]
$
8,852,825
$
8,194,335
$
5,780
$
8,188,555
$
3,578
$
32,748
$
8,159,385
1.48
%
[1]
Book value includes $
658
million of net unrealized loss which remains in
Accumulated other comprehensive (loss) 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
$
67.3
million that could be used to increase
its borrowing facilities.
150
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 (loss) 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.
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.
The following
table presents the
aggregate amortized cost
and fair value
of debt securities
held-to-maturity at December
31, 2023
by contractual maturity.
(In thousands)
Amortized cost
Book Value
Fair value
Within 1 year
$
602,601
$
602,601
$
595,069
After 1 to 5 years
7,991,243
7,355,330
7,333,795
After 5 to 10 years
211,906
189,329
189,142
After 10 years
47,075
47,075
41,379
Total debt securities
held-to-maturity
$
8,852,825
$
8,194,335
$
8,159,385
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, 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.
151
At December 31, 2023 and December 31, 2022, the “Obligations
of Puerto Rico, States and political subdivisions” classified
as held-
to-maturity,
includes securities
issued by
municipalities of
Puerto Rico
that are
generally not
rated by
a credit
rating agency.
This
includes $
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:
At December 31, 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 December
31, 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 December 31,
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
708
(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 24
to the
Consolidated Financial
Statements
for additional
information on
the Corporation’s
exposure to
the Puerto
Rico Government.
At
December 31,
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
for further details.
Delinquency status
At December 31, 2023 and December 31, 2022,
there were
no
securities held-to-maturity in past due or non-performing
status.
Allowance for credit losses on debt securities held-to-maturity
The following table provides the
activity in the allowance for
credit losses related to debt securities
held-to-maturity by security type
at December 31, 2023 and December 31, 2022:
152
For the year ended December 31,
2023
2022
(In thousands)
Obligations of Puerto Rico, States and political subdivisions
Allowance for credit losses:
Beginning balance
$
6,911
$
8,096
Provision for credit losses (benefit)
(1,131)
(1,185)
Securities charged-off
-
-
Recoveries
-
-
Ending balance
$
5,780
$
6,911
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 $
5.6
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).
153
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 Statement .
During the year ended December 31, 2023, the Corporation recorded purchases (including repurchases) of mortgage loans
of $
385
million, which
include $
1
million in
Purchased Credit
Deteriorated (“PCD”)
loans, consumer
loans of
$
127
million and
commercial
loans of $
266
million; compared to purchases (including repurchases) of mortgage loans of
$
299
million, which include $
4
million in
PCD loans, consumer loans of $
433
million, and commercial loans of $
142
million during the year ended December 31, 2022.
The
Corporation
performed
whole-loan
sales
involving
approximately
$
49
million
of
residential
mortgage
loans,
$
45
million
of
consumer loans,
and $
82
million of
commercial and construction
loans during
the year
ended December 31,
2023 (December
31,
2022
-
$
63
million
of
residential mortgage
loans
and
$
138
million of
commercial and
construction loans).
Also,
during the
year
ended
December
31,
2023,
the
Corporation
securitized
approximately
$
2
million
of
mortgage
loans
into
Government
National
Mortgage
Association
(“GNMA”) mortgage-backed
securities
and $
35
million
of
mortgage
loans
into
Federal
National Mortgage
Association (“FNMA”) mortgage-backed securities, compared to $
169
million and $
122
million, respectively, during the year ended
December
31,
2022.
Also,
the
Corporation
securitized
approximately
$
9
million
of
mortgage
loans
into
Federal
Home
Loan
Mortgage Corporation (“FHLMC”) mortgage-backed securities
during the year ended December 31, 2022.
Delinquency status
The following tables present the
amortized cost basis of loans
held-in-portfolio (“HIP”), net of unearned
income, by past due status,
and by loan class including those that are in non-performing status or that are accruing
interest but are past due 90 days or more at
December 31, 2023 and December 31, 2022.
154
December 31, 2023
BPPR
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
Non-accrual
Accruing
(In thousands)
days
days
or more
past due
Current
Loans HIP
loans
loans
Commercial multi-family
$
524
$
-
$
1,991
$
2,515
$
289,427
$
291,942
$
1,991
$
-
Commercial real estate:
Non-owner occupied
5,510
77
8,745
14,332
2,990,922
3,005,254
8,745
-
Owner occupied
2,726
249
29,430
32,405
1,365,978
1,398,383
29,430
-
Commercial and industrial
6,998
3,352
36,210
46,560
4,749,666
4,796,226
32,826
3,384
Construction
-
-
6,378
6,378
163,479
169,857
6,378
-
Mortgage
260,897
114,282
416,528
791,707
5,600,117
6,391,824
175,106
241,422
Leasing
20,140
6,719
8,632
35,491
1,696,318
1,731,809
8,632
-
Consumer:
Credit cards
13,243
9,912
23,281
46,436
1,089,292
1,135,728
-
23,281
Home equity lines of credit
230
-
26
256
2,392
2,648
-
26
Personal
19,065
14,611
19,031
52,707
1,723,603
1,776,310
19,031
-
Auto
100,061
27,443
45,615
173,119
3,487,661
3,660,780
45,615
-
Other
1,641
204
1,213
3,058
147,104
150,162
964
249
Total
$
431,035
$
176,849
$
597,080
$
1,204,964
$
23,305,959
$
24,510,923
$
328,718
$
268,362
December 31, 2023
Popular U.S.
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
Non-accrual
Accruing
(In thousands)
days
days
or more
past due
Current
Loans HIP
loans
loans
Commercial multi-family
$
9,141
$
2,001
$
-
$
11,142
$
2,112,536
$
2,123,678
$
-
$
-
Commercial real estate:
Non-owner occupied
566
1,036
1,117
2,719
2,079,448
2,082,167
1,117
-
Owner occupied
30,560
-
6,274
36,834
1,645,418
1,682,252
6,274
-
Commercial and industrial
7,815
697
3,881
12,393
2,317,502
2,329,895
3,772
109
Construction
-
-
-
-
789,423
789,423
-
-
Mortgage
48,818
7,821
11,191
67,830
1,236,263
1,304,093
11,191
-
Consumer:
Credit cards
-
-
-
-
19
19
-
-
Home equity lines of
credit
1,472
4
3,733
5,209
58,096
63,305
3,733
-
Personal
2,222
1,948
2,805
6,975
161,962
168,937
2,805
-
Other
4
-
1
5
10,274
10,279
1
-
Total
$
100,598
$
13,507
$
29,002
$
143,107
$
10,410,941
$
10,554,048
$
28,893
$
109
155
December 31, 2023
Popular, Inc.
Past due
Past due 90 days or more
30-59
60-89
90 days
Total
Non-accrual
Accruing
(In thousands)
days
days
or more
past due
Current
Loans HIP
[2] [3]
loans
loans
Commercial multi-family
$
9,665
$
2,001
$
1,991
$
13,657
$
2,401,963
$
2,415,620
$
1,991
$
-
Commercial real estate:
Non-owner occupied
6,076
1,113
9,862
17,051
5,070,370
5,087,421
9,862
-
Owner occupied
33,286
249
35,704
69,239
3,011,396
3,080,635
35,704
-
Commercial and industrial
14,813
4,049
40,091
58,953
7,067,168
7,126,121
36,598
3,493
Construction
-
-
6,378
6,378
952,902
959,280
6,378
-
Mortgage
[1]
309,715
122,103
427,719
859,537
6,836,380
7,695,917
186,297
241,422
Leasing
20,140
6,719
8,632
35,491
1,696,318
1,731,809
8,632
-
Consumer:
Credit cards
13,243
9,912
23,281
46,436
1,089,311
1,135,747
-
23,281
Home equity lines of credit
1,702
4
3,759
5,465
60,488
65,953
3,733
26
Personal
21,287
16,559
21,836
59,682
1,885,565
1,945,247
21,836
-
Auto
100,061
27,443
45,615
173,119
3,487,661
3,660,780
45,615
-
Other
1,645
204
1,214
3,063
157,378
160,441
965
249
Total
$
531,633
$
190,356
$
626,082
$
1,348,071
$
33,716,900
$
35,064,971
$
357,611
$
268,471
[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 $
106
million of residential mortgage loans insured by
FHA or guaranteed by the VA
that are no
longer accruing interest as of December 31, 2023. Furthermore,
as of December 31, 2023, the Corporation had approximately
$
38
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 $
356
million in unearned income and exclude $
4
million in loans held-for-sale.
[3]
Includes $
14.2
billion pledged to secure credit facilities and public funds
that the secured parties are not permitted to sell or repledge
the collateral,
of which $
7.0
billion were pledged at the Federal Home Loan Bank
("FHLB") as collateral for borrowings and $
7.2
billion at the Federal Reserve
Bank ("FRB") for discount window borrowings. As of December
31, 2023, the Corporation had an available borrowing
facility with the FHLB and
the discount window of Federal Reserve Bank of New York
of $
3.5
billion and $
4.4
billion, respectively.
156
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
157
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, as of
December 31,2022, the Corporation had 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. As of December
31, 2022, 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.
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 December
31, 2023, mortgage
loans held-in-portfolio include
$
2.2
billion (December 31,
2022 -
$
2.0
billion) of loans
insured by
the FHA, or guaranteed by the VA
of which $
241.6
million (December 31, 2022 - $
337.8
million) are 90 days or more past
due. The
portfolio of guaranteed loans includes
$
106
million of residential mortgage loans
in Puerto Rico that
are no longer accruing
interest
as of December
31, 2023 (December 31,
2022 - $
190
million). The Corporation has
approximately $
38
million in reverse mortgage
loans in Puerto Rico which
are guaranteed by FHA, but which
are currently not accruing interest at
December 31, 2023 (December
31, 2022 - $
42
million).
Loans with
a delinquency status
of 90
days past due
as of
December 31, 2023
include $
11
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 components of the net financing leases,
including finance leases within the C&I category,
receivable at December 31, 2023 and
2022 were as follows:
158
(In thousands)
2023
2022
Total minimum lease
payments
$
1,499,230
$
1,336,173
Estimated residual value of leased property
685,757
605,638
Deferred origination costs, net of fees
25,634
24,909
Less - Unearned financing income
351,026
293,091
Net minimum lease payments
1,859,595
1,673,629
Less - Allowance for credit losses
10,920
22,216
Net minimum lease payments, net of allowance for credit losses
$
1,848,675
$
1,651,413
At December 31, 2023, future minimum lease payments
are expected to be received as follows:
(In thousands)
2024
$
69,188
2025
92,293
2026
138,254
2027
249,775
2028
339,962
2029 and thereafter
609,758
Total
$
1,499,230
The following tables present the amortized cost basis
of non-accrual loans as of December 31, 2023
and December 31, 2022 by
class of loans:
159
December 31, 2023
BPPR
Popular U.S.
Popular, Inc.
(In thousands)
Non-accrual
with no
allowance
Non-accrual
with
allowance
Non-accrual
with no
allowance
Non-accrual
with
allowance
Non-accrual
with no
allowance
Non-accrual
with
allowance
Commercial multi-family
$
-
$
1,991
$
-
$
-
$
-
$
1,991
Commercial real estate non-owner occupied
3,695
5,050
-
1,117
3,695
6,167
Commercial real estate owner occupied
20,432
8,998
3,877
2,397
24,309
11,395
Commercial and industrial
6,991
25,835
-
3,772
6,991
29,607
Construction
-
6,378
-
-
-
6,378
Mortgage
84,677
90,429
120
11,071
84,797
101,500
Leasing
481
8,151
-
-
481
8,151
Consumer:
HELOCs
-
-
-
3,733
-
3,733
Personal
3,589
15,442
-
2,805
3,589
18,247
Auto
1,833
43,782
-
-
1,833
43,782
Other
263
701
-
1
263
702
Total
$
121,961
$
206,757
$
3,997
$
24,896
$
125,958
$
231,653
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 December 31, 2023 include
$
126
million in collateral dependent loans (December
31,
2022
-
$
177
million).
The
Corporation recognized
$
4
million
in
interest
income
on
non-accrual loans
during
the
year
ended
December 31, 2023 (December 31, 2022 - $
4
million).
The Corporation has
designated loans classified as
collateral dependent for
which the ACL
is measured based
on the fair
value of
the collateral less
cost to sell,
when foreclosure is
probable or when
the repayment is
expected to be
provided substantially by the
sale or
operation of
the collateral
and the
borrower is
experiencing financial
difficulty.
The fair
value of
the collateral
is based
on
appraisals, which may be
adjusted due to their
age, and the
type, location, and condition
of the property
or area or general
market
conditions to reflect the expected change in value between the effective date
of the appraisal and the measurement date. Appraisals
are updated every one to two years depending on
the type of loan and the total exposure of
the borrower.
The following tables present the amortized cost basis
of collateral-dependent loans, for which the ACL was measured
based on the
fair value of the collateral less cost to sell, by class
of loans and type of collateral as of December
31, 2023 and December 31, 2022:
160
December 31, 2023
(In thousands)
Real Estate
Auto
Equipment
Other
Total
BPPR
Commercial multi-family
$
1,339
$
-
$
-
$
-
$
1,339
Commercial real estate:
Non-owner occupied
160,555
-
-
-
160,555
Owner occupied
25,848
-
-
-
25,848
Commercial and industrial
1,103
-
-
30,287
31,390
Construction
6,378
-
-
-
6,378
Mortgage
85,113
-
-
-
85,113
Leasing
-
1,373
-
-
1,373
Consumer:
Personal
4,338
-
-
-
4,338
Auto
-
12,965
-
-
12,965
Other
-
-
-
305
305
Total BPPR
$
284,674
$
14,338
$
-
$
30,592
$
329,604
Popular U.S.
Commercial real estate:
Owner occupied
$
3,877
$
-
$
-
$
-
$
3,877
Commercial and industrial
-
-
105
400
505
Construction
5,990
-
-
-
5,990
Mortgage
1,303
-
-
-
1,303
Total Popular U.S.
$
11,170
$
-
$
105
$
400
$
11,675
Popular, Inc.
Commercial multi-family
$
1,339
$
-
$
-
$
-
$
1,339
Commercial real estate:
Non-owner occupied
160,555
-
-
-
160,555
Owner occupied
29,725
-
-
-
29,725
Commercial and industrial
1,103
-
105
30,687
31,895
Construction
12,368
-
-
-
12,368
Mortgage
86,416
-
-
-
86,416
Leasing
-
1,373
-
-
1,373
Consumer:
Personal
4,338
-
-
-
4,338
Auto
-
12,965
-
-
12,965
Other
-
-
-
305
305
Total Popular,
Inc.
$
295,844
$
14,338
$
105
$
30,992
$
341,279
161
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
162
Purchased Credit Deteriorated (PCD) Loans
The Corporation has purchased loans during
the year 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)
December 31, 2023
December 31, 2022
Purchase price of loans at acquisition
$
819
$
3,144
Allowance for credit losses at acquisition
89
915
Non-credit discount / (premium) at acquisition
9
140
Par value of acquired loans at acquisition
$
917
$
4,199
163
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 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
during the third
quarter of 2023
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 during the third quarter
of 2023.
At
December
31,2023,
the
Corporation
estimated
the
ACL
by
weighting
the
outputs
of
optimistic,
baseline,
and
pessimistic
scenarios. Among
the three
scenarios used
to estimate
the ACL,
the baseline
is assigned
the highest
probability,
followed by
the
pessimistic
scenario
given
the
uncertainties
in
the
economic
outlook
and
downside
risk.
The
weightings
applied
are
subject
to
evaluation on
a quarterly
basis as
part of
the ACL’s
governance process. The
Corporation evaluates, at
least on
an annual
basis,
the
assumptions
tied
to
the
CECL
accounting
framework.
These
include
the
reasonable
and
supportable
period
as
well
as
the
reversion
window.
During the
third
quarter
of
2022,
as
part
of
its
evaluation
procedures, the
Corporation decided
to
extend
the
reversion
window
from
1
year
to
3
years.
The
extension
in
the
reversion
window
results
in
a
better
representation
of
historical
movements for key
macroeconomic variables that
impact the ACL.
The reasonable and
supportable period assumptions
remained
unchanged at 2 years.
The baseline
scenario assumes
a 2024
annualized GDP
growth for
Puerto Rico
and the
United States
of 1.21%
and 1.65%.
For
2023, annualized
expected growth
was 2.0%
and 2.4%
for Puerto
Rico and
United States,
respectively.
The reduction
in 2024
is
due to the Fed’s monetary policy.
The 2024 average unemployment rate is forecasted at 6.79% and 3.95% for Puerto Rico and United States, respectively, compared
to 2023 average level 6.1% for Puerto Rico
and 3.7% for the United States.
The
following
tables
present
the
changes
in
the
ACL
of
loans
held-in-portfolio
and
unfunded
commitments
for
the
years
ended
December 31, 2023 and 2022.
164
For the year ended December 31, 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
$
-
$
(1,597)
$
-
$
-
$
1
$
-
$
3,614
Commercial real estate non-owner occupied
52,475
-
980
-
(1,130)
1,429
-
53,754
Commercial real estate owner occupied
48,393
(1,161)
(5,495)
-
(4,437)
3,337
-
40,637
Commercial and industrial
68,217
(552)
29,911
-
(7,739)
17,740
-
107,577
Total Commercial
174,295
(1,713)
23,799
-
(13,306)
22,507
-
205,582
Construction
2,978
-
4,926
-
(2,611)
1
-
5,294
Mortgage
117,344
(33,556)
(25,295)
89
(1,638)
15,496
-
72,440
Leasing
20,618
(35)
(3,836)
-
(10,879)
3,840
-
9,708
Consumer
Credit cards
58,670
-
54,649
-
(41,007)
8,776
(601)
80,487
Home equity lines of credit
103
-
(155)
-
(213)
368
-
103
Personal
96,369
(7,020)
74,226
-
(71,977)
9,583
-
101,181
Auto
129,735
(21)
63,185
-
(55,306)
20,338
-
157,931
Other
15,433
-
3,335
-
(12,454)
818
-
7,132
Total Consumer
300,310
(7,041)
195,240
-
(180,957)
39,883
(601)
346,834
Total - Loans
$
615,545
$
(42,345)
$
194,834
$
89
$
(209,391)
$
81,727
$
(601)
$
639,858
Allowance for credit losses - unfunded commitments:
Commercial
$
4,336
$
-
$
726
$
-
$
-
$
-
$
-
$
5,062
Construction
2,022
-
(404)
-
-
-
-
1,618
Ending balance - unfunded commitments [1]
$
6,358
$
-
$
322
$
-
$
-
$
-
$
-
$
6,680
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
165
For the year ended December 31, 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
$
-
$
(10,980)
$
-
$
5
$
10,126
Commercial real estate non-owner occupied
19,065
-
(9,222)
(193)
2,049
11,699
Commercial real estate owner occupied
8,688
-
8,851
(1,395)
83
16,227
Commercial and industrial
12,227
-
4,557
(3,875)
1,870
14,779
Total Commercial
61,081
-
(6,794)
(5,463)
4,007
52,831
Construction
1,268
-
6,124
-
-
7,392
Mortgage
17,910
(2,098)
(5,248)
-
210
10,774
Consumer
Credit cards
-
-
1
(1)
-
-
Home equity lines of credit
2,439
-
(1,058)
(471)
965
1,875
Personal
22,057
(1,140)
13,521
(19,971)
2,142
16,609
Other
2
-
159
(171)
12
2
Total Consumer
24,498
(1,140)
12,623
(20,614)
3,119
18,486
Total - Loans
$
104,757
$
(3,238)
$
6,705
$
(26,077)
$
7,336
$
89,483
Allowance for credit losses - unfunded commitments:
Commercial
$
1,175
$
-
$
676
$
-
$
-
$
1,851
Construction
1,184
-
7,262
-
-
8,446
Consumer
88
-
(59)
-
-
29
Ending balance - unfunded commitments [1]
$
2,447
$
-
$
7,879
$
-
$
-
$
10,326
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
166
For the year ended December 31, 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
$
-
$
(12,577)
$
-
$
-
$
6
$
-
$
13,740
Commercial real estate non-owner occupied
71,540
-
(8,242)
-
(1,323)
3,478
-
65,453
Commercial real estate owner occupied
57,081
(1,161)
3,356
-
(5,832)
3,420
-
56,864
Commercial and industrial
80,444
(552)
34,468
-
(11,614)
19,610
-
122,356
Total Commercial
235,376
(1,713)
17,005
-
(18,769)
26,514
-
258,413
Construction
4,246
-
11,050
-
(2,611)
1
-
12,686
Mortgage
135,254
(35,654)
(30,543)
89
(1,638)
15,706
-
83,214
Leasing
20,618
(35)
(3,836)
-
(10,879)
3,840
-
9,708
Consumer
Credit cards
58,670
-
54,650
-
(41,008)
8,776
(601)
80,487
Home equity lines of credit
2,542
-
(1,213)
-
(684)
1,333
-
1,978
Personal
118,426
(8,160)
87,747
-
(91,948)
11,725
-
117,790
Auto
129,735
(21)
63,185
-
(55,306)
20,338
-
157,931
Other
15,435
-
3,494
-
(12,625)
830
-
7,134
Total Consumer
324,808
(8,181)
207,863
-
(201,571)
43,002
(601)
365,320
Total - Loans
$
720,302
$
(45,583)
$
201,539
$
89
$
(235,468)
$
89,063
$
(601)
$
729,341
Allowance for credit losses - unfunded commitments:
Commercial
$
5,511
$
-
$
1,402
$
-
$
-
$
-
$
-
$
6,913
Construction
3,206
-
6,858
-
-
-
-
10,064
Consumer
88
-
(59)
-
-
-
-
29
Ending balance - unfunded commitments [1]
$
8,805
$
-
$
8,201
$
-
$
-
$
-
$
-
$
17,006
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
167
For the year ended December 31, 2022
BPPR
Provision for
Allowance for
Beginning
credit losses
credit losses -
Ending
(In thousands)
Balance
(benefit)
PCD Loans
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
3,050
$
2,160
$
-
$
-
$
-
$
5,210
Commercial real estate non-owner occupied
45,211
5,744
-
(34)
1,554
52,475
Commercial real estate owner occupied
54,176
(12,405)
-
(1,063)
7,685
48,393
Commercial and industrial
49,491
15,976
-
(6,141)
8,891
68,217
Total Commercial
151,928
11,475
-
(7,238)
18,130
174,295
Construction
1,641
526
-
-
811
2,978
Mortgage
138,286
(37,600)
915
(5,105)
20,848
117,344
Leasing
17,578
6,832
-
(7,107)
3,315
20,618
Consumer
Credit cards
43,499
32,582
-
(26,210)
8,799
58,670
Home equity lines of credit
98
(273)
-
(191)
469
103
Personal
71,022
54,279
-
(36,179)
7,247
96,369
Auto
154,498
843
-
(42,143)
16,537
129,735
Other
15,612
880
-
(2,029)
970
15,433
Total Consumer
284,729
88,311
-
(106,752)
34,022
300,310
Total - Loans
$
594,162
$
69,544
$
915
$
(126,202)
$
77,126
$
615,545
Allowance for credit losses - unfunded commitments:
Commercial
$
1,751
$
2,585
$
-
$
-
$
-
$
4,336
Construction
2,388
(366)
-
-
-
2,022
Ending balance - unfunded commitments [1]
$
4,139
$
2,219
$
-
$
-
$
-
$
6,358
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
168
For the year ended December 31, 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
$
(4,338)
$
-
$
21
$
21,101
Commercial real estate non-owner occupied
22,246
5,468
(8,671)
22
19,065
Commercial real estate owner occupied
6,053
2,276
(6)
365
8,688
Commercial and industrial
10,160
1,191
(1,335)
2,211
12,227
Total Commercial
63,877
4,597
(10,012)
2,619
61,081
Construction
4,722
(4,586)
-
1,132
1,268
Mortgage
16,192
1,706
(68)
80
17,910
Consumer
Credit cards
-
(13)
-
13
-
Home equity lines of credit
3,708
(3,713)
(430)
2,874
2,439
Personal
12,700
15,619
(7,404)
1,142
22,057
Other
5
153
(202)
46
2
Total Consumer
16,413
12,046
(8,036)
4,075
24,498
Total - Loans
$
101,204
$
13,763
$
(18,116)
$
7,906
$
104,757
Allowance for credit losses - unfunded commitments:
Commercial
$
1,384
$
(209)
$
-
$
-
$
1,175
Construction
2,337
(1,153)
-
-
1,184
Consumer
37
51
-
-
88
Ending balance - unfunded commitments [1]
$
3,758
$
(1,311)
$
-
$
-
$
2,447
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
169
For the year ended December 31, 2022
Popular Inc.
Provision for
Allowance for
Beginning
credit losses
credit losses -
Ending
(In thousands)
Balance
(benefit)
PCD Loans
Charge-offs
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
28,468
$
(2,178)
$
-
$
-
$
21
$
26,311
Commercial real estate non-owner occupied
67,457
11,212
-
(8,705)
1,576
71,540
Commercial real estate owner occupied
60,229
(10,129)
-
(1,069)
8,050
57,081
Commercial and industrial
59,651
17,167
-
(7,476)
11,102
80,444
Total Commercial
215,805
16,072
-
(17,250)
20,749
235,376
Construction
6,363
(4,060)
-
-
1,943
4,246
Mortgage
154,478
(35,894)
915
(5,173)
20,928
135,254
Leasing
17,578
6,832
-
(7,107)
3,315
20,618
Consumer
Credit cards
43,499
32,569
-
(26,210)
8,812
58,670
Home equity lines of credit
3,806
(3,986)
-
(621)
3,343
2,542
Personal
83,722
69,898
-
(43,583)
8,389
118,426
Auto
154,498
843
-
(42,143)
16,537
129,735
Other
15,617
1,033
-
(2,231)
1,016
15,435
Total Consumer
301,142
100,357
-
(114,788)
38,097
324,808
Total - Loans
$
695,366
$
83,307
$
915
$
(144,318)
$
85,032
$
720,302
Allowance for credit losses - unfunded commitments:
Commercial
$
3,135
$
2,376
$
-
$
-
$
-
$
5,511
Construction
4,725
(1,519)
-
-
-
3,206
Consumer
37
51
-
-
-
88
Ending balance - unfunded commitments [1]
$
7,897
$
908
$
-
$
-
$
-
$
8,805
[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 with financial difficulties owing receivables whose terms
have been modified during the year ended December 31, 2023 amounted to $
21
million related to the commercial
and construction
loan portfolios.
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 year
ended December
31,2023. Loans modified to borrowers under financial difficulties that were fully paid
down, charged-off or foreclosed upon by period
end are not reported.
170
Loan Modifications Made to Borrowers Experiencing Financial
Difficulty for the year ended December 31,2023
Interest Rate Reduction
BPPR
Popular U.S.
Popular, Inc.
(Dollars in thousands)
Amortized Cost
Basis at
December
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December
31,2023
% of total class of
Financing
Receivable
CRE owner occupied
$
141,291
10.10
%
$
-
-
%
$
141,291
4.59
%
Commercial and industrial
70
-
%
-
-
%
70
-
%
Mortgage
301
-
%
-
-
%
301
-
%
Consumer:
Credit cards
700
0.06
%
-
-
%
700
0.06
%
Personal
783
0.04
%
2
-
%
785
0.04
%
Other
6
-
%
-
-
%
6
-
%
Total
$
143,151
0.58
%
$
2
-
%
$
143,153
0.41
%
Term Extension
BPPR
Popular U.S.
Popular, Inc.
(Dollars in thousands)
Amortized Cost
Basis at
December
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December
31,2023
% of total class of
Financing
Receivable
CRE non-owner occupied
$
33,318
1.11
%
$
-
-
%
$
33,318
0.65
%
CRE owner occupied
4,921
0.35
%
60,669
3.61
%
65,590
2.13
%
Commercial and industrial
39,445
0.82
%
250
0.01
%
39,695
0.56
%
Construction
-
-
%
5,990
0.76
%
5,990
0.62
%
Mortgage
53,447
0.84
%
5,450
0.42
%
58,897
0.77
%
Consumer:
Personal
413
0.02
%
129
0.08
%
542
0.03
%
Auto
91
-
%
-
-
%
91
-
%
Total
$
131,635
0.54
%
$
72,488
0.69
%
$
204,123
0.58
%
Other-Than-Insignificant Payment Delays
BPPR
Popular U.S.
Popular, Inc.
(Dollars in thousands)
Amortized Cost
Basis at
December
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December
31,2023
% of total class of
Financing
Receivable
CRE non-owner occupied
$
1,854
0.06
%
$
-
-
%
$
1,854
0.04
%
CRE owner occupied
16,068
1.15
%
13,468
0.80
%
29,536
0.96
%
Commercial and industrial
10,545
0.22
%
814
0.03
%
11,359
0.16
%
Mortgage
137
-
%
-
-
%
137
-
%
Total
$
28,604
0.12
%
$
14,282
0.14
%
$
42,886
0.12
%
Combination - Term extension
and Interest Rate Reduction
BPPR
Popular U.S.
Popular, Inc.
(Dollars in thousands)
Amortized Cost
Basis at
December
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December
31,2023
% of total class of
Financing
Receivable
Commercial multi-family
$
65
0.02
%
$
-
-
%
$
65
-
%
CRE non-owner occupied
19,983
0.66
%
$
-
-
%
19,983
0.39
%
CRE owner occupied
14,416
1.03
%
-
-
%
14,416
0.47
%
Commercial and industrial
335
0.01
%
-
-
%
335
-
%
Mortgage
37,179
0.58
%
405
0.03
%
37,584
0.49
%
Consumer:
Personal
2,318
0.13
%
62
0.04
%
2,380
0.12
%
Auto
27
-
%
-
-
%
27
-
%
Total
$
74,323
0.30
%
$
467
-
%
$
74,790
0.21
%
171
Combination - Other-Than-Insignificant Payment Delays
and Interest Rate Reduction
Puerto Rico
Popular U.S.
Popular, Inc.
(Dollars in thousands)
Amortized Cost
Basis at
December
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December
31,2023
% of total class of
Financing
Receivable
CRE non-owner occupied
$
180
0.01
%
$
-
-
%
$
180
-
%
Commercial and industrial
199
-
%
-
-
%
199
-
%
Consumer:
Credit cards
814
0.07
%
-
-
%
814
0.07
%
Total
$
1,193
-
%
$
-
-
%
$
1,193
-
%
Combination - Other-Than-Insignificant Payment Delays
and Principal Forgiveness
Puerto Rico
Popular U.S.
Popular, Inc.
(Dollars in thousands)
Amortized Cost
Basis at
December
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December
31,2023
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December
31,2023
% of total class of
Financing
Receivable
CRE owner occupied
$
158
0.01
%
$
-
-
%
$
158
0.01
%
Total
$
158
-
%
$
-
-
%
$
158
-
%
172
The following table describes the financial effect of the
modifications made to borrowers experiencing
financial difficulties:
For the year ended December 31, 2023
Interest rate reduction
Loan Type
Financial Effect
Commercial multi-family
Reduced weighted-average contractual interest rate from
7.5
% to
5.3
%.
CRE non-owner occupied
Reduced weighted-average contractual interest rate from
9.1
% to
7.3
%.
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
17.8
% to
7.8
%.
Mortgage
Reduced weighted-average contractual interest rate from
5.8
% to
4.2
%.
Consumer:
Credit cards
Reduced weighted-average contractual interest rate from
18.8
% to
4.5
%.
Personal
Reduced weighted-average contractual interest rate from
17.8
% to
9.3
%.
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
Commercial multi-family
Added a weighted-average of
43
years to the life of loans.
CRE non-owner occupied
Added a weighted-average of
20
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
1
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
8
years to the life of loans.
Auto
Added a weighted-average of
2
years to the life of loans.
Principal forgiveness
Loan Type
Financial Effect
CRE owner occupied
Reduced the amortized cost basis of the loans by $
88
thousand.
Other than insignificant payment delay
Loan Type
Financial Effect
CRE non-owner occupied
Added a weighted-average of
11
months to the life of loans.
CRE owner occupied
Added a weighted-average of
9
months to the life of loans.
Commercial and industrial
Added a weighted-average of
7
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
25
months to the life of loans.
173
The
following table
presents,
by class,
the
performance of
loans
that
have
been
modified
during the
year
ended
December 31,
2023.
The past due 90 days or more categories includes all loans modified classified
as non-accruing at the time of the modification.
These loans will continue in non-accrual status, and presented as past
due 90 days or more, until the borrower has
demonstrated a
willingness and ability to
make the restructured loan
payments (at least six
months of sustained
performance after the modification
or one year
for loans providing
for quarterly or
semi-annual payments) and
management has concluded that
it is probable
that the
borrower would not be in payment default in the
foreseeable future.
BPPR
December 31, 2023
Past Due 90 days or more [1]
(In thousands)
30-59 days
60-89 days
Past due 90
days or more
Total past
due
Current
Total
With Payment
Default
Without
Payment Default
Commercial multi-family
$
-
$
-
$
65
$
65
$
-
$
65
$
-
$
65
CRE non-owner occupied
-
-
2,094
2,094
53,241
55,335
-
2,094
CRE owner occupied
339
-
2,267
2,606
174,248
176,854
-
2,267
Commercial and industrial
2,519
77
14,881
17,477
33,117
50,594
556
14,325
Mortgage
7,520
3,358
28,128
39,006
52,058
91,064
8,319
19,809
Consumer:
Credit cards
59
51
294
404
1,110
1,514
176
118
Personal
140
-
817
957
2,557
3,514
63
754
Auto
-
-
15
15
103
118
-
15
Other
-
-
-
-
6
6
-
-
Total
$
10,577
$
3,486
$
48,561
$
62,624
$
316,440
$
379,064
$
9,114
$
39,447
[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.
December 31, 2023
Past Due 90 days or more [1]
(In thousands)
30-59 days
60-89 days
Past due 90
days or more
Total past
due
Current
Total
With Payment
Default
Without
Payment Default
CRE owner occupied
$
-
$
-
$
-
$
-
$
74,137
$
74,137
$
-
$
-
Commercial and industrial
-
250
-
250
814
1,064
-
-
Construction
-
-
-
-
5,990
5,990
-
-
Mortgage
-
-
388
388
5,467
5,855
-
388
Consumer:
Personal
-
-
125
125
68
193
-
125
Total
$
-
$
250
$
513
$
763
$
86,476
$
87,239
$
-
$
513
[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.
174
Popular Inc.
December 31, 2023
Past Due 90 days or more [1]
(In thousands)
30-59 days
60-89 days
Past due 90
days or more
Total past
due
Current
Total
With Payment
Default
Without
Payment Default
Commercial multi-family
$
-
$
-
$
65
$
65
$
-
$
65
$
-
$
65
CRE non-owner occupied
-
-
2,094
2,094
53,241
55,335
-
2,094
CRE owner occupied
339
-
2,267
2,606
248,385
250,991
-
2,267
Commercial and industrial
2,519
327
14,881
17,727
33,931
51,658
556
14,325
Construction
-
-
-
-
5,990
5,990
-
-
Mortgage
7,520
3,358
28,516
39,394
57,525
96,919
8,319
20,197
Consumer:
Credit cards
59
51
294
404
1,110
1,514
176
118
Personal
140
-
942
1,082
2,625
3,707
63
879
Auto
-
-
15
15
103
118
-
15
Other
-
-
-
-
6
6
-
-
Total
$
10,577
$
3,736
$
49,074
$
63,387
$
402,916
$
466,303
$
9,114
$
39,960
[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.
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
year ended
December 31, 2023,
the outstanding
balance of loans
modified for
borrowers under
financial difficulties that were subject to payment default
during the year ended preceding the default
date was $
10
million.
For the
year ended
December 31,
2023, extension
of maturity
and the
combination of
reduction of
interest rate
and extension
of
maturity
amounted
to
$
8
million
and
$
2
million,
respectively,
of
the
outstanding
balance
of
loans
modified
for
borrowers
under
financial difficulties that were subject to payment default
during the year 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
receivables whose
terms have
been modified
in
TDRs amounted
to
$
12
million related to the commercial and construction
loan portfolios 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.
175
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
year
ended
December 31, 2022. Loans modified as TDRs for the
U.S. operations are considered insignificant
to the Corporation.
Popular Inc.
For the year ended December 31, 2022
Reduction in interest
rate
Extension of maturity
date
Combination of reduction in
interest rate and extension of
maturity date
Other
Commercial real estate non-owner occupied
-
2
2
4
Commercial real estate owner occupied
3
10
1
14
Commercial and industrial
4
9
1
16
Mortgage
7
217
881
5
Leasing
-
2
1
34
Consumer:
Credit cards
48
-
-
48
HELOCs
-
-
1
-
Personal
111
111
3
40
Auto
-
1
-
129
Other
1
-
-
-
Total
174
352
890
290
The following table presents, by class, quantitative
information related to loans modified as TDRs
during
year ended December 31,
2022.
176
Popular, Inc.
For the year ended December 31, 2022
(Dollars 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
8
$
6,530
$
6,527
$
60
Commercial real estate owner occupied
28
19,192
19,165
(2,078)
Commercial and industrial
30
51,139
50,929
2,120
Mortgage
1,110
128,581
125,875
4,447
Leasing
37
1,181
1,180
13
Consumer:
Credit cards
96
866
898
10
HELOCs
1
245
236
67
Personal
265
3,581
3,479
671
Auto
130
1,631
1,631
5
Other
1
8
8
1
Total
1,706
$
212,954
$
209,928
$
5,316
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 year ended December 31, 2022
(Dollars in thousands)
Loan count
Recorded investment as of first default date
Commercial real estate owner occupied
2
$
620
Commercial and industrial
7
6,639
Mortgage
75
9,391
Leasing
1
5
Consumer:
Credit cards
29
249
Personal
49
918
Total
163
$
17,822
177
Commercial,
consumer
and
mortgage
loans
modified
in
a
TDR
are
closely
monitored
for
delinquency
as
an
early
indicator
of
possible future default.
If loans modified in a TDR
subsequently default, the allowance for credit losses
may be increased or partial
charge-offs may be taken to further write-down the carrying
value of the loan.
Credit Quality
The
Corporation
has
defined
a
risk
rating
system
to
assign
a
rating
to
all
credit
exposures,
particularly
for
the
commercial
and
construction loan
portfolios. Risk
ratings in
the aggregate
provide the
Corporation’s management
the asset
quality profile
for
the
loan portfolio. 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 Corporation’s obligor risk rating scales range from rating 1 (Excellent) to rating 14 (Loss). The obligor risk rating reflects the risk
of payment default of a borrower in the ordinary
course of business.
Pass Credit Classifications:
Pass (Scales 1 through 8)
– Loans classified as
pass have a well defined
primary source of repayment, with no
apparent
risk, strong financial position, minimal operating risk, profitability, liquidity and strong
capitalization.
Watch
(Scale 9)
– Loans
classified as
watch have
acceptable business
credit,
but borrower’s
operations, cash
flow or
financial condition evidence more than average risk, requires above
average levels of supervision and attention from Loan
Officers.
Special Mention (Scale 10) -
Loans classified as special mention have
potential weaknesses that deserve management’s
close attention.
If left uncorrected, these potential weaknesses may result
in deterioration of the repayment prospects for
the loan or of the Corporation’s credit position at
some future date.
Adversely Classified Classifications:
Substandard
(Scales
11
and
12)
-
Loans
classified
as
substandard
are
deemed
to
be
inadequately
protected
by
the
current net worth
and payment capacity
of the obligor
or of the
collateral pledged, if
any.
Loans classified as
such have
well-defined weaknesses that jeopardize the liquidation of
the debt.
They are characterized by the
distinct possibility that
the institution will sustain some loss if the deficiencies
are not corrected.
Doubtful (Scale
13) - Loans
classified as
doubtful have
all the
weaknesses inherent
in those
classified as
substandard,
with the
additional characteristic
that the
weaknesses make
the collection
or liquidation
in full,
on the
basis of
currently
existing facts, conditions, and values, highly questionable
and improbable.
Loss
(Scale
14)
-
Uncollectible
and
of
such
little
value
that
continuance
as
a
bankable
asset
is
not
warranted.
This
classification does
not mean
that the
asset has
absolutely no
recovery or
salvage value,
but rather
it is
not practical
or
desirable to defer writing off this asset even though partial
recovery may be effected in the future.
Risk
ratings scales
10
through
14
conform
to
regulatory
ratings.
The
assignment
of
the
obligor
risk
rating
is
based
on
relevant
information about the ability of borrowers to
service their debts such as current
financial information, historical payment experience,
credit documentation, public information, and
current economic trends, among other factors.
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
December 31, 2023 and 2022 by vintage year.
178
December 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
BPPR
Commercial:
Commercial multi-family
Watch
$
-
$
-
$
-
$
-
$
1,068
$
5,179
$
-
$
-
$
6,247
Special Mention
-
559
-
-
-
4,780
-
-
5,339
Substandard
-
-
-
-
-
4,832
-
-
4,832
Pass
37,976
138,619
21,334
20,487
32,554
24,248
306
-
275,524
Total commercial
multi-family
$
37,976
$
139,178
$
21,334
$
20,487
$
33,622
$
39,039
$
306
$
-
$
291,942
Commercial real estate non-owner occupied
Watch
$
1,959
$
882
$
5,205
$
22,211
$
5,938
$
27,015
$
-
$
-
$
63,210
Special Mention
43,020
5,413
24,730
-
15,843
68,368
-
-
157,374
Substandard
1,016
1,307
180
2,231
53,729
12,968
4,069
-
75,500
Pass
305,243
871,191
560,785
359,853
41,262
563,794
7,042
-
2,709,170
Total commercial
real estate non-
owner occupied
$
351,238
$
878,793
$
590,900
$
384,295
$
116,772
$
672,145
$
11,111
$
-
$
3,005,254
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
609
$
-
$
521
$
-
$
-
$
1,130
Commercial real estate owner occupied
Watch
$
2,947
$
45,106
$
9,913
$
4,285
$
5,017
$
62,217
$
1,000
$
-
$
130,485
Special Mention
-
16,860
20,741
1,462
887
44,069
-
-
84,019
Substandard
1,316
15,710
5,080
143,696
845
87,383
12,617
-
266,647
Doubtful
-
-
-
-
-
136
-
-
136
Pass
92,234
155,819
227,246
51,038
24,184
357,429
9,146
-
917,096
Total commercial
real estate owner
occupied
$
96,497
$
233,495
$
262,980
$
200,481
$
30,933
$
551,234
$
22,763
$
-
$
1,398,383
Year-to-Date gross
write-offs
$
-
$
4
$
-
$
-
$
1
$
4,432
$
-
$
-
$
4,437
Commercial and industrial
Watch
$
28,841
$
95,785
$
6,111
$
4,043
$
15,560
$
65,360
$
182,756
$
-
$
398,456
Special Mention
6,401
3,269
276
3,200
2,088
41,289
9,410
-
65,933
Substandard
731
1,760
8,644
22,065
1,922
32,087
40,670
-
107,879
Doubtful
-
-
-
54
-
26
-
-
80
Pass
1,109,898
634,401
511,912
241,452
123,458
258,872
1,343,885
-
4,223,878
Total commercial
and industrial
$
1,145,871
$
735,215
$
526,943
$
270,814
$
143,028
$
397,634
$
1,576,721
$
-
$
4,796,226
Year-to-Date gross
write-offs
$
896
$
184
$
215
$
335
$
555
$
1,086
$
4,468
$
-
$
7,739
Construction
Watch
$
-
$
16,546
$
5,458
$
-
$
-
$
-
$
9,506
$
-
$
31,510
Special Mention
-
-
1,009
-
-
-
1
-
1,010
Substandard
-
6,378
-
-
-
-
$
-
-
6,378
Pass
26,662
24,462
27,364
10,758
1,944
1,049
38,720
-
130,959
Total construction
$
26,662
$
47,386
$
33,831
$
10,758
$
1,944
$
1,049
$
48,227
$
-
$
169,857
Year-to-Date gross
write-offs
$
-
$
2,611
$
-
$
-
$
-
$
-
$
-
$
-
$
2,611
Mortgage
Substandard
$
96
$
161
$
162
$
345
$
2,606
$
71,893
$
-
$
-
$
75,263
Pass
751,532
439,373
421,297
259,412
164,438
4,280,509
-
-
6,316,561
Total mortgage
$
751,628
$
439,534
$
421,459
$
259,757
$
167,044
$
4,352,402
$
-
$
-
$
6,391,824
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
1,638
$
-
$
-
$
1,638
179
December 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
BPPR
Leasing
Substandard
$
806
$
2,516
$
3,053
$
906
$
818
$
517
$
-
$
-
$
8,616
Loss
-
-
-
-
-
17
-
-
17
Pass
647,659
488,506
313,133
163,189
88,983
21,706
-
-
1,723,176
Total leasing
$
648,465
$
491,022
$
316,186
$
164,095
$
89,801
$
22,240
$
-
$
-
$
1,731,809
Year-to-Date gross
write-offs
$
1,065
$
4,424
$
2,878
$
849
$
976
$
687
$
-
$
-
$
10,879
Consumer:
Credit cards
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
23,259
$
-
$
23,259
Loss
-
-
-
-
-
-
22
-
22
Pass
-
-
-
-
-
-
1,112,447
-
1,112,447
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
1,135,728
$
-
$
1,135,728
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
41,007
$
-
$
41,007
HELOCs
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
26
$
-
$
26
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
2,622
$
-
$
2,622
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
-
$
2,648
$
-
$
2,648
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
213
$
-
$
213
Personal
Substandard
$
1,815
$
4,985
$
1,939
$
493
$
933
$
8,322
$
-
$
1,006
$
19,493
Loss
-
-
14
-
12
37
-
-
63
Pass
859,434
480,771
181,483
57,227
58,849
96,956
-
22,034
1,756,754
Total Personal
$
861,249
$
485,756
$
183,436
$
57,720
$
59,794
$
105,315
$
-
$
23,040
$
1,776,310
Year-to-Date gross
write-offs
$
4,458
$
35,915
$
18,076
$
4,210
$
4,891
$
2,952
$
-
$
1,475
$
71,977
Auto
Substandard
$
6,980
$
14,049
$
11,916
$
9,157
$
7,051
$
3,199
$
-
$
-
$
52,352
Loss
9
44
45
16
9
6
-
-
129
Pass
1,210,622
899,797
711,439
405,768
260,355
120,318
-
-
3,608,299
Total Auto
$
1,217,611
$
913,890
$
723,400
$
414,941
$
267,415
$
123,523
$
-
$
-
$
3,660,780
Year-to-Date gross
write-offs
$
10,170
$
23,849
$
11,820
$
5,914
$
3,553
$
-
$
-
$
-
$
55,306
Other consumer
Substandard
$
244
$
25
$
-
$
73
$
16
$
131
$
249
$
-
$
738
Loss
-
-
137
-
-
363
-
-
500
Pass
36,144
24,238
14,942
5,618
3,433
2,753
61,796
-
148,924
Total Other
consumer
$
36,388
$
24,263
$
15,079
$
5,691
$
3,449
$
3,247
$
62,045
$
-
$
150,162
Year-to-Date gross
write-offs
$
47
$
154
$
125
$
164
$
88
$
11,876
$
-
$
-
$
12,454
Total BPPR
$
5,173,585
$
4,388,532
$
3,095,548
$
1,789,039
$
913,802
$
6,267,828
$
2,859,549
$
23,040
$
24,510,923
180
December 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
Popular U.S.
Commercial:
Commercial multi-family
Watch
$
-
$
116,794
$
39,319
$
71,237
$
93,239
$
98,365
$
-
$
-
$
418,954
Special Mention
-
-
862
1,171
-
3,377
-
-
5,410
Substandard
-
-
-
-
5,545
20,780
-
-
26,325
Pass
166,410
417,169
326,047
164,887
182,528
410,836
5,112
-
1,672,989
Total commercial
multi-family
$
166,410
$
533,963
$
366,228
$
237,295
$
281,312
$
533,358
$
5,112
$
-
$
2,123,678
Commercial real estate non-owner occupied
Watch
$
-
$
39,721
$
38,713
$
43,705
$
39,908
$
91,922
$
4,557
$
-
$
258,526
Special Mention
-
-
-
-
1,327
63,365
-
-
64,692
Substandard
-
-
-
8,054
1,702
3,730
-
-
13,486
Pass
396,712
490,316
170,074
201,225
86,595
394,455
6,086
-
1,745,463
Total commercial
real estate non-
owner occupied
$
396,712
$
530,037
$
208,787
$
252,984
$
129,532
$
553,472
$
10,643
$
-
$
2,082,167
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
193
$
-
$
-
$
193
Commercial real estate owner occupied
Watch
$
-
$
69,894
$
84,218
$
53,066
$
14,057
$
98,502
$
1,905
$
-
$
321,642
Special Mention
-
-
77,912
4,955
6,074
11,224
-
-
100,165
Substandard
-
477
2,430
-
21,763
107,675
-
-
132,345
Pass
303,202
278,380
226,289
58,505
47,083
204,888
9,753
-
1,128,100
Total commercial
real estate owner
occupied
$
303,202
$
348,751
$
390,849
$
116,526
$
88,977
$
422,289
$
11,658
$
-
$
1,682,252
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
1,395
$
-
$
-
$
1,395
Commercial and industrial
Watch
$
198
$
37,022
$
47,299
$
44,939
$
23,493
$
93,299
$
32,497
$
-
$
278,747
Special Mention
208
889
1,021
30
151
39
8,674
-
11,012
Substandard
636
628
152
1,152
730
1,841
1,517
-
6,656
Pass
196,959
278,238
346,428
268,835
148,502
379,635
414,883
-
2,033,480
Total commercial
and industrial
$
198,001
$
316,777
$
394,900
$
314,956
$
172,876
$
474,814
$
457,571
$
-
$
2,329,895
Year-to-Date gross
write-offs
$
247
$
221
$
1,994
$
44
$
1,320
$
-
$
49
$
-
$
3,875
Construction
Watch
$
-
$
22,867
$
12,869
$
-
$
21,896
$
782
$
-
$
-
$
58,414
Special Mention
2,120
13,151
-
-
-
-
-
-
15,271
Substandard
-
1
13,997
3,895
-
36,593
-
-
54,486
Pass
280,188
251,627
89,450
14,733
25,254
-
-
-
661,252
Total construction
$
282,308
$
287,646
$
116,316
$
18,628
$
47,150
$
37,375
$
-
$
-
$
789,423
Mortgage
Substandard
$
-
$
235
$
-
$
646
$
2,102
$
8,208
$
-
$
-
$
11,191
Pass
99,296
229,720
288,767
233,805
177,245
264,069
-
-
1,292,902
Total mortgage
$
99,296
$
229,955
$
288,767
$
234,451
$
179,347
$
272,277
$
-
$
-
$
1,304,093
181
December 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
Popular U.S.
Consumer:
Credit cards
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
19
$
-
$
19
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
19
$
-
$
19
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
1
$
-
$
1
HELOCs
Substandard
$
-
$
-
$
-
$
-
$
-
$
1,849
$
-
$
966
$
2,815
Loss
-
-
-
-
-
99
-
819
918
Pass
-
-
-
-
-
7,394
39,925
12,253
59,572
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
9,342
$
39,925
$
14,038
$
63,305
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
471
$
-
$
-
$
471
Personal
Substandard
$
333
$
1,630
$
325
$
50
$
126
$
211
$
-
$
-
$
2,675
Loss
-
-
-
-
1
130
-
-
131
Pass
41,016
93,759
23,325
2,993
3,597
1,441
-
-
166,131
Total Personal
$
41,349
$
95,389
$
23,650
$
3,043
$
3,724
$
1,782
$
-
$
-
$
168,937
Year-to-Date gross
write-offs
$
735
$
13,136
$
4,450
$
618
$
872
$
160
$
-
$
-
$
19,971
Other consumer
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
1
$
-
$
1
Pass
19
-
-
-
-
-
10,259
-
10,278
Total Other
consumer
$
19
$
-
$
-
$
-
$
-
$
-
$
10,260
$
-
$
10,279
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
171
$
-
$
171
Total Popular U.S.
$
1,487,297
$
2,342,518
$
1,789,497
$
1,177,883
$
902,918
$
2,304,709
$
535,188
$
14,038
$
10,554,048
182
December 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
Popular, Inc.
Commercial:
Commercial multi-family
Watch
$
-
$
116,794
$
39,319
$
71,237
$
94,307
$
103,544
$
-
$
-
$
425,201
Special Mention
-
559
862
1,171
-
8,157
-
-
10,749
Substandard
-
-
-
-
5,545
25,612
-
-
31,157
Pass
204,386
555,788
347,381
185,374
215,082
435,084
5,418
-
1,948,513
Total commercial
multi-family
$
204,386
$
673,141
$
387,562
$
257,782
$
314,934
$
572,397
$
5,418
$
-
$
2,415,620
Commercial real estate non-owner occupied
Watch
$
1,959
$
40,603
$
43,918
$
65,916
$
45,846
$
118,937
$
4,557
$
-
$
321,736
Special Mention
43,020
5,413
24,730
-
17,170
131,733
-
-
222,066
Substandard
1,016
1,307
180
10,285
55,431
16,698
4,069
-
88,986
Pass
701,955
1,361,507
730,859
561,078
127,857
958,249
13,128
-
4,454,633
Total commercial
real estate non-
owner occupied
$
747,950
$
1,408,830
$
799,687
$
637,279
$
246,304
$
1,225,617
$
21,754
$
-
$
5,087,421
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
609
$
-
$
714
$
-
$
-
$
1,323
Commercial real estate owner occupied
Watch
$
2,947
$
115,000
$
94,131
$
57,351
$
19,074
$
160,719
$
2,905
$
-
$
452,127
Special Mention
-
16,860
98,653
6,417
6,961
55,293
-
-
184,184
Substandard
1,316
16,187
7,510
143,696
22,608
195,058
12,617
-
398,992
Doubtful
-
-
-
-
-
136
-
-
136
Pass
395,436
434,199
453,535
109,543
71,267
562,317
18,899
-
2,045,196
Total commercial
real estate owner
occupied
$
399,699
$
582,246
$
653,829
$
317,007
$
119,910
$
973,523
$
34,421
$
-
$
3,080,635
Year-to-Date gross
write-offs
$
-
$
4
$
-
$
-
$
1
$
5,827
$
-
$
-
$
5,832
Commercial and industrial
Watch
$
29,039
$
132,807
$
53,410
$
48,982
$
39,053
$
158,659
$
215,253
$
-
$
677,203
Special Mention
6,609
4,158
1,297
3,230
2,239
41,328
18,084
-
76,945
Substandard
1,367
2,388
8,796
23,217
2,652
33,928
42,187
-
114,535
Doubtful
-
-
-
54
-
26
-
-
80
Pass
1,306,857
912,639
858,340
510,287
271,960
638,507
1,758,768
-
6,257,358
Total commercial
and industrial
$
1,343,872
$
1,051,992
$
921,843
$
585,770
$
315,904
$
872,448
$
2,034,292
$
-
$
7,126,121
Year-to-Date gross
write-offs
$
1,143
$
405
$
2,209
$
379
$
1,875
$
1,086
$
4,517
$
-
$
11,614
183
December 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
Popular, Inc.
Construction
Watch
$
-
$
39,413
$
18,327
$
-
$
21,896
$
782
$
9,506
$
-
$
89,924
Special Mention
2,120
13,151
1,009
-
-
-
1
-
16,281
Substandard
-
6,379
13,997
3,895
-
36,593
-
-
60,864
Pass
306,850
276,089
116,814
25,491
27,198
1,049
38,720
-
792,211
Total construction
$
308,970
$
335,032
$
150,147
$
29,386
$
49,094
$
38,424
$
48,227
$
-
$
959,280
Year-to-Date gross
write-offs
$
-
$
2,611
$
-
$
-
$
-
$
-
$
-
$
-
$
2,611
Mortgage
Substandard
$
96
$
396
$
162
$
991
$
4,708
$
80,101
$
-
$
-
$
86,454
Pass
850,828
669,093
710,064
493,217
341,683
4,544,578
-
-
7,609,463
Total mortgage
$
850,924
$
669,489
$
710,226
$
494,208
$
346,391
$
4,624,679
$
-
$
-
$
7,695,917
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
1,638
$
-
$
-
$
1,638
Leasing
Substandard
$
806
$
2,516
$
3,053
$
906
$
818
$
517
$
-
$
-
$
8,616
Loss
-
-
-
-
-
17
-
-
17
Pass
647,659
488,506
313,133
163,189
88,983
21,706
-
-
1,723,176
Total leasing
$
648,465
$
491,022
$
316,186
$
164,095
$
89,801
$
22,240
$
-
$
-
$
1,731,809
Year-to-Date gross
write-offs
$
1,065
$
4,424
$
2,878
$
849
$
976
$
687
$
-
$
-
$
10,879
184
December 31, 2023
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2023
2022
2021
2020
2019
Prior
Years
Total
Popular, Inc.
Consumer:
Credit cards
Substandard
$
-
$
-
$
-
$
-
$
-
$
-
$
23,259
$
-
$
23,259
Loss
-
-
-
-
-
-
22
-
22
Pass
-
-
-
-
-
-
1,112,466
-
1,112,466
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
1,135,747
$
-
$
1,135,747
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
41,008
$
-
$
41,008
HELOCs
Substandard
$
-
$
-
$
-
$
-
$
-
$
1,849
$
26
$
966
$
2,841
Loss
-
-
-
-
-
99
-
819
918
Pass
-
-
-
-
-
7,394
42,547
12,253
62,194
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
9,342
$
42,573
$
14,038
$
65,953
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
471
$
213
$
-
$
684
Personal
Substandard
$
2,148
$
6,615
$
2,264
$
543
$
1,059
$
8,533
$
-
$
1,006
$
22,168
Loss
-
-
14
-
13
167
-
-
194
Pass
900,450
574,530
204,808
60,220
62,446
98,397
-
22,034
1,922,885
Total Personal
$
902,598
$
581,145
$
207,086
$
60,763
$
63,518
$
107,097
$
-
$
23,040
$
1,945,247
Year-to-Date gross
write-offs
$
5,193
$
49,051
$
22,526
$
4,828
$
5,763
$
3,112
$
-
$
1,475
$
91,948
Auto
Substandard
$
6,980
$
14,049
$
11,916
$
9,157
$
7,051
$
3,199
$
-
$
-
$
52,352
Loss
9
44
45
16
9
6
-
-
129
Pass
1,210,622
899,797
711,439
405,768
260,355
120,318
-
-
3,608,299
Total Auto
$
1,217,611
$
913,890
$
723,400
$
414,941
$
267,415
$
123,523
$
-
$
-
$
3,660,780
Year-to-Date gross
write-offs
$
10,170
$
23,849
$
11,820
$
5,914
$
3,553
$
-
$
-
$
-
$
55,306
Other consumer
Substandard
$
244
$
25
$
-
$
73
$
16
$
131
$
250
$
-
$
739
Loss
-
-
137
-
-
363
-
-
500
Pass
36,163
24,238
14,942
5,618
3,433
2,753
72,055
-
159,202
Total Other
consumer
$
36,407
$
24,263
$
15,079
$
5,691
$
3,449
$
3,247
$
72,305
$
-
$
160,441
Year-to-Date gross
write-offs
$
47
$
154
$
125
$
164
$
88
$
11,876
$
171
$
-
$
12,625
Total Popular Inc.
$
6,660,882
$
6,731,050
$
4,885,045
$
2,966,922
$
1,816,720
$
8,572,537
$
3,394,737
$
37,078
$
35,064,971
185
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
186
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
187
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
188
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
189
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
190
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
191
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
192
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:
Years ended December
31,
(In thousands)
2023
2022
2021
Mortgage servicing fees, net of fair value adjustments:
Mortgage servicing fees
$
32,981
$
36,487
$
38,105
Mortgage servicing rights fair value adjustments
(11,589)
236
(10,206)
Total mortgage
servicing fees, net of fair value adjustments
21,392
36,723
27,899
Net (loss) gain on sale of loans, including valuation on
loans held for sale
(88)
(251)
21,684
Trading account profit:
Unrealized loss on outstanding derivative positions
(138)
-
-
Realized gains on closed derivative positions
614
6,635
1,323
Total trading account
profit
476
6,635
1,323
Losses on repurchased loans, including interest advances [1]
(283)
(657)
(773)
Total mortgage
banking activities
$
21,497
$
42,450
$
50,133
[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.
193
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
23
to
the
Consolidated
Financial
Statements for a description of such arrangements.
No
liabilities were incurred
as a result
of these securitizations
during the years
ended December 31, 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 years ended December 31, 2023 and
2022:
Proceeds Obtained During the Year
Ended December 31, 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
-
34,857
-
34,857
Total trading account
debt securities
$
-
$
37,345
$
-
$
37,345
Mortgage servicing rights
$
-
$
-
$
987
$
987
Total
$
-
$
37,345
$
987
$
38,332
Proceeds Obtained During the Year
Ended December 31, 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
-
122,422
-
122,422
Mortgage-backed securities - FHLMC
-
8,505
-
8,505
Total trading account
debt securities
$
-
$
300,279
$
-
$
300,279
Mortgage servicing rights
$
-
$
-
$
5,318
$
5,318
Total
$
-
$
300,279
$
5,318
$
305,597
During the
year ended
December 31,
2023, the
Corporation retained
servicing rights
on whole
loan sales
involving approximately
$
50
million in principal balance
outstanding (2022 - $
114
million), with net realized
gains of approximately $
0.7
million (2022 - $
1.8
million). All loan sales performed during the
years ended December 31, 2023 and 2022 were without
credit recourse agreements.
The Corporation recognizes as assets the rights to service loans for others,
whether these rights are purchased or result from asset
transfers such as sales and securitizations. These mortgage
servicing rights (“MSRs”) are measured at fair
value.
The
Corporation
uses
a
discounted
cash
flow
model
to
estimate
the
fair
value
of
MSRs.
The
discounted
cash
flow
model
incorporates
assumptions
that
market
participants
would
use
in
estimating
future
net
servicing
income,
including
estimates
of
prepayment speeds, discount rate, cost to service, escrow account earnings, contractual servicing fee income, prepayment and late
fees, among other considerations. Prepayment speeds are
adjusted for the loans’ characteristics and portfolio behavior.
The following table
presents the changes
in MSRs measured
using the fair
value method for
the years ended
December 31, 2023
and 2022.
194
Residential MSRs
(In thousands)
December 31, 2023
December 31, 2022
Fair value at beginning of period
$
128,350
$
121,570
Additions
2,097
6,614
Changes due to payments on loans
[1]
(9,934)
(11,063)
Reduction due to loan repurchases
(606)
(779)
Changes in fair value due to changes in valuation model inputs
or assumptions
(529)
12,845
Other
(1,269)
(837)
Fair value at end of period
[2]
$
118,109
$
128,350
[1] Represents changes due to collection / realization
of expected cash flows over time.
[2] At December 31, 2023, PB had MSRs amounting to $
1.9
million (December 31, 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 $
9.9
billion at December 31, 2023 (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
December 31,
2023, those
weighted average mortgage
servicing fees
were
0.31
%
(2022 –
0.31
%). Under these
servicing agreements, the
banking subsidiaries do
not generally earn
significant prepayment penalty
fees on the underlying loans serviced.
The section
below includes
information on
assumptions used
in the
valuation model
of the
MSRs, originated
and purchased.
Key
economic assumptions used
in measuring the
servicing rights derived
from loans securitized
or sold by
the Corporation during
the
years ended December 31, 2023 and 2022 were
as follows:
Years ended
December 31, 2023
December 31, 2022
BPPR
PB
BPPR
PB
Prepayment speed
7.0
%
6.8
%
5.4
%
8.1
%
Weighted average life (in years)
9.1
8.3
9.5
7.8
Discount rate (annual rate)
9.6
%
11.1
%
10.5
%
9.9
%
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:
195
Originated MSRs
Purchased MSRs
December 31,
December 31,
December 31,
December 31,
(In thousands)
2023
2022
2023
2022
Fair value of servicing rights
$
39,757
$
41,548
$
78,352
$
86,802
Weighted average life (in years)
6.6
6.8
6.8
6.9
Weighted average prepayment speed (annual
rate)
5.9
%
5.9
%
7.0
%
7.0
%
Impact on fair value of 10% adverse change
$
(696)
$
(730)
$
(1,440)
$
(1,602)
Impact on fair value of 20% adverse change
$
(1,365)
$
(1,433)
$
(2,827)
$
(3,143)
Weighted average discount rate (annual rate)
11.3
%
11.2
%
10.9
%
11.0
%
Impact on fair value of 10% adverse change
$
(1,387)
$
(1,485)
$
(2,871)
$
(3,256)
Impact on fair value of 20% adverse change
$
(2,686)
$
(2,876)
$
(5,562)
$
(6,304)
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 December 31, 2023, the Corporation serviced $
561
million (2022 - $
640
million) in residential mortgage loans with credit recourse
to the Corporation, from
which $
13
million was 60
days or more past
due (2022 - $
15
million). Also refer to
Note 23 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
December
31,
2023,
the
Corporation
had
recorded
$
11
million
in
mortgage
loans
on
its
Consolidated
Statements
of
Financial
Condition related to this
buy-back option program (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
year
ended
December
31,
2023,
the
Corporation
repurchased
approximately
$
44
million
of
mortgage
loans
from
its
GNMA servicing portfolio (2022 - $
58
million). 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, mostly 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.
196
Note 12 - Premises and equipment
Premises and equipment are stated at cost less accumulated
depreciation and amortization as follows:
(In thousands)
Useful life in years
2023
2022
Premises and equipment:
Land
$
90,275
$
90,625
Buildings
10-50
487,053
482,030
Equipment
2-10
421,513
388,911
Leasehold improvements
3-10
90,333
89,693
998,899
960,634
Less - Accumulated depreciation and amortization
605,178
586,479
Subtotal
393,721
374,155
Construction in progress
81,288
33,931
Premises and equipment, net
$
565,284
$
498,711
Depreciation and
amortization of premises
and equipment for
the year 2023
was $
58.5
million (2022 -
$
55.1
million; 2021
- $
55.1
million), of
which $
26.5
million (2022
- $
24.8
million; 2021
- $
25.2
million) was
charged to
occupancy expense
and $
32.0
million
(2022
-
$
30.3
million;
2021
-
$
29.8
million)
was charged
to
equipment, technology
and
software
and
other
operating expenses.
Occupancy expense of premises and equipment
is net of rental income
of $
13.1
million (2022 - $
13.1
million; 2021 - $
13.4
million).
For information related to the amortization expense
of finance leases, refer to Note 33 - Leases.
197
Note 13 – Other real estate owned
The following
tables present
the activity
related to
Other Real
Estate Owned
(“OREO”), for
the years
ended December
31, 2023,
2022 and 2021.
For the year ended December 31, 2023
OREO
OREO
(In thousands)
Commercial/Construction
Mortgage
Total
Balance at beginning of period
$
12,500
$
76,626
$
89,126
Write-downs in value
(607)
(2,179)
(2,786)
Additions
2,707
68,582
71,289
Sales
(3,428)
(73,548)
(76,976)
Other adjustments
17
(254)
(237)
Ending balance
$
11,189
$
69,227
$
80,416
For the year ended December 31, 2022
OREO
OREO
(In thousands)
Commercial/Construction
Mortgage
Total
Balance at beginning of period
$
15,017
$
70,060
$
85,077
Write-downs in value
(959)
(1,517)
(2,476)
Additions
5,787
70,069
75,856
Sales
(7,453)
(61,453)
(68,906)
Other adjustments
108
(533)
(425)
Ending balance
$
12,500
$
76,626
$
89,126
For the year ended December 31, 2021
OREO
OREO
(In thousands)
Commercial/ Construction
Mortgage
Total
Balance at beginning of period
$
13,214
$
69,932
$
83,146
Write-downs in value
(1,058)
(2,161)
(3,219)
Additions
9,746
55,898
65,644
Sales
(7,282)
(52,666)
(59,948)
Other adjustments
397
(943)
(546)
Ending balance
$
15,017
$
70,060
$
85,077
198
Note 14 − Other assets
The caption of other assets in the consolidated
statements of financial condition consists of the following
major categories:
(In thousands)
December 31, 2023
December 31, 2022
Net deferred tax assets (net of valuation allowance)
$
1,009,068
$
953,676
Investments under the equity method
236,485
210,001
Prepaid taxes
39,052
39,405
Other prepaid expenses
29,338
33,384
Capitalized software costs
93,404
81,862
Derivative assets
24,419
19,229
Trades receivable from brokers and counterparties
23,102
35,099
Receivables from investments maturities
176,000
125,000
Principal, interest and escrow servicing advances
48,557
41,916
Guaranteed mortgage loan claims receivable
29,648
59,659
Operating ROU assets (Note 33)
116,106
125,573
Finance ROU assets (Note 33)
21,093
18,884
Assets for pension benefit
23,404
-
Others
144,888
104,125
Total other assets
$
2,014,564
$
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
December 31, 2023
Software development costs
$
76,497
$
22,086
$
54,411
Software license costs
42,868
18,048
24,820
Cloud computing arrangements
23,623
9,450
14,173
Total Capitalized
software costs [1] [2]
$
142,988
$
49,584
$
93,404
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 that 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:
Year ended December
31,
(In thousands)
2023
2022
2021
Software development and license costs
$
66,233
$
55,011
$
45,577
Cloud computing arrangements
3,324
3,805
3,867
Total amortization
expense
$
69,557
$
58,816
$
49,444
199
Note 15 – Goodwill and other intangible assets
The changes in the carrying amount of goodwill for the year ended
December 31, 2023 and 2022, allocated by reportable
segments,
were as follows (refer to Note 37 for the definition
of the Corporation’s reportable segments):
December 31, 2023
Balance at
Goodwill on
Goodwill
Balance at
(In thousands)
January 1, 2023
acquisition
impairment
December 31, 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
December 31, 2022
Balance at
Goodwill on
Goodwill
Balance at
(In thousands)
January 1, 2022
acquisition
impairment
December 31, 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 year ended
December 31, 2022 in
the reportable segment of
Banco Popular de Puerto
Rico of
$
116.1
million was
related to
the Evertec
Business Acquisition
Transaction. Refer
to Note
4, Business
combination, for
additional
information related to the assets acquired and liabilities assumed
as a result of business combinations, including goodwill and
other
intangible assets.
The following table reflects the components of
other intangible assets subject to amortization:
Other intangible assets
Gross
Net
Carrying
Accumulated
Carrying
(In thousands)
Amount
Amortization
Value
December 31, 2023
Core deposits
$
12,810
$
11,315
$
1,495
Other customer relationships
14,286
6,777
7,509
Total other intangible
assets
$
27,096
$
18,092
$
9,004
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
year
ended
December
31,
2023,
the
Corporation
recognized
$
3.2
million
in
amortization
expense
related
to
other
intangible assets with definite useful lives (2022
- $
3.3
million; 2021 - $
9.1
million).
The following
table presents
the estimated
amortization of
the intangible
assets with
definite useful
lives for
each of
the following
periods:
200
(In thousands)
Year 2024
$
2,938
Year 2025
1,750
Year 2026
1,440
Year 2027
959
Year 2028
959
Later years
958
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.
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
201
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 December 31, 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.
202
December 31, 2023
Balance at
Balance at
December 31,
Accumulated
December 31,
2023
impairment
2023
(In thousands)
(gross amounts)
losses
(net amounts)
Banco Popular de Puerto Rico
$
440,184
$
3,801
$
436,383
Popular U.S.
564,456
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
203
Note 16 – Deposits
Total deposits as of the end of the periods presented consisted of:
(In thousands)
December 31, 2023
December 31, 2022
Savings accounts
$
14,602,411
$
14,746,329
NOW, money market and other interest
bearing demand deposits
25,094,316
23,738,940
Total savings, NOW,
money market and other interest bearing demand
deposits
39,696,727
38,485,269
Certificates of deposit:
Under $250,000
5,443,062
4,235,651
$250,000 and over
3,058,830
2,545,750
Total certificates
of deposit
8,501,892
6,781,401
Total interest bearing
deposits
$
48,198,619
$
45,266,670
Non- interest bearing deposits
$
15,419,624
$
15,960,557
Total deposits
$
63,618,243
$
61,227,227
A summary of certificates of deposits by maturity at
December 31, 2023 follows:
(In thousands)
2024
$
5,440,688
2025
1,136,539
2026
809,921
2027
391,601
2028
642,747
2029 and thereafter
80,396
Total certificates of
deposit
$
8,501,892
At December 31, 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 $
9.1
million at
December 31,
2023 (December 31, 2022 - $
6.3
million).
At December 31, 2023, Puerto Rico public sector deposits amounted to $
18.1
billion. Puerto Rico public sector deposits are interest
bearing accounts.
These public
funds deposits
are indexed
to short-term
market rates
and fluctuate
in cost
with changes
in those
rates, in
accordance with contractual
terms. 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.
204
Note 17 – Borrowings
Assets sold under agreements to repurchase
Assets sold under agreements to repurchase amounted
to $
91
million at December 31, 2023 and $
149
million at December 31,
2022.
The Corporation’s
repurchase transactions are
overcollateralized with the
securities detailed in
the table
below.
The Corporation’s
repurchase
agreements
have
a
right
of
set-off
with
the
respective
counterparty
under
the
supplemental
terms
of
the
master
repurchase agreements.
In an
event of
default,
each party
has a
right of
set-off
against the
other party
for amounts
owed in
the
related
agreement
and
any
other
amount
or
obligation
owed
in
respect
of
any
other
agreement
or
transaction
between
them.
Pursuant to the
Corporation’s accounting policy,
the repurchase agreements
are not offset
with other repurchase
agreements held
with the same counterparty.
The following table
presents information related to
the Corporation’s repurchase
transactions accounted for as
secured borrowings
that are collateralized with
debt securities available-for-sale, debt securities
held-to-maturity, other assets
held-for-trading purposes
or which have been obtained under agreements to resell.
It is the Corporation’s policy to maintain effective control over assets sold
under agreements
to repurchase;
accordingly,
such securities
continue to
be carried
on the
Consolidated Statements
of Financial
Condition.
Repurchase agreements accounted for as secured borrowings
December 31, 2023
December 31, 2022
Repurchase liability
Repurchase liability
Repurchase
weighted average
Repurchase
weighted average
(Dollars in thousands)
liability
interest rate
liability
interest rate
U.S. Treasury securities
Within 30 days
$
16,931
5.56
%
$
410
4.40
%
After 30 to 90 days
18,369
5.60
30,739
3.79
After 90 days
8,292
5.73
17,521
4.39
Total U.S. Treasury
securities
43,592
5.61
48,670
4.01
Mortgage-backed securities
Within 30 days
27,171
5.49
98,984
4.27
After 30 to 90 days
20,394
5.71
791
3.27
Total mortgage-backed
securities
47,565
5.58
99,775
4.26
Collateralized mortgage obligations
Within 30 days
227
5.25
164
4.25
Total collateralized
mortgage obligations
227
5.25
164
4.25
Total
$
91,384
5.59
%
$
148,609
4.18
%
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.
205
(Dollars in thousands)
2023
2022
Maximum aggregate balance outstanding at any month-end
$
150,692
$
162,450
Average monthly aggregate balance outstanding
$
115,808
$
107,305
Weighted average interest rate:
For the year
5.20
%
2.15
%
At December 31
5.68
%
4.23
%
Other short-term borrowings
There were
no
other short-term borrowings at December 31, 2023,
compared to $
365
million in FHLB advances at December 31,
2022.
The following table presents additional information related
to the Corporation’s other short-term borrowings for the years
ended December 31, 2023 and December 31, 2022.
(Dollars in thousands)
2023
2022
Maximum aggregate balance outstanding at any month-end
$
65,000
$
375,000
Average monthly aggregate balance outstanding
$
27,302
$
99,083
Weighted average interest rate:
For the year
4.80
%
3.46
%
At December 31
5.60
%
4.47
%
206
Notes Payable
The following table presents the composition of notes
payable at December 31, 2023 and December
31, 2022.
(In thousands)
December 31, 2023
December 31, 2022
Advances with the FHLB with maturities ranging from
2024
through
2029
paying interest at monthly
fixed rates ranging from
0.41
% to
5.26
%
(2022 -
0.39
% to
3.18
%)
$
394,665
$
389,282
Unsecured senior debt securities maturing on
2028
paying interest
semiannually
at a fixed rate of
7.25
% (2022-
6.125
%), net of debt issuance costs of $
6,063
(2022 - $
891
)
[1]
393,937
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
% (2022 -
6.125
% to
6.564
%), net of debt
issuance costs of $
288
(2022 - $
315
)
198,346
198,319
Total notes payable
$
986,948
$
886,710
[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 December 31, 2023 is included in
the table below.
Assets sold under
(In thousands)
agreements to
repurchase
Notes payable
Total
2024
$
91,384
$
91,943
$
183,327
2025
-
144,214
144,214
2026
-
74,500
74,500
2028
-
438,288
438,288
Later years
-
238,003
238,003
Total borrowings
$
91,384
$
986,948
$
1,078,332
At
December
31,
2023
and
December
31,
2022,
the
Corporation had
FHLB
borrowing
facilities
whereby
the
Corporation could
borrow up to
$
4.2
billion and $
3.3
billion, respectively,
of which $
0.4
billion and $
0.8
billion, respectively,
were used. In
addition, at
December 31, 2023 and
December 31, 2022, the
Corporation had placed $
0.3
billion and $
0.4
billion, respectively,
of the available
FHLB credit
facility as
collateral for
municipal letters
of credit
to secure
deposits. The
FHLB borrowing
facilities are
collateralized
with securities and loans held-in-portfolio, and do
not have restrictive covenants or callable
features.
Also, at
December 31, 2023,
the Corporation has
borrowing facilities at
the discount
window of the
Federal Reserve Bank
of New
York amounting to $
4.4
billion (December 31, 2022 - $
1.4
billion), which remained unused at December 31, 2023
and December 31,
2022.
The facilities are a collateralized source
of credit that is highly reliable even under difficult
market conditions.
207
Note 18 – Trust preferred securities
Statutory trusts established by the Corporation (Popular North America
Capital Trust I and Popular
Capital Trust II) had issued
trust
preferred
securities
(also
referred
to
as
“capital
securities”)
to
the
public.
The
proceeds
from
such
issuances,
together
with
the
proceeds of the related issuances of common securities of the trusts (the “common securities”), were used by the trusts to purchase
junior subordinated deferrable interest debentures (the
“junior subordinated debentures”) issued by the
Corporation.
The sole
assets of
the trusts
consisted of
the junior
subordinated debentures
of the
Corporation and
the related
accrued interest
receivable. These trusts are not consolidated
by the Corporation pursuant to accounting
principles generally accepted in the United
States of America.
The junior subordinated
debentures are included
by the Corporation
as notes payable
in the Consolidated
Statements of Financial
Condition, while
the common
securities issued
by the
issuer trusts
are included
as debt
securities held-to-maturity.
The common
securities of each trust are wholly-owned, or indirectly
wholly-owned, by the Corporation.
The following table presents financial data pertaining
to the different trusts at December 31, 2023 and 2022.
(Dollars in thousands)
December 31, 2023 and 2022
Popular
North America
Popular
Issuer
Capital Trust I
Capital Trust Il
Capital securities
$
91,651
$
101,023
Distribution rate
6.564
%
6.125
%
Common securities
$
2,835
$
3,125
Junior subordinated debentures aggregate liquidation amount
$
94,486
$
104,148
Stated maturity date
September 2034
December 2034
Reference notes
[1],[3],[5]
[2],[4],[5]
[1] Statutory business trust that is wholly-owned by
PNA and indirectly wholly-owned by the Corporation.
[2] Statutory business trust that is wholly-owned by
the Corporation.
[3] The obligation of PNA under the junior subordinated
debenture and its guarantees of the capital securities under
the trust is fully and unconditionally
guaranteed on a subordinated basis by the Corporation
to the extent set forth in the guarantee agreement.
[4] These capital securities are fully and unconditionally guaranteed
on a subordinated basis by the Corporation to the extent
set forth in the guarantee
agreement.
[5] The Corporation has the right, subject to any required
prior approval from the Federal Reserve, to redeem
after certain dates or upon the
occurrence of certain events mentioned below,
the junior subordinated debentures at a redemption
price equal to 100% of the principal amount, plus
accrued and unpaid interest to the date of redemption. The
maturity of the junior subordinated debentures may
be shortened at the option of the
Corporation prior to their stated maturity dates (i) on or
after the stated optional redemption dates stipulated in
the agreements, in whole at any time or
in part from time to time, or (ii) in whole, but not in part,
at any time within 90 days following the occurrence
and during the continuation of a tax event,
an investment company event or a capital treatment event
as set forth in the indentures relating to the capital securities,
in each case subject to
regulatory approval.
At
December
31,
2023,
the
Corporation’s
$
193
million
in
trust
preferred
securities
outstanding
do
not
qualify
for
Tier
1
capital
treatment, but instead qualify for Tier 2 capital treatment compared
to $
193
million at December 31, 2022.
208
Note 19 − Other liabilities
The caption of other liabilities in the consolidated
statements of financial condition consists of the following
major categories:
(In thousands)
December 31, 2023
December 31, 2022
Accrued expenses
$
337,695
$
337,284
Accrued interest payable
59,102
39,288
Accounts payable
89,339
76,456
Dividends payable
44,741
39,525
Trades payable
31
9,461
Liability for GNMA loans sold with an option to repurchase
10,960
14,271
Reserves for loan indemnifications
4,408
7,520
Reserve for operational losses
27,994
39,266
Operating lease liabilities (Note 33)
126,946
137,290
Finance lease liabilities (Note 33)
25,778
24,737
Pension benefit obligation
6,772
8,290
Postretirement benefit obligation
117,045
118,336
Others
63,816
65,222
Total other liabilities
$
914,627
$
916,946
209
Note 20 – Stockholders’ equity
The Corporation’s common stock ranks junior to all series of
preferred stock as to dividend rights and / or as
to rights on liquidation,
dissolution
or
winding
up
of
the
Corporation.
Dividends
on
preferred
stock
are
payable
if
declared.
The
Corporation’s
ability
to
declare or
pay dividends
on, or
purchase, redeem
or otherwise
acquire, its
common stock
is subject
to certain
restrictions in
the
event that the
Corporation fails to pay
or set aside
full dividends on the
preferred stock for the
latest dividend period. The
ability of
the Corporation to
pay dividends in
the future is
limited by regulatory
requirements, legal availability of
funds, recent and
projected
financial results, capital levels and liquidity of the Corporation, general
business conditions and other factors deemed relevant by the
Corporation’s Board of Directors.
The Corporation’s
common stock
trades on
the Nasdaq
Global Select
Market (the
“Nasdaq”) under
the symbol
BPOP.
The 2003
Series A Preferred Stock are not listed on Nasdaq.
Preferred stocks
The Corporation has
30,000,000
shares of authorized
preferred stock that may
be issued in
one or more
series, and the
shares of
each series shall have such rights and preferences as shall be fixed by the Board of Directors when authorizing the issuance of that
particular series. The Corporation’s shares of preferred stock at
December 31, 2023 consisted of:
●
6.375
% non-cumulative monthly income preferred stock, 2003 Series
A, no par value, liquidation
preference value of $
25
per share. Holders on record of the 2003 Series A Preferred Stock are entitled to
receive, when, as and if declared by the
Board of
Directors of
the Corporation
or an
authorized committee thereof,
out of
funds legally
available, non-cumulative
cash dividends at the
annual rate per share
of
6.375
% of their
liquidation preference value, or
$
0.1328125
per share per
month.
These
shares
of
preferred
stock
are
perpetual,
nonconvertible,
have
no
preferential
rights
to
purchase
any
securities of the
Corporation and are redeemable solely
at the option of
the Corporation with the
consent of the Board
of
Governors
of
the
Federal
Reserve
System.
The
redemption
price
per
share
is
$
25.00
.
The
shares
of
2003
Series
A
Preferred Stock have no voting
rights, except for certain rights in
instances when the Corporation does not
pay dividends
for a defined period. These
shares are not subject to
any sinking fund requirement. Cash dividends declared and
paid on
the 2003
Series A
Preferred Stock
amounted to
$
1.4
million for
the years
ended December
31, 2023,
2022 and
2021.
Outstanding shares of 2003 Series A Preferred Stock amounted
to
885,726
at December 31, 2023, 2022 and 2021.
Common stock
Dividends
During
the
year
2023,
cash
dividends
of
$
2.27
(2022
-
$
2.20
;
2021
-
$
1.75
)
per
common
share
outstanding
were
declared
amounting to $
163.7
million (2022 - $
163.7
million; 2021 -
$
142.3
million) of which
$
44.7
million were payable to
stockholders of
common
stock
at
December
31,
2023
(2022
-
$
39.5
million;
2021
-
$
35.9
million).
The
quarterly
dividend
of
$
0.62
per
share
declared to stockholders of record as of the close of business on
December 7, 2023
, was paid on
January 2, 2024
. On February 23,
2024, the Corporation’s Board of Directors approved a quarterly cash dividend of $
0.62
per share on its outstanding common stock,
payable on
April 1, 2024
to stockholders of record at the close of business
on
March 14, 2024
.
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 repurchase 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 March ASR Agreement.
210
On
May
3,
2021,
the
Corporation
entered
into
a
$
350
million
ASR
transaction
with
respect
to
its
common
stock,
which
was
accounted for as a treasury stock transaction. As a result of the receipt of the initial
3,785,831
shares, the Corporation recognized in
stockholders’ equity approximately $
280
million in treasury stock
and $
70
million as a
reduction in capital surplus.
The Corporation
completed the
transaction on
September 9,
2021 and
received
828,965
additional shares
of
common stock
and
recognized $
61
million in treasury
stock with a
corresponding increase in
capital surplus. In
total, the Corporation
repurchased a total
of
4,614,796
shares at an average price of $
75.8430
under the ASR Agreement.
Statutory reserve
The
Banking
Act
of
the
Commonwealth of
Puerto
Rico
requires that
a minimum of 10% of BPPR’s net income
for
the
year
be
transferred to
a statutory
reserve account
until such
statutory reserve
equals the
total of
paid-in capital
on common
and preferred
stock. Any losses
incurred by a
bank must first
be charged to
retained earnings and then
to the reserve
fund. Amounts credited
to
the
reserve
fund
may
not
be
used
to
pay
dividends
without
the
prior
consent
of
the
Puerto
Rico
Commissioner
of
Financial
Institutions.
The
failure
to
maintain
sufficient
statutory
reserves
would
preclude
BPPR
from
paying
dividends.
BPPR’s
statutory
reserve fund
amounted to $
908
million at
December 31, 2023
(2022 - $
863
million; 2021 -
$
786
million). During
2023, $
45
million
was transferred to the statutory reserve account (2022 - $
77
million, 2021 - $
78
million). BPPR was in compliance with the statutory
reserve requirement in 2023, 2022 and 2021.
211
Note 21 – Regulatory capital requirements
The Corporation,
BPPR and
PB are
subject to
various regulatory
capital requirements
imposed by
the federal
banking agencies.
Failure to meet minimum capital requirements can
lead to certain mandatory and additional
discretionary actions by regulators that,
if undertaken,
could have
a direct
material effect
on the
Corporation’s consolidated financial
statements. Popular,
Inc., BPPR
and
PB are
subject to
Basel III
capital requirements,
including minimum
and well
capitalized regulatory
capital ratios
and compliance
with the standardized approach for determining
risk-weighted assets.
The Basel III Capital
Rules established a Common Equity
Tier I (“CET1”) capital
measure and related regulatory capital ratio
CET1
to risk-weighted assets.
The Basel III Capital Rules provide that a
depository institution will be deemed to be well capitalized if
it maintained a leverage ratio
of at
least
5
%, a
CET1 ratio of
at least
6.5
%, a Tier
1 risk-based capital
ratio of at
least
8
% and
a total risk-based
ratio of
at least
10
%.
Management
has
determined
that
at
December
31,
2023
and
2022,
the
Corporation
exceeded
all
capital
adequacy
requirements to which it is subject.
The Corporation
has
been designated
by the
Federal Reserve
Board as
a Financial
Holding Company
(“FHC”) and
is eligible
to
engage in certain financial activities permitted under
the Gramm-Leach-Bliley Act of 1999.
Pursuant to the adoption of the CECL accounting standard on
January 1, 2020, the Corporation elected to use a five-year
transition
period
option
as
permitted
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 the adoption of the CECL accounting standard 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.
On
August
26,
2020,
federal
banking
regulators
issued
a
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 December 31,
2023,
the Corporation has $
9
million in PPP loans and
no
loans were pledged as collateral for PPPL
Facilities.
At December 31, 2023 and 2022, BPPR and
PB were well-capitalized under the regulatory
framework for prompt corrective action.
The following
tables present
the Corporation’s
risk-based capital
and leverage
ratios at
December 31,
2023 and
2022 under
the
Basel III regulatory guidance.
212
Actual
Capital adequacy minimum
requirement (including
conservation capital buffer) [1]
(Dollars in thousands)
Amount
Ratio
Amount
Ratio
2023
Total Capital (to Risk-Weighted
Assets):
Corporation
$
6,733,964
18.13
%
$
3,900,365
10.50
%
BPPR
4,811,675
18.15
2,782,976
10.50
PB
1,491,549
14.38
1,088,754
10.50
Common Equity Tier I Capital (to Risk-Weighted
Assets):
Corporation
$
6,053,315
16.30
%
$
2,600,243
7.00
%
BPPR
4,478,033
16.90
1,855,317
7.00
PB
1,426,037
13.75
725,836
7.00
Tier I Capital (to Risk-Weighted Assets):
Corporation
$
6,075,458
16.36
%
$
3,157,438
8.50
%
BPPR
4,478,033
16.90
2,252,885
8.50
PB
1,426,037
13.75
881,372
8.50
Tier I Capital (to Average Assets):
Corporation
$
6,075,458
8.51
%
$
2,854,127
4.00
%
BPPR
4,478,033
7.64
2,343,174
4.00
PB
1,426,037
11.23
507,942
4.00
[1] The conservation capital buffer included for these
ratios is
2.5
%, except for the Tier I to Average
Asset ratio for which the buffer is not applicable
and
therefore the capital adequacy minimum of
4
% is presented.
213
Actual
Capital adequacy minimum
requirement (including
conservation capital buffer)
(Dollars in thousands)
Amount
Ratio
Amount
Ratio
2022
Total Capital (to Risk-Weighted
Assets):
Corporation
$
6,285,648
18.26
%
$
3,613,668
10.500
%
BPPR
4,541,915
18.34
2,599,872
10.500
PB
1,463,511
15.59
985,510
10.500
Common Equity Tier I Capital (to Risk-Weighted
Assets):
Corporation
$
5,639,686
16.39
%
$
2,409,112
7.000
%
BPPR
4,230,820
17.09
1,733,248
7.000
PB
1,395,272
14.87
657,007
7.000
Tier I Capital (to Risk-Weighted Assets):
Corporation
$
5,661,829
16.45
%
$
2,925,351
8.500
%
BPPR
4,230,820
17.09
2,104,658
8.500
PB
1,395,272
14.87
797,794
8.500
Tier I Capital (to Average Assets):
Corporation
$
5,661,829
8.06
%
$
2,811,504
4
%
BPPR
4,230,820
7.10
2,383,478
4
PB
1,395,272
13.08
426,832
4
The following table presents the minimum amounts
and ratios for the Corporation’s banks to be categorized
as well-capitalized.
2023
2022
(Dollars in thousands)
Amount
Ratio
Amount
Ratio
Total Capital (to Risk-Weighted
Assets):
BPPR
$
2,650,453
10
%
$
2,476,068
10
%
PB
1,036,909
10
938,581
10
Common Equity Tier I Capital (to Risk-Weighted
Assets):
BPPR
$
1,722,795
6.5
%
$
1,609,444
6.5
%
PB
673,991
6.5
610,078
6.5
Tier I Capital (to Risk-Weighted Assets):
BPPR
$
2,120,363
8
%
$
1,980,855
8
%
PB
829,527
8
750,865
8
Tier I Capital (to Average Assets):
BPPR
$
2,928,968
5
%
$
2,979,348
5
%
PB
634,927
5
533,540
5
214
Note 22 – Other comprehensive income (loss)
The
following
table
presents
changes
in
accumulated
other
comprehensive
income
(loss)
by
component
for
the
years
ended
December 31, 2023 , 2022 and 2021.
Changes in Accumulated Other Comprehensive (Loss) Income
by Component [1]
Years ended December
31,
(In thousands)
2023
2022
2021
Foreign currency translation
Beginning Balance
$
(56,735)
$
(67,307)
$
(71,254)
Other comprehensive (loss) income
(7,793)
10,572
3,947
Net change
(7,793)
10,572
3,947
Ending balance
$
(64,528)
$
(56,735)
$
(67,307)
Adjustment of pension and
postretirement benefit plans
Beginning Balance
$
(144,335)
$
(158,994)
$
(195,056)
Other comprehensive income (loss) before reclassifications
14,408
4,882
23,094
Amounts reclassified from accumulated other comprehensive loss
for
amortization of net losses
12,034
9,777
12,968
Net change
26,442
14,659
36,062
Ending balance
$
(117,893)
$
(144,335)
$
(158,994)
Unrealized net holding
(losses) gains on debt
securities
Beginning Balance
$
(2,323,903)
$
(96,120)
$
460,900
Other comprehensive income (loss) before reclassifications
472,487
(2,261,097)
(557,002)
Amounts reclassified from accumulated other comprehensive
(loss)
income for gains on securities
-
-
(18)
Amounts reclassified from accumulated other comprehensive
(loss)
income for amortization of net unrealized losses of debt securities
transferred from available-for-sale to held-to-maturity
138,306
33,314
-
Net change
610,793
(2,227,783)
(557,020)
Ending balance
$
(1,713,110)
$
(2,323,903)
$
(96,120)
Unrealized net gains (losses)
on cash flow hedges
Beginning Balance
$
45
$
(2,648)
$
(4,599)
Other comprehensive (loss) income before reclassifications
(19)
3,107
367
Amounts reclassified from accumulated other comprehensive income
(loss)
(26)
(414)
1,584
Net change
(45)
2,693
1,951
Ending balance
$
-
$
45
$
(2,648)
Total
$
(1,895,531)
$
(2,524,928)
$
(325,069)
[1] All amounts presented are net of tax.
215
The following table presents the amounts reclassified out of each component of accumulated other comprehensive (loss) income for
the years ended December 31, 2023, 2022, and
2021.
Reclassifications Out of Accumulated Other Comprehensive
(Loss) Income
Affected Line Item in the
Years ended December
31,
(In thousands)
Consolidated Statements of Operations
2023
2022
2021
Adjustment of pension and postretirement benefit plans
Amortization of net losses
Other operating expenses
$
(19,253)
$
(15,644)
$
(20,749)
Total before tax
(19,253)
(15,644)
(20,749)
Income tax benefit
7,219
5,867
7,781
Total net of tax
$
(12,034)
$
(9,777)
$
(12,968)
Unrealized net holding (losses) gains on debt securities
Realized gain on sale of debt securities
Net gain (loss) on sale of debt securities
$
-
$
-
$
23
Amortization of unrealized net losses of debt
securities transferred to held-to-maturity
Investment securities [1]
(172,883)
(41,642)
-
Total before tax
(172,883)
(41,642)
23
Income tax benefit (expense)
34,577
8,328
(5)
Total net of tax
$
(138,306)
$
(33,314)
$
18
Unrealized net gains (losses) losses on cash flow
hedges
Forward contracts
Mortgage banking activities
$
41
$
1,458
$
(704)
Interest rate swaps
Other operating income
-
(498)
(1,143)
Total before tax
41
960
(1,847)
Income tax (expense) benefit
(15)
(546)
263
Total net of tax
$
26
$
414
$
(1,584)
Total reclassification
adjustments, net of tax
$
(150,314)
$
(42,677)
$
(14,534)
[1]
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. Refer to Note 6 to
the Consolidated Financial Statements for additional
information.
216
Note 23 – Guarantees
The Corporation
has obligations
upon the
occurrence of
certain events
under financial
guarantees provided
in certain
contractual
agreements as summarized below.
The
Corporation
issues
financial
standby
letters
of
credit
and
has
risk
participation
in
standby
letters
of
credit
issued
by
other
financial institutions, in each case to guarantee the performance of various
customers to third parties. If the customers failed to meet
its financial
or performance
obligation to
the third
party under
the terms
of the
contract, then,
upon their
request, the
Corporation
would be obligated to
make the payment to
the guaranteed party.
At December 31,
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.
In accordance with the
provisions of ASC Topic
460, the Corporation recognizes at
fair value the obligation at
inception of the standby letters
of credit. The fair value
approximates the fee received from the
customer
for issuing such commitments. These fees are deferred and are recognized over the commitment period. The contracted amounts
in
standby letters of credit
outstanding at December 31,
2023 and 2022,
shown in Note
24 to the
Consolidated Financial Statements,
represent the maximum
potential amount of
future payments that
the Corporation could
be required to
make under the
guarantees
in
the
event
of
nonperformance
by
the
customers.
These
standby
letters
of
credit
are
used
by
the
customers
as
a
credit
enhancement and typically expire without
being drawn upon. The Corporation’s
standby letters of credit
are generally secured, and
in the
event of
nonperformance by the
customers, the
Corporation has
rights to
the underlying
collateral provided, which
normally
includes
cash,
marketable
securities,
real
estate,
receivables,
and
others.
Management
does
not
anticipate
any
material
losses
related to these instruments.
Also, from
time to
time, the
Corporation securitized mortgage
loans into
guaranteed mortgage-backed securities
subject in
certain
instances, to 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. Also,
from time
to time,
the Corporation
may sell,
in bulk
sale
transactions, residential mortgage loans
and Small Business Administration
(“SBA”) commercial loans subject
to credit recourse
or
to certain representations
and warranties from the
Corporation to the purchaser.
These representations and warranties
may relate,
for example, to borrower creditworthiness, loan documentation, collateral, prepayment and early payment defaults.
The Corporation
may be required to repurchase the loans under
the credit recourse agreements or representation
and warranties.
At
December 31,
2023, the
Corporation serviced
$
561
million
(December 31,
2022
- $
640
million) 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 2023,
the Corporation
repurchased approximately
$
2
million of
unpaid principal
balance in
mortgage loans
subject to
the
credit recourse
provisions (2022
- $
7
million). In
the event
of nonperformance
by the
borrower,
the Corporation
has rights
to the
underlying
collateral
securing
the
mortgage
loan.
The
Corporation
suffers
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
December 31,
2023, the
Corporation’s liability
established to cover
the estimated credit
loss exposure
related to loans
sold or serviced
with credit
recourse
amounted to
$
4
million (December
31,
2022 -
$
7
million).
The following
table shows
the changes
in the
Corporation’s liability
of
estimated losses from
these credit recourses agreements,
included in the
consolidated statements of financial
condition during the
years ended December 31, 2023 and 2022.
Years ended
December 31,
(In thousands)
2023
2022
Balance as of beginning of period
$
6,897
$
11,800
Provision (benefit) for recourse liability
(1,989)
(1,715)
Net charge-offs
(698)
(3,188)
Balance as of end of period
$
4,211
$
6,897
217
The estimated losses to be absorbed under the credit
recourse arrangements are recorded as a liability when
the loans are sold and
are updated by
accruing or reversing expense
(categorized in the line
item “Adjustments (expense)
to indemnity reserves on
loans
sold”
in
the
consolidated
statements
of
operations)
throughout
the
life
of
the
loan,
as
necessary,
when
additional
relevant
information becomes available. The
methodology used to
estimate the recourse
liability is a
function of the
recourse arrangements
given and
considers a
variety of
factors, which
include actual
defaults and
historical loss
experience, foreclosure
rate, estimated
future defaults
and the
probability that
a loan
would be
delinquent. Statistical
methods are
used to
estimate the
recourse liability.
Expected loss
rates are
applied to
different loan
segmentations. The
expected loss,
which represents
the amount
expected to
be
lost on a given loan, considers the
probability of default and loss severity.
The probability of default represents the probability that
a
loan in
good standing
would become
90 days
delinquent within
the following
twelve-month period.
Regression analysis
quantifies
the relationship
between the
default event
and loan-specific
characteristics, including
credit scores,
loan-to-value ratios,
and loan
aging, among others.
When the
Corporation sells or
securitizes mortgage loans,
it generally makes
customary representations and
warranties regarding
the characteristics
of the
loans sold. The
Corporation’s mortgage operations
in Puerto
Rico group conforming
mortgage loans into
pools which are
exchanged for FNMA and
GNMA mortgage-backed securities, which are
generally sold to
private investors, or are
sold directly
to FNMA
for cash.
As required
under the
government agency
programs, quality
review procedures
are performed
by
the Corporation to
ensure that asset
guideline qualifications are met.
To
the extent the
loans do not
meet specified characteristics,
the
Corporation may
be required
to
repurchase such
loans or
indemnify for
losses and
bear any
subsequent loss
related to
the
loans. The
amount purchased
under representation
and warranty
arrangements during
the years
ended December
31, 2023
and
December 31, 2022 was not considered material
for the Corporation.
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.
Servicing agreements
relating to
the mortgage-backed
securities
programs of
FNMA 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
December 31,
2023, the
Corporation serviced $
9.9
billion in mortgage loans for third-parties, including the loans serviced with credit recourse (December 31,
2022
-
$
11.1
billion).
The
Corporation
generally
recovers
funds
advanced
pursuant
to
these
arrangements
from
the
mortgage
owner, from
liquidation proceeds when the
mortgage loan is foreclosed
or, in
the case of
FHA/VA loans,
under the applicable FHA
and
VA
insurance
and
guarantees
programs.
However,
in
the
meantime,
the
Corporation
must
absorb
the
cost
of
the
funds
it
advances
during
the
time
the
advance
is
outstanding.
The
Corporation
must
also
bear
the
costs
of
attempting
to
collect
on
delinquent and defaulted mortgage loans. In
addition, if a defaulted loan
is not cured, the mortgage
loan would be canceled as
part
of
the
foreclosure
proceedings
and
the
Corporation would
not
receive
any
future
servicing
income
with
respect
to
that
loan.
At
December
31,
2023,
the
outstanding
balance
of
funds
advanced
by
the
Corporation
under
such
mortgage
loan
servicing
agreements
was approximately
$
49
million
(December 31,
2022
- $
42
million).
To
the extent
the mortgage
loans underlying
the
Corporation’s servicing portfolio experience increased delinquencies, the
Corporation would be required to dedicate
additional cash
resources
to
comply
with
its
obligation to
advance
funds
as
well as
incur
additional
administrative costs
related
to
increases
in
collection efforts.
Popular,
Inc. Holding
Company (“PIHC”) fully
and unconditionally guarantees
certain borrowing
obligations issued by
certain of
its
100
% owned consolidated subsidiaries amounting to
$
94
million at both December 31,
2023 and December 31, 2022, respectively.
In addition, at both December 31, 2023 and December 31, 2022, PIHC
fully and unconditionally guaranteed on a subordinated basis
$
193
million of capital securities (trust preferred securities) issued by wholly-owned issuing trust entities to the extent set forth in the
applicable
guarantee
agreement.
Refer
to
Note
18
to
the
consolidated
financial
statements
for
further
information
on
the
trust
preferred securities.
218
Note 24 – 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)
December 31, 2023
December 31, 2022
Commitments to extend credit:
Credit card lines
$
6,108,939
$
5,853,990
Commercial lines of credit
3,626,269
3,523,930
Construction lines of credit
1,287,679
901,895
Other consumer unused credit commitments
256,610
250,271
Commercial letters of credit
1,404
3,351
Standby letters of credit
80,889
27,868
Commitments to originate or fund mortgage loans
32,968
45,170
At December 31, 2023 and December 31, 2022, the Corporation maintained a reserve of approximately $
17
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 December
31, 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 37
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 December 31, 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 December
31, 2023
and December
31, 2022
were obligations
from various
Puerto
Rico
municipalities.
In
most
cases,
these
were
“general
obligations”
of
a
municipality,
to
which
the
applicable
municipality
has
pledged
its
good
faith,
credit
and
unlimited
taxing
power,
or
“special
obligations”
of
a
municipality,
to
which
the
applicable
municipality
has
pledged
other
revenues.
At
December
31,
2023,
76
%
of
the
Corporation’s
exposure
to
municipal
loans
and
securities was concentrated in the municipalities of
San Juan, Guaynabo, Carolina and Caguas.
219
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 December 31, 2023:
(In thousands)
Investment
Portfolio
Loans
Total Outstanding
Total Exposure
Central Government
After 1 to 5 years
$
10
$
-
$
10
$
10
After 5 to 10 years
1
-
1
1
After 10 years
44
-
44
44
Total Central
Government
55
-
55
55
Municipalities
Within 1 year
4,820
13,218
18,038
47,038
After 1 to 5 years
13,155
141,519
154,674
154,674
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
313,729
332,549
361,549
Total Direct Government
Exposure
$
18,875
$
313,729
$
332,604
$
361,604
In
addition,
at
December
31,
2023,
the
Corporation
had
$
238
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
$
191
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 December
31,
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,
$
1.9
billion of
residential mortgages,
$
9.2
million of
Small Business
Administration (“SBA”)
loans under
the Paycheck
Protection Program (“PPP”) and
$
80
million commercial loans were
insured or guaranteed
by the U.S.
Government or its agencies
at December 31, 2023 (compared to
$
1.6
billion, $
38
million and $
72
million, respectively, at
December 31, 2022). The Corporation
also had U.S. Treasury and obligations from the U.S. Government,
its agencies or government sponsored entities
within the portfolio
of available-for-sale and held-to-maturity securities as described
in Note 6 and 7 to the Consolidated
Financial Statements.
At December 31,
2023, the Corporation has
operations in the United
States Virgin Islands
(the “USVI”) and
has approximately $
28
million
in
direct
exposure
to
USVI
government
entities
(December
31,
2022
-
$
28
million).
The
USVI
has
been
experiencing
a
number of
fiscal and
economic challenges
that could
adversely affect
the ability
of its
public corporations
and instrumentalities
to
service their outstanding debt obligations.
At December 31, 2023, the Corporation has operations
in the British Virgin Islands (“BVI”), which islands were negatively
affected by
the
COVID-19
pandemic,
particularly
due
to
a
reduction
in
the
tourism
activity
which
accounts
for
a
significant
portion
of
their
economy. Although the
Corporation has no significant exposure to
a single borrower in the
BVI, it has a
loan portfolio amounting to
220
approximately
$
205
million
comprised
of
various
retail
and
commercial
clients,
compared
to
a
loan
portfolio
of
$
214
million
at
December 31, 2022.
FDIC Special Assessment
On
November
16,
2023,
the
Federal
Deposit
Insurance
Corporation
(“FDIC”)
approved
a
final
rule
that
imposes
a
special
assessment (the “FDIC
Special Assessment”) 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 several failed banks.
Under the final rule, the assessment base for
the special assessment is equal to 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 Popular, the $
5
billion exclusion is allocated among
the company’s IDI
subsidiaries in proportion to
each IDI’s estimated
uninsured deposits. The special
assessments will be collected
at an annual
rate of approximately
13.4
basis points per year
(
3.35
basis points per quarter)
over eight quarters
in 2024 and
2025,
with
the
first
assessment
period
beginning
January
1,
2024.
In
their
December
31,
2022
Call
Reports,
BPPR
and
PB
reported
estimated uninsured deposits of
approximately $
28.1
billion, including $
16.2
billion in fully
collateralized public sector deposits,
and
$
3.5
billion, respectively.
The Corporation
recorded an
expense of
$
71.4
million, $
45.3
million net
of tax,
in the
fourth quarter
of
2023, representing the full amount of the assessment.
By statute, the FDIC is required to recover the loss
arising from the use of a systemic risk determination
through one or more special
assessments. As of
December 31, 2023,
the FDIC’s
loss estimate described
in the
final rule
had increased by
approximately $
4.1
billion to $
20.4
billion, or approximately
25
%.
The exact amount of losses will
be determined when the FDIC terminates the
related
receiverships considered
in the
final rule.
Accordingly,
the special
assessment amount
and collection
period may
change as
the
estimated
loss
is
periodically
adjusted
or
if
the
total
amount
collected
varies.
If
the most recent
increase
in
the
FDIC’s
estimate remains unchanged and is assessed
in the same manner,
the Corporation estimates that
the incremental expense for
the
FDIC Special Assessment could be approximately
$
18
million.
Legal Proceedings
The
nature
of
Popular’s
business
ordinarily
generates
claims,
litigation,
investigations,
and
legal
and
administrative
cases
and
proceedings
(collectively,
“Legal Proceedings”).
When the
Corporation determines
that
it
has
meritorious
defenses to
the
claims
asserted, it vigorously defends itself. The Corporation will consider the settlement of cases (including cases where it has meritorious
defenses) when, in management’s judgment, it
is in the best
interest of the Corporation and
its stockholders to do so.
On at least a
quarterly basis, Popular assesses its liabilities and contingencies relating
to outstanding Legal Proceedings utilizing the most current
information
available.
For
matters
where
it
is
probable
that
the
Corporation
will
incur
a
material
loss
and
the
amount
can
be
reasonably estimated,
the Corporation
establishes an
accrual for
the loss.
Once established,
the accrual
is adjusted
on at
least a
quarterly
basis
to
reflect
any
relevant
developments,
as
appropriate.
For
matters
where
a
material
loss
is
not
probable,
or
the
amount of the loss cannot be reasonably estimated,
no accrual is established.
In certain cases,
exposure to loss
exists in
excess of any
accrual to the
extent such loss
is reasonably possible,
but not
probable.
Management believes and
estimates that the
range of reasonably
possible losses (with
respect to those
matters where such
limits
may be determined, in excess of amounts accrued)
for current Legal Proceedings ranged from $
0
to approximately $
16.3
million as
of
December
31,
2023.
In
certain
cases,
management cannot
reasonably
estimate
the
possible
loss
at
this
time.
Any
estimate
involves significant judgment, given the
varying stages of the
Legal Proceedings (including the fact
that many of them
are currently
in preliminary stages), the
existence of multiple
defendants in several of
the current Legal Proceedings
whose share of liability
has
yet to be determined, the numerous unresolved issues in
many of the Legal Proceedings, and the inherent uncertainty
of the various
potential
outcomes
of
such
Legal
Proceedings.
Accordingly,
management’s
estimate
will
change
from
time-to-time,
and
actual
losses may be more or less than the current estimate.
While the
outcome of
Legal Proceedings
is inherently
uncertain, based
on information
currently available,
advice of
counsel, and
available
insurance
coverage,
management
believes
that
the
amount
it
has
already
accrued
is
adequate
and
any
incremental
liability arising from
the Legal Proceedings
in matters in
which a loss
amount can be
reasonably estimated will not
have a material
adverse effect
on the Corporation’s
consolidated financial position.
However, in
the event
of unexpected future
developments, it is
221
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
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 Banco
Popular de
Puerto
Rico
(“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. On December 19,
2023, the Court
issued an Order staying
all deadlines in the
settlement agreement regarding payment
of benefit until further
notice
after
the
parties
informed
the
Court
that
the
settlement
administrator
had
mistakenly
failed
to
send
the
settlement
notice
to
approximately 3,000 class members. The parties expect
to file a supplemental notice plan for court approval
by February 29, 2024.
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.
222
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 Court of
Appeals held an
oral argument on
December 4, 2023.
On January 10,
2024, the Court of
Appeals entered judgment
affirming
the
trial
court’s
decision
denying
PB’s
Motion
to
Compel
Arbitration.
The
formal
mandate
of
the
Court
of
Appeals
remanding the case to
the lower court was
issued on January 31,
2024. PB expects to
file a responsive allegation
to the complaint
on or before March 16, 2024.
223
Note 25 – 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 December
31, 2023.
These special purpose
entities
are
deemed
to
be
VIEs
since
they
lack
equity
investments
at
risk.
The
Corporation’s
continuing
involvement
in
these
guaranteed loan
securitizations includes
owning certain
beneficial interests in
the form
of securities as
well as
the servicing
rights
retained. The Corporation is not required to provide additional financial support to
any of the variable interest entities to which it has
transferred
the
financial
assets.
The
mortgage-backed
securities,
to
the
extent
retained,
are
classified
in
the
Corporation’s
Consolidated
Statements
of
Financial
Condition
as
available-for-sale
or
trading
securities.
The
Corporation
concluded
that,
essentially,
these
entities
(FNMA
and
GNMA)
control
the
design
of
their
respective
VIEs,
dictate
the
quality
and
nature
of
the
collateral, require
the underlying
insurance, set
the servicing
standards via
the servicing
guides and
can change
them at
will, and
can remove a
primary servicer with cause,
and without cause in
the case of
FNMA. Moreover, through
their guarantee obligations,
agencies (FNMA and GNMA) have the obligation
to absorb losses that could be potentially significant
to the VIE.
The
Corporation
holds
variable
interests
in
these
VIEs
in
the
form
of
agency
mortgage-backed
securities
and
collateralized
mortgage obligations, including those securities originated by the Corporation and those acquired from
third parties. Additionally, the
Corporation holds agency mortgage-backed securities
and agency collateralized mortgage obligations
issued by third party
VIEs in
which
it
has
no
other
form
of
continuing
involvement.
Refer
to
Note
28
to
the
Consolidated
Financial
Statements
for
additional
information
on
the
debt
securities
outstanding
at
December
31,
2023
and
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 December 31, 2023 and 2022.
224
(In thousands)
2023
2022
Assets
Servicing assets:
Mortgage servicing rights
$
92,999
$
99,614
Total servicing
assets
$
92,999
$
99,614
Other assets:
Servicing advances
$
6,291
$
6,157
Total other assets
$
6,291
$
6,157
Total assets
$
99,290
$
105,771
Maximum exposure to loss
$
99,290
$
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 $
7.2
billion at December 31, 2023 (December
31, 2022 - $
7.7
billion).
The Corporation
determined that
the maximum
exposure to
loss includes
the fair
value of
the MSRs
and the
assumption that
the
servicing advances
at December 31,
2023 and
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 December 31,
2023.
225
Note 26 – Derivative instruments and hedging
activities
The
use
of
derivatives
is
incorporated
as
part
of
the
Corporation’s
overall
interest
rate
risk
management
strategy
to
minimize
significant unplanned fluctuations in
earnings and cash flows
that are caused
by interest rate volatility.
The Corporation’s goal
is to
manage interest
rate sensitivity by
modifying the repricing
or maturity characteristics
of certain
balance sheet assets
and liabilities
so
that the
net interest
income is
not materially
affected
by movements
in interest
rates. The
Corporation uses
derivatives in
its
trading activities
to facilitate
customer transactions,
and as
a means
of risk
management. As
a result
of interest
rate fluctuations,
hedged fixed and
variable interest rate
assets and liabilities
will appreciate or
depreciate in fair
value. The effect
of this
unrealized
appreciation or depreciation is expected to be
substantially offset by the Corporation’s
gains or losses on the derivative instruments
that are linked to these hedged assets and liabilities. As a matter of policy,
the Corporation does not use highly leveraged derivative
instruments for interest rate risk management.
The credit
risk attributed to
the counterparty’s
nonperformance risk is
incorporated in the
fair value
of the
derivatives. Additionally,
the
fair value
of
the
Corporation’s own
credit
standing is
considered in
the fair
value
of the
derivative liabilities.
During the
year
ended December 31,
2023, inclusion of
the credit risk
in the
fair value of
the derivatives resulted
in a
gain of
$
0.4
million from the
Corporation’s credit standing adjustment.
During the years ended December 31,
2022 and 2021, the Corporation recognized a
loss
of $
0.5
million and a loss of $
0.3
million, respectively, from the Corporation’s credit standing adjustment.
The Corporation’s derivatives are subject to agreements which allow a right of set-off with each respective counterparty.
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
fair
value
of
derivatives
is
not
offset
with
the
fair
value
of
other
derivatives
held
with
the
same
counterparty
even
if
these
agreements allow
a right
of set-off.
In
addition,
the fair
value of
derivatives is
not offset
with the
amounts for
the right
to
reclaim
financial collateral or the obligation to return financial
collateral.
Financial
instruments
designated as
cash
flow
hedges
or
non-hedging derivatives
outstanding at
December 31,
2023
and
2022
were as follows:
226
Notional amount
Derivative assets
Derivative liabilities
Statement of
Fair value at
Statement of
Fair value at
At December 31,
condition
December 31,
condition
December 31,
(In thousands)
2023
2022
classification
2023
2022
classification
2023
2022
Derivatives designated as
hedging instruments:
Forward contracts
$
-
$
15,100
Other assets
$
-
$
93
Other liabilities
$
-
$
22
Total derivatives designated
as hedging instruments
$
-
$
15,100
$
-
$
93
$
-
$
22
Derivatives not designated
as hedging instruments:
Forward contracts
$
14,930
$
-
-
$
-
$
-
Other liabilities
$
138
$
-
Interest rate caps
528,125
150,000
Other assets
2,195
1,045
Other liabilities
2,213
1,045
Indexed options on deposits
89,730
85,414
Other assets
22,224
18,091
-
-
-
Bifurcated embedded options
82,118
78,972
-
-
-
Interest
bearing
deposits
18,752
15,933
Total derivatives not
designated as
hedging instruments
$
714,903
$
314,386
$
24,419
$
19,136
$
21,103
$
16,978
Total derivative assets
and liabilities
$
714,903
$
329,486
$
24,419
$
19,229
$
21,103
$
17,000
Cash Flow Hedges
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.
Changes
in
the
fair
value
of
these
forward
contracts
designated
as
cash
flow
hedges
are
recorded
in
other
comprehensive income (loss).
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. At December 31,
2023, there were
no
derivatives designated as cash flow hedges.
For cash flow hedges, net gains (losses) on derivative
contracts that are reclassified from accumulated other
comprehensive income
(loss) to current period earnings are included in the line item
in which the hedged item is recorded and during
the period in which the
forecasted transaction impacts earnings, as presented
in the tables below.
Year ended December
31, 2023
(In thousands)
Amount of net gain (loss)
recognized in OCI on
derivatives (effective
portion)
Classification in the statement of
operations of the net gain (loss)
reclassified from AOCI into income
(effective portion and ineffective
portion)
Amount of net gain
(loss) reclassified from
AOCI into income
(effective portion)
Amount of net gain
(loss) recognized in
income on derivatives
(ineffective portion)
Forward contracts
$
(30)
Mortgage banking activities
$
41
$
-
Total
$
(30)
$
41
$
-
227
Year ended December
31, 2022
(In thousands)
Amount of net gain (loss)
recognized in OCI on
derivatives (effective
portion)
Classification in the statement of
operations of the net gain (loss)
reclassified from AOCI into income
(effective portion and ineffective
portion)
Amount of net gain
(loss) reclassified from
AOCI into income
(effective portion)
Amount of net gain
(loss) recognized in
income on derivatives
(ineffective portion)
Forward contracts
$
1,636
Mortgage banking activities
$
1,458
$
-
Total
$
1,636
$
1,458
$
-
Year ended December
31, 2021
(In thousands)
Amount of net gain (loss)
recognized in OCI on
derivatives (effective
portion)
Classification in the statement of
operations of the net gain (loss)
reclassified from AOCI into income
(effective portion and ineffective
portion)
Amount of net gain
(loss) reclassified from
AOCI into income
(effective portion)
Amount of net gain
(loss) recognized in
income on derivatives
(ineffective portion)
Forward contracts
$
456
Mortgage banking activities
$
(704)
$
-
Total
$
456
$
(704)
$
-
Fair Value Hedges
At December 31, 2023 and 2022, there were
no
derivatives designated as fair value hedges.
Non-Hedging Activities
For the year ended December 31, 2023, the Corporation recognized a
gain of $
1.5
million (2022 –gain of $
7.7
million; 2021 – gain
of $
2.3
million) related to its non-hedging derivatives, as
detailed in the table below.
Amount of Net Gain (Loss) Recognized in Income on Derivatives
Year ended
Year ended
Year ended
Classification of Net Gain (Loss)
December 31,
December 31,
December 31,
(In thousands)
Recognized in Income on Derivatives
2023
2022
2021
Forward contracts
Mortgage banking activities
$
655
$
8,094
$
2,027
Interest rate caps
Other operating income
(18)
-
-
Indexed options on deposits
Interest expense
6,201
(5,290)
6,824
Bifurcated embedded options
Interest expense
(5,326)
4,942
(6,538)
Total
$
1,512
$
7,746
$
2,313
Forward Contracts
The Corporation has forward contracts to sell
mortgage-backed securities, which are accounted for as trading
derivatives. Changes
in their fair value are recognized in mortgage banking
activities.
Interest Rate Caps
The
Corporation enters
into
interest rate
caps as
an intermediary
on
behalf of
its customers
and simultaneously
takes offsetting
positions under the same terms and conditions, thus
minimizing its market and credit risks.
Indexed and Embedded Options
The Corporation offers certain customers’ deposits whose
return are tied to the performance of the Standard
and Poor’s (“S&P 500”)
stock
market
indexes,
and
other
deposits
whose
returns
are
tied
to
other
stock
market
indexes
or
other
equity
securities
performance. The
Corporation bifurcated the
related options embedded
within these
customers’ deposits from
the host
contract in
accordance with
ASC Subtopic
815-15. In
order to
limit the
Corporation’s exposure
to changes
in these
indexes, the
Corporation
purchases indexed options which
returns are tied to
the same indexes from
major broker dealer companies
in the over the
counter
market. Accordingly, the embedded options and the related indexed options are
marked-to-market through earnings.
228
Note 27 – Related party transactions
The Corporation grants loans to its directors, executive officers, including
certain related individuals or organizations, and affiliates in
the ordinary course of business. The activity and
balance of these loans were as follows:
(In thousands)
Balance at December 31, 2021
$
102,579
New loans
11,090
Payments
(15,402)
Other changes, including existing loans to new related parties
27,070
Balance at December 31, 2022
$
125,337
New loans
23,381
Payments
(9,731)
Other changes, including existing loans to new related parties
7,030
Balance at December 31, 2023
$
146,017
New loans and payments include disbursements and collections
from existing lines of credit.
The Corporation has had loan transactions with
the Corporation’s directors, executive officers, including certain
related individuals or
organizations, and affiliates, and
proposes to continue such
transactions in the ordinary
course of its business,
on substantially the
same terms, including interest rates and collateral, as those prevailing for comparable loan transactions with third parties. Except as
discussed
below,
the extensions
of
credit
have not
involved and
do not
currently
involve more
than normal
risks of
collection
or
present other unfavorable features.
In 2010,
as part
of the
Westernbank FDIC
assisted transaction,
BPPR acquired
five commercial
loans made
to entities
that were
wholly
owned
by
one
brother-in-law
of
a
director
of
the
Corporation.
The
loans
were
secured
by
real
estate
and
personally
guaranteed
by
the
director’s
brother-in-law.
The
loans
were
originated
by
Westernbank
between
2001
and
2005
and
had
an
aggregate outstanding principal
balance of approximately
$
33.5
million when they
were acquired by BPPR
in 2010. Between
2011
and 2014,
the loans
were restructured to
consist of
(i)
five
notes with
an aggregate
outstanding principal
balance of
$
19.8
million
with
a
6
%
annual interest
rate
(“Notes A”)
and
(ii)
five
notes
with
an
aggregate outstanding
balance
of
$
13.5
million
with a
1
%
annual interest
rate, to
be paid
upon maturity
(“Notes B”).
The restructured
notes had
an original
maturity of
September 30,
2016
and, thereafter,
various interim
renewals were
approved to
allow for
the re-negotiation
of a
longer-term extension.
On April
2022,
one of
these interim
extensions decreased the
interest rate
applicable to the
Notes A to
4.25
% and
maintained the
Notes B
at an
interest rate of
1
%. In November 2022, BPPR and related parties of the Corporation’s director entered into a three-year extension of
the
loans,
until
November
2025,
which,
among
other
things:
(i)
increased
the
interest
rate
applicable
to
Notes
A
to
5.25
%
and
maintained the Notes
B at
an interest rate
of
1
% and
(ii) established a
principal repayment schedule
for Notes
A, including a
$
0.7
million mandatory prepayment. The three-year extension of the
loans was approved by the Audit Committee
in accordance with the
Related Party Policy. The aggregate outstanding balance on the loans as of December 31, 2023 was approximately
$
28.5
million, of
which
approximately
$
15.0
million
corresponded
to
Notes
A
and
$
13.5
million
to
Notes
B.
During
2023,
the
borrower
paid
approximately $
0.8
million and $
0.8
million in principal and interest, respectively.
In April 2010, in
connection with the acquisition of
the Westernbank assets from the
FDIC, as receiver,
BPPR acquired a term
loan
to a
corporate borrower
partially owned
by an
investment corporation
in which
the Corporation’s
Chairman, at
that time
the Chief
Executive Officer,
as well
as certain
of his
family members,
are the
owners. In
addition, the
Chairman’s sister
is the
owner of
an
entity
that
holds
an
ownership interest
in
the
borrower.
At
the
time
the
loan
was
acquired
by
BPPR,
it
had
an
unpaid
principal
balance of $
40.2
million. In May
2017, this loan was
sold by BPPR to
Popular, Inc.,
holding company (“PIHC”). At
the time of
sale,
the loan had
an unpaid principal
balance of $
37.9
million. PIHC paid
$
37.9
million to BPPR
for the
loan, of which
$
6.0
million was
recognized by BPPR
as a capital
contribution representing the
difference between the
fair value and
the book
value of the
loan at
the time of transfer. Immediately upon being acquired by PIHC, the loan’s maturity was extended by 90 days (under the same terms
as originally contracted) to provide
the PIHC additional time to
evaluate a refinancing or long-term
extension of the loan.
In August
2017, the
credit facility
was refinanced
with a
stated maturity
in February
2019.
During 2017,
the facility
was subject
to the
loan
payment
moratorium
offered
as
part
of
the
hurricane
relief
efforts.
As
such,
interest
payments
amounting to
approximately $
0.5
229
million
were
deferred
and
capitalized
as
part
of
the
loan
balance.
In
February
2019,
the
Audit
Committee
approved,
under
the
Related Party Policy, a
36
-month renewal of the loan at an interest rate of
5.75
% and a
30
-year amortization schedule. In
December
2021, the Corporation refinanced the then-current $
36.0
million principal balance of the loan
at an interest rate of
4.50
%, a maturity
date of December
2026 and a
20
-year amortization schedule. Payments
of principal and
interest of approximately
$
1.2
million and
$
1.5
million,
respectively,
were
made
during
2023.
As
of
December
31,
2023,
the
outstanding
balance
of
the
loan
was
approximately $
32.4
million. The borrower is current on its payments.
At December 31,
2023, the Corporation’s
banking subsidiaries held deposits
from related parties
amounting to approximately $
655
million (2022 - $
628
million).
From
time
to
time,
the
Corporation,
in
the
ordinary
course
of
business,
obtains
services
from
related
parties
that
have
some
association with the
Corporation. Management believes the
terms of such
arrangements are consistent with
arrangements entered
into with independent third parties.
For
the
year
ended
December
31,
2023,
the
Corporation made
contributions
of
approximately
$
2.6
million
to
Fundación
Banco
Popular and
Popular Bank
Foundation, which
are not-for-profit
corporations dedicated
to philanthropic
work (2022
- $
4.8
million).
The Corporation also provided
human and operational resources to
support the activities of
the Fundación Banco Popular
which in
2023 amounted to approximately $
1.4
million (2022- $
1.5
million).
Related party transactions with Evertec,
as an affiliate
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 year ended December 31, 2022.
On July 1, 2022, BPPR completed its previously announced
acquisition of certain assets from Evertec Group,
LLC (“Evertec Group”)
to
service
certain
BPPR
channels,
in
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 will continue
to provide various information technology
and transaction processing
services to Popular,
BPPR and their
respective subsidiaries. As
part of the
transaction, BPPR and
Evertec entered into
a revenue
sharing structure for BPPR in connection with its merchant acquiring relationship with Evertec. On August 15, 2022, the Corporation
completed the sale of
its remaining shares of common
stock of Evertec, 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. The Corporation recorded a
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 years ended December 31, 2022 and 2021.
230
Year ended December
31,
(In thousands)
2022
2021
Share of Evertec income and Gain from the Evertec
Transactions and related accounting adjustments
[1]
$
269,539
$
26,096
Share of other changes in Evertec's stockholders' equity
3,168
53
Share of Evertec's changes in equity recognized in income
and
Gain from the Evertec Transaction and
related accounting
adjustments
$
272,707
$
26,149
[1]
The
Gain
from
the
Evertec
Transactions
and
related
accounting
adjustments
are
reflected
within
other
operating
income
in
the
accompanying
consolidated
financial
statements.
As
discussed
in
Note
4,
the
Corporation
recognized
an
additional
$
17.3
million
as
an
operating
expense
in
connection with the Business Acquisition Transaction.
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
years ended
December 31, 2022
and 2021. Items
that represent expenses
to
the Corporation are presented with parenthesis.
Years ended December
31,
(In thousands)
2022 [1]
2021
Category
Interest expense on deposits
$
(267)
$
(388)
Interest expense
ATH and credit cards interchange
income from services to Evertec
13,955
27,384
Other service fees
Rental income charged to Evertec
3,258
6,593
Net occupancy
Fees on services provided by Evertec
(128,681)
(245,945)
Professional fees
Other services provided to Evertec
420
740
Other operating expenses
Total
$
(111,315)
$
(211,616)
[1] Includes activity through June 30, 2022.
Centro Financiero BHD, S.A.
At December
31, 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
year
ended
December
31,
2023,
the
Corporation
recorded
$
40.1
million
in
equity
pickup
from
its
investment
in
BHD
(December
31,
2022
-
$
31.2
million),
which
had
a
carrying
amount of
$
225.9
million at
December 31,
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 year ended December 31, 2023
from its investment in BHD
(December 31, 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
year
ended
December
31,
2023
administrative
fees
charged
to
these
investment
companies
amounted
to
$
2.3
million
(December 31, 2022 -
2.5
million) and waived fees amounted to $
0.9
million (December 31, 2022 - $
0.9
million), for a net fee of $
1.4
million (December 31, 2022 - $
1.6
million).
231
Note 28 – 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.
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 December 31, 2023 and
2022:
232
At December 31, 2023
(In thousands)
Level 1
Level 2
Level 3
Measured at NAV
Total
RECURRING FAIR VALUE
MEASUREMENTS
Assets
Debt securities available-for-sale:
U.S. Treasury securities
$
3,936,036
$
6,811,025
$
-
$
-
$
10,747,061
Collateralized mortgage obligations - federal
agencies
-
134,686
-
-
134,686
Mortgage-backed securities
-
5,844,180
606
-
5,844,786
Other
-
11
2,500
-
2,511
Total debt securities
available-for-sale
$
3,936,036
$
12,789,902
$
3,106
$
-
$
16,729,044
Trading account debt securities, excluding
derivatives:
U.S. Treasury securities
$
16,859
$
-
$
-
$
-
$
16,859
Obligations of Puerto Rico, States and political
subdivisions
-
71
-
-
71
Collateralized mortgage obligations
-
93
5
-
98
Mortgage-backed securities
-
14,261
112
-
14,373
Other
-
-
167
-
167
Total trading account
debt securities, excluding
derivatives
$
16,859
$
14,425
$
284
$
-
$
31,568
Equity securities
$
-
$
37,965
$
-
$
310
$
38,275
Mortgage servicing rights
-
-
118,109
-
118,109
Loans held-for-sale
-
3,239
-
-
3,239
Derivatives
-
24,419
-
-
24,419
Total assets measured
at fair value on a
recurring basis
$
3,952,895
$
12,869,950
$
121,499
$
310
$
16,944,654
Liabilities
Derivatives
$
-
$
(21,103)
$
-
$
-
$
(21,103)
Total liabilities measured
at fair value on a
recurring basis
$
-
$
(21,103)
$
-
$
-
$
(21,103)
233
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
newly originated 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 originated as held-for-sale measured
at fair value as of December 31,2023.
(In thousands)
December 31, 2023
Aggregate Unpaid
Fair Value
Principal Balance
Difference
Loans held for sale
$
3,239
$
3,202
$
37
No
loans held-for-sale were 90 or more days past
due or on nonaccrual status as of December 31,2023.
For the year ended
December 31,2023, changes in the
fair value of mortgage
loans held-for-sale for which the
Corporation elected
the fair value option, were not considered material.
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 years ended December 31, 2023,
2022 and 2021
and excludes nonrecurring fair value measurements
of
assets no longer outstanding
as of the reporting date.
234
Year ended December
31, 2023
(In thousands)
Level 1
Level 2
Level 3
Total
NONRECURRING FAIR VALUE
MEASUREMENTS
Assets
Write-downs
Loans
[1]
$
-
$
-
$
10,091
$
10,091
$
(3,157)
Other real estate owned
[2]
-
-
6,560
6,560
(1,516)
Other foreclosed assets
[2]
-
-
102
102
(28)
Total assets measured
at fair value on a nonrecurring basis
$
-
$
-
$
16,753
$
16,753
$
(4,701)
[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.
Year ended December
31, 2022
(In thousands)
Level 1
Level 2
Level 3
Total
NONRECURRING FAIR VALUE
MEASUREMENTS
Assets
Write-downs
Loans
[1]
$
-
$
-
$
11,215
$
11,215
$
(2,067)
Other real estate owned
[2]
-
-
3,992
3,992
(1,026)
Other foreclosed assets
[2]
-
-
13
13
(1)
Long-lived assets held-for-sale
[3]
-
-
1,178
1,178
(2,155)
Total assets measured
at fair value on a nonrecurring basis
$
-
$
-
$
16,398
$
16,398
$
(5,249)
[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.
[3] Represents the fair value of long-lived assets held-for-sale
that were written down to their fair value.
Year ended December
31, 2021
(In thousands)
Level 1
Level 2
Level 3
Total
NONRECURRING FAIR VALUE
MEASUREMENTS
Assets
Write-downs
Loans
[1]
$
-
$
-
$
21,167
$
21,167
$
(3,721)
Other real estate owned
[2]
-
-
7,727
7,727
(1,579)
Other foreclosed assets
[2]
-
-
68
68
(33)
Long-lived assets held-for-sale
[3]
-
-
9,007
9,007
(5,320)
Trademark
[4]
-
-
156
156
(5,404)
Total assets measured
at fair value on a nonrecurring basis
$
-
$
-
$
38,125
$
38,125
$
(16,057)
[1] Relates mostly 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.
[3] Represents the fair value of long-lived assets held-for-sale
that were written down to their fair value.
[4] Represents the fair value of a trademark due to a write-down
on impairment.
235
The following tables present the changes in Level
3 assets and liabilities measured at fair
value on a recurring basis for the years
ended December 31, 2023, 2022, and 2021.
Year ended December
31, 2023
MBS
Other
classified
classified
CMOs
MBS
Other
as debt
as debt
classified
classified
securities
securities
securities
as trading
as trading
classified as
Mortgage
available-
available-
account debt
account debt
trading account
servicing
Total
Contingent
Total
(In thousands)
for-sale
for-sale
securities
securities
debt securities
rights
assets
Consideration
liabilities
Balance at January 1,
2023
$
711
$
1,000
$
113
$
215
$
207
$
128,350
$
130,596
$
-
$
-
Gains (losses) included in
earnings
-
-
-
(2)
(40)
(11,589)
(11,631)
-
-
Gains (losses) included in OCI
(5)
-
-
-
-
-
(5)
-
-
Additions
-
1,500
4
-
-
2,097
3,601
-
-
Sales
-
-
-
-
-
(1,269)
(1,269)
-
-
Settlements
(100)
-
(112)
(101)
-
520
207
-
-
Balance at December 31, 2023
$
606
$
2,500
$
5
$
112
$
167
$
118,109
$
121,499
$
-
$
-
Changes in unrealized gains
(losses) included in earnings
relating to assets still held at
December 31, 2023
$
-
$
-
$
-
$
(1)
$
18
$
(529)
$
(512)
$
-
$
-
Year ended December
31, 2022
MBS
Other
Other
classified
classified
CMOs
MBS
securities
as debt
as debt
classified
classified
classified
securities
securities
as trading
as trading
as trading
Mortgage
available-
available-
account debt
account debt
account debt
servicing
Total
Contingent
Total
(In thousands)
for-sale
for-sale
securities
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)
4
(73)
166
95
9,241
9,241
Gains (losses) included in OCI
(15)
-
-
-
-
-
(15)
-
-
Additions
-
1,000
5
211
-
6,614
7,830
-
-
Settlements
(100)
-
(88)
-
-
-
(188)
-
-
Balance at December 31, 2022
$
711
$
1,000
$
113
$
215
$
207
$
128,350
$
130,596
$
-
$
-
Changes in unrealized gains
(losses) included in earnings
relating to assets still held at
December 31, 2022
$
-
$
-
$
(2)
$
4
$
(23)
$
11,964
$
11,943
$
-
$
-
Year ended December
31, 2021
MBS
Other
classified
CMOs
securities
as debt
classified
classified
securities
as trading
as trading
Mortgage
available-
account debt
account debt
servicing
Total
Contingent
Total
(In thousands)
for-sale
securities
securities
rights
assets
Consideration
liabilities
Balance at January 1,
2021
$
1,014
$
278
$
381
$
118,395
$
120,068
$
-
$
-
Gains (losses) included in earnings
-
(1)
(101)
(10,216)
(10,318)
-
-
Gains (losses) included in OCI
(13)
-
-
-
(13)
-
-
Additions
-
29
-
13,391
13,419
(9,241)
(9,241)
Settlements
(175)
(107)
-
-
(282)
-
-
Balance at December 31, 2021
$
826
$
198
$
280
$
121,570
$
122,874
$
(9,241)
$
(9,241)
Changes in unrealized gains (losses) included in
earnings relating to assets still held at December 31,
2021
$
-
$
(1)
$
(45)
$
6,410
$
6,364
$
-
$
-
236
Gains and losses (realized and
unrealized) included in earnings for the
years ended December 31, 2023,
2022, and 2021 for Level
3 assets and liabilities included in the previous
tables are reported in the consolidated statement
of operations as follows:
2023
2022
2021
Total
Changes in unrealized
Total
Changes in unrealized
Total
Changes in unrealized
gains (losses)
gains (losses)
gains (losses)
gains (losses)
gains (losses)
gains (losses)
included
relating to assets still
included
relating to assets still
included
relating to assets still
(In thousands)
in earnings
held at reporting date
in earnings
held at reporting date
in earnings
held at reporting date
Mortgage banking activities
$
(11,589)
$
(529)
$
166
$
11,964
$
(10,216)
$
6,410
Trading account (loss) profit
(42)
17
(71)
(21)
(102)
(46)
Other operating income
-
-
9,241
-
-
-
Total
$
(11,631)
$
(512)
$
9,336
$
11,943
$
(10,318)
$
6,364
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 December 31, 2023 and 2022.
Fair value at
December 31,
(In thousands)
2023
Valuation technique
Unobservable inputs
Weighted average (range) [1]
CMO's - trading
$
5
Discounted cash flow model
Weighted average life
0.2
years (
0.1
-
0.2
years)
Yield
4.9
%
Prepayment speed
14.5
%
Other - trading
$
167
Discounted cash flow model
Weighted average life
2.3
years
Yield
12.0%
Prepayment speed
10.8%
Loans held-in-portfolio
$
10,023
[2]
External appraisal
Haircut applied on
external appraisals
6.9
% (
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
December 31,
(In thousands)
2022
Valuation technique
Unobservable inputs
Weighted average (range) [1]
CMO's - trading
$
113
Discounted cash flow model
Weighted average life
0.4
years (
0.1
-
0.6
years)
Yield
4.9
% (
4.9
% -
5.4
%)
Prepayment speed
10.2
% (
9.1
% -
32
%)
Other - trading
$
207
Discounted cash flow model
Weighted average life
2.5
years
Yield
12.0%
Prepayment speed
10.8%
Loans held-in-portfolio
$
5,087
[2]
External appraisal
Haircut applied on
external appraisals
8.3
% (
5
.0% -
10.4
%)
Other real estate owned
$
528
[3]
External appraisal
Haircut applied on
external appraisals
18.4
% (
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.
The significant unobservable inputs used in the fair value measurement of the Corporation’s collateralized mortgage obligations and
interest-only collateralized mortgage obligation (reported as “other”), which are classified in the “trading” category, are yield,
constant prepayment rate, and weighted average life. Significant increases (decreases) in any of those inputs in isolation would
result in significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the constant
237
prepayment rate will generate a directionally opposite change in the weighted average life. For example, as the average life is
reduced by a higher constant prepayment rate, a lower yield will be realized, and when there is a reduction in the constant
prepayment rate, the average life of these collateralized mortgage obligations will extend, thus resulting in a higher yield.
The
significant unobservable inputs used in the fair value measurement of the Corporation’s mortgage servicing rights are constant
prepayment rates and discount rates. Increases in interest rates may result in lower prepayments. Discount rates vary according to
products and / or portfolios depending on the perceived risk. Increases in discount rates result in a lower fair value measurement
.
Following is
a description
of the
Corporation’s valuation
methodologies used
for assets
and liabilities
measured at
fair value.
The
disclosure requirements exclude certain financial instruments and all
non-financial instruments. Accordingly, the aggregate fair value
amounts of the financial instruments disclosed do
not represent management’s estimate of the underlying
value of the Corporation.
Trading account debt securities and debt securities available-for-sale
●
U.S. Treasury securities:
The fair value
of U.S. Treasury
notes is based
on yields that
are interpolated from the
constant
maturity treasury curve.
These securities are classified
as Level 2.
U.S. Treasury
bills are classified as
Level 1 given the
high volume of trades and pricing based on those
trades.
●
Obligations of U.S.
Government sponsored entities: The
Obligations of U.S. Government
sponsored entities include U.S.
agency
securities,
which
fair
value
is
based
on
an
active
exchange
market
and
on
quoted
market
prices
for
similar
securities. The U.S. agency securities are classified as
Level 2.
●
Obligations of Puerto
Rico, States and
political subdivisions: Obligations of
Puerto Rico, States
and political subdivisions
include
municipal
bonds.
The
bonds
are
segregated
and
the
like
characteristics
divided
into
specific
sectors.
Market
inputs used in the
evaluation process include all or
some of the following:
trades, bid price or
spread, two sided markets,
quotes, benchmark curves including but not
limited to Treasury benchmarks, LIBOR
and swap curves, market data feeds
such
as those
obtained from
municipal market
sources,
discount and
capital
rates,
and trustee
reports. The
municipal
bonds are classified as Level 2.
●
Mortgage-backed securities: Certain agency mortgage-backed
securities (“MBS”) are priced based on a bond’s theoretical
value
derived
from
similar
bonds
defined
by
credit
quality
and
market
sector.
Their
fair
value
incorporates
an
option
adjusted spread. The
agency MBS are classified
as Level 2.
Other agency MBS
such as GNMA
Puerto Rico Serials
are
priced using an internally-prepared pricing matrix with quoted prices from local brokers dealers. These particular MBS are
classified as Level 3.
●
Collateralized mortgage
obligations: Agency
collateralized mortgage
obligations (“CMOs”)
are priced
based on
a bond’s
theoretical
value
derived
from
similar
bonds
defined
by
credit
quality
and
market
sector
and
for
which
fair
value
incorporates
an
option
adjusted
spread.
The
option
adjusted
spread
model
includes
prepayment
and
volatility
assumptions,
ratings
(whole
loans
collateral)
and
spread
adjustments.
These
CMOs
are
classified
as
Level
2.
Other
CMOs, due
to their
limited liquidity,
are classified
as Level
3 due
to the
insufficiency of
inputs such
as executed
trades,
credit information and cash flows.
●
Corporate securities (included
as “other” in
the “available-for-sale” category):
Given that the
quoted prices are
for similar
instruments, these securities are classified as Level
2.
●
Corporate securities
and
interest-only strips
(included as
“other” in
the
“trading account
debt securities”
category): For
corporate securities, quoted prices for these security types are obtained from broker dealers. Given that the quoted prices
are for similar instruments or do not trade in highly liquid
markets, these securities are classified as Level 2. Given
that the
fair
value
was
estimated
based
on
a
discounted
cash
flow
model
using
unobservable
inputs,
interest-only
strips
are
classified as Level 3.
Equity securities
Equity
securities
are
comprised principally
of
shares
in
closed-ended and
open-ended mutual
funds
and
other
equity
securities.
Closed-end funds are
traded on the
secondary market at
the shares’ market value.
Open-ended funds are considered
to be liquid,
as investors can sell their shares continually to the fund and are priced at NAV.
Mutual funds are classified as Level 2. Other equity
securities that
do not
trade in
highly liquid
markets are
also classified
as Level
2, except
for one
equity security
that do
not have
readily determinable fair value and is under an investment
company is measured at NAV.
Mortgage servicing rights
238
Mortgage
servicing
rights
(“MSRs”)
do
not
trade
in
an
active
market
with
readily
observable
prices.
MSRs
are
priced
using
a
discounted cash
flow model
valuation performed
by a
third party.
The discounted
cash flow
model incorporates
assumptions that
market
participants
would
use
in
estimating
future
net
servicing
income,
including
portfolio
characteristics,
prepayments
assumptions, discount
rates, delinquency
and foreclosure
rates, late
charges, other
ancillary revenues,
cost to
service and
other
economic factors.
Prepayment speeds
are adjusted
for the
loans’ characteristics
and portfolio
behavior.
Due to
the unobservable
nature of certain valuation inputs, the MSRs are
classified as Level 3.
Derivatives
Interest
rate
caps
and
indexed
options
are
traded
in
over-the-counter
active
markets.
These
derivatives
are
indexed
to
an
observable interest rate benchmark, such
as LIBOR or equity indexes,
and are priced using an
income approach based on present
value
and
option
pricing
models
using
observable
inputs.
Other
derivatives
are
liquid
and
have
quoted
prices,
such
as
forward
contracts or
“to be
announced securities”
(“TBAs”). All
of these
derivatives are
classified as
Level 2.
The non-performance
risk is
determined using internally-developed models that
consider the collateral
held, the remaining
term, and the
creditworthiness of the
entity that
bears the
risk, and
uses available
public data
or internally-developed
data related
to current
spreads that
denote their
probability of default.
Contingent consideration liability
The fair
value of
the contingent
consideration, which
relates to
earnout payments
that could
be payable
to
K2 over
a three-year
period, was
calculated based
on a
discounted cash
flow technique
using the
probability-weighted average
from
likely scenarios.
This contingent consideration is classified as Level
3.
Loans held-in-portfolio that are collateral dependent
The impairment is
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
and
which
could
be
subject
to
internal
adjustments.
These collateral dependent loans are classified as Level
3.
Loans measured at fair value or measured at
the lower of cost or market
Loans
held-for-sale measured
at fair
value
or measured
at the
lower of
cost
or market
were priced
based
on secondary
market
prices. These loans are classified as Level 2.
Other real estate owned and other foreclosed assets
Other
real
estate
owned
includes
real
estate
properties
securing
mortgage,
consumer,
and
commercial
loans.
Other
foreclosed
assets include primarily automobiles
securing auto loans. The
fair value of
foreclosed assets may be
determined using an external
appraisal, broker price opinion, or an
internal valuation.
These foreclosed assets are classified as Level
3 since they are subject
to
internal adjustments.
ROU assets and leasehold improvements
The impairment was measured based on the sublease rental value of
the branches that were subject to the strategic
realignment of
PB’s New York Metro Branch network.
These ROU assets and leasehold improvements are
classified as Level 3.
Long-lived assets held-for-sale
The
Corporation
evaluates
for
impairment
its
long-lived
assets,
whenever
events
or
changes
in
circumstances
indicate
that
the
carrying amount of
an asset may not
be recoverable and records
a write down for
the difference between the
carrying amount and
the fair value less cost to sell. These long-lived
assets held-for-sale are classified as Level
3.
Trademark
The write-down on impairment of a trademark
was based on the discontinuance of origination
thru e-loan platform. This trademark is
classified as Level 3.
239
Note 29 – 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
December
31,
2023
and
December 31, 2022, as
applicable. In different interest
rate environments, fair value
estimates can differ significantly,
especially for
certain
fixed
rate
financial
instruments.
In
addition,
the
fair
values
presented
do
not
attempt
to
estimate
the
value
of
the
Corporation’s fee
generating businesses and
anticipated future business
activities, that
is, they
do not
represent the
Corporation’s
value as
a going concern.
There have been
no changes in
the Corporation’s valuation
methodologies and inputs
used to estimate
the fair values for each class of financial assets and
liabilities not measured at fair value.
The following tables present the
carrying amount and estimated fair
values of financial instruments with their
corresponding level in
the fair
value hierarchy.
The aggregate
fair value
amounts of
the financial
instruments disclosed
do not
represent management’s
estimate of the underlying value of the Corporation.
240
December 31, 2023
Carrying
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
Financial Assets:
Cash and due from banks
$
420,462
$
420,462
$
-
$
-
$
-
$
420,462
Money market investments
6,998,871
6,991,758
7,113
-
-
6,998,871
Trading account debt securities, excluding
derivatives
[1]
31,568
16,859
14,425
284
-
31,568
Debt securities available-for-sale
[1]
16,729,044
3,936,036
12,789,902
3,106
-
16,729,044
Debt securities held-to-maturity:
U.S. Treasury securities
$
8,121,411
$
-
$
8,092,339
$
-
$
-
$
8,092,339
Obligations of Puerto Rico, States and political
subdivisions
59,628
-
7,007
52,671
-
59,678
Collateralized mortgage obligation-federal agency
1,556
-
1,395
13
-
1,408
Securities in wholly owned statutory business trusts
5,960
-
5,960
-
-
5,960
Total debt securities
held-to-maturity
$
8,188,555
$
-
$
8,106,701
$
52,684
$
-
$
8,159,385
Equity securities:
FHLB stock
$
49,549
$
-
$
49,549
$
-
$
-
$
49,549
FRB stock
98,948
-
98,948
-
-
98,948
Other investments
45,229
-
37,965
7,869
310
46,144
Total equity securities
$
193,726
$
-
$
186,462
$
7,869
$
310
$
194,641
Loans held-for-sale
$
4,301
$
-
$
4,328
$
-
$
-
$
4,328
Loans held-in-portfolio
34,335,630
-
-
33,376,255
-
33,376,255
Mortgage servicing rights
118,109
-
-
118,109
-
118,109
Derivatives
24,419
-
24,419
-
-
24,419
December 31, 2023
Carrying
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
Financial Liabilities:
Deposits:
Demand deposits
$
55,116,351
$
-
$
55,116,351
$
-
$
-
$
55,116,351
Time deposits
8,501,892
-
8,154,823
-
-
8,154,823
Total deposits
$
63,618,243
$
-
$
63,271,174
$
-
$
-
$
63,271,174
Assets sold under agreements to repurchase
$
91,384
$
-
$
91,386
$
-
$
-
$
91,386
Notes payable:
FHLB advances
$
394,665
$
-
$
377,851
$
-
$
-
$
377,851
Unsecured senior debt securities
393,937
-
400,848
-
-
400,848
Junior subordinated deferrable interest debentures
(related to trust preferred securities)
198,346
-
180,076
-
-
180,076
Total notes payable
$
986,948
$
-
$
958,775
$
-
$
-
$
958,775
Derivatives
$
21,103
$
-
$
21,103
$
-
$
-
$
21,103
[1]
Refer to Note 28 to the Consolidated Financial Statements
for the fair value by class of financial asset and its hierarchy
level.
241
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 28 to the Consolidated Financial Statements
for the fair value by class of financial asset and its hierarchy
level.
[2]
Refer to Note 17 to the Consolidated Financial Statements
for the composition of other short-term borrowings.
The notional amount of commitments to extend credit at December 31,
2023 and December 31, 2022 is $
10
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
December 31, 2023 and December 31, 2022 is $
82
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.
242
Note 30 – Employee benefits
Certain employees of BPPR are covered by three
non-contributory defined benefit pension plans,
the Banco Popular de Puerto Rico
Retirement Plan and two Restoration Plans (the
“Pension Plans”).
Pension benefits are based on age, years of
credited service,
and final average compensation.
The Pension
Plans are
currently closed to
new hires
and the
accrual of
benefits are
frozen to
all participants. The
Pension Plans’
benefit formula
is based
on a
percentage of
average final
compensation and
years of
service as
of the
plan freeze
date. Normal
retirement age under
the retirement plan
is age 65
with 5 years
of service. Pension
costs are funded
in accordance with
minimum
funding standards
under the
Employee Retirement
Income Security
Act of
1974 (“ERISA”).
Benefits under
the Pension
Plans are
subject to
the U.S.
and Puerto
Rico Internal Revenue
Code limits
on compensation
and benefits.
Benefits under restoration
plans
restore benefits
to selected
employees that are
limited under
the Banco
Popular de
Puerto Rico
Retirement Plan
due to
U.S. and
Puerto Rico
Internal Revenue
Code limits
and a
compensation definition
that excludes
amounts deferred pursuant
to nonqualified
arrangements.
In
addition
to
providing
pension
benefits,
BPPR
provides
certain
health
care
benefits
for
certain
retired
employees
(the
“OPEB
Plan”).
Regular employees
of BPPR,
hired before
February 1,
2000, may
become eligible
for health
care benefits,
provided they
reach retirement age while working for BPPR.
The
Corporation’s
funding
policy is
to
make
annual contributions
to
the
Pension Plans,
when necessary,
in amounts
which fully
provide for all benefits as they become due under
the plans.
The Corporation’s pension fund investment strategy
is to invest in a
prudent manner for the exclusive
purpose of providing benefits
to participants. A well defined internal structure has
been established to develop and implement
a risk-controlled investment strategy
that is targeted to
produce a total return that,
when combined with BPPR contributions to
the fund, will maintain the
fund’s ability to
meet all
required benefit obligations.
Risk is controlled
through diversification of
asset types, such
as investments in
domestic and
international equities and fixed income.
Equity investments include various types of stock and index funds. Also, this category
includes Popular, Inc.’s common stock. Fixed
income
investments include
U.S. Government
securities
and
other U.S.
agencies’ obligations,
corporate
bonds, mortgage
loans,
mortgage-backed securities
and index
funds, among
others. A
designated committee
periodically reviews
the performance
of the
pension
plans’
investments
and
assets
allocation.
The
Trustee
and
the
money
managers
are
allowed
to
exercise
investment
discretion, subject
to limitations
established by
the pension
plans’ investment
policies. The
plans forbid
money managers
to enter
into derivative transactions, unless approved by the
Trustee.
The
overall
expected
long-term
rate-of-return-on-assets assumption
reflects
the
average rate
of
earnings
expected
on
the funds
invested or
to
be invested
to provide
for the
benefits included
in the
benefit obligation.
The assumption
has been
determined by
reflecting
expectations
regarding
future
rates
of
return
for
the
plan
assets,
with
consideration
given
to
the
distribution
of
the
investments by asset
class and
historical rates of
return for each
individual asset class.
This process is
reevaluated at least
on an
annual basis and if market, actuarial and economic
conditions change, adjustments to the rate of return
may come into place.
The
Pension
Plans
weighted
average
asset
allocation
as
of
December
31,
2023
and
2022
and
the
approved
asset
allocation
ranges, by asset category, are summarized in the table below.
Minimum allotment
Maximum allotment
2023
2022
Equity
0
%
70
%
22
%
27
%
Debt securities
0
%
100
%
74
%
69
%
Popular related securities
0
%
5
%
2
%
2
%
Cash and cash equivalents
0
%
100
%
2
%
2
%
243
The following table sets
forth by level, within
the fair value hierarchy,
the Pension Plans’ assets at
fair value at December
31, 2023
and 2022. Investments
measured at net
asset value per share
(“NAV”) as
a practical expedient have
not been classified
in the fair
value hierarchy, but are presented in order to permit reconciliation of
the plans’ assets.
2023
2022
(In thousands)
Level 1
Level 2
Level 3
Measured
at NAV
Total
Level 1
Level 2
Level 3
Measured
at NAV
Total
Obligations of the U.S.
Government, its agencies,
states and political
subdivisions
$
-
$
3,711
$
-
$
154,459
$
158,170
$
-
$
8,113
$
-
$
130,397
$
138,510
Corporate bonds and
debentures
-
295,141
-
7,042
302,183
-
268,641
-
6,291
274,932
Equity securities - Common
Stock
34,334
-
-
-
34,334
32,906
-
-
-
32,906
Equity securities - ETF's
42,798
17,173
-
-
59,971
51,836
20,276
-
-
72,112
Foreign commingled trust
funds
-
-
-
51,392
51,392
-
-
-
64,630
64,630
Mutual fund
-
1,610
-
22,642
24,252
-
3,471
-
22,106
25,577
Mortgage-backed securities
-
9,289
-
-
9,289
-
-
-
-
-
Cash and cash equivalents
8,908
-
-
-
8,908
7,637
-
-
-
7,637
Accrued investment income
-
-
3,927
-
3,927
-
-
3,581
-
3,581
Total assets
$
86,040
$
326,924
$
3,927
$
235,535
$
652,426
$
92,379
$
300,501
$
3,581
$
223,424
$
619,885
244
The closing prices reported in the active markets
in which the securities are traded are used
to value the investments.
Following is a description of the valuation methodologies
used for investments measured at fair value:
●
Obligations
of
U.S.
Government,
its
agencies,
states
and
political
subdivisions
-
The
fair
value
of
Obligations
of
U.S.
Government and its agencies obligations are based on
an active exchange market and on quoted market prices
for similar
securities. U.S.
agency structured
notes
are
priced based
on
a bond’s
theoretical value
from similar
bonds
defined by
credit quality
and market sector
and for
which the
fair value
incorporates an
option adjusted spread
in deriving
their fair
value.
The fair value
of municipal bonds
are based on
trade data on
these instruments reported on
Municipal Securities
Rulemaking Board (“MSRB”)
transaction reporting system
or comparable bonds
from the same
issuer and credit
quality.
These securities are classified as Level 2, except for
the governmental index funds that are measured
at NAV.
●
Corporate bonds and debentures -
Corporate bonds and debentures are
valued at fair value at
the closing price reported
in the active market in
which the bond is traded. These
securities are classified as Level
2, except for the
c
orporate bond
funds that are measured at NAV.
●
Equity securities – common stock
- Equity securities with
quoted market prices obtained from
an active exchange market
and high liquidity are classified as Level 1.
●
Equity securities – ETF’s
– Exchange Traded Funds
shares with quoted market prices
obtained from an active exchange
market. Highly liquid ETF’s are classified as Level 1 while
less liquid ETF’s are classified as Level 2.
●
Foreign commingled trust fund- Collective investment
funds are valued at the NAV of shares held by the plan at year end.
●
Mutual funds – Mutual funds are valued at
the NAV of
shares held by the plan at year
end. Mutual funds are classified as
Level 2.
●
Cash and cash equivalents - The carrying amount of
cash and cash equivalents is a reasonable estimate of the
fair value
since it is available on demand or due
to their short-term maturity. Cash and cash equivalents are classified as Level
1.
●
Accrued investment income – Given the
short-term nature of these assets, their carrying
amount approximates fair value.
Since there is a lack of observable inputs
related to instrument specific attributes,
these are reported as Level 3.
The preceding valuation methods may produce a fair value calculation that may not be indicative of net realizable value or
reflective
of future fair values. Furthermore, although the plan believes its valuation methods are appropriate and consistent with other market
participants, the
use
of
different
methodologies
or
assumptions to
determine
the
fair value
of
certain financial
instruments could
result in a different fair value measurement at the reporting
date.
The following table presents the change in Level
3 assets measured at fair value.
245
(In thousands)
2023
2022
Balance at beginning of year
$
3,581
$
4,566
Purchases, sales, issuance and settlements (net)
346
(985)
Balance at end of year
$
3,927
$
3,581
There were
no
transfers in
and/or out
of Level
3 for
financial instruments
measured at
fair value
on a
recurring basis
during the
years ended
December 31,
2023 and
2022. There
were
no
transfers in
and/or out
of Level
1 and
Level 2
during the
years ended
December 31, 2023 and 2022.
Information on the shares of common stock held by
the pension plans is provided in the table that
follows.
(In thousands, except number of shares information)
2023
2022
Shares of Popular, Inc. common stock
178,611
171,931
Fair value of shares of Popular, Inc. common
stock
$
14,659
$
11,402
Dividends paid on shares of Popular,
Inc. common stock held by the plan
$
384
$
355
The following table presents the components of net
periodic benefit cost for the years ended
December 31, 2023, 2022 and 2021.
Pension Plans
OPEB Plan
(In thousands)
2023
2022
2021
2023
2022
2021
(in thousands)
Service cost
$
-
$
-
$
-
$
191
$
485
$
642
Other operating expenses:
Interest cost
31,548
19,199
15,993
6,082
3,931
3,573
Expected return on plan assets
(34,365)
(35,388)
(38,679)
-
-
-
Recognized net actuarial loss
21,465
15,644
18,876
(2,212)
-
1,873
Net periodic cost (benefit)
$
18,648
$
(545)
$
(3,810)
$
4,061
$
4,416
$
6,088
Other Adjustments
-
-
-
-
60
-
Total cost (benefit)
$
18,648
$
(545)
$
(3,810)
$
4,061
$
4,476
$
6,088
246
The following table sets forth the aggregate status of the plans and the amounts recognized in the consolidated financial statements
at December 31, 2023 and 2022.
Pension Plans
OPEB Plan
(In thousands)
2023
2022
2023
2022
Change in benefit obligation:
Benefit obligation at beginning of year
$
628,175
$
851,471
$
118,336
$
159,958
Service cost
-
-
191
485
Interest cost
31,548
19,199
6,082
3,931
Actuarial (gain)/loss
[1]
16,861
(194,473)
(1,180)
(39,479)
Benefits paid
(40,790)
(48,022)
(6,384)
(6,619)
Other adjustments
-
-
-
60
Benefit obligation at end of year
$
635,794
$
628,175
$
117,045
$
118,336
Change in fair value of plan assets:
Fair value of plan assets at beginning of year
$
619,885
$
860,484
$
-
$
-
Actual return on plan assets
73,101
(192,807)
-
-
Employer contributions
230
230
6,384
6,619
Benefits paid
(40,790)
(48,022)
(6,384)
(6,619)
Fair value of plan assets at end of year
$
652,426
$
619,885
$
-
$
-
Funded status of the plan:
Benefit obligation at end of year
$
(635,794)
$
(628,175)
$
(117,045)
$
(118,336)
Fair value of plan assets at end of year
652,426
619,885
-
-
Funded status at year end
$
16,632
$
(8,290)
$
(117,045)
$
(118,336)
Amounts recognized in accumulated other comprehensive
loss:
Net loss/(gain)
200,094
243,434
(25,454)
(26,486)
Accumulated other comprehensive loss (AOCL)
$
200,094
$
243,434
$
(25,454)
$
(26,486)
Reconciliation of net (liabilities) assets:
Net liabilities at beginning of year
$
(8,290)
$
9,013
$
(118,336)
$
(159,958)
Amount recognized in AOCL at beginning of year,
pre-tax
243,434
225,356
(26,486)
12,993
Amount prepaid (liability) at beginning of year
235,144
234,369
(144,822)
(146,965)
Total benefit
cost
(18,648)
545
(4,061)
(4,476)
Contributions
230
230
6,384
6,619
Amount prepaid (liability) at end of year
216,726
235,144
(142,499)
(144,822)
Amount recognized in AOCL
(200,094)
(243,434)
25,454
26,486
Net asset/(liabilities) at end of year
$
16,632
$
(8,290)
$
(117,045)
$
(118,336)
[1]
For 2023, the significant component of the Pension Plans
actuarial gain were mainly related to a higher return on the
fair value of plan assets partially
offset by an increase in the obligation due to a
decrease in the single weighted-average discount rates.
For OPEB plans, significant components of
the actuarial gain that changed the benefit obligation were
mainly related to the per capita assumption at year
end that improved the funded position
and the gain associated with census data updates and plan
experience better than expected offset by the
decrease in discount rates. For 2022,
significant components of the Pension Plans actuarial gain
that changed the benefit obligation were mainly related
to an increase in the single
weighted-average discount rates partially offset by a
lower return on the fair value of plan assets. For OPEB
Plans significant components of the
actuarial gain that change the benefit obligation were mainly
related to an increase in discount rates and the
per capita claim assumption at year-end
which was lower than expected partially offset
by the health care cost trend assumption which was updated
to reflect inflationary pressures in the
health care industry.
247
The following table presents the change in accumulated other
comprehensive loss (“AOCL”), pre-tax, for the years ended December
31, 2023 and 2022.
(In thousands)
Pension Plans
OPEB Plan
2023
2022
2023
2022
Accumulated other comprehensive loss at beginning of year
$
243,434
$
225,356
$
(26,486)
$
12,993
Increase (decrease) in AOCL:
Recognized during the year:
Amortization of actuarial losses
(21,465)
(15,644)
2,212
-
Occurring during the year:
Net actuarial (gains)/losses
(21,875)
33,722
(1,180)
(39,479)
Total (decrease) increase
in AOCL
(43,340)
18,078
1,032
(39,479)
Accumulated other comprehensive loss at end of year
$
200,094
$
243,434
$
(25,454)
$
(26,486)
The Corporation estimates
the service
and interest cost
components utilizing a
full yield curve
approach in the
estimation of these
components
by
applying the
specific spot
rates
along
the yield
curve
used in
the
determination of
the
benefit obligation
to
their
underlying projected cash flows.
To
determine
benefit
obligation
at
year
end,
the
Corporation
used
a
weighted
average
of
annual
spot
rates
applied
to
future
expected cash flows for years ended December 31, 2023
and 2022.
The following
table presents
the discount
rate and
assumed health
care cost
trend rates
used to
determine the
benefit obligation
and net periodic benefit cost for the plans:
Pension Plan
OPEB Plan
Weighted average assumptions used to
determine net periodic benefit cost for the
years ended December 31:
2023
2022
2021
2023
2022
2021
Discount rate for benefit obligation
5.34
-
5.37
%
2.79
-
2.83
%
2.41
-
2.48
%
5.42
%
2.94
%
2.65
%
Discount rate for service cost
N/A
N/A
N/A
5.66
%
3.21
%
3.09
%
Discount rate for interest cost
5.23
-
5.24
%
2.3
0 -
2.33
%
1.76
-
1.80
%
5.28
%
2.51
%
2.03
%
Expected return on plan assets
5.9
0 -
6.50
%
4.3
0 -
5.40
%
4.6
0 -
5.5
0
%
N/A
N/A
N/A
Initial health care cost trend rate
N/A
N/A
N/A
7.50
%
4.75
%
5.00
%
Ultimate health care cost trend rate
N/A
N/A
N/A
4.50
%
4.50
%
4.50
%
Year that the ultimate trend
rate is reached
N/A
N/A
N/A
2035
2023
2023
Pension Plans
OPEB Plan
Weighted average assumptions used to determine
benefit obligation at
December 31:
2023
2022
2023
2022
Discount rate for benefit obligation
5.02
-
5.05
%
5.34
-
5.37
%
5.10
%
5.42
%
Initial health care cost trend rate
N/A
N/A
7.25
%
7.50
%
Ultimate health care cost trend rate
N/A
N/A
4.50
%
4.50
%
Year that the ultimate trend
rate is reached
N/A
N/A
2035
2035
248
The following table presents information for plans with a projected benefit obligation and accumulated benefit obligation in excess of
plan assets for the years ended December 31,
2023 and 2022.
Pension Plans
OPEB Plan
(In thousands)
2023
2022
2023
2022
Projected benefit obligation
$
35,965
$
628,175
$
117,045
$
118,336
Accumulated benefit obligation
36,965
628,175
117,045
118,336
Fair value of plan assets
29,193
619,885
-
-
The
following table
presents information
for plans
with plan
assets in
excess of
its
projected benefit
obligation and
accumulated
benefit obligation for the years ended December 31,
2023 and 2022.
Pension Plans
OPEB Plan
(In thousands)
2023
2022
2023
2022
Projected benefit obligation
$
599,829
$
-
$
-
$
-
Accumulated benefit obligation
599,829
-
-
-
Fair value of plan assets
623,233
-
-
-
The Corporation expects to pay the following contributions
to the plans during the year ended December
31, 2024.
(In thousands)
2024
Pension Plans
$
228
OPEB Plan
$
5,744
Benefit payments projected to be made from the
plans during the next ten years are presented
in the table below.
(In thousands)
Pension Plans
OPEB Plan
2024
$
49,072
$
5,744
2025
45,790
6,003
2026
45,906
6,301
2027
45,907
6,582
2028
45,818
6,865
2029 - 2033
223,097
37,503
249
The table below presents a breakdown of the
plans’ assets and liabilities at December
31, 2023 and 2022.
Pension Plans
OPEB Plan
(In thousands)
2023
2022
2023
2022
Non-current assets
$
23,404
$
-
$
-
$
-
Current liabilities
222
222
5,595
5,779
Non-current liabilities
6,550
8,068
111,451
112,557
Savings plans
The
Corporation
also
provides
defined
contribution
savings
plans
pursuant
to
Section
1081.01(d)
of
the
Puerto
Rico
Internal
Revenue
Code
and
Section
401(k)
of
the
U.S.
Internal
Revenue Code,
as
applicable, for
substantially
all
the
employees
of
the
Corporation. Investments
in the
plans are
participant-directed, and employer
matching contributions
are determined
based on
the
specific provisions
of each
plan. Employees
are fully
vested in
the employer’s
contribution after
five years
of service.
The cost
of
providing these benefits in the year ended
December 31, 2023 was $
20.3
million (2022 - $
18.7
million, 2021 - $
13.3
million).
The
plans held
1,253,702
(2022 –
1,246,519
) shares
of common
stock
of
the
Corporation with
a market
value of
approximately
$
102.9
million at December 31, 2023 (2022 - $
82.7
million).
250
Note 31 – Net income per common share
The
following table
sets
forth the
computation of
net
income per
common share
(“EPS”), basic
and diluted,
for the
years
ended
December 31, 2023, 2022 and 2021:
(In thousands, except per share information)
2023
2022
2021
Net income
$
541,342
$
1,102,641
$
934,889
Preferred stock dividends
(1,412)
(1,412)
(1,412)
Net income applicable to common stock
$
539,930
$
1,101,229
$
933,477
Average common shares outstanding
71,710,265
75,147,263
81,263,027
Average potential dilutive common shares
81,427
126,740
157,127
Average common shares outstanding - assuming dilution
71,791,692
75,274,003
81,420,154
Basic EPS
$
7.53
$
14.65
$
11.49
Diluted EPS
$
7.52
$
14.63
$
11.46
Potential common shares consist of shares of common stock issuable under the assumed exercise of stock options, restricted stock
and
performance
share
awards
using
the
treasury
stock
method.
This
method
assumes
that
the
potential
common
shares
are
issued and
the proceeds
from exercise,
in addition
to the
amount of
compensation cost
attributed to
future services,
are used
to
purchase shares of common stock at the exercise date. The difference between the number of potential common shares issued and
the shares
of common
stock
purchased is
added as
incremental shares
to
the actual
number of
shares outstanding
to
compute
diluted
earnings
per
share.
Warrants,
stock
options,
restricted
stock
and
performance share
awards,
if
any,
that
result
in
lower
potential common shares
issued than shares
of common stock
purchased under the treasury
stock method are
not included in
the
computation of dilutive earnings per share
since their inclusion would have an antidilutive effect in earnings
per common share.
251
Note 32 – Revenue from contracts with customers
The following table presents
the Corporation’s revenue streams
from contracts with customers
by reportable segment for the
years
ended December 31, 2023, 2022
and 2021.
Years ended December
31,
(In thousands)
2023
2022
2021
BPPR
Popular U.S.
BPPR
Popular U.S.
BPPR
Popular U.S.
Service charges on deposit accounts
$
137,297
$
10,179
$
146,073
$
11,137
$
151,453
$
11,245
Other service fees:
Debit card fees
53,434
853
49,297
876
47,681
956
Insurance fees, excluding reinsurance
46,903
5,602
40,545
5,018
40,929
3,798
Credit card fees, excluding late fees and membership
fees
147,559
1,597
136,295
1,275
117,418
1,052
Sale and administration of investment products
26,316
-
23,553
-
23,634
-
Trust fees
26,160
-
23,614
-
24,855
-
Total revenue from
contracts with customers
[1]
$
437,669
$
18,231
$
419,377
$
18,306
$
405,970
$
17,051
[1] The amounts include intersegment transactions of $
5
.0
million, $
5
.0 million and $
4.1
million, respectively, for the years
ended December 31,
2023, 2022 and 2021.
Revenue from contracts with
customers is recognized when,
or as, the performance
obligations are satisfied by
the Corporation by
transferring the
promised services
to
the customers.
A
service is
transferred to
the customer
when, or
as, the
customer obtains
control
of
that
service.
A
performance obligation
may
be
satisfied over
time
or
at
a
point
in
time.
Revenue from
a
performance
obligation satisfied
over time
is recognized
based on
the services
that have
been rendered
to date.
Revenue from
a performance
obligation satisfied at a point in time
is recognized when the customer obtains control over the
service. The transaction price, or the
amount of revenue
recognized, reflects the
consideration the Corporation expects
to be entitled
to in exchange
for those promised
services. In determining the transaction price, the Corporation considers the effects of variable consideration. Variable consideration
is included
in the
transaction price
only to
the extent
it is
probable that a
significant reversal
in the
amount of
cumulative revenue
recognized will
not occur.
The Corporation
is the
principal in
a transaction
if it
obtains control
of the
specified goods
or services
before they
are transferred
to
the customer.
If the
Corporation acts
as principal,
revenues are
presented in
the gross
amount of
consideration to which it expects to
be entitled and are not
netted with any related expenses. On the
other hand, the Corporation is
an agent if it does not control
the specified goods or services before they are transferred
to the customer. If
the Corporation acts as
an agent, revenues are presented in the amount
of consideration to which it expects to be entitled,
net of related expenses.
Following is a description of the nature and timing
of revenue streams from contracts with customers:
Service charges on deposit accounts
Service
charges
on
deposit
accounts
are
earned
on
retail
and
commercial
deposit
activities
and
include,
but
are
not
limited
to,
nonsufficient fund
fees, overdraft
fees and
checks stop
payment fees.
These transaction-based
fees are
recognized at
a point
in
time,
upon
occurrence
of
an
activity
or
event
or
upon
the
occurrence
of
a
condition
which
triggers
the
fee
assessment.
The
Corporation is acting as principal in these transactions.
Debit card fees
Debit card fees include, but are not limited to, interchange
fees, surcharging income and foreign transaction
fees.
These transaction-
based fees
are recognized at
a point in
time, upon
occurrence of an
activity or
event or upon
the occurrence of
a condition which
triggers
the
fee
assessment.
Interchange
fees
are
recognized
upon
settlement
of
the
debit
card
payment
transactions.
The
Corporation is acting as principal in these transactions.
Insurance fees
Insurance fees
include, but
are
not limited
to, commissions
and contingent
commissions.
Commissions and
fees
are
recognized
when related
policies are effective
since the Corporation
does not
have an enforceable
right to
payment for services
completed to
date.
An
allowance
is
created
for
expected
adjustments
to
commissions
earned
related
to
policy
cancellations.
Contingent
commissions
are
recorded
on
an
accrual
basis
when
the
amount
to
be
received
is
notified
by
the
insurance
company.
The
252
Corporation is acting
as an
agent since it
arranges for the
sale of
the policies and
receives commissions if,
and when, it
achieves
the sale.
Credit card fees
Credit card
fees include,
but are
not limited
to, interchange
fees, additional
card fees,
cash advance
fees, balance
transfer fees,
foreign transaction fees, and returned payments
fees. Credit card fees are
recognized at a point in
time, upon the occurrence of an
activity or
an event.
Interchange fees
are recognized
upon settlement
of the
credit card
payment transactions. The
Corporation is
acting as principal in these transactions.
Sale and administration of investment products
Fees from
the sale
and administration
of investment
products include,
but are
not limited
to, commission
income from
the sale
of
investment products, asset management fees, underwriting
fees, and mutual fund fees.
Commission income from investment products is recognized on the trade date since clearing, trade execution, and custody services
are satisfied when
the customer acquires
or disposes of
the rights to
obtain the economic
benefits of the
investment products and
brokerage contracts have no fixed duration and
are terminable at will by
either party. The
Corporation is acting as principal in these
transactions since it
performs the service
of providing the
customer with the
ability to acquire
or dispose of
the rights to
obtain the
economic benefits of investment products.
Asset
management
fees
are
satisfied
over
time
and
are
recognized
in
arrears.
At
contract
inception,
the
estimate
of
the
asset
management fee
is constrained
from the
inclusion in
the transaction
price since
the promised
consideration is
dependent on
the
market and thus
is highly susceptible
to factors
outside the manager’s
influence. As advisor,
the broker-dealer subsidiary
is acting
as principal.
Underwriting fees are
recognized at a point
in time, when
the investment products
are sold in
the open market at
a markup. When
the broker-dealer subsidiary is lead
underwriter, it is
acting as an agent. In
turn, when it is
a participating underwriter, it
is acting as
principal.
Mutual fund fees,
such as distribution fees,
are considered variable consideration
and are recognized over
time, as the
uncertainty
of the fees to be
received is resolved as NAV
is determined and investor activity occurs. The
promise to provide distribution-related
services
is
considered
a
single
performance
obligation
as
it
requires
the
provision
of
a
series
of
distinct
services
that
are
substantially the same and have the same pattern of
transfer. When the broker-dealer subsidiary is acting as a distributor, it is acting
as principal. In turn, when it acts as third-party dealer, it is acting
as an agent.
Trust fees
Trust fees
are recognized from
retirement plan, mutual fund
administration, investment management, trustee, escrow,
and custody
and
safekeeping services.
These
asset
management services
are
considered
a
single
performance obligation
as
it
requires the
provision of
a series
of distinct
services that
are substantially
the same
and have
the same
pattern of
transfer.
The performance
obligation
is
satisfied
over
time,
except
for
optional
services
and
certain
other
services
that
are
satisfied
at
a
point
in
time.
Revenues are recognized in
arrears,
when, or as,
the services are rendered.
The Corporation is
acting as principal since,
as asset
manager, it has the obligation to provide the specified service to the customer and
has the ultimate discretion in establishing the fee
paid by the customer for the specified services.
253
Note 33 – 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
31.0
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 14
and
Note
19
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:
December 31, 2023
(In thousands)
2024
2025
2026
2027
2028
Later
Years
Total Lease
Payments
Less: Imputed
Interest
Total
Operating Leases
$
30,652
$
28,042
$
19,600
$
14,357
$
11,902
40,648
$
145,201
$
(18,255)
$
126,946
Finance Leases
4,498
4,605
4,374
3,017
2,344
10,434
29,272
(3,494)
25,778
The following table presents the lease cost recognized
by the Corporation in the Consolidated
Statements of Operations as follows:
Years ended December
31,
(In thousands)
2023
2022
2021
Finance lease cost:
Amortization of ROU assets
$
4,192
$
2,938
$
2,006
Interest on lease liabilities
1,063
1,117
1,044
Operating lease cost
31,596
30,534
29,970
Short-term lease cost
456
505
647
Variable lease cost
211
124
93
Sublease income
(66)
(37)
(70)
Net gain recognized from sale and leaseback transaction
[1]
-
-
(7,007)
Total lease cost
[2]
$
37,452
$
35,181
$
26,683
[1]
During the quarter ended September 30, 2021, the Corporation
recognized the transfer of two corporate office
buildings as a sale. Since these
sale and partial leaseback transactions were considered to
be at fair value, no portion of the gain on sale was deferred.
[2]
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.
The
following
table
presents
supplemental
cash
flow
information
and
other
related
information
related
to
operating
and
finance
leases.
254
Years ended December
31,
(Dollars in thousands)
2023
2022
2021
Cash paid for amounts included in the measurement of
lease liabilities:
Operating cash flows from operating leases
[1]
$
31,124
$
29,985
$
38,288
Operating cash flows from finance leases
1,063
1,117
1,044
Financing cash flows from finance leases
[1]
5,360
3,346
2,852
ROU assets obtained in exchange for new lease obligations:
Operating leases
[2]
$
8,048
$
14,564
$
24,136
Finance leases
6,198
556
-
Weighted-average remaining lease term:
Operating leases
7.3
years
7.5
years
7.9
years
Finance leases
8.3
years
8.2
years
8.3
years
Weighted-average discount rate:
Operating leases
3.3
%
3.0
%
2.7
%
Finance leases
3.9
%
4.2
%
5.0
%
[1]
During the quarter ended March 31, 2021, the Corporation made
base lease termination payments amounting to $
7.8
million in connection with
the closure of nine branches as a result of the strategic realignment
of PB’s New York
Metro branch network.
[2]
During the quarter ended September 30, 2021, the Corporation
recognized a lease liability of $
16.8
million and a corresponding ROU asset for
the same amount as a result of the partial leaseback of
two corporate office buildings.
As
of
December
31,
2023,
the
Corporation
has
additional
operating
leases
contracts
that
have
not
yet
commenced
with
an
undiscounted contract amount of $3.9 million, which
will have lease terms ranging from
10
to
20
years.
255
Note 34 - Stock-based compensation
Incentive Plan
On May 12, 2020, the stockholders of the Corporation approved the
Popular, Inc. 2020 Omnibus Incentive Plan, which
permits
the Corporation to issue several types of stock-based compensation to employees and directors of
the Corporation and/or any of its
subsidiaries (the
“2020 Incentive
Plan”). The
2020 Incentive
Plan replaced
the Popular,
Inc. 2004
Omnibus Incentive
Plan, which
was in effect
prior to the adoption of
the 2020 Incentive Plan (the
“2004 Incentive Plan” and, together
with the 2020 Incentive
Plan,
the “Incentive Plan”). Participants under the Incentive Plan are designated by the Talent and Compensation Committee of the Board
of Directors (or its delegate, as determined by the Board). Under the Incentive Plan, the Corporation has issued restricted stock and
performance shares to its employees and restricted
stock and restricted stock units (“RSUs”)
to its directors.
The restricted
stock granted
under the
Incentive Plan
to employees
becomes vested
based on
the employees’
continued service
with
Popular.
Unless
otherwise
stated
in
an
agreement,
the compensation cost associated with the shares of restricted stock
granted prior to 2021 was determined based on a two-prong vesting schedule. The first part is vested ratably over five or four years
commencing at the date of grant (the “graduated vesting portion”) and the second part is vested at termination of employment after
attaining 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 in 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.
256
(Not in thousands)
Shares
Weighted-average
grant date fair value
Non-vested at January 1, 2021
358,512
$
41.23
Granted
191,479
69.38
Performance Shares Quantity Adjustment
54,306
54.21
Vested
(273,974)
55.11
Forfeited
(8,440)
43.48
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
257,757
66.01
Performance Shares Quantity Adjustment
19,753
75.32
Vested
(243,133)
66.31
Forfeited
(16,444)
55.82
Non-vested at December 31, 2023
299,896
$
58.20
During
the
year
ended
December
31,
2023,
200,303
shares
of
restricted
stock
(2022
-
137,934
;
2021
-
120,105
)
and
57,454
performance shares (2022 -
56,857
; 2021 -
71,374
) were awarded to management under the
Incentive Plan.
During
the
year
ended
December
31,
2023,
the
Corporation
recognized
$
11.5
million
of
restricted
stock
expense
related
to
management incentive awards, with a
tax benefit of $
1.9
million (2022 - $
10.3
million, with a tax
benefit of $
1.8
million; 2021 - $
8.6
million, with
a tax
benefit of
$
1.6
million). During
the year
ended December
31, 2023,
the fair
market value
of the
restricted stock
and performance shares vested was $
11.4
million at grant date and $
14.3
million at vesting date. This differential triggers
a windfall
of $
1.1
million that was recorded as a reduction in income tax expense.
During the year ended December 31, 2023, the Corporation
recognized $
3.5
million of performance
shares expense, with
a tax benefit
of $
0.1
million (2022 -
$
4.8
million, with a
tax benefit of
$
0.4
million; 2021 - $
5.8
million, with a tax benefit of $
0.5
million).
The total unrecognized compensation cost related to non-vested
restricted
stock
awards
and
performance
shares
to
members
of
management
at
December
31,
2023
was
$
10.4
million
and
is
expected to be recognized over a weighted-average
period of
1.76
years.
The following table summarizes the restricted stock
activity under the Incentive Plan for members of
the Board of Directors:
(Not in thousands)
Units/Stocks
Weighted-average
grant
date fair value
Non-vested at January 1, 2021
-
-
Granted
20,638
$
78.20
Vested
(20,638)
78.20
Forfeited
-
-
Non-vested at December 31, 2021
-
-
Granted
25,321
$
77.48
Vested
(25,321)
77.48
Forfeited
-
-
Non-vested at December 31, 2022
-
-
Granted
39,104
$
55.30
Vested
(39,104)
55.30
Forfeited
-
-
Non-vested at December 31, 2023
-
-
257
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
common
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, 2021 and
2021, Directors elected RSUs and
common stock.
For the year ended December
31, 2023,
36,804
RSUs and
2,300
shares of common stock were
granted to the Directors (2022
-
25,321
RSUs and no shares of common
stock; 2021 -
20,638
RSUs and no shares of common stock).
For the year ended December 31, 2023, $
2.2
million of restricted stock expense related to
these RSUs and unrestricted stocks were recognized, with a tax
benefit of $
0.4
million (2022 - $
2.0
million with a tax benefit of $
0.4
million; 2021
- $
1.9
million with
a tax
benefit of
$
0.4
million).
The fair
value at
vesting date
of the
RSUs vested
during the
year
ended December 31, 2023 for the Directors was
$
2.2
million.
258
Note 35 – Income taxes
The components of income
tax expense for the
years ended December 31, 2023,
2022, and 2021 are
summarized in the following
table.
(In thousands)
2023
2022
2021
Current income tax expense:
Puerto Rico
$
168,001
$
156,425
$
69,415
Federal and States
9,335
9,034
10,232
Subtotal
177,336
165,459
79,647
Deferred income tax (benefit) expense:
Puerto Rico
(50,871)
(4,373)
179,688
Federal and States
7,732
(28,756)
49,683
Subtotal
(43,139)
(33,129)
229,371
Total income tax
expense
$
134,197
$
132,330
$
309,018
The reasons
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:
2023
2022
2021
(In thousands)
Amount
% of pre-tax
income
Amount
% of pre-tax
income
Amount
% of pre-tax
income
Computed income tax at statutory rates
$
253,327
38
%
$
463,114
38
%
$
466,465
38
%
Net benefit of tax exempt interest income
(95,222)
(14)
(165,065)
(13)
(139,426)
(12)
Effect of income subject to preferential tax rate
(1,854)
-
(86,797)
(7)
(11,981)
(1)
Deferred tax asset valuation allowance
2,304
-
(21,469)
(2)
20,932
2
NOL Adjustments
-
-
(34,817)
(3)
-
-
Difference in tax rates due to multiple jurisdictions
(12,857)
(2)
(26,887)
(2)
(30,719)
(3)
Change in tax rates
(18,714)
(3)
-
-
-
-
Unrecognized tax benefits
(1,529)
-
(1,503)
-
(5,484)
-
Other tax benefits
(2,925)
-
-
-
-
-
State and local taxes
25,401
3
14,981
1
14,629
1
Others
(13,734)
(2)
(9,227)
(1)
(5,398)
-
Income tax expense
$
134,197
20
%
$
132,330
11
%
$
309,018
25
%
For the year ended December 31, 2023, the Corporation
recorded income tax expense of $
134.2
million, compared to $
132.3
million
for
the same
period of
2022. The
net increase
of
$
1.9
million in
income tax
expense reflects
the impact
of
the composition
and
source of taxable
income between both
years.
For the year
ended December 31,
2023, the income
before tax
was lower than
for
the year ended
December 31, 2022,
which would have
resulted in a
lower income tax
expense; however, the
income tax expense
for 2022 benefited from:
the reversal of a portion of the deferred tax
assets valuation allowance of the U. S. operations, resulting in
an income tax benefit of $
68.2
million, higher exempt income, net of disallowance,
and the gain on sale of Evertec shares, taxable at
a preferential tax rate.
Deferred income taxes reflect the
net tax effects
of temporary differences between the
carrying amounts of assets and
liabilities for
financial reporting
purposes and
their tax
bases. Significant
components of
the Corporation’s
deferred tax
assets and
liabilities at
December 31, 2023 and 2022 were as follows:
259
December 31, 2023
(In thousands)
PR
US
Total
Deferred tax assets:
Tax credits available
for carryforward
$
263
$
10,281
$
10,544
Net operating loss and other carryforward available
122,634
620,982
743,616
Postretirement and pension benefits
38,121
-
38,121
Allowance for credit losses
244,956
28,222
273,178
Depreciation
6,774
6,578
13,352
FDIC-assisted transaction
152,665
-
152,665
Lease liability
29,070
20,492
49,562
Unrealized net loss on investment securities
312,583
19,037
331,620
Difference in outside basis from pass-through entities
46,056
-
46,056
Mortgage Servicing Rights
14,085
-
14,085
Other temporary differences
47,679
9,625
57,304
Total gross deferred
tax assets
1,014,886
715,217
1,730,103
Deferred tax liabilities:
Intangibles
84,635
51,944
136,579
Right of use assets
26,648
18,030
44,678
Deferred loan origination fees/cost
(1,056)
1,486
430
Loans acquired
20,430
-
20,430
Other temporary differences
6,402
422
6,824
Total gross deferred
tax liabilities
137,059
71,882
208,941
Valuation allowance
139,347
374,035
513,382
Net deferred tax asset
$
738,480
$
269,300
$
1,007,780
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
260
The net deferred
tax asset shown
in the
table above at
December 31, 2023
is reflected in
the consolidated statements
of financial
condition as $
1.0
billion in net deferred tax assets (in the
“other assets” caption) (December 31, 2022 - $
1.0
billion) and $
1.3
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.
The net reduction in the valuation
allowance of approximately $
27
million during the year ended December 31,
2023
was due primarily to the change in the blended
state tax rate applicable to net operating losses
of the U.S. operation.
The deferred tax asset related to the NOLs and
other carryforwards as of December 31, 2023, expires
as follows:
(In thousands)
2024
$
9,234
2025
13,516
2026
13,367
2027
15,202
2028
244,706
2029
111,307
2030
137,344
2031
106,295
2032
51,302
2033
8,198
2034
901
2035
32,244
$
743,616
At December
31, 2023
the net
deferred tax
asset of
the U.S.
operations amounted
to $
643
million with
a valuation
allowance of
$
374
million,
for
a
net
deferred
tax
asset
of
$
269
million.
The
Corporation evaluates
on
a
quarterly
basis
the
realization of
the
deferred tax asset by taxing jurisdiction.
The U. S. operations sustained profitability for the three years
period ended December 31,
2023.
The financial results for year
2023 were lower than prior
year; however, this
additional component of negative evidence was
offset by
positive evidence of
recent historical results,
still demonstrating 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 December
31,
2023,
after
weighting
all
positive
and
negative
evidence,
the
Corporation
concluded
that
it
is
more
likely
than
not
that
approximately $
269
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,
and
other
factors,
including
net
income versus
forecast, targeted
loan growth,
net interest
income margin,
changes in
deposits costs,
allowance for
credit losses,
charge offs, NPLs inflows and NPA balances, to assess the future realization
of the deferred tax asset.
At December
31, 2023,
the Corporation’s
net deferred
tax assets
related to
its Puerto
Rico operations
amounted to
$
738
million.
The Corporation’s
Puerto Rico
Banking operation
has strong
historical record
of profitability.
This is
considered a
strong piece
of
objectively verifiable
positive evidence
that
outweigh 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
three years
period ended
December 31,
2023. Management expects
these losses
will be
a trend
in
future years. This
objectively verifiable negative evidence is
considered by management strong negative
evidence that will suggest
that income
in future
years will
be insufficient
to support
the realization
of all
of the
deferred tax
asset. After
weighting all
positive
261
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
full
valuation
allowance on the deferred tax asset of $
139
million as of December 31, 2023.
The Corporation’s
subsidiaries in
the United
States file
a consolidated
federal income
tax return.
The intercompany
settlement of
taxes paid is based on tax sharing agreements
which generally allocate taxes to each
entity based on a separate return basis.
The following table presents a reconciliation of
unrecognized tax benefits.
(In millions)
Balance at January 1, 2022
$
3.5
Reduction as a result of lapse of statute of limitations
(1.0)
Balance at December 31, 2022
$
2.5
Reduction as a result of change in tax position
(1.0)
Balance at December 31, 2023
$
1.5
At
December 31,
2023, the
total amount
of
interest recognized
in the
statement of
financial condition
approximated
$
2.3
million
(2022 -
$
2.6
million). The
total interest
expense recognized
during 2023
was $
199
thousand net
of a
reduction of
$
475
thousand
due
to
the
expiration
of
the
statute
of
limitation
(2022
-
$
268
thousand
net
of
a
reduction
of
$
448
thousand).
Management
determined that, as of
December 31, 2023 and
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 $
2.9
million at December 31, 2023 (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
statute
of
limitations,
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 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. As
of December 31,
2023, the
following years remain
subject to
examination in the
U.S. Federal jurisdiction – 2020 and thereafter and
in the Puerto Rico jurisdiction – 2018 and thereafter.
262
Note 36 – Supplemental disclosure on the consolidated
statements of cash flows
Additional disclosures on cash flow information and
non-cash activities for the years ended December
31, 2023, 2022 and 2021 are
listed in the following table:
(In thousands)
2023
2022
2021
Income taxes paid
$
185,423
$
178,808
$
64,997
Interest paid
1,093,968
292,491
170,442
Non-cash activities:
Loans transferred to other real estate
60,976
64,953
57,638
Loans transferred to other property
72,069
51,642
45,144
Total loans transferred
to foreclosed assets
133,045
116,595
102,782
Loans transferred to other assets
28,616
8,664
7,219
Financed sales of other real estate assets
10,378
8,535
13,014
Financed sales of other foreclosed assets
49,361
38,467
43,060
Total financed sales
of foreclosed assets
59,739
47,002
56,074
Financed sale of premises and equipment
88,537
47,697
31,085
Transfers from premises and equipment to
long-lived assets held-for-sale
-
1,739
32,103
Transfers from loans held-in-portfolio to
loans held-for-sale
57,526
11,531
69,890
Transfers from loans held-for-sale to loans
held-in-portfolio
5,354
26,425
9,762
Transfers from available-for-sale to held-to-maturity
debt securities
-
6,531,092
-
Loans securitized into investment securities
[1]
37,345
300,279
732,533
Trades receivables from brokers and
counterparties
31
9,461
64,824
Trades payable to brokers and counterparties
30
9,461
13,789
Net change in receivables from investments securities
51,000
125,000
-
Recognition of mortgage servicing rights on securitizations
or asset transfers
2,097
6,614
13,391
Loans booked under the GNMA buy-back option
6,014
9,799
19,798
Capitalization of right of use assets
23,991
17,932
35,683
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 year 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)
December 31, 2023
December 31, 2022
December 31, 2021
Cash and due from banks
$
383,385
$
423,233
$
411,346
Restricted cash and due from banks
37,077
46,268
17,087
Restricted cash in money market investments
7,113
6,658
6,079
Total cash and due
from banks, and restricted cash
[2]
$
427,575
$
476,159
$
434,512
[2]
Refer to Note 5 - Restrictions on cash and due from banks
and certain securities for nature of restrictions.
263
Note 37 – 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:
December 31, 2023
Intersegment
(In thousands)
BPPR
Popular U.S.
Eliminations
Net interest income
$
1,811,655
$
350,645
$
2
Provision for credit losses
194,325
14,584
-
Non-interest income
586,677
24,868
(404)
Amortization of intangibles
1,937
1,243
-
Goodwill impairment charge
-
23,000
-
Depreciation expense
49,135
7,888
-
Other operating expenses
1,563,571
254,253
(404)
Income tax expense
117,412
18,198
-
Net income
$
471,952
$
56,347
$
2
Segment assets
$
57,023,071
$
13,812,158
$
(426,058)
December 31, 2023
Reportable
Total
(In thousands)
Segments
Corporate
Eliminations
Popular, Inc.
Net interest income (expense)
$
2,162,302
$
(30,778)
$
-
$
2,131,524
Provision for credit losses (benefit)
208,909
(300)
-
208,609
Non-interest income
611,141
44,410
(4,827)
650,724
Amortization of intangibles
3,180
-
-
3,180
Goodwill impairment charge
23,000
-
-
23,000
Depreciation expense
57,023
1,484
-
58,507
Other operating expenses
1,817,420
518
(4,525)
1,813,413
Income tax expense (benefit)
135,610
(1,333)
(80)
134,197
Net income
$
528,301
$
13,263
$
(222)
$
541,342
Segment assets
$
70,409,171
$
5,607,833
$
(5,258,849)
$
70,758,155
264
December 31, 2022
Intersegment
(In thousands)
BPPR
Popular U.S.
Eliminations
Net interest income
$
1,823,517
$
372,988
$
3
Provision for credit losses
70,304
12,452
-
Non-interest income
680,276
31,958
(547)
Amortization of intangibles
1,937
1,338
-
Goodwill impairment charge
-
9,000
-
Depreciation expense
47,003
6,919
-
Other operating expenses
1,454,187
230,136
(543)
Income tax expense
148,351
(25,205)
-
Net income
$
782,011
$
170,306
$
(1)
Segment assets
$
56,190,260
$
11,558,280
$
(421,781)
December 31, 2022
Reportable
Total
(In thousands)
Segments
Corporate
Eliminations
Popular, Inc.
Net interest income (expense)
$
2,196,508
$
(29,149)
$
-
$
2,167,359
Provision for credit losses
82,756
274
-
83,030
Non-interest income
711,687
189,835
(4,460)
897,062
Amortization of intangibles
3,275
-
-
3,275
Goodwill impairment charge
9,000
-
-
9,000
Depreciation expense
53,922
1,185
-
55,107
Other operating expenses
1,683,780
80
(4,822)
1,679,038
Income tax expense
123,146
9,074
110
132,330
Net income
$
952,316
$
150,073
$
252
$
1,102,641
Segment assets
$
67,326,759
$
5,390,122
$
(5,078,964)
$
67,637,917
December 31, 2021
Banco Popular
Intersegment
(In thousands)
de Puerto Rico
Popular U.S.
Eliminations
Net interest income
$
1,674,589
$
321,154
$
6
Provision for credit losses (benefit)
(136,352)
(56,897)
-
Non-interest income
565,310
24,518
(548)
Amortization of intangibles
2,813
665
-
Depreciation expense
46,539
7,415
-
Other operating expenses
1,285,959
203,892
(544)
Income tax expense
253,479
56,538
-
Net income
$
787,461
$
134,059
$
2
Segment assets
$
64,336,681
$
10,399,066
$
(31,528)
December 31, 2021
Reportable
Total
(In thousands)
Segments
Corporate
Eliminations
Popular, Inc.
Net interest income (expense)
$
1,995,749
$
(38,159)
$
-
$
1,957,590
Provision for credit losses (benefit)
(193,249)
(215)
-
(193,464)
Non-interest income
589,280
56,535
(3,687)
642,128
Amortization of intangibles
3,478
5,656
-
9,134
Depreciation expense
53,954
1,150
-
55,104
Other operating expenses
1,489,307
(545)
(3,725)
1,485,037
Income tax expense (benefit)
310,017
(1,085)
86
309,018
Net income
$
921,522
$
13,415
$
(48)
$
934,889
Segment assets
$
74,704,219
$
5,458,718
$
(5,065,038)
$
75,097,899
265
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
year
ended
December
31,
2023,
BPPR
participated
in
loans
originated
by
PB
totaling
$
81
million
(2022
-
$
184
million,
2021
-
$
35
million).
Total
assets
for
the
BPPR
segment
related
to
its
operations
in
the
United
States
amounted
to
$
1.5
billion
(2022
-
$
1.2
billion),
including
$
106
million
in
multifamily loans (2022 - $
103
million), $
528
million in commercial real estate loans
(2022 - $
446
million), $
557
million in C&I loans
(2022 -
$
214
million), and
$
229
million in
unsecured personal
loans (2022
- $
227
million). During
the year
ended December
31,
2023, the
BPPR segment
generated approximately $
117.7
million (2022
- $
67.8
million, 2021
- $
50.6
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 $
45.0
million
in revenues
during the
year
ended
December 31, 2023 (2022 - $
46.6
million, 2021 - $
45.4
million) from its operations in the U.S. and British
Virgin Islands.
(In thousands)
2023
2022
2021
Revenues:
[1]
Puerto Rico
$
2,175,938
$
2,505,988
$
2,136,481
United States
518,805
480,545
390,201
Other
87,505
77,888
73,036
Total consolidated
revenues
$
2,782,248
$
3,064,421
$
2,599,718
[1]
Total revenues include
net interest income, service charges on deposit accounts,
other service fees, mortgage banking activities, net
gain on sale
of debt securities, net gain (loss), including impairment
on equity securities, net profit (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)
2023
2022
2021
Puerto Rico
Total assets
$
54,181,300
$
53,541,427
$
63,221,282
Loans
22,519,961
20,884,442
19,770,118
Deposits
51,282,007
51,138,790
57,211,608
United States
Total assets
$
15,343,156
$
12,718,775
$
10,986,055
Loans
12,006,012
10,643,964
8,903,493
Deposits
10,643,602
8,182,702
7,777,232
Other
Total assets
$
1,233,699
$
1,377,715
$
890,562
Loans
543,299
554,744
626,115
Deposits
[1]
1,692,634
1,905,735
2,016,248
[1]
Represents deposits from BPPR operations located in the
U.S. and British Virgin Islands.
266
Note 38 - Popular, Inc. (holding company only) financial information
The following
condensed financial
information presents
the financial
position of
Popular,
Inc. Holding
Company only
at December
31, 2023 and 2022, and the results of its
operations and cash flows for the years ended
December 31, 2023, 2022 and 2021.
Condensed Statements of Condition
December 31,
(In thousands)
2023
2022
ASSETS
Cash and due from banks (includes $
126,388
due from bank subsidiary (2022 - $
101,753
))
$
126,388
$
101,753
Money market investments
243,459
77,180
Debt securities held-to-maturity,
at amortized cost (includes $
3,125
in common
securities from statutory trusts (2022 - $
3,125
))
[1]
3,125
3,125
Equity securities, at lower of cost or realizable value
23,993
18,835
Investment in BPPR and subsidiaries, at equity
3,006,768
2,120,503
Investment in Popular North America and subsidiaries,
at equity
1,899,546
1,879,123
Investment in other non-bank subsidiaries, at equity
385,033
335,552
Other loans
26,957
28,196
Less - Allowance for credit losses
51
370
Premises and equipment
7,035
6,411
Investment in equity method investees
5,266
5,350
Other assets (includes $
3,639
due from subsidiaries and affiliate (2022 - $
6,115
))
36,531
34,841
Total assets
$
5,764,050
$
4,610,499
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable
$
498,085
$
403,257
Other liabilities (includes $
6,078
due to subsidiaries and affiliate (2022 - $
2,764
))
118,899
113,772
Stockholders’ equity
5,147,066
4,093,470
Total liabilities and
stockholders’ equity
$
5,764,050
$
4,610,499
[1] Refer to Note 18 to the consolidated financial statements
for information on the statutory trusts.
Condensed Statements of Operations
Years ended December 31,
(In thousands)
2023
2022
2021
Income:
Dividends from subsidiaries
$
208,000
$
458,000
$
792,000
Interest income (includes $
15,401
due from subsidiaries and affiliates (2022
- $
680
; 2021 -
$
828
))
17,715
2,846
4,303
Losses (earnings) from investments in equity method investees
(84)
15,688
29,387
Other operating income
-
139,191
-
Net gains (losses), including impairment, on equity securities
2,012
(4,446)
(525)
Total income
227,643
611,279
825,165
Expenses:
Interest expense
42,691
26,021
36,444
Provision for credit losses (benefit)
(300)
274
(215)
Operating expense (includes expenses for services provided
by subsidiaries and affiliate of
$
13,463
(2022 - $
18,414
; 2021 - $
13,546
)), net of reimbursement by subsidiaries for services
provided by parent of $
215,479
(2022 - $
222,935
; 2021 - $
162,019
)
924
223
5,432
Total expenses
43,315
26,518
41,661
Income before income taxes and equity in undistributed
earnings of subsidiaries
184,328
584,761
783,504
Income tax expense
-
8,723
352
Income before equity in undistributed earnings of subsidiaries
184,328
576,038
783,152
Equity in undistributed earnings of subsidiaries
357,014
526,603
151,737
Net income
$
541,342
$
1,102,641
$
934,889
Comprehensive income (loss), net of tax
$
1,170,739
$
(1,097,218)
$
419,829
267
Condensed Statements of Cash Flows
Years ended December 31,
(In thousands)
2023
2022
2021
Cash flows from operating activities:
Net income
$
541,342
$
1,102,641
$
934,889
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in earnings of subsidiaries, net of dividends or
distributions
(357,014)
(526,603)
(151,737)
Provision for credit (benefit) losses
(300)
274
(215)
Amortization of intangibles
-
-
5,656
Net accretion of discounts and amortization of premiums and
deferred fees
1,754
1,250
1,241
Share-based compensation
9,735
9,440
8,895
Losses (earnings) from investments under the equity method,
net of dividends or distributions
84
(14,170)
(26,360)
(Gain) loss on:
Disposition of stock as part of the Evertec Transactions
-
(137,813)
-
Sale of foreclosed assets, including write-downs
-
-
59
Net increase in:
Equity securities
(5,158)
(339)
(3,662)
Other assets
(62)
(1,952)
(1,970)
Net increase (decrease) in:
Interest payable
3,239
-
(1,042)
Other liabilities
(3,377)
8,257
19,095
Total adjustments
(351,099)
(661,656)
(150,040)
Net cash provided by operating activities
190,243
440,985
784,849
Cash flows from investing activities:
Net (increase) decrease in money market investments
(165,000)
129,000
(94,000)
Proceeds from calls, paydowns, maturities and redemptions
of investment securities held-to-maturity
-
-
5,601
Net repayments on other loans
1,252
1,267
1,879
Capital contribution to subsidiaries
(4,150)
(54,188)
(12,900)
Return of capital from wholly owned subsidiaries
64,000
72,000
-
Proceeds from disposition of stock as part of the Evertec Transactions
-
219,883
-
Acquisition of premises and equipment
(2,266)
(2,224)
(1,788)
Proceeds from sale of premises and equipment
68
1,678
83
Proceeds from sale of foreclosed assets
-
-
87
Net cash (used in) provided by investing activities
(106,096)
367,416
(101,038)
Cash flows from financing activities:
Payments of notes payable
(300,000)
-
(186,664)
Proceeds from issuance of notes payable
393,061
-
-
Proceeds from issuance of common stock
14,045
13,479
10,493
Dividends paid
(159,860)
(161,516)
(141,466)
Net payments for repurchase of common stock
(1,396)
(631,965)
(350,656)
Payments related to tax withholding for share-based compensation
(4,083)
(5,771)
(5,107)
Net cash used in financing activities
(58,233)
(785,773)
(673,400)
Net increase in cash and due from banks, and restricted
cash
25,914
22,628
10,411
Cash and due from banks, and restricted cash at beginning
of period
102,933
80,305
69,894
Cash and due from banks, and restricted cash at end of period
$
128,847
$
102,933
$
80,305
268
During
the
year
ended
December
31,
2023,
Popular,
Inc.
(parent
company
only)
received
dividend
distributions
from
PNA
amounting to $
50.0
million (2022 - $
53.5
million; 2021 - $
0
million) and from PIBI’s amounting to $
14.0
million (2022 - $
18.5
million;
2021 - $
0
million). PIBI’s main source of income is its investment in BHD. Also, during the year ended December 31, 2022, Popular,
Inc.
received
distributions from
its
direct
equity
method
investees amounting
to
$
1.5
million
(2021
-
$
3.0
million),
of
which
$
1.5
million were related to dividend distributions (2021
- $
2.3
million).
Notes payable include junior
subordinated debentures issued by
the Corporation that are
associated to capital securities
issued by
the
Popular Capital
Trust
II
and medium-term
notes. Refer
to
Note 18
for
a description
of
significant provisions
related to
these
junior subordinated
debentures. The following
table presents
the aggregate amounts
by contractual maturities
of notes
payable at
December 31, 2023:
Year
(In thousands)
2024
$
-
2025
-
2026
-
2027
-
2028
393,937
Later years
104,148
Total
$
498,085
269
SIGNATURES
Pursuant to the
requirements of Section
13 or
15 (d)
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 on February 29, 2024.
POPULAR, INC.
(Registrant)
By: /S/ IGNACIO ALVAREZ
Ignacio Alvarez
President and
Chief Executive Officer
Pursuant to the requirements
of the Securities Exchange Act
of 1934, this report
has been signed below by
the following persons
on behalf of the registrant and in the capacities
and on the dates indicated.
/S/ RICHARD L. CARRIÓN
Chairman of the Board
2/29/2024
Richard L. Carrión
Chairman of the Board
/S/ IGNACIO ALVAREZ
President, Chief Executive Officer
2/29/2024
Ignacio Alvarez
and Director
President and Chief Executive Officer
/S/ CARLOS J. VÁZQUEZ
Principal Financial Officer
2/29/2024
Carlos J. Vázquez
Executive Vice President
/S/ JORGE J. GARCÍA
Principal Accounting Officer
2/29/2024
Jorge J. García
Senior Vice President and Comptroller
/S/ ALEJANDRO M. BALLESTER
Director
2/29/2024
Alejandro M. Ballester
S/ MARÍA LUISA FERRÉ
Director
2/29/2024
María Luisa Ferré
/S/ C. KIM GOODWIN
Director
2/29/2024
C. Kim Goodwin
/S/ JOAQUÍN E. BACARDÍ, III
Director
2/29/2024
Joaquín E. Bacardi, III
/S/ CARLOS A. UNANUE
Director
2/29/2024
Carlos A. Unanue
/S/ JOHN W. DIERCKSEN
Director
2/29/2024
John W. Diercksen
/S/ MYRNA M. SOTO
Director
2/29/2024
Myrna M. Soto
/S/ ROBERT CARRADY
Director
2/29/2024
Robert Carrady
/S/ JOSÉ R. RODRÍGUEZ
Director
2/29/2024
José R. Rodríguez
/S/ BETTY DEVITA
Director
2/29/2024
Betty Devita
/S/ ALEJANDRO M. SÁNCHEZ
Director
2/29/2024
Alejandro M. Sánchez