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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, 2024
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, 2024, the aggregate market
value of the Common Stock held by non-affiliates of Popular, Inc. was approximately
$
6.3
billion based upon the reported closing price of $88.43
on the Nasdaq Global Select Market on that
date.
As of February 27, 2025, there were
69,606,726
shares of Popular, Inc.’s Common Stock outstanding.
2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Popular,
Inc.’s definitive proxy
statement relating to the
2025 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 25, 2025.
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
(including on
our cost
of deposits),
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
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
such as
hurricanes and
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
return on tangible
common equity and
accurately anticipate costs
and expenses associated
therewith;
4
●
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;
●
changes in and uncertainty regarding federal
funding, tax and trade policies,
and rulemaking, supervision, examination
and enforcement priorities of the current federal
administration;
●
increases
to
or
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 any
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
5
of such statements.
6
TABLE OF CONTENTS
PART I
Page
Item 1
Business
7
Item 1A
Risk Factors
23
Item 1B
Unresolved Staff Comments
37
Item 1C
Cybersecurity
37
Item 2
Properties
40
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]
43
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
44
Item 9B
Other Information
44
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
45
Item 12
Security Ownership of Certain Beneficial Owners
and Management and
Related Stockholder Matters
45
Item 13
Certain Relationships and Related Transactions, and Director
Independence
45
Item 14
Principal Accountant Fees and Services
45
PART IV
Item 15
Exhibits and Financial Statement Schedules
46
Item 16
Form 10-K Summary
46
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
$73.0 billion, total
deposits of
$64.9 billion
and stockholders’
equity of $5.6 billion at
December 31, 2024. At December 31,
2024, 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, 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 36
to the
Consolidated Financial Statements included in this
Form 10-K.
Lending Activities
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, (ii) commercial
real
estate
(“CRE”)
loans
(excluding
construction
loans)
for
income-producing real
estate
properties
as
well
as
owner-occupied
properties,
and (iii)
multifamily loans with
residential buildings with
five or
more living
units. 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,
and retail
shopping
centers and are
repaid through cash
flows related to
the operation, sale
or refinancing of
the property.
Multifamily loans, in
certain
cases, result from the conversion of the
Bank’s construction financing to permanent financing and are repaid
through the cash flow,
sale or refinance of the properties.
8
(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
Note
36
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, 2024 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, 2024.
Loan category
(Dollars in millions)
BPPR
%
PB
%
POPULAR
%
Commercial multi-family
$308
1
$2,092
19
$2,400
7
Commercial real estate:
Non-owner occupied
3,247
12
2,117
19
5,364
14
Owner occupied
1,376
5
1,782
16
3,158
9
Commercial and industrial
5,347
20
2,395
22
7,742
21
Construction
212
1
1,051
10
1,263
3
Mortgage
6,810
26
1,304
12
8,114
22
Leasing
1,926
7
-
-
1,926
5
Consumer:
Credit cards
1,218
5
-
-
1,218
3
Home equity lines of credit
2
-
72
1
74
-
Personal
1,750
7
105
1
1,855
5
Auto
3,823
15
-
-
3,823
10
Other
160
1
11
-
171
1
Total
$26,179
100
$10,929
100
$37,108
100
Except for the Corporation’s exposure to the Puerto Rico and U.S. Governments, 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,
investment,
and
deposits
portfolios
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 23 - Commitment
and Contingencies to the Consolidated Financial Statements
included in this Form 10-K.
Credit
Administration
and
Credit
Policies
Interest
from our
loan portfolios
is our
principal source
of revenue.
Whenever we
make loans,
we expose
ourselves
to
9
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 provide for the adequacy of the allowance for credit losses. These written procedures establish various approval and lending
limit levels,
ranging
from
bank
branch
or departmen
t
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.
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 considered
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 approved
under
certain
circumstances,
including
(i) when
past
10
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 8 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.
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 consume
r
financial
services and collectively
represent a
significant
portion of the
market with
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 banks in both
markets, including community, regional, and national ones, most of which have
more 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
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.
Transformation Initiatives:
11
The
Corporation
launched
a significant,
multi-year,
broad-based
technological
and
business
process
transformation
during
the
second
half
of
2022
which
continued
during
2024.
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.
During
2024,
the
Corporation
made
meaningful
progress
in
the
modernization
of
our
customer
channels
and
enhancement
of
our
customers'
experience.
The
Corporation
believes
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.
The
Corporation
had
anticipated
to
reach
a target
of
14%
return
on
tangible
common
equity
(ROTCE)
by
the
fourth
quarter
of
2025.
However,
due
to
a
variety
of
drivers,
including
the
impact
of
the
shift
to
higher-cost
deposits
in
2024,
and
lower
than
expected
loan
growth
in
the
U.S.,
the
Corporation
now
expects
to
achieve
at
least
a
12%
ROTCE by the
end of 2025.
Our technology
and business
transformation
will be a
significant
priority for
the Corporation
over the
next years.
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.
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,
inclusion,
respect,
learning
and
transparency
are fundamental
pillars
of our
long-term
strategy.
As of
December
31, 2024,
Popular
had 9,406
employees,
none
of whom were
represented
by a collective
bargaining group.
Nurturing Well
-Being: Employee
Health & Financial
Security
Popular
believes
that
the
health
and
financial
wellness
of
our
employees
is
essential
to
effectively
serve
our
customers
and
contribute
positively
to the
communities
where we
operate.
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
is both
accessible
and
affordable
for our
employees,
with Popular
covering
up to
80% of
health
insurance
premiums,
a figure
that
surpasses
regional
benchmarks.
In
2024,
we
prioritized
mental
health
by
emphasizing
the
importance
of
addressing
our
employees’
emotional
needs
and
launching
an
internal
campaign
featuring
short
videos
on
wellness.
We
also
shared
valuable
information
on
the
importance
of
sleep
hygiene.
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
15,561 visits
from employees
during 2024.
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.
Moreover,
Popular
regularly
evaluates
employees’
base
compensation
to
better
compete
with
the
salaries
paid
in
similar positions
in other companies.
In 2024, we
invested more than
$13 million in
enhancing our
employees’ compensation.
Empowering Growth:
Our Commitment
to Talent
Developmen
t
We
are committed
to fostering
the continuous
development
and upskilling
of our
employees
and
believe
this
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.
More than
4,100 employees
participated
in corporate
academy voluntary
courses, new
employee orientations,
health coordinator
certifications,
and manager
onboarding
courses.
These courses
offer
instructor-led
training
experiences
for employees
to learn
and
apply
critical
core
and
technical
skills.
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.
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 2024
was 44%. This
included employees
who applied
or were selected
for vacancies,
were
promoted,
or
had
lateral
movements.
Additionally,
we
continued
strengthening
key
skills
across
accelerated
development
programs
focused
on
data
science,
analytics,
process
excellence
and
program
management.
During
2024,
we
engaged
303
participants
in such
programs,
further
advancing
the organization’s
talent.
In 2024,
Popular
also strategically
aligned
employee
performance
appraisals
with
the
company's
cultural
framework,
by
transitioning
to
evaluate
our
new
values
and
behaviors
instead
of
organizational
competencies.
This
shift
supports
the
development
of
a
culture
that
prioritizes
the
company’s
core
values and desired
behaviors.
Our
organizational
effectiveness
strategy
was
crucial
in
enhancing
organizational
development
through
targeted
initiatives.
By
implementing
activities
like
assessments,
team
integration
activities,
new manager
integration
facilitations,
and team
alignment
sessions, we
aim to cultivate
a cohesive and
adaptable workforce.
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
to
identify
high-potential
and
high-performing
managers,
providing
them with learning
opportunities
to enhance their
skills and prepare
them for senior
management positions.
Employee Experience
Popular
aims
to provide
an exceptional
employee
experience
that
inspires
our employees
to
deliver
outstanding
service
to
our
customers
and
communities.
We
recognize
the
dynamic
nature
of
our
employees’
needs
and
expectations
and
have
a robust
approach
to
measuring
and
understanding
their
journey.
Our
employee
engagement
and
experience
survey
program
includes
biannual
pulse surveys,
an annual
complete
survey,
and additional
surveys
that measure
the end-to-end
employee
journey.
We
believe
that
these
insights
contributed
to
our
ability
to
maintain
a
stable
turnover
rate
at
8.6%
as
of
the
end
of
2024.
Furthermore,
our employee
experience
efforts
are reflected
in an
employee
loyalty
score
of 81%,
which
positions
us above
the
50th 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 and culture,
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
13
(“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, 2024,
Popular had total consolidated assets of $73.0 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
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 non-bank 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
June
2024,
the
FDIC
finalized
amendments
to
the
resolution
planning
requirements for insured depository institutions with
$50 billion or more in
total assets. The amendments require insured
depository
institutions with
between $50
billion and $100
billion in
assets to submit
informational filings on
a three-year cycle,
with an
interim
supplement updating key information submitted in the off years. These
amendments became effective October 1, 2024, and BPPR’s
first submission under the new rule is due by
April 1, 2026.
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
prohibit those holding
companies from entering
into derivatives
and
certain other financial contracts with third parties.
14
As of December 31, 2024, Popular,
PNA, BPPR and PB’s total assets were
below the thresholds for applicability of these
rules, except that
BPPR is subject
to the FDIC’s
resolution planning requirements
applicable to insured
depository institutions with
more than $50 billion but less than $100 billion
in assets.
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
(“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, 2024, BPPR and
PB had a DIF average total asset
less average tangible equity assessment base of
approximately $67 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
are
collected at an
annual rate of
approximately 13.4 basis points
per year (3.36
basis points per
quarter) over eight quarters,
with the
first assessment period having begun
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.
In June
2024, due
to the
increase in
the estimate
of losses,
the
FDIC announced that it
projects that the special assessment will
be collected for an additional
two quarters beyond the initial
eight-
quarter collection period, at a lower rate.
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
15
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
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). Popular, BPPR
and PB are
therefore 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%.
Pursuant
to
the
Capital
Rules,
the
effects
of
certain
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) are
not excluded
from
regulatory
capital
ratios;
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.
On July
27, 2023,
the federal
banking regulators
proposed revisions
to the
Capital Rules
to implement
the
Basel Committee’s 2017 standards, described
below, 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. The
Federal Reserve has indicated that it expects
to work with the other federal banking regulators
on a revised proposal in 2025.
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, 2024,
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.
16
Under the current U.S. capital rules, operational risk capital requirements and a capital floor apply only to Category I and Category II
banking organizations and not to Popular, BPPR and PB.
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. Our
2024
regulatory capital
ratios reflect
this election
to
phase in
the effects
of
CECL, but
future
regulatory capital ratios will include the full impact
from CECL now that the phase-in period has ended.
Refer to
the Consolidated
Financial Statements
in this
Form 10-K.,
Note 20
and Table
10 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.
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.
17
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, 2024,
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, 2024, BPPR declared
cash dividends of $600
million, a portion of
which was
used by Popular for the payments of the cash dividends on its
outstanding common stock. At December 31, 2024, BPPR needed to
obtain prior approval of the Federal Reserve Board before declaring a dividend
in excess of $318 million due to its
retained income,
declared dividend activity and transfers to statutory reserves over the
three year’s ended December 31, 2024. 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.
During the year
ended December 31,
2024, 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.
A corporation organized under the laws of the Commonwealth of Puerto
Rico that is engaged in a U.S. trade or business is generally subject to a branch profits tax of 30% on its earnings and profits
for the
taxable year that are “effectively connected” with
such U.S. trade or business, adjusted as
provided by U.S. federal income tax law.
Accordingly,
to
the extent
BPPR’s
U.S. operations
generate effectively
connected earnings
and profits
that
are not
reinvested in
such U.S. operations
(and that are
not otherwise adjusted
as provided by
U.S. federal income tax
law), such effectively
connected
earnings and profits will generally be subject
to a branch profits tax of 30%.
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
18
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
that
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
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
19
protections.
Many
of
the
statutory
provisions
in
the
AMLA
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 was
April 1, 2024; however, banks
are not
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.
The
final
rule
has
been
challenged
in
federal
court
and
is
currently
stayed
as
to
the
plaintiff trade associations while the court considers the
validity of the rule.
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 22, 2024, the CFPB finalized a new rule to implement Section 1033 of the Consumer Financial Protection Act
that
requires
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
also has
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 required to be made available under the rule includes
transaction information, account balance, account and routing
numbers,
terms
and
conditions,
upcoming
bill
information,
and
certain
account
verification
data.
The
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
$10 billion
and less
than $250
billion in
total assets,
compliance
with the rule’s requirements is required beginning on
April 1, 2027.
20
On December 12, 2024, the
CFPB finalized a rule that
significantly reforms the regulatory framework governing
overdraft
practices applicable
to banks
such as
BPPR and
PB that
have more
than $10
billion in
assets. The
rule has
an effective
date of
October
1,
2025.
The
rule
modifies
or
eliminates
several
long-standing
exclusions
from
requirements
generally
applicable
to
consumer credit
that previously
exempted certain
overdraft practices.
The rule
also generally
requires 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,
including
denial
by
federal
regulators
of
proposed
merger,
acquisition, restructuring, or other expansionary activity.
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 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.
On
July
6,
2023,
the
SEC
adopted
new
rules
that
would
require
registrants,
such
as
Popular,
to
(i)
report
material
21
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
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. California recently enacted climate-related disclosure laws requiring certain companies doing business in California to make
certain climate-related disclosures, including but not limited to greenhouse gas emissions data and climate-related risks. In addition,
certain states have
enacted, or have
proposed to enact,
“anti-ESG” statutes, regulations or
policies, including statutes that
prohibit
financial
institutions from
denying or
canceling products
or
services
to
a
person, or
otherwise discriminating
against a
person in
making available products or services, on the basis
of social credit scores and certain other factors.
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.
22
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
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 2024, $52.8
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 2024, 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, 2024, the
legal
lending limit
for BPPR
under this
provision was
approximately $349
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.
23
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
2024,
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
2024
Puerto
Rico
enacted the
Cybersecurity Act
of
the
Commonwealth of
Puerto
Rico,
which
establishes cybersecurity
standards for
government entities
and their
contractors, including
certain reporting
and certification
obligations. As
a depositary
of government
funds, BPPR
could be
considered a
“contractor” under
the statute;
however,
the Puerto
Rico Innovation
and Technology
Service
has
not
yet
adopted
implementing
regulation
which
we
expect
to
address
applicability
and
any
exceptions
to
the
statute’s
requirements.
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.
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.
24
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,
trade
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 80%
of our deposits
as of December 31,
2024 and 79%
of
our
revenues
for
the
year
ended
December
31,
2024.
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
significant
economic
and
fiscal challenges.
Puerto Rico’s
economy is
closely tied
to the
U.S. economy,
as well
as
highly reliant
on U.S.
public policy
and funding
decisions. Puerto Rico
has historically received
significant federal support
for a
wide range of
government programs and
services,
including healthcare, education,
infrastructure and social
assistance programs. More
recently, Puerto
Rico has
received significant
federal stimulus,
disaster relief and
reconstruction funding, which
has served as
a major
driver of
economic activity.
Reductions in
federal
funding
for
Puerto
Rico
or
delays
in
disbursements
could
significantly
impact
Puerto
Rico’s
economy
and
hinder
reconstruction efforts, including the restoration
and improvement of critical infrastructure. The
Trump Administration is conducting
a
review
of
federal
funding,
and
we
believe
that
the
amount
of
federal
funding
to
programs
that
have
benefited
the
Puerto
Rico
economy could
be reduced,
perhaps significantly.
Beyond direct
funding, broader
shifts in
U.S. policy,
such as
changes to
tax or
trade policies,
and shifts
in policies
of
other governments
in response,
could also
adversely impact
the Puerto
Rico economy.
A
weakening of
the Puerto
Rico
economy
or
other
adverse economic
conditions affecting
Puerto
Rico consumers
and
businesses
could
result
in
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 business, financial condition, liquidity,
results
of operations or capital position.
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, as
well as to
the state of
the global and
U.S. economy and
financial markets. Evolving
geopolitical
tensions, the introduction
or escalation of tariffs,
inflationary pressures and other
political or economic shifts
may lead to
increased
market volatility
and disruption.
These factors
could, in
turn, adversely
impact our
business, financial condition,
liquidity,
results of
operations or capital position.
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.
Changes in
these policies,
including changes
in interest
rates, impact
various aspects
of our
business, including
loan originations,
the speed
of prepayments,
loan delinquencies,
the value
of our
investments, the
rates we
receive on
our loans
and investment
securities, our
ability to
maintain and
generate deposits
and the
rates we
pay on
our deposits
and other
funding
sources. The
effects of
these changes
may be
amplified if
we are
unable to
effectively manage
the sensitivity
of our
assets and
liabilities to market interest rate changes.
The
rapid
rise
in
interest
rates
in
2022
resulted
in
approximately
$2.5
billion
in
unrealized
mark-to-market
losses
on
25
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
$1.3
billion
as
of
December
31,
2024,
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
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 business,
financial condition,
liquidity,
results of
operations or capital position.
We also
have direct
lending and
investment exposure
to Puerto
Rico government
entities, which
have faced
significant
fiscal challenges.
At December
31, 2024,
our exposure
to the
Puerto Rico
government consisted
of $336
million in
direct lending
exposure to Puerto
Rico municipalities and
$220 million in
loans insured or
securities issued by
Puerto Rico governmental
entities
but for which the principal
source of repayment is non-governmental.
and 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 a 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 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,
2024, approximately
55% of
our loan
portfolio consisted
of loans
secured by
real estate
collateral
(comprised of 29% 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.
Defective and repurchased loans may harm our business
and financial condition.
26
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 and
investment 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
had
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, 2024,
we had $13
billion of total
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. If deposits decrease, we may need to rely on more expensive sources of funding,
which
would
negatively
impact
our
interest
rate
margin
and
net
interest
income.
In
addition,
a
reduction
in
our
deposits
would
decrease our earning assets, which would also
negatively affect our net interest income.
We have a significant amount of deposits from the Puerto
Rico government, its instrumentalities and municipalities ($19.5
billion,
or
approximately 30%
of
our
total
deposits, as
of
December 31,
2024),
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 the
Puerto Rico government, most
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
the mix
of our
deposits shifts
towards a
higher proportion
of
higher-cost deposits
for
any reason,
our
funding costs would increase and our net interest
income would be expected to 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,
cloud
hosting,
artificial
intelligence
and
the
ability
to
conduct instant
financial transactions
anywhere globally,
as well
as due
to geopolitical
conflicts and
the increased
sophistication
and
activities
of
organized
crime,
hackers,
terrorists,
nation-states,
hacktivists
and
other
parties.
The
risk
of
cyber-attacks
is
expected to increase with the evolution and emergence
of new technologies such as artificial intelligence
and quantum computing.
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.
Notwithstanding
our
defensive
measures
and
the
significant
resources
we
devote to protecting 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
is
expected to increase 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
27
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,
in
the
exposure
or
loss
of
customer or proprietary data, and
significant financial loss. Loss from
e-fraud occurs when cybercriminals compromise our systems
or the
systems of
our 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.
Our
customer-facing
platforms
are
also
routinely
attacked
by
threat
actors
aiming
to
gain
unauthorized
access
to
our
clients’
accounts.
Although
we
have
implemented
defensive
measures
designed
to
protect
against
such
attacks,
there
is
no
assurance that
these
defensive measures
will keep
pace with
threats that
are continuous
and
growing in
severity.
For example,
certain customers have been affected by brute force attacks on one of
our platforms, which resulted in certain of our customers log-
in
credentials
and
information
being
exposed
and
accounts
being
taken
over,
resulting
in
fraudulent
transfers
or
withdrawals.
Popular
customers have
also
been impacted
by card
skimming
events in
our
ATM
terminals. As
a result,
we have
notified, and
conducted
additional
remediation
for,
customers
identified
as
affected
by
these
incidents.
Cyber-security
risks
have
also
been
recently exacerbated
by the
discovery of
zero-day vulnerabilities
in widely
distributed third
party software,
which have
in the
past
affected and in the future could affect Popular’s or any
of its service provider’s systems, as further
detailed below.
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, including through the use of deep fakes and brand impersonation.
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
geopolitical conflicts
have also
exacerbated the
risks related
to
supply-chain compromises
and de-stabilizing
activities of
nation-state
sponsored
actors.
Although
we
are
regularly
targeted
by
unauthorized
threat-actor
activity,
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
Popular
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,
increased
regulatory
scrutiny
and
enforcement
actions,
customer
dissatisfaction,
significant litigation exposure and harm to our reputation,
all of which could have a material adverse
effect on us.
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
also cause interruptions in our
operations and result
in the incurrence of significant costs, including those related
to forensic analysis and legal counsel.
We also
rely on
third parties
for the
performance of
a significant
portion of
our information
technology functions and
the
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. The
most important
of
these
third-party service
providers for
us
is
Evertec. As
a result,
we
depend on
Evertec to
identify and
remediate certain
of
our
cybersecurity vulnerabilities. Cyber-attacks at third-party service
providers are also becoming increasingly common, and,
as a result,
cybersecurity risks relating to our vendors, including Evertec have increased.
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,
28
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
customers’
data
was
compromised
in
a
data
breach
incident
that
impacted
MOVEit,
the
third-party
file
transfer
platform
used
by
one
of
our
service
providers. In both instances, Popular notified,
as required or otherwise deemed appropriate, customers identified
as affected by the
incident. Furthermore,
during 2024,
threat actors
exploited a
zero-day vulnerability
in the
Fortinet enterprise
management server
software
used
by
Evertec,
which
migrated
to
one
of
Popular's
domain
controllers
due
to
a
shared
network
environment.
While
Evertec determined that
no BPPR customer
information was exfiltrated
as a result
of this incident,
the event
underscores the risks
inherent
in
Popular’s
dependency
on
Evertec.
Although
these
incidents
did
not
have
a
material
effect
on
Popular,
including
its
business
strategy,
results
of
operations
or
financial
condition,
and
our
third-party
service
providers
agreed
to
cover
external
remediation
costs
associated
therewith,
a
compromise
of
Popular
information
or
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 also
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.
The
obsolescence
in
our
hardware
or
software
limits
our
ability
to
mitigate
vulnerabilities.
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. 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, 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.
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
in the
future, 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, and actions taken by governmental authorities and other third parties in response to such
events, could
adversely affect
our operations,
cause economic
and market
disruption, adversely
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.
29
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. We
are 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
related
to
its
security
architecture
and
potential
breakdowns or failures 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, their exposure to zero-day vulnerabilities, misconfigurations,
human
error,
application
obsolescence
and
dependency
on
shared
infrastructure
components
and
shared
environments,
which
have in certain cases also
led to exposure of Popular information
and BPPR customer information. In particular,
the current level of
obsolescence in the hardware and
software used by Evertec
to service us exposes
us to heightened operational and
cybersecurity
risks, including system outages.
Our ability to cure
legacy obsolescence in the
hardware and software we
procure from Evertec, to
expand
our
oversight
over
security
services
being
provided
by
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, our
oversight is
constrained by
the level
of our
ongoing visibility into
our vendor’s systems
and operations, and
we do not
have direct control
over
their actions, assets
or services. Any
problems caused by
these vendors, including
those resulting from
disruptions in the
services
provided, vulnerabilities
in or
breaches of
the vendor’s
systems or
environments, 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, failure of the vendor to notify
us of
a
reportable
event
in
a
timely
manner,
our
vendors’
misuse
of
artificial
intelligence
and
other
automatic
decision
making
technologies,
could
adversely
affect
our
ability
to
deliver
products
and
services
to
our
customers
and
otherwise
conduct
our
business, disrupt
our operations,
result in
potential liability
to clients
and customers,
result in
the imposition
of fines,
penalties or
judgments by
our regulators,
lead to
exposure of
our information
or that
of our
customers 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 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.
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 increase
costs (including
30
conversion costs)
and expose
us and
our clients
to business
disruption, as
well as
operational and
cybersecurity risks.
Upon the
transition of all
or a portion
of existing services
provided by Evertec to
new financial services technology
providers, 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,
as well as to
retain experienced personnel to provide
the services. 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. Additionally, the new federal administration is pursuing
a
regulatory agenda significantly different from that of the
previous administration, including the possible
reversal of rules promulgated
under the past administration and shifts in rulemaking,
supervision, examination and enforcement priorities.
The implementation of
that agenda is happening rapidly and is constantly
evolving. The potential impact of any such changes
cannot be predicted at this
time.
Additional
laws
and
regulations
may
be
enacted
or
adopted
in
the
future,
and
the
application,
interpretation
or
enforcement
of
laws
and
regulations
may
in
the
future
be
changed
(including
through
executive
orders),
in
ways
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, impose
monetary fines
or
other
penalties on
institutions that
fail
to
comply
with
applicable laws
and
regulations, or
impose new
requirements relating
to the
impact of
business activities
on ESG
concerns, the
management of
risks
associated
with
those
concerns
and
the
extent
to
which
ESG-related
objectives
are
taken
into
account
in
financing
and
other
business activities and decision-making, such as
the offering of products intended
to achieve ESG-related objectives. For example,
certain
states
have
enacted,
or
have
proposed
to
enact,
statutes
that
prohibit
financial
institutions
from
denying
or
canceling
products or services to a person, or otherwise discriminating against a person in making available products or services, on the basis
of social
credit scores
and certain
other factors.
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,
adapt to
the changing
interpretation of
existing laws
or
regulations,
or
if
we
fail
to
meet
supervisory
expectations,
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
business,
financial condition, liquidity,
results of operations or capital position.
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.
Higher capital requirements or new long-term debt requirements
could
increase interest
and noninterest
expense for
banking organizations
subject to
those requirements.
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
31
banks to change
the size and
composition of their
liquidity portfolios, which
could have adverse
effects on net
interest income and
net interest margin.
These proposals
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,
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, results of operations or capital position 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.
32
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
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.
33
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.
For example,
in June
2024, due
to an
increased estimate of
losses, the
FDIC announced that
it projects
that the
special assessment will be collected for an additional
two quarters beyond the initial eight-quarter
collection period, at a lower rate.
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 to us, could have material adverse financial
effects or cause us significant reputational
harm, 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. We are involved
in a number of litigation,
arbitration
and regulatory proceedings
in the
ordinary course of
our business. Substantial
legal liability or
significant regulatory action
against
us could have material
adverse financial effects or cause significant
reputational harm to us or
other adverse consequences, 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, 2024,
we had $13
billion of total
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-
34
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
could borrow up to $3.2 billion
and $1.5 billion respectively as of
December
31,
2024,
of
which
$0.1
billion
and
$0.4
billion respectively
were used.
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.
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
$23.9 million
on
December 31,
2024.
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.
Furthermore, failure to
realize the expected
revenue increases, cost savings,
increases in geographic
or product
35
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
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
expenses related
to our
transformation program
within current
estimates or
delays in
executing our
plans may
materially and
adversely affect
our business,
competitive
position, financial condition, results of operations,
or cause reputational harm.
The Corporation has embarked on
a broad-based multi-year,
technological and business process transformation. As
part
of this
transformation, we are
making significant investments
in technology,
talent and
new digital
and data
capabilities in
order to
provide our customers with more personalized and
accessible services, increase employee performance and satisfaction with more
agile work processes, and generate sustainable
profitable growth and value for our shareholders.
We may
not succeed in
executing the transformation
program, may fail
to properly estimate
costs 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 or
expense reduction 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
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 were
traditionally considered
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
or increase
deposit attrition,
which could
negatively impact
our business,
financial condition,
liquidity results
of
operations or capital position.
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, liquidity, results of operations
or capital position.
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. Our
ability to compete
effectively
will
depend
in
part
on
our
ability
to
react
quickly
to
meet
new
industry
standards
and
use
new
technology,
such
as
artificial
36
intelligence, to satisfy customer
demands, as well as
to create additional efficiencies
in our operations.
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.
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
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.
Any such
impact could,
in turn,
reduce Popular’s
revenues, place
us
in
a competitive
disadvantage and
significantly affect
our business,
financial condition,
liquidity,
results of
operations or
capital position.
While we
have
over
time
narrowed
the
scope
of
services
which
we
are
dependent
on
Evertec
to
obtain,
in
exchange
for
releases
from
exclusivity restrictions
that
limited our
ability to
engage other
third-party
providers of
financial technology
services, we
agreed to
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,
especially in
the
area of
information technology,
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, 2024, we had approximately $803 million, $926 million and $143 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
37
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
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 on 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, as well as operational losses stemming
from any cybersecurity or fraud events.
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
38
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
Corporation’s
information
security
program
(the
“Information
Security
Program”);
(ii)
approving the Corporation’s risk management program
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 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 cybersecurity, IT and privacy 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, and 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
currently leverages the
Cyber Assessment Tool
(the
“CAT”), a tool based on NIST standards and controls developed by the Federal Financial Institutions
Examination Council (“FFIEC”),
in order to measure the
Corporation’s cybersecurity preparedness and maturity levels.
The CAT
assessment results are integrated
into
the overall
Information Security
Program evaluation.
In
2025, we
will
transition to
the Cyber
Risk Institute
(“CRI”) Profile
2.0
assessment framework, following the announcement by the FFIEC of the sunset
of the CAT in
2025. The CRI Profile was produced
through public-private collaboration and is a list of assessment questions curated based
on the intersection of global regulations and
cyber standards, such as the International Standards
Organization (ISO) and the NIST.
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:
39
●
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 enforcement, peer
groups, industry forums and trade associations;
●
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, and based on due
diligence results, 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
36 years
of experience,
including over 12 years of
professional experience in information technology and cybersecurity matters such
as 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 FINRA administered
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 and
as the Chief
Operating Officer
and Chief Financial
Officer of
Popular’s broker
dealer business.
The
CISO
has
over
26
years
of
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 this role since
2019.
40
The Corporate Risk
Management Group operates under
the direction of
the Chief Risk
Officer. The
Chief Risk Officer
has over 31
years of work 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 29 years of work 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
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, 2024, 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
579 ATMs
operating in
Puerto Rico, 24 in the Virgin Islands
and 99 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.
41
ITEM 3. LEGAL PROCEEDINGS
For a discussion
of Legal proceedings,
see Note 23,
“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”.
During 2024, the Corporation declared cash dividends in the
total amount of $2.56 per common share outstanding,
for an
aggregate amount of $183.9 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.
During the year ended
December 31, 2024, the Corporation
repurchased 2,256,420 shares of common stock
for $217.3
million, at
an average
price of
$96.32 per
share. These
actions resulted
from a
common stock
repurchase authorization
of up
to
$500 million announced on July
24, 2024. The Corporation’s planned common
stock repurchases may be executed in
open market
transactions,
privately
negotiated
transactions,
block
trades
or
any
other
manner
determined
by
the
Corporation.
The
timing,
quantity
and
price
of
such
repurchases
will
be
subject
to
various
factors,
including
market
conditions,
the
Corporation’s
capital
position
and financial
performance, the
capital impact
of strategic
initiatives and
regulatory and
tax considerations.
The common
stock repurchase
program does
not require
the Corporation
to acquire
a specific
dollar amount
or number
of shares
and may
be
modified, suspended or terminated at any time without prior
notice.
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
$78.94, 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,
2025,
Popular
had
6,100
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 $100.41 per share.
42
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, 2024
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
2024.
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
(the “Plan”)
for
our shareholders
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.
Under the
Plan, shareholders
may
also purchase
shares of
Common Stock
at
prevailing market
prices by
making
optional cash
payments.
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,
2024, the maximum number of
shares of
common stock remaining available for future issuance under this plan was 2,896,568. 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,
2024:
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 [2]
Maximum Dollar Value
of Shares that May Yet
be Purchased Under the
Plans or Programs [2]
October 1 – October 31
354,933
$96.23
353,811
$407,182,276
November 1 – November 30
549,290
95.60
549,290
354,669,382
December 1 – December 31
754,336
95.48
754,223
282,659,169
Total December 31, 2024
1,658,559
$95.68
1,657,324
$282,659,169
[1] Includes 1,122 and 113 shares of the Corporation's common stock acquired
by the Corporation during October and
December
2024, 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.
43
[2] As part of its capital plan, in July 2024, the
Corporation announced plans to repurchase up
to $500 million in common stock and
repurchases began in August 2024. As of December
31, 2024, the Corporation repurchased 2,256,420
shares of common stock for
$217.3 million at an average price of $96.32 per
share, under the previously announced share repurchase
authorization.
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, 2019, plus (ii) the change
in the per share price since
the measurement date, by the share price at
the measurement date.
Comparison of Five-Year Cumulative Total Return (TSR)
Assumes all dividends were reinvested
Base Year:
December 31, 2019 = $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]
44
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 53.
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
80
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 105 to 107 of this Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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 108 and 109 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, 2024, 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
45
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.
ITEM 11. EXECUTIVE COMPENSATION
The
information
in
the
Proxy
Statement
under
the
caption
“Executive
and
Director
Compensation,”
including
the
“Compensation
Discussion
and
Analysis,”
the
“2024
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,
Nominees and
Executive Officers” in the Proxy Statement is incorporated herein
by reference.
The following tables sets forth information as
of December 31, 2024 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
2,896,568
Total
2,896,568
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
46
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 109 through 265 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, 2024 and 2023
Consolidated Statements of Operations for each of
the years in the three-year period ended December
31, 2024
Consolidated
Statements
of
Comprehensive
Income
(Loss)
for
each
of
the
years
in
the
three-year
period
ended
December 31, 2024
Consolidated
Statements
of
Changes
in
Stockholders’
Equity
for
each
of
the
years
in
the
three-year
period
ended
December 31, 2024
Consolidated Statements of Cash Flows for each of
the years in the three-year period ended
December 31, 2024
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.
47
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. as of May 9, 2024 (incorporated by reference to Exhibit 3.1 of Popular,
Inc.’s Current Report on Form 8-K dated May 9, 2024 and filed on May 10, 2024).
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)
48
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). *
49
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). *
50
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.
(incorporated by reference to Exhibit 10.28 of Popular, Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2023). *
10.29
Services Agreement, dated as of December 7, 2023, by and between Carlos J. Vázquez and Popular, Inc.
(incorporated by reference to Exhibit 10.29 of Popular, Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2023). *
10.30
Form of Popular, Inc. 2024 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, 2024). *
19.1
Insider Trading Policy and Procedures (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. (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, 2024, 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.
51
Financial Review and
Supplementary Information
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
53
Statistical Summaries
105
Report of Management on Internal Control Over Financial
Reporting
108
Report of Independent Registered Public
Accounting Firm
109
Consolidated Statements of Financial Condition as of
December 31, 2024 and 2023
112
Consolidated Statements of Operations for the
years ended December 31, 2024, 2023 and
2022
113
Consolidated Statements of Comprehensive
Income (Loss) for the years ended December 31,
2024, 2023
and 2022
114
Consolidated Statements of Changes in Stockholders’
Equity for the years ended December 31, 2024,
2023 and
2022
115
Consolidated Statements of Cash Flows for the
years ended December 31, 2024, 2023 and
2022
116
Notes to Consolidated Financial Statements
118
Signatures
266
52
Management’s Discussion and
Analysis of Financial Condition
and Results of Operations
Forward-Looking Statements
53
Overview
54
Critical Accounting Policies / Estimates
59
Statement of Operations Analysis
64
Net Interest Income
64
Provision for Credit Losses
67
Non-Interest Income
67
Operating Expenses
68
Income Taxes
69
Fourth Quarter Operational Results
70
Reportable Segment Results
70
Statement of Financial Condition Analysis
73
Assets
73
Liabilities
74
Stockholders’ Equity
76
Capital
77
Risk Management
80
Market / Interest Rate Risk
80
Liquidity
84
Enterprise Risk Management
103
Adoption of New Accounting Standards and Issued
but
Not Yet Effective Accounting Standards
104
Statistical Summaries
Statements of Financial Condition
105
Statements of Operations
106
Average Balance Sheet and Summary of Net Interest
Income
107
53
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
(including on
our cost
of deposits),
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 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 such
as hurricanes and
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
return on
tangible common equity and
accurately anticipate costs and expenses
associated therewith; 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; changes in
and
uncertainty
regarding
federal
funding,
tax
and
trade
policies,
and
rulemaking,
supervision,
examination
and
enforcement
priorities
of
the
current
federal
administration;
increases
to
or
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.
54
Moreover,
the outcome
of any
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
broker-dealer,
auto
and
equipment
leasing and financing, and insurance services through
specialized subsidiaries. In the U.S. mainland, the Corporation
provides retail,
mortgage, and commercial
banking services,
as well
as equipment leasing
and financing, through
its New York
-chartered banking
subsidiary, Popular Bank (“PB” or “Popular U.S.”), which has branches located in New York,
New Jersey and Florida. Note 36 to the
Consolidated Financial Statements presents information
about the Corporation’s business segments.
The shares of the Corporation’s common stock are traded
on the Nasdaq Global Select Market under the
symbol BPOP.
RESULTS OF OPERATIONS
YEAR 2024 SIGNIFICANT EVENTS
Capital Actions
During the year
ended December 31,
2024, the Corporation
repurchased 2,256,420 shares
of common stock
for $217.3 million,
at
an average
price of
$96.32 per
share,
under a
common
stock repurchase
authorization of
up to
$500 million.
The
Corporation’s
planned common stock
repurchases may
be executed in
open market transactions,
privately negotiated transactions,
block trades
or any
other manner
determined by
the Corporation.
The timing,
quantity and price
of such
repurchases will
be subject
to various
factors,
including
market
conditions,
the
Corporation’s
capital
position
and
financial
performance,
the
capital
impact
of
strategic
initiatives
and
regulatory
and
tax
considerations.
The
common
stock
repurchase
program
does
not
require
the
Corporation
to
acquire
a
specific
dollar
amount or
number
of
shares
and
may
be
modified,
suspended
or
terminated
at
any
time
without
prior
notice.
The
Corporation
increased
its
quarterly
common
stock
dividend
from
$0.62
to
$0.70
per
share,
commencing
with
the
dividend
declared in the fourth quarter of 2024.
Tax impact on Intercompany Distributions
During the first quarter of 2024,
the Corporation recognized
$22.9 million of expenses, of which $16.5 million
is reflected in income
tax expense
and $6.4
million is
reflected in
other operating
expenses, related
to an
out-of-period adjustment
associated with
the
Corporation’s
U.S.
subsidiary’s
non-payment
of
taxes
on
certain
intercompany
distributions
to
Popular,
Inc.,
the
bank
holding
company (the “Bank Holding Company” or “BHC”)
in Puerto Rico, a foreign corporation for U.S.
tax purposes.
The adjustment
corrected errors
for income
tax expense
that should
have been
recognized of
$5.5 million
and $5.4
million in
the
years 2023 and 2022, respectively, and an aggregate of $5.6 million, in the years prior to 2022. The $6.4
million recognized as other
operating expense corresponded to
interest due up
to March 31,
2024 on the
related late payment
of the withholding
tax, of which
approximately $3.0 million corresponded to
years prior to
2022. As a result
of this adjustment, the
deferred tax asset related
to the
net operating loss (“NOL”) of the
BHC and its related valuation allowance was
reduced by $52.2 million. The Corporation evaluated
55
the impact of the out-of-period adjustment and concluded it was not material to any previously issued interim or annual consolidated
financial statements and not material to the year ended
December 31, 2024.
Dividends from
the U.S.
subsidiaries to
the BHC
are subject
to a
Federal 10%
withholding tax
and ordinary
income tax
in Puerto
Rico, subject
to
foreign tax
credits,
use of
available net
operating losses
and certain
other limitations.
The Corporation
does
not
anticipate the tax treatment of U.S. sourced dividends
to the BHC to impact BHC liquidity or future
capital actions.
Financial highlights for the year ended December 31,
2024
The discussion
that follows
provides highlights
of the
Corporation’s results
of
operations for
the year
ended December
31, 2024
compared to the results of
operations of 2023. It also
provides some highlights with respect to
the Corporation’s financial condition,
credit quality, capital and liquidity.
The Corporation’s
net income
for the
year ended
December 31,
2024 amounted
to
$614.2 million,
higher by
$72.9 million
when
compared to a
net income of
$541.3 million for
2023. Higher net
income was mainly
driven by higher
net interest income,
offset in
part by a higher provision for
credit losses. Excluding expenses incurred in connection with
the FDIC Special Assessment and prior
period
tax
withholdings,
the
adjusted
net
income
for
2024
was
$646.1
million,
compared
to
$586.6
million
in
2023,
which
also
excluded
FDIC
Special
Assessment
expenses.
For
more
information on
Non-GAAP
financial
measures
refer
to
the
“Non-GAAP
Financial Measures” section below. Financial highlights for 2024 include:
●
Net interest income of
$2.3 billion, or $150.8 million
higher than in in 2023,
driven by the reinvestment of
U.S. Treasuries
and loan
growth across
all portfolios,
partially offset
by higher
cost of
deposits driven
by P.R.
government deposits
and
online
deposits. Net
interest margin
expanded by
11
bps to
3.24%. On
a taxable
equivalent basis,
net interest
margin
expanded by 18 bps to 3.49% in 2024, compared
to 3.31% in 2023.
●
The provision for
credit losses of
$256.9 million for
the year ended
December 31,
2024 was $48.3
million higher than
in
2023, driven by higher reserves due to changes in credit quality in the consumer loan, auto loan and leasing portfolios, as
well as higher loan volumes,
primarily commercial loans.
●
Non-interest income
amounted to
$658.9 million,
an increase
of
$8.2 million
when compared
with 2023,
mostly due
to
higher
other
service
fees
during the
year,
mainly
related
to
debit card
fees
and
sale
and
administration of
investment
products.
●
Operating expenses amounted to
$1.9 billion for
the year 2024,
reflecting a decrease
of $10.5 million when
compared to
the
same
period
in
2023.
This
decrease
was
mainly
driven
by
expenses
incurred in
2023
including
the
FDIC
Special
Assessment
expense of
$71.4 million
and
a
goodwill impairment
charge of
$23.0 million
in
our
U.S. based
equipment
leasing subsidiary. Excluding the impact of these items and the tax impact of intercompany distributions recognized
during
2024, operating
expenses in
2024 increased
by $63.3
million driven
by higher
personnel costs due
to higher
headcount
and salary adjustments, and higher technology and
software expenses.
●
Income tax expense amounted to $182.4 million for the year ended December 31, 2024, with an effective tax
rate (“ETR”)
of 22.9%, compared to an income tax expense of $134.2 million for the
previous year, with an ETR of 19.9%.
The income
tax expense in 2024 included the impact of an out
of period expense of $16.5 million related to intercompany distributions
between the Bank Holding Company and one of
its U.S. subsidiaries.
●
At December 31, 2024, the Corporation’s total assets were $73.0 billion, compared to $70.8 billion at December 31, 2023.
The
increase
of
$2.2
billion
is
primarily
due
to
an
increase
in
loans
held-in-portfolio,
mainly
in
the
commercial,
construction, and mortgage portfolios.
●
Deposits amounted to $64.9 billion at December 31, 2024, compared to $63.6 billion at December 31, 2023. The increase
in
deposits was
mainly due
to
higher P.R.
Government deposits
at
BPPR and
time
deposits at
PB.
The
Corporation’s
borrowings amounted to $1.2 billion at December 31,
2024, compared to $1.1 billion at December
31, 2023.
●
Stockholders’ equity amounted to $5.6 billion at December 31, 2024, compared to $5.1 billion at December 31, 2023.
The
Corporation
and
its
banking
subsidiaries
continue
to
be
well-capitalized.
As
of
December
31,
2024,
the
Corporation’s
tangible book value per common
share was $68.16, an
increase of $8.42 from December
31, 2023. The Common Equity
Tier 1 Capital ratio at December 31, 2024 was 16.03%, compared
to 16.30% at December 31, 2023.
Transformation Initiatives
During 2024
the Corporation
made meaningful
progress in
the transformation
of our
customer channels
and enhancement
of our
customers' experience. The
Corporation believes these
investments will result in
an enhanced digital experience
for our clients,
as
56
well as
better technology
and more
efficient processes
for our
employees, and
make us
a more
efficient and
profitable company.
The Corporation had anticipated to reach a target of 14%
return on tangible common equity (ROTCE) by the fourth quarter of 2025.
However, due to
a variety of drivers,
including the impact of
the shift to higher-cost
deposits in 2024, and
lower than expected loan
growth
in
the
U.S.,
the
Corporation
now
expects
to
achieve
at
least
a
12%
ROTCE
by
the
end
of
2025.
Our
technology
and
business transformation will continue to be a
significant priority for the Corporation.
For a
discussion of
our 2023
results of
operations compared with
2022, see
“Management’s Discussion and
Analysis of
Financial
Condition and Results of Operations” in our Form
10-K for the year ended December 31, 2023.
Refer to Table 1 for selected financial data for the past three years.
57
Table 1 - Selected Financial Data
Years ended December
31,
(Dollars in thousands, except per common share data)
2024
2023
2022
CONDENSED STATEMENTS
OF OPERATIONS
Interest income
$
3,673,263
$
3,245,307
$
2,465,911
Interest expense
1,390,975
1,113,783
298,552
Net interest income
2,282,288
2,131,524
2,167,359
Provision for credit losses
256,942
208,609
83,030
Non-interest income
658,909
650,724
897,062
Operating expenses
1,887,637
1,898,100
1,746,420
Income tax expense
182,406
134,197
132,330
Net income
$
614,212
$
541,342
$
1,102,641
Net income applicable to common stock
$
612,800
$
539,930
$
1,101,229
PER COMMON SHARE DATA
Net income per common share - basic
$
8.56
$
7.53
$
14.65
Net income per common share - diluted
8.56
7.52
14.63
Dividends declared
2.56
2.27
2.20
Common equity per share
79.71
71.03
56.66
Market value per common share
94.06
82.07
66.32
Outstanding shares:
Average - basic
71,590,757
71,710,265
75,147,263
Average - assuming dilution
71,623,702
71,791,692
75,274,003
End of period
70,141,291
72,153,621
71,853,720
AVERAGE BALANCES
Net loans
[1]
$
35,701,240
$
33,164,960
$
30,405,281
Earning assets
70,327,465
68,175,022
69,729,933
Total assets
73,400,279
71,234,236
72,808,604
Deposits
64,444,283
62,546,480
64,716,404
Borrowings
1,022,063
1,227,094
1,119,878
Total stockholders'
equity
7,053,193
6,600,603
6,009,225
PERIOD END BALANCE
Net loans
[1]
$
37,113,075
$
35,069,272
$
32,083,150
Allowance for credit losses - loans portfolio
746,024
729,341
720,302
Earning assets
69,739,000
67,216,816
64,251,062
Total assets
73,045,383
70,758,155
67,637,917
Deposits
64,884,345
63,618,243
61,227,227
Borrowings
1,176,126
1,078,332
1,400,319
Total stockholders'
equity
5,613,066
5,146,953
4,093,425
SELECTED RATIOS
Net interest margin (non-taxable equivalent basis)
3.24
%
3.13
%
3.11
%
Net interest margin (taxable equivalent basis) -Non-GAAP
3.49
3.31
3.46
Return on assets
0.84
0.76
1.51
Return on average common equity
8.72
8.21
18.39
Tangible common
book value per common share (non-GAAP)
[2]
68.16
59.74
44.97
Return on average tangible common equity
[2]
9.85
9.40
21.13
Tier I capital
16.08
16.36
16.45
Total capital
17.83
18.13
18.26
[1]
Includes loans held-for-sale.
[2]
Refer to Table 11
for reconciliation to GAAP financial measures.
Table 2 presents
a three-year summary of the components of net income
as a percentage of average total assets.
58
Table 2 - Components of Net
Income as a Percentage of Average Total
Assets
2024
2023
2022
Net interest income
3.11
%
2.99
%
2.98
%
Provision for credit losses
(0.35)
(0.29)
(0.11)
Mortgage banking activities
0.03
0.03
0.06
Net gain (loss) and valuation adjustments on investment
securities
-
0.01
(0.01)
Other non-interest income
0.87
0.87
1.18
Total net interest
income and non-interest income, net of provision
for credit losses
3.66
3.61
4.10
Operating expenses
(2.57)
(2.66)
(2.40)
Income before income tax
1.09
0.95
1.70
Income tax expense
(0.25)
(0.19)
(0.19)
Net income
0.84
%
0.76
%
1.51
%
Non-GAAP Financial Measures
This Form
10-K contains financial
information prepared under
accounting principles generally
accepted in the
United States (“U.S.
GAAP”) and
non-GAAP financial
measures. Management
uses non-GAAP
financial measures
when it
has determined
that these
measures provide
meaningful information
about the
underlying performance
of the
Corporation’s ongoing
operations. Non-GAAP
financial measures used by the Corporation may not be comparable to similarly named non-GAAP financial measures used by
other
companies.
Adjusted net income - Non-GAAP Financial Measure
In
addition to
analyzing the
Corporation’s results
on
a reported
basis, management
monitors whether
the
impact of
certain non-
recurring
or
infrequent
transactions
need
to
be
excluded
from
the
results
of
operations
to
present
what
is
then
considered
the
“adjusted
net
income”
of
the
Corporation.
Management believes
that
the
“adjusted
net
income”
provides
meaningful
information
about
the
underlying
performance of
the
Corporation’s
ongoing
operations.
The
“adjusted
net
income”
is
a
non-GAAP
financial
measure.
The following table presents the adjusted net income
for the year ended of December 31, 2024 and
2023.
Table 3 - Adjusted Net Income
for the Year Ended December 31,
2024 (Non-GAAP)
(In thousands)
Income before
income tax
Income tax
expense
(benefit)
Total
U.S. GAAP Net income
$796,618
$182,406
$614,212
Non-GAAP Adjustments:
FDIC Special Assessment [1]
14,287
(5,234)
9,053
Adjustments related to intercompany distributions [2]
6,400
16,483
22,883
Adjusted net income (Non-GAAP)
$817,305
$171,157
$646,148
[1] Expense recorded in the first quarter of 2024 related to
the Special Assessment imposed by the FDIC to
recover losses in connection with the
receivership of several failed banks.
[2] Expense recorded in the first quarter of 2024 related to
tax withholdings on prior period distributions from U.S.
subsidiaries.
59
Table 4 - Adjusted Net Income
for the Year Ended December 31,
2023 (Non-GAAP)
(In thousands)
Income before
income tax
Income tax
expense
(benefit)
Total
U.S. GAAP Net income
$675,539
$134,197
$541,342
Non-GAAP Adjustments:
FDIC Special Assessment [1]
71,435
(26,170)
45,265
Adjusted net income (Non-GAAP)
$746,974
$160,367
$586,607
[1] Expense recorded in the fourth quarter of 2023 related
to the Special Assessment imposed by the FDIC to
recover losses in connection with the
receivership of several failed banks.
Net interest income on a taxable equivalent basis
Net
interest
income,
on
a
taxable
equivalent
basis,
is
presented
with
its
different
components
in
Table
5
for
the
year
ended
December 31,
2024
as compared
with
the same
period in
2023, 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. In addition,
this
measure is also impacted by a portion of interest expense that the Puerto Rico tax law requires to be disallowed, based on an equal
proportion of
tax-exempt assets
to total
assets, and
by an
allocation of
general and
administrative expenses
attributed to
exempt
income, reducing the benefit of the tax-exempt income. The effective yield, on a taxable equivalent basis, will vary depending on the
level of these
expenses that are
attributed to the
available exempt income.
Under Puerto Rico
tax law,
the exempt interest
can be
deducted up to the
amount of taxable income. 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.
Tangible Common Equity and Tangible Assets
Tangible
common equity,
tangible common equity ratio, tangible
assets and tangible book value
per common share are
non-GAAP
financial measures.
Tangible
common equity
ratio and
tangible book
value per
common share
should be
used in
conjunction with
more
traditional
bank
capital
ratios
commonly
used
by
banks
and
analysts
to
compare
the
capital
adequacy
of
banking
organizations
with
significant
amounts
of
goodwill
or
other
intangible
assets,
typically
stemming
from
the
use
of
the
purchase
accounting method for
mergers and acquisitions.
Tangible
common equity,
tangible assets
and other related
measures should not
be
used
in
isolation
or
as
a substitute
for
stockholders' equity,
total
assets
or
any
other
measure calculated
in
accordance
with
GAAP.
Moreover,
the manner
in which
the
Corporation calculates
its
tangible common
equity,
tangible assets
and
other
related
measures may differ from that of other companies
reporting measures with similar names.
Table
12 provides
a reconciliation of
total stockholders’ equity
to tangible common
equity and total
assets to tangible
assets as
of
December 31, 2024, and December 31, 2023.
CRITICAL ACCOUNTING POLICIES / ESTIMATES
60
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,
including
those
related
to
critical
accounting
estimates,
are
described
in
detail
in
Note
2
to
the
Consolidated Financial Statements and should be read
in conjunction with this section.
Critical accounting
policies that
require management
to make
estimates and
assumptions may
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 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 other assets
at fair
value 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
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 reflect
market illiquidity as
they are exit
prices. As of
December 31, 2024,
$7 million in
financial assets were
valued
using broker
quotes: $1 million
in Level 3
assets (mainly tax-exempt
GNMA mortgage-backed securities)
and $6 million
in Level
2
assets. Level 3 asset values were based on an
internal matrix using local broker quotes from
limited trading activity.
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. During the year
ended December 31, 2024, the Corporation did
not adjust any prices obtained from pricing
service providers or broker dealers.
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. During the year
ended December 31, 2024, none of
the Corporation’s debt securities were subject
to pricing
discontinuance by the
pricing service providers.
The pricing
methodology and approach
of our
primary pricing service
providers is
concluded to be consistent with the fair value measurement
guidance.
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
61
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 27
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
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. 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 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, 2024, 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
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
and
to
Note
2
to
the
Consolidated
Financial
Statements
for
detailed
information on the Corporation’s collateral value estimation
for other real estate.
Income Taxes
Income taxes are
accounted for using the
asset and liability method,
recognizing deferred tax assets and
liabilities based on
future
tax consequences of temporary differences between financial statement carrying amounts
and their respective tax basis. These are
measured using
enacted tax
rates expected
to apply
when the
temporary differences
are recovered
or paid,
with changes
in tax
rates recognized in earnings when enacted.
Calculating periodic income taxes involves complexity and
requires estimates and judgments. The Corporation has two accruals for
income taxes: (i)
the net estimated
amount currently due
or receivable, including any
reserve for potential
examination issues, and
(ii)
a
deferred
income
tax
reflecting the
estimated
impact
of
temporary differences
between
asset and
liability
recognition under
GAAP and the tax
code. Differences in actual
future tax consequences could affect
the Corporation’s financial position or
results of
operations.
In
estimating
taxes,
management
evaluates
the
merits
and
risks
of
appropriate
tax
treatment,
considering
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. A valuation allowance
should
reduce a
deferred tax
asset to
the amount
likely to
be realized,
considering all
evidence and
sources
of taxable
income,
including future reversals, future income, carrybacks,
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.
62
For the
evaluation of
the realization
of the
deferred tax
asset by
taxing jurisdiction,
refer to
Note 34
to the
Consolidated Financial
Statements.
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 sets tax liabilities or reduces tax assets for uncertain tax positions when it believes it may not realize the tax benefit
if
challenged,
even
though
it
deems
the
positions
appropriate
under
local
law.
It
evaluates
whether
a
position
is
likely
to
be
sustained upon
examination based
on its
technical merits.
The ultimate
tax liability
estimate includes
assumptions based
on past
experiences and
potential actions
by taxing
authorities. The
tax position
is measured
as the
largest amount
of benefit
more than
50% likely
to be
realized upon settlement.
Each quarter,
the Corporation reviews
and adjusts these
positions based on
new facts,
audit progress, or statute of limitations expiration.
The Corporation believes its estimates and assumptions
are reasonable.
The
amount
of
unrecognized
tax
benefits
may
change
due
to
adjustments
for
current
tax
positions,
expiration
of
statutes
of
limitation, changes in uncertainty assessments, examination status, litigation, legislative activities, and modifications of uncertain tax
positions.
Despite
the
uncertainty
of
tax
audit
outcomes,
the
Corporation
believes
adequate
provisions
for
tax,
interest,
and
penalties are maintained.
The
Corporation
undergoes
periodic
audits
by
federal,
state,
and
local
authorities
concerning
income
tax
matters.
Although
management
is
confident
in
its
tax
treatment
approach
being
justifiable
and
compliant
with
accounting
standards,
final
tax
assessments
may
differ
from
recorded
positions
and
reserves.
Adjustments
from
such
audits
are
recorded
in
the
consolidated
financial statements when
determined. These differences
could impact the
Corporation’s income tax
provision or
benefit, other tax
reserves, and consequently, its results of operations, financial position, and
cash flows for the respective period.
Refer to Note 34 to the
Consolidated Financial Statements for additional information on the Corporation’s unrecognized tax benefits
and their possible effect on its effective tax rate.
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.
At December 31, 2024, goodwill amounted to $803.0 million. For a detailed description of the annual goodwill impairment evaluation
performed by the Corporation during the third quarter
of 2024, refer to Note 14 to the Consolidated
Financial Statements.
63
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.
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 29 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,
2024
was
$617.2
million.
The
expected
return
on
plan
assets
is
determined
by
considering
various factors,
including a
total funds
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
2025 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,
2025;
for
example, 8.7%
for
large
cap
stocks,
9.0% for
small cap
stocks,
8.8% for
international stocks,
6.5% for
long
corporate
bonds
and
5.8%
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
the year
2025 to
5.6% and
6.7% for the Pension Plans. Expected rates of return for the Pension Plan of 5.6% and 6.6% had been used
for 2024 and 5.9% and
6.5% had been used for 2023. 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 $12.5 million in
2024. 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
2025 from
5.6% to
5.35% would
increase the
projected 2025
pension expense
for the
Banco Popular
de Puerto
Rico Retirement
Plan, the Corporation’s largest plan, by approximately
$1.4
million.
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
27
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 $33.2 million and a pension liability of $5.8
million at December 31, 2024.
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
5.54%
to
5.57%
for
the
Pension Plans and 5.65% for the OPEB Plan to determine
the benefit obligations at December 31, 2024.
A 50
basis point
decrease to
each of
the rates
in the
December 31,
2024 Willis
Towers
Watson RATE:
Link (10/90)
Model would
increase the
projected 2025
expense for
the Banco
Popular de
Puerto Rico
Retirement Plan
by approximately
$1.8
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, 2024. The Corporation had recorded a liability for
the underfunded postretirement benefit obligation of $99.2
million at December 31, 2024.
64
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.
The average key index rates for the years 2024 and
2023 were as follows:
2024
2023
Prime rate…………………………………………………………………………………………………………..
8.31%
8.19%
SOFR……………………………………………………………………………………………………………….
5.15%
5.00%
Fed funds rate……………………………………………………………………………………………………..
5.12%
5.20%
3-month Treasury Bill……………………………………………………………………………………………..
5.09%
3.59%
10-year Treasury…………………………………………………………………………………………………..
4.20%
3.45%
FNMA 30-year…………………………………………………………………………………………………..…
5.58%
4.94%
Net interest income for the
year ended December 31, 2024 was
$2.3 billion, or $150.8 million
higher than the same period
in 2023.
Net interest income, on
a taxable equivalent basis
for the year
ended December 31, 2024 was
$2.5 billion compared to $2.3
billion
in 2023, an increase of $198.5 million.
Net interest margin in
2024 was 3.24% or 11
basis points higher than the
3.13% reported in 2023. Net interest margin on
a taxable
equivalent basis
in 2024
was 3.49%
or 18
basis points
higher than the
3.31% reported in
2023. Higher net
interest margin for
the
year 2024
is primarily
due to
reinvestment in
higher yields
on the
investment securities
portfolio and
growth in
the loan
portfolios
when compared to 2023. The main factors for the increase
in net interest income on a taxable equivalent
basis were:
●
Higher income from investment securities by $178.4 million driven by higher income from U.S treasuries by $213.5 million
driven
by
the reinvestment
of
maturities of
US T-Notes
with higher
yields
by
94 basis
points, partially
offset
by
lower
income from mortgage backed
securities driven by lower
volumes by $695 million
and lower yields by
9 basis points
and
lower interest
income from
money market investments
by $14.4
million driven
by lower
volume of
$411.2
million, due
to
the funding of loan growth and investment securities;
●
Higher interest income from loans by $297.2
million due to:
o
Higher interest income from commercial loans by $145.7 million
driven by $1.4 billion in higher average volume
due to loan growth at higher yields by
31 bps, offset in part by the
re-pricing of adjustable-rate loans and higher
interest income
from construction
loans by
$24.5 million
due to
a higher
volume
by $283.3
million, mainly
in
Popular U.S;
o
Higher interest
income from
auto and
lease financing
portfolios by
$57.8 million
driven by
a combined
higher
volume of $380.0 million and an increase in
yield by 51 bps and 52 bps on each portfolio,
respectively;
o
Higher interest income
from consumer loans
by $35.4 million
resulting from a
higher volume by
$102.5 million
and a
higher yield
by 79
basis points
in credit
cards, as
well as
an increase
in yield
by 57
basis points
in the
personal loans portfolio, primarily in BPPR; and
o
Higher
interest
income
from
mortgage
loans
by
$33.9
million
driven
by
a
higher
average
volume
by
$390.8
million and higher yield by 15 basis points.
Partially offset by:
●
Higher interest
expense on
deposits by
$286.1 million,
or 49
basis points,
mainly driven
by higher
deposits across
most
deposit products,
primarily driven
by interest
bearing demand
deposits of
the P.R
government by
34 basis
points, time
65
deposits
by
52
basis
points
in
BPPR
mainly
driven
by
repricing
of
certain
P.R.
government
deposits
managed
by
Corporation’s fiduciary services division and costs of deposits
in Popular U.S. by 64 basis points.
Table
5
presents
the
different
components
of
the
Corporation’s
net
interest
income,
on
a
taxable
equivalent
basis,
for
the
year
ended December 31,
2024, as compared
with the same
period in 2023,
segregated by major
categories of interest
earning assets
and interest-bearing liabilities.
66
Table 5 – 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
2024
2023
Variance
2024
2023
Variance
2024
2023
Variance
Rate
Volume
(In millions)
(In thousands)
$
6,641
$
7,052
$
(411)
5.30
%
5.20
%
0.10
%
Money market
investments
$
352,195
$
366,625
$
(14,430)
$
7,241
$
(21,671)
27,955
27,926
29
2.89
2.20
0.69
Investment securities
[1]
808,457
615,758
192,699
190,942
1,757
30
32
(2)
5.23
4.32
0.91
Trading securities
1,583
1,376
207
280
(73)
Total money market,
investment and
trading
34,626
35,010
(384)
3.36
2.81
0.55
securities
1,162,235
983,759
178,476
198,463
(19,987)
Loans:
17,855
16,469
1,386
6.86
6.55
0.31
Commercial
1,224,856
1,079,171
145,685
52,298
93,387
1,099
816
283
8.81
8.86
(0.05)
Construction
96,778
72,309
24,469
(478)
24,947
1,820
1,650
170
6.90
6.38
0.52
Leasing
125,652
105,309
20,343
8,944
11,399
7,873
7,482
391
5.70
5.55
0.15
Mortgage
448,880
414,992
33,888
11,819
22,069
3,211
3,115
96
13.90
13.19
0.71
Consumer
446,357
410,910
35,447
19,564
15,883
3,843
3,633
210
8.90
8.39
0.51
Auto
342,075
304,660
37,415
19,382
18,033
35,701
33,165
2,536
7.52
7.20
0.32
Total loans
2,684,598
2,387,351
297,247
111,529
185,718
$
70,327
$
68,175
$
2,152
5.47
%
4.94
%
0.53
%
Total earning assets
$
3,846,833
$
3,371,110
$
475,723
$
309,992
$
165,731
Interest bearing
deposits:
$
25,978
$
24,563
$
1,415
3.52
%
3.10
%
0.42
%
NOW and money
market [2]
$
913,624
$
761,647
$
151,977
$
113,249
$
38,728
14,498
14,900
(402)
0.91
0.68
0.23
Savings
132,476
101,334
31,142
30,406
736
8,903
7,776
1,127
3.26
2.41
0.85
Time deposits
290,021
187,043
102,978
65,045
37,933
49,379
47,239
2,140
2.71
2.22
0.49
Total interest bearing
deposits
1,336,121
1,050,024
286,097
208,700
77,397
15,065
15,307
(242)
Non-interest bearing
demand deposits
64,444
62,546
1,898
2.07
1.68
0.39
Total deposits
1,336,121
1,050,024
286,097
208,700
77,397
84
143
(59)
5.53
5.12
0.41
Short-term
borrowings
4,676
7,329
(2,653)
540
(3,193)
Other medium and
962
1,109
(147)
5.22
5.09
0.13
long-term debt
50,178
56,430
(6,252)
962
(7,214)
Total interest bearing
50,425
48,491
1,934
2.76
2.30
0.46
liabilities (excluding
demand deposits)
1,390,975
1,113,783
277,192
210,202
66,990
4,837
4,377
460
Other sources of
funds
$
70,327
$
68,175
$
2,152
1.98
%
1.63
%
0.35
%
Total source of funds
1,390,975
1,113,783
277,192
210,202
66,990
3.49
%
3.31
%
0.18
%
Net interest margin/
income on a taxable
equivalent basis
(Non-GAAP)
2,455,858
2,257,327
198,531
$
99,790
$
98,741
2.71
%
2.64
%
0.07
%
Net interest spread
Taxable equivalent
adjustment
173,570
125,803
47,767
3.24
%
3.13
%
0.11
%
Net interest margin/
income non-taxable
equivalent basis
(GAAP)
$
2,282,288
$
2,131,524
$
150,764
Note: The changes that are not due solely to volume or
rate are allocated to volume and rate based on the
proportion of the change in each category.
[1] Average balances exclude unrealized gains or losses
on debt securities available-for-sale and the unrealized
loss related to certain securities
transferred from available-for-sale to held-to-maturity.
[2] Includes interest bearing demand deposits corresponding
to certain government entities in Puerto Rico.
67
Provision for Credit Losses - Loans Held-in-Portfolio
and Unfunded Commitments
For the year ended December
31, 2024, the Corporation recorded a
provision for credit losses related to
loans held-in-portfolio and
unfunded commitments of $256.9 million,
compared to $209.7 million for
the year ended December
31, 2023. The provision
for the
loan
portfolio
for
the
year
2024
was
$258.4
million,
an
increase
of
$56.9
million.
For
the
year
ended
December
31
2024,
the
Corporation recorded a provision for credit benefit
related to unfunded commitments of $1.5 million,
mainly driven by lower unfunded
commitments at
PB.
Refer to
Note 9
to
the Consolidated
Financial Statements
for
details of
the
movement of
the allowance
for
credit losses.
The drivers of
the increase
in the
provision for loan
losses by business
segments when comparing
the year 2024
to
the year 2023 were as follows:
●
In
the
BPPR
segment,
the
provision for
loans
losses
increased
by
$59.0
million,
to
$253.8
million
for
the
year
ended
December 31,
2024. The
increase was
mainly reflected
within the
consumer and
leases portfolios,
driven by
higher net
charge-offs
and changes
in credit
quality.
During 2024,
the
Corporation implemented
a new
CRE non-owner
occupied
model, which resulted in lower qualitative reserves for its commercial portfolio. For more information about the new model
implemented refer to Note 9.
●
In the Popular U.S. segment, the provision for loans losses decreased
by $2.1 million when compared to the year 2023, to
$4.6 million
for the
year 2024.
The decrease
was driven by
changes in credit
quality and improvements
in credit
ratings
related to the commercial portfolio.
At
December
31,
2024,
the
total
allowance
for
credit
losses
for
loans
held-in-portfolio amounted
to
$746.0
million,
compared
to
$729.3
million
as
of
December
31,
2023.
The
ratio
of
the
allowance
for
credit
losses
to
loans
held-in-portfolio
was
2.01%
at
December
31,
2024, compared
to
2.08%
at
December 31,
2023. Refer
to
Note
8
to
the
Consolidated Financial
Statements, for
additional
information
on
the
Corporation’s
methodology
to
estimate
its
ACL
and
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.
Non-Interest Income
For the
year ended
December 31,
2024, non-interest
income was $658.9
million, an
increase of
$8.2 million
when compared with
the previous year. Factors that contributed to the variance in non-interest
income were:
●
higher other service fees by
$14.8 million mainly due to higher debit and
credit card fees by $8.5 million,
driven by higher
customer purchase activity and higher commissions
from investment management and advisory fees by $6.9
million; and
●
higher service
charges on
deposit accounts
by $3.9
million mainly
due to
an increase
in
non-balance compensation
in
commercial accounts;
partially offset by:
●
lower income from equity securities by
$5.1 million, mainly due to
an unfavorable variance of $2.7 million
in the fair value
adjustment of equity
securities related to
the deferred benefits
plans, which have
an offsetting
effect in
higher personnel
cost, and impairment losses on equity securities
of $2.3 million recognized during 2024;
●
lower other operating income by $2.5 million, mainly due
to the receipt of $5.6 million in insurance claim proceeds
in 2023,
partially offset by higher service fees on other real estate
managed;
and
●
lower mortgage banking activities by $2.4 million, mainly due to an unfavorable variance in mortgage servicing fees driven
by
serviced
loan
portfolio
runoff
due
to
the
Corporation’s
determination
to
retain
certain
guaranteed
loans
as
held
for
investment.
Effective December 1, 2024, Popular Auto LLC,
a wholly-owned subsidiary of Banco Popular de Puerto Rico,
completed the sale of
its daily car
rental business. Daily
rental car units
and other related
assets totaling approximately
$52.1 million in
book value were
transferred to the
purchaser at closing at
near book value. Revenues
from the car
rental business which,
included daily rental fees
68
as well the
gains from the sale
of car rental
units, presented as part
of Other Operating Income
in the accompanying Consolidated
Statements of Operation, for the year ended December 31, 2024 amounted to $27.7 million, a decrease of $4.8 million compared to
the previous year.
Adjusting for the expense savings
expected as a result
of this transaction, the impact
to the consolidated results
is not material to the Corporation.
Operating Expenses
Operating expenses for the
year ended December 31,
2024 totaled $1.9 billion,
including $6.4 million of
interest accrued related to
prior period
tax withholdings
and the
$14.3 million
impact of
the FDIC
Special Assessment,
which for
the year
2023 was
of $71.4
million. Excluding the effect of these aforementioned items in 2024 and
2023, total expenses for 2024 were $1.8 billion, an increase
of $40.3
million, when compared with the previous year. The
other factors that contributed to the variance in operating expenses for
the year were:
●
higher personnel
costs
by
$42.4 million
mainly
due
to
higher salaries
expenses by
$23.9
million
as a
result
of
annual
salary
revisions
and
an
increase
in
headcount,
and
higher
commissions
and
incentives,
including
restricted
stock
compensation by $13.4 million;
●
higher technology and software expenses by
$38.4 million mainly due to higher software
amortization expenses by $11.7
million,
higher
IT
professional fees
of
$11.1
million
related
to
the
Corporation's
transformation initiative,
a
$9.8
million
increase in network management services and an increase
of $3.9 million in application processing and
hosting services;
●
higher other
taxes expense
by $10.1
million mainly
due to
an increase
in municipal
license tax
and to
the impact
of the
reversal of $8.2 million in 2023 of regulatory examination
fees in BPPR;
●
higher business promotion expenses by $7.0 million mainly
due to higher credit card customer rewards programs
expense
reflecting an increase in customer purchase activity;
and
●
higher other
processing and
transactional services
expenses by
$4.6 million
mainly due
to higher
credit and
debit card
processing expense as a result of higher transactional
volumes.
These variances were partially offset by:
●
lower
professional fees
by
$35.3 million
mainly
due
to
lower legal
fees
and
lower
consulting
fees
related
to
corporate
initiatives;
●
a non-cash goodwill impairment of $23.0 million recorded
during 2023 in our U.S. based equipment leasing
subsidiary due
to lower forecasted cash flows and an increase in
the rate used to discount cash flows; and
●
lower equipment expense by
$3.6 million, mainly due
to lower rental vehicle
fleet depreciation expense as
a result of the
sale of the car rental business.
69
Table 6 provides a breakdown of operating expenses by major categories.
Table 6 - Operating Expenses
Years ended December
31,
(Dollars in thousands)
2024
2023
2022
Personnel costs:
Salaries
$
529,794
$
505,935
$
432,910
Commissions, incentives and other bonuses
126,081
112,657
155,889
Pension, postretirement and medical insurance
68,185
67,469
56,085
Other personnel costs, including payroll taxes
96,391
91,984
74,880
Total personnel
costs
820,451
778,045
719,764
Net occupancy expenses
111,430
111,586
106,169
Equipment expenses
33,424
37,057
35,626
Other taxes
66,046
55,926
63,603
Professional fees
125,822
161,142
172,043
Technology and
software expenses
329,061
290,615
291,902
Processing and transactional services:
Credit and debit cards
49,301
44,578
45,455
Other processing and transactional services
93,376
93,492
81,690
Total processing
and transactional services
142,677
138,070
127,145
Communications
18,899
16,664
14,885
Business promotion:
Rewards and customer loyalty programs
63,773
59,092
51,832
Other business promotion
38,157
35,834
37,086
Total business
promotion
101,930
94,926
88,918
FDIC deposit insurance
54,626
105,985
26,787
Other real estate owned (OREO) income
(18,124)
(15,375)
(22,143)
Other operating expenses:
Operational losses
27,200
23,505
32,049
All other
71,257
73,774
77,397
Total other operating
expenses
98,457
97,279
109,446
Amortization of intangibles
2,938
3,180
3,275
Goodwill impairment charge
-
23,000
9,000
Total operating
expenses
$
1,887,637
$
1,898,100
$
1,746,420
Personnel costs to average assets
1.12
%
1.09
%
0.99
%
Operating expenses to average assets
2.57
2.66
2.40
Employees (full-time equivalent)
9,231
9,088
8,813
Average assets per employee (in millions)
$7.95
$7.84
$8.26
Income Taxes
For the
year ended
December 31,
2024, the
Corporation recorded an
income tax
expense of
$182.4 million,
compared to
$134.2
million for the year 2023.
The increase of $48.2 million was attributed to higher
income before tax, the $16.5 million tax withholding
expense recorded in the
first quarter of 2024
related to intercompany distributions for
the years 2014-2023, and
the additional $6.4
million
tax
expense
related
to
a
distribution
completed
during
that
quarter.
These
variances
were
partially
offset
by
higher
net
exempt income.
At December
31, 2024,
the Corporation
had a
net deferred
tax asset
amounting to
$924.8 million, net
of a
valuation allowance
of
$456.8 million. The net
deferred tax asset related
to the U.S. operations
was $253.4 million, net
of a valuation allowance
of $386.9
million.
70
Refer to
Note 34
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 Operational Results
●
For
the
quarter
ended
December
31,
2024,
the
Corporation
recorded
net
income
of
$177.8
million,
compared
to
net
income
of
$94.6
million
for
the
same
quarter
of
the
previous year.
Net
interest
income
for
the
fourth
quarter
of
2024
amounted to $590.8
million, compared with
$534.2
million for the
fourth quarter of
2023. The increase of
$56.6 million in
net interest
income was mainly
due to
higher interest income
from loans,
due to
growth across most
portfolios at BPPR
and the commercial and construction portfolios in PB combined with higher rates by $9.8 million, lower cost of deposits by
$3.5
million,
primarily
in
P.R.
Government
deposits
and
online
deposits
in
PB,
and
higher
income
from
investment
securities; partially offset by lower income from money market investments due to lower average balances by $736 million
and yields by 67 bps.
The net interest margin increased by 27 basis points to 3.35% mainly due to an increase in the yield
for
loans
and
investment securities
due
to
higher rates.
On
a
taxable equivalent
basis,
the
net interest
margin for
the
fourth quarter of 2024 was 3.62%, compared to
3.26% for the fourth quarter of 2023.
●
The provision for
loan losses was
$69.1 million for
the fourth quarter
of 2024, compared
to a provision
expense of $75.2
million for the same quarter of the previous year. The decrease of $6.1 million
was driven by a lower provision expense
for
loans, mainly attributed to improved credit metrics at the commercial and
construction portfolios and the implementation of
a
new
model
for
CRE
non-owner-occupied-loans in
Puerto
Rico,
partially
offset
by
higher
provision
for
the
consumer
portfolio
due
to
increased delinquencies
and
NCOs.
The
reserve
release for
unfunded commitments
was $2.9
million,
lower by $6.6 million, mainly due to lower reserve
needs for unfunded commitments
in PB.
●
Non-interest income amounted to $164.7 million for
the quarter ended December 31, 2024,
compared with $168.7 million
for the same quarter in 2023. The decrease
of $4.0 million was mainly due to lower
income from equity securities by $4.8
million driven by the valuation of securities held for deferred benefit plans, which have an offset effect
on personnel costs,
partially offset
by higher
other service
fees by
$2.7 million,
driven by
higher commissions from
investment management
and advisory fees.
●
Operating expenses totaled $467.6 million for the quarter
ended December 31, 2024, compared with $531.1
million for the
same
quarter
in
the
previous
year.
The
decrease
is
mainly
related
to
the
$71.4
million
FDIC
Special
Assessment
recognized
during the
fourth
quarter
of
2023;
partially offset
by
higher personnel
costs
by
$11.1
million due
to
annual
salary revisions and higher incentive compensation.
●
For the quarter
ended December 31,
2024, the Corporation
recorded an income tax
expense of $43.9
million, compared
with an income tax benefit of $1.5 million for the
same quarter of 2023. The unfavorable variance was mostly attributed to
a higher income before tax, mainly due to
the FDIC Special Assessment recorded in the
fourth quarter of 2023.
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 36
to the Consolidated Financial Statements.
The Corporate
group reported
a net
loss of
$19.0 million
for the
year ended
December 31,
2024, compared with
a net
income of
$13.3 million for
the previous year.
The negative variance
was primarily the
result of the
$22.9 million adjustment
to recognize the
tax
impact,
including
the
related
interest,
associated
with
prior
period intercompany
distributions,
and
the
additional
$6.5
million
recognized for the tax impact related to intercompany
distributions paid during the first quarter
of 2024.
Highlights on the earnings results for the reportable
segments are discussed below:
Banco Popular de Puerto Rico
71
The Banco Popular de Puerto Rico reportable segment’s
net income amounted to $555.7
million for the year ended December 31,
2024, compared with $472.0 million for the year ended
December 31, 2023. The principal factors that
contributed to the variance in
the financial results included the following:
●
Higher net interest income by $144.9 million due
to higher interest income from loans by $225.7
million, or 31 basis
points, driven by higher average balances resulting
primarily from portfolio growth in the commercial,
auto and personal
loans by 31 basis points, and higher interest
income from money market and investment securities
by $69.9 million, or 34
basis points; due to the re-investment of maturities
in higher yielding securities, mainly U.S. Treasuries; partially
offset by
higher interest expense on deposits by $149.9
million, or 37 basis points;
mainly due to higher costs of P.R. government
deposits. The BPPR segment’s net interest margin was 3.43%
for 2024 compared with 3.20% for the same
period in
2023;
●
A provision for loan losses of $253.6 million
in 2024, compared to $195.1 million for the
year ended 2023, or an
unfavorable variance of $58.5 million, due to the consumer
portfolios, driven by higher net charge-offs and
higher loan
balances in addition to higher reserves for credit card
and leasing portfolios, driven by changes
in credit quality; During
2024, the Corporation implemented a new CRE
non-owner occupied model, which resulted in
lower qualitative reserves
for its commercial portfolio;
●
A higher provision for unfunded commitments by
$1.4 million driven by the commercial portfolio;
●
Higher non-interest income by $9.6 million mainly
due to:
●
Higher other service fees by $12.3 million due
to higher debit and credit card fees by $8.2
million as result of
higher volume of transactions;
and
●
Higher service charges on deposit accounts by $3.9
million principally due to higher fees from non-balance
compensation in commercial deposits.
partially offset by
●
Lower mortgage banking activities by $2.5 million
mainly due to an unfavorable variance of $2.6
million in
mortgage service fees, driven by portfolio runoff, due
to the Corporation’s determination to retain certain
guaranteed loans as held for investment;.and
●
Lower other operating income by $2.7 million mostly
due to an insurance policy reimbursement
gain on 2023.
●
Lower operating expenses by $0.5 million, mainly
due to:
●
Lower FDIC deposit insurance expense by $49.0
million due to FDIC Special Assessment expense
of $12.7
million in the year 2024, compared to $63.5 million
in 2023;
●
Lower professional fees by $20.4 million mainly due
to lower legal expenses and lower consulting fees
associated with several corporate initiatives;
●
Lower equipment expenses by $3.8 million mainly
due to a decrease in daily rental vehicle
fleet depreciation as
a result of the sale of the daily car
rental business; and
●
Higher net recoveries from OREO by $2.9 million
mainly due to an increase in gains from the
sale of residential
and commercial OREO properties;
Partially offset by:
●
Higher personnel costs by $30.1 million due to
annual salary revisions, an increase in headcount;
and higher
commissions and incentives, including restricted share
compensation;
72
●
Higher technology and software expenses by $21.9
million mainly due to higher amortization of
software, higher
IT consulting fees, higher network management fees
and higher application and hosting services;
●
Higher other taxes expenses by $9.9 million
mainly due to an increase in municipal license
tax and the impact
of the reversal of $8.2 million in 2023
of regulatory examination fees;
●
Higher business promotions by $6.1 million mainly
due to higher credit cards customer rewards expense
as a
result of an increase in customer purchase activity, and higher advertising
and sponsorship expenses; and
●
Higher processing and transactional services by $4.8
million mainly due to higher credit and debit
card
processing expense due to higher transaction volume.
●
Higher income tax expense.by $10.8 million due to higher
income before tax, partially offset by higher exempt
income.
Popular U.S.
For the
year ended
December 31, 2024, Popular
U.S. reported
net income
of $77.6
million, compared with
a net
income of
$56.3
million for the year ended
December 31, 2023. The principal factors
that contributed to the variance
in the financial results included
the following:
●
Higher net
interest income
by $5.4
million mainly
due to
higher interest
income from
loans by
$68.8 million,
or 33
basis
points, mainly from growth in the commercial and
construction portfolio with higher yields, and higher income from money
market and investment securities by $57.5 million,
or 59 basis points, due to
re-investment in higher yields, mainly due to
higher cost of deposits by
64 basis points; partially offset by
higher interest expense on deposits by $124.6
million mainly
due to higher average balances
of high cost deposits, primarily time deposit through the online channel. The Popular U.S.
reportable segment’s net interest margin was 2.66%
for 2024 compared with 2.98% for the same period
in 2023;
●
A favorable
variance of
$2.1 million
on the
provision for
loan losses,
mainly due
to a
lower provision
in the
construction
and consumer portfolios, partially offset
by an increase in
provision for the mortgage and
commercial portfolios, reflective
of changes in credit quality;
●
A
favorable
variance
of
$11.1
million
in
the
provision
for
unfunded
commitments
mainly
related
to
the
construction
portfolio;
●
Higher non-interest income by $1.4 million mainly
due to higher insurance fees; and
●
Lower operating expenses by $16.7 million mainly
due to:
●
The impact of the
$23.0 million goodwill impairment charge
recorded in 2023 related to
our U.S. based leasing
subsidiary;
●
Lower FDIC deposit insurance
expense by $2.3 million
due to the
lower FDIC Special Assessment
expense of
$1.6 million
in the
year 2024, compared
to $7.9
million in
2023, partially offset
by a
higher assessment rate
in
2024; and
●
Lower occupancy expense by
$1.8 million due to
a decrease in
amortization mainly due to
early termination of
contracts in the year 2023;
Partially offset by:
●
Higher other expenses by $6.7 million due to higher
charges allocated from the Corporate segment group;
and
73
●
Higher personnel costs by $2.0 million due to annual
salary revisions and an increase in headcount;
●
Higher income tax expense by $15.4 million due
mainly due to higher pre-tax income.
STATEMENT
OF FINANCIAL CONDITION ANALYSIS
Assets
The Corporation’s total
assets were $73.0 billion
at December 31, 2024,
compared to $70.8 billion
at December 31, 2023.
Refer to
the Corporation’s
Consolidated Statements of
Financial Condition
at December
31, 2024
and 2023
included in
this Form
10-K for
additional
information.
Also,
refer
to
the
Statistical
Summary
2024-2023
in
this
MD&A
for
Condensed
Statements
of
Financial
Condition.
Money market investments and debt securities
Money market investments
decreased by $617.9
million at December
31, 2024,
when compared to
December 31,
2023. This was
mainly driven by use of funding
for loan growth. Debt securities available-for-sale increased $1.5
billion, mainly due to reinvestment
in
U.S.
Treasury
Securities.
Debt
securities
held-to-maturity
decreased
by
$436.3
million
driven
by
maturities
and
paydowns,
partially offset
by the
amortization of
$179.6 million
of the
discount related
to U.S.
Treasury securities
previously reclassified from
available-for-sale (“AFS”) to held-to-maturity (“HTM”). Refer to Notes
5 and 6 to the Consolidated Financial Statements for additional
information with respect to the Corporation’s debt securities
available-for-sale and held-to-maturity.
Loans
Refer to Table
7 for a breakdown of
the Corporation’s loan portfolio. Also,
refer to Note 7
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
$2.0
billion to
$37.1
billion
at
December
31,
2024,
mainly
due
to
growth in
the
commercial
portfolio of
$952.4 million,
reflected at
both BPPR
and PB
by $785.5
million and
$166.9 million,
respectively,
growth in
mortgage
loans at BPPR by $418.1 million, as the Corporation continued
to retain in portfolio FHA-guaranteed mortgage loan
originations,
and
growth
in
construction
loans
at
PB
by
$262.1
million.
Consumer
loans
at
BPPR
increased
by
$228.5
million
in
the
aggregate,
including credit cards and auto loans.
The Corporation’s
$5.3 billion
non-owner occupied commercial
real estate
portfolio is comprised
of $3.2
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
(33%
of
non-owner
occupied
CRE),
hotels
(19%)
and
office
space
(13%)
accounting
for
two
thirds
of
the
total
exposure.
With
approximate $714 million, CRE office space loan exposure represents
only 1.9% of the total loan portfolio and it is comprised mainly
of mid-rise properties with diversified tenants with
average loan size of $2.4 million across both the
U.S. and Puerto Rico.
Popular’s $2.4 billion commercial multi-family portfolio represents approximately 6% of the total loan portfolio, which is concentrated
in the
New York
Metro ($1.5
billion), South
Florida ($672
million) and
Puerto Rico
($216 million)
geographic regions.
In the
New
York Metro region, the Corporation has no exposure to rent controlled buildings. The rent stabilized units represent less than 40% of
the total units in the loan portfolio and the majority
are from vintages after 2019.
Refer to
Note 8
to the
Consolidated Financial
Statements for
additional information
on delinquency,
asset quality
and origination
vintage information of these loan segments.
Table 7 provides a breakdown of loan balance per portfolio.
74
Table 7 - Loans Ending Balances
(In thousands)
December 31, 2024
December 31, 2023
Variance
Loans held-in-portfolio:
Commercial
Commercial multi-family
$
2,399,620
$
2,415,620
$
(16,000)
Commercial real estate non-owner occupied
5,363,235
5,087,421
275,814
Commercial real estate owner occupied
3,157,746
3,080,635
77,111
Commercial and industrial
7,741,562
7,126,121
615,441
Total Commercial
18,662,163
17,709,797
952,366
Construction
1,263,792
959,280
304,512
Leasing
1,925,405
1,731,809
193,596
Mortgage
8,114,183
7,695,917
418,266
Consumer
Credit cards
1,218,079
1,135,747
82,332
Home equity lines of credit
73,571
65,953
7,618
Personal
1,855,244
1,945,247
(90,003)
Auto
3,823,437
3,660,780
162,657
Other
171,778
160,441
11,337
Total Consumer
7,142,109
6,968,168
173,941
Total loans held-in
-portfolio
$
37,107,652
$
35,064,971
$
2,042,681
Loans held-for-sale:
Mortgage
$
5,423
$
4,301
$
1,122
Total loans held-for-sale
$
5,423
$
4,301
$
1,122
Total loans
$
37,113,075
$
35,069,272
$
2,043,803
Other assets
Other assets amounted to $1.8 billion at December 31, 2024, a decrease
of $216.8 million compared to $2.0 billion at December 31,
2023.
The
variance
was
mainly
driven
by
a
decrease
of
$161.4
million
in
cash
receivable
from
the
maturities
of
investment
securities. Refer to Note
13 to the Consolidated Financial Statements
for a breakdown of
the principal categories that comprise
the
caption of “Other Assets” in the Consolidated
Statements of Financial Condition at December
31, 2024 and 2023.
Liabilities
The Corporation’s
total liabilities were
$67.4 billion
at December
31, 2024,
an increase
of $1.8
billion compared to
$65.6 billion
at
December 31, 2023, 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
Deposits
The
Corporation’s
deposits
totaled
$64.9
billion
at
December
31,
2024,
compared
to
$63.6
billion
at
December
31,
2023.
This
increase of $1.3 billion was mainly in Puerto Rico,
driven by P.R. Government deposits
as well as time deposits at PB.
Excluding P.R.
Government deposits, as of December 31, 2024, deposits amounted to $45.4 billion, compared to
$45.6 billion as of
December
31,
2023.
This
$0.2
billion
decrease
included
a
reduction
of
approximately
$0.4
billion
in
savings,
NOW
and
money
market deposits and of
$0.3 billion in non-interest-bearing deposits,
partially offset by
a $0.5 billion increase
in higher cost interest-
bearing deposits, mainly related to time deposits
in Popular Bank.
In
BPPR, deposit
balances, excluding
P.R
government funds,
have been
impacted during
2023
and 2024
by
outflows driven
by
changes in client behavior, mainly by commercial and affluent retail clients seeking products that provide for high
rates in the current
rate environment,
along with
significant spending
and use
of balances
including the
retail client
base, which
had experienced
an
75
increase in average deposit balances since the pandemic driven by U.S. government incentives, tax refunds and increased average
wages.
Notwithstanding this decrease in total balances,
average retail deposit balances per retail client at BPPR are still higher than
pre-pandemic levels.
P.R.
Government deposits
amounted to $19.5 billion
at December 31, 2024,
compared to $18.1 billion
at December 31, 2023.
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
change is
uncertain and
difficult to
predict. The
amount and
timing of
any such
change is
likely to
be impacted
by,
for example,
the level
of federal
assistance and
speed at which
any 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”).
Additionally,
the Trump
Administration is
conducting a
review of
federal funding,
which could
entail a
reduction in
federal funding
available for Puerto Rico.
Approximately 30% 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 generally 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 tipically lagged
variable asset repricing.
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, 2024 and 2023.
76
Table 8 - Deposits Ending Balances
(In thousands)
December 31, 2024
December 31, 2023
Variance
Deposits excluding P.R.
government deposits:
Demand deposits
$
15,139,555
$
15,419,624
$
(280,069)
Savings, NOW and money market deposits (non-brokered)
21,177,506
21,541,261
(363,755)
Savings, NOW and money market deposits (brokered)
736,225
719,453
16,772
Time deposits (non-brokered)
7,476,924
6,914,035
562,889
Time deposits (brokered CDs)
890,704
955,754
(65,050)
Sub-total deposits excluding P.R.
government
deposits
45,420,914
45,550,127
(129,213)
P.R. government
deposits:
Demand deposits
[1]
11,730,273
12,159,430
(429,157)
Savings, NOW and money market deposits (non-brokered)
7,087,904
5,276,583
1,811,321
Time deposits (non-brokered)
645,254
632,103
13,151
Sub-total P.R.
government
deposits
19,463,431
18,068,116
1,395,315
Total deposits
$
64,884,345
$
63,618,243
$
1,266,102
[1] Includes interest bearing demand deposits.
Borrowings
The Corporation’s borrowings amounted to $1.2
billion at December 31, 2024, compared to
$1.1 billion at December 31,
2023. The
increase was mainly
due to FHLB
advances balances which
increase by $133.1
million, including short
and long term
borrowings,
partially
offset
by
lower
repurchase
commitments.
Refer
to
Note
16
to
the
Consolidated
Financial
Statements
for
detailed
information
on
the
Corporation’s
borrowings.
Also,
refer
to
the
Liquidity
section
in
this
MD&A
for
additional
information
on
the
Corporation’s funding sources.
Stockholders’ Equity
Stockholders’ equity totaled
$5.6 billion at
December 31, 2024,
an increase of
$0.5 billion when
compared to December
31, 2023.
The increase was principally due to net income for the year ended December 31, 2024 of $614.2 million, coupled with the change in
accumulated
other
comprehensive
loss
driven
by
the
amortization
of
unrealized losses
from
securities
previously
reclassified to
HTM of
$143.7 million,
net of
taxes, and
the decrease
in net
unrealized losses
in the
portfolio of
AFS securities
of $74.3
million,
partially offset
by an
increase in
Treasury
Stock mainly
due to
the repurchases
of 2,256,420
shares of
common stock
for $217.3
million during the year
as part of the previously
announced $500 million share repurchase authorization,
and by declared dividends
of
$183.9
million
and
$1.4
million
on
common
stock
and
preferred
stock,
respectively.
Refer
to
the
Consolidated Statements
of
Financial
Condition,
Comprehensive
Income
and
Changes
in
Stockholders’
Equity
for
information
on
the
composition
of
stockholders’
equity.
Also,
refer
to
Note
21
to
the
Consolidated
Financial
Statements
for
a
detail
of
accumulated
other
comprehensive income (loss), an integral component of
stockholders’ equity.
The composition of the Corporation’s financing to total assets
at December 31, 2024 and 2023 is included
in Table 9.
77
Table 9 - Financing to Total
Assets
December 31,
December 31,
% (decrease) increase
% of total assets
(Dollars in millions)
2024
2023
from 2023 to 2024
2024
2023
Non-interest bearing core deposits
$
15,139
$
15,420
(1.8)
%
20.7
%
21.8
%
Interest-bearing core deposits
44,622
43,571
2.4
61.1
61.6
Interest-bearing other deposits
5,123
4,627
10.7
7.0
6.5
Repurchase agreements
55
91
(39.6)
0.1
0.1
Other short-term borrowings
225
-
N.M.
0.3
-
Notes payable
896
987
(9.2)
1.2
1.4
Other liabilities
1,372
915
50.0
1.9
1.3
Stockholders’ equity
5,613
5,147
9.1
7.7
7.3
CAPITAL
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., BPPR
and PB,
are based
on the
final capital
framework of
Basel III.
The
Basel III capital rules include a “Common Equity Tier 1” (“CET1”) capital ratio and define Tier 1 capital as CET1 plus “Additional Tier
1
Capital”
instruments
meeting
specified
requirements.
Note
20
to
the
Consolidated
Financial
Statements
presents
further
information on the Corporation’s regulatory capital requirements,
including the regulatory capital ratios of 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
10
show
that
the
Corporation
was
“well
capitalized” for
regulatory purposes,
the highest
classification, under
Basel III
for years
2024 and
2023. BPPR
and PB
were also
well-capitalized for all the years presented.
The
Basel
III
Capital
Rules
also
require
an
additional
2.5%
“capital
conservation
buffer”,
composed entirely
of
CET1,
on
top
of
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 10 presents the Corporation’s capital adequacy information for the years 2024 and 2023.
78
Table 10 - Capital Adequacy
Data
At December 31,
(Dollars in thousands)
2024
2023
Risk-based capital:
Common Equity Tier 1 capital
$
6,262,792
$
6,053,315
Additional Tier 1 Capital
22,143
22,143
Tier 1 capital
$
6,284,935
$
6,075,458
Supplementary (Tier 2) capital
683,268
658,507
Total
capital
$
6,968,203
$
6,733,965
Total
risk-weighted assets
$
39,073,462
$
37,146,330
Adjusted average quarterly assets
$
72,593,464
$
71,353,184
Ratios:
Common Equity Tier 1 capital
16.03
%
16.30
%
Tier 1 capital
16.08
16.36
Total capital
17.83
18.13
Leverage ratio
8.66
8.51
Average equity to assets
[1]
9.61
9.27
Average tangible equity to assets
[1]
8.60
8.19
[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
The decrease in the CET1 capital ratio,
Tier 1 capital ratio
and, total capital ratio as of
December 31, 2024, compared to December
31,
2023,
was
due
primarily
to
an
increase
in
risk
weighted
assets
as
a
result
of
loan
growth
in
the
commercial
loans
held-in-
portfolio,
and
the
repurchase
of
shares
under
the
common
stock
repurchase
authorization
plan,
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 an 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, 2024,
the Corporation had
phased-in
75% of the cumulative CECL deferral with the remaining impact to be
recognized over the next year. In
the first quarter of 2025, the
Corporation will phase in all of the cumulative deferral.
Table 11
reconciles the Corporation’s total common stockholders’
equity to common equity Tier 1 capital.
Table 11
- Reconciliation Common Equity Tier 1 Capital
At December 31,
(Dollars in thousands)
2024
2023
Common stockholders’ equity
$
5,633,298
$
5,209,561
AOCI related adjustments due to opt-out election
1,589,875
1,831,003
Goodwill, net of associated deferred tax liability
(DTL)
(657,181)
(666,538)
Intangible assets, net of associated DTLs
(6,826)
(9,764)
Deferred tax assets and other deductions
(296,374)
(310,947)
Common equity tier 1 capital
$
6,262,792
$
6,053,315
Common equity tier 1 capital to risk-weighted assets
16.03
%
16.30
%
Reconciliation to Tangible Common Equity and Tangible Assets
Table
12
provides
a
reconciliation of
total
stockholders’
equity
to
tangible
common
equity
and
total
assets
to
tangible
assets
at
December 31, 2024 and 2023.
79
Table 12 - Reconciliation
of Tangible Common Equity
and Tangible Assets
At December 31,
(In thousands, except share or per share information)
2024
2023
Total stockholders’
equity
$
5,613,066
$
5,146,953
Less: Preferred stock
(22,143)
(22,143)
Less: Goodwill
(802,954)
(804,428)
Less: Other intangibles
(6,826)
(9,764)
Total tangible common
equity
$
4,781,143
$
4,310,618
Total assets
$
73,045,383
$
70,758,155
Less: Goodwill
(802,954)
(804,428)
Less: Other intangibles
(6,826)
(9,764)
Total tangible assets
$
72,235,603
$
69,943,963
Tangible common
equity to tangible assets
6.62
%
6.16
%
Common shares outstanding at end of period
70,141,291
72,153,621
Tangible book value
per common share
$
68.16
$
59.74
Year-to-date average
Total stockholders’
equity [1]
$
6,480,598
$
5,853,276
Average unrealized (gains) losses on AFS securities
transferred to HTM
572,595
747,327
Adjusted total stockholder's equity
7,053,193
6,600,603
Less: Preferred Stock
(22,143)
(22,143)
Less: Goodwill
(804,423)
(821,567)
Less: Other intangibles
(8,366)
(11,473)
Total tangible common
equity
$
6,218,261
$
5,745,420
Average return on tangible common equity
9.85
%
9.40
%
[1] Average balances exclude unrealized gains or losses
on debt securities available-for-sale.
80
RISK MANAGEMENT
Market / Interest Rate Risk
The Corporation’s assets that are mainly subject to market valuation risk are debt securities classified as available-for-sale. Refer to
Notes 5 and 6 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 and
held-to-maturity amounted
to
$18.2 billion
and
$7.8 billion,
respectively,
as
of
December
31,
2024.
Other
assets
subject
to
market
risk
include
loans
held-for-sale,
which
amounted
to
$5
million, mortgage servicing
rights (“MSRs”) which
amounted to $108
million, and securities
classified as “trading”,
which amounted
to $33 million, each as of December 31, 2024.
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.
Management utilizes various tools to assess IRR, including Net Interest
Income (“NII”) simulation modeling, static gap analysis, and
Economic Value of Equity (“EVE”) to monitor the risk arising from the dynamic characteristics of assets and liabilities subject to IRR.
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
used
to
estimate 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 to
assess the,
degree of
change and
the projected
shape of
the yield
curve. Management
also performs
analyses to
isolate and
measure basis
and
prepayment
risk
exposures.
These
models
are
periodically
monitored.
Assumptions
are
validated
by
management
and
are
subject to independent validations according to the Corporations’
Model Governance 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. Assumptions
included in
these
analyses
include
that
the
balance
sheet
remains
flat,
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
and
do
not
contemplate
actions
that
management
may
engage
in
as
a
response
to
future
changes
in
interest
rates.
Additionally,
the Corporation
is also
subject to
the risk
inherent in
the use
of different
rate indexes
for the
repricing of
assets and
liabilities, as well the
risk of pricing lags
due to contractual or
timing differences between the
market and management response
to
changes
in
the
rate
environment.
These
forward-looking
computations
are
management’s
best
estimate
based
on
known
and
available information and actual results may differ. The following table presents the
results of the simulations at December 31, 2024
and December 31, 2023, assuming a static balance
sheet and parallel changes over flat spot rates
over a one-year time horizon:
81
Table 13 - Net Interest Income
Sensitivity (One Year Projection)
December 31, 2024
December 31, 2023
(Dollars in thousands)
Amount Change
Percent Change
Amount Change
Percent Change
Change in interest rate
+200 basis points
44,747
1.78
20,822
0.92
+100 basis points
22,917
0.91
11,496
0.51
-100 basis points
9,157
0.36
19,589
0.87
-200 basis points
588
0.02
16,971
0.75
As
of
December
31,
2024,
NII
simulations
show
the
Corporation
maintains
an
asset
sensitive
position
that
is
slightly
more
pronounced
in
the
rising
rates
scenarios
and
closer
to
neutral
in
the
declining
scenarios.
Sensitivity
variation
and
the
resulting
sensitivity profile
are mainly driven
by changes
in balance sheet
composition,
including those
of short-term
U.S Treasury
Bills (“T-
Bills”),
and
higher
loan
balances,
partially
offset
by
higher
market-linked
Puerto
Rico
public
sector
deposits,
changes
in
the
composition
and
mix
of
deposits
and
a
reduction
in
overnight
Fed
Funds.
During
the
year
ended
on
December
31,
2024,
the
Corporation began to reinvest excess reserves and some of the proceeds of the maturing portfolio into U.S Treasury Notes. In more
severe declining
rate scenarios,
the negative
impact on
net interest
income due
to the
repricing of
short-term assets
and variable
rate
loans
would
slightly
exceed
the
benefit
in
cost
reduction
of
these
deposits.
In
rising
rate
scenarios,
Popular’s
net
interest
income would also
be impacted due
to its large
proportion of Puerto Rico
public sector deposit, however
the repricing of
assets as
they either reset or mature would lead to an
increase in net interest income.
The
Corporation’s
loan
and
investment
portfolios
are
subject
to
prepayment
risk.
Prepayment
risk
also
could
have
a
significant
impact on the duration of mortgage-backed securities
and collateralized mortgage obligations.
82
Table 14 - Interest Rate Sensitivity
At December 31, 2024
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
$
6,380,948
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
6,380,948
Investment and trading securities
3,147,704
5,522,542
1,130,420
1,088,564
1,085,066
4,512,035
9,994,313
(240,984)
26,239,660
Loans
6,357,761
3,540,568
1,677,662
1,572,269
1,626,334
5,779,141
16,624,354
(65,014)
37,113,075
Other assets
-
-
-
-
-
-
-
3,311,700
3,311,700
Total
15,886,413
9,063,110
2,808,082
2,660,833
2,711,400
10,291,176
26,618,667
3,005,702
73,045,383
Liabilities and stockholders' equity:
Savings, NOW and money market and
other interest bearing demand deposits
21,117,523
770,171
1,080,690
998,427
923,742
3,069,864
12,771,491
-
40,731,908
Certificates of deposit
2,116,171
1,265,842
1,282,371
841,625
705,275
1,033,226
1,768,372
-
9,012,882
Federal funds purchased and assets
sold under agreements to repurchase
27,516
27,317
-
-
-
-
-
-
54,833
Other short-term borrowings
225,000
-
-
-
-
-
-
-
225,000
Notes payable
63,522
-
25,000
25,000
30,692
74,500
677,579
-
896,293
Non-interest bearing deposits
-
-
-
-
-
-
-
15,139,555
15,139,555
Other non-interest bearing liabilities
-
-
-
-
-
-
-
1,371,846
1,371,846
Stockholders' equity
-
-
-
-
-
-
-
5,613,066
5,613,066
Total
$
23,549,732
$
2,063,330
$
2,388,061
$
1,865,052
$
1,659,709
$
4,177,590
$
15,217,442
$
22,124,467
$
73,045,383
Interest rate sensitive gap
(7,663,319)
6,999,780
420,021
795,781
1,051,691
6,113,586
11,401,225
(19,118,765)
-
Cumulative interest rate sensitive gap
(7,663,319)
(663,539)
(243,518)
552,263
1,603,954
7,717,540
19,118,765
-
-
Cumulative interest rate sensitive gap
to earning assets
(10.94)
%
(0.95)
%
(0.35)
%
0.79
%
2.29
%
11.02
%
27.30
%
-
-
Table 15, which presents the maturity distribution of earning assets, takes into consideration
prepayment assumptions.
Table 15 - Maturity Distribution
of Earning Assets
As of December 31, 2024
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
$
6,380,948
$
-
$
-
$
-
$
-
$
-
$
-
$
6,380,948
Investment and trading
securities
11,902,679
12,608,711
7,219
1,555,836
2,705
-
-
26,077,150
Loans:
Commercial
5,873,664
6,540,347
4,232,149
1,175,746
717,934
100,561
21,762
18,662,163
Construction
777,708
132,307
291,730
(3,312)
65,359
-
-
1,263,792
Leasing
564,869
1,348,636
-
11,900
-
-
-
1,925,405
Consumer
1,873,112
3,901,605
303,044
229,603
732,358
2,037
100,350
7,142,109
Mortgage
577,552
2,163,670
182,220
4,265,627
74,603
855,849
85
8,119,606
Subtotal loans
9,666,905
14,086,565
5,009,143
5,679,564
1,590,254
958,447
122,197
37,113,075
Total earning assets
$
27,950,532
$
26,695,276
$
5,016,362
$
7,235,400
$
1,592,959
$
958,447
$
122,197
$
69,571,173
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.
83
Trading
The
Corporation
engages
in
trading
activities
in
the
ordinary
course
of
business
at
its
subsidiaries,
BPPR,
PB
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 and
economic hedges of the
related market risk with
“TBA” (to-be-announced)
market transactions.
In addition,
BPPR uses
forward contracts
or TBAs
that have
characteristics similar
to that
of the
forecasted
security and its
conversion timeline to
hedge its securitization
pipeline. PB’s trading
activities consist primarily of
economic hedges
of the related market risk with “TBA” (to-be-announced)
market transactions.
At December 31, 2024,
the Corporation held trading securities
with a fair value
of $33 million, representing approximately 0.05%
of
the Corporation’s total assets, compared with $32 million and
0.05%, respectively, at December 31, 2023. As shown in Table 16, the
trading
portfolio
consists
principally
of
mortgage-backed
securities
and
U.S.
Treasuries,
which
at
December
31,
2024
were
investment grade securities.
Table 16 - Trading
Portfolio
December 31, 2024
December 31, 2023
(Dollars in thousands)
Amount
Weighted
Average Yield
[1]
Amount
Weighted
Average Yield
[1]
Mortgage-backed securities
$
29,116
5.54
%
$
14,373
5.69
%
U.S. Treasury securities
2,824
3.28
16,859
4.29
Collateralized mortgage obligations
655
5.20
98
5.21
Puerto Rico government obligations
55
0.57
71
0.91
Interest-only strips
133
12.00
167
12.00
Other (includes related trading derivatives)
48
5.95
-
-
Total
$
32,831
5.36
%
$
31,568
4.96
%
[1] Not on a taxable equivalent basis.
The Corporation’s trading activities are limited by internal policies.
For each of the three 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 $0.6
million for
the last
week of
December 2024. There
are
numerous assumptions
and estimates
associated with
VAR
modeling, and
actual results
could differ
from these
assumptions and
estimates. Back testing
is performed to
compare actual results
against maximum estimated losses,
in order to
evaluate model and
assumptions accuracy.
The size and composition of the trading portfolio
does not represent a significant source of market
risk for the Corporation.
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 $239.5
million at
December 31,
2024.
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,
2024, the
Corporation had
approximately $71 million
in
an
unfavorable
foreign currency translation
adjustment as part
of accumulated other
comprehensive income (loss),
compared with an
unfavorable
adjustment of $ 65 million at December 31,
2023 and $ 57 million at December 31,
2022.
84
Liquidity
Liquidity Risk Management Process
The Corporation
has adopted
policies and
limits to
monitor the
Corporation’s liquidity
position and
that of
its banking
subsidiaries.
Refer
to
the
Enterprise
Risk
Management
section
of
Management’s
Discussion
and
Analysis
included
in
this
Form
10-K
for
information on
the approval
of policies
to manage
liquidity risk.
Additionally,
contingency funding
plans are
used to
model various
stressful
events
of
different
magnitudes
that
affect
different
time
horizons,
to
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. 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.
Sources of Liquidity
Deposits, including
customer deposits,
brokered deposits
and public
funds deposits,
continue to
be the
most significant
source of
funds
for
the
Corporation,
representing
89%
and
90%
of
funding
of
the
Corporation’s
total
assets
at
December
31,
2024
and
December 31, 2023, respectively.
The ratio of total ending loans to deposits was 57% at December 31, 2024 and 55% at December
31, 2023.
In addition to
traditional deposits, the
Corporation maintains borrowing arrangements, which
amounted to approximately
$1.2
billion
in
outstanding
balances
at
December
31,
2024
(December
31,
2023
-
$1.1
billion).
A
detailed
description
of
the
Corporation’s
borrowings,
including
their
terms,
is
included
in
Note
16
to
the
Consolidated
Financial
Statements.
Also,
the
Consolidated
Statements
of
Cash
Flows
in
the
accompanying
Consolidated
Financial
Statements
provide
information
on
the
Corporation’s cash inflows and outflows.
The
following
sections
provide
further
information
on
the
Corporation’s
major
funding
activities
and
needs,
as
well
as
the
risks
involved in these activities.
Banking Subsidiaries
Primary
sources of
funding
for the
Corporation’s
banking subsidiaries
(BPPR and
PB
or,
collectively,
“the banking
subsidiaries”)
include
retail,
commercial
and
public
sector
deposits,
brokered
deposits,
unpledged
investment
securities,
mortgage
loan
securitization and, to a lesser extent, loan sales. In
addition, the Corporation maintains borrowing facilities with the FHLB and at the
discount window
of the
Federal Reserve
Bank of
New York
(the “FRB”)
and has
a considerable
amount of
collateral pledged
that
can be used to raise funds under these facilities.
During the fourth quarter of 2024 the Corporation had no material incremental use of its available liquidity sources. At December 31,
2024, the Corporation’s available liquidity increased to
$ 21.6 billion from $19.5 billion
on December 31, 2023. The liquidity sources
of the Corporation at December 31, 2024 are
presented in Table 17 below:
Table 17 - Liquidity Sources
December 31, 2024
December 31, 2023
(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)
$
4,882,358
$
1,488,857
$
6,371,215
$
5,516,636
$
1,475,143
$
6,991,779
Unpledged securities
3,806,066
522,869
4,328,935
4,212,480
347,791
4,560,271
FHLB borrowing capacity
2,777,090
1,058,921
3,836,011
2,157,685
1,341,329
3,499,014
Discount window of the Federal Reserve
Bank borrowing capacity
4,839,388
2,178,646
7,018,034
2,605,674
1,818,946
4,424,620
Total available liquidity
$
16,304,902
$
5,249,293
$
21,554,195
$
14,492,475
$
4,983,209
$
19,475,684
85
Refer
to
Note
16
to
the
Consolidated
Financial
Statements
for
additional
information
of
the
Corporation’s
borrowing
facilities
available through its banking subsidiaries.
The principal
uses of
funds for
the banking
subsidiaries include
loan originations,
investment portfolio
purchases, loan
purchases
and repurchases, repayment of outstanding obligations (including deposits), advances on certain serviced portfolios and operational
expenses. Also, the
banking subsidiaries assume liquidity
risk related to collateral
posting requirements for certain
activities mainly
in
connection
with
contractual
commitments,
recourse
provisions,
servicing
advances,
derivatives
and
credit
card
licensing
agreements.
The banking
subsidiaries maintain
sufficient funding
capacity to
address large
increases in
funding requirements
such as
deposit
outflows.
The
Corporation has
established
liquidity
guidelines
that
require
the
banking
subsidiaries
to
have
sufficient
liquidity
to
cover all short-term borrowings and a portion of deposits.
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 certificates
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,
which
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 earning spread. As of December 31,
2024, total Puerto Rico public sector deposits were
$19.5 billion, compared to $18.1 billion at
December 31, 2023.
Core deposits
totaled $59.9
billion, or
92% of
total deposits,
at December
31, 2024,
compared with
$59.0 billion,
or 93%
of total
deposits, at December 31, 2023. Core deposits financed 86% of the Corporation’s earning assets at December 31, 2024, compared
with 88% at December 31, 2023.
The distribution by maturity of certificates of deposit with denominations of $250,000 and over at December 31, 2024 is presented in
the table that follows:
Table 18 - Distribution by
Maturity of Certificates of Deposit of $250,000 and Over
(In thousands)
3 months or less
$
2,313,814
Over 3 to 12 months
934,934
Over 1 year to 3 years
204,776
Over 3 years
176,027
Total
$
3,629,551
For the
years ended
December 31,
2024 and
2023, average
deposits, including
brokered deposits,
represented 92%
of average
earning assets. Table 19 summarizes average deposits for the past two years.
86
Table 19 - Average
Total Deposits
For the years ended December 31,
(In thousands)
2024
2023
Deposits excluding P.R.
government deposits:
Demand deposits
$
15,065,039
$
15,307,152
Savings, NOW and money market deposits (non-brokered)
21,228,157
21,914,790
Savings, NOW and money market deposits (brokered)
764,696
756,343
Time deposits (non-brokered)
7,227,460
6,470,210
Time deposits (brokered CDs)
956,223
722,328
Sub-total deposits excluding P.R.
government
deposits
45,241,575
45,170,823
P.R. government
deposits:
Demand deposits
[1]
11,754,910
11,997,257
Savings, NOW and money market deposits (non-brokered)
6,728,781
4,795,092
Time deposits (non-brokered)
719,017
583,308
Sub-total P.R.
government
deposits
19,202,708
17,375,657
Average total deposits
$
64,444,283
$
62,546,480
[1] Includes interest bearing demand deposits.
The Corporation had
$1.6 billion in
brokered deposits at
December 31, 2024,
which financed approximately
2% of its
total assets
(December 31, 2023 - $1.7 billion and 2%,
respectively).
As of
December 31,
2024, 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 would
be
severely constrained if
the banking subsidiaries
are unable to
maintain access to
funding or if
adequate funding 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,
deposit
agreements
and
other
collateralized
borrowing facilities. To
the extent that
the value of
securities previously pledged as
collateral declines because of
market changes,
the Corporation will be required to deposit additional cash or securities to meet its margin or collateral requirements and would need
to
rely
more
heavily
on
alternative
funding
sources.
In
these
scenarios,
the
Corporation’s
financial
flexibility
and
ability
to
grow
revenues may not increase proportionately to cover costs and
profitability would be adversely affected.
The Corporation considers balances in
excess of $250,000 to have a
higher potential liquidity risk.
Table
20 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 20, represent public deposit balances from governmental
entities in the
U.S.
and
its
territories,
including
Puerto
Rico
and
the
United
States
Virgin
Islands,
collateralized
based
on
such
jurisdictions’
applicable collateral requirements.
87
Table 20 - Deposits
31-Dec-24
Popular, Inc.
(Dollars in thousands)
BPPR
% of Total
Popular U.S.
% of Total
(Consolidated)
% of Total
Deposits:
Deposits balances under $250,000 [1]
$
23,588,937
44
%
$
7,961,334
68
%
$
31,550,271
49
%
Transactional deposits balances over
$250,000
8,046,175
15
%
1,944,674
16
%
9,990,849
15
%
Time deposits balances over $250,000
1,991,934
4
%
813,424
7
%
2,805,358
4
%
Uninsured foreign deposits
450,068
1
%
-
-
%
450,068
1
%
Collateralized public funds
19,771,083
36
%
316,716
3
%
20,087,799
31
%
Intercompany deposits
205,839
-
%
667,839
6
%
-
-
%
Total deposits
$
54,054,036
100
%
$
11,703,987
100
%
$
64,884,345
100
%
[1] Includes the first $250,000 in balances of transactional
and time deposit accounts with balances in excess
of $250,000.
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.
Bank Holding Companies
The principal
sources of
funding for
the BHCs,
which are
Popular,
Inc.
(holding company
only) and
PNA, include
cash on
hand,
investment
securities,
dividends
received from
banking
and
non-banking subsidiaries,
asset sales,
credit
facilities
available from
affiliate banking subsidiaries and proceeds from potential securities offerings.
Dividends from banking and non-banking subsidiaries
are subject
to various
regulatory limits
and authorization
requirements imposed
by banking
regulators, including
the FED
and the
NYDFS, that may limit the ability of those subsidiaries
to act as a source of funding to the BHCs.
The principal uses of these funds include the repayment of debt, interest payments to holders of senior debt and junior subordinated
deferrable interest debentures (related to trust preferred securities), the payment of dividends to common stockholders,
repurchases
of the Corporation’s securities and capitalizing its subsidiaries.
The
outstanding
balance
of
notes
payable
at
the
BHCs
amounted
to
$594
million
at
December
31,
2024
and
$592
million
at
December 31, 2023.
The contractual maturities of the BHCs notes payable
at December 31, 2024 are presented in
Table 21.
Table 21
- Distribution of BHC's Notes Payable by Contractual
Maturity
Year
(In thousands)
2028
$
395,198
Later years
198,373
Total
$
593,571
88
As
of December
31, 2024,
the BHCs
had cash
and money
markets investments
totaling $635
million and
borrowing potential
of
$165 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 that are
expected to be
sufficient to
meet all
interest payments and
dividend obligations
for the foreseeable future.
Additionally, the Corporation’s
latest quarterly dividend was $0.70 per share
or approximately $49 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
given
that
two
out
of
three
principal
credit
rating
agencies
rate
the
Corporation’s
debt
securities
below “investment
grade”.
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.
During the
year ended
December 31,
2024,
Popular,
Inc. made
capital contributions
of $1.7
million to
Popular Impact Fund, its wholly owned subsidiary.
Dividends
During
the
year
ended
December
31,
2024,
the
Corporation
declared
cash
dividends
of
$2.56
per
common
share
outstanding
($183.9 million in the aggregate). The dividends for the Corporation’s Series A preferred stock amounted to $1.4 million. On July 24,
2024, the corporation announced an
increase in the Corporation’s
quarterly common stock dividend from
$0.62 to $0.70 per
share,
commencing with the dividend payable in the first
quarter of 2025.
During the
year ended December
31, 2024,
the BHCs
received dividends and
distributions amounting to
$600 million from
BPPR,
$50
million
from
PNA
and
$23
million
from
its
other
non-banking
subsidiaries.
Dividends
from
BPPR
constitute
Popular,
Inc.’s
primary source of
liquidity. In
addition, during the year
ended December 31, 2024,
Popular International Bank Inc.,
a wholly owned
subsidiary of Popular, Inc., received $19.4 million in cash dividends
and $2.9 million in stock dividends from its investment
in BHD.
Other Funding Sources and Capital
In addition to cash reserves held at the FRB that totaled $ 6.4 billion at December 31, 2024, the debt securities portfolio provides an
additional
source
of
liquidity,
which
may
be
realized
through
either
securities
sales,
collateralized
borrowings
or
repurchase
agreements.
The
Corporation’s
debt
securities
portfolio
consists
primarily
of
liquid
U.S.
government
debt
securities,
U.S.
government
sponsored
agency
debt
securities,
U.S.
government
sponsored
agency
mortgage-backed
securities,
and
U.S.
government
sponsored
agency
collateralized
mortgage
obligations
that
can
be
used
to
raise
funds
in
the
repo
markets.
The
availability
of
repurchase
agreements
would
be
subject
to
having
sufficient
unpledged
collateral
available
at
the
time
the
transactions are
consummated, in addition
to overall
liquidity and
risk appetite
of the
various counterparties.
Refer to
Table
17 for
details of
the Corporation’s
unpledged debt
securities and
available credit
facilities with
the FHLB
and the
discount window
of the
Federal Reserve Bank. 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. 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.
89
Refer to
Note 23
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
32
to
the
Consolidated
Financial
Statements
for
more
information
on
operating
leases
and
to
Note
22
to
the
Consolidated
Financial
Statements for
a detailed
discussion related
to the
Corporation’s guarantees,
indemnifications obligations, and
representation and
warranties arrangements.
The Corporation monitors its cash requirements, including
its contractual obligations and debt commitments.
Financial Information of Guarantor and Issuers of Registered
Guaranteed Securities
The principal sources of funding for Popular, Inc. Holding Company (“PIHC”) and Popular North America, Inc. (“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 dividends
an insured
depository
institution may pay to its holding company without
regulatory approval.
The Corporation ("PIHC") is
the parent holding company
of Popular North America (“PNA”)
and operates financial services through
its subsidiaries. PNA, a wholly owned subsidiary of Popular, Inc., manages entities such as Equity One, Inc., and PB, including PB’s
subsidiaries: Popular Equipment Finance, LLC,
Popular Insurance Agency, U.S.A., and E-LOAN, Inc.
PNA has issued junior subordinated debentures guaranteed by PIHC (the “obligor group”), purchased by statutory
trusts established
by the Corporation using proceeds from trust preferred
securities (“capital securities”) and common securities
of the trusts.
PIHC guarantees
the junior
subordinated debentures
issued by
PNA. If
PIHC fails
to make
interest payments
on the
debentures
held by the trust,
the trust will not
distribute payments on the
capital securities. The guarantee
ranks subordinate and junior
in right
of
payment to
all
other liabilities
of
PIHC and
equally with
all
other PIHC-issued
guarantees, allowing
direct
legal
action against
PIHC without involving other entities.
Funding
for
PIHC
and
PNA
includes
dividends
from
subsidiaries,
asset
sales,
and
proceeds
from
debt
and
equity
issuance.
Statutory provisions limit the dividends an insured
depository institution can pay to its holding
company without regulatory approval.
The summarized financial
information below shows
the combined financial
position of the
obligor group as
of December 31,
2024,
and December 31, 2023, and their operations for the years ending on those dates. Excluded are investments and equity in earnings
from subsidiaries and affiliates outside the obligor group.
Intercompany balances
and transactions
within the
obligor group
have been
eliminated. Material
amounts due
from, due
to, and
transactions with subsidiaries and affiliates are shown separately. Related party transactions
are also presented separately.
90
Table 22 - Summarized Statement
of Condition
(In thousands)
December 31, 2024
December 31, 2023
Assets
Cash and money market investments
$
634,809
$
388,025
Investment securities
35,150
29,973
Accounts receivables from non-obligor subsidiaries
14,602
14,469
Other loans (net of allowance for credit losses of $281 (2023
- $51))
25,381
26,906
Investment in equity method investees
5,279
5,265
Other assets
65,483
51,315
Total assets
$
780,704
$
515,953
Liabilities and Stockholders' equity
Accounts payable to non-obligor subsidiaries
$
12,163
$
7,023
Notes payable
593,571
592,283
Other liabilities
126,718
114,660
Stockholders' equity (deficit)
48,252
(198,013)
Total liabilities and
stockholders' equity
$
780,704
$
515,953
Table 23 - Summarized Statement
of Operations
For the years ended
(In thousands)
December 31, 2024
December 31, 2023
Income:
Dividends from non-obligor subsidiaries
$
623,000
$
208,000
Interest income from non-obligor subsidiaries and affiliates
9,784
15,579
Earnings (losses) from investments in equity method investees
15
(84)
Other operating income
2,399
4,664
Total income
$
635,198
$
228,159
Expenses:
Services provided by non-obligor subsidiaries and affiliates
(net of
reimbursement by subsidiaries for services provided by parent
of
$172,449 (2023 - $161,333))
$
13,328
$
13,513
Other expenses
37,391
36,216
Income tax expense (benefit)
[1]
20,725
(1,238)
Total expenses
$
71,444
$
48,491
Net income
$
563,754
$
179,668
[1] As discussed
in Note 1
to the Consolidated
Financial Statements, the
net income for
the year ended
December 31, 2024,
included $22.9
million of expenses,
of which $16.5
million was
reflected in income
tax expense
and $6.4 million
was reflected
in other operating
expenses,
related
to
an
out-of-period
adjustment
associated
with
the
Corporation’s
U.S.
subsidiary’s
non-payment
of
taxes
on
certain
intercompany
distributions to the Bank Holding Company (BHC) in Puerto Rico,
a foreign corporation for U.S. tax purposes.
In addition to
the dividend income
reflected in the
Statement of Operations
table above, during
the year ended
December
31, 2024, the
obligor group recorded a
$67.4 million of
capital distributions from
non-obligor subsidiaries which were
in an
accumulated loss position and accordingly were
recorded as a reduction to the investments
(2023 - $64.0 million).
91
Risk to Liquidity
The
Corporation’s
liquidity
may
come
under
pressure
if
it
experiences
significant
unexpected
cash
outflows
due
to
deposit
withdrawals,
which
could
arise
from
various
factors
like
loss
of
depositor
confidence,
exogenous events,
a
downgrade
in
credit
rating, or other events causing counterparties to avoid
exposure. The Corporation’s liquidity risk is impacted by
the following:
●
External factors such as the
economic outlook (the P.R.
market poses additional risk factors, refer to
the Geographic and
Government Risk
section of
this MD&A
for highlights
regarding Puerto
Rico's economy
and fiscal
status),
interest rate
volatility,
inflation,
debt
market
disruptions, and
regulatory
changes
(e.g.
if
regulatory
capital
ratios
fall
below
required
thresholds,
the
Corporation’s
banking
subsidiaries
may
face
challenges
raising
or
retaining
brokered
deposits
and
limitations on deposit interest rates) can impact
funding ability.
●
Management has
contingency plans
involving alternate
funding mechanisms
like pledging
asset classes
and accessing
secured credit lines and loan facilities with the FHLB
and FRB, subject to positive tangible capital requirements.
●
The Corporation’s ability to compete in the
deposit market relies on pricing, service, convenience, financial stability,
credit
ratings, customer confidence, and FDIC deposit insurance
coverage.
●
Public sector
deposits require
high-credit-quality securities
as collateral;
hence, liquidity
risks from
public sector
deposit
outflows
are
mitigated
as
the
bank
receives
its
collateral
back.
The
Corporation
uses
fixed-rate
U.S.
Treasury
debt
securities as collateral, which are subject to market value fluctuations based on interest rate changes. Rate increases can
reduce collateral value, requiring additional collateral,
thus decreasing unpledged securities.
●
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.
Investors should refer to
Liquidity Risk section of
“Part I, Item
1A” of this
Form 10-K for
an additional discussion of
liquidity risks to
which the Corporation is subject.
In addition to regulatory limits previously discussed, 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. During the year ended
December 31,
2024, BPPR
declared cash
dividends of
$600 million
to PIHC
and could
declare a
dividend of
up to
approximately
$318 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, pursuant
to the
FRB requirements,
PB may
not declare
or pay
a
dividend without the prior approval of the Federal
Reserve Board and the NYSDFS.
The Corporation’s
banking subsidiaries have
historically not used
unsecured capital market
borrowings to finance
their operations,
and therefore are less sensitive to the level and
changes in the Corporation’s overall credit ratings.
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 36 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
92
Puerto Rico's economy
is closely linked
to the United
States (“U.S.”) economy,
as most of
the external factors
that influence
it are
shaped by U.S.
policies and economic performance,
including federal transfer payments, tax
policies, interest rates, inflation,
trade
policies, and geopolitical developments.
Puerto Rico’s economy
historically followed the
economic trends of the
U.S. economy.
However, from
2007 to 2017,
Puerto Rico’s
economy suffered
a severe
recession, with
real gross
national product
(“GNP”) contracting
approximately 15%
during this
period.
The recession was exacerbated by the damaged caused by Hurricane María in 2017. Since 2018, Puerto Rico’s economy has been
gradually recovering,
with a
temporary interruption
in 2020
due to
the COVID-19
pandemic, in
part aided
by the
large amount
of
federal
disaster
relief
and
recovery
assistance
funds
received
in
connection
with
recent
natural
disasters
and
the
COVID-19
pandemic. Future
growth depends
on multiple
factors, including
the level
of
ongoing federal
assistance and
the timetable
for
its
deployment. Estimates
from the
Puerto Rico
Planning Board
indicated that
real GNP
grew by
2.8% during
fiscal year
2024 (July
2023-June
2024)
and
is
projected to
grow by
1.4%
in
fiscal
year 2025
(July
2024-June 2025).
However,
the
latest Puerto
Rico
Economic Activity Index showed a 1.1% year-over-year
decline and a 0.1% month-over-month decline in November
2024. While this
index is not a direct measure of real GNP, it is an indicator of ongoing economic
activity.
In
2021
and
2022,
inflation
rose
sharply
in
the
U.S.
and
Puerto
Rico
due
to
post-pandemic
demand
and
supply
chain
issues.
Inflation
began
to
decrease
by
mid-2022
as
the
Federal
Reserve
raised
interest
rates,
largely
stabilizing
by
September
2024,
leading to a series of rate reductions by the Federal Reserve for the first
time in four years. As of January 2025, the U.S. Consumer
Price Index
showed a
3.0% year-over-year
increase, still
above the
Federal Reserve’s
2% target.
In Puerto
Rico, the
Consumer
Price Index increased by 1.7% over the 12
months ending in November 2024.
Fiscal Challenges of Puerto Rico and its Municipalities
As
Puerto Rico’s
economy contracted
in the
2000s, public
debt
increased rapidly
due to
borrowing to
cover
deficits to
pay
debt
service, pension benefits,
and other expenditures.
By 2016, the
government had over
$120 billion in
combined debt and
unfunded
pension liabilities, lost access to capital markets, and
faced a fiscal crisis.
In response, the U.S. Congress enacted the Puerto Rico Oversight,
Management, and Economic Stability Act (“PROMESA”) in June
2016. PROMESA
established an Oversight
Board with
significant control
over Puerto
Rico’s fiscal
and economic
affairs, including
those of
its public
corporations,
instrumentalities and
municipalities (collectively,
“PR Government
Entities”). The
Oversight Board
will
remain
in
place
until
market
access
is
restored
and
balanced
budgets
are
achieved
for
at
least
four
consecutive
years.
PROMESA also established
two mechanisms for
the restructuring of
the obligations of
PR Government Entities:
(a) Title
III, an
in-
court process akin
to that of
the U.S. Bankruptcy Code
and which permits
adjustment of a broad
range of obligations, and
(b) Title
VI, a largely out-of-court process through which a
supermajority of creditors can accept modifications to
debt and bind holdouts.
Since
2017,
Puerto
Rico
and
several
of
its
instrumentalities
have
availed
themselves
of
these
mechanisms.
The
Puerto
Rico
government exited Title III in March 2022, and several instrumentalities, such as the Government Development Bank and the Puerto
Rico Highways and Transportation
Authority have also completed
debt restructurings under Titles
III or VI
of PROMESA. However,
the Puerto Rico Electric Power Authority is still undergoing
its debt restructuring.
Puerto
Rico's economic
difficulties
have also
impacted its
municipalities. Historically,
the central
government provided
significant
municipal subsidies.
However,
these, have
decreased pursuant
to fiscal
measures required
by the
Oversight Board.
This decline
has been partly offset by federal disaster and COVID-relief funding received
by municipalities in recent years. The latest Puerto Rico
fiscal plan proposes a
restructured grant system to enhance
municipal services and encourage accountability through
performance
metrics.
Municipalities
are
subject
to
PROMESA,
and
the
Oversight
Board
has
required
certain
municipalities
to
submit
fiscal
plans
and
annual budgets
for review
and approval.
Municipalities are
also required
to seek
Oversight Board
approval to
issue, guarantee
or
modify
their
debts
and
to
enter
into
significant
contracts.
To
date
no
municipality
has
availed
itself
of
the
debt
restructuring
mechanisms available to them under PROMESA.
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
93
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,
2024,
the
Corporation’s
direct
exposure
to
PR
Government
Entities
totaled
$336
million,
all
of
which
were
outstanding,
compared
to
$362
million,
of
which
$333
million
were
outstanding,
at
December
31,
2023.
Substantially
all
of
the
Corporation’s direct exposure
outstanding at December 31,
2024 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,
2024,
80%
of
the
Corporation’s
exposure
to
municipal
loans
and
securities
was
concentrated in the municipalities of San
Juan, Guaynabo, Carolina and Caguas.
In July 2024, the
Corporation received scheduled
principal payments
amounting to
$40 million
from various
obligations from
Puerto Rico
municipalities. For
additional discussion
of
the
Corporation’s
direct
exposure to
the
Puerto
Rico
government and
its
instrumentalities and
municipalities, refer
to
Note
23
–
Commitments and Contingencies to the Consolidated
Financial Statements.
In
addition, at
December 31,
2024,
the
Corporation had
$220
million
in
loans
insured
or
securities issued
by
PR
Governmental
Entities, but for
which the principal source
of repayment is non-governmental ($238 million
at December 31, 2023). These included
$176 million in
residential mortgage loans insured
by the Puerto
Rico Housing Finance Authority
(“HFA”), a
PR Government Entity
(December 31, 2023
- $191
million). The Corporation
also had,
at December 31,
2024, $38 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,
2023 -
$40 million).
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
PR
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,
2024,
BPPR
had
$19.5
billion
in
deposits
from
the
Puerto
Rico
government,
its
instrumentalities,
and
municipalities. The rate at
which public deposit balances may
decline is uncertain and
difficult to predict. The
amount and timing of
any such
reduction is likely
to be
impacted by,
for example, the
level of federal
assistance, the speed
at which
such 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.
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, 2024,
the Corporation
had approximately $28
million in
direct exposure to
USVI government
entities (December
31, 2023 - $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,
2024,
it
has
a
loan
portfolio
amounting
to
approximately
$196
million
comprised
of
various
retail
and
commercial
clients,
compared
to
a
loan
portfolio
of
$205
million
at
December 31, 2023.
94
U.S. Government
As further detailed in Notes
5 and 6 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, $2.1 billion of residential mortgages and $87.4 million commercial
loans
were insured
or guaranteed
by the
U.S. Government
or its
agencies at
December 31,
2024 (compared
to
$1.9 billion
and $89.2
million, respectively, at December 31, 2023).
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 24.
The Corporation’s
credit quality
metrics remained
stable during
2024, when
compared to
the previous
year.
While non-performing
loans
(“NPLs”),
net
charge
offs
(“NCOs”)
and
inflows
to
NPLs
remained
near
or
below
historical averages,
consumer
portfolios
reflected
increased
delinquencies
and
NCOs.
The
mortgage
and
commercial
portfolios
continued
to
operate
with
low
levels
of
delinquencies and NCOs. The
Corporation continues to actively monitor
changes in the macroeconomic environment
and borrower
performance given higher
interest rates and
inflationary pressures. Management believes
that the improvements
over recent years
in risk management practices
and the overall risk
profile of the Corporation’s
loan portfolios position Popular to
continue to operate
successfully under the current environment.
Total
NPAs
decreased
by
$30.0
million
when
compared
with
December
31,
2023.
Total
NPLs
decreased
by
$6.8
million
from
December
31,
2023.
BPPR’s
NPLs
decreased
by
$36.6
million,
across
most
loan
categories,
except
consumer
NPLs
which
reflected an
increase of
$7.4 million,
mostly driven
by the
auto portfolio.
Popular U.S.
NPLs increased
by $29.8
million, driven
by
higher commercial and mortgage NPLs
by $12.5 million and
$18.7 million, respectively.
The mortgage NPL increase
was impacted
by a single loan amounting to $17.1 million.
On December
31, 2024,
the ratio
of NPLs
to total
loans held-in-portfolio
was 0.95%,
compared to
1.02%, at
December 31,
2023.
Other real estate owned loans (“OREOs”) decreased
by $23.1 million from December 31, 2023. The
decrease in OREO was driven
by the
sale of
residential properties. On
December 31, 2024,
NPLs secured by
real estate
amounted to $200
million in the
Puerto
Rico operations and $56 million in Popular U.S,
compared with $231 million and $24 million,
respectively, on December 31, 2023.
The Corporation’s
commercial loan
portfolio secured
by real
estate (“CRE”)
amounted to
$10.9 billion
on December
31, 2024,
of
which
$3.2
billion
was
secured
with
owner
occupied
properties,
compared
with
$10.6
billion
and
$3.1
billion,
respectively,
on
December 31,
2023. Office
space leasing exposure
in our
non-owner occupied CRE
portfolio is limited,
representing only 1.9%
or
$714 million of our total loan portfolio. The
exposure is mainly comprised of low- to mid- rise properties with an
average loan size of
$2.4 million and is well diversified across tenant
type.
CRE NPLs
amounted to
$53.7 million
at December
31, 2024,
compared with
$47.6 million
at December
31, 2023.
The CRE
NPL
ratios for the BPPR and Popular U.S. segments were 0.64% and 0.37%, respectively,
at December 31, 2024, compared with 0.86%
and 0.13%, respectively, at December 31, 2023.
In addition to the NPLs included in Table 24, at December 31, 2024, there were $596 million of performing loans, mostly commercial
loans, which in management’s opinion, are currently subject to potential future classification as non-performing (December 31, 2023
- $510 million).
The following table presents the Corporation’s NPAs as of December 31, 2024
and 2023:
95
Table 24 - Non-Performing
Assets
December 31, 2024
December 31, 2023
(Dollars in thousands)
BPPR
Popular U.S.
Popular, Inc.
BPPR
Popular U.S.
Popular, Inc.
Non-accrual loans:
Commercial
Commercial multi-family
$
79
$
8,700
$
8,779
$
1,991
$
-
$
1,991
Commercial real estate non-owner
occupied
6,429
8,015
14,444
8,745
1,117
9,862
Commercial real estate owner occupied
25,258
5,191
30,449
29,430
6,274
35,704
Commercial and industrial
19,335
1,748
21,083
32,826
3,772
36,598
Total Commercial
51,101
23,654
74,755
72,992
11,163
84,155
Construction
-
-
-
6,378
-
6,378
Leasing
9,588
-
9,588
8,632
-
8,632
Mortgage
158,442
29,890
188,332
175,106
11,191
186,297
Consumer
Home equity lines of credit
-
3,393
3,393
-
3,733
3,733
Personal
20,269
1,741
22,010
19,031
2,805
21,836
Auto
51,792
-
51,792
45,615
-
45,615
Other
899
11
910
964
1
965
Total Consumer
72,960
5,145
78,105
65,610
6,539
72,149
Total non-performing
loans held-in-portfolio
292,091
58,689
350,780
328,718
28,893
357,611
Other real estate owned (“OREO”)
57,197
71
57,268
80,176
240
80,416
Total non-performing
assets
[1]
$
349,288
$
58,760
$
408,048
$
408,894
$
29,133
$
438,027
Accruing loans past due 90 days or more
[2]
$
242,250
$
190
$
242,440
$
268,362
$
109
$
268,471
Non-performing loans
to loans held-in-
portfolio
0.95
%
1.02
%
Interest Lost
15,565
18,697
[1] There were no non-performing loans held-for-sale
as of December 31, 2024 and December 31, 2023.
[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 $65
million of
residential
mortgage
loans insured
by FHA
or guaranteed
by the
VA
that are
no longer
accruing interest
as of
December 31,
2024 (December
31, 2023
- $106
million).
Furthermore,
at
December
31,2024
the
Corporation
had
approximately
$31
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 fr
om non-
performing assets (December 31, 2023 - $38 million).
For
the
year
ended
December
31,
2024,
total
inflows
of
NPLs
held-in-portfolio,
excluding
consumer
loans,
increased
by
$44.6
million, compared
to the
same period
in 2023.
Inflows of
NPLs held-in-portfolio at
the BPPR
segment decreased
by $21.7
million,
compared to the same period in 2023, mainly driven by lower commercial and construction inflows by $28.8 million and $9.3 million,
respectively, in part offset by higher mortgage inflows by $16.4 million. Inflows of NPLs held-in-portfolio at the Popular U.S. segment
increased by $66.3 million from the same period in 2023, mainly driven by higher commercial and mortgage inflows by $33.0 million
and $33.3
million,
respectively.
The increase
in commercial
NPL inflows
was primarily
driven by
a single
$17.3 million
loan sold
during the fourth quarter of 2024. Meanwhile,
the rise in mortgage NPL inflows included the
impact of a recurring $17.1 million loan.
Tables 25 to 32 present the Corporation’s inflows to NPLs for the years ended 2024 and 2023.
96
Table 25 - Activity in Non
-Performing Loans Held-in-Portfolio (Excluding Consumer
Loans)
For the year ended December 31, 2024
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance
- NPLs
$
254,476
$
22,354
$
276,830
Plus:
New non-performing loans
158,713
98,088
256,801
Advances on existing non-performing loans
-
382
382
Less:
Non-performing loans transferred to OREO
(16,572)
(24)
(16,596)
Non-performing loans charged-off
(18,643)
(1,885)
(20,528)
Loans returned to accrual status / loan collections
(168,431)
(65,371)
(233,802)
Ending balance - NPLs
$
209,543
$
53,544
$
263,087
Table 26 - 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
97
Table 27 - Activity in Non
-Performing Commercial Loans Held-In-Portfolio
For the year ended December 31, 2024
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$72,992
$11,163
$84,155
Plus:
New non-performing loans
15,749
48,764
64,513
Advances on existing non-performing loans
-
314
314
Less:
Non-performing loans transferred to OREO
(358)
-
(358)
Non-performing loans charged-off
(18,485)
(1,867)
(20,352)
Loans returned to accrual status / loan collections
(18,797)
(34,720)
(53,517)
Ending balance - NPLs
$51,101
$23,654
$74,755
Table 28 - 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 29
-
Activity in Non-Performing Construction Loans Held-In
-Portfolio
For the year ended December 31, 2024
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$6,378
$-
$6,378
Less:
Loans returned to accrual status / loan collections
(6,378)
-
(6,378)
Ending balance - NPLs
$-
$-
$-
98
Table 30 -
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
$-
$-
$-
Plus:
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
Table 31 - Activity in Non
-Performing Mortgage Loans Held-in-Portfolio
For the year ended December 31,
2024
(In thousands)
BPPR
Popular U.S.
Popular, Inc.
Beginning balance - NPLs
$175,106
$11,191
$186,297
Plus:
New non-performing loans
142,964
49,324
192,288
Advances on existing non-performing loans
-
68
68
Less:
Non-performing loans transferred to OREO
(16,214)
(24)
(16,238)
Non-performing loans charged-off
(158)
(18)
(176)
Loans returned to accrual status / loan collections
(143,256)
(30,651)
(173,907)
Ending balance - NPLs
$158,442
$29,890
$188,332
Table 32 - 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
99
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,
2024
and
2023,
are
presented
below.
Table 33 - Loan Delinquencies
(Dollars in thousands)
December 31, 2024
December 31, 2023
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
$
15,826
$
2,399,620
0.66
%
$
13,657
$
2,415,620
0.57
%
Commercial real estate
non-owner occupied
24,925
5,363,235
0.46
17,051
5,087,421
0.34
Commercial real estate
owner occupied
42,311
3,157,746
1.34
69,239
3,080,635
2.25
Commercial and industrial
49,942
7,741,562
0.65
58,953
7,126,121
0.83
Total Commercial
133,004
18,662,163
0.71
158,900
17,709,797
0.90
Construction
1,039
1,263,792
0.08
6,378
959,280
0.66
Leasing
39,641
1,925,405
2.06
35,491
1,731,809
2.05
Mortgage
[1]
798,130
8,114,183
9.84
859,537
7,695,917
11.17
Consumer
Credit cards
59,078
1,218,079
4.85
46,436
1,135,747
4.09
Home equity lines of credit
5,054
73,571
6.87
5,465
65,953
8.29
Personal
57,835
1,855,244
3.12
59,682
1,945,247
3.07
Auto
191,008
3,823,437
5.00
173,119
3,660,780
4.73
Other
3,930
171,778
2.29
3,063
160,441
1.91
Total Consumer
316,905
7,142,109
4.44
287,765
6,968,168
4.13
Loans held-for-sale
-
5,423
-
-
4,301
-
Total
$
1,288,719
$
37,113,075
3.47
%
$
1,348,071
$
35,069,272
3.84
%
[1]
Loans delinquent 30 days or more includes $0.4 billion
of residential mortgage loans insured by FHA or guaranteed
by the VA as of December
31, 2024 (December 31, 2023 - $0.5 billion). Refer to Note
7 to the Consolidated Financial Statements for additional information
of guaranteed loans.
Allowance for Credit Losses (“ACL”)
The 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.
100
On
December
31,
2024,
the
ACL
increased
by
$16.7
million
from
December
31,
2023
to
$746.0
million.
The
ACL
for
BPPR
increased by
$30.8 million,
driven by
a combined
$23.4 million
increase in
reserves for
the consumer
and lease
portfolios and
an
increase of $9.5
million in reserves
for commercial loans.
These increases were
mainly due to
a combination of
growth across the
different segments
and changes
in credit
quality trends
for the
credit cards
portfolios. In
PB, the
ACL decreased
by $14.1
million,
when compared
to December
31, 2023,
mainly due
to lower
reserves for
the commercial
portfolio resulting
from improvements
in
credit
quality,
as
well as
lower balances
in the
consumer portfolios.
The Corporation’s
ratio of
the allowance
for credit
losses to
loans held-in-portfolio was 2.01% on December 31, 2024, compared to 2.08% on December 31, 2023. The ratio of the allowance for
credit losses to NPLs held-in-portfolio stood at 212.68%,
compared to 203.95% on December 31, 2023.
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 weight assigned to the
pessimistic
scenario
decreased
during
the
first
quarter
of
2024
in
response
to
the
positive
momentum
in
the
economy
as
expectations for
the Federal
Reserve achieving
a soft
landing have
improved. The
Corporation evaluates,
at least
on an
annual
basis, the assumptions tied to the CECL accounting framework. These include
the reasonable and supportable period as well as the
reversion window.
The
provision for
credit
losses
related
to
the
loans
held-in-portfolio for
the year
ended December
31,
2024,
was
$258.4 million,
compared to $201.5 million for the year ended December 30, 2023, largely driven by higher NCOs due to credit quality changes and
commercial
loan
growth.
Refer
to
Note
8
–
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.
Tables 34 to 35 details the allowance for credit losses by loan categories and the percentage
it represents of total loans held-in-
portfolio and NPLs. The breakdown is made for analytical
purposes, and it is not necessarily indicative of the
categories in which
future loan losses may occur.
101
Table 34 - Allowance for Credit
Losses - Loan Portfolios
December 31, 2024
(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
$
9,236
$
2,399,620
0.38
%
$
8,779
105.21
%
Commercial real estate non-owner occupied
54,494
5,363,235
1.02
%
14,444
377.28
%
Commercial real estate owner occupied
49,828
3,157,746
1.58
%
30,449
163.64
%
Commercial and industrial
146,006
7,741,562
1.89
%
21,083
692.53
%
Total Commercial
$
259,564
$
18,662,163
1.39
%
$
74,755
347.22
%
Construction
11,264
1,263,792
0.89
%
-
N.M.
Leasing
16,419
1,925,405
0.85
%
9,588
171.25
%
Mortgage
82,409
8,114,183
1.02
%
188,332
43.76
%
Consumer
Credit cards
99,130
1,218,079
8.14
%
-
N.M.
Home equity lines of credit
1,503
73,571
2.04
%
3,393
44.30
%
Personal
102,736
1,855,244
5.54
%
22,010
466.77
%
Auto
165,995
3,823,437
4.34
%
51,792
320.50
%
Other
7,004
171,778
4.08
%
910
769.67
%
Total Consumer
$
376,368
$
7,142,109
5.27
%
$
78,105
481.87
%
Total
$
746,024
$
37,107,652
2.01
%
$
350,780
212.68
%
N.M. - Not meaningful.
Table 35 - 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
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
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.
102
Table 36 - Allocation of the
Allowance for Credit Losses - Loans
At December 31,
2024
2023
% 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
$9.2
6.5
%
$13.7
6.9
%
Commercial real estate non-owner occupied
54.5
14.5
65.4
14.5
Commercial real estate owner occupied
49.9
8.5
56.9
8.8
Commercial and industrial
146.0
20.8
122.4
20.3
Total Commercial
$259.6
50.3
%
$258.4
50.5
%
Construction
11.3
3.4
12.7
2.7
Leasing
16.4
5.2
9.7
5.0
Mortgage
82.4
21.9
83.2
21.9
Consumer
Credit cards
99.1
3.3
80.5
3.2
Home equity lines of credit
1.5
0.2
2.0
0.2
Personal
102.7
5.0
117.8
5.5
Auto
166.0
10.2
157.9
10.4
Other Consumer
7.0
0.5
7.1
0.6
Total Consumer
$376.3
19.2
%
$365.3
19.9
%
Total
[1]
$746.0
100.0
%
$729.3
100.0
%
[1] Note: For purposes of this table the term loans refers to
loans held-in-portfolio excluding loans held-for-sale.
The following
table presents
net charge-offs
to average
loans held-in-portfolio
(“HIP”) ratios
by loan
category for
the years
ended
December 31, 2024 and 2023:
Table 37 - Net Charge-Offs
(Recoveries) to Average Loans HIP
December 31, 2024
December 31, 2023
BPPR
Popular U.S.
Popular Inc.
BPPR
Popular U.S.
Popular Inc.
Commercial
0.17
%
0.04
%
0.11
%
(0.10)
%
0.02
%
(0.05)
%
Construction
(0.59)
(0.01)
(0.10)
1.59
-
0.32
Mortgage
(0.21)
(0.01)
(0.18)
(0.22)
(0.02)
(0.19)
Leasing
0.67
-
0.67
0.43
-
0.43
Consumer
3.06
7.44
3.20
2.18
6.20
2.35
Total
0.89
%
0.18
%
0.68
%
0.55
%
0.19
%
0.44
%
NCOs for the year ended December 31, 2024,
amounted to $241.8 million, increasing by $95.4 million when compared to the
same
period in 2023.
The BPPR segment
increased by $95.4
million mainly driven
by higher consumer
and commercial NCOs
by $68.6
103
million and $25.4 million, respectively. The consumer NCOs continue to gradually
increase mainly due to credit quality changes. The
PB segment NCOs remained flat year-over-year.
Loan Modifications
For the twelve months ended December 31, 2024,
modified loans to borrowers with financial difficulty
amounted to $455 million, of
which $430 million were in accruing status. The
BPPR segment’s modifications to borrowers with financial
difficulty amounted to
$441 million, mainly comprised of commercial and mortgage
loans of $358 million and $66 million, respectively. A total of $44
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 $14 million,
of which $12 million were commercial loans.
Refer
to
Note
8
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.
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
(“RAS”) 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 performed by the Treasury Division for
transactions involving
the purchase
and sale
of assets,
and by
the Mergers
and Acquisitions
Division for
acquisition transactions.
The Enterprise Risk Management Department has a Corporate Issues
Management Policy to promote on time remediation of issues
and increase the
governance and transparency around
the number and
the severity of
issues identified for each
business unit and
corporate
function
by
all
sources.
The
Enterprise
Risk
Management
Department
also
has
a
Corporate
Regulatory
Change
Management Program
to
oversee,
on
a
risk
basis,
the
implementation of
laws
and
regulations by
the
appropriate
business and
support areas.
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
support
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
assess
the
adequacy,
consistency
and
timeliness
of
the
reporting
of
compliance-
related risks across the Corporation.
104
The Regulatory Affairs
team is responsible
for maintaining an
open dialog with
the banking regulatory
agencies to have
regulatory
risks 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
providing for
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 providing
for 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
a
Corporate Sustainability
Committee
whose
purpose
and
responsibility is
to
oversee the
Corporation’s sustainability efforts and support the development and consistent application of policies, strategies and guidelines that
measure and
manage sustainability
matters and
risks. The
Corporate Sustainability
Committee also
assesses environmental
and
social considerations
with respect
to certain
commercial credit
applications, in
accordance with
the applicable
Commercial Credit
Policy and Commercial Credit Manuals of BPPR
and PB.
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 have strategic risks 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.
105
Statistical Summary 2024-2023
Statements of Financial Condition
At December 31,
(In thousands)
2024
2023
Assets:
Cash and due from banks
$
419,638
$
420,462
Money market investments:
Time deposits with other banks
6,380,948
6,998,871
Total money market investments
6,380,948
6,998,871
Trading account debt securities, at fair value
32,831
31,568
Debt securities available-for-sale, at fair
value
18,245,903
16,729,044
Debt securities held-to-maturity, at amortized cost
7,758,077
8,194,335
Less – Allowance for credit losses
5,317
5,780
Debt securities held-to-maturity, net
7,752,760
8,188,555
Equity securities
208,166
193,726
Loans held-for-sale, at fair value
5,423
4,301
Loans held-in-portfolio:
Loans held-in-portfolio
37,522,995
35,420,879
Less – Unearned income
415,343
355,908
Allowance for credit losses
746,024
729,341
Total loans held-in-portfolio, net
36,361,628
34,335,630
Premises and equipment, net
601,787
565,284
Other real estate
57,268
80,416
Accrued income receivable
263,389
263,433
Mortgage servicing rights, at fair value
108,103
118,109
Other assets
1,797,759
2,014,564
Goodwill
802,954
804,428
Other intangible assets
6,826
9,764
Total assets
$
73,045,383
$
70,758,155
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing
$
15,139,555
$
15,419,624
Interest bearing
49,744,790
48,198,619
Total deposits
64,884,345
63,618,243
Assets sold under agreements to repurchase
54,833
91,384
Other short-term borrowings
225,000
-
Notes payable
896,293
986,948
Other liabilities
1,371,846
914,627
Total liabilities
67,432,317
65,611,202
Stockholders’ equity:
Preferred stock
22,143
22,143
Common stock
1,048
1,048
Surplus
4,908,693
4,843,399
Retained earnings
4,570,957
4,194,851
Treasury stock – at cost
(2,228,535)
(2,018,957)
Accumulated other comprehensive loss, net
of tax
(1,661,240)
(1,895,531)
Total stockholders’ equity
5,613,066
5,146,953
Total liabilities and stockholders’ equity
$
73,045,383
$
70,758,155
106
Statistical Summary 2022-2024
Statements of Operations
For the years ended December 31,
(In thousands)
2024
2023
2022
Interest income:
Loans
$
2,626,058
$
2,331,654
$
1,876,166
Money market investments
352,195
366,625
118,080
Investment securities
695,010
547,028
471,665
Total interest income
3,673,263
3,245,307
2,465,911
Less - Interest expense
1,390,975
1,113,783
298,552
Net interest income
2,282,288
2,131,524
2,167,359
Provision for credit losses
256,942
208,609
83,030
Net interest income after provision for
credit losses
2,025,346
1,922,915
2,084,329
Mortgage banking activities
19,059
21,497
42,450
Net (loss) gain, including impairment, on
equity securities
(1,583)
3,482
(7,334)
Net gain (loss) on trading account debt securities
1,445
1,382
(784)
Net gain (loss) on sale of loans, including
valuation adjustments on loans held-for-sale
440
(115)
-
Adjustment to indemnity reserves on loans
sold
1,266
2,319
919
Other non-interest income
638,282
622,159
861,811
Total non-interest income
658,909
650,724
897,062
Operating expenses:
Personnel costs
820,451
778,045
719,764
All other operating expenses
1,067,186
1,120,055
1,026,656
Total operating expenses
1,887,637
1,898,100
1,746,420
Income before income tax
796,618
675,539
1,234,971
Income tax expense
182,406
134,197
132,330
Net Income
$
614,212
$
541,342
$
1,102,641
Net Income Applicable to Common Stock
$
612,800
$
539,930
$
1,101,229
107
Statistical Summary 2024-2022
Average Balance Sheet and Summary of
Net Interest Income
On a Taxable Equivalent
Basis*
2024
2023
2022
(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
$
6,640,514
$
352,195
5.30
%
$
7,051,718
$
366,625
5.20
%
$
9,530,698
$
118,079
1.24
%
U.S.
Treasury securities
21,047,129
654,712
3.11
20,305,488
441,179
2.17
21,141,431
448,961
2.12
Obligations of U.S.
Government
sponsored entities
-
-
-
-
-
-
41
2
5.66
Obligations of Puerto Rico, States
and political subdivisions
59,668
6,215
10.42
64,682
5,863
9.06
67,965
7,824
11.51
Collateralized mortgage obligations and
mortgage-backed securities
6,642,953
136,016
2.05
7,360,071
157,196
2.14
8,342,672
198,566
2.38
Other
205,711
11,514
5.60
196,226
11,519
5.87
190,489
8,925
4.68
Total investment securities
27,955,461
808,457
2.89
27,926,467
615,757
2.20
29,742,598
664,278
2.23
Trading account securities
30,250
1,583
5.23
31,876
1,377
4.32
51,357
3,049
5.94
Loans (net of unearned income)
35,701,240
2,684,598
7.52
33,164,961
2,387,351
7.20
30,405,280
1,924,895
6.33
Total interest earning
assets/Interest
income
$
70,327,465
$
3,846,833
5.47
%
$
68,175,022
$
3,371,110
4.94
%
$
69,729,933
$
2,710,301
3.89
%
Total non-interest
earning assets
3,072,814
3,059,214
3,078,671
Total assets
$
73,400,279
$
71,234,236
$
72,808,604
Liabilities and Stockholders' Equity
Interest bearing liabilities:
Savings, NOW,
money market and
other
interest bearing demand accounts
$
40,476,544
$
1,046,100
2.58
%
$
39,463,481
$
862,981
2.19
%
$
41,769,576
$
191,064
0.46
%
Time deposits
8,902,700
290,021
3.26
7,775,846
187,043
2.41
6,853,127
61,781
0.90
Federal funds purchased
6,011
322
5.36
6
-
5.25
7
-
3.92
Securities purchased under agreement
to resell
70,145
3,900
5.56
115,808
6,019
5.20
107,305
2,309
2.15
Other short-term borrowings
8,402
454
5.40
27,302
1,310
4.80
99,083
3,428
3.46
Notes payable
961,886
50,178
5.22
1,109,163
56,430
5.09
938,778
39,970
4.26
Total interest bearing
liabilities/Interest
expense
50,425,688
1,390,975
2.76
48,491,606
1,113,783
2.30
49,767,876
298,552
0.60
Total non-interest
bearing liabilities
15,921,398
16,142,027
17,031,503
Total liabilities
66,347,086
64,633,633
66,799,379
Stockholders' equity
7,053,193
6,600,603
6,009,225
Total liabilities and
stockholders' equity
$
73,400,279
$
71,234,236
$
72,808,604
Net interest income on a taxable
equivalent basis
$
2,455,858
$
2,257,327
$
2,411,749
Cost of funding earning assets
1.98
%
1.63
%
0.43
%
Net interest margin
3.49
%
3.31
%
3.46
%
Effect of the taxable equivalent
adjustment
173,570
125,803
244,390
Net interest income per books
$
2,282,288
$
2,131,524
$
2,167,359
*
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.
108
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,
2024.
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, 2024 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, 2024,
as stated
in their
report dated
March 3,
2025
which appears herein.
Ignacio Alvarez
Jorge J. García
Chief Executive Officer
Executive Vice President
and Chief Financial Officer
109
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,
2024
and
2023,
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,
2024,
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, 2024,
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, 2024 and 2023, and the
results of its operations and its cash
flows
for
each
of
the
three
years
in
the
period
ended
December
31,
2024
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,
2024, 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.
110
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
8 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, 2024, the allowance
for credit losses
was $746
million
on
total
loans
of
$37
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 to
111
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
March 3, 2025
We have served as the Corporation’s auditor since 1971, which includes periods before the Corporation became
subject to SEC reporting requirements
Stamp DLLP216-99 of the P.R. Society of
Certified Public Accountants is affixed to
the original of this report
112
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF FINANCIAL CONDITION
[UNAUDITED]
December 31,
December 31,
(In thousands, except share information)
2024
2023
Assets:
Cash and due from banks
$
419,638
$
420,462
Money market investments:
Time deposits with other banks
6,380,948
6,998,871
Total money market investments
6,380,948
6,998,871
Trading account debt securities, at fair value
32,831
31,568
Debt securities available-for-sale, at fair
value:
Pledged securities with creditors’ right to repledge
30,486
72,827
Other debt securities available-for-sale
18,215,417
16,656,217
Debt securities available-for-sale
18,245,903
16,729,044
Debt securities held-to-maturity, at amortized cost:
Pledged securities with creditors’ right to repledge
27,405
27,083
Other debt securities held-to-maturity
7,730,672
8,167,252
Debt securities held-to-maturity (fair
value 2024 - $
7,682,664
; 2023 - $
8,159,385
)
7,758,077
8,194,335
Less – Allowance for credit losses
5,317
5,780
Debt securities held-to-maturity, net
7,752,760
8,188,555
Equity securities (realizable value 2024 -
$
208,663
; 2023 - $
194,641
)
208,166
193,726
Loans held-for-sale, at fair value
5,423
4,301
Loans held-in-portfolio
37,522,995
35,420,879
Less – Unearned income
415,343
355,908
Allowance for credit losses
746,024
729,341
Total loans held-in-portfolio, net
36,361,628
34,335,630
Premises and equipment, net
601,787
565,284
Other real estate
57,268
80,416
Accrued income receivable
263,389
263,433
Mortgage servicing rights, at fair value
108,103
118,109
Other assets
1,797,759
2,014,564
Goodwill
802,954
804,428
Other intangible assets
6,826
9,764
Total assets
$
73,045,383
$
70,758,155
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest bearing
$
15,139,555
$
15,419,624
Interest bearing
49,744,790
48,198,619
Total deposits
64,884,345
63,618,243
Assets sold under agreements to repurchase
54,833
91,384
Other short-term borrowings
225,000
-
Notes payable
896,293
986,948
Other liabilities
1,371,846
914,627
Total liabilities
67,432,317
65,611,202
Commitments and contingencies (Refer
to Note 23)
Stockholders’ equity:
Preferred stock,
30,000,000
shares authorized;
885,726
shares issued and outstanding (2023 -
885,726
)
22,143
22,143
Common stock, $
0.01
par value;
170,000,000
shares authorized;
104,849,460
shares issued (2023 -
104,767,348
) and
70,141,291
shares outstanding (2023 -
72,153,621
)
1,048
1,048
Surplus
4,908,693
4,843,399
Retained earnings
4,570,957
4,194,851
Treasury stock - at cost,
34,708,169
shares (2023 -
32,613,727
)
(2,228,535)
(2,018,957)
Accumulated other comprehensive loss, net
of tax
(1,661,240)
(1,895,531)
Total stockholders’ equity
5,613,066
5,146,953
Total liabilities and stockholders’ equity
$
73,045,383
$
70,758,155
The accompanying notes are an integral part of
these Consolidated Financial Statements.
113
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF OPERATIONS
Years ended December 31,
(In thousands, except per share information)
2024
2023
2022
Interest income:
Loans
$
2,626,058
$
2,331,654
$
1,876,166
Money market investments
352,195
366,625
118,080
Investment securities
695,010
547,028
471,665
Total interest income
3,673,263
3,245,307
2,465,911
Interest expense:
Deposits
1,336,121
1,050,024
252,845
Short-term borrowings
4,676
7,329
5,737
Long-term debt
50,178
56,430
39,970
Total interest expense
1,390,975
1,113,783
298,552
Net interest income
2,282,288
2,131,524
2,167,359
Provision for credit losses
256,942
208,609
83,030
Net interest income after provision for credit losses
2,025,346
1,922,915
2,084,329
Service charges on deposit accounts
151,343
147,476
157,210
Other service fees
389,233
374,440
334,009
Mortgage banking activities (Refer to Note 9)
19,059
21,497
42,450
Net (loss) gain, including impairment on equity securities
(1,583)
3,482
(7,334)
Net gain (loss) on trading account debt securities
1,445
1,382
(784)
Net gain (loss) on sale of loans, including
valuation adjustments on loans
held-for-sale
440
(115)
-
Adjustments to indemnity reserves on loans sold
1,266
2,319
919
Other operating income
97,706
100,243
370,592
Total non-interest income
658,909
650,724
897,062
Operating expenses:
Personnel costs
820,451
778,045
719,764
Net occupancy expenses
111,430
111,586
106,169
Equipment expenses
33,424
37,057
35,626
Other taxes
66,046
55,926
63,603
Professional fees
125,822
161,142
172,043
Technology and software expenses
329,061
290,615
291,902
Processing and transactional services
142,677
138,070
127,145
Communications
18,899
16,664
14,885
Business promotion
101,930
94,926
88,918
FDIC deposit insurance
54,626
105,985
26,787
Other real estate owned (OREO) income
(18,124)
(15,375)
(22,143)
Other operating expenses
98,457
97,279
109,446
Amortization of intangibles
2,938
3,180
3,275
Goodwill impairment charge
-
23,000
9,000
Total operating expenses
1,887,637
1,898,100
1,746,420
Income before income tax
796,618
675,539
1,234,971
Income tax expense
182,406
134,197
132,330
Net Income
$
614,212
$
541,342
$
1,102,641
Net Income Applicable to Common Stock
$
612,800
$
539,930
$
1,101,229
Net Income per Common Share – Basic
$
8.56
$
7.53
$
14.65
Net Income per Common Share – Diluted
$
8.56
$
7.52
$
14.63
The accompanying notes are an integral part of
these consolidated financial statements.
114
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME (LOSS)
Years ended December 31,
(In thousands)
2024
2023
2022
Net income
$
614,212
$
541,342
$
1,102,641
Other comprehensive income (loss) before
tax:
Foreign currency translation adjustment
(6,837)
(7,793)
10,572
Adjustment of pension and postretirement
benefit plans
22,652
23,052
7,811
Amortization of net losses
14,471
19,253
15,644
Unrealized net holding gains (losses) on debt
securities arising during the period
101,442
391,633
(2,539,421)
Reclassification adjustment for gains included
in net income
-
-
-
Amortization of unrealized losses of debt
securities transfer from available-for-sale
to
held-to-maturity
179,563
172,883
41,642
Unrealized net gains (losses) on cash flow
hedges
-
(30)
3,719
Reclassification adjustment for net (gains)
losses included in net income
-
(41)
(960)
Other comprehensive income (loss) before
tax
311,291
598,957
(2,460,993)
Income tax (expense) benefit
(77,000)
30,440
261,134
Total other comprehensive income (loss), net of tax
234,291
629,397
(2,199,859)
Comprehensive income (loss), net of tax
$
848,503
$
1,170,739
$
(1,097,218)
Tax effect allocated to each component of other comprehensive
income (loss):
Years ended December 31,
(In thousands)
2024
2023
2022
Adjustment of pension and postretirement
benefit plans
$
(8,495)
$
(8,644)
$
(2,929)
Amortization of net losses
(5,427)
(7,219)
(5,867)
Unrealized net holding gains (losses) on debt
securities arising during the period
(27,165)
80,854
278,324
Reclassification adjustment for gains included
in net income
-
-
-
Amortization of unrealized losses of debt
securities transferred from available-for-sale
to
held-to-maturity
(35,913)
(34,577)
(8,328)
Unrealized net gains (losses) on cash flow
hedges
-
11
(612)
Reclassification adjustment for net (gains)
losses included in net income
-
15
546
Income tax (expense) benefit
$
(77,000)
$
30,440
$
261,134
The accompanying notes are an integral
part of these consolidated financial statements.
115
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS’ EQUITY
Accumulated
other
Common
Preferred
Retained
Treasury
comprehensive
(In thousands)
stock
stock
Surplus
earnings
stock
loss
Total
Balance at December 31, 2021
$
1,046
$
22,143
$
4,650,182
$
2,973,745
$
(1,352,650)
$
(325,069)
$
5,969,397
Net income
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
[2]
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
Net income
614,212
614,212
Issuance of stock
6,860
6,860
Dividends declared:
Common stock
[3]
(183,854)
(183,854)
Preferred stock
(1,412)
(1,412)
Common stock purchases
(224,626)
(224,626)
Stock based compensation
5,594
15,048
20,642
Other comprehensive income, net of tax
234,291
234,291
Transfer to statutory reserve
52,840
(52,840)
-
Balance at December 31, 2024
$
1,048
$
22,143
$
4,908,693
$
4,570,957
$
(2,228,535)
$
(1,661,240)
$
5,613,066
[1]
Dividends declared per common share during the year ended
December 31, 2024 - $
2.56
(2023 - $
2.27
; 2022 - $
2.20
).
[2]
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 19
for additional information.
[3]
Includes common
stock repurchases
of $
217.3
million
as part
of a
repurchase
authorization
up to
$
500
million.
Refer to
Note
19 for
additional
information.
Years ended December
31,
Disclosure of changes in number of shares:
2024
2023
2022
Preferred Stock:
Balance at beginning and end of year
885,726
885,726
885,726
Common Stock:
Balance at beginning of year
104,767,348
104,657,522
104,579,334
Issuance of stock
82,112
109,826
78,188
Balance at end of year
104,849,460
104,767,348
104,657,522
Treasury stock
(34,708,169)
(32,613,727)
(32,803,802)
Common Stock – Outstanding
70,141,291
72,153,621
71,853,720
The accompanying notes are an integral part of these consolidated
financial statements.
116
POPULAR, INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
Years ended December
31,
(In thousands)
2024
2023
2022
Cash flows from operating activities:
Net income
$
614,212
$
541,342
$
1,102,641
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for credit losses
256,942
208,609
83,030
Goodwill impairment charge
-
23,000
9,000
Amortization of intangibles
2,938
3,180
3,275
Depreciation and amortization of premises and equipment
57,078
58,507
55,107
Net accretion of discounts and amortization of premiums and
deferred fees
(252,413)
(45,249)
29,120
Interest capitalized on loans subject to the temporary payment
moratorium or loss mitigation
alternatives
(7,109)
(9,868)
(11,521)
Share-based compensation
19,676
16,773
16,727
Impairment losses on right-of-use and long-lived assets
-
-
2,233
Fair value adjustments on mortgage servicing rights
11,370
12,339
(166)
Fair value adjustment for contingent consideration
-
-
(9,241)
Adjustments to indemnity reserves on loans sold
(1,266)
(2,319)
(919)
Earnings from investments under the equity method, net
of dividends or distributions
(23,541)
(27,450)
(29,522)
Deferred income tax expense (benefit)
23,711
(43,139)
(33,129)
(Gain) loss on:
Disposition of premises and equipment and other productive
assets
(7,558)
(12,756)
(9,453)
Proceeds from insurance claims
-
(145)
-
Sale of loans, including valuation adjustments on loans
held-for-sale and mortgage banking
activities
(758)
203
252
Sale of equity method investment
-
(152)
(8,198)
Sale of stock in equity method investee
(551)
-
-
Disposition of stock as part of the Evertec Transactions
-
-
(240,412)
Sale of foreclosed assets, including write-downs
(17,953)
(22,665)
(33,008)
Acquisitions of loans held-for-sale
(6,886)
(7,639)
(122,363)
Proceeds from sale of loans held-for-sale
47,809
44,734
64,542
Net originations on loans held-for-sale
(49,579)
(68,310)
(202,913)
Net decrease (increase) in:
Trading debt securities
13,898
33,500
353,301
Equity securities
(6,847)
(11,341)
54
Accrued income receivable
216
(23,238)
(62,932)
Other assets
30,043
24,200
76,589
Net increase (decrease) in:
Interest payable
1,622
19,814
6,061
Pension and other postretirement benefits obligation
8,463
16,092
(2,893)
Other liabilities
(38,795)
(41,410)
(20,724)
Total adjustments
60,510
145,270
(88,103)
Net cash provided by operating activities
674,722
686,612
1,014,538
Cash flows from investing activities:
Net decrease (increase) in money market investments
620,578
(1,383,821)
11,922,703
Purchases of investment securities:
Available-for-sale
(34,339,865)
(16,707,264)
(22,232,278)
Held-to-maturity
-
(8,615)
(1,879,443)
Equity
(27,216)
(18,477)
(48,921)
Proceeds from calls, paydowns, maturities and redemptions
of investment securities:
Available-for-sale
33,789,182
18,215,910
20,143,921
Held-to-maturity
659,543
458,806
9,826
Proceeds from sale of investment securities:
Equity
19,623
31,946
42,990
Net disbursements on loans
(1,636,569)
(2,475,837)
(2,237,084)
Proceeds from sale of loans
42,287
135,231
141,314
Acquisition of loan portfolios
(668,215)
(770,493)
(753,684)
Return of capital from equity method investments
279
249
681
Payments to acquire equity method investments
(1,250)
(1,500)
(1,625)
Proceeds from sale of equity method investment
-
152
8,198
Proceeds from sale of stock in equity method investee
4,489
-
-
Proceeds from disposition of stock as part of the Evertec Transactions
-
-
219,883
117
Acquisition of premises and equipment
(213,412)
(208,044)
(103,789)
Proceeds from insurance claims
-
145
-
Proceeds from sale of:
Premises and equipment and other productive assets
8,890
8,658
10,305
Foreclosed assets
109,182
109,547
107,203
Net cash (used in) provided by investing activities
(1,632,474)
(2,613,407)
5,350,200
Cash flows from financing activities:
Net increase (decrease) in:
Deposits
1,261,053
2,365,451
(5,770,261)
Assets sold under agreements to repurchase
(36,551)
(57,225)
57,006
Other short-term borrowings
225,000
(365,000)
290,000
Payments of notes payable
(91,943)
(343,261)
(103,147)
Principal payments of finance leases
(3,977)
(5,360)
(3,346)
Proceeds from issuances of notes payable
-
441,705
-
Proceeds from issuances of common stock
6,860
6,311
5,837
Dividends paid
(180,461)
(159,860)
(161,516)
Net payments for repurchase of common stock
(213,922)
(461)
(631,893)
Payments related to tax withholding for share-based compensation
(6,476)
(4,089)
(5,771)
Net cash provided by (used in) financing activities
959,583
1,878,211
(6,323,091)
Net increase (decrease) in cash and due from banks, and
restricted cash
1,831
(48,584)
41,647
Cash and due from banks, and restricted cash at beginning
of period
427,575
476,159
434,512
Cash and due from banks, and restricted cash at end of period
$
429,406
$
427,575
$
476,159
The accompanying notes are an integral part of these consolidated
financial statements.
118
Notes to Consolidated Financial Statements
Note 1 -
Nature of Operations
119
Note 2 -
Summary of Significant Accounting Policies
120
Note 3 -
New Accounting Pronouncements
130
Note 4 -
Restrictions on Cash and Due from Banks and Certain Securities
134
Note 5 -
Debt Securities Available-For-Sale
135
Note 6 -
Debt Securities Held-to-Maturity
138
Note 7 -
Loans
142
Note 8 -
Allowance for Credit Losses – Loans Held-In-Portfolio
152
Note 9 -
Mortgage Banking Activities
185
Note 10 -
Transfers of Financial Assets and Mortgage
Servicing Assets
186
Note 11 -
Premises and Equipment
189
Note 12 -
Other Real Estate Owned
190
Note 13 -
Other Assets
191
Note 14 -
Goodwill and Other Intangible Assets
193
Note 15 -
Deposits
197
Note 16 -
Borrowings
198
Note 17 -
Trust Preferred Securities
201
Note 18 -
Other Liabilities
202
Note 19 -
Stockholders’ Equity
203
Note 20 -
Regulatory Capital Requirements
205
Note 21 -
Other Comprehensive Income (Loss)
208
Note 22 -
Guarantees
210
Note 23 -
Commitments and Contingencies
212
Note 24-
Non-consolidated Variable Interest
Entities
216
Note 25 -
Derivative Instruments and Hedging Activities
218
Note 26 -
Related Party Transactions
221
Note 27 -
Fair Value Measurement
223
Note 28 -
Fair Value of Financial Instruments
232
Note 29 -
Employee Benefits
235
Note 30 -
Net Income per Common Share
243
Note 31 -
Revenue from Contracts with Customers
244
Note 32 -
Leases
246
Note 33 -
Stock-Based Compensation
248
Note 34 -
Income Taxes
251
Note 35 -
Supplemental Disclosure on the Consolidated Statements of Cash
Flows
256
Note 36 -
Segment Reporting
257
Note 37 -
Popular, Inc. (Holding company only)
Financial Information
262
119
Note 1 – Nature of Operations
Nature of Operations
Popular,
Inc. (the
“Corporation” or
“Popular”) is
a diversified,
publicly-owned financial
holding company
subject to
the supervision
and
regulation
of
the
Board
of
Governors
of
the
Federal
Reserve
System.
The
Corporation
has
operations
in
Puerto
Rico,
the
mainland United
States (“U.S.”)
and the
U.S. and
British Virgin
Islands. In
Puerto Rico,
the Corporation
provides retail,
mortgage,
and
commercial
banking
services,
through
its
principal
banking
subsidiary,
Banco
Popular
de
Puerto
Rico
(“BPPR”),
as
well
as
investment
banking,
broker-dealer,
auto
and
equipment
leasing
and
financing,
and
insurance
services
through
specialized
subsidiaries.
In
the
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.
Tax impact on Intercompany Distributions
The net income for
the year ended December
31, 2024 included $
22.9
million of expenses, of
which $
16.5
million was reflected in
income tax
expense and $
6.4
million was
reflected in
other operating expenses,
related to an
out-of-period adjustment associated
with the
Corporation’s U.S. subsidiary’s
non-payment of taxes
on certain intercompany
distributions to the
Bank Holding Company
(BHC) in
Puerto Rico,
a foreign
corporation for
U.S. tax
purposes. The
adjustment corrected
errors for
income tax
expense that
should have
been recognized
of $
5.5
million and
$
5.4
million in
the years
2023 and
2022, respectively,
and an
aggregate of
$
5.6
million, in the years prior to 2022. The $
6.4
million recognized as other operating expense corresponded to interest due up to March
31, 2024 on the related late payment of the withholding tax, of
which approximately $
3.0
million corresponded to years prior to 2022.
As a result of this adjustment, the deferred
tax asset related to NOL of the BHC
and its related valuation allowance was reduced by
$
52.2
million.
The
Corporation
evaluated
the
impact
of
the
out-of-period
adjustment
and
concluded
it
was
not
material
to
any
previously issued interim or annual consolidated financial
statements.
120
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). The Corporation did not engage
in any business combination
activities during the years ended December 31,
2024 and 2023.
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.
121
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
(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
122
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.
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.
Based
on
the
election
to
apply
fair
value
accounting
for
its
mortgage
loans
held
for
sale,
hedge
accounting
is
not
used
for
these
forward
contracts
and
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 recorded through net
income (loss).
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
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.
Newly originated mortgage loans held-for-sale are reported
at fair value, with changes recorded through
earnings.
123
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
A modification
is subject to
disclosure under ASC
Topic
326 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,
a more-than-insignificant
payment delay,
or a
combination of
these.
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.
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
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
124
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 7
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,
2024,
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
U.S.
portfolio,
the
reasonable
and
supportable
period
considers
the
contractual
life
of
the
asset,
impacted by
prepayments, except for
the U.S.
CRE portfolio. The
U.S. 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
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
125
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, 2024, 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.
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
126
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 fixed,
non-cancelable terms
of the
respective lease
contracts or
the
estimated useful
lives
of the
asset, 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
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
on sale and
leaseback transactions in earnings when
the transfer constitutes a
sale, and the transaction
was at fair value.
Refer to
Note 32 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.
127
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
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-year period, 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
22 to
the Consolidated Financial
Statements for further
disclosures
on guarantees.
Treasury stock
128
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
31
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
income (loss).
Refer to the disclosure of accumulated other comprehensive
income (loss) included in Note 21.
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,
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
129
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
For purposes of reporting cash flows, cash includes
cash on hand and amounts due from banks, including
restricted cash.
130
Note 3 - New accounting pronouncements
Recently Adopted Accounting Standards Updates
Standard
Description
Date of adoption
Effect on the financial statements
FASB ASU 2023-07,
Segment Reporting (Topic
280) - Improvements to
Reportable Segment
Disclosures
The
Financial Accounting
Standards Board
("FASB")
issued
Accounting
Standard
Update
("ASU")
2023-07
in
November
2023,
which
amends
ASC
Topic
280
by
requiring disclosure
of the
position and
title
of
the
chief
operating
decision
maker
(“CODM”)
and
how
the
CODM
uses
each
reported measure of segment’s profit or loss
to
allocate
resources
to
the
segment.
The
standard
also
requires
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 adopted ASU
2023-07
for
it's
Consolidated
Financial
Statements included in
this Form 10-K.
The
adoption
of
this
standard
resulted
in
the
inclusion
of
the
additional
required
disclosures
related
to
the
CODM as
well as
the disclosure
of the
significant
segment
expenses
which
are
regularly
provided
to
the
CODM.
Refer
to
Note
36
-
Segment reporting,
for the additional disclosures included.
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
amends
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 investments not
accounted
for
using
the
proportional
amortization
method
and
instead
requires
the use of other guidance.
January 1, 2024
The
Corporation
was
not
impacted
by
the
adoption of
this
ASU
since
it does
not hold tax equity investments.
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
of
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
was
not
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
was
not
impacted
by
the
adoption
of
this
accounting
pronouncement
since
it
does
not
hold
equity securities measured at
fair value
with sale restrictions.
131
Accounting Standards Updates Not Yet Adopted
Standard
Description
Date of adoption
Effect on the financial statements
FASB ASU 2024-04,
Debt—Debt with
Conversion and Other
Options (Subtopic 470-
20): Induced Conversions
of Convertible Debt
Instruments
The
FASB
issued
ASU
2024-04
in
November
2024,
which
clarifies
the
requirements
for
determining
whether
certain
settlements
of
convertible
debt
instruments should be
accounted for as
an
induced
conversion.
Also
it
makes
additional
clarifications
to
assist
stakeholders in
applying the
guidance. The
ASU
clarifies
that
the
incorporation,
elimination,
or
modification
of
a
volume-
weighted
average
price
("VWAP")
formula
does
not
automatically
cause
a
settlement
to
be
accounted
for
as
an
extinguishment
and
that
the
induced
conversion
guidance
applies to a convertible
debt instrument that
is not currently
convertible as long as
it had
a substantive
conversion feature
as of
both
its
issuance
date
and
the
date
the
inducement offer is accepted.
January 1, 2026
The Corporation
is currently
evaluating
any
impact
that
the
adoption
of
this
guidance
will
have
on
its
financial
statements
and
presentation
and
disclosures.
FASB ASU 2024-03,
Income Statement—
Reporting Comprehensive
Income—Expense
Disaggregation
Disclosures (Subtopic
220-40): Disaggregation of
Income Statement
Expenses (As updated by
ASU 2025-01)
The
FASB
issued
ASU
2024-03
in
November
2024,
which
requires
public
entities
to
disclose
additional
information
about
specific
expense
categories
in
the
notes to
financial statements
at interim
and
annual
reporting
periods
to
improve
financial transparency.
For fiscal years
beginning on
January 1, 2027
For interim periods
within fiscal years
beginning after
January 1, 2028
The Corporation
is currently
evaluating
any
impact
that
the
adoption
of
this
guidance
will
have
on
its
financial
statements
and
presentation
and
disclosures.
FASB ASU 2024-02,
Codification
Improvements—
Amendments to Remove
References to the
Concepts Statements
The
FASB
issued
ASU
2024-02
in
March
2024, which
removes various
references to
concept
statements
from
the
FASB
Accounting
Standards
Codification.
The
ASU
intends
to
simplify
the
Codification
and
distinguish
between
nonauthoritative
and authoritative guidance.
January 1, 2025
The Corporation
does not
expect to
be
impacted
by
the
adoption
of
this
ASU
since it does
not provide for accounting
changes
or
new
presentation
or
disclosure
requirements.
The
ASU
eliminated
references
within
the
Accounting
Standards
Codification
to
the
concept
statements,
which
is
considered non-authoritative guidance.
FASB ASU 2024-01,
Compensation - Stock
Compensation (Topic 718)
- Scope Application of
Profits Interest and Similar
Awards
The FASB issued ASU 2024-01 in March
2024, which amends ASC Topic 718 by
including an illustrative example to
demonstrate how an entity would apply the
scope guidance in paragraph 718-10-15-3
to determine whether profits interest awards
should be accounted for in accordance with
ASC
Topic
718.
The
ASU
is
intended
to
reduce complexity and diversity in practice.
January 1, 2025
The Corporation
does not
expect to
be
impacted
by
the
adoption
of
this
ASU
since the performance
share awards of
the
Corporation
continue
to
meet
the
requirements of ASC 718-10-15-3.
132
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)
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.
For fiscal years
beginning on
January 1, 2025
The Corporation
is currently
evaluating
any
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.
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
requirements
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
requirements 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
subject
to
SEC's
current
disclosure
and
presentation
requirements under Regulation S-X and
S-K.
133
Accounting Standards Updates Not Yet Adopted
Standard
Description
Date of adoption
Effect on the financial statements
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
The Corporation
does not
expect to
be
impacted
by
the
adoption
of
this
ASU
but it
will consider this
guidance for the
initial
measurement
of
assets
and
liabilities
of
newly
created
joint
ventures.
134
Note 4 - 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.
Average reserve
balances in
BPPR amounted
to $
2.6
billion at
December 31,
2024 (December
31, 2023
-
$
2.7
billion). Cash and
due from banks,
as well
as other highly
liquid securities, are
used to cover
these required average
reserve
balances.
At
December
31,
2024,
the
Corporation
held
$
61
million
in
restricted
assets
in
the
form
of
funds
deposited
in
money
market
accounts, debt
securities available for
sale and
equity securities (December
31, 2023
- $
78
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.
135
Note 5 – Debt securities available-for-sale
The
following
tables
present
the
amortized
cost,
gross
unrealized
gains
and
losses,
fair
value,
weighted
average
yield
and
contractual maturities of debt securities available-for-sale
at December 31, 2024 and December 31,
2023.
At December 31, 2024
Gross
Gross
Weighted
Amortized
unrealized
unrealized
Fair
average
(In thousands)
cost
gains
losses
value
yield
U.S. Treasury securities
Within 1 year
$
10,555,397
$
1,282
$
46,275
$
10,510,404
3.33
%
After 1 to 5 years
2,547,936
151
63,381
2,484,706
3.07
Total U.S. Treasury
securities
13,103,333
1,433
109,656
12,995,110
3.28
Collateralized mortgage obligations - federal agencies
After 1 to 5 years
10,538
-
345
10,193
1.53
After 5 to 10 years
15,334
-
904
14,430
2.24
After 10 years
104,168
132
8,639
95,661
2.76
Total collateralized
mortgage obligations - federal agencies
130,040
132
9,888
120,284
2.60
Mortgage-backed securities - federal agencies
Within 1 year
776
-
5
771
1.65
After 1 to 5 years
79,542
8
2,700
76,850
2.35
After 5 to 10 years
733,506
82
45,078
688,510
2.37
After 10 years
5,468,448
337
1,106,657
4,362,128
1.67
Total mortgage-backed
securities - federal agencies
6,282,272
427
1,154,440
5,128,259
1.75
Other
Within 1 year
500
-
-
500
5.00
After 1 to 5 years
1,750
-
-
1,750
5.50
Total other
2,250
-
-
2,250
5.39
Total debt securities
available-for-sale
[1]
$
19,517,895
$
1,992
$
1,273,984
$
18,245,903
2.78
%
[1]
Includes $
13.9
billion pledged to secure government and trust deposits, assets
sold under agreements to repurchase, credit facilities
and loan
servicing agreements that the secured parties are not permitted
to sell or repledge the collateral, of which $
12.9
billion serve as collateral for
public funds.
The Corporation had unpledged Available
for Sale securities with a fair value of
$
4.3
billion that could be used to increase its
borrowing facilities.
136
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 - federal agencies
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 - federal agencies
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.
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, 2024
by contractual maturity.
(In thousands)
Amortized cost
Fair value
Within 1 year
$
10,556,673
$
10,511,675
After 1 to 5 years
2,639,766
2,573,499
After 5 to 10 years
748,840
702,940
After 10 years
5,572,616
4,457,789
Total debt securities
available-for-sale
$
19,517,895
$
18,245,903
At December 31, 2024,
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, 2024, December 31, 2023 and December
31, 2022.
137
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, 2024 and 2023.
At December 31, 2024
Less than 12 months
12 months or more
Total
Gross
Gross
Gross
Fair
unrealized
Fair
unrealized
Fair
unrealized
(In thousands)
value
losses
value
losses
value
losses
U.S. Treasury securities
$
2,309,894
$
24,646
$
3,638,092
$
85,010
$
5,947,986
$
109,656
Collateralized mortgage obligations - federal agencies
4,878
27
102,160
9,861
107,038
9,888
Mortgage-backed securities -federal agencies
70,777
3,175
5,031,414
1,151,265
5,102,191
1,154,440
Total debt securities
available-for-sale in an unrealized loss position
$
2,385,549
$
27,848
$
8,771,666
$
1,246,136
$
11,157,215
$
1,273,984
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 - federal agencies
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
As of December 31, 2024, the portfolio of available-for-sale
debt securities reflects gross unrealized losses of $
1.3
billion (December
31,
2023 -
$
1.4
billion), driven
mainly by
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 Federal
National
Mortgage
Association
(“FNMA”),
Federal
Home
Loan
Mortgage
Corporation
(“FHLMC”)
and
Government
National
Mortgage
Association
(“GNMA”).
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.
138
Note 6 –Debt securities held-to-maturity
The following tables present the amortized cost, allowance for
credit losses,
gross unrealized gains and losses, fair value, weighted
average yield and contractual maturities of debt securities
held-to-maturity at December 31, 2024 and
2023.
At December 31, 2024
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
$
599,910
$
599,910
$
-
$
599,910
$
-
$
4,498
$
595,412
2.76
%
After 1 to 5 years
7,572,435
7,093,508
-
7,093,508
-
65,096
7,028,412
1.28
Total U.S. Treasury
securities
8,172,345
7,693,418
-
7,693,418
-
69,594
7,623,824
1.39
Obligations of Puerto Rico, States and
political subdivisions
Within 1 year
2,440
2,440
5
2,435
3
-
2,438
6.39
After 1 to 5 years
16,454
16,454
80
16,374
47
80
16,341
3.69
After 5 to 10 years
655
655
22
633
20
-
653
5.81
After 10 years
37,633
37,633
5,210
32,423
2,318
2,596
32,145
1.42
Total obligations of
Puerto Rico, States and
political subdivisions
57,182
57,182
5,317
51,865
2,388
2,676
51,577
2.34
Collateralized mortgage obligations - federal
agencies
After 10 years
1,518
1,518
-
1,518
-
214
1,304
2.87
Total collateralized
mortgage obligations -
federal agencies
1,518
1,518
-
1,518
-
214
1,304
2.87
Securities in wholly owned statutory business
trusts
After 5 to 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]
$
8,237,004
$
7,758,077
$
5,317
$
7,752,760
$
2,388
$
72,484
$
7,682,664
1.40
%
[1]
Book value includes $
479
million of net unrealized loss which remains in
Accumulated other comprehensive (loss) income
(AOCI) related to
certain securities previously transferred from available-for-sale
securities portfolio to the held-to-maturity securities portfolio.
[2]
Includes $
7.6
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 $
139.9
million that could be used to increase its borrowing
facilities.
139
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.
[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.
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, 2024
by contractual maturity.
(In thousands)
Amortized cost
Book Value
Fair value
Within 1 year
$
602,350
$
602,350
$
597,850
After 1 to 5 years
7,588,889
7,109,962
7,044,753
After 5 to 10 years
6,614
6,614
6,612
After 10 years
39,151
39,151
33,449
Total debt securities
held-to-maturity
$
8,237,004
$
7,758,077
$
7,682,664
Credit Quality Indicators
The following describes the credit quality indicators by major security
type that the Corporation considers to develop the
estimate of
the allowance for credit losses for investment securities
held-to-maturity.
As discussed in Note
2 to the
Consolidated Financial Statement,
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 allowance
for credit losses (“ACL”) for these securities
has been established.
140
At December 31, 2024 and December 31, 2023, 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 $
13
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,
2023
-
$
19
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
8
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, 2024
At December 31, 2023
(In thousands)
Securities issued by Puerto Rico municipalities
Watch
$
1,555
$
2,255
Pass
11,060
16,565
Total
$
12,615
$
18,820
At December
31, 2024,
the portfolio
of “Obligations
of Puerto
Rico, States
and political
subdivisions” also
includes $
38
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, 2023 -
$
40
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.
As of
December 31,
2024, the
average refreshed
FICO score
for the
sample,
comprised
of
72
%
of
the
nominal
value
of
the
securities,
used
for
the
loss
estimate
was
of
674
(compared
to
67
%
and
708
,
respectively, at
December 31, 2023).
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
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 adversely
affect the value of these securities, resulting in losses to
the Corporation.
Refer to
Note 23
to the
Consolidated Financial
Statements
for additional
information on
the Corporation’s
exposure to
the Puerto
Rico Government.
At December 31,
2024 and 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, 2024 and December 31, 2023,
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, 2024 and December 31, 2023:
141
For the year ended December 31,
2024
2023
(In thousands)
Obligations of Puerto Rico, States and political subdivisions
Allowance for credit losses:
Beginning balance
$
5,780
$
6,911
Provision for credit losses (benefit)
(463)
(1,131)
Securities charged-off
-
-
Recoveries
-
-
Ending balance
$
5,317
$
5,780
The
allowance
for
credit
losses
for
the
Obligations
of
Puerto
Rico,
States
and
political
subdivisions
includes
$
0.1
million
for
securities issued by municipalities of
Puerto Rico, and $
5.2
million for bonds issued by
the Puerto Rico HFA,
which are secured by
second mortgage loans on
Puerto Rico residential properties (compared to
$
0.2
million and $
5.6
million, respectively, at
December
31, 2023).
142
Note 7 – Loans
For a summary of the
accounting policies related to loans, interest recognition
and allowance for credit losses refer to
Note 2 to the
Consolidated Financial Statements.
The following table presents the Corporation's loan
purchases (including repurchases) for the years ended December 31,
2024 and
2023 by class of loans:
For the years ended December 31,
(In thousands)
2024
2023
Commercial
$
296,201
$
265,613
Mortgage
378,573
384,851
Consumer
-
127,077
Ending balance
$
674,774
$
777,541
The following table presents the Corporation’s whole-loan
sales for the years ended December 31, 2024
and 2023 by class of loans:
For the years ended December 31,
(In thousands)
2024
2023
Commercial
$
25,155
$
82,651
Construction
16,656
-
Mortgage
44,680
49,739
Consumer
-
45,119
Ending balance
$
86,491
$
177,509
During
the
year
ended
December 31,
2024,
the
Corporation securitized
approximately $
7
million
of
mortgage
loans
into
GNMA
mortgage-backed securities
and $
8
million of
mortgage loans
into FNMA
mortgage-backed securities, compared
to $
2
million and
$
35
million, respectively, during the year ended December 31, 2023.
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, 2024 and December 31, 2023.
143
December 31, 2024
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
$
1,491
$
113
$
79
$
1,683
$
306,318
$
308,001
$
79
$
-
Commercial real estate:
Non-owner occupied
3,103
586
6,429
10,118
3,236,385
3,246,503
6,429
-
Owner occupied
11,054
808
25,258
37,120
1,338,791
1,375,911
25,258
-
Commercial and industrial
5,738
2,712
23,895
32,345
5,314,549
5,346,894
19,335
4,560
Construction
1,039
-
-
1,039
211,251
212,290
-
-
Mortgage
262,222
116,694
365,759
744,675
6,065,206
6,809,881
158,442
207,317
Leasing
23,991
6,062
9,588
39,641
1,885,764
1,925,405
9,588
-
Consumer:
Credit cards
17,399
11,719
29,960
59,078
1,158,975
1,218,053
-
29,960
Home equity lines of credit
16
129
-
145
1,895
2,040
-
-
Personal
19,503
13,005
20,269
52,777
1,697,600
1,750,377
20,269
-
Auto
111,358
27,858
51,792
191,008
3,632,429
3,823,437
51,792
-
Other
1,816
277
1,312
3,405
156,824
160,229
899
413
Total
$
458,730
$
179,963
$
534,341
$
1,173,034
$
25,005,987
$
26,179,021
$
292,091
$
242,250
December 31, 2024
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
$
-
$
5,443
$
8,700
$
14,143
$
2,077,476
$
2,091,619
$
8,700
$
-
Commercial real estate:
Non-owner occupied
6,792
-
8,015
14,807
2,101,925
2,116,732
8,015
-
Owner occupied
-
-
5,191
5,191
1,776,644
1,781,835
5,191
-
Commercial and industrial
10,336
5,323
1,938
17,597
2,377,071
2,394,668
1,748
190
Construction
-
-
-
-
1,051,502
1,051,502
-
-
Mortgage
18,148
5,417
29,890
53,455
1,250,847
1,304,302
29,890
-
Consumer:
Credit cards
-
-
-
-
26
26
-
-
Home equity lines of
credit
530
986
3,393
4,909
66,622
71,531
3,393
-
Personal
1,808
1,509
1,741
5,058
99,809
104,867
1,741
-
Other
514
-
11
525
11,024
11,549
11
-
Total
$
38,128
$
18,678
$
58,879
$
115,685
$
10,812,946
$
10,928,631
$
58,689
$
190
144
December 31, 2024
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
$
1,491
$
5,556
$
8,779
$
15,826
$
2,383,794
$
2,399,620
$
8,779
$
-
Commercial real estate:
Non-owner occupied
9,895
586
14,444
24,925
5,338,310
5,363,235
14,444
-
Owner occupied
11,054
808
30,449
42,311
3,115,435
3,157,746
30,449
-
Commercial and industrial
16,074
8,035
25,833
49,942
7,691,620
7,741,562
21,083
4,750
Construction
1,039
-
-
1,039
1,262,753
1,263,792
-
-
Mortgage
[1]
280,370
122,111
395,649
798,130
7,316,053
8,114,183
188,332
207,317
Leasing
23,991
6,062
9,588
39,641
1,885,764
1,925,405
9,588
-
Consumer:
Credit cards
17,399
11,719
29,960
59,078
1,159,001
1,218,079
-
29,960
Home equity lines of credit
546
1,115
3,393
5,054
68,517
73,571
3,393
-
Personal
21,311
14,514
22,010
57,835
1,797,409
1,855,244
22,010
-
Auto
111,358
27,858
51,792
191,008
3,632,429
3,823,437
51,792
-
Other
2,330
277
1,323
3,930
167,848
171,778
910
413
Total
$
496,858
$
198,641
$
593,220
$
1,288,719
$
35,818,933
$
37,107,652
$
350,780
$
242,440
[1]
At December 31, 2024, mortgage loans held-in-portfolio
include $
2.6
billion of loans that carry certain guarantees from
the FHA or the VA, for
which the Corporation’s policy is to exclude them
from non-performing status, of which $
207
million are 90 days or more past due. The portfolio
of
guaranteed loans includes $
65
million of residential mortgage loans in Puerto Rico that
are no longer accruing interest as of December 31,
2024.
The Corporation has approximately $
31
million in reverse mortgage loans in Puerto Rico which
are guaranteed by FHA, but which are currently
not accruing interest at December 31, 2024.
[2]
Loans held-in-portfolio are net of $
415
million in unearned income and exclude $
5
million in loans held-for-sale.
[3]
Includes $
16.8
billion pledged to secure credit facilities and public funds
that the secured parties are not permitted to sell or repledge
the collateral,
of which $
7.3
billion were pledged at the Federal Home Loan Bank
("FHLB") as collateral for borrowings and $
9.5
billion at the Federal Reserve
Bank ("FRB") for discount window borrowings. As of December
31, 2024, the Corporation had an available borrowing
facility with the FHLB and
the discount window of Federal Reserve Bank of New York
of $
3.8
billion and $
7
.0 billion, respectively.
145
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
146
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]
At December 31, 2023, mortgage loans held-in-portfolio
include $
2.2
billion of loans that carry certain guarantees from
the FHA or the VA, for
which the Corporation’s policy is to exclude them
from non-performing status, of which $
242
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.
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.
[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 FHLB as collateral for borrowings
and $
7.2
billion at the 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 FRB of $
3.5
billion and $
4.4
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 the VA when 15 months
delinquent as to principal or interest, since the principal repayment on these loans is
insured.
Loans with
a delinquency
status of
90 days
past due
as of
December 31,
2024 include
$
9
million in
loans previously
pooled into
GNMA securities (December 31, 2023 -
$
11
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, 2024 and
2023 were as follows:
147
(In thousands)
2024
2023
Total minimum lease
payments
$
1,676,763
$
1,499,230
Estimated residual value of leased property
774,752
685,757
Deferred origination costs, net of fees
29,398
25,634
Less - Unearned financing income
403,273
351,026
Net minimum lease payments
2,077,640
1,859,595
Less - Allowance for credit losses
17,691
10,920
Net minimum lease payments, net of allowance for credit losses
$
2,059,949
$
1,848,675
At December 31, 2024, future minimum lease payments
are expected to be received as follows:
(In thousands)
2025
$
139,158
2026
207,752
2027
295,401
2028
375,569
2029
449,839
2030 and thereafter
209,044
Total
$
1,676,763
The following tables present the amortized cost basis
of non-accrual loans as of December 31, 2024
and December 31, 2023 by
class of loans:
148
December 31, 2024
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
$
-
$
79
$
8,700
$
-
$
8,700
$
79
Commercial real estate non-owner occupied
3,450
2,979
7,115
900
10,565
3,879
Commercial real estate owner occupied
17,767
7,491
4,957
234
22,724
7,725
Commercial and industrial
9,020
10,315
-
1,748
9,020
12,063
Mortgage
66,176
92,266
1,069
28,821
67,245
121,087
Leasing
500
9,088
-
-
500
9,088
Consumer:
HELOCs
-
-
-
3,393
-
3,393
Personal
2,960
17,309
-
1,741
2,960
19,050
Auto
1,992
49,800
-
-
1,992
49,800
Other
-
899
-
11
-
910
Total
$
101,865
$
190,226
$
21,841
$
36,848
$
123,706
$
227,074
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
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,
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.
Loans in non-accrual status with no
allowance at December 31, 2024 include
$
124
million in collateral dependent loans (December
31, 2023 - $
126
million). The Corporation recognized $
4
million in interest income on
non-accrual loans in each of
the years ended
December 31, 2024 and December 31, 2023.
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, 2024 and December 31, 2023:
149
December 31, 2024
(In thousands)
Real Estate
Auto
Equipment
Other
Total
BPPR
Commercial multi-family
$
1,278
$
-
$
-
$
-
$
1,278
Commercial real estate:
Non-owner occupied
145,974
-
-
-
145,974
Owner occupied
23,361
-
-
-
23,361
Commercial and industrial
2,754
-
-
11,593
14,347
Construction
576
-
-
-
576
Mortgage
77,910
-
-
-
77,910
Leasing
-
1,437
1
-
1,438
Consumer:
Personal
3,347
-
-
-
3,347
Auto
-
15,782
-
-
15,782
Other
-
-
-
16
16
Total BPPR
$
255,200
$
17,219
$
1
$
11,609
$
284,029
Popular U.S.
Commercial multi-family
$
14,517
$
-
$
-
$
-
$
14,517
Commercial real estate:
Non-owner occupied
7,116
-
-
-
7,116
Owner occupied
4,956
-
-
-
4,956
Commercial and industrial
-
-
18
1,154
1,172
Mortgage
1,430
-
-
-
1,430
Total Popular U.S.
$
28,019
$
-
$
18
$
1,154
$
29,191
Popular, Inc.
Commercial multi-family
$
15,795
$
-
$
-
$
-
$
15,795
Commercial real estate:
Non-owner occupied
153,090
-
-
-
153,090
Owner occupied
28,317
-
-
-
28,317
Commercial and industrial
2,754
-
18
12,747
15,519
Construction
576
-
-
-
576
Mortgage
79,340
-
-
-
79,340
Leasing
-
1,437
1
-
1,438
Consumer:
Personal
3,347
-
-
-
3,347
Auto
-
15,782
-
-
15,782
Other
-
-
-
16
16
Total Popular,
Inc.
$
283,219
$
17,219
$
19
$
12,763
$
313,220
150
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
151
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, 2024
December 31, 2023
Purchase price of loans at acquisition
$
919
$
819
Allowance for credit losses at acquisition
34
89
Non-credit discount / (premium) at acquisition
-
9
Par value of acquired loans at acquisition
$
953
$
917
152
Note 8 – 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 fourth quarter of 2024 for
the
P.R.
commercial real
estate non-owner occupied
segment. The new
model revisits the
selection of macroeconomic
and loan level
variables to
address the underlying
risks of the
loan segment. The
new model
yielded a
reduction of $
13.5
million in BPPR’s
ACL
during
the
fourth
quarter of
2024. Continued
strength
in the
Puerto
Rico
labor
market
and stable
credit
metrics
for
this
portfolio
contributed in the reduction in reserves.
At
December
31,
2024,
the
Corporation
estimated
the
ACL
by
weighting
the
outputs
of
optimistic,
baseline,
and
pessimistic
scenarios. Among
the three
scenarios used
to estimate
the ACL,
the baseline
is assigned
the highest
probability,
followed by
the
pessimistic
scenario
given
the
uncertainties
in
the
economic
outlook
and
downside
risk.
The
weightings
applied
are
subject
to
evaluation on
a quarterly
basis as
part of
the ACL’s
governance process. The
Corporation evaluates, at
least on
an annual
basis,
the
assumptions
tied
to
the
CECL
accounting
framework.
These
include
the
reasonable
and
supportable
period
as
well
as
the
reversion window.
The
following
tables
present
the
changes
in
the
ACL
of
loans
held-in-portfolio
and
unfunded
commitments
for
the
years
ended
December 31, 2024 and 2023.
153
For the year ended December 31, 2024
BPPR
Provision for
Allowance for
Beginning
credit losses
credit losses -
Ending
(In thousands)
Balance
(benefit)
PCD Loans
Charge-off
Recoveries
Balance
Allowance for credit losses - loans:
Commercial
Commercial multi-family
$
3,614
$
(834)
$
-
$
-
$
3
$
2,783
Commercial real estate non-owner occupied
53,754
(9,630)
-
(128)
856
44,852
Commercial real estate owner occupied
40,637
(4,196)
-
(2,793)
3,707
37,355
Commercial and industrial
107,577
40,418
-
(24,555)
6,696
130,136
Total Commercial
205,582
25,758
-
(27,476)
11,262
215,126
Construction
5,294
(3,587)
-
-
1,036
2,743
Mortgage
72,440
(13,580)
34
(1,084)
15,091
72,901
Leasing
9,708
18,967
-
(16,975)
4,719
16,419
Consumer
Credit cards
80,487
78,024
-
(69,731)
10,350
99,130
Home equity lines of credit
103
(45)
-
(380)
376
54
Personal
101,181
78,574
-
(98,669)
10,210
91,296
Auto
157,931
68,096
-
(85,400)
25,368
165,995
Other
7,132
1,621
-
(2,801)
1,050
7,002
Total Consumer
346,834
226,270
-
(256,981)
47,354
363,477
Total - Loans
$
639,858
$
253,828
$
34
$
(302,516)
$
79,462
$
670,666
Allowance for credit losses - unfunded commitments:
Commercial
$
5,062
$
1,663
$
-
$
-
$
-
$
6,725
Construction
1,618
45
-
-
-
1,663
Ending balance - unfunded commitments [1]
$
6,680
$
1,708
$
-
$
-
$
-
$
8,388
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
154
For the year ended December 31, 2024
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
$
10,126
$
(3,243)
$
(441)
$
11
$
6,453
Commercial real estate non-owner occupied
11,699
(2,533)
(54)
530
9,642
Commercial real estate owner occupied
16,227
(3,721)
(154)
121
12,473
Commercial and industrial
14,779
4,304
(3,978)
765
15,870
Total Commercial
52,831
(5,193)
(4,627)
1,427
44,438
Construction
7,392
1,029
-
100
8,521
Mortgage
10,774
(1,381)
(18)
133
9,508
Consumer
Home equity lines of credit
1,875
(1,181)
(53)
808
1,449
Personal
16,609
11,278
(19,203)
2,756
11,440
Other
2
61
(101)
40
2
Total Consumer
18,486
10,158
(19,357)
3,604
12,891
Total - Loans
$
89,483
$
4,613
$
(24,002)
$
5,264
$
75,358
Allowance for credit losses - unfunded commitments:
Commercial
$
1,851
$
(189)
$
-
$
-
$
1,662
Construction
8,446
(3,037)
-
-
5,409
Consumer
29
(18)
-
-
11
Ending balance - unfunded commitments [1]
$
10,326
$
(3,244)
$
-
$
-
$
7,082
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
155
For the year ended December 31, 2024
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
$
13,740
$
(4,077)
$
-
$
(441)
$
14
$
9,236
Commercial real estate non-owner occupied
65,453
(12,163)
-
(182)
1,386
54,494
Commercial real estate owner occupied
56,864
(7,917)
-
(2,947)
3,828
49,828
Commercial and industrial
122,356
44,722
-
(28,533)
7,461
146,006
Total Commercial
258,413
20,565
-
(32,103)
12,689
259,564
Construction
12,686
(2,558)
-
-
1,136
11,264
Mortgage
83,214
(14,961)
34
(1,102)
15,224
82,409
Leasing
9,708
18,967
-
(16,975)
4,719
16,419
Consumer
Credit cards
80,487
78,024
-
(69,731)
10,350
99,130
Home equity lines of credit
1,978
(1,226)
-
(433)
1,184
1,503
Personal
117,790
89,852
-
(117,872)
12,966
102,736
Auto
157,931
68,096
-
(85,400)
25,368
165,995
Other
7,134
1,682
-
(2,902)
1,090
7,004
Total Consumer
365,320
236,428
-
(276,338)
50,958
376,368
Total - Loans
$
729,341
$
258,441
$
34
$
(326,518)
$
84,726
$
746,024
Allowance for credit losses - unfunded commitments:
Commercial
$
6,913
$
1,474
$
-
$
-
$
-
$
8,387
Construction
10,064
(2,992)
-
-
-
7,072
Consumer
29
(18)
-
-
-
11
Ending balance - unfunded commitments [1]
$
17,006
$
(1,536)
$
-
$
-
$
-
$
15,470
[1]
Allowance for credit losses of unfunded commitments is
presented as part of Other Liabilities in the Consolidated
Statements of Financial Condition.
156
For the year ended December 31, 2023
BPPR
Impact of
Provision for
Allowance for
Beginning
Adopting
credit losses
credit losses -
Net write
Ending
(In thousands)
Balance
ASU 2022-02
(benefit)
PCD Loans
Charge-offs
Recoveries
down
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.
157
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.
158
For the year ended December 31, 2023
Popular Inc.
Impact
Provision for
Allowance
for
Beginning
of adopting
credit losses
credit losses
-
Net write
Ending
(In thousands)
Balance
ASU 2022-02
(benefit)
PCD Loans
Charge-offs
Recoveries
down
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.
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 years ended
December 31, 2024 and
December 31, 2023 amounted
to $
75
million and $
21
million,
respectively, related to the commercial 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
years ended December
31, 2024 and December 31, 2023. Loans modified to borrowers
experiencing financial difficulties that were fully paid down, charged-
off or foreclosed upon by period end are not reported.
159
Loan Modifications Made to Borrowers Experiencing Financial
Difficulty for the year ended December 31, 2024
Interest Rate Reduction
BPPR
Popular U.S.
Popular, Inc.
(Dollars in thousands)
Amortized Cost
Basis at
December 31,
2024
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December 31,
2024
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December 31,
2024
% of total class of
Financing
Receivable
CRE owner occupied
$
169
0.01
%
$
-
-
%
$
169
0.01
%
Commercial and industrial
3,472
0.06
%
-
-
%
3,472
0.04
%
Mortgage
42
-
%
-
-
%
42
-
%
Consumer:
Credit cards
853
0.07
%
-
-
%
853
0.07
%
Personal
2,941
0.17
%
-
-
%
2,941
0.16
%
Other
23
0.01
%
-
-
%
23
0.01
%
Total
$
7,500
0.03
%
$
-
-
%
$
7,500
0.02
%
Term Extension
BPPR
Popular U.S.
Popular, Inc.
(Dollars in thousands)
Amortized Cost
Basis at
December 31,
2024
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December 31,
2024
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December 31,
2024
% of total class of
Financing
Receivable
Commercial multi-family
$
-
-
%
$
5,818
0.28
%
$
5,818
0.24
%
CRE non-owner occupied
36,585
1.13
%
-
-
%
36,585
0.68
%
CRE owner occupied
20,431
1.48
%
5,993
0.34
%
26,424
0.84
%
Commercial and industrial
24,820
0.46
%
684
0.03
%
25,504
0.33
%
Construction
576
0.27
%
-
-
%
576
0.05
%
Mortgage
51,238
0.75
%
1,460
0.11
%
52,698
0.65
%
Consumer:
Personal
683
0.04
%
17
0.02
%
700
0.04
%
Auto
83
-
%
-
-
%
83
-
%
Total
$
134,416
0.51
%
$
13,972
0.13
%
$
148,388
0.40
%
Other-Than-Insignificant Payment Delays
BPPR
Popular U.S.
Popular, Inc.
(Dollars in thousands)
Amortized Cost
Basis at
December 31,
2024
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December 31,
2024
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December 31,
2024
% of total class of
Financing
Receivable
CRE non-owner occupied
$
455
0.01
%
$
-
-
%
$
455
0.01
%
CRE owner occupied
20,399
1.48
%
-
-
%
20,399
0.65
%
Commercial and industrial
104,423
1.95
%
-
-
%
104,423
1.35
%
Mortgage
175
-
%
-
-
%
175
-
%
Total
$
125,452
0.48
%
$
-
-
%
$
125,452
0.34
%
Combination - Term Extension
and Interest Rate Reduction
BPPR
Popular U.S.
Popular, Inc.
(Dollars in thousands)
Amortized Cost
Basis at
December 31,
2024
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December 31,
2024
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December 31,
2024
% of total class of
Financing
Receivable
CRE non-owner occupied
$
885
0.03
%
$
-
-
%
$
885
0.02
%
CRE owner occupied
143,886
10.46
%
-
-
%
143,886
4.56
%
Commercial and industrial
644
0.01
%
-
-
%
644
0.01
%
Mortgage
14,674
0.22
%
66
0.01
%
14,740
0.18
%
Consumer:
Personal
8,662
0.49
%
329
0.31
%
8,991
0.48
%
Total
$
168,751
0.64
%
$
395
-
%
$
169,146
0.46
%
160
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,
2024
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December 31,
2024
% of total class of
Financing
Receivable
Amortized Cost
Basis at
December 31,
2024
% of total class of
Financing
Receivable
CRE owner occupied
$
1,033
0.08
%
$
-
-
%
$
1,033
0.03
%
Commercial and industrial
440
0.01
%
-
-
%
440
0.01
%
Consumer:
Credit cards
3,511
0.29
%
-
-
%
3,511
0.29
%
Total
$
4,984
0.02
%
$
-
-
%
$
4,984
0.01
%
161
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
%
162
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
-
%
163
The following tables describe the financial effect of the
modifications made to borrowers experiencing
financial difficulties:
For the year ended December 31, 2024
Interest rate reduction
Loan Type
Financial Effect
CRE Non-owner occupied
Reduced weighted-average contractual interest rate from
10.1
% to
8.3
%.
CRE Owner occupied
Reduced weighted-average contractual interest rate from
6.7
% to
5.8
%.
Commercial and industrial
Reduced weighted-average contractual interest rate from
21.6
% to
9.6
%.
Mortgage
Reduced weighted-average contractual interest rate from
6.1
% to
4.4
%.
Consumer:
Credit cards
Reduced weighted-average contractual interest rate from
21.2
% to
7.6
%.
Personal
Reduced weighted-average contractual interest rate from
19.8
% to
10.6
%.
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
4
months to the life of loans.
CRE Non-owner occupied
Added a weighted-average of
1
year to the life of loans.
CRE Owner occupied
Added a weighted-average of
21
months to the life of loans.
Commercial and industrial
Added a weighted-average of
21
months to the life of loans.
Construction
Added a weighted-average of
2
months to the life of loans.
Mortgage
Added a weighted-average of
12
years to the life of loans.
Consumer:
Personal
Added a weighted-average of
7
years to the life of loans.
Auto
Added a weighted-average of
3
years to the life of loans.
Other than insignificant payment delay
Loan Type
Financial Effect
CRE Non-owner occupied
Added a weighted-average of
13
months to the life of loans.
CRE Owner occupied
Added a weighted-average of
6
months to the life of loans.
Commercial and industrial
Added a weighted-average of
12
months to the life of loans.
Mortgage
Added a weighted-average of
53
months to the life of loans.
Consumer:
Credit cards
Added a weighted-average of
16
months to the life of loans.
164
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.
165
The
following
tables
present,
by
class,
the
performance
of
loans
that
have
been
modified
during
the
twelve
months
preceding
December 31, 2024. 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, 2024
Past Due 90 days or more [1]
(In thousands)
30-59 days
60-89 days
Past due 90
days or more
Total past
due
Current
Total
With Payment
Default
Without
Payment Default
CRE non-owner occupied
$
-
$
-
$
1,340
$
1,340
$
36,585
$
37,925
$
-
$
1,340
CRE owner occupied
5,509
112
2,347
7,968
177,950
185,918
-
2,347
Commercial and industrial
217
108
4,701
5,026
128,773
133,799
399
4,302
Construction
-
-
-
-
576
576
-
-
Mortgage
5,253
4,127
20,236
29,616
36,513
66,129
7,679
12,557
Consumer:
Credit cards
491
347
630
1,468
2,896
4,364
362
268
Personal
288
201
2,047
2,536
9,750
12,286
190
1,857
Auto
-
-
-
-
83
83
-
-
Other
-
-
-
-
23
23
-
-
Total
$
11,758
$
4,895
$
31,301
$
47,954
$
393,149
$
441,103
$
8,630
$
22,671
[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, 2024
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
$
-
$
-
$
-
$
-
$
5,818
5,818
$
-
$
-
CRE owner occupied
-
-
-
-
5,993
5,993
-
-
Commercial and industrial
-
-
-
-
684
684
-
-
Mortgage
-
-
736
736
790
1,526
-
736
Consumer:
Personal
11
5
98
114
232
346
15
83
Total
$
11
$
5
$
834
$
850
$
13,517
$
14,367
$
15
$
819
[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.
166
Popular Inc.
December 31, 2024
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
$
-
$
-
$
-
$
-
$
5,818
$
5,818
$
-
$
-
CRE non-owner occupied
-
-
1,340
1,340
36,585
37,925
-
1,340
CRE owner occupied
5,509
112
2,347
7,968
183,943
191,911
-
2,347
Commercial and industrial
217
108
4,701
5,026
129,457
134,483
399
4,302
Construction
-
-
-
-
576
576
-
-
Mortgage
5,253
4,127
20,972
30,352
37,303
67,655
7,679
13,293
Consumer:
Credit cards
491
347
630
1,468
2,896
4,364
362
268
Personal
299
206
2,145
2,650
9,982
12,632
205
1,940
Auto
-
-
-
-
83
83
-
-
Other
-
-
-
-
23
23
-
-
Total
$
11,769
$
4,900
$
32,135
$
48,804
$
406,666
$
455,470
$
8,645
$
23,490
[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.
167
The
following tables
present, by
class,
the
performance of
loans
that
have
been
modified
during the
year
ended
December 31,
2023.
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.
168
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, 2024,
the outstanding
balance of loans
modified for
borrowers under
financial difficulties that were subject to payment default and that had been modified during the
twelve months preceding the default
date was $
33
million (2023 - $
10
million).
Loans subject
to payment
default during
the year
ended December
31, 2024
which were
modified during
the year
preceding the
default date were:
●
Interest rate reduction - $
1
million;
●
Extension of maturity - $
28
million (2023 - $
8
million); and
●
Combination of interest rate reduction and extension
of maturity - $
4
million (2023 - $
2
million)..
169
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, 2024 and 2023 by vintage year.
170
December 31, 2024
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2024
2023
2022
2021
2020
Prior
Years
Total
BPPR
Commercial:
Commercial multi-family
Pass
$
50,384
$
37,211
$
136,093
$
20,939
$
20,134
$
34,009
$
105
$
-
$
298,875
Watch
-
-
541
-
-
1,601
-
-
2,142
Special Mention
-
-
-
-
-
3,161
-
-
3,161
Substandard
-
-
-
-
-
3,823
-
-
3,823
Total commercial
multi-family
$
50,384
$
37,211
$
136,634
$
20,939
$
20,134
$
42,594
$
105
$
-
$
308,001
Commercial real estate non-owner occupied
Pass
$
419,200
$
322,998
$
828,404
$
547,674
$
335,060
$
525,088
$
6,159
$
-
$
2,984,583
Watch
26,097
2,296
654
5,349
28,832
50,924
72
-
114,224
Special Mention
7,018
41,274
156
406
-
46,390
-
-
95,244
Substandard
-
1,002
110
26,430
1,954
22,956
-
-
52,452
Total commercial
real estate non-
owner occupied
$
452,315
$
367,570
$
829,324
$
579,859
$
365,846
$
645,358
$
6,231
$
-
$
3,246,503
Year-to-Date gross
write-offs
$
-
$
-
$
69
$
-
$
-
$
59
$
-
$
-
$
128
Commercial real estate owner occupied
Pass
$
131,449
$
79,109
$
94,008
$
214,520
$
46,206
$
309,791
$
7,214
$
-
$
882,297
Watch
14,002
2,637
64,735
7,225
4,890
85,580
3
-
179,072
Special Mention
-
1,209
19,436
19,288
-
15,872
1,499
-
57,304
Substandard
455
1,651
20,528
3,872
140,579
77,098
13,021
-
257,204
Doubtful
-
-
-
-
-
34
-
-
34
Total commercial
real estate owner
occupied
$
145,906
$
84,606
$
198,707
$
244,905
$
191,675
$
488,375
$
21,737
$
-
$
1,375,911
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
2,793
$
-
$
-
$
2,793
Commercial and industrial
Pass
$
790,273
$
910,355
$
602,454
$
304,227
$
66,395
$
331,493
$
1,495,490
$
-
$
4,500,687
Watch
124,987
24,935
49,497
6,394
3,465
31,609
135,811
-
376,698
Special Mention
5,519
7,316
1,895
157,627
53
30,360
28,171
-
230,941
Substandard
6,063
30,496
37,558
4,203
14,776
23,135
122,275
-
238,506
Doubtful
-
-
-
-
-
11
-
-
11
Loss
-
-
-
-
-
-
51
-
51
Total commercial
and industrial
$
926,842
$
973,102
$
691,404
$
472,451
$
84,689
$
416,608
$
1,781,798
$
-
$
5,346,894
Year-to-Date gross
write-offs
$
1,099
$
707
$
331
$
122
$
2,838
$
11,841
$
7,617
$
-
$
24,555
Construction
Pass
$
63,107
$
53,070
$
33,423
$
14,908
$
9,483
$
1,011
$
16,782
$
-
$
191,784
Watch
-
13,872
-
-
-
-
-
-
13,872
Special Mention
-
-
-
6,058
-
-
-
-
6,058
Substandard
-
-
-
576
-
-
-
-
576
Total construction
$
63,107
$
66,942
$
33,423
$
21,542
$
9,483
$
1,011
$
16,782
$
-
$
212,290
Mortgage
Pass
$
879,075
$
724,383
$
409,133
$
401,113
$
234,486
$
4,085,088
$
-
$
-
$
6,733,278
Substandard
-
1,961
1,331
1,675
347
71,289
-
-
76,603
Total mortgage
$
879,075
$
726,344
$
410,464
$
402,788
$
234,833
$
4,156,377
$
-
$
-
$
6,809,881
Year-to-Date gross
write-offs
$
-
$
9
$
-
$
8
$
-
$
1,067
$
-
$
-
$
1,084
171
December 31, 2024
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2024
2023
2022
2021
2020
Prior
Years
Total
BPPR
Leasing
Pass
$
731,053
$
477,226
$
362,426
$
217,537
$
104,812
$
22,762
$
-
$
-
$
1,915,816
Substandard
1,195
2,280
2,834
1,885
920
402
-
-
9,516
Loss
-
-
-
-
-
73
-
-
73
Total leasing
$
732,248
$
479,506
$
365,260
$
219,422
$
105,732
$
23,237
$
-
$
-
$
1,925,405
Year-to-Date gross
write-offs
$
1,733
$
4,842
$
5,373
$
3,281
$
694
$
1,052
$
-
$
-
$
16,975
Consumer:
Credit cards
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
1,188,093
$
-
$
1,188,093
Substandard
-
-
-
-
-
-
29,960
-
29,960
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
1,218,053
$
-
$
1,218,053
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
69,731
$
-
$
69,731
HELOCs
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
2,040
$
-
$
2,040
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
-
$
2,040
$
-
$
2,040
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
380
$
-
$
380
Personal
Pass
$
722,949
$
499,604
$
262,011
$
101,155
$
29,078
$
91,004
$
-
$
23,802
$
1,729,603
Substandard
924
4,965
3,561
1,221
271
8,205
-
1,626
20,773
Loss
-
-
-
1
-
-
-
-
1
Total Personal
$
723,873
$
504,569
$
265,572
$
102,377
$
29,349
$
99,209
$
-
$
25,428
$
1,750,377
Year-to-Date gross
write-offs
$
2,362
$
39,193
$
38,077
$
10,822
$
2,708
$
3,525
$
-
$
1,982
$
98,669
Auto
Pass
$
1,277,016
$
938,769
$
665,431
$
494,529
$
254,621
$
133,054
$
-
$
-
$
3,763,420
Substandard
7,239
16,876
13,579
10,775
6,377
5,131
-
-
59,977
Loss
14
15
-
2
-
9
-
-
40
Total Auto
$
1,284,269
$
955,660
$
679,010
$
505,306
$
260,998
$
138,194
$
-
$
-
$
3,823,437
Year-to-Date gross
write-offs
$
11,229
$
36,992
$
20,486
$
9,997
$
4,965
$
1,731
$
-
$
-
$
85,400
Other consumer
Pass
$
28,543
$
29,585
$
20,021
$
10,129
$
4,588
$
3,364
$
62,678
$
-
$
158,908
Substandard
-
228
44
-
29
57
413
-
771
Loss
-
-
-
550
-
-
-
-
550
Total Other
consumer
$
28,543
$
29,813
$
20,065
$
10,679
$
4,617
$
3,421
$
63,091
$
-
$
160,229
Year-to-Date gross
write-offs
$
29
$
213
$
130
$
96
$
128
$
2,205
$
-
$
-
$
2,801
Total BPPR
$
5,286,562
$
4,225,323
$
3,629,863
$
2,580,268
$
1,307,356
$
6,014,384
$
3,109,837
$
25,428
$
26,179,021
172
December 31, 2024
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2024
2023
2022
2021
2020
Prior
Years
Total
Popular U.S.
Commercial:
Commercial multi-family
Pass
$
139,370
$
148,423
$
491,750
$
313,610
$
207,327
$
560,891
$
5,700
$
-
$
1,867,071
Watch
-
10,974
27,441
26,679
10,668
114,419
-
-
190,181
Special Mention
-
-
8,004
-
-
-
-
-
8,004
Substandard
-
-
2,761
-
-
23,602
-
-
26,363
Total commercial
multi-family
$
139,370
$
159,397
$
529,956
$
340,289
$
217,995
$
698,912
$
5,700
$
-
$
2,091,619
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
441
$
-
$
-
$
441
Commercial real estate non-owner occupied
Pass
$
178,355
$
368,597
$
480,055
$
167,839
$
193,309
$
456,689
$
8,588
$
-
$
1,853,432
Watch
-
12,932
17,125
13,138
45,864
64,390
300
-
153,749
Special Mention
-
-
-
-
-
594
-
-
594
Substandard
-
-
2,657
2,741
5,758
97,801
-
-
108,957
Total commercial
real
estate non-owner
occupied
$
178,355
$
381,529
$
499,837
$
183,718
$
244,931
$
619,474
$
8,888
$
-
$
2,116,732
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
54
$
-
$
-
$
54
Commercial real estate owner occupied
Pass
$
304,778
$
257,586
$
244,811
$
279,419
$
35,459
$
246,158
$
7,669
$
-
$
1,375,880
Watch
-
25,614
13,531
32,132
16,301
54,877
-
-
142,455
Special Mention
-
488
69,505
34,428
27,406
10,825
-
-
142,652
Substandard
-
-
17,101
2,596
3,678
97,473
-
-
120,848
Total commercial
real
estate owner
occupied
$
304,778
$
283,688
$
344,948
$
348,575
$
82,844
$
409,333
$
7,669
$
-
$
1,781,835
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
154
$
-
$
-
$
154
Commercial and industrial
Pass
$
260,479
$
275,971
$
318,564
$
322,697
$
268,591
$
506,973
$
273,222
$
-
$
2,226,497
Watch
-
11,420
48,953
28,138
9,521
35,498
15,050
-
148,580
Special Mention
58
-
5,270
568
-
255
3,835
-
9,986
Substandard
2,276
-
-
195
45
1,610
5,479
-
9,605
Total commercial
and industrial
$
262,813
$
287,391
$
372,787
$
351,598
$
278,157
$
544,336
$
297,586
$
-
$
2,394,668
Year-to-Date gross
write-offs
$
1,103
$
1,571
$
190
$
300
$
211
$
480
$
123
$
-
$
3,978
Construction
Pass
$
259,194
$
512,428
$
155,268
$
-
$
-
$
765
$
-
$
-
$
927,655
Watch
-
1,541
36,264
-
-
7,172
24,691
-
69,668
Special Mention
-
4,897
6,367
-
-
-
-
-
11,264
Substandard
-
-
8,104
-
-
25,473
9,338
-
42,915
Total construction
$
259,194
$
518,866
$
206,003
$
-
$
-
$
33,410
$
34,029
$
-
$
1,051,502
Mortgage
Pass
$
98,345
$
88,788
$
215,600
$
272,908
$
216,025
$
382,746
$
-
$
-
$
1,274,412
Substandard
-
644
106
860
-
28,280
-
-
29,890
Total mortgage
$
98,345
$
89,432
$
215,706
$
273,768
$
216,025
$
411,026
$
-
$
-
$
1,304,302
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
18
$
-
$
-
$
18
173
December 31, 2024
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2024
2023
2022
2021
2020
Prior
Years
Total
Popular U.S.
Consumer:
Credit cards
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
26
$
-
$
26
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
26
$
-
$
26
HELOCs
Pass
$
-
$
-
$
-
$
-
$
-
$
5,914
$
50,533
$
11,691
$
68,138
Substandard
-
-
-
-
-
1,657
15
700
2,372
Loss
-
-
-
-
-
122
-
899
1,021
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
7,693
$
50,548
$
13,290
$
71,531
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
53
$
-
$
53
Personal
Pass
$
28,083
$
23,084
$
41,182
$
8,618
$
651
$
1,507
$
-
$
-
$
103,125
Substandard
157
399
627
134
7
302
-
-
1,626
Loss
53
10
-
5
-
48
-
-
116
Total Personal
$
28,293
$
23,493
$
41,809
$
8,757
$
658
$
1,857
$
-
$
-
$
104,867
Year-to-Date gross
write-offs
$
802
$
4,536
$
10,869
$
2,458
$
231
$
307
$
-
$
-
$
19,203
Other consumer
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
11,537
$
-
$
11,537
Substandard
-
-
-
-
-
-
12
-
12
Total Other
consumer
$
-
$
-
$
-
$
-
$
-
$
-
$
11,549
$
-
$
11,549
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
101
$
-
$
101
Total Popular U.S.
$
1,271,148
$
1,743,796
$
2,211,046
$
1,506,705
$
1,040,610
$
2,726,041
$
415,995
$
13,290
$
10,928,631
174
December 31, 2024
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2024
2023
2022
2021
2020
Prior
Years
Total
Popular, Inc.
Commercial:
Commercial multi-family
Pass
$
189,754
$
185,634
$
627,843
$
334,549
$
227,461
$
594,900
$
5,805
$
-
$
2,165,946
Watch
-
10,974
27,982
26,679
10,668
116,020
-
-
192,323
Special Mention
-
-
8,004
-
-
3,161
-
-
11,165
Substandard
-
-
2,761
-
-
27,425
-
-
30,186
Total commercial
multi-family
$
189,754
$
196,608
$
666,590
$
361,228
$
238,129
$
741,506
$
5,805
$
-
$
2,399,620
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
441
$
-
$
-
$
441
Commercial real estate non-owner occupied
Pass
$
597,555
$
691,595
$
1,308,459
$
715,513
$
528,369
$
981,777
$
14,747
$
-
$
4,838,015
Watch
26,097
15,228
17,779
18,487
74,696
115,314
372
-
267,973
Special Mention
7,018
41,274
156
406
-
46,984
-
-
95,838
Substandard
-
1,002
2,767
29,171
7,712
120,757
-
-
161,409
Total commercial
real estate non-
owner occupied
$
630,670
$
749,099
$
1,329,161
$
763,577
$
610,777
$
1,264,832
$
15,119
$
-
$
5,363,235
Year-to-Date gross
write-offs
$
-
$
-
$
69
$
-
$
-
$
113
$
-
$
-
$
182
Commercial real estate owner occupied
Pass
$
436,227
$
336,695
$
338,819
$
493,939
$
81,665
$
555,949
$
14,883
$
-
$
2,258,177
Watch
14,002
28,251
78,266
39,357
21,191
140,457
3
-
321,527
Special Mention
-
1,697
88,941
53,716
27,406
26,697
1,499
-
199,956
Substandard
455
1,651
37,629
6,468
144,257
174,571
13,021
-
378,052
Doubtful
-
-
-
-
-
34
-
-
34
Total commercial
real estate owner
occupied
$
450,684
$
368,294
$
543,655
$
593,480
$
274,519
$
897,708
$
29,406
$
-
$
3,157,746
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
2,947
$
-
$
-
$
2,947
Commercial and industrial
Pass
$
1,050,752
$
1,186,326
$
921,018
$
626,924
$
334,986
$
838,466
$
1,768,712
$
-
$
6,727,184
Watch
124,987
36,355
98,450
34,532
12,986
67,107
150,861
-
525,278
Special Mention
5,577
7,316
7,165
158,195
53
30,615
32,006
-
240,927
Substandard
8,339
30,496
37,558
4,398
14,821
24,745
127,754
-
248,111
Doubtful
-
-
-
-
-
11
-
-
11
Loss
-
-
-
-
-
-
51
-
51
Total commercial
and industrial
$
1,189,655
$
1,260,493
$
1,064,191
$
824,049
$
362,846
$
960,944
$
2,079,384
$
-
$
7,741,562
Year-to-Date gross
write-offs
$
2,202
$
2,278
$
521
$
422
$
3,049
$
12,321
$
7,740
$
-
$
28,533
175
December 31, 2024
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2024
2023
2022
2021
2020
Prior
Years
Total
Popular, Inc.
Construction
Pass
$
322,301
$
565,498
$
188,691
$
14,908
$
9,483
$
1,776
$
16,782
$
-
$
1,119,439
Watch
-
15,413
36,264
-
-
7,172
24,691
-
83,540
Special Mention
-
4,897
6,367
6,058
-
-
-
-
17,322
Substandard
-
-
8,104
576
-
25,473
9,338
-
43,491
Total construction
$
322,301
$
585,808
$
239,426
$
21,542
$
9,483
$
34,421
$
50,811
$
-
$
1,263,792
Mortgage
Pass
$
977,420
$
813,171
$
624,733
$
674,021
$
450,511
$
4,467,834
$
-
$
-
$
8,007,690
Substandard
-
2,605
1,437
2,535
347
99,569
-
-
106,493
Total mortgage
$
977,420
$
815,776
$
626,170
$
676,556
$
450,858
$
4,567,403
$
-
$
-
$
8,114,183
Year-to-Date gross
write-offs
$
-
$
9
$
-
$
8
$
-
$
1,085
$
-
$
-
$
1,102
Leasing
Pass
$
731,053
$
477,226
$
362,426
$
217,537
$
104,812
$
22,762
$
-
$
-
$
1,915,816
Substandard
1,195
2,280
2,834
1,885
920
402
-
-
9,516
Loss
-
-
-
-
-
73
-
-
73
Total leasing
$
732,248
$
479,506
$
365,260
$
219,422
$
105,732
$
23,237
$
-
$
-
$
1,925,405
Year-to-Date gross
write-offs
$
1,733
$
4,842
$
5,373
$
3,281
$
694
$
1,052
$
-
$
-
$
16,975
176
December 31, 2024
Term Loans
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted to
Term Loans
Amortized
Cost Basis
Amortized Cost Basis by Origination Year
(In thousands)
2024
2023
2022
2021
2020
Prior
Years
Total
Popular, Inc.
Consumer:
Credit cards
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
1,188,119
$
-
$
1,188,119
Substandard
-
-
-
-
-
-
29,960
-
29,960
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
1,218,079
$
-
$
1,218,079
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
69,731
$
-
$
69,731
HELOCs
Pass
$
-
$
-
$
-
$
-
$
-
$
5,914
$
52,573
$
11,691
$
70,178
Substandard
-
-
-
-
-
1,657
15
700
2,372
Loss
-
-
-
-
-
122
-
899
1,021
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
7,693
$
52,588
$
13,290
$
73,571
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
433
$
-
$
433
Personal
Pass
$
751,032
$
522,688
$
303,193
$
109,773
$
29,729
$
92,511
$
-
$
23,802
$
1,832,728
Substandard
1,081
5,364
4,188
1,355
278
8,507
-
1,626
22,399
Loss
53
10
-
6
-
48
-
-
117
Total Personal
$
752,166
$
528,062
$
307,381
$
111,134
$
30,007
$
101,066
$
-
$
25,428
$
1,855,244
Year-to-Date gross
write-offs
$
3,164
$
43,729
$
48,946
$
13,280
$
2,939
$
3,832
$
-
$
1,982
$
117,872
Auto
Pass
$
1,277,016
$
938,769
$
665,431
$
494,529
$
254,621
$
133,054
$
-
$
-
$
3,763,420
Substandard
7,239
16,876
13,579
10,775
6,377
5,131
-
-
59,977
Loss
14
15
-
2
-
9
-
-
40
Total Auto
$
1,284,269
$
955,660
$
679,010
$
505,306
$
260,998
$
138,194
$
-
$
-
$
3,823,437
Year-to-Date gross
write-offs
$
11,229
$
36,992
$
20,486
$
9,997
$
4,965
$
1,731
$
-
$
-
$
85,400
Other consumer
Pass
$
28,543
$
29,585
$
20,021
$
10,129
$
4,588
$
3,364
$
74,215
$
-
$
170,445
Substandard
-
228
44
-
29
57
425
-
783
Loss
-
-
-
550
-
-
-
-
550
Total Other
consumer
$
28,543
$
29,813
$
20,065
$
10,679
$
4,617
$
3,421
$
74,640
$
-
$
171,778
Year-to-Date gross
write-offs
$
29
$
213
$
130
$
96
$
128
$
2,205
$
101
$
-
$
2,902
Total Popular Inc.
$
6,557,710
$
5,969,119
$
5,840,909
$
4,086,973
$
2,347,966
$
8,740,425
$
3,525,832
$
38,718
$
37,107,652
177
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
Pass
$
37,976
$
138,619
$
21,334
$
20,487
$
32,554
$
24,248
$
306
$
-
$
275,524
Watch
-
-
-
-
1,068
5,179
-
-
6,247
Special Mention
-
559
-
-
-
4,780
-
-
5,339
Substandard
-
-
-
-
-
4,832
-
-
4,832
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
Pass
$
305,243
$
871,191
$
560,785
$
359,853
$
41,262
$
563,794
$
7,042
$
-
$
2,709,170
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
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
Pass
$
92,234
$
155,819
$
227,246
$
51,038
$
24,184
$
357,429
$
9,146
$
-
$
917,096
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
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
Pass
$
1,109,898
$
634,401
$
511,912
$
241,452
$
123,458
$
258,872
$
1,343,885
$
-
$
4,223,878
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
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
Pass
$
26,662
$
24,462
$
27,364
$
10,758
$
1,944
$
1,049
$
38,720
$
-
$
130,959
Watch
-
16,546
5,458
-
-
-
9,506
-
31,510
Special Mention
-
-
1,009
-
-
-
1
-
1,010
Substandard
-
6,378
-
-
-
-
-
-
6,378
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
Pass
$
751,532
$
439,373
$
421,297
$
259,412
$
164,438
$
4,280,509
$
-
$
-
$
6,316,561
Substandard
96
161
162
345
2,606
71,893
-
-
75,263
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
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
Leasing
Pass
$
647,659
$
488,506
$
313,133
$
163,189
$
88,983
$
21,706
$
-
$
-
$
1,723,176
Substandard
806
2,516
3,053
906
818
517
-
-
8,616
Loss
-
-
-
-
-
17
-
-
17
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
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
1,112,447
$
-
$
1,112,447
Substandard
-
-
-
-
-
-
23,259
-
23,259
Loss
-
-
-
-
-
-
22
-
22
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
1,135,728
$
-
$
1,135,728
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
41,007
$
-
$
41,007
HELOCs
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
2,622
$
-
$
2,622
Substandard
-
-
-
-
-
-
26
-
26
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
-
$
2,648
$
-
$
2,648
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
213
$
-
$
213
Personal
Pass
$
859,434
$
480,771
$
181,483
$
57,227
$
58,849
$
96,956
$
-
$
22,034
$
1,756,754
Substandard
1,815
4,985
1,939
493
933
8,322
-
1,006
19,493
Loss
-
-
14
-
12
37
-
-
63
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
Pass
$
1,210,622
$
899,797
$
711,439
$
405,768
$
260,355
$
120,318
$
-
$
-
$
3,608,299
Substandard
6,980
14,049
11,916
9,157
7,051
3,199
-
-
52,352
Loss
9
44
45
16
9
6
-
-
129
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
Pass
$
36,144
$
24,238
$
14,942
$
5,618
$
3,433
$
2,753
$
61,796
$
-
$
148,924
Substandard
244
25
-
73
16
131
249
-
738
Loss
-
-
137
-
-
363
-
-
500
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
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
Popular U.S.
Commercial:
Commercial multi-family
Pass
$
166,410
$
417,169
$
326,047
$
164,887
$
182,528
$
410,836
$
5,112
$
-
$
1,672,989
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
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
Pass
$
396,712
$
490,316
$
170,074
$
201,225
$
86,595
$
394,455
$
6,086
$
-
$
1,745,463
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
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
Pass
$
303,202
$
278,380
$
226,289
$
58,505
$
47,083
$
204,888
$
9,753
$
-
$
1,128,100
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
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
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 and industrial
Pass
$
196,959
$
278,238
$
346,428
$
268,835
$
148,502
$
379,635
$
414,883
$
-
$
2,033,480
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
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
Pass
$
280,188
$
251,627
$
89,450
$
14,733
$
25,254
$
-
$
-
$
-
$
661,252
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
Total construction
$
282,308
$
287,646
$
116,316
$
18,628
$
47,150
$
37,375
$
-
$
-
$
789,423
Mortgage
Pass
$
99,296
$
229,720
$
288,767
$
233,805
$
177,245
$
264,069
$
-
$
-
$
1,292,902
Substandard
-
235
-
646
2,102
8,208
-
-
11,191
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
Pass
$
-
$
-
$
-
$
-
$
-
$
7,394
$
39,925
$
12,253
$
59,572
Substandard
-
-
-
-
-
1,849
-
966
2,815
Loss
-
-
-
-
-
99
-
819
918
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
9,342
$
39,925
$
14,038
$
63,305
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
471
$
-
$
-
$
471
Personal
Pass
$
41,016
$
93,759
$
23,325
$
2,993
$
3,597
$
1,441
$
-
$
-
$
166,131
Substandard
333
1,630
325
50
126
211
-
-
2,675
Loss
-
-
-
-
1
130
-
-
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
Pass
$
19
$
-
$
-
$
-
$
-
$
-
$
10,259
$
-
$
10,278
Substandard
-
-
-
-
-
-
1
-
1
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
Pass
$
204,386
$
555,788
$
347,381
$
185,374
$
215,082
$
435,084
$
5,418
$
-
$
1,948,513
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
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
Pass
$
701,955
$
1,361,507
$
730,859
$
561,078
$
127,857
$
958,249
$
13,128
$
-
$
4,454,633
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
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
Pass
$
395,436
$
434,199
$
453,535
$
109,543
$
71,267
$
562,317
$
18,899
$
-
$
2,045,196
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
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
Pass
$
1,306,857
$
912,639
$
858,340
$
510,287
$
271,960
$
638,507
$
1,758,768
$
-
$
6,257,358
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
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
Pass
$
306,850
$
276,089
$
116,814
$
25,491
$
27,198
$
1,049
$
38,720
$
-
$
792,211
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
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
Pass
$
850,828
$
669,093
$
710,064
$
493,217
$
341,683
$
4,544,578
$
-
$
-
$
7,609,463
Substandard
96
396
162
991
4,708
80,101
-
-
86,454
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
Pass
$
647,659
$
488,506
$
313,133
$
163,189
$
88,983
$
21,706
$
-
$
-
$
1,723,176
Substandard
806
2,516
3,053
906
818
517
-
-
8,616
Loss
-
-
-
-
-
17
-
-
17
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
Pass
$
-
$
-
$
-
$
-
$
-
$
-
$
1,112,466
$
-
$
1,112,466
Substandard
-
-
-
-
-
-
23,259
-
23,259
Loss
-
-
-
-
-
-
22
-
22
Total credit cards
$
-
$
-
$
-
$
-
$
-
$
-
$
1,135,747
$
-
$
1,135,747
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
-
$
41,008
$
-
$
41,008
HELOCs
Pass
$
-
$
-
$
-
$
-
$
-
$
7,394
$
42,547
$
12,253
$
62,194
Substandard
-
-
-
-
-
1,849
26
966
2,841
Loss
-
-
-
-
-
99
-
819
918
Total HELOCs
$
-
$
-
$
-
$
-
$
-
$
9,342
$
42,573
$
14,038
$
65,953
Year-to-Date gross
write-offs
$
-
$
-
$
-
$
-
$
-
$
471
$
213
$
-
$
684
Personal
Pass
$
900,450
$
574,530
$
204,808
$
60,220
$
62,446
$
98,397
$
-
$
22,034
$
1,922,885
Substandard
2,148
6,615
2,264
543
1,059
8,533
-
1,006
22,168
Loss
$
-
$
-
$
14
$
-
$
13
$
167
$
-
$
-
$
194
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
Pass
$
1,210,622
$
899,797
$
711,439
$
405,768
$
260,355
$
120,318
$
-
$
-
$
3,608,299
Substandard
6,980
14,049
11,916
9,157
7,051
3,199
-
-
52,352
Loss
9
44
45
16
9
6
-
-
129
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
Pass
$
36,163
$
24,238
$
14,942
$
5,618
$
3,433
$
2,753
$
72,055
$
-
$
159,202
Substandard
244
25
-
73
16
131
250
-
739
Loss
-
-
137
-
-
363
-
-
500
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
Note 9 – 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)
2024
2023
2022
Mortgage servicing fees, net of fair value adjustments:
Mortgage servicing fees
$
30,227
$
32,981
$
36,487
Mortgage servicing rights fair value adjustments
(11,370)
(11,589)
236
Total mortgage
servicing fees, net of fair value adjustments
18,857
21,392
36,723
Net gain (loss) on sale of loans, including valuation on loans
held for sale [1]
317
(88)
(251)
Trading account profit:
Unrealized gains (loss) on outstanding derivative positions
185
(138)
-
Realized (loss) gains on closed derivative positions
(150)
614
6,635
Total trading account
profit
35
476
6,635
Losses on repurchased loans, including interest advances
(150)
(283)
(657)
Total mortgage
banking activities
$
19,059
$
21,497
$
42,450
[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.
186
Note 10 – 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
22
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, 2024
and 2023 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, 2024 and
2023:
Proceeds Obtained During the Year
Ended December 31, 2024
(In thousands)
Level 1
Level 2
Level 3
Initial fair value
Assets
Trading account debt securities:
Mortgage-backed securities - GNMA
$
-
$
6,783
$
-
$
6,783
Mortgage-backed securities - FNMA
-
8,377
-
8,377
Total trading account
debt securities
$
-
$
15,160
$
-
$
15,160
Mortgage servicing rights
$
-
$
-
$
302
$
302
Total
$
-
$
15,160
$
302
$
15,462
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
During the
year ended
December 31,
2024, the
Corporation retained
servicing rights
on whole
loan sales
involving approximately
$
44
million in
principal balance outstanding
(2023 -
$
50
million), with net
realized gains
of approximately $
1.1
million (2023
- $
0.7
million). All loan sales performed during the
years ended December 31, 2024 and 2023 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, 2024
and 2023.
187
Residential MSRs
(In thousands)
December 31, 2024
December 31, 2023
Fair value at beginning of period
$
118,109
$
128,350
Additions
1,364
2,097
Changes due to payments on loans
[1]
(8,739)
(9,934)
Reduction due to loan repurchases
(511)
(606)
Changes in fair value due to changes in valuation model inputs
or assumptions
(2,120)
(529)
Other
-
(1,269)
Fair value at end of period
[2]
$
108,103
$
118,109
[1] Represents changes due to collection / realization
of expected cash flows over time.
[2] At December 31, 2024, PB had MSRs amounting to $
1.9
million (December 31, 2023 - $
1.9
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 $
9.0
billion at December 31, 2024 (2023 - $
9.9
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,
2024, those
weighted average mortgage
servicing fees
were
0.32
%
(2023 –
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, 2024 and 2023 were
as follows:
Years ended
December 31, 2024
December 31, 2023
BPPR
PB
BPPR
PB
Prepayment speed
6.8
%
6.3
%
7.0
%
6.8
%
Weighted average life (in years)
9.4
8.7
9.1
8.3
Discount rate (annual rate)
9.7
%
12.8
%
9.6
%
11.1
%
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:
188
Originated MSRs
Purchased MSRs
December 31,
December 31,
December 31,
December 31,
(In thousands)
2024
2023
2024
2023
Fair value of servicing rights
$
34,019
$
39,757
$
74,084
$
78,352
Weighted average life (in years)
6.4
6.6
6.6
6.8
Weighted average prepayment speed (annual
rate)
5.8
%
5.9
%
6.9
%
7.0
%
Impact on fair value of 10% adverse change
$
(667)
$
(696)
$
(1,448)
$
(1,440)
Impact on fair value of 20% adverse change
$
(1,308)
$
(1,365)
$
(2,840)
$
(2,827)
Weighted average discount rate (annual rate)
11.4
%
11.3
%
10.8
%
10.9
%
Impact on fair value of 10% adverse change
$
(1,267)
$
(1,387)
$
(2,689)
$
(2,871)
Impact on fair value of 20% adverse change
$
(2,451)
$
(2,686)
$
(5,211)
$
(5,562)
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, 2024, the Corporation serviced $
495
million (2023 - $
561
million) in residential mortgage loans with credit recourse
to the Corporation, from
which $
12
million was 60
days or more past
due (2023 - $
13
million). Also refer to
Note 22 for information
on changes in the Corporation’s liability of estimated losses
related to loans serviced with credit recourse.
During
the
year
ended
December
31,
2024,
the
Corporation
repurchased
approximately
$
38
million
of
mortgage
loans
from
its
GNMA servicing portfolio (2023 - $
44
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.
189
Note 11 - Premises and equipment
Premises and equipment are stated at cost less accumulated
depreciation and amortization as follows:
(In thousands)
Useful life in years
2024
2023
Premises and equipment:
Land
$
89,519
$
90,275
Buildings
10
-
50
497,631
487,053
Equipment
2
-
10
365,716
421,513
Leasehold improvements
3
-
10
96,521
90,333
959,868
998,899
Less - Accumulated depreciation and amortization
606,187
605,178
Subtotal
353,681
393,721
Construction in progress
158,587
81,288
Premises and equipment, net
$
601,787
$
565,284
Depreciation and
amortization of premises
and equipment for
the year 2024
was $
57.1
million (2023 -
$
58.5
million; 2022
- $
55.1
million), of
which $
26.4
million (2023
- $
26.5
million; 2022
- $
24.8
million) was
charged to
occupancy expense
and $
30.7
million
(2023
-
$
32.0
million;
2022
-
$
30.3
million)
was charged
to
equipment, technology
and
software
and
other
operating expenses.
Occupancy expense of premises and equipment
is net of rental income
of $
11.5
million (2023 - $
13.1
million; 2022 - $
13.1
million).
For information related to the amortization expense
of finance leases, refer to Note 32 - Leases.
190
Note 12 – Other real estate owned
The following
tables present
the activity
related to
Other Real
Estate Owned
(“OREO”), for
the years
ended December
31, 2024,
2023 and 2022.
For the year ended December 31, 2024
OREO
OREO
(In thousands)
Commercial/Construction
Mortgage
Total
Balance at beginning of period
$
11,189
$
69,227
$
80,416
Write-downs in value
(1,104)
(1,749)
(2,853)
Additions
7,155
43,458
50,613
Sales
(8,816)
(61,845)
(70,661)
Other adjustments
-
(247)
(247)
Ending balance
$
8,424
$
48,844
$
57,268
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
191
Note 13 − Other assets
The caption of other assets in the consolidated
statements of financial condition consists of the following
major categories:
(In thousands)
December 31, 2024
December 31, 2023
Net deferred tax assets (net of valuation allowance)
$
926,329
$
1,009,068
Investments under the equity method
251,537
236,485
Prepaid taxes
42,909
39,052
Other prepaid expenses
28,376
29,338
Capitalized software costs
136,442
93,404
Derivative assets
25,975
24,419
Trades receivable from brokers and counterparties
588
23,102
Receivables from investments maturities
14,600
176,000
Principal, interest and escrow servicing advances
43,793
48,557
Guaranteed mortgage loan claims receivable
17,226
29,648
Operating ROU assets (Note 32)
93,389
116,106
Finance ROU assets (Note 32)
19,174
21,093
Assets for pension benefit
33,233
23,404
Others
164,188
144,888
Total other assets
$
1,797,759
$
2,014,564
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, 2024
Software development costs
$
79,233
$
23,057
$
56,176
Software license costs
42,234
21,459
20,775
Cloud computing arrangements
65,797
6,306
59,491
Total Capitalized
software costs [1] [2]
$
187,264
$
50,822
$
136,442
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
[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:
192
Year ended December
31,
(In thousands)
2024
2023
2022
Software development and license costs
$
77,731
$
66,233
$
55,011
Cloud computing arrangements
4,398
3,324
3,805
Total amortization
expense
$
82,129
$
69,557
$
58,816
193
Note 14 – Goodwill and other intangible assets
During the
year ended
December 31,
2024, the
Corporation recognized a
write-down to goodwill
due to
the sale
of its
daily-rental
business. During the
third quarter of
2023, the Corporation recorded
an impairment of
$
23
million as a
result of its
annual goodwill
impairment test related to its U.S. based equipment leasing subsidiary, Popular Equipment Finance (“PEF”), due to lower forecasted
cash flows and an increase in the rate used
to discount cash flows.
The changes in the carrying amount of goodwill for the
year ended December 31, 2024 and 2023, allocated
by reportable segments,
were as follows (refer to Note 36 for the definition
of the Corporation’s reportable segments):
December 31, 2024
Balance at
Write down from
Balance at
(In thousands)
January 1, 2024
a disposal group
December 31, 2024
Banco Popular de Puerto Rico
$
436,383
$
(1,474)
$
434,909
Popular U.S.
368,045
-
368,045
Total Popular,
Inc.
$
804,428
$
(1,474)
$
802,954
December 31, 2023
Balance at
Goodwill
Balance at
(In thousands)
January 1, 2023
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
Other intangible assets
The following table reflects the components of
other intangible assets subject to amortization:
Gross
Net
Carrying
Accumulated
Carrying
(In thousands)
Amount
Amortization
Value
December 31, 2024
Core deposits
$
12,810
$
12,595
$
215
Other customer relationships
14,286
8,435
5,851
Total other intangible
assets
$
27,096
$
21,030
$
6,066
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
During
the
year
ended
December
31,
2024,
the
Corporation
recognized
$
2.9
million
in
amortization
expense
related
to
other
intangible assets with definite useful lives (2023
- $
3.2
million; 2022 - $
3.3
million).
The following
table presents
the estimated
amortization of
the intangible
assets with
definite useful
lives for
each of
the following
periods:
194
(In thousands)
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 2024
using July 31, 2024 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
price
multiples
(using
averages or applying regression analyses) 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
included
in
these
projections
are
based
on
management’s
expectations for
each
reporting
unit’s
financial
prospects
considering
195
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
11.99
% to
15.93
% for
the 2024 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,
2024
indicated
that
the
estimated
fair
value
using
a
combination of
valuation methodologies
exceeded BPPR’s
equity value
by
approximately $
3.7
billion or
303
%
compared to
$
3.7
billion or
468
%, for the annual goodwill impairment test completed as
of July 31, 2023. PB’s annual
goodwill impairment test results
as of such dates indicated that the estimated fair value
using a combination of valuation methodologies exceeded PB’s equity value
by approximately $
584
million or
34
%, compared to $
129
million or
8
%, for the annual goodwill impairment test completed as of July
31, 2023.
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, 2024 valuation date.
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, 2024 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.
December 31, 2024
Balance at
Balance at
December 31,
Accumulated
December 31,
2024
impairment
2024
(In thousands)
(gross amounts)
losses
(net amounts)
Banco Popular de Puerto Rico
$
438,710
$
3,801
$
434,909
Popular U.S.
564,456
196,411
368,045
Total Popular,
Inc.
$
1,003,166
$
200,212
$
802,954
196
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
197
Note 15 – Deposits
Total deposits as of the end of the periods presented consisted of:
(In thousands)
December 31, 2024
December 31, 2023
Savings accounts
$
14,224,271
$
14,602,411
NOW, money market and other interest
bearing demand deposits
26,507,637
25,094,316
Total savings, NOW,
money market and other interest bearing demand
deposits
40,731,908
39,696,727
Certificates of deposit:
Under $250,000
5,383,331
5,443,062
$250,000 and over
3,629,551
3,058,830
Total certificates
of deposit
9,012,882
8,501,892
Total interest bearing
deposits
$
49,744,790
$
48,198,619
Non- interest bearing deposits
$
15,139,555
$
15,419,624
Total deposits
$
64,884,345
$
63,618,243
A summary of certificates of deposits by maturity at
December 31, 2024 follows:
(In thousands)
2025
$
6,221,048
2026
972,395
2027
669,740
2028
589,225
2029
476,258
2030 and thereafter
84,216
Total certificates of
deposit
$
9,012,882
At December 31, 2024, the Corporation had brokered
deposits amounting to $
1.6
billion (December 31, 2023 - $
1.7
billion).
The aggregate amount of overdrafts
in demand deposit accounts that
were reclassified to loans was $
10.4
million at December 31,
2024 (December 31, 2023 - $
9.1
million).
At December 31,
2024, Puerto Rico
government deposits amounted to
$
19.5
billion. Puerto Rico
government deposits are interest
bearing accounts.
These government
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,
reductions
in
federal
funding,
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 government
deposit outflows are lower.
198
Note 16 – Borrowings
Assets sold under agreements to repurchase
Assets sold under agreements to repurchase amounted
to $
55
million at December 31, 2024 and $
91
million at December 31, 2023.
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,
and
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, 2024
December 31, 2023
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
$
22,591
5.04
%
$
16,931
5.56
%
After 30 to 90 days
13,813
4.71
18,369
5.60
After 90 days
-
-
8,292
5.73
Total U.S. Treasury
securities
36,404
4.92
43,592
5.61
Mortgage-backed securities
Within 30 days
4,924
4.90
27,171
5.49
After 30 to 90 days
13,505
4.88
20,394
5.71
Total mortgage-backed
securities
18,429
4.89
47,565
5.58
Collateralized mortgage obligations
Within 30 days
-
-
227
5.25
Total collateralized
mortgage obligations
-
-
227
5.25
Total
$
54,833
4.91
%
$
91,384
5.59
%
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.
199
(Dollars in thousands)
2024
2023
Maximum aggregate balance outstanding at any month-end
$
105,684
$
150,692
Average monthly aggregate balance outstanding
$
76,156
$
115,808
Weighted average interest rate:
For the year
5.54
%
5.20
%
At December 31
4.99
%
5.68
%
Other short-term borrowings
At December 31, 2024, other short-term borrowings
consisted of $
225
million in FHLB Advances. There were
no
other short-term
borrowings at December 31, 2023.
The following table presents additional information related
to the Corporation’s other short-term
borrowings at December 31, 2024 and December 31,
2023.
(Dollars in thousands)
2024
2023
Maximum aggregate balance outstanding at any month-end
$
225,000
$
65,000
Average monthly aggregate balance outstanding
$
8,402
$
27,302
Weighted average interest rate:
For the year
5.40
%
4.80
%
At December 31
4.67
%
5.60
%
200
Notes Payable
The following table presents the composition of notes
payable at December 31, 2024 and December
31, 2023.
(In thousands)
December 31, 2024
December 31, 2023
Advances with the FHLB with maturities ranging from
2025
through
2029
paying interest at monthly
fixed rates ranging from
0.54
% to
5.26
%
(2023 -
0.41
% to
5.26
%)
$
302,722
$
394,665
Unsecured senior debt securities maturing on
2028
paying interest
semiannually
at a fixed rate of
7.25
% (2023-
7.25
%), net of debt issuance costs of $
4,082
(2023 - $
6,063
)
[1]
395,198
393,937
Junior subordinated deferrable interest debentures (related to
trust preferred securities) maturing on
2034
with fixed interest rates ranging from
6.125
% to
6.564
% (2023 -
6.125
% to
6.564
%), net of debt
issuance costs of $
261
(2023 - $
288
)
198,373
198,346
Total notes payable
$
896,293
$
986,948
[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, 2024 is included in
the table below.
Assets sold under
Short-term
(In thousands)
agreements to
repurchase
borrowings
Notes payable
Total
2025
$
54,833
$
225,000
$
144,215
$
424,048
2026
-
-
74,500
74,500
2027
-
-
-
-
2028
-
-
439,548
439,548
2029
-
-
39,657
39,657
Later years
-
-
198,373
198,373
Total borrowings
$
54,833
$
225,000
$
896,293
$
1,176,126
At
December
31,
2024
and
December
31,
2023,
the
Corporation had
FHLB
borrowing
facilities
whereby
the
Corporation could
borrow up to
$
4.7
billion and $
4.2
billion, respectively,
of which $
0.5
billion and $
0.4
billion, respectively,
were used. In
addition, at
December
31,
2024
and
December
31,
2023,
the
Corporation
had
placed
$
0.3
billion
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, 2024,
the Corporation had
borrowing facilities at
the discount window
of the Federal
Reserve Bank of
New
York amounting to $
7.0
billion (December 31, 2023 - $
4.4
billion), which remained unused at December 31, 2024
and December 31,
2023.
The facilities are a collateralized source
of credit that is highly reliable even under difficult
market conditions.
201
Note 17 – 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, 2024 and 2023.
(Dollars in thousands)
December 31, 2024 and 2023
Popular
North America
Popular
Issuer
Capital Trust I
Capital Trust Il
Capital securities
$
91,651
$
101,024
Distribution rate
6.564
%
6.125
%
Common securities
$
2,835
$
3,124
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, 2024
and 2023,
the Corporation’s
$
193
million in
trust preferred
securities outstanding
do not
qualify for
Tier
1
capital treatment but qualify for Tier 2 capital treatment.
202
Note 18 − Other liabilities
The caption of other liabilities in the consolidated
statements of financial condition consists of the following
major categories:
(In thousands)
December 31, 2024
December 31, 2023
Accrued expenses
$
334,145
$
337,695
Accrued interest payable
60,723
59,102
Accounts payable
91,218
89,339
Dividends payable
49,546
44,741
Trades payable
495,139
31
Liability for GNMA loans sold with an option to repurchase
9,108
10,960
Reserves for loan indemnifications
2,779
4,408
Reserve for operational losses
29,465
27,994
Operating lease liabilities (Note 32)
103,198
126,946
Finance lease liabilities (Note 32)
23,141
25,778
Pension benefit obligation
5,816
6,772
Postretirement benefit obligation
99,172
117,045
Others
68,396
63,816
Total other liabilities
$
1,371,846
$
914,627
203
Note 19 – 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, 2024 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, 2024,
2023 and
2022.
Outstanding shares of 2003 Series A Preferred Stock amounted
to
885,726
at December 31, 2024, 2023 and 2022.
Common stock
Dividends
During
the
year
2024,
cash
dividends
of
$
2.56
(2023
-
$
2.27
;
2022
-
$
2.20
)
per
common
share
outstanding
were
declared
amounting to $
183.9
million (2023 - $
163.7
million; 2022 -
$
163.7
million) of which
$
49.5
million were payable to
stockholders of
common
stock
at
December
31,
2024
(2023
-
$
44.7
million;
2022
-
$
39.5
million).
The
quarterly
dividend
of
$
0.70
per
share
declared to stockholders of record as of the close of business on
December 6, 2024
, was paid on
January 2, 2025
. On February 26,
2025, the Corporation’s Board of Directors approved a quarterly cash dividend of $
0.70
per share on its outstanding common stock,
payable on
April 1, 2025
to stockholders of record at the close of business
on
March 18, 2025
.
Common stock repurchases
During the
year
2024, the
Corporation completed
the
repurchase of
2,256,420
shares of
common stock
for $
217.3
million
at
an
average price
of $
96.32
per share,
under a
common stock
repurchase authorization
of up
to $
500
million announced
on July
24,
2024. The
common stock
repurchase program
does not
require the
Corporation to
acquire a
specific dollar
amount or
number of
shares and may be modified, suspended or
terminated at any time without prior notice.
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
204
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.
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 $
961
million at
December 31, 2024
(2023 - $
908
million; 2022 -
$
863
million). During
2024, $
53
million
was transferred to the statutory reserve account (2023 - $
45
million, 2022 - $
77
million). BPPR was in compliance with the statutory
reserve requirement in 2024, 2023 and 2022.
205
Note 20 – 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,
2024
and
2023,
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.
At December 31, 2024 and 2023, 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,
2024 and
2023 under
the
Basel III regulatory guidance.
206
Actual
Capital adequacy minimum
requirement (including
conservation capital buffer) [1]
(Dollars in thousands)
Amount
Ratio
Amount
Ratio
2024
Total Capital (to Risk-Weighted
Assets):
Corporation
$
6,968,203
17.83
%
$
4,102,713
10.50
%
BPPR
4,734,198
17.04
2,917,399
10.50
PB
1,524,930
13.93
1,149,278
10.50
Common Equity Tier I Capital (to Risk-Weighted
Assets):
Corporation
$
6,262,792
16.03
%
$
2,735,142
7.00
%
BPPR
4,383,759
15.78
1,944,932
7.00
PB
1,461,436
13.35
766,186
7.00
Tier I Capital (to Risk-Weighted Assets):
Corporation
$
6,284,935
16.08
%
$
3,321,244
8.50
%
BPPR
4,383,759
15.78
2,361,704
8.50
PB
1,461,436
13.35
930,368
8.50
Tier I Capital (to Average Assets):
Corporation
$
6,284,935
8.66
%
$
2,903,739
4.00
%
BPPR
4,383,759
7.48
2,343,289
4.00
PB
1,461,436
10.64
549,618
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.
207
Actual
Capital adequacy minimum
requirement (including
conservation capital buffer)
(Dollars in thousands)
Amount
Ratio
Amount
Ratio
2023
Total Capital (to Risk-Weighted
Assets):
Corporation
$
6,733,964
18.13
%
$
3,900,365
10.500
%
BPPR
4,811,675
18.15
2,782,976
10.500
PB
1,491,549
14.38
1,088,754
10.500
Common Equity Tier I Capital (to Risk-Weighted
Assets):
Corporation
$
6,053,315
16.30
%
$
2,600,243
7.000
%
BPPR
4,478,033
16.90
1,855,317
7.000
PB
1,426,037
13.75
725,836
7.000
Tier I Capital (to Risk-Weighted Assets):
Corporation
$
6,075,458
16.36
%
$
3,157,438
8.500
%
BPPR
4,478,033
16.90
2,252,885
8.500
PB
1,426,037
13.75
881,372
8.500
Tier I Capital (to Average Assets):
Corporation
$
6,075,458
8.51
%
$
2,854,127
4
%
BPPR
4,478,033
7.64
2,343,174
4
PB
1,426,037
11.23
507,942
4
The following table presents the minimum amounts
and ratios for the Corporation’s banks to be
categorized as well-capitalized.
2024
2023
(Dollars in thousands)
Amount
Ratio
Amount
Ratio
Total Capital (to Risk-Weighted
Assets):
BPPR
$
2,778,475
10
%
$
2,650,453
10
%
PB
1,094,551
10
1,036,909
10
Common Equity Tier I Capital (to Risk-Weighted
Assets):
BPPR
$
1,806,009
6.5
%
$
1,722,795
6.5
%
PB
711,458
6.5
673,991
6.5
Tier I Capital (to Risk-Weighted Assets):
BPPR
$
2,222,780
8
%
$
2,120,363
8
%
PB
875,641
8
829,527
8
Tier I Capital (to Average Assets):
BPPR
$
2,929,111
5
%
$
2,928,968
5
%
PB
687,022
5
634,927
5
208
Note 21 – Other comprehensive loss
The
following
table
presents
changes
in
accumulated
other
comprehensive
income
(loss)
by
component
for
the
quarters
ended
December 31, 2024 and, 2023.
Changes in Accumulated Other Comprehensive (Loss) Income
by Component [1]
Years ended December
31,
(In thousands)
2024
2023
2022
Foreign currency translation
Beginning Balance
$
(64,528)
$
(56,735)
$
(67,307)
Other comprehensive (loss) income
(6,837)
(7,793)
10,572
Net change
(6,837)
(7,793)
10,572
Ending balance
$
(71,365)
$
(64,528)
$
(56,735)
Adjustment of pension and
postretirement benefit plans
Beginning Balance
$
(117,893)
$
(144,335)
$
(158,994)
Other comprehensive income before reclassifications
14,157
14,408
4,882
Amounts reclassified from accumulated other comprehensive loss
for
amortization of net losses
9,044
12,034
9,777
Net change
23,201
26,442
14,659
Ending balance
$
(94,692)
$
(117,893)
$
(144,335)
Unrealized net holding
(losses) gains on debt
securities
Beginning Balance
$
(1,713,110)
$
(2,323,903)
$
(96,120)
Other comprehensive income (loss) before reclassifications
74,277
472,487
(2,261,097)
Amounts reclassified from accumulated other comprehensive
(loss)
income for gains on securities
-
-
-
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
143,650
138,306
33,314
Net change
217,927
610,793
(2,227,783)
Ending balance
$
(1,495,183)
$
(1,713,110)
$
(2,323,903)
Unrealized net gains (losses)
on cash flow hedges
Beginning Balance
$
-
$
45
$
(2,648)
Other comprehensive (loss) income before reclassifications
-
(19)
3,107
Amounts reclassified from accumulated other comprehensive
(loss)
income for gains on securities
-
(26)
(414)
Net change
-
(45)
2,693
Ending balance
$
-
$
-
$
45
Total
$
(1,661,240)
$
(1,895,531)
$
(2,524,928)
[1] All amounts presented are net of tax.
209
The following table presents the amounts reclassified out of each component of accumulated other comprehensive (loss) income for
the years ended December 31, 2024, 2023, and
2022.
Reclassifications Out of Accumulated Other Comprehensive
(Loss) Income
Affected Line Item in the
Years ended December
31,
(In thousands)
Consolidated Statements of Operations
2024
2023
2022
Adjustment of pension and postretirement benefit plans
Amortization of net losses
Other operating expenses
$
(14,471)
$
(19,253)
$
(15,644)
Total before tax
(14,471)
(19,253)
(15,644)
Income tax benefit
5,427
7,219
5,867
Total net of tax
$
(9,044)
$
(12,034)
$
(9,777)
Unrealized net holding (losses) gains on debt securities
Amortization of unrealized net losses of debt
securities transferred to held-to-maturity
Investment securities
(179,563)
(172,883)
(41,642)
Total before tax
(179,563)
(172,883)
(41,642)
Income tax benefit
35,913
34,577
8,328
Total net of tax
$
(143,650)
$
(138,306)
$
(33,314)
Unrealized net gains (losses) losses on cash flow
hedges
Forward contracts
Mortgage banking activities
$
-
$
41
$
1,458
Interest rate swaps
Other operating income
-
-
(498)
Total before tax
-
41
960
Income tax expense
-
(15)
(546)
Total net of tax
$
-
$
26
$
414
Total reclassification
adjustments, net of tax
$
(152,694)
$
(150,314)
$
(42,677)
210
Note 22 – Guarantees
The Corporation
has obligations
upon the
occurrence of
certain events
under financial
guarantees provided
in certain
contractual
agreements.
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,
2024, the
Corporation serviced
$
495
million
(December 31,
2023
- $
561
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 2024,
the Corporation
repurchased approximately
$
2
million of
unpaid principal
balance in
mortgage loans
subject to
the
credit recourse
provisions (2023
- $
2
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,
2024, the
Corporation’s liability
established to cover
the estimated credit
loss exposure
related to loans
sold or serviced
with credit
recourse
amounted to
$
3
million (December
31,
2023 -
$
4
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, 2024 and 2023.
Years ended
December 31,
(In thousands)
2024
2023
Balance as of beginning of period
$
4,211
$
6,897
Provision (benefit) for recourse liability
(1,280)
(1,989)
Net charge-offs
(320)
(698)
Balance as of end of period
$
2,611
$
4,211
211
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, 2024
and
December 31, 2023 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,
2024, the
Corporation serviced $
9.0
billion in mortgage loans for third-parties, including the loans serviced with credit recourse (December 31,
2023 - $
9.9
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,
2024,
the
outstanding
balance
of
funds
advanced
by
the
Corporation under
such
mortgage
loan
servicing
agreements
was
approximately
$
44
million
(December
31,
2023
-
$
49
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,
2024 and December 31, 2023, respectively.
In addition, at both December 31, 2024 and December 31, 2023, 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
17
to
the
consolidated
financial
statements
for
further
information
on
the
trust
preferred securities.
212
Note 23 – 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, 2024
December 31, 2023
Commitments to extend credit:
Credit card lines
$
5,599,823
$
6,108,939
Commercial lines of credit
3,971,331
3,626,269
Construction lines of credit
1,131,824
1,287,679
Other consumer unused credit commitments
260,121
256,610
Commercial letters of credit
5,002
1,404
Standby letters of credit
144,845
80,889
Commitments to originate or fund mortgage loans
29,604
32,968
At December 31, 2024 and December 31, 2023, the
Corporation maintained a reserve of approximately $
15
million and $
17
million,
respectively, for potential losses associated with unfunded loan commitments
related to commercial and construction lines
of credit.
Other commitments
At December
31, 2024
and December 31,
2023, the
Corporation also maintained
other non-credit
commitments for
approximately
$
2.0
million and $
3.3
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 36
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
availed
themselves
of
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, 2024, the Corporation’s direct exposure to the
Puerto Rico government and its instrumentalities and municipalities
totaled $
336
million, of which
$
336
million were outstanding
($
362
million and $
333
million at December
31, 2023). Of
the amount
outstanding,
$
323
million
consists
of
loans
and
$
13
million
are
securities
($
314
million
and
$
19
million
at
December 31,
2023).
Substantially all
of the
amount outstanding
at December
31, 2024
and 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
other
revenues.
At
December
31,
2024,
80
%
of
the
Corporation’s
exposure
to
municipal
loans
and
213
securities
was
concentrated
in
the
municipalities
of
San
Juan,
Guaynabo,
Carolina
and
Caguas.
In
July
2024,
the
Corporation
received scheduled principal payments amounting to $
40
million from various obligations from Puerto Rico
municipalities.
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, 2024
:
(In thousands)
Investment
Portfolio
Loans
Total Outstanding
Total Exposure
Central Government
Within 1 year
3
-
3
3
After 5 to 10 years
1
-
1
1
After 10 years
42
-
42
42
Total Central
Government
46
-
46
46
Municipalities
Within 1 year
2,440
12,764
15,204
15,204
After 1 to 5 years
9,520
147,033
156,553
156,553
After 5 to 10 years
655
119,073
119,728
119,728
After 10 years
-
44,582
44,582
44,582
Total Municipalities
12,615
323,452
336,067
336,067
Total Direct Government
Exposure
$
12,661
$
323,452
$
336,113
$
336,113
In
addition,
at
December
31,
2024,
the
Corporation
had
$
220
million
in
loans
insured
or
securities
issued
by
Puerto
Rico
governmental entities
but for
which the
principal source
of repayment
is non-governmental
($
238
million at
December 31,
2023).
These
included
$
176
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,
2023 -
$
191
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,
2024, $
38
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, 2023
- $
40
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,
$
2.1
billion
of
residential
mortgages
and
$
87.4
million
commercial
loans
were
insured
or
guaranteed
by
the
U.S.
Government or its agencies at December 31, 2024 (compared to $
1.9
billion and $
89.2
million, respectively, at December 31, 2023).
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 5
and 6
to the
Consolidated Financial
Statements.
At December 31, 2024,
the Corporation had operations
in the United States
Virgin Islands (the
“USVI”) and had approximately
$
28
million
in
direct
exposure
to
USVI
government
entities
(December
31,
2023
-
$
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.
214
At December 31,
2024, the Corporation
had operations in
the British Virgin
Islands (“BVI”) and
it had a
loan portfolio amounting
to
approximately
$
196
million
comprised
of
various
retail
and
commercial
clients,
compared
to
a
loan
portfolio
of
$
205
million
at
December 31, 2023. At December 31, 2024, the
Corporation had no significant exposure to a single
borrower in the BVI.
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 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. In
connection with
this assessment,
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.
During the first quarter of 2024, the Corporation recorded an additional expense of $
14.3
million, $
9.1
million net of tax, to reflect the
FDIC's
higher
loss
estimate
which increased
from
$
16.3
billion,
when
approved,
to
$
20.4
billion
during the
quarter.
The
special
assessment amount and collection period may
change as the estimated loss
is periodically adjusted or if
the total amount collected
varies.
Legal Proceedings
The nature of Popular’s business ordinarily
generates claims, litigation,
arbitration, regulatory and governmental investigations, and
legal
and
administrative
cases
and
proceedings
(collectively,
“Legal
Proceedings”).
Popular’s
Legal
Proceedings
may
involve
various lines
of business
and include
claims relating
to contract,
torts, consumer
protection, securities,
antitrust, employment,
tax
and
other
laws.
The
recovery
sought
in
Legal
Proceedings
may
include
substantial
or
indeterminate
compensatory
damages,
punitive
damages,
injunctive
relief,
or
recovery
on
a
class-wide
basis.
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 $
5.95
million as
of
December
31,
2024.
In
certain
cases,
management cannot
reasonably
estimate
the
possible
loss
at
this
time.
Any
estimate
involves significant judgment, given the
varying stages of the
Legal Proceedings (including the fact
that many of them
are currently
in preliminary stages), the
existence of multiple
defendants in several of
the current Legal Proceedings
whose share of liability
has
yet to be determined, the numerous unresolved issues in
many of the Legal Proceedings, and the inherent uncertainty
of the various
potential
outcomes
of
such
Legal
Proceedings.
Accordingly,
management’s
estimate
will
change
from
time-to-time,
and
actual
losses may be more or less than the current estimate.
While the
outcome of
Legal Proceedings
is inherently
uncertain, based
on information
currently available,
advice of
counsel, and
available
insurance
coverage,
management
believes
that
the
amount
it
has
already
accrued
is
adequate
and
any
incremental
liability arising from
the Legal Proceedings
in matters in
which a loss
amount can be
reasonably estimated will not
have a material
adverse effect
on the Corporation’s
consolidated financial position.
However, in
the event
of unexpected future
developments, it is
possible that
the ultimate
resolution of
these matters
in a
reporting period, if
unfavorable, could have
a material
adverse effect
on
the Corporation’s consolidated financial position for that period.
Set forth below is a description of certain Legal Proceedings.
Insufficient Funds and Overdraft Fees Class Actions
215
Popular, Inc. (“Popular”) was named as
a defendant in a putative class action complaint captioned Golden v.
Popular, Inc. originally
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.
The complaint further alleged that Popular assessed OD Fees over authorized
transactions for
which sufficient
funds are
held for
settlement. Following
a Motion
to Compel
Arbitration filed
by Popular,
Plaintiff
filed a Notice of Voluntary Dismissal in April 2022.
In May 2022,
Plaintiff filed a
new complaint captioned Lipsett v.
Banco Popular North America
d/b/a Popular Community Bank
with
the same allegations of
his previous complaint against
Popular. On May
2, 2024, the parties
reached a settlement in
principle on a
class-wide basis. The Court approved the settlement
agreement on January 7, 2025. This matter is
now closed.
216
Note 24 – 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, 2024.
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
27
to
the
Consolidated
Financial
Statements
for
additional
information
on
the
debt
securities
outstanding
at
December
31,
2024
and
2023,
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, 2024 and 2023.
217
(In thousands)
December 31, 2024
December 31, 2023
Assets
Servicing assets:
Mortgage servicing rights
$
84,356
$
92,999
Total servicing
assets
$
84,356
$
92,999
Other assets:
Servicing advances
$
6,112
$
6,291
Total other assets
$
6,112
$
6,291
Total assets
$
90,468
$
99,290
Maximum exposure to loss
$
90,468
$
99,290
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 $
6.6
billion at December 31, 2024 (December
31, 2023 - $
7.2
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,
2024 and
2023 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,
2024.
218
Note 25 – 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,
2024, inclusion of
the credit risk
in the
fair value of
the derivatives resulted
in a
gain of
$
0.1
million from the
Corporation’s credit standing adjustment.
During the years ended December 31, 2023 and
2022, the Corporation recognized a gain
of $
0.4
million and a loss of $
0.5
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 non-hedging derivatives
outstanding at December 31, 2024 and 2023
were as follows:
219
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)
2024
2023
classification
2024
2023
classification
2024
2023
Derivatives not designated
as hedging instruments:
Forward contracts
$
11,150
$
14,930
Trading
account debt
securities
$
48
$
-
Other liabilities
$
1
$
138
Interest rate caps
95,625
528,125
Other assets
26
2,195
Other liabilities
26
2,213
Indexed options on deposits
93,510
89,730
Other assets
25,949
22,224
-
-
-
Bifurcated embedded options
86,278
82,118
-
-
-
Interest
bearing
deposits
22,805
18,752
Total derivatives not
designated as
hedging instruments
$
286,563
$
714,903
$
26,023
$
24,419
$
22,832
$
21,103
Total derivative assets
and liabilities
$
286,563
$
714,903
$
26,023
$
24,419
$
22,832
$
21,103
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, 2024 and 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.
220
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
$
-
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
$
-
Fair Value Hedges
At December 31, 2024 and 2023, there were
no
derivatives designated as fair value hedges.
Non-Hedging Activities
For the year ended December
31, 2024, the Corporation recognized a
gain of $
0.6
million (2023 –gain of $
1.5
million; 2022 – gain
of $
7.7
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
2024
2023
2022
Forward contracts
Mortgage banking activities
$
34
$
655
$
8,094
Interest rate caps
Other operating income
18
(18)
-
Indexed options on deposits
Interest expense
7,423
6,201
(5,290)
Bifurcated embedded options
Interest expense
(6,842)
(5,326)
4,942
Total
$
633
$
1,512
$
7,746
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.
221
Note 26 – Related party transactions
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.
The
activity and balance of all these loans were
as follows:
(In thousands)
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
10,365
Payments
(11,743)
Other changes, including existing loans to new related parties
(2,422)
Balance at December 31, 2024
$
142,217
New loans and payments include disbursements and collections
from existing lines of credit.
Certain
loans
to
related
parties
have
participated
in
the
Corporation’s
loan
mitigation
programs
that
are
also
available
to
third
parties.
From time
to time,
the Corporation,
in the
ordinary course
of business,
also 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.
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 year ended December 31, 2022.
222
Year ended
(In thousands)
December 31, 2022
Share of Evertec income and Gain from the Evertec Transactions
and
related accounting adjustments [1]
$
269,539
Share of other changes in Evertec's stockholders' equity
3,168
Share of Evertec's changes in equity recognized in income
and Gain
from the Evertec Transaction and related
accounting adjustments
$
272,707
[1]
The
Gain
from
the
Evertec
Transactions
and
related
accounting
adjustments
are
reflected
within
other
operating
income
in
the
accompanying
consolidated
financial
statements.
The
Corporation
recognized
an
additional
$
17.3
million
as
an
operating
expense
in
connection
with
the
Evertec
Transactions.
The following table presents
the impact of transactions and
service payments between the Corporation and Evertec
(as an affiliate)
and
their
impact
on
the
results
of
operations
for
the
year
ended
2022.
Items
that
represent
expenses
to
the
Corporation
are
presented with parenthesis.
Year ended
(In thousands)
December 31, 2022
Category
Interest expense on deposits
$
(267)
Interest expense
ATH and credit cards interchange
income from services to Evertec
13,955
Other service fees
Rental income charged to Evertec
3,258
Net occupancy
Fees on services provided by Evertec
(128,681)
Professional fees
Other services provided to Evertec
420
Other operating expenses
Total
$
(111,315)
[1] Includes activity through June 30, 2022.
Centro Financiero BHD, S.A.
At December
31, 2024,
the Corporation
had a
15.63
% 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,
2024,
the
Corporation
recorded $
33.0
million in equity pickup, including the impact of changes in the fair value of available for sale securities included as a
component of Other Comprehensive Income, from its investment in BHD (December 31, 2023
- $
40.1
million), which had a carrying
amount of
$
239.5
million at
December 31,
2024 (December
31, 2023
- $
225.9
million). The
Corporation received
$
19.4
million in
cash
dividend distributions
and $
2.9
in stock
dividends during
the year
ended December
31, 2024
(December 31,
2023
-
$
14.1
million in cash dividends and $
2.1
million in stock dividends).
223
Note 27 – 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, 2024 and
2023:
224
At December 31, 2024
(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
$
7,512,171
$
5,482,939
$
-
$
-
$
12,995,110
Collateralized mortgage obligations - federal
agencies
-
120,284
-
-
120,284
Mortgage-backed securities
-
5,127,775
484
-
5,128,259
Other
-
-
2,250
-
2,250
Total debt securities
available-for-sale
$
7,512,171
$
10,730,998
$
2,734
$
-
$
18,245,903
Trading account debt securities, excluding
derivatives:
U.S. Treasury securities
$
2,814
$
10
$
-
$
-
$
2,824
Obligations of Puerto Rico, States and political
subdivisions
-
55
-
-
55
Collateralized mortgage obligations
-
655
-
-
655
Mortgage-backed securities
-
29,032
84
-
29,116
Other
-
-
133
-
133
Total trading account
debt securities, excluding
derivatives
$
2,814
$
29,752
$
217
$
-
$
32,783
Equity securities
$
-
$
45,664
$
-
$
381
$
46,045
Mortgage servicing rights
-
-
108,103
-
108,103
Loans held-for-sale
-
5,423
-
-
5,423
Derivatives
-
26,023
-
-
26,023
Total assets measured
at fair value on a
recurring basis
$
7,514,985
$
10,837,860
$
111,054
$
381
$
18,464,280
Liabilities
Derivatives
$
-
$
(22,832)
$
-
$
-
$
(22,832)
Total liabilities measured
at fair value on a
recurring basis
$
-
$
(22,832)
$
-
$
-
$
(22,832)
225
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)
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.
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
tables summarize
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, 2024 and
December 31, 2023.
(In thousands)
December 31, 2024
Aggregate Unpaid
Fair Value
Principal Balance
Difference
Loans held for sale
$
5,423
$
5,436
$
(13)
(In thousands)
December 31, 2023
Aggregate Unpaid
Fair Value
Principal Balance
Difference
Loans held for sale
$
3,239
$
3,202
$
37
226
No
loans held-for-sale were 90 or more days past
due or on nonaccrual status as of December 31,
2024 and December 31, 2023.
For the year ended December 31, 2024, 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, 2024,
2023 and 2022
and excludes nonrecurring fair value measurements
of
assets no longer outstanding
as of the reporting date.
Year ended December
31, 2024
(In thousands)
Level 1
Level 2
Level 3
Total
NONRECURRING FAIR VALUE
MEASUREMENTS
Assets
Write-downs
Loans
[1]
$
-
$
-
$
6,808
$
6,808
$
(939)
Other real estate owned
[2]
-
-
6,050
6,050
(1,934)
Other foreclosed assets
[2]
-
-
134
134
(55)
Total assets measured
at fair value on a nonrecurring basis
$
-
$
-
$
12,992
$
12,992
$
(2,928)
[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, 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 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.
227
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, 2024, 2023, and 2022.
Year ended December
31, 2024
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
(In thousands)
for-sale
for-sale
securities
securities
debt securities
rights
assets
Balance at January 1,
2024
$
606
$
2,500
$
5
$
112
$
167
$
118,109
$
121,499
Gains (losses) included in earnings
-
(500)
-
-
(34)
(11,370)
(11,904)
Gains (losses) included in OCI
3
-
-
-
-
-
3
Additions
-
-
-
-
-
1,364
1,364
Sales
-
250
-
-
-
-
250
Settlements
(125)
-
(5)
(28)
-
-
(158)
Balance at December 31, 2024
$
484
$
2,250
$
-
$
84
$
133
$
108,103
$
111,054
Changes in unrealized gains (losses)
included in earnings relating to assets
still held at December 31, 2024
$
-
$
-
$
-
$
1
$
7
$
(2,120)
$
(2,112)
Year ended December
31, 2023
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
(In thousands)
for-sale
for-sale
securities
securities
securities
rights
assets
Balance at January 1, 2023
$
711
$
1,000
$
113
$
215
$
207
$
128,350
$
130,596
Gains (losses) included in earnings
-
-
-
(2)
(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 as
classified
securities
securities
as trading
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
$
-
$
-
228
Gains and losses (realized and
unrealized) included in earnings for the
years ended December 31, 2024,
2023, and 2022 for Level
3 assets and liabilities included in the previous
tables are reported in the consolidated statement
of operations as follows:
2024
2023
2022
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
$
(11,370)
$
(2,120)
$
(11,589)
$
(529)
$
166
$
11,964
Trading account (loss) profit
(34)
8
(42)
17
(71)
(21)
Other operating income
-
-
-
-
9,241
-
Provision for credit losses
(500)
-
-
-
-
-
Total
$
(11,904)
$
(2,112)
$
(11,631)
$
(512)
$
9,336
$
11,943
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, 2024 and 2023.
Fair value at
December 31,
(In thousands)
2024
Valuation technique
Unobservable inputs
Weighted average (range) [1]
Other - trading
$
133
Discounted cash flow model
Weighted average life
2
years
Yield
12
.0%
Prepayment speed
10.8
%
Loans held-in-portfolio
$
6,808
[2]
External appraisal
Haircut applied on
external appraisals
6.6
% (
5.0
% -
10.0
%)
Other real estate owned
$
53
[3]
External appraisal
Haircut applied on
external appraisals
60.1
% (
35.0
% -
65.6
%)
[1]
Weighted average of significant unobservable inputs
used to develop Level 3 fair value measurements
were calculated by relative fair value.
[2]
Loans held-in-portfolio in which haircuts were not applied
to external appraisals were excluded from this table.
[3]
Other real estate owned in which haircuts were not applied
to external appraisals were excluded from this table.
229
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.
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
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 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
230
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
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
was
related
to
earnout
payments
that
could
be
payable
over
a
three-year
period to K2 Capital Group LLC’s
(“K2”) related to an equipment leasing
and financing business acquired by the Corporation
during
the
year
2022,
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
231
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.
232
Note 28 – 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,
2024
and
December 31, 2023, 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.
233
December 31, 2024
Carrying
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
Financial Assets:
Cash and due from banks
$
419,638
$
419,638
$
-
$
-
$
-
$
419,638
Money market investments
6,380,948
6,371,180
9,768
-
-
6,380,948
Trading account debt securities, excluding
derivatives
[1]
32,783
2,814
29,752
217
-
32,783
Debt securities available-for-sale
[1]
18,245,903
7,512,171
10,730,998
2,734
-
18,245,903
Debt securities held-to-maturity:
U.S. Treasury securities
$
7,693,418
$
-
$
7,623,824
$
-
$
-
$
7,623,824
Obligations of Puerto Rico, States and political
subdivisions
51,865
-
6,866
44,711
-
51,577
Collateralized mortgage obligation-federal agency
1,518
-
1,304
-
-
1,304
Securities in wholly owned statutory business trusts
5,959
-
5,959
-
-
5,959
Total debt securities
held-to-maturity
$
7,752,760
$
-
$
7,637,953
$
44,711
$
-
$
7,682,664
Equity securities:
FHLB stock
$
55,786
$
-
$
55,786
$
-
$
-
$
55,786
FRB stock
100,304
-
100,304
-
-
100,304
Other investments
52,076
-
45,664
6,528
381
52,573
Total equity securities
$
208,166
$
-
$
201,754
$
6,528
$
381
$
208,663
Loans held-for-sale
$
5,423
$
-
$
5,423
$
-
$
-
$
5,423
Loans held-in-portfolio
36,361,628
-
-
35,652,539
-
35,652,539
Mortgage servicing rights
108,103
-
-
108,103
-
108,103
Derivatives
26,023
-
26,023
-
-
26,023
December 31, 2024
Carrying
Measured
(In thousands)
amount
Level 1
Level 2
Level 3
at NAV
Fair value
Financial Liabilities:
Deposits:
Demand deposits
$
55,871,463
$
-
$
55,871,463
$
-
$
-
$
55,871,463
Time deposits
9,012,882
-
8,795,803
-
-
8,795,803
Total deposits
$
64,884,345
$
-
$
64,667,266
$
-
$
-
$
64,667,266
Assets sold under agreements to repurchase
$
54,833
$
-
$
54,845
$
-
$
-
$
54,845
Other short-term borrowings
[2]
225,000
-
225,000
-
-
225,000
Notes payable:
FHLB advances
$
302,722
$
-
$
295,023
$
-
$
-
$
295,023
Unsecured senior debt securities
395,198
-
415,148
-
-
415,148
Junior subordinated deferrable interest debentures
(related to trust preferred securities)
198,373
-
189,758
-
-
189,758
Total notes payable
$
896,293
$
-
$
899,929
$
-
$
-
$
899,929
Derivatives
$
22,832
$
-
$
22,832
$
-
$
-
$
22,832
[1]
Refer to Note 27 to the Consolidated Financial Statements
for the fair value by class of financial asset and its hierarchy
level.
[2]
Refer to Note 16 to the Consolidated Financial Statements
for the composition of other short-term borrowings.
234
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 27 to the Consolidated Financial Statements
for the fair value by class of financial asset and its hierarchy
level.
Refer
to
Note
23
to
the
Consolidated
Financial
Statements
for
the
notional
amount
of
commitments
to
extend
credit,
which
represents the unused portion of credit facilities granted to customers,
and
letters of credit, which represent the contractual amount
that
is
required
to
be
paid
in
the
event
of
nonperformance,
at
December
31,
2024
and
December
31,
2023.
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.
235
Note 29 – 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,
2024
and
2023
and
the
approved
asset
allocation
ranges, by asset category, are summarized in the table below.
Minimum allotment
Maximum allotment
2024
2023
Equity
0
%
70
%
10
%
22
%
Debt securities
0
%
100
%
85
%
74
%
Popular related securities
0
%
5
%
1
%
2
%
Cash and cash equivalents
0
%
100
%
4
%
2
%
236
The following table sets
forth by level, within
the fair value hierarchy,
the Pension Plans’ assets at
fair value at December
31, 2024
and 2023. 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.
2024
2023
(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
$
-
$
6,956
$
-
$
125,476
$
132,432
$
-
$
3,711
$
-
$
154,459
$
158,170
Corporate bonds and
debentures
-
364,900
-
10,734
375,634
-
295,141
-
7,042
302,183
Equity securities - Common
Stock
3,821
-
-
-
3,821
34,334
-
-
-
34,334
Equity securities - ETF's
32,372
6,503
-
-
38,875
42,798
17,173
-
-
59,971
Foreign commingled trust
funds
-
-
-
20,097
20,097
-
-
-
51,392
51,392
Mutual fund
-
9,833
-
-
9,833
-
1,610
-
22,642
24,252
Mortgage-backed securities
-
14,160
-
-
14,160
-
9,289
-
-
9,289
Cash and cash equivalents
17,034
-
-
-
17,034
8,908
-
-
-
8,908
Accrued investment income
-
-
5,289
-
5,289
-
-
3,927
-
3,927
Total assets
$
53,227
$
402,352
$
5,289
$
156,307
$
617,175
$
86,040
$
326,924
$
3,927
$
235,535
$
652,426
237
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 that are
valued using the NAV
per share practical expedient,
were not
categorized within
the fair
value
hierarchy and
were presented
separately.
The Fund's
investments are
in an
international equity portfolio and in an emerging markets
equity fund.
●
Mutual
funds
–
Mutual
funds
held
by
the
Plan
are
open-end
mutual
funds
that
are
registered
with
the
Securities
and
Exchange
Commission (SEC)
and are
required to
publish their
daily NAV.
Since these
funds
have liquid
markets with
trading activity of these or similar securities they
are considered 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.
238
(In thousands)
2024
2023
Balance at beginning of year
$
3,927
$
3,581
Purchases, sales, issuance and settlements (net)
1,362
346
Balance at end of year
$
5,289
$
3,927
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,
2024 and
2023. There
were
no
transfers in
and/or out
of Level
1 and
Level 2
during the
years ended
December 31, 2024 and 2023.
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)
2024
2023
Shares of Popular, Inc. common stock
40,619
178,611
Fair value of shares of Popular, Inc. common
stock
$
3,821
$
14,659
Dividends paid on shares of Popular,
Inc. common stock held by the plan
$
360
$
384
The following table presents the components of net
periodic benefit cost for the years ended
December 31, 2024, 2023 and 2022.
Pension Plans
OPEB Plan
(In thousands)
2024
2023
2022
2024
2023
2022
(in thousands)
Service cost
$
-
$
-
$
-
$
127
$
191
$
485
Other operating expenses:
Interest cost
30,234
31,548
19,199
5,686
6,082
3,931
Expected return on plan assets
(34,376)
(34,365)
(35,388)
-
-
-
Recognized net actuarial loss
16,664
21,465
15,644
(2,193)
(2,212)
-
Net periodic cost (benefit)
$
12,522
$
18,648
$
(545)
$
3,620
$
4,061
$
4,416
Other Adjustments
-
-
-
-
-
60
Total cost (benefit)
$
12,522
$
18,648
$
(545)
$
3,620
$
4,061
$
4,476
239
The following table sets forth the aggregate status of the plans and the amounts recognized in the consolidated financial statements
at December 31, 2024 and 2023.
Pension Plans
OPEB Plan
(In thousands)
2024
2023
2024
2023
Change in benefit obligation:
Benefit obligation at beginning of year
$
635,794
$
628,175
$
117,045
$
118,336
Service cost
-
-
127
191
Interest cost
30,234
31,548
5,686
6,082
Actuarial (gain)/loss
[1]
(31,747)
16,861
(16,787)
(1,180)
Benefits paid
(44,523)
(40,790)
(6,899)
(6,384)
Benefit obligation at end of year
$
589,758
$
635,794
$
99,172
$
117,045
Change in fair value of plan assets:
Fair value of plan assets at beginning of year
$
652,426
$
619,885
$
-
$
-
Actual return on plan assets
9,042
73,101
-
-
Employer contributions
230
230
6,899
6,384
Benefits paid
(44,523)
(40,790)
(6,899)
(6,384)
Fair value of plan assets at end of year
$
617,175
$
652,426
$
-
$
-
Funded status of the plan:
Benefit obligation at end of year
$
(589,758)
$
(635,794)
$
(99,172)
$
(117,045)
Fair value of plan assets at end of year
617,175
652,426
-
-
Funded status at year end
$
27,417
$
16,632
$
(99,172)
$
(117,045)
Amounts recognized in accumulated other comprehensive
loss:
Net loss/(gain)
177,017
200,094
(40,048)
(25,454)
Accumulated other comprehensive loss (AOCL)
$
177,017
$
200,094
$
(40,048)
$
(25,454)
Reconciliation of net (liabilities) assets:
Net liabilities at beginning of year
$
16,632
$
(8,290)
$
(117,045)
$
(118,336)
Amount recognized in AOCL at beginning of year,
pre-tax
200,094
243,434
(25,454)
(26,486)
Amount prepaid (liability) at beginning of year
216,726
235,144
(142,499)
(144,822)
Total benefit
cost
(12,522)
(18,648)
(3,620)
(4,061)
Contributions
230
230
6,899
6,384
Amount prepaid (liability) at end of year
204,434
216,726
(139,220)
(142,499)
Amount recognized in AOCL
(177,017)
(200,094)
40,048
25,454
Net asset/(liabilities) at end of year
$
27,417
$
16,632
$
(99,172)
$
(117,045)
[1]
For 2024, the significant component of the Pension Plans
actuarial gain were mainly related to an decrease in the
obligation due to an increase in the
single weighted-average discount rates and a change to certain
demographic assumptions partially offset by a lower
return on the fair value of plan
assets.
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,
a change to certain demographic assumptions, a favorable
demographic experience from
larger than expected reductions and an increase in discount
rates. For 2023, the significant component of the Pension
Plans actuarial loss 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.
240
The following table presents the change in accumulated other
comprehensive loss (“AOCL”), pre-tax, for the years ended December
31, 2024 and 2023.
(In thousands)
Pension Plans
OPEB Plan
2024
2023
2024
2023
Accumulated other comprehensive loss at beginning of year
$
200,094
$
243,434
$
(25,454)
$
(26,486)
Increase (decrease) in AOCL:
Recognized during the year:
Amortization of actuarial losses
(16,664)
(21,465)
2,193
2,212
Occurring during the year:
Net actuarial (gains)/losses
(6,413)
(21,875)
(16,787)
(1,180)
Total (decrease) increase
in AOCL
(23,077)
(43,340)
(14,594)
1,032
Accumulated other comprehensive loss at end of year
$
177,017
$
200,094
$
(40,048)
$
(25,454)
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, 2024
and 2023.
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:
2024
2023
2022
2024
2023
2022
Discount rate for benefit obligation
5.02
-
5.05
%
5.34
-
5.37
%
2.79
-
2.83
%
5.10
%
5.42
%
2.94
%
Discount rate for service cost
N/A
N/A
N/A
5.37
%
5.66
%
3.21
%
Discount rate for interest cost
4.95
-
4.96
%
5.23
-
5.24
%
2.3
0 -
2.33
%
4.99
%
5.28
%
2.51
%
Expected return on plan assets
5.6
0 -
6.60
%
5.9
0 -
6.50
%
4.3
0 -
5.4
0
%
N/A
N/A
N/A
Initial health care cost trend rate
N/A
N/A
N/A
7.25
%
7.50
%
4.75
%
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
2035
2023
Pension Plans
OPEB Plan
Weighted average assumptions used to determine
benefit obligation at
December 31:
2024
2023
2024
2023
Discount rate for benefit obligation
5.54
-
5.57
%
5.02
-
5.05
%
5.65
%
5.10
%
Initial health care cost trend rate
N/A
N/A
7.00
%
7.25
%
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
241
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,
2024 and 2023.
Pension Plans
OPEB Plan
(In thousands)
2024
2023
2024
2023
Projected benefit obligation
$
33,993
$
35,965
$
99,172
$
117,045
Accumulated benefit obligation
33,993
36,965
99,172
117,045
Fair value of plan assets
28,177
29,193
-
-
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,
2024 and 2023.
Pension Plans
OPEB Plan
(In thousands)
2024
2023
2024
2023
Projected benefit obligation
$
555,765
$
599,829
$
-
$
-
Accumulated benefit obligation
555,765
599,829
-
-
Fair value of plan assets
588,998
623,233
-
-
The Corporation expects to make the following contributions
to the plans during the year ended December
31, 2025.
(In thousands)
2025
Pension Plans
$
227
OPEB Plan
$
5,428
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
2025
$
49,495
$
5,428
2026
45,628
5,656
2027
45,603
5,878
2028
45,475
6,111
2029
45,207
6,311
2030 - 2034
218,548
33,950
242
The table below presents a breakdown of the
plans’ assets and liabilities at December
31, 2024 and 2023.
Pension Plans
OPEB Plan
(In thousands)
2024
2023
2024
2023
Non-current assets
$
33,233
$
23,404
$
-
$
-
Current liabilities
222
222
5,304
5,595
Non-current liabilities
5,594
6,550
93,868
111,451
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, 2024 was $
21.4
million (2023 - $
20.3
million, 2022 - $
18.7
million).
The
plans held
1,177,588
(2023 –
1,253,702
) shares
of common
stock
of
the
Corporation with
a market
value of
approximately
$
110.8
million at December 31, 2024 (2023 - $
102.9
million).
243
Note 30 – 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, 2024, 2023 and 2022:
(In thousands, except per share information)
2024
2023
2022
Net income
$
614,212
$
541,342
$
1,102,641
Preferred stock dividends
(1,412)
(1,412)
(1,412)
Net income applicable to common stock
$
612,800
$
539,930
$
1,101,229
Average common shares outstanding
71,590,757
71,710,265
75,147,263
Average potential dilutive common shares
32,945
81,427
126,740
Average common shares outstanding - assuming dilution
71,623,702
71,791,692
75,274,003
Basic EPS
$
8.56
$
7.53
$
14.65
Diluted EPS
$
8.56
$
7.52
$
14.63
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.
244
Note 31 – 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, 2024, 2023 and 2022.
Years ended December
31,
(In thousands)
2024
2023
2022
BPPR
Popular U.S.
BPPR
Popular U.S.
BPPR
Popular U.S.
Service charges on deposit accounts
$
141,240
$
10,103
$
137,297
$
10,179
$
146,073
$
11,137
Other service fees:
Debit card fees
[1]
105,017
793
98,779
853
92,633
876
Insurance fees, excluding reinsurance
44,808
6,946
46,903
5,602
40,545
5,018
Credit card fees, excluding late fees and membership
fees
[1]
102,849
1,587
102,214
1,597
92,959
1,275
Sale and administration of investment products
33,213
-
26,316
-
23,553
-
Trust fees
27,659
-
26,160
-
23,614
-
Total revenue from
contracts with customers
[2]
$
454,786
$
19,429
$
437,669
$
18,231
$
419,377
$
18,306
[1] Effective in the third quarter of 2024, the
Corporation reclassified certain interchange fees, which
were previously included jointly with credit card
fees from common network activity,
as debit card fees. For the year ended December 31, 2024,
these interchange fees were approximately $
45.5
million, which include approximately $
22.2
million corresponding to the first and second quarters
of 2024 which were reclassified. For the years
ended December 31, 2023 and 2022, interchange fees
of approximately $
45.3
and
$
43.3
million were reclassified, respectively.
[2] The amounts include intersegment transactions of $
4.5
million, $
5
.0 million and $
5
.0 million, respectively, for the
years ended December 31,
2024, 2023 and 2022.
Revenue from contracts with
customers is recognized when,
or as, the performance
obligations are satisfied by
the Corporation by
transferring the
promised services
to
the customers.
A
service is
transferred to
the customer
when, or
as, the
customer obtains
control
of
that
service.
A
performance obligation
may
be
satisfied over
time
or
at
a
point
in
time.
Revenue from
a
performance
obligation satisfied
over time
is recognized
based on
the services
that have
been rendered
to date.
Revenue from
a performance
obligation satisfied at a point in time
is recognized when the customer obtains control over the
service. The transaction price, or the
amount of revenue
recognized, reflects the
consideration the Corporation expects
to be entitled
to in exchange
for those promised
services. In determining the transaction price, the Corporation considers the effects of variable consideration. Variable consideration
is included
in the
transaction price
only to
the extent
it is
probable that a
significant reversal
in the
amount of
cumulative revenue
recognized will
not occur.
The Corporation
is the
principal in
a transaction
if it
obtains control
of the
specified goods
or services
before they
are transferred
to
the customer.
If the
Corporation acts
as principal,
revenues are
presented in
the gross
amount of
consideration to which it expects to
be entitled and are not
netted with any related expenses. On the
other hand, the Corporation is
an agent if it does not control
the specified goods or services before they are transferred
to the customer. If
the Corporation acts as
an agent, revenues are presented in the amount
of consideration to which it expects to be entitled,
net of related expenses.
Following is a description of the nature and timing
of revenue streams from contracts with customers:
Service charges on deposit accounts
Service
charges
on
deposit
accounts
are
earned
on
retail
and
commercial
deposit
activities
and
include,
but
are
not
limited
to,
nonsufficient fund
fees, overdraft
fees and
checks stop
payment fees.
These transaction-based
fees are
recognized at
a point
in
time,
upon
occurrence
of
an
activity
or
event
or
upon
the
occurrence
of
a
condition
which
triggers
the
fee
assessment.
The
Corporation is acting as principal in these transactions.
Debit card fees
Debit card fees include, but are not limited to, interchange
fees, surcharging income and foreign transaction
fees.
These transaction-
based fees
are recognized at
a point in
time, upon
occurrence of an
activity or
event or upon
the occurrence of
a condition which
triggers
the
fee
assessment.
Interchange
fees
are
recognized
upon
settlement
of
the
debit
card
payment
transactions.
The
Corporation is acting as principal in these transactions.
Insurance fees
245
Insurance fees
include, but
are
not limited
to, commissions
and contingent
commissions.
Commissions and
fees
are
recognized
when related
policies are effective
since the Corporation
does not
have an enforceable
right to
payment for services
completed to
date.
An
allowance
is
created
for
expected
adjustments
to
commissions
earned
related
to
policy
cancellations.
Contingent
commissions
are
recorded
on
an
accrual
basis
when
the
amount
to
be
received
is
notified
by
the
insurance
company.
The
Corporation is acting
as an
agent since it
arranges for the
sale of
the policies and
receives commissions if,
and when, it
achieves
the sale.
Credit card fees
Credit card
fees include,
but are
not limited
to, interchange
fees, additional
card fees,
cash advance
fees, balance
transfer fees,
foreign transaction fees, and returned payments
fees. Credit card fees are
recognized at a point in
time, upon the occurrence of an
activity or
an event.
Interchange fees
are recognized
upon settlement
of the
credit card
payment transactions. The
Corporation is
acting as principal in these transactions.
Sale and administration of investment products
Fees from
the sale
and administration
of investment
products include,
but are
not limited
to, commission
income from
the sale
of
investment products, asset management fees, underwriting
fees, and mutual fund fees.
Commission income from investment products is recognized on the trade date since clearing, trade execution, and custody services
are satisfied when
the customer acquires
or disposes of
the rights to
obtain the economic
benefits of the
investment products and
brokerage contracts have no fixed duration and
are terminable at will by
either party. The
Corporation is acting as principal in these
transactions since it
performs the service
of providing the
customer with the
ability to acquire
or dispose of
the rights to
obtain the
economic benefits of investment products.
Asset
management
fees
are
satisfied
over
time
and
are
recognized
in
arrears.
At
contract
inception,
the
estimate
of
the
asset
management fee
is constrained
from the
inclusion in
the transaction
price since
the promised
consideration is
dependent on
the
market and thus
is highly susceptible
to factors
outside the manager’s
influence. As advisor,
the broker-dealer subsidiary
is acting
as principal.
Underwriting fees are
recognized at a point
in time, when
the investment products
are sold in
the open market at
a markup. When
the broker-dealer subsidiary is lead
underwriter, it is
acting as an agent. In
turn, when it is
a participating underwriter, it
is acting as
principal.
Mutual fund fees,
such as distribution fees,
are considered variable consideration
and are recognized over
time, as the
uncertainty
of the fees to be
received is resolved as NAV
is determined and investor activity occurs. The
promise to provide distribution-related
services
is
considered
a
single
performance
obligation
as
it
requires
the
provision
of
a
series
of
distinct
services
that
are
substantially the same and have the same pattern of
transfer. When the broker-dealer subsidiary is acting as a distributor, it is acting
as principal. In turn, when it acts as third-party dealer, it is acting
as an agent.
Trust fees
Trust fees
are recognized from
retirement plan, mutual fund
administration, investment management, trustee, escrow,
and custody
and
safekeeping services.
These
asset
management services
are
considered
a
single
performance obligation
as
it
requires the
provision of
a series
of distinct
services that
are substantially
the same
and have
the same
pattern of
transfer.
The performance
obligation
is
satisfied
over
time,
except
for
optional
services
and
certain
other
services
that
are
satisfied
at
a
point
in
time.
Revenues are recognized in
arrears,
when, or as,
the services are rendered.
The Corporation is
acting as principal since,
as asset
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.
246
Note 32 – 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
0.2
to
30.0
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 13
and
Note
18
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, 2024
(In thousands)
2025
2026
2027
2028
2029
Later
Years
Total Lease
Payments
Less: Imputed
Interest
Total
Operating Leases
$
28,708
$
20,567
$
15,184
$
12,657
$
10,652
$
30,371
$
118,139
$
(14,941)
$
103,198
Finance Leases
4,459
4,222
2,927
2,592
2,414
9,527
26,141
(3,000)
23,141
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)
2024
2023
2022
Finance lease cost:
Amortization of ROU assets
$
3,006
$
4,192
$
2,938
Interest on lease liabilities
912
1,063
1,117
Operating lease cost
30,660
31,596
30,534
Short-term lease cost
497
456
505
Variable lease cost
290
211
124
Sublease income
(81)
(66)
(37)
Total lease cost
[1]
$
35,284
$
37,452
$
35,181
[1]
Total lease cost
is recognized as part of net occupancy expense.
The
following
table
presents
supplemental
cash
flow
information
and
other
related
information
related
to
operating
and
finance
leases.
247
Years ended December
31,
(Dollars in thousands)
2024
2023
2022
Cash paid for amounts included in the measurement of
lease liabilities:
Operating cash flows from operating leases
$
31,416
$
31,124
$
29,985
Operating cash flows from finance leases
912
1,063
1,117
Financing cash flows from finance leases
3,977
5,360
3,346
ROU assets obtained in exchange for new lease obligations:
Operating leases
$
2,290
$
8,048
$
14,564
Finance leases
732
6,198
556
Weighted-average remaining lease term:
Operating leases
7.2
years
7.3
years
7.5
years
Finance leases
8.1
years
8.3
years
8.2
years
Weighted-average discount rate:
Operating leases
3.4
%
3.3
%
3.0
%
Finance leases
3.6
%
3.9
%
4.2
%
As
of
December
31,
2024,
the
Corporation
had
additional
operating
leases
contracts
that
have
not
yet
commenced
with
an
undiscounted contract amount of $
12.5
million, which will have lease terms ranging
from
10
to
20
years.
248
Note 33 - Stock-based compensation
Incentive Plan
On May 12, 2020, the shareholders of the Corporation approved the Popular, Inc. 2020 Omnibus Incentive Plan, which permits
the Corporation to issue several types of stock-based compensation to employees and directors of
the Corporation and/or any of its
subsidiaries (the
“2020 Incentive
Plan”). The
2020 Incentive
Plan replaced
the Popular,
Inc. 2004
Omnibus Incentive
Plan, which
was in effect
prior to the adoption of
the 2020 Incentive Plan (the
“2004 Incentive Plan” and, together
with the 2020 Incentive
Plan,
the “Incentive Plan”). Participants under the Incentive Plan are designated by the Talent and Compensation Committee of the Board
of Directors (or its delegate, as determined by the Board). Under the Incentive Plan, the Corporation has issued restricted stock and
performance shares to its employees and restricted
stock and restricted stock units (“RSUs”)
to its directors.
The restricted
stock granted
under the
Incentive Plan
to employees
becomes vested
based on
the employees’
continued service
with
Popular.
Unless
otherwise
stated
in
an
agreement
, the compensation cost associated with the shares of restricted stock
granted prior to 2021 was determined based on a two-prong vesting schedule. These grants include ratable vesting over five or four
years commencing at the date of grant (the “graduated vesting portion”) with a portion vested at termination of employment after
attainment of 55 years of age and 10 years of service or 60 years of age and 5 years of service (the “retirement vesting portion”).
The graduated vesting portion is accelerated at termination of employment after attaining 55 years of age and 10 years of service or
60 years of age and 5 years of service. Restricted stock granted on or after 2021 have ratable vesting 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”).
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.
249
(Not in thousands)
Shares
Weighted-average
grant date fair value
Non-vested at January 1, 2022
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
Granted
242,474
86.62
Performance Shares Quantity Adjustment
(18,650)
87.79
Vested
(267,873)
74.26
Forfeited
(7,939)
50.68
Non-vested at December 31, 2024
247,908
$
66.86
During
the
year
ended
December
31,
2024,
177,249
shares
of
restricted
stock
(2023
-
200,303
;
2022
-
137,934
)
and
65,225
performance shares (2023 -
57,454
; 2022 -
56,857
) were awarded to management under the
Incentive Plan.
During
the
year
ended
December
31,
2024,
the
Corporation
recognized
$
14.0
million
of
restricted
stock
expense
related
to
management incentive awards, with a tax benefit of $
2.4
million (2023 - $
11.5
million, with a tax benefit of $
1.9
million; 2022 - $
10.3
million, with
a tax
benefit of
$
1.8
million). During
the year
ended December
31, 2024,
the fair
market value
of the
restricted stock
and performance shares vested was $
17.1
million at grant date and $
23.3
million at vesting date. This differential triggers
a windfall
of $
2.3
million that was recorded as a reduction in income tax expense.
During the year ended December 31, 2024, the Corporation
recognized $
3.9
million of performance
shares expense, with
a tax benefit
of $
0.3
million (2023 -
$
3.5
million, with a
tax benefit of
$
0.1
million; 2022 - $
4.8
million, with a tax benefit of $
0.4
million).
The total unrecognized compensation cost related to non-vested
restricted
stock
awards
and
performance
shares
to
members
of
management
at
December
31,
2024
was
$
11.6
million
and
is
expected to be recognized over a weighted-average
period of
1.67
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, 2022
-
-
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
-
-
Granted
25,462
$
89.51
Vested
(25,462)
89.51
Forfeited
-
-
Non-vested at December 31, 2024
-
-
250
The
equity
awards
granted
to
members
of
the
Board
of
Directors
of
Popular,
Inc.
(the
“Directors”)
will
vest
and
become
non-
forfeitable on the
grant date of
such award. Effective
in May 2019,
all equity awards
granted to the
Directors may be
paid in either
unrestricted stock
or RSUs
at each
Directors election.
If RSUs
are elected,
the Directors
may defer
the delivery
of the
shares of
common stock
underlying the
RSUs award
until their
retirement. To
the extent
that cash
dividends are
paid on
the Corporation’s
outstanding common stock, the Directors will
receive an additional number of RSUs
that reflect a reinvested dividend equivalent.
For 2024,
2023 and 2022,
Directors elected RSUs
and unrestricted stock.
For the year
ended December 31,
2024,
24,070
RSUs
and
1,392
shares of unrestricted
stock were granted
to the Directors
(2023 -
36,804
RSUs and
2,300
shares of unrestricted stock;
2022 -
25,321
RSUs and
no
shares of unrestricted stock).
For the year
ended December 31, 2024,
$
2.2
million of restricted stock
expense related to these RSUs and unrestricted stocks were recognized, with a tax benefit of $
0.4
million (2023 - $
2.2
million with a
tax benefit of
$
0.4
million; 2022 -
$
2.0
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, 2024 for the Directors
was $
2.3
million.
251
Note 34 – Income taxes
The components of income
tax expense for the
years ended December 31, 2024,
2023, and 2022 are
summarized in the following
table.
(In thousands)
2024
2023
2022
Current income tax expense:
Puerto Rico
$
107,405
$
168,001
$
156,425
Federal and States
51,291
9,335
9,034
Subtotal
158,696
177,336
165,459
Deferred income tax (benefit) expense:
Puerto Rico
(6,982)
(50,871)
(4,373)
Federal and States
30,692
7,732
(28,756)
Subtotal
23,710
(43,139)
(33,129)
Total income tax
expense (benefit)
$
182,406
$
134,197
$
132,330
The table below presents a reconciliation of
the statutory income tax rate to the effective income tax
rate.:
2024
2023
2022
(In thousands)
Amount
% of pre-tax
income
Amount
% of pre-tax
income
Amount
% of pre-tax
income
Computed income tax at statutory rates
$
298,732
38
%
$
253,327
38
%
$
463,114
38
%
Net benefit of tax exempt interest income
(125,732)
(16)
(95,222)
(14)
(165,065)
(13)
Effect of income subject to preferential tax rate
(29)
-
(1,854)
-
(86,797)
(7)
Deferred tax asset valuation allowance
3,390
-
2,304
-
(21,469)
(2)
NOL Adjustments
-
-
-
-
(34,817)
(3)
Difference in tax rates due to multiple jurisdictions
(17,111)
(2)
(12,857)
(2)
(26,887)
(2)
Unrecognized tax benefits
-
-
(1,529)
-
(1,503)
-
Other tax benefits
(4,500)
-
(2,925)
-
-
-
Tax on intercompany
distributions
[1]
24,325
3
-
-
-
-
State and local taxes
9,634
1
6,687
3
14,981
1
Others
(6,303)
(1)
(13,734)
(2)
(9,227)
(1)
Income tax expense (benefit)
$
182,406
23
%
$
134,197
23
%
$
132,330
11
%
[1]
Includes $
16.5
million of out-of-period adjustment.
For the year ended December 31, 2024, the Corporation
recorded income tax expense of $
182.4
million, compared to $
134.2
million
for the
same period
of 2023.
The net
increase of
$
48.2
million in
income tax
expense reflects
the impact
of the
composition and
source of taxable income between both years.
In
addition,
and
as
disclosed
in Note
1,
during
the
first
quarter
of
2024,
the
income
tax
expense for
that
period included
$
22.9
million, related to intercompany distributions,
out of which $
16.5
million were related to
an out-of-period adjustment associated with
the Corporation’s U.S. subsidiary’s non-payment of taxes on certain intercompany
distributions to the Bank Holding Company (BHC)
in Puerto Rico, a foreign corporation for
U.S. tax purposes. During years 2023 and
2022, $
5.5
million and $
5.4
million, respectively,
should have been
recognized as additional income
tax expense, and
an aggregate of
$
5.6
million in the
years prior to
2022.
As a
result of
this adjustment,
the deferred
tax assets
related to
NOL of
the BHC
and its
related valuation
allowance was
reduced by
$
52.2
million. The
Corporation also
recognized $
6.5
million in
income tax
expense during
the quarter
ended March
31, 2024,
to
reflect the
U.S. federal
tax withholding
liability and
estimated related
Puerto Rico
income tax
arising from
a $
50.0
million dividend
paid during that quarter.
252
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, 2024 and 2023 were as follows:
253
December 31, 2024
(In thousands)
PR
US
Total
Deferred tax assets:
Tax credits available
for carryforward
$
4,861
$
24,728
$
29,589
Net operating loss and other carryforward available
52,211
610,279
662,490
Postretirement and pension benefits
27,786
-
27,786
Allowance for credit losses
247,153
24,415
271,568
Depreciation
7,700
7,229
14,929
FDIC-assisted transaction
152,665
-
152,665
Lease liability
25,167
16,451
41,618
Unrealized net loss on investment securities
252,411
20,996
273,407
Difference in outside basis from pass-through entities
50,144
-
50,144
Mortgage Servicing Rights
14,475
-
14,475
Other temporary differences
41,127
9,072
50,199
Total gross deferred
tax assets
875,700
713,170
1,588,870
Deferred tax liabilities:
Intangibles
88,351
55,926
144,277
Right of use assets
22,784
14,454
37,238
Deferred loan origination fees/cost
(1,880)
2,085
205
Loans acquired
18,415
-
18,415
Other temporary differences
6,799
429
7,228
Total gross deferred
tax liabilities
134,469
72,894
207,363
Valuation allowance
69,837
386,914
456,751
Net deferred tax asset
$
671,394
$
253,362
$
924,756
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
254
The net deferred tax
asset shown in the
table above at
December 31, 2024, is
reflected in the consolidated
statements of financial
condition as
$
926.3
million in
net deferred
tax assets
(in the
“other assets”
caption) (December
31, 2023
- $
1.0
billion) and
$
1.6
million in deferred tax liabilities (in the “other liabilities” caption) (December 31, 2023- $
1.3
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 $
56.6
million during
the year
ended December
31,
2024,
was
primarily
due
to
the
use
of
the
BHC
NOL
of
$
52.2
million
related
to
the
additional
income
recognized
on
certain
intercompany distributions received during prior years until year 2023, as disclosed above and in Note 1; also, for
the first quarter of
year 2024
an additional
distribution was issued
and the
NOL and valuation
allowance was
reduced by
$
17.1
million as
a result
of
such additional
income.
These variances were
partially offset
due to
the increase in
valuation allowance, mostly
attributed 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, 2024, expires
as follows:
(In thousands)
2025
$
45
2026
-
2027
-
2028
225,301
2029
118,823
2030
127,798
2031
103,594
2032
15,836
2033
20,738
2034
-
2035
50,356
$
662,490
At December
31, 2024
the net
deferred tax
asset of the
U.S. operations
amounted to $
640.3
million with
a valuation
allowance of
$
386.9
million, for
a net
deferred tax
asset of
$
253.4
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,
2024.
These historical financial results are
objectively verifiable positive evidence, evaluated together
with the positive evidence
of
stable credit metrics, in combination with the length of the
expiration of the NOLs. On the other hand, the Corporation
evaluated the
negative evidence
accumulated over the
years, including financial
results lower
than expectations and
challenges to
the economy
due to inflationary pressures and global geopolitical uncertainty that have
resulted in a trend of reduction of pre-tax income
over the
last three
years. As
of December 31,
2024, after weighting
all positive
and negative evidence,
the Corporation concluded
that it
is
more likely than
not that approximately
$
253.4
million of the
deferred tax assets 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
assets 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, including recent earnings trends, the
pre-
tax
earnings
forecast,
any
new
tax
initiative,
and
other
factors,
including
net
income
versus
forecast,
targeted
loan
growth,
net
interest
income
margin,
changes
in
deposit
costs,
allowance
for
credit
losses,
charge
offs,
NPLs
inflows
and
NPA
balances.
Significant adverse
changes or
a combination
of changes
in these
factors could
impact the
future realization
of the
deferred tax
assets.
At December 31,
2024, the Corporation’s
net deferred tax
assets related to
its Puerto Rico
operations amounted to
$
671.4
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.
255
The Holding Company operation has been in a
cumulative loss position in recent years.
Management expects these losses will be a
trend
in
future
years.
This
objectively
verifiable
negative
evidence is
considered
by
Management strong
negative
evidence that
suggests that
income in
future years
will be
insufficient to
support the
realization of
all deferred
tax assets.
After weighting
of all
positive
and
negative evidence,
Management concluded
as
of
the reporting
date,
that
it
is
more
likely
than
not that
the
Holding
Company will not be
able to realize any
portion of the deferred tax
assets. Accordingly, the
Corporation has maintained a valuation
allowance on the deferred tax assets of $
69.8
million as of December 31, 2024.
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, 2023
$
2.5
Reduction as a result of change in tax position
(1.0)
Balance at December 31, 2023
$
1.5
Balance at December 31, 2024
$
1.5
At
December 31,
2024, the
total amount
of
interest recognized
in the
statement of
financial condition
approximated
$
2.4
million
(2023
-
$
2.3
million).
The
total
interest
expense
recognized
during
2024
was
$
110
thousand
(2023
-
$
199
thousand
net
of
a
reduction of
$
475
thousand). Management determined
that, as
of December
31, 2024
and 2023, 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 $
3.0
million at December 31, 2024 (2023 - $
2.9
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 does not anticipate a
reduction in the total amount
of unrecognized tax benefits within the
next 12 months.
The
Corporation and
its subsidiaries
file
income tax
returns in
Puerto
Rico, the
U.S. federal
jurisdiction, various
U.S. states
and
political subdivisions, and
foreign jurisdictions. As
of December 31,
2024, the
following years remain
subject to
examination in the
U.S. Federal jurisdiction – 2021 and thereafter and
in the Puerto Rico jurisdiction – 2018 and thereafter.
256
Note 35 – 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, 2024, 2023 and 2022 are
listed in the following table:
(In thousands)
2024
2023
2022
Income taxes paid
$
186,659
$
185,423
$
178,808
Interest paid
1,389,354
1,093,968
292,491
Non-cash activities:
Loans transferred to other real estate
43,082
60,976
64,953
Loans transferred to other property
83,851
72,069
51,642
Total loans transferred
to foreclosed assets
126,933
133,045
116,595
Loans transferred to other assets
50,478
28,616
8,664
Financed sales of other real estate assets
10,620
10,378
8,535
Financed sales of other foreclosed assets
52,385
49,361
38,467
Total financed sales
of foreclosed assets
63,005
59,739
47,002
Financed sale of premises and equipment
127,785
88,537
47,697
Transfers from premises and equipment to
long-lived assets held-for-sale
50,645
-
1,739
Transfers from loans held-in-portfolio to
loans held-for-sale
28,001
57,526
11,531
Transfers from loans held-for-sale to loans
held-in-portfolio
6,007
5,354
26,425
Transfers from available-for-sale to held-to-maturity
debt securities
-
-
6,531,092
Loans securitized into investment securities
[1]
15,160
37,345
300,279
Trades receivables from brokers and
counterparties
-
31
9,461
Trades payable to brokers and counterparties
495,139
30
9,461
Net change in receivables from investments securities
161,400
51,000
125,000
Recognition of mortgage servicing rights on securitizations
or asset transfers
1,364
2,097
6,614
Loans booked under the GNMA buy-back option
3,537
6,014
9,799
Capitalization of right of use assets
5,202
23,991
17,932
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, 2024
December 31, 2023
December 31, 2022
Cash and due from banks
$
411,375
$
383,385
$
423,233
Restricted cash and due from banks
8,263
37,077
46,268
Restricted cash in money market investments
9,768
7,113
6,658
Total cash and due
from banks, and restricted cash
[2]
$
429,406
$
427,575
$
476,159
[2]
Refer to Note 4 - Restrictions on cash and due from banks
and certain securities for nature of restrictions.
257
Note 36 – 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.
The chief operating
decision maker (“CODM”) of
the Corporation is
the Chief Executive
Officer (“CEO”) who
utilizes net income
as
one of
the segment
profitability measures,
to evaluate
the performance
of each
reportable segment and
assess where
to allocate
resources effectively.
The CEO
receives
profitability reports
that
include net
income
per segment,
net
interest income
and
other
income
and expense
categories. The
CODM uses
the segment’s
net income
and components
of net
income, including
segment
revenues and
expenses to
assess performance
and to
manage important
aspects by
each reportable
segments such
as human
capital, investment in technology, making budget allocations as well as other strategic
decisions.
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 and the brokerage 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 BHD.
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. Assets
representing transactions
between reportable
segments
or
the
Corporate
group
are
also
eliminated in
the
tables presented below.
The tables that follow present the results of operations
and total assets by reportable segments:
258
December 31, 2024
Intersegment
(In thousands)
BPPR
Popular U.S.
Eliminations
Interest income
$
2,926,996
$
753,912
$
(10,600)
Interest expense
970,430
397,910
(10,600)
Net interest income
1,956,566
356,002
-
Provision for credit losses
254,843
1,369
-
Non-interest income
596,262
26,247
(56)
Personnel costs
601,652
104,948
-
Professional fees
58,687
12,562
(56)
Technology and
software expenses
254,584
37,884
-
Processing and transactional services
140,293
2,362
-
Amortization of intangibles
1,696
1,242
-
Depreciation expense
47,019
8,499
-
Other operating expenses
[1]
510,108
102,207
-
Total operating
expenses
1,614,039
269,704
(56)
Income before income tax
683,946
111,176
-
Income tax expense
128,207
33,549
-
Net income
$
555,739
$
77,627
$
-
Segment assets
$
58,601,802
$
14,333,292
$
(264,885)
December 31, 2024
Reportable
Total
(In thousands)
Segments
Corporate
Eliminations
Popular, Inc.
Interest income
$
3,670,308
$
12,589
$
(9,634)
$
3,673,263
Interest expense
1,357,740
42,869
(9,634)
1,390,975
Net interest income (expense)
2,312,568
(30,280)
-
2,282,288
Provision for credit losses
256,212
730
-
256,942
Non-interest income
622,453
41,046
(4,590)
658,909
Personnel costs
706,600
113,851
-
820,451
Professional fees
71,193
55,608
(979)
125,822
Technology and
software expenses
292,468
36,593
-
329,061
Processing and transactional services
142,655
22
-
142,677
Amortization of intangibles
2,938
-
-
2,938
Depreciation expense
55,518
1,560
-
57,078
Other operating expenses
[1]
612,315
(199,165)
(3,540)
409,610
Total operating
expenses
1,883,687
8,469
(4,519)
1,887,637
Income before income tax
795,122
1,567
(71)
796,618
Income tax expense
161,756
20,609
41
182,406
Net income (loss)
$
633,366
$
(19,042)
$
(112)
$
614,212
Segment assets
$
72,670,209
$
5,895,389
$
(5,520,215)
$
73,045,383
[1]
Other operating expenses includes net occupancy expenses,
equipment expense, excluding depreciation, other operating taxes,
communications expense, business promotion expenses, deposit
insurance costs and OREO expenses.
259
December 31, 2023
Intersegment
(In thousands)
BPPR
Popular U.S.
Eliminations
Interest income
$
2,631,407
$
627,600
$
(16,432)
Interest expense
819,752
276,955
(16,434)
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)
Personnel costs
571,516
102,994
-
Professional fees
79,108
17,410
(401)
Technology and
software expenses
232,652
31,890
-
Processing and transactional services
135,528
2,521
-
Amortization of intangibles
1,937
1,243
-
Goodwill impairment charge
-
23,000
-
Depreciation expense
49,135
7,888
-
Other operating expenses
[1]
544,767
99,438
(3)
Total operating
expenses
1,614,643
286,384
(404)
Income before income tax
589,364
74,545
2
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.
Interest income
$
3,242,575
$
18,141
$
(15,409)
$
3,245,307
Interest expense
1,080,273
48,919
(15,409)
1,113,783
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
Personnel costs
674,510
103,535
-
778,045
Professional fees
96,117
65,713
(688)
161,142
Technology and
software expenses
264,542
26,073
-
290,615
Processing and transactional services
138,049
21
-
138,070
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]
644,202
(194,824)
(3,837)
445,541
Total operating
expenses
1,900,623
2,002
(4,525)
1,898,100
Income before income tax
663,911
11,930
(302)
675,539
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
[1]
Other operating expenses includes net occupancy expenses,
equipment expense, excluding depreciation, other operating taxes,
communications expense, business promotion expenses, deposit
insurance costs and OREO expenses.
260
December 31, 2022
Intersegment
(In thousands)
BPPR
Popular U.S.
Eliminations
Interest income
$
2,026,539
$
442,053
$
(5,244)
Interest expense
203,022
69,065
(5,247)
Net interest income
1,823,517
372,988
3
Provision for credit losses
(benefit)
70,304
12,452
-
Non-interest income
680,276
31,958
(547)
Personnel costs
534,539
97,053
-
Professional fees
61,299
20,006
(535)
Technology and
software expenses
237,187
28,586
-
Processing and transactional services
124,751
2,361
-
Amortization of intangibles
1,937
1,338
-
Goodwill impairment charge
-
9,000
-
Depreciation expense
47,003
6,919
-
Other operating expenses
[1]
496,411
82,130
(8)
Total operating
expenses
1,503,127
247,393
(543)
Income before income tax
930,362
145,101
(1)
Income tax expense (benefit)
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.
Interest income
$
2,463,348
$
3,102
$
(539)
$
2,465,911
Interest expense
266,840
32,251
(539)
298,552
Net interest income (expense)
2,196,508
(29,149)
-
2,167,359
Provision for credit losses
(benefit)
82,756
274
-
83,030
Non-interest income
711,687
189,835
(4,460)
897,062
Personnel costs
631,592
88,172
-
719,764
Professional fees
80,770
92,088
(815)
172,043
Technology and
software expenses
265,773
26,129
-
291,902
Processing and transactional services
127,112
33
-
127,145
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 (benefit)
[1]
578,533
(206,342)
(4,007)
368,184
Total operating
expenses
1,749,977
1,265
(4,822)
1,746,420
Income before income tax
1,075,462
159,147
362
1,234,971
Income tax expense
(benefit)
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
[1]
Other operating expenses includes net occupancy expenses,
equipment expense, excluding depreciation, other operating taxes,
communications expense, business promotion expenses, deposit
insurance costs and OREO expenses.
261
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
in addition
to
periodic loan
participations with
PB.
During the
year ended
December 31,
2024, BPPR
did
no
t participate
in loans
originated by
PB (2023
– $
81
million, 2022
- $
184
million).
Total
assets for
the BPPR
segment
related
to
its
operations in
the
United States
amounted to
$
1.6
billion (2023
-
$
1.5
billion), including $
104
million in multifamily
loans (2023
- $
106
million), $
588
million in
commercial real estate
loans (2023
- $
528
million), $
685
million in C&I loans (2023
- $
557
million), and $
113
million in unsecured personal loans (2023
- $
229
million). During
the
year
ended
December 31,
2024,
the
BPPR
segment
generated approximately
$
124.2
million
(2023
-
$
117.7
million,
2022
-
$
67.8
million) in revenues from its
operations in the United States,
mainly from net interest income.
In the Virgin Islands,
the BPPR
segment offers
banking products, including
loans and deposits.
Total
assets for the
BPPR segment related
to its
operations in the
U.S. and British Virgin Islands amounted to $
1.0
billion (2023 - $
1.0
billion). The BPPR segment generated $
43.4
million in revenues
during the
year ended
December 31,
2024 (2023
- $
45.0
million, 2022
- $
46.6
million) from
its operations
in the
U.S. and
British
Virgin Islands.
(In thousands)
2024
2023
2022
Revenues:
[1]
Puerto Rico
$
2,334,721
$
2,175,938
$
2,505,988
United States
520,534
518,805
480,545
Other
85,942
87,505
77,888
Total consolidated
revenues
$
2,941,197
$
2,782,248
$
3,064,421
[1]
Total revenues include
net interest income, service charges on deposit accounts,
other service fees, mortgage banking activities, net (loss)
gain,
including impairment on equity securities, net (loss) gain
on trading account debt securities, net gain (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)
2024
2023
2022
Puerto Rico
Total assets
$
55,888,211
$
54,181,300
$
53,541,427
Loans
24,154,610
22,519,961
20,884,442
Deposits
52,099,309
51,282,007
51,138,790
United States
Total assets
$
15,890,339
$
15,343,156
$
12,718,775
Loans
12,431,859
12,006,012
10,643,964
Deposits
11,030,879
10,643,602
8,182,702
Other
Total assets
$
1,266,833
$
1,233,699
$
1,377,715
Loans
526,606
543,299
554,744
Deposits
[1]
1,754,157
1,692,634
1,905,735
[1]
Represents deposits from BPPR operations located in the
U.S. and British Virgin Islands.
262
Note 37 - 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, 2024 and 2023, and the results of its
operations and cash flows for the years ended
December 31, 2024, 2023 and 2022.
Condensed Statements of Condition
December 31,
(In thousands)
2024
2023
ASSETS
Cash and due from banks (includes $
175,715
due from bank subsidiary (2023 - $
126,388
))
$
175,715
$
126,388
Money market investments
453,723
243,459
Debt securities held-to-maturity,
at amortized cost (includes $
3,125
in common
securities from statutory trusts (2023 - $
3,125
))
[1]
3,125
3,125
Equity securities, at lower of cost or realizable value
29,170
23,993
Investment in BPPR and subsidiaries, at equity
3,183,855
3,006,768
Investment in Popular North America and subsidiaries,
at equity
1,908,608
1,899,546
Investment in other non-bank subsidiaries, at equity
408,639
385,033
Other loans
25,662
26,957
Less - Allowance for credit losses
281
51
Premises and equipment
6,299
7,035
Investment in equity method investees
5,279
5,266
Other assets (includes $
3,875
due from subsidiaries and affiliate (2023 - $
3,639
))
48,986
36,531
Total assets
$
6,248,780
$
5,764,050
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable
$
499,346
$
498,085
Other liabilities (includes $
11,418
due to subsidiaries and affiliate (2023 - $
6,078
))
136,249
118,899
Stockholders’ equity
5,613,185
5,147,066
Total liabilities and
stockholders’ equity
$
6,248,780
$
5,764,050
[1] Refer to Note 17 to the consolidated financial statements
for information on the statutory trusts.
263
Condensed Statements of Operations
Years ended December 31,
(In thousands)
2024
2023
2022
Income:
Dividends from subsidiaries
$
623,000
$
208,000
$
458,000
Interest income (includes $
9,693
due from subsidiaries and affiliates (2023 -
$
15,401
; 2022 -
$
680
))
12,139
17,715
2,846
Earnings (losses) from investments in equity method investees
15
(84)
15,688
Other operating income
3
-
139,191
Net (losses) gain, including impairment, on equity securities
(293)
2,012
(4,446)
Total income
634,864
227,643
611,279
Expenses:
Interest expense
36,640
42,691
26,021
Provision for credit losses (benefit)
230
(300)
274
Operating expenses (includes expenses for services provided
by subsidiaries and affiliate of
$
13,265
(2023 - $
13,463
; 2022 - $
18,414
)), net of reimbursement by subsidiaries for services
provided by parent of $
226,299
(2023 - $
215,479
; 2022 - $
222,935
)
730
924
223
Total expenses
37,600
43,315
26,518
Income before income taxes and equity in undistributed
earnings of subsidiaries
597,264
184,328
584,761
Income tax expense
[1]
23,410
-
8,723
Income before equity in undistributed earnings of subsidiaries
573,854
184,328
576,038
Equity in undistributed earnings of subsidiaries
40,358
357,014
526,603
Net income
$
614,212
$
541,342
$
1,102,641
Comprehensive income (loss), net of tax
$
848,503
$
1,170,739
$
(1,097,218)
[1] As discussed in Note 1 to the Consolidated Financial
Statements, the net income for the year ended December
31, 2024, included $
22.9
million
of expenses, of which
$
16.5
million was reflected
in income tax expense
and $
6.4
million was reflected
in other operating
expenses, related to
an
out-of-period
adjustment
associated
with the
Corporation’s
U.S. subsidiary’s
non-payment
of taxes
on certain
intercompany
distributions
to the
Bank Holding Company (BHC) in Puerto Rico, a foreign corporation
for U.S. tax purposes.
264
Condensed Statements of Cash Flows
Years ended December 31,
(In thousands)
2024
2023
2022
Cash flows from operating activities:
Net income
$
614,212
$
541,342
$
1,102,641
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in earnings of subsidiaries, net of dividends or
distributions
(40,358)
(357,014)
(526,603)
Provision for credit losses (benefit)
230
(300)
274
Net accretion of discounts and amortization of premiums and
deferred fees
1,248
1,754
1,250
Share-based compensation
10,785
9,735
9,440
(Earnings) losses from investments under the equity method,
net of dividends or distributions
(15)
84
(14,170)
Gain on disposition of stock as part of the Evertec Transactions
-
-
(137,813)
Net increase in:
Equity securities
(5,176)
(5,158)
(339)
Other assets
(10,531)
(62)
(1,952)
Net increase (decrease) in:
Interest payable
-
3,239
-
Other liabilities
12,507
(3,377)
8,257
Total adjustments
(31,310)
(351,099)
(661,656)
Net cash provided by operating activities
582,902
190,243
440,985
Cash flows from investing activities:
Net (increase) decrease in money market investments
(210,000)
(165,000)
129,000
Net repayments on other loans
1,307
1,252
1,267
Capital contribution to subsidiaries
(1,725)
(4,150)
(54,188)
Return of capital from wholly owned subsidiaries
67,400
64,000
72,000
Proceeds from disposition of stock as part of the Evertec Transactions
-
-
219,883
Acquisition of premises and equipment
(961)
(2,266)
(2,224)
Proceeds from sale of premises and equipment
135
68
1,678
Net cash (used in) provided by investing activities
(143,844)
(106,096)
367,416
Cash flows from financing activities:
Payments of notes payable
-
(300,000)
-
Proceeds from issuances of notes payable
-
393,061
-
Proceeds from issuances of common stock
16,312
14,045
13,479
Dividends paid
(180,461)
(159,860)
(161,516)
Net payments for repurchase of common stock
(218,619)
(1,396)
(631,965)
Payments related to tax withholding for share-based compensation
(6,699)
(4,083)
(5,771)
Net cash used in financing activities
(389,467)
(58,233)
(785,773)
Net increase in cash and due from banks, and restricted
cash
49,591
25,914
22,628
Cash and due from banks, and restricted cash at beginning
of period
128,847
102,933
80,305
Cash and due from banks, and restricted cash at end of period
$
178,438
$
128,847
$
102,933
265
During
the
year
ended
December
31,
2024,
Popular,
Inc.
(parent
company
only)
received
dividend
distributions
from
PNA
amounting to
$
50.0
million
(2023 -
$
50.0
million; 2022
- $
53.5
million) and
from PIBI’s
amounting to
$
17.4
million (2023
- $
14.0
million; 2022
- $
18.5
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, of
which $
1.5
million
were related to dividend distributions.
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 17
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, 2024:
Year
(In thousands)
2025
$
-
2026
-
2027
-
2028
-
2029
395,198
Later years
104,148
Total
$
499,346
266
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 March 3, 2025.
POPULAR, INC.
(Registrant)
By: /S/ IGNACIO ALVAREZ
Ignacio Alvarez
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
03/03/2025
Richard L. Carrión
Chairman of the Board
/S/ IGNACIO ALVAREZ
Chief Executive Officer
03/03/2025
Ignacio Alvarez
and Director
Chief Executive Officer
/S/ JORGE J. GARCÍA
Principal Financial Officer
03/03/2025
Jorge J. García
Executive Vice President
/S/ DENISSA M. RODRÍGUEZ
Principal Accounting Officer
03/03/2025
Denissa M. Rodríguez
Senior Vice President and Comptroller
/S/ ALEJANDRO M. BALLESTER
Director
03/03/2025
Alejandro M. Ballester
/S/ ROBERT CARRADY
Director
03/03/2025
Robert Carrady
/S/ BERTIL E. CHAPPUIS
Director
03/03/2025
Bertil E. Chappuis
/S/ BETTY DEVITA
Director
03/03/2025
Betty Devita
/S/ JOHN W. DIERCKSEN
Director
03/03/2025
John W. Diercksen
S/ MARÍA LUISA FERRÉ
Director
03/03/2025
María Luisa Ferré
/S/ C. KIM GOODWIN
Director
03/03/2025
C. Kim Goodwin
/S/ JOSÉ R. RODRÍGUEZ
Director
03/03/2025
José R. Rodríguez
/S/ ALEJANDRO M. SÁNCHEZ
Director
03/03/2025
Alejandro M. Sánchez
/S/ MYRNA M. SOTO
Director
03/03/2025
Myrna M. Soto
/S/ CARLOS A. UNANUE
Director
03/03/2025
Carlos A. Unanue