Companies: 10,793     total market cap: $134.931 T
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Popular, Inc. (Banco Popular de Puerto Rico)
BPOP
#2089
Rank
$9.10 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$139.90
Share price
2.26%
Change (1 day)
72.12%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Popular, Inc. (Banco Popular de Puerto Rico)
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2021 Q2

Popular, Inc. (Banco Popular de Puerto Rico) - 10-Q quarterly report FY2021 Q2


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UNITED STATES

 

 

SECURITIES AND EXCHANGE COMMISSION

 

 

Washington, D.C. 20549

 

 

 

 

 

Form 10-Q

 

 

 

 

[X]

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

 

 

 

For the quarterly period ended June 30, 2021

 

 

Or

 

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

 

Commission File Number: 001-34084

 

 

 

 

 

 

POPULAR, INC.

(Exact name of registrant as specified in its charter)

Puerto Rico

 

66-0667416

(State or other jurisdiction of Incorporation or

 

(IRS Employer Identification Number)

organization)

 

 

Popular Center Building

 

 

 

209 Muñoz Rivera Avenue

 

 

 

Hato Rey, Puerto Rico

 

00918

(Address of principal executive offices)

 

(Zip code)

(787) 765-9800

(Registrant’s telephone number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

 

 

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock ($0.01 par value)

BPOP

The NASDAQ Stock Market

6.70% Cumulative Monthly Income Trust Preferred Securities

BPOPN

The NASDAQ Stock Market

6.125% Cumulative Monthly Income Trust Preferred Securities

BPOPM

The NASDAQ Stock Market

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

[X] Yes

[ ] No

 

 

 

 

 

 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

[X] Yes

[ ] No

 

 

 

 

 

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer [X]

Accelerated filer [ ]

Non-accelerated filer [ ]

 

Smaller reporting company [ ]

Emerging growth company [ ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

[ ] Yes

[X] No

 

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $0.01 par value, 80,671,357 shares outstanding as of August 5, 2021.

 

1

 

 

POPULAR INC

 

 

INDEX

 

 

 

 

 

Part I – Financial Information

Page

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

Unaudited Consolidated Statements of Financial Condition at June 30, 2021 and

 

 

December 31, 2020

6

 

 

 

 

Unaudited Consolidated Statements of Operations for the quarters

 

 

and six months ended June 30, 2021 and 2020

7

 

 

 

 

Unaudited Consolidated Statements of Comprehensive Income for the

 

 

quarters and six months ended June 30, 2021 and 2020

8

 

 

 

 

Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the

 

 

quarters and six months ended June 30, 2021 and 2020

9

 

 

 

 

 

 

 

Unaudited Consolidated Statements of Cash Flows for the six months

 

 

ended June 30, 2021 and 2020

11

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

13

 

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and

 

 

Results of Operations

118

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

164

 

 

 

 

Item 4. Controls and Procedures

164

 

 

 

 

Part II – Other Information

 

 

 

 

 

Item 1. Legal Proceedings

165

 

 

 

 

Item 1A. Risk Factors

165

 

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

167

 

 

 

 

Item 3. Defaults Upon Senior Securities

168

 

 

Item 4. Mine Safety Disclosures

168

 

 

Item 5. Other Information

168

 

Item 6. Exhibits

168

 

 

Signatures

169

 

 

2

 

Forward-Looking Information

This Form 10-Q contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, including, without limitation, statements about Popular Inc.’s (the “Corporation,” “Popular,” “we,” “us,” “our”) business, financial condition, results of operations, plans, objectives, future performance and the effects of the COVID-19 pandemic on our business. These statements are not guarantees of future performance, are based on management’s current expectations and, by their nature, involve risks, uncertainties, estimates and assumptions. Potential factors, some of which are beyond the Corporation’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. Risks and uncertainties include without limitation the effect of competitive and economic factors, and our reaction to those factors, the adequacy of the allowance for loan losses, delinquency trends, market risk and the impact of interest rate changes, capital markets conditions, capital adequacy and liquidity, and the effect of legal and regulatory proceedings and new accounting standards on the Corporation’s financial condition and results of operations. All statements contained herein that are not clearly historical in nature are forward-looking, and the words “anticipate,” “believe,” “continues,” “expect,” “estimate,” “intend,” “project” and similar expressions and future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions are generally intended to identify forward-looking statements.

 

Various factors, some of which are beyond Popular’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. Factors that might cause such a difference include, but are not limited to:

 

the rate of growth or decline in the economy and employment levels, as well as general business and economic conditions in the geographic areas we serve and, in particular, in the Commonwealth of Puerto Rico (the “Commonwealth” or “Puerto Rico”), where a significant portion of our business is concentrated;

 

the impact of the current fiscal and economic challenges of Puerto Rico and the measures taken and to be taken by the Puerto Rico Government and the Federally-appointed oversight board on the economy, our customers and our business;

 

the impact of the pending debt restructuring proceedings under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”) and of other actions taken or to be taken to address Puerto Rico’s fiscal challenges on the value of our portfolio of Puerto Rico government securities and loans to governmental entities and of our commercial, mortgage and consumer loan portfolios where private borrowers could be directly affected by governmental action;

 

the scope and duration of the COVID-19 pandemic (including the appearance of new strains of the virus), actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on us, our customers, service providers and third parties;

 

the amount of Puerto Rico public sector deposits held at the Corporation, whose future balances are uncertain and difficult to predict and may be impacted by factors such as the amount of Federal funds received by the P.R. Government in connection with the COVID-19 pandemic and the rate of expenditure of such funds, as well as the timeline and outcome of current Puerto Rico debt restructuring proceedings under Title III of PROMESA;

 

changes in interest rates and market liquidity, which may reduce interest margins, impact funding sources and affect our ability to originate and distribute financial products in the primary and secondary markets;

 

the fiscal and monetary policies of the federal government and its agencies;

 

changes in federal bank regulatory and supervisory policies, including required levels of capital and the impact of proposed capital standards on our capital ratios;

 

additional Federal Deposit Insurance Corporation (“FDIC”) assessments;

 

regulatory approvals that may be necessary to undertake certain actions or consummate strategic transactions such as acquisitions and dispositions;

 

unforeseen or catastrophic events, including extreme weather events, other natural disasters, man-made disasters or the emergence of pandemics, epidemics and other health-related crises, which could cause a disruption in our operations or other adverse consequences for our business;

3

 

 

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 borrowers are located;

 

the performance of the stock and bond markets;

 

competition in the financial services industry;

 

possible legislative, tax or regulatory changes; and

 

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 other third parties providing services to us, including as a result of cyberattacks, e-fraud, denial-of-services and computer intrusion, that might result in loss or breach of customer data, disruption of services, reputational damage or additional costs to Popular.

 

Other possible events or factors that could cause our results or performance to differ materially from those expressed in these forward-looking statements include the following:

 

negative economic conditions that adversely affect housing prices, the job market, consumer confidence and spending habits which may affect, among other things, the level of non-performing assets, charge-offs and provision expense;

 

changes in market rates and prices which may adversely impact the value of financial assets and liabilities;

 

potential judgments, claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory or government actions, including as a result of our participation in and execution of government programs related to the COVID-19 pandemic;

 

changes in accounting standards, rules and interpretations;

 

our ability to grow our core businesses;

 

decisions to downsize, sell or close units or otherwise change our business mix; and

 

management’s ability to identify and manage these and other risks.

 

Further, statements about the potential effects of the COVID-19 pandemic on our business, financial condition, liquidity and results of operation may constitute forward-looking statements and are subject to the risk that actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control, including actions taken by governmental authorities in response to the pandemic and the direct and indirect impact of the pandemic on us, our customers, service providers and third parties.

 

Moreover, the outcome of legal and regulatory proceedings, as discussed in “Part II, Item 1. Legal Proceedings,” is inherently uncertain and depends on judicial interpretations of law and the findings of regulators, judges and/or juries. Investors should refer to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020, as well as “Part II, Item 1A” of our Quarterly Reports on Form 10-Q for a discussion of such factors and certain risks and uncertainties to which the Corporation is subject.

 

4

 

All forward-looking statements included in this Form 10-Q are based upon information available to Popular as of the date of this Form 10-Q, and other than as required by law, including the requirements of applicable securities laws, we assume no obligation to update or revise any such forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

5

 

POPULAR, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

 

 

 

 

 

June 30,

December 31,

(In thousands, except share information)

2021

2020

Assets:

 

 

 

 

Cash and due from banks

$

530,849

$

491,065

Money market investments:

 

 

 

 

 

 

Time deposits with other banks

 

17,802,801

 

11,640,880

 

 

Total money market investments

 

17,802,801

 

11,640,880

Trading account debt securities, at fair value:

 

 

 

 

 

 

Pledged securities with creditors’ right to repledge

 

-

 

241

 

 

Other trading account debt securities

 

35,931

 

36,433

Debt securities available-for-sale, at fair value:

 

 

 

 

 

 

Pledged securities with creditors’ right to repledge

 

92,906

 

125,819

 

 

Other debt securities available-for-sale

 

22,242,261

 

21,435,333

Debt securities held-to-maturity, at amortized cost (fair value 2021 - $91,604; 2020 - $94,891)

 

88,801

 

92,621

 

 

Less – Allowance for credit losses

 

10,214

 

10,261

 

 

Debt securities held-to-maturity, net

 

78,587

 

82,360

Equity securities (realizable value 2021 - $187,851; 2020 - $173,929)

 

187,502

 

173,737

Loans held-for-sale, at lower of cost or fair value

 

85,315

 

99,455

Loans held-in-portfolio

 

29,286,225

 

29,588,430

 

 

Less – Unearned income

 

223,608

 

203,234

 

 

Allowance for credit losses

 

785,790

 

896,250

 

 

Total loans held-in-portfolio, net

 

28,276,827

 

28,488,946

Premises and equipment, net

 

486,443

 

510,241

Other real estate

 

73,272

 

83,146

Accrued income receivable

 

203,419

 

209,320

Mortgage servicing rights, at fair value

 

119,467

 

118,395

Other assets

 

1,750,151

 

1,737,041

Goodwill

 

671,122

 

671,122

Other intangible assets

 

20,440

 

22,466

Total assets

$

72,657,293

$

65,926,000

Liabilities and Stockholders’ Equity

 

 

 

 

Liabilities:

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Non-interest bearing

$

14,920,887

$

13,128,699

 

 

Interest bearing

 

49,720,889

 

43,737,641

 

 

Total deposits

 

64,641,776

 

56,866,340

Assets sold under agreements to repurchase

 

90,925

 

121,303

Notes payable

 

1,176,620

 

1,224,981

Other liabilities

 

933,358

 

1,684,689

 

 

Total liabilities

 

66,842,679

 

59,897,313

Commitments and contingencies (Refer to Note 20)

 

 

 

 

Stockholders’ equity:

 

 

 

 

Preferred stock, 30,000,000 shares authorized; 885,726 shares issued and outstanding (2020 - 885,726)

 

22,143

 

22,143

Common stock, $0.01 par value; 170,000,000 shares authorized;104,545,866 shares issued (2020 - 104,508,290) and 80,656,480 shares outstanding (2020 - 84,244,235)

 

1,045

 

1,045

Surplus

 

4,506,659

 

4,571,534

Retained earnings

 

2,670,885

 

2,260,928

Treasury stock - at cost, 23,889,386 shares (2020 - 20,264,055)

 

(1,290,427)

 

(1,016,954)

Accumulated other comprehensive (loss) income, net of tax

 

(95,691)

 

189,991

 

 

Total stockholders’ equity

 

5,814,614

 

6,028,687

Total liabilities and stockholders’ equity

$

72,657,293

$

65,926,000

The accompanying notes are an integral part of these Consolidated Financial Statements.

6

 

POPULAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

 

 

Quarters ended June 30,

 

Six months ended June 30,

(In thousands, except per share information)

2021

 

2020

 

2021

 

2020

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Loans

$

433,781

 

$

429,670

 

$

868,430

 

$

880,116

 

Money market investments

 

4,274

 

 

2,015

 

 

7,386

 

 

14,015

 

Investment securities

 

91,706

 

 

76,884

 

 

177,396

 

 

164,796

 

 

Total interest income

 

529,761

 

 

508,569

 

 

1,053,212

 

 

1,058,927

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

28,060

 

 

42,780

 

 

58,261

 

 

104,881

 

Short-term borrowings

 

62

 

 

645

 

 

205

 

 

1,693

 

Long-term debt

 

13,837

 

 

14,263

 

 

27,832

 

 

28,377

 

 

Total interest expense

 

41,959

 

 

57,688

 

 

86,298

 

 

134,951

Net interest income

 

487,802

 

 

450,881

 

 

966,914

 

 

923,976

Provision for credit losses (benefit)

 

(17,015)

 

 

62,449

 

 

(99,241)

 

 

252,180

Net interest income after provision for credit losses (benefit)

 

504,817

 

 

388,432

 

 

1,066,155

 

 

671,796

Service charges on deposit accounts

 

40,153

 

 

30,163

 

 

79,773

 

 

71,822

Other service fees

 

76,382

 

 

52,084

 

 

147,010

 

 

116,857

Mortgage banking activities (Refer to Note 9)

 

7,448

 

 

3,777

 

 

24,791

 

 

10,197

Net gain (loss), including impairment on equity securities

 

1,565

 

 

2,447

 

 

1,986

 

 

(281)

Net (loss) profit on trading account debt securities

 

(47)

 

 

82

 

 

(92)

 

 

573

Net (loss) gain on sale of loans, including valuation adjustments on loans held-for-sale

 

(73)

 

 

2,222

 

 

(73)

 

 

3,179

Adjustments (expense) to indemnity reserves on loans sold

 

1,668

 

 

(1,160)

 

 

970

 

 

(5,953)

Other operating income

 

27,444

 

 

22,440

 

 

53,828

 

 

42,304

 

 

Total non-interest income

 

154,540

 

 

112,055

 

 

308,193

 

 

238,698

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Personnel costs

 

154,204

 

 

139,166

 

 

313,683

 

 

285,997

Net occupancy expenses

 

24,562

 

 

25,487

 

 

50,575

 

 

50,645

Equipment expenses

 

22,805

 

 

20,844

 

 

44,380

 

 

42,449

Other taxes

 

13,205

 

 

13,323

 

 

27,164

 

 

27,004

Professional fees

 

101,153

 

 

92,547

 

 

201,101

 

 

193,618

Communications

 

6,005

 

 

5,574

 

 

12,838

 

 

11,528

Business promotion

 

16,511

 

 

12,281

 

 

29,032

 

 

26,478

FDIC deposit insurance

 

5,742

 

 

5,340

 

 

11,710

 

 

10,420

Other real estate owned (OREO) (income) expenses

 

(4,299)

 

 

(344)

 

 

(8,832)

 

 

2,135

Other operating expenses

 

27,042

 

 

32,217

 

 

59,756

 

 

66,296

Amortization of intangibles

 

1,255

 

 

1,796

 

 

2,306

 

 

4,269

 

 

Total operating expenses

 

368,185

 

 

348,231

 

 

743,713

 

 

720,839

Income before income tax

 

291,172

 

 

152,256

 

 

630,635

 

 

189,655

Income tax expense

 

73,093

 

 

24,628

 

 

149,924

 

 

27,725

Net Income

$

218,079

 

$

127,628

 

$

480,711

 

$

161,930

Net Income Applicable to Common Stock

$

217,726

 

$

127,275

 

$

480,005

 

$

160,877

Net Income per Common Share – Basic

$

2.67

 

$

1.49

 

$

5.80

 

$

1.83

Net Income per Common Share – Diluted

$

2.66

 

$

1.49

 

$

5.79

 

$

1.83

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

7

 

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

 

 

 

Quarters ended,

 

Six months ended,

 

 

June 30,

 

June 30,

(In thousands)

2021

 

2020

 

2021

 

2020

Net income

$

218,079

 

$

127,628

 

$

480,711

 

$

161,930

Other comprehensive income (loss) before tax:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

2,726

 

 

(10,857)

 

 

3,295

 

 

(12,675)

Amortization of net losses of pension and postretirement benefit plans

 

5,189

 

 

5,362

 

 

10,379

 

 

10,724

Unrealized holding gains (losses) on debt securities arising during the period

 

76,913

 

 

13,650

 

 

(320,414)

 

 

460,767

Unrealized net (losses) gains on cash flow hedges

 

(602)

 

 

(580)

 

 

1,621

 

 

(5,282)

 

Reclassification adjustment for net losses included in net income

 

280

 

 

2,187

 

 

189

 

 

3,514

Other comprehensive income (loss) before tax

 

84,506

 

 

9,762

 

 

(304,930)

 

 

457,048

Income tax (expense) benefit

 

(5,459)

 

 

(1,036)

 

 

19,248

 

 

(67,761)

Total other comprehensive income (loss), net of tax

 

79,047

 

 

8,726

 

 

(285,682)

 

 

389,287

Comprehensive income, net of tax

$

297,126

 

$

136,354

 

$

195,029

 

$

551,217

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax effect allocated to each component of other comprehensive income (loss):

 

 

Quarters ended

 

Six months ended,

 

 

June 30,

 

June 30,

(In thousands)

2021

 

2020

 

2021

 

2020

Amortization of net losses of pension and postretirement benefit plans

$

(1,947)

 

$

(2,011)

 

$

(3,895)

 

$

(4,022)

Unrealized holding gains (losses) on debt securities arising during the period

 

(3,886)

 

 

1,524

 

 

23,496

 

 

(63,817)

Unrealized net (losses) gains on cash flow hedges

 

372

 

 

187

 

 

(494)

 

 

1,300

 

Reclassification adjustment for net losses included in net income

 

2

 

 

(736)

 

 

141

 

 

(1,222)

Income tax (expense) benefit

$

(5,459)

 

$

(1,036)

 

$

19,248

 

$

(67,761)

The accompanying notes are an integral part of the Consolidated Financial Statements.

 

 

 

 

 

 

8

 

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

other

 

 

 

 

 

 

Common

Preferred

 

 

Retained

 

Treasury

 

comprehensive

 

 

 

(In thousands)

stock

stock

Surplus

earnings

 

stock

 

income (loss)

 

Total

Balance at March 31, 2020

$

1,044

$

22,143

$

4,366,300

$

1,940,170

 

$

(870,675)

 

$

210,623

 

$

5,669,605

Net income

 

 

 

 

 

 

 

127,628

 

 

 

 

 

 

 

 

127,628

Issuance of stock

 

 

 

 

 

1,131

 

 

 

 

 

 

 

 

 

 

1,131

Dividends declared:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock[1]

 

 

 

 

 

 

 

(33,663)

 

 

 

 

 

 

 

 

(33,663)

 

Preferred stock

 

 

 

 

 

 

 

(353)

 

 

 

 

 

 

 

 

(353)

Common stock purchases[2]

 

 

 

 

 

153,402

 

 

 

 

(154,083)

 

 

 

 

 

(681)

Common stock reissuance

 

 

 

 

 

(548)

 

 

 

 

2,033

 

 

 

 

 

1,485

Stock based compensation

 

 

 

 

 

48

 

 

 

 

6,239

 

 

 

 

 

6,287

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

8,726

 

 

8,726

Balance at June 30, 2020

$

1,044

$

22,143

$

4,520,333

$

2,033,782

 

$

(1,016,486)

 

$

219,349

 

$

5,780,165

Balance at March 31, 2021

$

1,045

$

22,143

$

4,571,919

$

2,489,453

 

$

(1,012,263)

 

$

(174,738)

 

$

5,897,559

Net income

 

 

 

 

 

 

 

218,079

 

 

 

 

 

 

 

 

218,079

Issuance of stock

 

 

 

 

 

1,108

 

 

 

 

 

 

 

 

 

 

1,108

Dividends declared:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock[1]

 

 

 

 

 

 

 

(36,294)

 

 

 

 

 

 

 

 

(36,294)

 

Preferred stock

 

 

 

 

 

 

 

(353)

 

 

 

 

 

 

 

 

(353)

Common stock purchases[3]

 

 

 

 

 

(70,000)

 

 

 

 

(281,365)

 

 

 

 

 

(351,365)

Stock based compensation

 

 

 

 

 

3,632

 

 

 

 

3,201

 

 

 

 

 

6,833

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

79,047

 

 

79,047

Balance at June 30, 2021

$

1,045

$

22,143

$

4,506,659

$

2,670,885

 

$

(1,290,427)

 

$

(95,691)

 

$

5,814,614

[1]

Dividends declared per common share during the quarter ended June 30, 2021 - $0.45 (2020 - $0.40).

[2]

During the quarter ended June 30, 2020, the Corporation completed a $500 million accelerated share repurchase transaction with respect to its common stock, which was accounted for as a treasury stock transaction. Refer to Note 17 for additional information.

[3]

During the quarter ended June 30, 2021, the Corporation entered into a $350 million accelerated share repurchase transaction with respect to its common stock, which was accounted for as a treasury stock transaction. Refer to Note 17 for additional information.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

other

 

 

 

 

 

 

Common

Preferred

 

 

Retained

 

Treasury

 

comprehensive

 

 

 

(In thousands)

stock

stock

Surplus

earnings

 

stock

 

(loss) income

 

Total

Balance at December 31, 2019

$

1,044

$

50,160

$

4,447,412

$

2,147,915

 

$

(459,814)

 

$

(169,938)

 

$

6,016,779

Cumulative effect of accounting change

 

 

 

 

 

 

 

(205,842)

 

 

 

 

 

 

 

 

(205,842)

Net income

 

 

 

 

 

 

 

161,930

 

 

 

 

 

 

 

 

161,930

Issuance of stock

 

 

 

 

 

1,994

 

 

 

 

 

 

 

 

 

 

1,994

Dividends declared:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock[1]

 

 

 

 

 

 

 

(69,168)

 

 

 

 

 

 

 

 

(69,168)

 

Preferred stock

 

 

 

 

 

 

 

(1,053)

 

 

 

 

 

 

 

 

(1,053)

Common stock purchases[2]

 

 

 

 

 

76,336

 

 

 

 

(579,818)

 

 

 

 

 

(503,482)

Common stock reissuance

 

 

 

 

 

(1,111)

 

 

 

 

5,702

 

 

 

 

 

4,591

Preferred stock redemption[3]

 

 

 

(28,017)

 

 

 

 

 

 

 

 

 

 

 

 

(28,017)

Stock based compensation

 

 

 

 

 

(4,298)

 

 

 

 

17,444

 

 

 

 

 

13,146

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

389,287

 

 

389,287

Balance at June 30, 2020

$

1,044

$

22,143

$

4,520,333

$

2,033,782

 

$

(1,016,486)

 

$

219,349

 

$

5,780,165

Balance at December 31, 2020

$

1,045

$

22,143

$

4,571,534

$

2,260,928

 

$

(1,016,954)

 

$

189,991

 

$

6,028,687

Net income

 

 

 

 

 

 

 

480,711

 

 

 

 

 

 

 

 

480,711

Issuance of stock

 

 

 

 

 

2,226

 

 

 

 

 

 

 

 

 

 

2,226

Dividends declared:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock[1]

 

 

 

 

 

 

 

(70,048)

 

 

 

 

 

 

 

 

(70,048)

 

Preferred stock

 

 

 

 

 

 

 

(706)

 

 

 

 

 

 

 

 

(706)

Common stock purchases[4]

 

 

 

 

 

(70,000)

 

 

 

 

(285,307)

 

 

 

 

 

(355,307)

Stock based compensation

 

 

 

 

 

2,899

 

 

 

 

11,834

 

 

 

 

 

14,733

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

(285,682)

 

 

(285,682)

Balance at June 30, 2021

$

1,045

$

22,143

$

4,506,659

$

2,670,885

 

$

(1,290,427)

 

$

(95,691)

 

$

5,814,614

[1]

Dividends declared per common share during the six months ended June 30, 2021 - $0.85 (2020 - $0.80).

[2]

During the quarter ended June 30, 2020, the Corporation completed a $500 million accelerated share repurchase transaction with respect to its common stock, which was accounted for as a treasury stock transaction. Refer to Note 17 for additional information.

[3]

On February 24, 2020, the Corporation redeemed all the outstanding shares of 2008 Series B Preferred Stock. Refer to Note 17 for additional information.

[4]

During the quarter ended June 30, 2021, the Corporation entered into a $350 million accelerated share repurchase transaction with respect to its common stock, which was accounted for as a treasury stock transaction. Refer to Note 17 for additional information.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

June 30,

Disclosure of changes in number of shares:

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

2020

Preferred Stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

 

 

 

 

 

 

 

 

 

 

 

885,726

 

 

2,006,391

 

Redemption of stock

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

(1,120,665)

 

Balance at end of period

 

 

 

 

 

 

 

 

 

 

 

 

 

885,726

 

 

885,726

Common Stock – Issued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

 

 

 

 

 

 

 

 

 

 

 

104,508,290

 

 

104,392,222

 

Issuance of stock

 

 

 

 

 

 

 

 

 

 

 

 

 

37,576

 

 

49,865

 

Balance at end of period

 

 

 

 

 

 

 

 

 

 

 

 

 

104,545,866

 

 

104,442,087

 

Treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,889,386)

 

 

(20,257,160)

Common Stock – Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

80,656,480

 

 

84,184,927

 

 

 

 

The accompanying notes are an integral part of these Consolidated Financial Statements.

10

 

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30,

(In thousands)

 

2021

 

 

2020

Cash flows from operating activities:

 

 

 

 

 

Net income

$

480,711

 

$

161,930

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Provision for credit losses (benefit)

 

(99,241)

 

 

252,180

 

Amortization of intangibles

 

2,306

 

 

4,269

 

Depreciation and amortization of premises and equipment

 

28,408

 

 

28,901

 

Net accretion of discounts and amortization of premiums and deferred fees

 

(17,234)

 

 

(42,087)

 

Interest capitalized on loans subject to the temporary payment moratorium or loss mitigation alternatives

 

(8,330)

 

 

(8,496)

 

Share-based compensation

 

14,609

 

 

7,164

 

Impairment losses on right-of-use and long-lived assets

 

303

 

 

-

 

Fair value adjustments on mortgage servicing rights

 

5,727

 

 

12,869

 

Adjustments to indemnity reserves on loans sold

 

(970)

 

 

5,953

 

Earnings from investments under the equity method, net of dividends or distributions

 

(21,689)

 

 

(6,425)

 

Deferred income tax expense (benefit)

 

125,228

 

 

(7,824)

 

Gain on:

 

 

 

 

 

 

 

Disposition of premises and equipment and other productive assets

 

(8,674)

 

 

(7,939)

 

 

Proceeds from insurance claims

 

-

 

 

(366)

 

 

Sale of loans, including valuation adjustments on loans held-for-sale and mortgage banking activities

 

(10,106)

 

 

(12,652)

 

 

Sale of foreclosed assets, including write-downs

 

(16,126)

 

 

(5,754)

 

Acquisitions of loans held-for-sale

 

(122,806)

 

 

(82,812)

 

Proceeds from sale of loans held-for-sale

 

54,262

 

 

24,897

 

Net originations on loans held-for-sale

 

(284,298)

 

 

(100,408)

 

Net decrease (increase) in:

 

 

 

 

 

 

 

Trading debt securities

 

369,194

 

 

176,054

 

 

Equity securities

 

(5,191)

 

 

(3,731)

 

 

Accrued income receivable

 

5,818

 

 

(46,377)

 

 

Other assets

 

(7,729)

 

 

30,513

 

Net (decrease) increase in:

 

 

 

 

 

 

 

Interest payable

 

(3,878)

 

 

(3,422)

 

 

Pension and other postretirement benefits obligation

 

(1,954)

 

 

2,771

 

 

Other liabilities

 

930

 

 

(71,684)

Total adjustments

 

(1,441)

 

 

145,594

Net cash provided by operating activities

 

479,270

 

 

307,524

Cash flows from investing activities:

 

 

 

 

 

 

Net increase in money market investments

 

(6,161,953)

 

 

(6,362,958)

 

Purchases of investment securities:

 

 

 

 

 

 

 

Available-for-sale

 

(7,568,621)

 

 

(10,313,044)

 

 

Equity

 

(10,590)

 

 

(20,282)

 

Proceeds from calls, paydowns, maturities and redemptions of investment securities:

 

 

 

 

 

 

 

Available-for-sale

 

5,672,695

 

 

8,106,422

 

 

Held-to-maturity

 

4,999

 

 

3,102

 

Proceeds from sale of investment securities:

 

 

 

 

 

 

 

Equity

 

2,500

 

 

17,424

 

Net repayments (disbursements) on loans

 

422,509

 

 

(1,159,732)

 

Proceeds from sale of loans

 

51,032

 

 

26,070

 

Acquisition of loan portfolios

 

(150,116)

 

 

(123,738)

 

Payments to acquire other intangible assets

 

(1,185)

 

 

-

 

Return of capital from equity method investments

 

2,438

 

 

131

 

Payments to acquire equity method investments

 

-

 

 

(440)

 

Acquisition of premises and equipment

 

(36,481)

 

 

(24,057)

 

Proceeds from insurance claims

 

-

 

 

366

 

Proceeds from sale of:

 

 

 

 

 

 

 

Premises and equipment and other productive assets

 

8,185

 

 

14,714

 

 

Foreclosed assets

 

49,271

 

 

32,805

Net cash used in investing activities

 

(7,715,317)

 

 

(9,803,217)

11

 

Cash flows from financing activities:

 

 

 

 

 

 

Net increase (decrease) in:

 

 

 

 

 

 

 

Deposits

 

7,778,119

 

 

10,090,333

 

 

Assets sold under agreements to repurchase

 

(30,377)

 

 

(40,313)

 

Payments of notes payable

 

(49,009)

 

 

(66,989)

 

Principal payments of finance leases

 

(1,692)

 

 

(1,047)

 

Proceeds from issuance of notes payable

 

-

 

 

151,009

 

Proceeds from issuance of common stock

 

2,226

 

 

6,585

 

Payments for repurchase of redeemable preferred stock

 

-

 

 

(28,017)

 

Dividends paid

 

(68,161)

 

 

(65,584)

 

Net payments for repurchase of common stock

 

(350,409)

 

 

(500,282)

 

Payments related to tax withholding for share-based compensation

 

(4,898)

 

 

(3,200)

Net cash provided by financing activities

 

7,275,799

 

 

9,542,495

Net increase in cash and due from banks, and restricted cash

 

39,752

 

 

46,802

Cash and due from banks, and restricted cash at beginning of period

 

497,094

 

 

394,323

Cash and due from banks, and restricted cash at the end of the period

$

536,846

 

$

441,125

The accompanying notes are an integral part of these Consolidated Financial Statements.

12

 

Notes to Consolidated Financial

Statements (Unaudited)

 

Note 1 -

Nature of operations

14

Note 2 -

Basis of presentation

15

Note 3 -

New accounting pronouncements

16

Note 4 -

Restrictions on cash and due from banks and certain securities

18

Note 5 -

Debt securities available-for-sale

19

Note 6 -

Debt securities held-to-maturity

22

Note 7 -

Loans

25

Note 8 -

Allowance for credit losses – loans held-in-portfolio

34

Note 9 -

Mortgage banking activities

60

Note 10 -

Transfers of financial assets and mortgage servicing assets

61

Note 11 -

Other real estate owned

65

Note 12 -

Other assets

66

Note 13 -

Goodwill and other intangible assets

67

Note 14 -

Deposits

69

Note 15 -

Borrowings

70

Note 16 -

Other liabilities

72

Note 17 -

Stockholders’ equity

73

Note 18 -

Other comprehensive (loss) income

74

Note 19 -

Guarantees

76

Note 20 -

Commitments and contingencies

78

Note 21-

Non-consolidated variable interest entities

85

Note 22 -

Related party transactions

87

Note 23 -

Fair value measurement

89

Note 24 -

Fair value of financial instruments

96

Note 25 -

Net income per common share

99

Note 26 -

Revenue from contracts with customers

100

Note 27 -

Leases

102

Note 28 -

Pension and postretirement benefits

104

Note 29 -

Stock-based compensation

105

Note 30 -

Income taxes

108

Note 31 -

Supplemental disclosure on the consolidated statements of cash flows

112

Note 32 -

Segment reporting

113

 

 

 

 

 

 

 

 

 

 

13

 

Note 1 – Nature of operations

Popular, Inc. (the “Corporation” or “Popular”) is a diversified, publicly-owned financial holding company subject to the supervision and regulation of the Board of Governors of the Federal Reserve System. The Corporation has operations in Puerto Rico, the mainland United States (“U.S.”) and the U.S. and British Virgin Islands. In Puerto Rico, the Corporation provides retail, mortgage, and commercial banking services through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as investment banking, broker-dealer, auto and equipment leasing and financing, and insurance services through specialized subsidiaries. In the 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.

14

 

Note 2 – Basis of Presentation

Basis of Presentation

The consolidated interim financial statements have been prepared without audit. The Consolidated Statement of Financial Condition data at December 31, 2020 was derived from audited financial statements. The unaudited interim financial statements are, in the opinion of management, a fair statement of the results for the periods reported and include all necessary adjustments, all of a normal recurring nature, for a fair statement of such results.

Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from the unaudited financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, these financial statements should be read in conjunction with the audited Consolidated Financial Statements of the Corporation for the year ended December 31, 2020, included in the Corporation’s 2020 Form 10-K. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

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.

 

15

 

Note 3 - New accounting pronouncements

 

 

 

 

 

 

 

 

 

Recently Adopted Accounting Standards Updates

 

 

 

 

 

 

 

 

 

Standard

 

Description

Date of adoption

Effect on the financial statements

 

 

FASB ASU 2020-08, Codification Improvements to Subtopic 310-20 – Receivables – Nonrefundable Fees and Other Costs

 

The FASB issued ASU 2020-08 in October 2020 which clarifies that a reporting entity should assess whether a callable debt security purchased at a premium is within the scope of ASC 310-20-35-33 each reporting period, which impacts the amortization period for nonrefundable fees and other costs.

January 1, 2021

The Corporation was not impacted by the adoption of ASU 2020-08 during the first quarter of 2021 since it does not currently hold purchased callable debt securities at a premium.

 

 

FASB ASU 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323 and Topic 815

 

The FASB issued ASU 2020-01 in January 2020, which clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 and includes scope considerations for entities that hold certain non-derivative forward contracts and purchased options to acquire equity securities that, upon settlement of the forward contract or exercise of the purchase option, would be accounted for under the equity method of accounting.

January 1, 2021

The Corporation was not impacted by the adoption of ASU 2020-01 during the first quarter of 2021 since it does not hold certain non-derivative forward contracts and purchased options to acquire equity securities that, upon settlement of the forward or exercise of the purchase option, would be accounted for under the equity method of accounting. Notwithstanding, it will consider this guidance for the purposes of applying the measurement alternative in ASC Topic 321 immediately before applying or discontinuing the equity method of accounting.

 

 

FASB ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

 

The FASB issued ASU 2019-12 in December 2019, which simplifies the accounting for income taxes by removing certain exceptions such as the incremental approach for intraperiod tax allocation and interim period income tax accounting for year-to-date losses that exceed anticipated losses. In addition, the ASU simplifies GAAP in a number of areas such as when separate financial statements of legal entities are not subject to tax and enacted changes in tax laws in interim periods.

January 1, 2021

The Corporation adopted ASU 2019-12 during the first quarter of 2021 but was not materially impacted by the amendments of this ASU. It will consider this guidance for enacted changes in tax laws, subsequent step-ups in the tax basis of goodwill, or ownership changes in investments.

16

 

 

 

 

 

 

 

 

Accounting Standards Updates Not Yet Adopted

 

 

 

 

 

 

 

Standard

 

Description

Date of adoption

Effect on the financial statements

 

FASB ASU 2021-05, Leases (Topic 842), Lessors – Certain Leases with Variable Lease Payments

 

The FASB issued ASU 2021-05 in July 2021, which amends ASC Topic 842 so that lessors can classify as operating leases those leases with variable lease payments that, prior to these amendments, would have been classified as a sales-type or direct financing lease and a Day One loss would have been recognized.

January 1, 2022

The Corporation does not expect to be impacted by the adoption of this ASU since it does not hold direct financing leases with variable lease payments.

 

FASB ASU 2021-04, Earnings per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force)

 

The FASB issued ASU 2021-04 in May 2021, which clarifies the accounting for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after a modification or exchange and the related EPS effects of such transaction if recognized as an adjustment to equity.

January 1, 2022

Upon adoption of this ASU, the Corporation will consider this guidance for modifications or exchanges of freestanding equity-classified written call options.

 

 

 

 

 

 

 

For other recently issued Accounting Standards Updates not yet effective, refer to Note 3 to the Consolidated Financial Statements included in the 2020 Form 10-K.

17

 

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. Those required average reserve balances amounted to $2.6 billion at June 30, 2021 (December 31, 2020 - $2.3 billion). Cash and due from banks, as well as other highly liquid securities, are used to cover the required average reserve balances.

 

At June 30, 2021, the Corporation held $43.0 million in restricted assets in the form of funds deposited in money market accounts, debt securities available for sale and equity securities (December 31, 2020 - $39.0 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.

18

 

Note 5 – Debt securities available-for-sale

The following tables present the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of debt securities available-for-sale at June 30, 2021 and December 31, 2020.

 

 

 

At June 30, 2021

 

 

 

 

 

Gross

Gross

 

 

Weighted

 

 

 

Amortized

unrealized

unrealized

Fair

average

 

(In thousands)

cost

gains

losses

value

yield

 

U.S. Treasury securities

 

 

 

 

 

 

 

 

 

 

 

Within 1 year

$

1,723,731

$

15,416

$

1

$

1,739,146

1.78

%

 

After 1 to 5 years

 

6,291,688

 

192,969

 

7,302

 

6,477,355

1.64

 

 

After 5 to 10 years

 

3,758,768

 

12,635

 

8,590

 

3,762,813

1.09

 

Total U.S. Treasury securities

 

11,774,187

 

221,020

 

15,893

 

11,979,314

1.49

 

Obligations of U.S. Government sponsored entities

 

 

 

 

 

 

 

 

 

 

 

After 1 to 5 years

 

90

 

-

 

-

 

90

5.63

 

Total obligations of U.S. Government sponsored entities

 

90

 

-

 

-

 

90

5.63

 

Collateralized mortgage obligations - federal agencies

 

 

 

 

 

 

 

 

 

 

 

After 1 to 5 years

 

858

 

7

 

-

 

865

2.78

 

 

After 5 to 10 years

 

50,612

 

947

 

-

 

51,559

1.57

 

 

After 10 years

 

223,593

 

6,926

 

21

 

230,498

2.08

 

Total collateralized mortgage obligations - federal agencies

 

275,063

 

7,880

 

21

 

282,922

1.99

 

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

Within 1 year

 

5,543

 

-

 

1

 

5,542

2.71

 

 

After 1 to 5 years

 

58,649

 

2,799

 

11

 

61,437

2.38

 

 

After 5 to 10 years

 

625,776

 

21,805

 

4

 

647,577

1.90

 

 

After 10 years

 

9,390,381

 

99,205

 

131,477

 

9,358,109

1.78

 

Total mortgage-backed securities

 

10,080,349

 

123,809

 

131,493

 

10,072,665

1.78

 

Other

 

 

 

 

 

 

 

 

 

 

 

After 1 to 5 years

 

167

 

9

 

-

 

176

3.62

 

Total other

 

167

 

9

 

-

 

176

3.62

 

Total debt securities available-for-sale[1]

$

22,129,856

$

352,718

$

147,407

$

22,335,167

1.62

%

[1]

Includes $21.3 billion pledged to secure government and trust deposits, assets sold under agreements to repurchase, credit facilities and loan servicing agreements that the secured parties are not permitted to sell or repledge the collateral, of which $19.9 billion serve as collateral for public funds.

19

 

 

 

At December 31, 2020

 

 

 

 

 

Gross

Gross

 

 

Weighted

 

 

 

Amortized

unrealized

unrealized

Fair

average

 

(In thousands)

cost

gains

losses

value

yield

 

U.S. Treasury securities

 

 

 

 

 

 

 

 

 

 

 

Within 1 year

$

4,900,055

$

16,479

$

-

$

4,916,534

0.69

%

 

After 1 to 5 years

 

5,007,223

 

259,399

 

-

 

5,266,622

2.05

 

 

After 5 to 10 years

 

567,367

 

37,517

 

-

 

604,884

1.68

 

Total U.S. Treasury securities

 

10,474,645

 

313,395

 

-

 

10,788,040

1.40

 

Obligations of U.S. Government sponsored entities

 

 

 

 

 

 

 

 

 

 

 

Within 1 year

 

59,993

 

101

 

-

 

60,094

1.46

 

 

After 1 to 5 years

 

90

 

-

 

-

 

90

5.64

 

Total obligations of U.S. Government sponsored entities

 

60,083

 

101

 

-

 

60,184

1.47

 

Collateralized mortgage obligations - federal agencies

 

 

 

 

 

 

 

 

 

 

 

After 1 to 5 years

 

1,388

 

14

 

-

 

1,402

2.97

 

 

After 5 to 10 years

 

61,229

 

1,050

 

-

 

62,279

1.56

 

 

After 10 years

 

318,292

 

10,202

 

43

 

328,451

2.04

 

Total collateralized mortgage obligations - federal agencies

 

380,909

 

11,266

 

43

 

392,132

1.97

 

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

Within 1 year

 

5,616

 

56

 

-

 

5,672

2.83

 

 

After 1 to 5 years

 

50,393

 

1,735

 

-

 

52,128

2.35

 

 

After 5 to 10 years

 

454,880

 

20,022

 

6

 

474,896

1.91

 

 

After 10 years

 

9,608,860

 

180,844

 

1,839

 

9,787,865

1.94

 

Total mortgage-backed securities

 

10,119,749

 

202,657

 

1,845

 

10,320,561

1.94

 

Other

 

 

 

 

 

 

 

 

 

 

 

After 1 to 5 years

 

224

 

11

 

-

 

235

3.62

 

Total other

 

224

 

11

 

-

 

235

3.62

 

Total debt securities available-for-sale[1]

$

21,035,610

$

527,430

$

1,888

$

21,561,152

1.66

%

[1]

Includes $18.2 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 $16.9 billion serve as collateral for public funds.

 

The weighted average yield on debt securities available-for-sale is based on amortized cost; therefore, it does not give effect to changes in fair value.

Securities not due on a single contractual maturity date, such as mortgage-backed securities and collateralized mortgage obligations, are classified based on the period of final contractual maturity. The expected maturities of collateralized mortgage obligations, mortgage-backed securities and certain other securities may differ from their contractual maturities because they may be subject to prepayments or may be called by the issuer.

No debt securities available-for-sale were sold during the six months ended June 30, 2021 and 2020.

 

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 June 30, 2021 and December 31, 2020.

 

 

 

At June 30, 2021

 

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

$

3,126,340

$

15,893

$

-

$

-

$

3,126,340

$

15,893

Collateralized mortgage obligations - federal agencies

 

-

 

-

 

1,454

 

21

 

1,454

 

21

Mortgage-backed securities

 

6,916,854

 

131,483

 

413

 

10

 

6,917,267

 

131,493

Total debt securities available-for-sale in an unrealized loss position

$

10,043,194

$

147,376

$

1,867

$

31

$

10,045,061

$

147,407

20

 

 

 

At December 31, 2020

 

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

Collateralized mortgage obligations - federal agencies

$

4,029

$

43

$

-

$

-

$

4,029

$

43

Mortgage-backed securities

 

886,432

 

1,834

 

555

 

11

 

886,987

 

1,845

Total debt securities available-for-sale in an unrealized loss position

$

890,461

$

1,877

$

555

$

11

$

891,016

$

1,888

 

 

As of June 30, 2021, the portfolio of available-for-sale debt securities reflects gross unrealized losses of approximately $147 million, driven mainly by mortgage-backed securities, which were impacted by increases in the interest rate environment.

The following table states the name of issuers, and the aggregate amortized cost and fair value of the debt securities of such issuer (includes available-for-sale and held-to-maturity debt securities), in which the aggregate amortized cost of such securities exceeds 10% of stockholders’ equity. This information excludes debt securities backed by the full faith and credit of the U.S. Government. Investments in obligations issued by a state of the U.S. and its political subdivisions and agencies, which are payable and secured by the same source of revenue or taxing authority, other than the U.S. Government, are considered securities of a single issuer.

 

 

 

June 30, 2021

 

December 31, 2020

 

 

 

 

 

 

 

 

 

(In thousands)

Amortized cost

Fair value

Amortized cost

Fair value

FNMA

$

1,835,170

$

1,910,814

$

2,242,121

$

2,338,897

Freddie Mac

 

3,598,675

 

3,581,748

 

3,616,238

 

3,675,679

21

 

Note 6 –Debt securities held-to-maturity

The following tables present the amortized cost, allowance for credit losses, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of debt securities held-to-maturity at June 30, 2021 and December 31, 2020.

 

 

 

At June 30, 2021

 

 

 

 

 

 

Allowance

 

 

Gross

Gross

 

 

Weighted

 

 

 

Amortized

 

for Credit

 

Net of

unrealized

unrealized

Fair

average

 

(In thousands)

cost

 

Losses

 

Allowance

gains

losses

value

yield

 

Obligations of Puerto Rico, States and political subdivisions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Within 1 year

$

4,165

$

47

$

4,118

$

46

$

-

$

4,164

6.07

%

 

After 1 to 5 years

 

14,765

 

555

 

14,210

 

555

 

-

 

14,765

6.20

 

 

After 5 to 10 years

 

13,210

 

428

 

12,782

 

253

 

-

 

13,035

2.33

 

 

After 10 years

 

45,070

 

9,184

 

35,886

 

12,162

 

-

 

48,048

1.56

 

Total obligations of Puerto Rico, States and political subdivisions

 

77,210

 

10,214

 

66,996

 

13,016

 

-

 

80,012

2.82

 

Collateralized mortgage obligations - federal agencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After 1 to 5 years

 

30

 

-

 

30

 

1

 

-

 

31

6.44

 

Total collateralized mortgage obligations - federal agencies

 

30

 

-

 

30

 

1

 

-

 

31

6.44

 

Securities in wholly owned statutory business trusts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After 10 years

 

11,561

 

-

 

11,561

 

-

 

-

 

11,561

6.51

 

Total securities in wholly owned statutory business trusts

 

11,561

 

-

 

11,561

 

-

 

-

 

11,561

6.51

 

Total debt securities held-to-maturity

$

88,801

$

10,214

$

78,587

$

13,017

$

-

$

91,604

3.30

%

 

 

 

At December 31, 2020

 

 

 

 

 

 

Allowance

 

 

Gross

Gross

 

 

Weighted

 

 

 

Amortized

 

for Credit

 

Net of

unrealized

unrealized

Fair

average

 

(In thousands)

cost

 

Losses

 

Allowance

gains

losses

value

yield

 

Obligations of Puerto Rico, States and political subdivisions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Within 1 year

$

3,990

$

50

$

3,940

$

47

$

-

$

3,987

6.05

%

 

After 1 to 5 years

 

16,030

 

710

 

15,320

 

710

 

-

 

16,030

6.16

 

 

After 5 to 10 years

 

14,845

 

573

 

14,272

 

295

 

23

 

14,544

2.77

 

 

After 10 years

 

46,164

 

8,928

 

37,236

 

11,501

 

-

 

48,737

1.58

 

Total obligations of Puerto Rico, States and political subdivisions

 

81,029

 

10,261

 

70,768

 

12,553

 

23

 

83,298

2.93

 

Collateralized mortgage obligations - federal agencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After 1 to 5 years

 

31

 

-

 

31

 

1

 

-

 

32

6.44

 

Total collateralized mortgage obligations - federal agencies

 

31

 

-

 

31

 

1

 

-

 

32

6.44

 

Securities in wholly owned statutory business trusts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After 10 years

 

11,561

 

-

 

11,561

 

-

 

-

 

11,561

6.51

 

Total securities in wholly owned statutory business trusts

 

11,561

 

-

 

11,561

 

-

 

-

 

11,561

6.51

 

Total debt securities held-to-maturity

$

92,621

$

10,261

$

82,360

$

12,554

$

23

$

94,891

3.38

%

Debt securities not due on a single contractual maturity date, such as collateralized mortgage obligations, are classified in the period of final contractual maturity. The expected maturities of collateralized mortgage obligations and certain other securities may differ from their contractual maturities because they may be subject to prepayments or may be called by the issuer.

22

 

Credit Quality Indicators

The following describes the credit quality indicators by major security type that the Corporation considers in its’ estimate to develop the allowance for credit losses for investment securities held-to-maturity.

At June 30, 2021 and December 31, 2020, 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 $33 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, 2020 - $35 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 included in the Corporation’s Form 10-K for the year ended December 31, 2020.

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 June 30, 2021

At December 31, 2020

(In thousands)

Securities issued by Puerto Rico municipalities

Watch

$

17,610

$

35,315

Pass

 

14,980

 

-

Total

$

32,590

$

35,315

 

At June 30, 2021, the portfolio of “Obligations of Puerto Rico, States and political subdivisions” also includes $44 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, 2020 - $46 million). These securities are not rated by a credit rating agency. The Corporation assesses the credit risk associated with these securities by evaluating the refreshed FICO scores of a representative sample of the underlying borrowers. At June 30, 2021, the average refreshed FICO score for the representative sample, comprised of 64% of the nominal value of the securities, used for the loss estimate was of 702 (compared to 66% and 697, respectively, at December 31, 2020). The loss estimates for this portfolio was based on the methodology established under CECL for similar loan obligations. The Corporation does not consider the government guarantee when estimating the credit losses associated with this portfolio.

A further deterioration of the Puerto Rico economy or of the fiscal health of the Government of Puerto Rico and/or its instrumentalities (including if any of the issuing municipalities become subject to a debt restructuring proceeding under PROMESA) could further affect the value of these securities, resulting in losses to the Corporation.

Refer to Note 20 for additional information on the Corporation’s exposure to the Puerto Rico Government.

Delinquency status

At June 30, 2021 and December 31, 2020, 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 June 30, 2021 and June 30, 2020:

 

 

 

23

 

 

 

 

 

 

 

 

 

For the quarters ended June 30,

 

 

 

2021

 

2020

(In thousands)

Obligations of Puerto Rico, States and political subdivisions

Allowance for credit losses:

 

 

 

 

Beginning balance

 

$

10,096

$

13,390

Provision for credit losses (benefit)

 

 

118

 

(655)

Securities charged-off

 

 

-

 

-

Recoveries

 

 

-

 

-

Ending balance

$

10,214

$

12,735

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended June 30,

 

 

 

2021

 

2020

(In thousands)

 

Obligations of Puerto Rico, States and political subdivisions

Allowance for credit losses:

 

 

 

 

Beginning balance

 

$

10,261

$

-

Impact of adopting CECL

 

 

-

 

12,654

Provision for credit losses (benefit)

 

 

(47)

 

81

Securities charged-off

 

 

-

 

-

Recoveries

 

 

-

 

-

Ending balance

$

10,214

$

12,735

 

 

 

 

 

 

The allowance for credit losses for the Obligations of Puerto Rico, States and political subdivisions includes $1.1 million for securities issued by municipalities of Puerto Rico, and $9.1 million for bonds issued by the Puerto Rico HFA, which are secured by second mortgage loans on Puerto Rico residential properties (compared to $1.4 million and $8.9 million, respectively, at December 31, 2020).

24

 

Note 7 – Loans

For a summary of the accounting policies related to loans, interest recognition and allowance for loan losses refer to Note 2 - Summary of significant accounting policies of the 2020 Form 10-K.

 

During the quarter and six months ended June 30, 2021, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $94 million and $220 million, respectively; including $5 million and $12 million in PCD loans, respectively, and commercial loans of $28 million and $49 million, respectively.

 

During the quarter and six months ended June 30, 2020, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $57 million and $142 million, respectively; including $2 million and $6 million in PCD loans, respectively; commercial loans of $2 million and $3 million, respectively, and consumer loans of $10 thousand and $56 million, respectively.

 

The Corporation performed whole-loan sales involving approximately $19 million and $85 million of residential mortgage loans during the quarter and six months ended June 30, 2021, respectively (June 30, 2020 - $29 million and $39 million, respectively). During the quarter and six months ended June 30, 2021, the Corporation performed sales of commercial loans, including loan participations amounting to $2 million and $9 million, respectively (June 30, 2020 - $4 million and $6 million, respectively).

 

Also, the Corporation securitized approximately $107 million and $209 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities during the quarter and six months ended June 30, 2021, respectively (June 30, 2020 - $63 million and $114 million, respectively). Furthermore, the Corporation securitized approximately $73 million and $159 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities during the quarter and six months ended June 30, 2021, respectively (June 30, 2020 - $6 million and $40 million, respectively). Also, the Corporation securitized approximately $14 million of mortgage loans into Federal Home Loan Mortgage Corporation (“FHLMC”) mortgage-backed securities during the quarter and six months ended June 30, 2021.

 

Delinquency status

 

The following tables present the composition 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 June 30, 2021 and December 31, 2020.

25

 

June 30, 2021

 

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

 

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

$

128

 

$

-

 

$

397

$

525

 

$

151,258

 

$

151,783

 

 

$

397

 

$

-

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

32,749

 

 

-

 

 

72,378

 

105,127

 

 

1,888,302

 

 

1,993,429

 

 

 

72,378

 

 

-

 

 

Owner occupied

 

3,995

 

 

604

 

 

79,808

 

84,407

 

 

1,380,022

 

 

1,464,429

 

 

 

79,808

 

 

-

 

Commercial and industrial

 

2,314

 

 

682

 

 

65,727

 

68,723

 

 

3,952,675

 

 

4,021,398

 

 

 

65,120

 

 

607

 

Construction

 

-

 

 

3,080

 

 

14,877

 

17,957

 

 

124,990

 

 

142,947

 

 

 

14,877

 

 

-

 

Mortgage[1]

 

164,779

 

 

73,492

 

 

995,175

 

1,233,446

 

 

5,281,711

 

 

6,515,157

 

 

 

370,653

 

 

624,522

 

Leasing

 

6,054

 

 

2,103

 

 

2,286

 

10,443

 

 

1,287,485

 

 

1,297,928

 

 

 

2,286

 

 

-

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit cards

 

4,371

 

 

2,826

 

 

8,021

 

15,218

 

 

864,912

 

 

880,130

 

 

 

-

 

 

8,021

 

 

Home equity lines of credit

 

-

 

 

-

 

 

-

 

-

 

 

3,489

 

 

3,489

 

 

 

-

 

 

-

 

 

Personal

 

9,405

 

 

4,444

 

 

23,861

 

37,710

 

 

1,227,582

 

 

1,265,292

 

 

 

23,861

 

 

-

 

 

Auto

 

39,032

 

 

7,405

 

 

13,286

 

59,723

 

 

3,229,304

 

 

3,289,027

 

 

 

13,286

 

 

-

 

 

Other

 

214

 

 

97

 

 

14,288

 

14,599

 

 

108,427

 

 

123,026

 

 

 

14,123

 

 

165

 

Total

$

263,041

 

$

94,733

 

$

1,290,104

$

1,647,878

 

$

19,500,157

 

$

21,148,035

 

 

$

656,789

 

$

633,315

 

 

June 30, 2021

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

 

$

-

 

$

-

 

$

5,949

 

$

5,949

 

$

1,733,104

 

$

1,739,053

 

 

$

5,949

 

$

-

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

 

-

 

 

-

 

 

374

 

 

374

 

 

2,131,860

 

 

2,132,234

 

 

 

374

 

 

-

 

Owner occupied

 

 

907

 

 

639

 

 

193

 

 

1,739

 

 

338,445

 

 

340,184

 

 

 

193

 

 

-

Commercial and industrial

 

 

3,070

 

 

509

 

 

1,346

 

 

4,925

 

 

1,590,497

 

 

1,595,422

 

 

 

1,346

 

 

-

Construction

 

 

-

 

 

-

 

 

-

 

 

-

 

 

722,166

 

 

722,166

 

 

 

-

 

 

-

Mortgage

 

 

2,498

 

 

5,005

 

 

13,323

 

 

20,826

 

 

1,142,495

 

 

1,163,321

 

 

 

13,323

 

 

-

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit cards

 

 

-

 

 

-

 

 

-

 

 

-

 

 

31

 

 

31

 

 

 

-

 

 

-

 

Home equity lines of credit

 

 

501

 

 

210

 

 

6,377

 

 

7,088

 

 

74,850

 

 

81,938

 

 

 

6,377

 

 

-

 

Personal

 

 

572

 

 

579

 

 

832

 

 

1,983

 

 

135,014

 

 

136,997

 

 

 

832

 

 

-

 

Other

 

 

-

 

 

-

 

 

-

 

 

-

 

 

3,236

 

 

3,236

 

 

 

-

 

 

-

Total

 

$

7,548

 

$

6,942

 

$

28,394

 

$

42,884

 

$

7,871,698

 

$

7,914,582

 

 

$

28,394

 

$

-

26

 

June 30, 2021

 

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

$

128

 

$

-

 

$

6,346

$

6,474

 

$

1,884,362

 

$

1,890,836

 

 

$

6,346

 

$

-

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

32,749

 

 

-

 

 

72,752

 

105,501

 

 

4,020,162

 

 

4,125,663

 

 

 

72,752

 

 

-

 

 

Owner occupied

 

4,902

 

 

1,243

 

 

80,001

 

86,146

 

 

1,718,467

 

 

1,804,613

 

 

 

80,001

 

 

-

 

Commercial and industrial

 

5,384

 

 

1,191

 

 

67,073

 

73,648

 

 

5,543,172

 

 

5,616,820

 

 

 

66,466

 

 

607

 

Construction

 

-

 

 

3,080

 

 

14,877

 

17,957

 

 

847,156

 

 

865,113

 

 

 

14,877

 

 

-

 

Mortgage[1]

 

167,277

 

 

78,497

 

 

1,008,498

 

1,254,272

 

 

6,424,206

 

 

7,678,478

 

 

 

383,976

 

 

624,522

 

Leasing

 

6,054

 

 

2,103

 

 

2,286

 

10,443

 

 

1,287,485

 

 

1,297,928

 

 

 

2,286

 

 

-

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit cards

 

4,371

 

 

2,826

 

 

8,021

 

15,218

 

 

864,943

 

 

880,161

 

 

 

-

 

 

8,021

 

 

Home equity lines of credit

 

501

 

 

210

 

 

6,377

 

7,088

 

 

78,339

 

 

85,427

 

 

 

6,377

 

 

-

 

 

Personal

 

9,977

 

 

5,023

 

 

24,693

 

39,693

 

 

1,362,596

 

 

1,402,289

 

 

 

24,693

 

 

-

 

 

Auto

 

39,032

 

 

7,405

 

 

13,286

 

59,723

 

 

3,229,304

 

 

3,289,027

 

 

 

13,286

 

 

-

 

 

Other

 

214

 

 

97

 

 

14,288

 

14,599

 

 

111,663

 

 

126,262

 

 

 

14,123

 

 

165

 

Total

$

270,589

 

$

101,675

 

$

1,318,498

$

1,690,762

 

$

27,371,855

 

$

29,062,617

 

 

$

685,183

 

$

633,315

 

[1]

It is the Corporation’s policy to report delinquent residential mortgage loans insured by Federal Housing Administration (“FHA”) or guaranteed by the U.S. Department of Veterans Affairs (“VA”) as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. The balance of these loans includes $15 million at June 30, 2021 related to the rebooking of loans previously pooled into GNMA securities, in which the Corporation had a buy-back option as further described below. 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 repurchases option are required to be reflected (rebooked) on the financial statements of BPPR with an offsetting liability. While the borrowers for our serviced GNMA portfolio benefited from the moratorium, the delinquency status of these loans continued to be reported to GNMA without considering the moratorium. These balances include $363 million of residential mortgage loans insured by FHA or guaranteed by the VA that are no longer accruing interest as of June 30, 2021. Furthermore, the Corporation has approximately $56 million in reverse mortgage loans which are guaranteed by FHA, but which are currently not accruing interest. Due to the guaranteed nature of the loans, it is the Corporation’s policy to exclude these balances from non-performing assets.

[2]

Loans held-in-portfolio are net of $224 million in unearned income and exclude $85 million in loans held-for-sale.

[3]

Includes $6.2 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $3.9 billion were pledged at the Federal Home Loan Bank ("FHLB") as collateral for borrowings and $2.3 billion at the Federal Reserve Bank ("FRB") for discount window borrowings.

27

 

December 31, 2020

 

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

 

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[1]

Current

 

Loans HIP

 

 

loans

 

loans

 

Commercial multi-family

$

796

 

$

-

 

$

505

 

$

1,301

$

150,979

 

$

152,280

 

 

$

505

 

$

-

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

2,189

 

 

3,503

 

 

77,137

 

 

82,829

 

1,924,504

 

 

2,007,333

 

 

 

77,137

 

 

-

 

 

Owner occupied

 

8,270

 

 

1,218

 

 

92,001

 

 

101,489

 

1,497,406

 

 

1,598,895

 

 

 

92,001

 

 

-

 

Commercial and industrial

 

10,223

 

 

775

 

 

35,012

 

 

46,010

 

4,183,098

 

 

4,229,108

 

 

 

34,449

 

 

563

 

Construction

 

-

 

 

-

 

 

21,497

 

 

21,497

 

135,609

 

 

157,106

 

 

 

21,497

 

 

-

 

Mortgage[2]

 

195,602

 

 

87,726

 

 

1,428,824

 

 

1,712,152

 

5,057,991

 

 

6,770,143

 

 

 

414,343

 

 

1,014,481

 

Leasing

 

9,141

 

 

1,427

 

 

3,441

 

 

14,009

 

1,183,652

 

 

1,197,661

 

 

 

3,441

 

 

-

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit cards

 

6,550

 

 

4,619

 

 

12,798

 

 

23,967

 

895,968

 

 

919,935

 

 

 

-

 

 

12,798

 

 

Home equity lines of credit

 

184

 

 

-

 

 

48

 

 

232

 

3,947

 

 

4,179

 

 

 

-

 

 

48

 

 

Personal

 

11,255

 

 

8,097

 

 

26,387

 

 

45,739

 

1,232,008

 

 

1,277,747

 

 

 

26,387

 

 

-

 

 

Auto

 

53,186

 

 

12,696

 

 

15,736

 

 

81,618

 

3,050,610

 

 

3,132,228

 

 

 

15,736

 

 

-

 

 

Other

 

304

 

 

483

 

 

15,052

 

 

15,839

 

110,826

 

 

126,665

 

 

 

14,881

 

 

171

 

Total

$

297,700

 

$

120,544

 

$

1,728,438

 

$

2,146,682

$

19,426,598

 

$

21,573,280

 

 

$

700,377

 

$

1,028,061

 

[1]

Loans included as 90 days or more past due include loans that that are not delinquent in their payment terms but that are reported as nonperforming due to other credit quality considerations. As part of the adoption of CECL, at January 1, 2020, the Corporation reclassified to this category $134 million of acquired loans with credit deterioration that were previously excluded from non-performing status. In addition, as part of the CECL transition, an additional $125 million of loans that were 90 days or more past due previously excluded from non-performing status are now included as non-performing.

[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 include $57 million in loans rebooked under the GNMA program at December 31, 2020, in which issuers such as BPPR have the option but not the obligation to repurchase loans that are 90 days or more past due.

 

December 31, 2020

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

 

$

5,273

 

$

-

 

$

1,894

 

$

7,167

 

$

1,736,544

 

$

1,743,711

 

 

$

1,894

 

$

-

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

 

924

 

 

3,640

 

 

669

 

 

5,233

 

 

1,988,577

 

 

1,993,810

 

 

 

669

 

 

-

 

Owner occupied

 

 

191

 

 

650

 

 

334

 

 

1,175

 

 

343,205

 

 

344,380

 

 

 

334

 

 

-

Commercial and industrial

 

 

1,117

 

 

72

 

 

3,091

 

 

4,280

 

 

1,540,513

 

 

1,544,793

 

 

 

3,091

 

 

-

Construction

 

 

21,312

 

 

-

 

 

7,560

 

 

28,872

 

 

740,230

 

 

769,102

 

 

 

7,560

 

 

-

Mortgage

 

 

33,422

 

 

15,464

 

 

14,864

 

 

63,750

 

 

1,056,787

 

 

1,120,537

 

 

 

14,864

 

 

-

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit cards

 

 

-

 

 

-

 

 

3

 

 

3

 

 

28

 

 

31

 

 

 

-

 

 

3

 

Home equity lines of credit

 

 

236

 

 

342

 

 

7,491

 

 

8,069

 

 

86,502

 

 

94,571

 

 

 

7,491

 

 

-

 

Personal

 

 

1,486

 

 

1,342

 

 

1,474

 

 

4,302

 

 

194,936

 

 

199,238

 

 

 

1,474

 

 

-

 

Other

 

 

-

 

 

-

 

 

20

 

 

20

 

 

1,723

 

 

1,743

 

 

 

20

 

 

-

Total

 

$

63,961

 

$

21,510

 

$

37,400

 

$

122,871

 

$

7,689,045

 

$

7,811,916

 

 

$

37,397

 

$

3

28

 

December 31, 2020

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[2]

 

past due

 

Current

 

Loans HIP[3] [4]

 

 

loans

 

loans

Commercial multi-family

$

6,069

 

$

-

 

$

2,399

$

8,468

 

$

1,887,523

 

$

1,895,991

 

 

$

2,399

 

$

-

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

3,113

 

 

7,143

 

 

77,806

 

88,062

 

 

3,913,081

 

 

4,001,143

 

 

 

77,806

 

 

-

 

Owner occupied

 

8,461

 

 

1,868

 

 

92,335

 

102,664

 

 

1,840,611

 

 

1,943,275

 

 

 

92,335

 

 

-

Commercial and industrial

 

11,340

 

 

847

 

 

38,103

 

50,290

 

 

5,723,611

 

 

5,773,901

 

 

 

37,540

 

 

563

Construction

 

21,312

 

 

-

 

 

29,057

 

50,369

 

 

875,839

 

 

926,208

 

 

 

29,057

 

 

-

Mortgage[1]

 

229,024

 

 

103,190

 

 

1,443,688

 

1,775,902

 

 

6,114,778

 

 

7,890,680

 

 

 

429,207

 

 

1,014,481

Leasing

 

9,141

 

 

1,427

 

 

3,441

 

14,009

 

 

1,183,652

 

 

1,197,661

 

 

 

3,441

 

 

-

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit cards

 

6,550

 

 

4,619

 

 

12,801

 

23,970

 

 

895,996

 

 

919,966

 

 

 

-

 

 

12,801

 

Home equity lines of credit

 

420

 

 

342

 

 

7,539

 

8,301

 

 

90,449

 

 

98,750

 

 

 

7,491

 

 

48

 

Personal

 

12,741

 

 

9,439

 

 

27,861

 

50,041

 

 

1,426,944

 

 

1,476,985

 

 

 

27,861

 

 

-

 

Auto

 

53,186

 

 

12,696

 

 

15,736

 

81,618

 

 

3,050,610

 

 

3,132,228

 

 

 

15,736

 

 

-

 

Other

 

304

 

 

483

 

 

15,072

 

15,859

 

 

112,549

 

 

128,408

 

 

 

14,901

 

 

171

Total

$

361,661

 

$

142,054

 

$

1,765,838

$

2,269,553

 

$

27,115,643

 

$

29,385,196

 

 

$

737,774

 

$

1,028,064

[1]

It is the Corporation’s policy to report delinquent residential mortgage loans insured by FHA or guaranteed by the VA as accruing loans past due 90 days or more as opposed to non-performing since the principal repayment is insured. The balance of these loans includes $57 million at December 31, 2020 related to the rebooking of loans previously pooled into GNMA securities, in which the Corporation had a buy-back option as further described below. 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 repurchases option are required to be reflected (rebooked) on the financial statements of BPPR with an offsetting liability. While the borrowers for our serviced GNMA portfolio benefited from the moratorium, the delinquency status of these loans continued to be reported to GNMA without considering the moratorium. These balances include $329 million of residential mortgage loans insured by FHA or guaranteed by the VA that are no longer accruing interest as of December 31, 2020. Furthermore, the Corporation has approximately $60 million in reverse mortgage loans which are guaranteed by FHA, but which are currently not accruing interest. Due to the guaranteed nature of the loans, it is the Corporation’s policy to exclude these balances from non-performing assets.

[2]

Loans included as 90 days or more past due include loans that that are not delinquent in their payment terms but that are reported as nonperforming due to other credit quality considerations. As part of the adoption of CECL, at January 1, 2020, the Corporation reclassified to this category $134 million of acquired loans with credit deterioration that were previously excluded from non-performing status. In addition, as part of the CECL transition, an additional $144 million of loans that were 90 days or more past due previously excluded from non-performing status are now included as non-performing.

[3]

Loans held-in-portfolio are net of $203 million in unearned income and exclude $99 million in loans held-for-sale.

[4]

Includes $6.5 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $4.1 billion were pledged at the FHLB as collateral for borrowings and $2.4 billion at the FRB for discount window borrowings.

 

Recognition of interest income on mortgage loans is generally discontinued when loans are 90 days or more in arrears on payments of principal or interest. The Corporation discontinues the recognition of interest income on residential mortgage loans insured by the FHA or guaranteed by VA when 15 months delinquent as to principal or interest, since the principal repayment on these loans is insured.

 

At June 30, 2021, mortgage loans held-in-portfolio include $2.0 billion (December 31, 2020 - $2.1 billion) of loans insured by the FHA, or guaranteed VA of which $0.6 billion (December 31, 2020 - $1.0 billion) are 90 days or more past due. These balances include $691 million in loans modified under a TDR (December 31, 2020 - $655 million), that are presented as accruing loans. The portfolio of U.S. guaranteed loans includes $363 million of residential mortgage loans in Puerto Rico that are no longer accruing interest as of June 30, 2021 (December 31, 2020 - $329 million). The Corporation has approximately $56 million in reverse mortgage loans in Puerto Rico which are guaranteed by FHA, but which are currently not accruing interest at June 30, 2021 (December 31, 2020 - $60 million).

 

Loans with a delinquency status of 90 days past due as of June 30, 2021 include $15 million in loans previously pooled into GNMA securities (December 31, 2020 - $57 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.

29

 

 

The following tables present the amortized cost basis of non-accrual loans as of June 30, 2021 and December 31, 2020 by class of loans:

 

June 30, 2021

 

Puerto Rico

 

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

$

-

$

397

 

$

5,949

$

-

 

$

5,949

$

397

Commercial real estate non-owner occupied

 

30,253

 

42,125

 

 

-

 

374

 

 

30,253

 

42,499

Commercial real estate owner occupied

 

18,338

 

61,470

 

 

-

 

193

 

 

18,338

 

61,663

Commercial and industrial

 

19,082

 

46,038

 

 

-

 

1,346

 

 

19,082

 

47,384

Construction

 

14,877

 

-

 

 

-

 

-

 

 

14,877

 

-

Mortgage

 

184,038

 

186,615

 

 

350

 

12,973

 

 

184,388

 

199,588

Leasing

 

123

 

2,163

 

 

-

 

-

 

 

123

 

2,163

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HELOCs

 

-

 

-

 

 

-

 

6,377

 

 

-

 

6,377

Personal

 

6,928

 

16,933

 

 

-

 

832

 

 

6,928

 

17,765

Auto

 

533

 

12,753

 

 

-

 

-

 

 

533

 

12,753

Other

 

-

 

14,123

 

 

-

 

-

 

 

-

 

14,123

Total

$

274,172

$

382,617

 

$

6,299

$

22,095

 

$

280,471

$

404,712

 

December 31, 2020

 

Puerto Rico

 

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

$

-

$

505

 

$

-

$

1,894

 

$

-

$

2,399

Commercial real estate non-owner occupied

 

35,968

 

41,169

 

 

-

 

669

 

 

35,968

 

41,838

Commercial real estate owner occupied

 

14,825

 

77,176

 

 

-

 

334

 

 

14,825

 

77,510

Commercial and industrial

 

1,148

 

33,301

 

 

-

 

3,091

 

 

1,148

 

36,392

Construction

 

-

 

21,497

 

 

-

 

7,560

 

 

-

 

29,057

Mortgage

 

141,737

 

272,606

 

 

517

 

14,347

 

 

142,254

 

286,953

Leasing

 

-

 

3,441

 

 

-

 

-

 

 

-

 

3,441

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HELOCs

 

-

 

-

 

 

-

 

7,491

 

 

-

 

7,491

Personal

 

9,265

 

17,122

 

 

-

 

1,474

 

 

9,265

 

18,596

Auto

 

-

 

15,736

 

 

-

 

-

 

 

-

 

15,736

Other

 

-

 

14,881

 

 

-

 

20

 

 

-

 

14,901

Total

$

202,943

$

497,434

 

$

517

$

36,880

 

$

203,460

$

534,314

 

 

Loans in non-accrual status with no allowance at June 30, 2021 include $280 million in collateral dependent loans (December 31, 2020 - $203 million). The Corporation recognized $4 million in interest income on non-accrual loans during the six months ended June 30, 2021 (June 30, 2020 - $3 million).

 

The Corporation has designated loans classified as collateral dependent for which it applies the practical expedient to measure the ACL based on the fair value of the collateral less cost to sell, when the repayment is expected to be provided substantially by the sale or operation of the collateral and the borrower is experiencing financial difficulty. The fair value of the collateral is based on appraisals, which may be adjusted due to their age, and the type, location, and condition of the property or area or general market conditions to reflect the expected change in value between the effective date of the appraisal and the measurement date. Appraisals are updated every one to two years depending on the type of loan and the total exposure of the borrower.

 

The following tables present the amortized cost basis of collateral-dependent loans by class of loans and type of collateral as of June 30, 2021 and December 31, 2020:

30

 

 

 

June 30, 2021

(In thousands)

 

Real Estate

 

Auto

 

Equipment

 

Taxi Medallions

 

Accounts Receivables

 

Other

 

Total

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

$

1,487

$

-

$

-

$

-

$

-

$

-

$

1,487

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

264,062

 

-

 

-

 

-

 

-

 

-

 

264,062

 

Owner occupied

 

70,099

 

-

 

-

 

-

 

-

 

-

 

70,099

Commercial and industrial

 

6,808

 

-

 

982

 

-

 

11,117

 

43,895

 

62,802

Construction

 

14,877

 

-

 

-

 

-

 

-

 

-

 

14,877

Mortgage

 

200,356

 

-

 

-

 

-

 

-

 

-

 

200,356

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

7,097

 

-

 

-

 

-

 

-

 

-

 

7,097

 

Auto

 

-

 

655

 

-

 

-

 

-

 

-

 

655

Total Puerto Rico

$

564,786

$

655

$

982

$

-

$

11,117

$

43,895

$

621,435

Popular U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

$

5,949

$

-

$

-

$

-

$

-

$

-

$

5,949

Commercial and industrial

 

-

 

-

 

-

 

115

 

-

 

-

 

115

Mortgage

 

447

 

-

 

-

 

-

 

-

 

-

 

447

Total Popular U.S.

$

6,396

$

-

$

-

$

115

$

-

$

-

$

6,511

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

$

7,436

$

-

$

-

$

-

$

-

$

-

$

7,436

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

264,062

 

-

 

-

 

-

 

-

 

-

 

264,062

 

Owner occupied

 

70,099

 

-

 

-

 

-

 

-

 

-

 

70,099

Commercial and industrial

 

6,808

 

-

 

982

 

115

 

11,117

 

43,895

 

62,917

Construction

 

14,877

 

-

 

-

 

-

 

-

 

-

 

14,877

Mortgage

 

200,803

 

-

 

-

 

-

 

-

 

-

 

200,803

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

7,097

 

-

 

-

 

-

 

-

 

-

 

7,097

 

Auto

 

-

 

655

 

-

 

-

 

-

 

-

 

655

Total Popular, Inc.

$

571,182

$

655

$

982

$

115

$

11,117

$

43,895

$

627,946

31

 

 

 

December 31, 2020

(In thousands)

 

Real Estate

 

Auto

 

Equipment

 

Taxi Medallions

 

Accounts Receivables

 

Other

 

Total

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

$

1,301

$

-

$

-

$

-

$

-

$

-

$

1,301

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

299,223

 

-

 

-

 

-

 

-

 

-

 

299,223

 

Owner occupied

 

79,769

 

-

 

-

 

-

 

-

 

-

 

79,769

Commercial and industrial

 

7,577

 

-

 

1,438

 

-

 

10,989

 

12,046

 

32,050

Construction

 

21,497

 

-

 

-

 

-

 

-

 

-

 

21,497

Mortgage

 

181,648

 

-

 

-

 

-

 

-

 

-

 

181,648

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

7,414

 

-

 

-

 

-

 

-

 

-

 

7,414

 

Auto

 

-

 

4

 

-

 

-

 

-

 

-

 

4

Total Puerto Rico

$

598,429

$

4

$

1,438

$

-

$

10,989

$

12,046

$

622,906

Popular U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

$

1,755

$

-

$

-

$

-

$

-

$

-

$

1,755

Commercial and industrial

 

-

 

-

 

-

 

1,545

 

-

 

-

 

1,545

Construction

 

7,560

 

-

 

-

 

-

 

-

 

-

 

7,560

Mortgage

 

855

 

-

 

-

 

-

 

-

 

-

 

855

Total Popular U.S.

$

10,170

$

-

$

-

$

1,545

$

-

$

-

$

11,715

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

$

3,056

$

-

$

-

$

-

$

-

$

-

$

3,056

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

299,223

 

-

 

-

 

-

 

-

 

-

 

299,223

 

Owner occupied

 

79,769

 

-

 

-

 

-

 

-

 

-

 

79,769

Commercial and industrial

 

7,577

 

-

 

1,438

 

1,545

 

10,989

 

12,046

 

33,595

Construction

 

29,057

 

-

 

-

 

-

 

-

 

-

 

29,057

Mortgage

 

182,503

 

-

 

-

 

-

 

-

 

-

 

182,503

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

7,414

 

-

 

-

 

-

 

-

 

-

 

7,414

 

Auto

 

-

 

4

 

-

 

-

 

-

 

-

 

4

Total Popular, Inc.

$

608,599

$

4

$

1,438

$

1,545

$

10,989

$

12,046

$

634,621

32

 

Purchased Credit Deteriorated (PCD) Loans

 

The Corporation has purchased loans during the quarter and six months ended, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The carrying amount of those loans is as follows:

 

 

 

 

 

 

(In thousands)

 

For the quarter ended June 30, 2021

 

For the six months ended June 30, 2021

Purchase price of loans at acquisition

$

4,049

$

8,984

Allowance for credit losses at acquisition

 

1,202

 

2,558

Non-credit discount / (premium) at acquisition

 

214

 

335

Par value of acquired loans at acquisition

$

5,465

$

11,877

 

 

 

 

 

 

(In thousands)

 

For the quarter ended June 30, 2020

 

For the six months ended June 30, 2020

Purchase price of loans at acquisition

$

1,627

$

4,739

Allowance for credit losses at acquisition

 

567

 

996

Non-credit discount / (premium) at acquisition

 

74

 

212

Par value of acquired loans at acquisition

$

2,268

$

5,947

33

 

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 allowance for credit losses (“ACL”) to provide for expected losses in the loan portfolio. This model establishes a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, starting when such assets are first acquired or originated. In addition, CECL provides that the initial ACL on purchased credit deteriorated (“PCD”) financial assets be recorded as an increase to the purchase price, with subsequent changes to the allowance recorded as a credit loss expense. The provision for credit losses charged to current operations is based on this methodology. Loan losses are charged and recoveries are credited to the ACL.

At June 30, 2021, 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 weights applied are subject to evaluation on a quarterly basis as part of the ACL’s governance process. The current baseline forecast continues to show a favorable economic scenario. The 2021 forecasted GDP growth is now at 6.8% for U.S. and 3.8% for P.R., compared to 4.9% and 3.4%, respectively, in the previous quarter’s forecast. The forecasted U.S. unemployment rate average for 2021 is now 5.43%. This is an improvement over the previous estimate of 6.09%. In the case of P.R., the forecasted unemployment rate average for 2021 of 8.43% was slightly higher than the previous forecast of 7.98%. However, unemployment rate levels in P.R. are expected to continue declining through 2022. The P.R. forecasted average unemployment rate for 2022 of 7.25% is lower than the previous forecast of 7.52%.

 

The following tables present the changes in the ACL of loans held-in-portfolio and unfunded commitments for the quarters and six months ended June 30, 2021 and 2020.

34

 

For the quarter ended June 30, 2021

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

 

Construction

 

Mortgage

 

Leasing

 

Consumer

 

Total

Allowance for credit losses - loans:

Beginning balance

$

197,111

 

$

260

 

$

185,805

 

$

12,687

 

$

285,793

 

$

681,656

 

Provision for credit losses (benefit)

 

(20,204)

 

 

481

 

 

(19,264)

 

 

5,257

 

 

11,242

 

 

(22,488)

 

Initial allowance for credit losses - PCD Loans

 

-

 

 

-

 

 

1,202

 

 

-

 

 

-

 

 

1,202

 

Charge-offs

 

(2,035)

 

 

-

 

 

(5,047)

 

 

(1,135)

 

 

(17,366)

 

 

(25,583)

 

Recoveries

 

11,912

 

 

479

 

 

4,112

 

 

742

 

 

9,821

 

 

27,066

Ending balance

$

186,784

 

$

1,220

 

$

166,808

 

$

17,551

 

$

289,490

 

$

661,853

Allowance for credit losses - unfunded commitments:

Beginning balance

$

3,913

 

$

245

 

$

-

 

$

-

 

$

-

 

$

4,158

 

Provision for credit losses (benefit)

 

(661)

 

 

1,160

 

 

-

 

 

-

 

 

-

 

 

499

Ending balance - unfunded commitments [1]

$

3,252

 

$

1,405

 

$

-

 

$

-

 

$

-

 

$

4,657

[1]

Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

 

For the quarter ended June 30, 2021

Popular U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

 

Construction

 

Mortgage

 

 

Consumer

 

Total

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

79,108

 

$

8,935

 

$

16,321

 

$

14,777

 

$

119,141

 

Provision for credit losses (benefit)

 

4,839

 

 

1,194

 

 

(933)

 

 

(112)

 

 

4,988

 

Charge-offs

 

(690)

 

 

(523)

 

 

-

 

 

(2,374)

 

 

(3,587)

 

Recoveries

 

1,103

 

 

430

 

 

423

 

 

1,439

 

 

3,395

Ending balance

$

84,360

 

$

10,036

 

$

15,811

 

$

13,730

 

$

123,937

Allowance for credit losses - unfunded commitments:

Beginning balance

$

1,443

 

$

3,903

 

$

-

 

$

65

 

$

5,411

 

Provision for credit losses (benefit)

 

116

 

 

(231)

 

 

-

 

 

(17)

 

 

(132)

Ending balance - unfunded commitments [1]

$

1,559

 

$

3,672

 

$

-

 

$

48

 

$

5,279

[1]

Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

35

 

For the quarter ended June 30, 2021

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

 

Construction

 

Mortgage

Leasing

 

Consumer

 

Total

Allowance for credit losses - loans:

Beginning balance

$

276,219

 

$

9,195

 

$

202,126

$

12,687

 

$

300,570

 

$

800,797

 

Provision for credit losses (benefit)

 

(15,365)

 

 

1,675

 

 

(20,197)

 

5,257

 

 

11,130

 

 

(17,500)

 

Initial allowance for credit losses - PCD Loans

 

-

 

 

-

 

 

1,202

 

-

 

 

-

 

 

1,202

 

Charge-offs

 

(2,725)

 

 

(523)

 

 

(5,047)

 

(1,135)

 

 

(19,740)

 

 

(29,170)

 

Recoveries

 

13,015

 

 

909

 

 

4,535

 

742

 

 

11,260

 

 

30,461

Ending balance

$

271,144

 

$

11,256

 

$

182,619

$

17,551

 

$

303,220

 

$

785,790

Allowance for credit losses - unfunded commitments:

Beginning balance

$

5,356

 

$

4,148

 

$

-

$

-

 

$

65

 

$

9,569

 

Provision for credit losses (benefit)

 

(545)

 

 

929

 

 

-

 

-

 

 

(17)

 

 

367

Ending balance - unfunded commitments [1]

$

4,811

 

$

5,077

 

$

-

$

-

 

$

48

 

$

9,936

[1]

Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

 

For the six months ended June 30, 2021

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

 

Construction

 

Mortgage

 

Leasing

 

Consumer

 

Total

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

225,323

 

$

4,871

 

$

195,557

 

$

16,863

 

$

297,136

 

$

739,750

 

Provision for credit losses (benefit)

 

(49,850)

 

 

1,787

 

 

(22,069)

 

 

1,199

 

 

6,469

 

 

(62,464)

 

Initial allowance for credit losses - PCD Loans

 

-

 

 

-

 

 

2,558

 

 

-

 

 

-

 

 

2,558

 

Charge-offs

 

(4,918)

 

 

(6,619)

 

 

(15,428)

 

 

(2,193)

 

 

(41,395)

 

 

(70,553)

 

Recoveries

 

16,229

 

 

1,181

 

 

6,190

 

 

1,682

 

 

27,280

 

 

52,562

Ending balance - loans

$

186,784

 

$

1,220

 

$

166,808

 

$

17,551

 

$

289,490

 

$

661,853

Allowance for credit losses - unfunded commitments:

Beginning balance

$

4,913

 

$

4,610

 

$

-

 

$

-

 

$

-

 

$

9,523

 

Provision for credit losses (benefit)

 

(1,661)

 

 

(3,205)

 

 

-

 

 

-

 

 

-

 

 

(4,866)

Ending balance - unfunded commitments [1]

$

3,252

 

$

1,405

 

$

-

 

$

-

 

$

-

 

$

4,657

[1]

Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

36

 

For the six months ended June 30, 2021

Popular U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

 

Construction

 

Mortgage

 

Consumer

 

Total

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

108,057

 

$

9,366

 

$

20,159

 

$

18,918

 

$

156,500

 

Provision for credit losses (benefit)

 

(24,094)

 

 

763

 

 

(4,851)

 

 

(2,633)

 

 

(30,815)

 

Charge-offs

 

(1,073)

 

 

(523)

 

 

(1)

 

 

(5,630)

 

 

(7,227)

 

Recoveries

 

1,470

 

 

430

 

 

504

 

 

3,075

 

 

5,479

Ending balance - loans

$

84,360

 

$

10,036

 

$

15,811

 

$

13,730

 

$

123,937

Allowance for credit losses - unfunded commitments:

Beginning balance

$

1,753

 

$

4,469

 

$

-

 

$

106

 

$

6,328

 

Provision for credit losses (benefit)

 

(194)

 

 

(797)

 

 

-

 

 

(58)

 

 

(1,049)

Ending balance - unfunded commitments [1]

$

1,559

 

$

3,672

 

$

-

 

$

48

 

$

5,279

[1]

Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

 

For the six months ended June 30, 2021

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

 

Construction

 

Mortgage

 

Leasing

 

Consumer

 

Total

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

333,380

 

$

14,237

 

$

215,716

 

$

16,863

 

$

316,054

 

$

896,250

 

Provision for credit losses (benefit)

 

(73,944)

 

 

2,550

 

 

(26,920)

 

 

1,199

 

 

3,836

 

 

(93,279)

 

Initial allowance for credit losses - PCD Loans

 

-

 

 

-

 

 

2,558

 

 

-

 

 

-

 

 

2,558

 

Charge-offs

 

(5,991)

 

 

(7,142)

 

 

(15,429)

 

 

(2,193)

 

 

(47,025)

 

 

(77,780)

 

Recoveries

 

17,699

 

 

1,611

 

 

6,694

 

 

1,682

 

 

30,355

 

 

58,041

Ending balance - loans

$

271,144

 

$

11,256

 

$

182,619

 

$

17,551

 

$

303,220

 

$

785,790

Allowance for credit losses - unfunded commitments:

Beginning balance

$

6,666

 

$

9,079

 

$

-

 

$

-

 

$

106

 

$

15,851

 

Provision for credit losses (benefit)

 

(1,855)

 

 

(4,002)

 

 

-

 

 

-

 

 

(58)

 

 

(5,915)

Ending balance - unfunded commitments [1]

$

4,811

 

$

5,077

 

$

-

 

$

-

 

$

48

 

$

9,936

[1]

Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

37

 

For the quarter ended June 30, 2020

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

 

Construction

 

Mortgage

 

Leasing

 

Consumer

 

Total

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

207,850

 

$

419

 

$

202,800

 

$

12,589

 

$

333,277

 

$

756,935

 

Provision for credit losses (benefit)

 

8,174

 

 

(260)

 

 

3,437

 

 

3,894

 

 

45,178

 

 

60,423

 

Initial allowance for credit losses - PCD Loans

 

-

 

 

-

 

 

567

 

 

-

 

 

-

 

 

567

 

Charge-offs

 

(2,746)

 

 

-

 

 

(9,417)

 

 

(3,949)

 

 

(57,902)

 

 

(74,014)

 

Recoveries

 

1,649

 

 

195

 

 

1,863

 

 

559

 

 

7,605

 

 

11,871

Ending balance

$

214,927

 

$

354

 

$

199,250

 

$

13,093

 

$

328,158

 

$

755,782

Allowance for credit losses - unfunded commitments:

Beginning balance

$

1,977

 

$

178

 

$

-

 

$

-

 

$

-

 

$

2,155

 

Provision for credit losses (benefit)

 

297

 

 

(33)

 

 

-

 

 

-

 

 

-

 

 

264

Ending balance - unfunded commitments [1]

$

2,274

 

$

145

 

$

-

 

$

-

 

$

-

 

$

2,419

[1]

Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

 

For the quarter ended June 30, 2020

Popular U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

 

Construction

 

Mortgage

 

Consumer

 

Total

Allowance for credit losses - loans:

Beginning balance

$

99,167

 

$

2,229

 

$

24,287

 

$

37,098

 

$

162,781

 

Provision for credit losses (benefit)

 

2,088

 

 

3,876

 

 

(1,319)

 

 

(1,964)

 

 

2,681

 

Charge-offs

 

(391)

 

 

-

 

 

(7)

 

 

(4,873)

 

 

(5,271)

 

Recoveries

 

1,175

 

 

-

 

 

26

 

 

1,260

 

 

2,461

Ending balance - loans

$

102,039

 

$

6,105

 

$

22,987

 

$

31,521

 

$

162,652

Allowance for credit losses - unfunded commitments:

Beginning balance

$

1,111

 

$

1,141

 

$

-

 

$

59

 

$

2,311

 

Provision for credit losses

 

455

 

 

1,530

 

 

-

 

 

2

 

 

1,987

Ending balance - unfunded commitments [1]

 

1,566

 

 

2,671

 

 

-

 

 

61

 

 

4,298

[1]

Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statement of Financial Condition.

 

For the quarter ended June 30, 2020

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

Construction

Mortgage

Leasing

Consumer

Total

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

307,017

$

2,648

$

227,087

$

12,589

$

370,375

$

919,716

 

Provision for credit losses

 

10,262

 

3,616

 

2,118

 

3,894

 

43,214

 

63,104

 

Initial allowance for credit losses - PCD Loans

 

-

 

-

 

567

 

-

 

-

 

567

 

Charge-offs

 

(3,137)

 

-

 

(9,424)

 

(3,949)

 

(62,775)

 

(79,285)

 

Recoveries

 

2,824

 

195

 

1,889

 

559

 

8,865

 

14,332

Ending balance

$

316,966

$

6,459

$

222,237

$

13,093

$

359,679

$

918,434

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

3,088

$

1,319

$

-

$

-

$

59

$

4,466

 

Provision for credit losses

 

752

 

1,497

 

-

 

-

 

2

 

2,251

Ending balance - unfunded commitments [1]

$

3,840

$

2,816

$

-

$

-

$

61

$

6,717

[1]

Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

38

 

For the six months ended June 30, 2020

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

 

Construction

 

Mortgage

 

Leasing

 

Consumer

 

Total

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

131,063

 

$

574

 

$

116,281

 

$

10,768

 

$

173,965

 

$

432,651

 

Impact of adopting CECL

 

62,393

 

 

115

 

 

86,081

 

 

(713)

 

 

122,492

 

 

270,368

 

Provision for credit losses (benefit)

 

23,148

 

 

(549)

 

 

8,984

 

 

9,735

 

 

132,109

 

 

173,427

 

Initial allowance for credit losses - PCD Loans

 

-

 

 

-

 

 

996

 

 

-

 

 

-

 

 

996

 

Charge-offs

 

(5,740)

 

 

-

 

 

(17,723)

 

 

(7,724)

 

 

(115,986)

 

 

(147,173)

 

Recoveries

 

4,063

 

 

214

 

 

4,631

 

 

1,027

 

 

15,578

 

 

25,513

Ending balance - loans

$

214,927

 

$

354

 

$

199,250

 

$

13,093

 

$

328,158

 

$

755,782

Allowance for credit losses - unfunded commitments:

Beginning balance

$

678

 

$

294

 

$

-

 

$

-

 

$

7,467

 

$

8,439

 

Impact of adopting CECL

 

1,158

 

 

(185)

 

 

-

 

 

-

 

 

(7,467)

 

 

(6,494)

 

Provision for credit losses

 

438

 

 

36

 

 

-

 

 

-

 

 

-

 

 

474

Ending balance - unfunded commitments [1]

$

2,274

 

$

145

 

$

-

 

$

-

 

$

-

 

$

2,419

[1]

Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

 

For the six months ended June 30, 2020

Popular U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

 

Construction

 

Mortgage

 

Consumer

 

Total

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

16,557

 

$

4,266

 

$

4,827

 

$

19,407

 

$

45,057

 

Impact of adopting CECL

 

29,537

 

 

(3,038)

 

 

10,431

 

 

7,809

 

 

44,739

 

Provision for credit losses

 

55,160

 

 

4,722

 

 

7,709

 

 

11,081

 

 

78,672

 

Charge-offs

 

(968)

 

 

-

 

 

(16)

 

 

(9,811)

 

 

(10,795)

 

Recoveries

 

1,753

 

 

155

 

 

36

 

 

3,035

 

 

4,979

Ending balance - loans

$

102,039

 

$

6,105

 

$

22,987

 

$

31,521

 

$

162,652

Allowance for credit losses - unfunded commitments:

Beginning balance

$

152

 

$

125

 

$

-

 

$

1

 

$

278

 

Impact of adopting CECL

 

453

 

 

582

 

 

-

 

 

(1)

 

 

1,034

 

Provision for credit losses

 

961

 

 

1,964

 

 

-

 

 

61

 

 

2,986

Ending balance - unfunded commitments [1]

$

1,566

 

$

2,671

 

$

-

 

$

61

 

$

4,298

[1]

Allowance for credit losses of unfunded commitments is presented as part of Other Liabilities in the Consolidated Statements of Financial Condition.

39

 

For the six months ended June 30, 2020

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

Construction

Mortgage

Leasing

Consumer

Total

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

147,620

$

4,840

$

121,108

$

10,768

$

193,372

$

477,708

 

Impact of adopting CECL

 

91,930

 

(2,923)

 

96,512

 

(713)

 

130,301

 

315,107

 

Provision for credit losses

 

78,308

 

4,173

 

16,693

 

9,735

 

143,190

 

252,099

 

Initial allowance for credit losses - PCD Loans

 

-

 

-

 

996

 

-

 

-

 

996

 

Charge-offs

 

(6,708)

 

-

 

(17,739)

 

(7,724)

 

(125,797)

 

(157,968)

 

Recoveries

 

5,816

 

369

 

4,667

 

1,027

 

18,613

 

30,492

Ending balance - loans

$

316,966

$

6,459

$

222,237

$

13,093

$

359,679

$

918,434

Allowance for credit losses - unfunded commitments:

Beginning balance

$

830

$

419

$

-

$

-

$

7,468

$

8,717

 

Impact of adopting CECL

 

1,611

 

397

 

-

 

-

 

(7,468)

 

(5,460)

 

Provision for credit losses

 

1,399

 

2,000

 

-

 

-

 

61

 

3,460

Ending balance - unfunded commitments [1]

$

3,840

$

2,816

$

-

$

-

$

61

$

6,717

[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 of a loan constitutes a troubled debt restructuring when a borrower is experiencing financial difficulty and the modification constitutes a concession. For a summary of the accounting policy related to troubled debt restructurings (“TDRs”), refer to the Summary of Significant Accounting Policies included in Note 2 to the 2020 Form 10-K.

The outstanding balance of loans classified as TDRs amounted to $1.7 billion at June 30, 2021 (December 31, 2020 - $1.7 billion). The amount of outstanding commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs amounted to $7 million related to the commercial loan portfolio at June 30, 2021 (December 31, 2020 - $14 million).

In response to the COVID-19 pandemic, the Corporation implemented a relief program in March 2020 to work with eligible customers in mortgage, personal loans, credit cards, auto loans and leases and certain commercial credit facilities, comprised mainly of payment deferrals of up to six months, subject to certain terms and conditions. In addition, certain participating clients impacted by the seismic activity in the Southern region of the island also benefitted from other loan payment moratoriums offered by the Corporation since mid-January 2020. These loan modifications do not affect the asset quality measures as the deferred payments are not deemed to be delinquent and the Corporation continues to accrue interest on these loans. The Puerto Rico Legislative Assembly enacted legislation in April 2020 that required financial institutions to offer through June 2020 moratoriums on consumer financial products to clients impacted by the COVID-19 pandemic and extended relief with respect to mortgage products through August 2020. Additionally, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), signed by the President of the United States as part of an economic stimulus package, provides relief related to U.S. GAAP requirements for loan modifications related to COVID-19 relief measures. This relief was subsequently extended until the earlier of January 1, 2022 or 60 days after the national COVID-19 emergency ends. In addition, the Federal Reserve, along with other U.S. banking regulators, also issued interagency guidance to financial institutions that offers some practical expedients for evaluating whether loan modifications that occur in response to the COVID-19 pandemic are TDRs. According to the interagency guidance, COVID-19 related short-term modifications (i.e., six months or less) granted to consumer or commercial loans that were current as of the date of the loan modification are not TDRs, since the lender can conclude that the borrower is current on their loan and thus not experiencing financial difficulties and furthermore the period of the deferral granted does not represent a more than insignificant concession on the part of the lender. In addition, a modification or deferral program that is mandated by the federal government or a state government (e.g., a state program that requires all institutions within that state to suspend mortgage payments for a specified period) does not represent a TDR. As of June 30, 2021, approximately $34 million of loan payment moratoriums granted under the COVID-19 relief program have been classified as TDRs. In making this determination, the Corporation considered the criteria of whether the borrower was in financial difficulty at the time of the deferral and whether the deferral period was more than insignificant.

The following table presents the outstanding balance of loans classified as TDRs according to their accruing status and the related allowance at June 30, 2021 and December 31, 2020.

 

40

 

 

June 30, 2021

 

 

December 31, 2020

(In thousands)

 

Accruing

 

Non-Accruing

 

Total

 

Related Allowance

 

 

 

Accruing

 

Non-Accruing

 

Total

 

Related Allowance

Loans held-in-portfolio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

$

247,125

$

100,449

$

347,574

$

25,707

 

 

$

259,246

$

103,551

$

362,797

$

15,236

Construction

 

-

 

14,877

 

14,877

 

-

 

 

 

-

 

21,497

 

21,497

 

4,397

Mortgage[1]

 

1,118,845

 

117,755

 

1,236,600

 

65,044

 

 

 

1,060,193

 

135,772

 

1,195,965

 

71,018

Leases

 

497

 

87

 

584

 

101

 

 

 

392

 

218

 

610

 

150

Consumer

 

70,556

 

11,176

 

81,732

 

19,433

 

 

 

74,707

 

12,792

 

87,499

 

22,508

Loans held-in-portfolio

$

1,437,023

$

244,344

$

1,681,367

$

110,285

 

 

$

1,394,538

$

273,830

$

1,668,368

$

113,309

[1] At June 30, 2021, accruing mortgage loan TDRs include $691 million guaranteed by U.S. sponsored entities at BPPR, compared to $655 million at December 31, 2020.

 

The following tables present the loan count by type of modification for those loans modified in a TDR during the quarters and six months ended June 30, 2021 and 2020. Loans modified as TDRs for the U.S. operations are considered insignificant to the Corporation.

 

 

Popular, Inc.

 

For the quarter ended June 30, 2021

 

For the six months ended June 30, 2021

 

Reduction in interest rate

Extension of maturity date

Combination of reduction in interest rate and extension of maturity date

Other

 

Reduction in interest rate

Extension of maturity date

Combination of reduction in interest rate and extension of maturity date

Other

Commercial multi-family

-

-

1

-

 

-

1

1

-

Commercial real estate non-owner occupied

-

-

-

-

 

-

9

-

-

Commercial real estate owner occupied

1

3

3

2

 

3

23

3

2

Commercial and industrial

1

-

-

6

 

1

8

-

6

Mortgage

14

39

458

-

 

22

79

818

-

Leasing

-

-

-

-

 

-

-

1

-

Consumer:

 

 

 

 

 

 

 

 

 

Credit cards

37

-

1

13

 

89

-

1

27

HELOCs

-

1

-

-

 

-

1

1

-

Personal

59

61

-

2

 

120

63

1

2

Auto

-

1

-

-

 

-

2

2

-

Other

2

-

-

-

 

6

-

-

-

Total

114

105

463

23

 

241

186

828

37

41

 

 

Popular, Inc.

 

For the quarter ended June 30, 2020

 

For the six months ended June 30, 2020

 

Reduction in interest rate

Extension of maturity date

Combination of reduction in interest rate and extension of maturity date

Other

 

Reduction in interest rate

Extension of maturity date

Combination of reduction in interest rate and extension of maturity date

Other

Commercial multi-family

-

1

-

-

 

-

1

-

-

Commercial real estate non-owner occupied

-

1

-

-

 

-

2

-

1

Commercial real estate owner occupied

-

13

-

-

 

-

19

-

-

Commercial and industrial

-

15

-

-

 

1

26

-

-

Mortgage

-

-

14

72

 

2

26

161

72

Leasing

-

-

-

11

 

-

-

3

11

Consumer:

 

 

 

 

 

 

 

 

 

Credit cards

404

-

-

52

 

552

-

-

65

HELOCs

-

1

-

-

 

-

1

1

-

Personal

78

1

-

-

 

178

2

-

1

Auto

-

-

-

8

 

-

1

2

8

Other

1

-

-

-

 

2

-

-

-

Total

483

32

14

143

 

735

78

167

158

 

The following tables present by class, quantitative information related to loans modified as TDRs during the quarters and six months ended June 30, 2021 and 2020.

 

For the quarter ended June 30, 2021

(Dollars in thousands)

Loan count

Pre-modification outstanding recorded investment

Post-modification outstanding recorded investment

Increase (decrease) in the allowance for loan losses as a result of modification

Commercial multi-family

1

$

159

$

125

$

22

Commercial real estate owner occupied

9

 

51,050

 

50,472

 

564

Commercial and industrial

7

 

491

 

489

 

57

Mortgage

511

 

58,094

 

61,522

 

2,105

Consumer:

 

 

 

 

 

 

 

Credit cards

51

 

730

 

628

 

7

HELOCs

1

 

113

 

112

 

26

Personal

122

 

1,620

 

1,619

 

328

Auto

1

 

16

 

16

 

5

Other

2

 

5

 

5

 

1

Total

705

$

112,278

$

114,988

$

3,115

42

 

For the quarter ended June 30, 2020

(Dollars in thousands)

Loan count

Pre-modification outstanding recorded investment

Post-modification outstanding recorded investment

Increase (decrease) in the allowance for loan losses as a result of modification

Commercial multi-family

1

$

993

$

976

$

(19)

Commercial real estate non-owner occupied

1

 

179

 

179

 

-

Commercial real estate owner occupied

13

 

2,593

 

2,574

 

1

Commercial and industrial

15

 

849

 

845

 

2

Mortgage

86

 

14,448

 

8,954

 

833

Leasing

11

 

232

 

232

 

-

Consumer:

 

 

 

 

 

 

 

Credit cards

456

 

4,200

 

4,181

 

178

HELOCs

1

 

37

 

33

 

8

Personal

79

 

1,160

 

1,160

 

194

Auto

8

 

60

 

60

 

-

Other

1

 

4

 

4

 

1

Total

672

$

24,755

$

19,198

$

1,198

 

Popular, Inc.

For the six months ended June 30, 2021

(Dollars in thousands)

Loan count

Pre-modification outstanding recorded investment

Post-modification outstanding recorded investment

Increase (decrease) in the allowance for credit losses as a result of modification

Commercial multi-family

2

$

246

$

211

$

26

Commercial real estate non-owner occupied

9

 

3,295

 

3,281

 

141

Commercial real estate owner occupied

31

 

80,800

 

79,956

 

1,136

Commercial and industrial

15

 

713

 

707

 

65

Mortgage

919

 

105,748

 

111,251

 

3,151

Leasing

1

 

32

 

32

 

4

Consumer:

 

 

 

 

 

 

 

Credit cards

117

 

1,554

 

1,482

 

34

HELOCs

2

 

176

 

228

 

54

Personal

186

 

2,682

 

2,681

 

632

Auto

4

 

64

 

69

 

15

Other

6

 

11

 

11

 

2

Total

1,292

$

195,321

$

199,909

$

5,260

43

 

Popular, Inc.

For the six months ended June 30, 2020

(Dollars in thousands)

Loan count

Pre-modification outstanding recorded investment

Post-modification outstanding recorded investment

Increase (decrease) in the allowance for credit losses as a result of modification

Commercial multi-family

1

$

993

$

976

$

(19)

Commercial real estate non-owner occupied

3

 

3,418

 

3,418

 

(748)

Commercial real estate owner occupied

19

 

6,499

 

6,476

 

106

Commercial and industrial

27

 

1,784

 

1,778

 

25

Mortgage

261

 

34,763

 

26,894

 

2,845

Leasing

14

 

326

 

327

 

6

Consumer:

 

 

 

 

 

 

 

Credit cards

617

 

5,460

 

5,454

 

262

HELOCs

2

 

369

 

298

 

862

Personal

181

 

3,021

 

3,019

 

491

Auto

11

 

146

 

147

 

12

Other

2

 

24

 

24

 

6

Total

1,138

$

56,803

$

48,811

$

3,848

 

The following tables present, by class, TDRs that were subject to payment default and that had been modified as a TDR during the twelve months preceding the default date. Payment default is defined as a restructured loan becoming 90 days past due after being modified, foreclosed or charged-off, whichever occurs first. The recorded investment as of period end is inclusive of all partial paydowns and charge-offs since the modification date. Loans modified as a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported.

 

Popular, Inc.

 

Defaulted during the quarter ended
June 30, 2021

 

Defaulted during the six months ended
June 30, 2021

(Dollars in thousands)

Loan count

 

Recorded investment as of first default date

 

Loan count

 

Recorded investment as of first default date

Commercial real estate non-owner occupied

4

$

8,421

 

4

$

8,421

Commercial real estate owner occupied

-

 

-

 

2

 

3,754

Commercial and industrial

3

 

93

 

5

 

317

Mortgage

24

 

3,279

 

47

 

5,011

Consumer:

 

 

 

 

 

 

 

Credit cards

23

 

280

 

60

 

751

Personal

11

 

212

 

14

 

472

Total

65

$

12,285

 

132

$

18,726

44

 

Popular, Inc.

 

Defaulted during the quarter ended
June 30, 2020

 

Defaulted during the six months ended
June 30, 2020

(Dollars in thousands)

Loan count

 

Recorded investment as of first default date

 

Loan count

 

Recorded investment as of first default date

Commercial real estate non-owner occupied

1

$

1,700

 

1

$

1,700

Commercial real estate owner occupied

3

 

603

 

5

 

846

Commercial and industrial

1

 

57

 

3

 

97

Mortgage

101

 

9,582

 

148

 

16,089

Consumer:

 

 

 

 

 

 

 

Credit cards

82

 

652

 

123

 

866

HELOCs

1

 

31

 

1

 

31

Personal

48

 

579

 

83

 

1,364

Other

1

 

1

 

2

 

1

Total

238

$

13,205

 

366

$

20,994

 

Commercial, consumer and mortgage loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the ACL may be increased or partial charge-offs may be taken to further write-down the carrying value of the loan.

Credit Quality

The risk rating system provides for the assignment of ratings at the obligor level based on the financial condition of the borrower. The risk rating analysis process is performed at least once a year or more frequently if events or conditions change which may deteriorate the credit quality. In the case of consumer and mortgage loans, these loans are classified considering their delinquency status at the end of the reporting period.

The following tables present the amortized cost basis, net of unearned income, of loans held-in-portfolio based on the Corporation’s assignment of obligor risk ratings as defined at June 30, 2021 and December 31, 2020 by vintage year. For the definitions of the obligor risk ratings, refer to the Credit Quality section of Note 8 to the Consolidated Financial Statements included in the Corporation’s Form 10-K for the year ended December 31, 2020.

45

 

June 30, 2021

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2021

 

2020

 

2019

 

2018

 

2017

 

Prior

Years

 

 

 

Total

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

 

 

 

Watch

$

-

$

-

$

-

$

-

$

-

$

550

$

-

$

-

$

550

 

 

 

Special mention

 

-

 

-

 

-

 

-

 

-

 

4,036

 

-

 

-

 

4,036

 

 

 

Substandard

 

-

 

-

 

-

 

-

 

-

 

1,294

 

100

 

-

 

1,394

 

 

 

Pass

 

2,830

 

21,454

 

35,982

 

25,722

 

2,086

 

57,521

 

208

 

-

 

145,803

 

 

Total commercial multi-family

$

2,830

$

21,454

$

35,982

$

25,722

$

2,086

$

63,401

$

308

$

-

$

151,783

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate non-owner occupied

 

 

 

Watch

$

12,128

$

230,138

$

72,070

$

26,805

$

40,235

$

250,211

$

1,937

$

-

$

633,524

 

 

 

Special Mention

 

18,447

 

-

 

26,647

 

123,317

 

31,469

 

34,444

 

-

 

-

 

234,324

 

 

 

Substandard

 

28,179

 

41,886

 

50,426

 

26,417

 

2,830

 

126,363

 

-

 

-

 

276,101

 

 

 

Pass

 

60,855

 

88,822

 

27,331

 

22,430

 

46,986

 

598,086

 

4,970

 

-

 

849,480

 

 

Total commercial real estate non-owner occupied

$

119,609

$

360,846

$

176,474

$

198,969

$

121,520

$

1,009,104

$

6,907

$

-

$

1,993,429

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate owner occupied

 

 

 

Watch

$

4,906

$

7,138

$

15,301

$

11,824

$

4,824

$

130,351

$

150

$

-

$

174,494

 

 

 

Special Mention

 

49,375

 

1,239

 

6,529

 

233

 

8,365

 

110,290

 

-

 

-

 

176,031

 

 

 

Substandard

 

2,820

 

1,308

 

1,874

 

36,635

 

2,366

 

148,660

 

-

 

-

 

193,663

 

 

 

Doubtful

 

-

 

-

 

-

 

-

 

-

 

1,155

 

-

 

-

 

1,155

 

 

 

Pass

 

69,677

 

207,787

 

46,589

 

30,253

 

58,539

 

494,212

 

12,029

 

-

 

919,086

 

 

Total commercial real estate owner occupied

$

126,778

$

217,472

$

70,293

$

78,945

$

74,094

$

884,668

$

12,179

$

-

$

1,464,429

 

 

Commercial and industrial

 

 

 

Watch

$

196,174

$

29,332

$

79,155

$

128,884

$

43,317

$

220,678

$

138,827

$

-

$

836,367

 

 

 

Special Mention

 

17,466

 

14,064

 

14,752

 

42,942

 

55,802

 

53,366

 

22,998

 

-

 

221,390

 

 

 

Substandard

 

18,203

 

8,564

 

3,627

 

34,648

 

28,735

 

56,905

 

58,818

 

-

 

209,500

 

 

 

Doubtful

 

-

 

-

 

-

 

-

 

-

 

66

 

-

 

-

 

66

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

-

 

8

 

-

 

8

 

 

 

Pass

 

895,255

 

535,724

 

360,587

 

102,625

 

140,673

 

425,330

 

293,873

 

-

 

2,754,067

 

 

Total commercial and industrial

$

1,127,098

$

587,684

$

458,121

$

309,099

$

268,527

$

756,345

$

514,524

$

-

$

4,021,398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

Watch

$

-

$

-

$

4,202

$

-

$

-

$

-

$

-

$

-

$

4,202

 

 

 

Substandard

 

-

 

-

 

-

 

-

 

14,877

 

-

 

-

 

-

 

14,877

 

 

 

Pass

 

10,047

 

34,488

 

19,295

 

3,316

 

35,663

 

-

 

21,059

 

-

 

123,868

 

Total construction

$

10,047

$

34,488

$

23,497

$

3,316

$

50,540

$

-

$

21,059

$

-

$

142,947

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage

 

 

 

Substandard

$

-

$

2,293

$

1,560

$

1,699

$

2,796

$

141,652

$

-

$

-

$

150,000

 

 

 

Pass

 

174,183

 

252,640

 

208,348

 

149,696

 

200,787

 

5,379,503

 

-

 

-

 

6,365,157

 

Total mortgage

$

174,183

$

254,933

$

209,908

$

151,395

$

203,583

$

5,521,155

$

-

$

-

$

6,515,157

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

 

 

Substandard

$

-

$

198

$

1,032

$

369

$

359

$

313

$

-

$

-

$

2,271

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

15

 

-

 

-

 

15

 

 

 

Pass

 

347,851

 

380,635

 

268,577

 

168,996

 

84,270

 

45,313

 

-

 

-

 

1,295,642

 

Total leasing

$

347,851

$

380,833

$

269,609

$

169,365

$

84,629

$

45,641

$

-

$

-

$

1,297,928

46

 

June 30, 2021

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2021

 

2020

 

2019

 

2018

 

2017

 

Prior

Years

 

 

 

Total

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

Credit cards

 

 

 

Substandard

$

-

$

-

$

-

$

-

$

-

$

-

$

8,021

$

-

$

8,021

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

-

 

872,109

 

-

 

872,109

 

Total credit cards

$

-

$

-

$

-

$

-

$

-

$

-

$

880,130

$

-

$

880,130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HELOCs

 

 

 

Pass

$

-

$

-

$

-

$

-

$

-

$

-

$

3,489

$

-

$

3,489

 

Total HELOCs

$

-

$

-

$

-

$

-

$

-

$

-

$

3,489

$

-

$

3,489

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

Substandard

$

62

$

710

$

1,672

$

1,035

$

770

$

18,331

$

-

$

1,280

$

23,860

 

 

 

Loss

 

-

 

13

 

1

 

-

 

-

 

-

 

-

 

-

 

14

 

 

 

Pass

 

266,327

 

263,734

 

311,100

 

125,243

 

74,084

 

157,658

 

1,977

 

41,295

 

1,241,418

 

Total Personal

$

266,389

$

264,457

$

312,773

$

126,278

$

74,854

$

175,989

$

1,977

$

42,575

$

1,265,292

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

Substandard

$

267

$

3,804

$

6,401

$

4,404

$

2,084

$

1,826

$

-

$

-

$

18,786

 

 

 

Loss

 

-

 

46

 

10

 

-

 

-

 

-

 

-

 

-

 

56

 

 

 

Pass

 

679,718

 

929,832

 

757,510

 

519,933

 

235,230

 

147,962

 

-

 

-

 

3,270,185

 

Total Auto

$

679,985

$

933,682

$

763,921

$

524,337

$

237,314

$

149,788

$

-

$

-

$

3,289,027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other consumer

 

 

 

Substandard

$

-

$

120

$

-

$

337

$

-

$

122

$

900

$

-

$

1,479

 

 

 

Loss

 

-

 

-

 

-

 

799

 

239

 

490

 

11,281

 

-

 

12,809

 

 

 

Pass

 

13,616

 

12,441

 

12,275

 

7,450

 

4,232

 

1,600

 

57,124

 

-

 

108,738

 

Total Other consumer

$

13,616

$

12,561

$

12,275

$

8,586

$

4,471

$

2,212

$

69,305

$

-

$

123,026

Total Puerto Rico

$

2,868,386

$

3,068,410

$

2,332,853

$

1,596,012

$

1,121,618

$

8,608,303

$

1,509,878

$

42,575

$

21,148,035

47

 

June 30, 2021

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2021

 

2020

 

2019

 

2018

 

2017

 

Prior

Years

 

 

 

Total

Popular U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

 

 

 

Watch

$

-

$

41,841

$

33,914

$

46,483

$

48,047

$

75,464

$

-

$

-

$

245,749

 

 

 

Special mention

 

-

 

15,500

 

11,249

 

4,229

 

17,725

 

55,412

 

-

 

-

 

104,115

 

 

 

Substandard

 

-

 

-

 

92,782

 

25,090

 

-

 

30,612

 

-

 

-

 

148,484

 

 

 

Pass

 

126,692

 

259,714

 

239,599

 

150,114

 

59,495

 

396,902

 

8,189

 

-

 

1,240,705

 

 

Total commercial multi-family

$

126,692

$

317,055

$

377,544

$

225,916

$

125,267

$

558,390

$

8,189

$

-

$

1,739,053

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate non-owner occupied

 

 

 

Watch

$

-

$

8,593

$

25,904

$

37,153

$

41,440

$

140,278

$

972

$

-

$

254,340

 

 

 

Special Mention

 

-

 

-

 

3,247

 

9,894

 

9,276

 

17,701

 

500

 

-

 

40,618

 

 

 

Substandard

 

-

 

764

 

18,512

 

36,343

 

10,747

 

84,207

 

-

 

-

 

150,573

 

 

 

Pass

 

178,613

 

380,906

 

230,063

 

259,776

 

258,664

 

371,833

 

6,848

 

-

 

1,686,703

 

 

Total commercial real estate non-owner occupied

$

178,613

$

390,263

$

277,726

$

343,166

$

320,127

$

614,019

$

8,320

$

-

$

2,132,234

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate owner occupied

 

 

 

Watch

$

-

$

242

$

7,925

$

7,136

$

1,913

$

19,345

$

4,222

$

-

$

40,783

 

 

 

Special Mention

 

-

 

-

 

-

 

-

 

-

 

2,456

 

-

 

-

 

2,456

 

 

 

Substandard

 

-

 

-

 

1,161

 

2,913

 

-

 

21,082

 

-

 

-

 

25,156

 

 

 

Pass

 

38,538

 

47,387

 

44,828

 

36,901

 

26,558

 

71,713

 

5,864

 

-

 

271,789

 

 

Total commercial real estate owner occupied

$

38,538

$

47,629

$

53,914

$

46,950

$

28,471

$

114,596

$

10,086

$

-

$

340,184

 

 

Commercial and industrial

 

 

 

Watch

$

1,856

$

13,439

$

1,473

$

-

$

9

$

7,853

$

6,704

$

-

$

31,334

 

 

 

Special Mention

 

2,415

 

10,627

 

-

 

-

 

97

 

8,416

 

184

 

-

 

21,739

 

 

 

Substandard

 

521

 

270

 

5,717

 

-

 

-

 

3,754

 

3,030

 

-

 

13,292

 

 

 

Pass

 

156,944

 

367,910

 

193,045

 

186,850

 

126,472

 

375,668

 

122,168

 

-

 

1,529,057

 

 

Total commercial and industrial

$

161,736

$

392,246

$

200,235

$

186,850

$

126,578

$

395,691

$

132,086

$

-

$

1,595,422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

Watch

$

-

$

15,050

$

22,131

$

36,270

$

52,837

$

2,005

$

-

$

-

$

128,293

 

 

 

Special Mention

 

-

 

-

 

-

 

-

 

-

 

13,413

 

-

 

-

 

13,413

 

 

 

Substandard

 

-

 

-

 

348

 

21,792

 

-

 

9,786

 

-

 

-

 

31,926

 

 

 

Pass

 

30,074

 

130,878

 

231,564

 

79,932

 

63,662

 

12,424

 

-

 

-

 

548,534

 

Total construction

$

30,074

$

145,928

$

254,043

$

137,994

$

116,499

$

37,628

$

-

$

-

$

722,166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage

 

 

 

Substandard

$

-

$

467

$

2,047

$

1,163

$

-

$

9,645

$

-

$

-

$

13,322

 

 

 

Pass

 

212,449

 

294,712

 

239,685

 

78,085

 

8,317

 

316,751

 

-

 

-

 

1,149,999

 

Total mortgage

$

212,449

$

295,179

$

241,732

$

79,248

$

8,317

$

326,396

$

-

$

-

$

1,163,321

48

 

June 30, 2021

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2021

 

2020

 

2019

 

2018

 

2017

 

Prior

Years

 

 

 

Total

Popular U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

Credit cards

 

 

 

Pass

$

-

$

-

$

-

$

-

$

-

$

-

$

31

$

-

$

31

 

Total credit cards

$

-

$

-

$

-

$

-

$

-

$

-

$

31

$

-

$

31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HELOCs

 

 

 

Substandard

$

-

$

-

$

-

$

-

$

-

$

3,708

$

-

$

1,196

$

4,904

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

365

 

-

 

1,108

 

1,473

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

13,390

 

39,528

 

22,643

 

75,561

 

Total HELOCs

$

-

$

-

$

-

$

-

$

-

$

17,463

$

39,528

$

24,947

$

81,938

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

Substandard

$

-

$

76

$

335

$

131

$

8

$

154

$

1

$

-

$

705

 

 

 

Loss

 

-

 

-

 

34

 

22

 

4

 

67

 

-

 

-

 

127

 

 

 

Pass

 

7,718

 

29,217

 

72,402

 

13,980

 

5,774

 

6,938

 

136

 

-

 

136,165

 

Total Personal

$

7,718

$

29,293

$

72,771

$

14,133

$

5,786

$

7,159

$

137

$

-

$

136,997

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other consumer

 

 

 

Pass

$

-

$

-

$

-

$

-

$

-

$

-

$

3,236

$

-

$

3,236

 

Total Other consumer

$

-

$

-

$

-

$

-

$

-

$

-

$

3,236

$

-

$

3,236

Total Popular U.S.

$

755,820

$

1,617,593

$

1,477,965

$

1,034,257

$

731,045

$

2,071,342

$

201,613

$

24,947

$

7,914,582

49

 

June 30, 2021

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2021

 

2020

 

2019

 

2018

 

2017

 

Prior

Years

 

 

 

Total

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

 

 

 

Watch

$

-

$

41,841

$

33,914

$

46,483

$

48,047

$

76,014

$

-

$

-

$

246,299

 

 

 

Special mention

 

-

 

15,500

 

11,249

 

4,229

 

17,725

 

59,448

 

-

 

-

 

108,151

 

 

 

Substandard

 

-

 

-

 

92,782

 

25,090

 

-

 

31,906

 

100

 

-

 

149,878

 

 

 

Pass

 

129,522

 

281,168

 

275,581

 

175,836

 

61,581

 

454,423

 

8,397

 

-

 

1,386,508

 

 

Total commercial multi-family

$

129,522

$

338,509

$

413,526

$

251,638

$

127,353

$

621,791

$

8,497

$

-

$

1,890,836

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate non-owner occupied

 

 

 

Watch

$

12,128

$

238,731

$

97,974

$

63,958

$

81,675

$

390,489

$

2,909

$

-

$

887,864

 

 

 

Special Mention

 

18,447

 

-

 

29,894

 

133,211

 

40,745

 

52,145

 

500

 

-

 

274,942

 

 

 

Substandard

 

28,179

 

42,650

 

68,938

 

62,760

 

13,577

 

210,570

 

-

 

-

 

426,674

 

 

 

Pass

 

239,468

 

469,728

 

257,394

 

282,206

 

305,650

 

969,919

 

11,818

 

-

 

2,536,183

 

 

Total commercial real estate non-owner occupied

$

298,222

$

751,109

$

454,200

$

542,135

$

441,647

$

1,623,123

$

15,227

$

-

$

4,125,663

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate owner occupied

 

 

 

Watch

$

4,906

$

7,380

$

23,226

$

18,960

$

6,737

$

149,696

$

4,372

$

-

$

215,277

 

 

 

Special Mention

 

49,375

 

1,239

 

6,529

 

233

 

8,365

 

112,746

 

-

 

-

 

178,487

 

 

 

Substandard

 

2,820

 

1,308

 

3,035

 

39,548

 

2,366

 

169,742

 

-

 

-

 

218,819

 

 

 

Doubtful

 

-

 

-

 

-

 

-

 

-

 

1,155

 

-

 

-

 

1,155

 

 

 

Pass

 

108,215

 

255,174

 

91,417

 

67,154

 

85,097

 

565,925

 

17,893

 

-

 

1,190,875

 

 

Total commercial real estate owner occupied

$

165,316

$

265,101

$

124,207

$

125,895

$

102,565

$

999,264

$

22,265

$

-

$

1,804,613

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 

 

Watch

$

198,030

$

42,771

$

80,628

$

128,884

$

43,326

$

228,531

$

145,531

$

-

$

867,701

 

 

 

Special Mention

 

19,881

 

24,691

 

14,752

 

42,942

 

55,899

 

61,782

 

23,182

 

-

 

243,129

 

 

 

Substandard

 

18,724

 

8,834

 

9,344

 

34,648

 

28,735

 

60,659

 

61,848

 

-

 

222,792

 

 

 

Doubtful

 

-

 

-

 

-

 

-

 

-

 

66

 

-

 

-

 

66

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

-

 

8

 

-

 

8

 

 

 

Pass

 

1,052,199

 

903,634

 

553,632

 

289,475

 

267,145

 

800,998

 

416,041

 

-

 

4,283,124

 

 

Total commercial and industrial

$

1,288,834

$

979,930

$

658,356

$

495,949

$

395,105

$

1,152,036

$

646,610

$

-

$

5,616,820

50

 

June 30, 2021

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2021

 

2020

 

2019

 

2018

 

2017

 

Prior

Years

 

 

 

Total

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

Watch

$

-

$

15,050

$

26,333

$

36,270

$

52,837

$

2,005

$

-

$

-

$

132,495

 

 

 

Special Mention

 

-

 

-

 

-

 

-

 

-

 

13,413

 

-

 

-

 

13,413

 

 

 

Substandard

 

-

 

-

 

348

 

21,792

 

14,877

 

9,786

 

-

 

-

 

46,803

 

 

 

Pass

 

40,121

 

165,366

 

250,859

 

83,248

 

99,325

 

12,424

 

21,059

 

-

 

672,402

 

Total construction

$

40,121

$

180,416

$

277,540

$

141,310

$

167,039

$

37,628

$

21,059

$

-

$

865,113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage

 

 

 

Substandard

$

-

$

2,760

$

3,607

$

2,862

$

2,796

$

151,297

$

-

$

-

$

163,322

 

 

 

Pass

 

386,632

 

547,352

 

448,033

 

227,781

 

209,104

 

5,696,254

 

-

 

-

 

7,515,156

 

Total mortgage

$

386,632

$

550,112

$

451,640

$

230,643

$

211,900

$

5,847,551

$

-

$

-

$

7,678,478

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

 

 

Substandard

$

-

$

198

$

1,032

$

369

$

359

$

313

$

-

$

-

$

2,271

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

15

 

-

 

-

 

15

 

 

 

Pass

 

347,851

 

380,635

 

268,577

 

168,996

 

84,270

 

45,313

 

-

 

-

 

1,295,642

 

Total leasing

$

347,851

$

380,833

$

269,609

$

169,365

$

84,629

$

45,641

$

-

$

-

$

1,297,928

51

 

June 30, 2021

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2021

 

2020

 

2019

 

2018

 

2017

 

Prior

Years

 

 

 

Total

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

Credit cards

 

 

 

Substandard

$

-

$

-

$

-

$

-

$

-

$

-

$

8,021

$

-

$

8,021

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

-

 

872,140

 

-

 

872,140

 

Total credit cards

$

-

$

-

$

-

$

-

$

-

$

-

$

880,161

$

-

$

880,161

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HELOCs

 

 

 

Substandard

$

-

$

-

$

-

$

-

$

-

$

3,708

$

-

$

1,196

$

4,904

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

365

 

-

 

1,108

 

1,473

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

13,390

 

43,017

 

22,643

 

79,050

 

Total HELOCs

$

-

$

-

$

-

$

-

$

-

$

17,463

$

43,017

$

24,947

$

85,427

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

Substandard

$

62

$

786

$

2,007

$

1,166

$

778

$

18,485

$

1

$

1,280

$

24,565

 

 

 

Loss

 

-

 

13

 

35

 

22

 

4

 

67

 

-

 

-

 

141

 

 

 

Pass

 

274,045

 

292,951

 

383,502

 

139,223

 

79,858

 

164,596

 

2,113

 

41,295

 

1,377,583

 

Total Personal

$

274,107

$

293,750

$

385,544

$

140,411

$

80,640

$

183,148

$

2,114

$

42,575

$

1,402,289

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

Substandard

$

267

$

3,804

$

6,401

$

4,404

$

2,084

$

1,826

$

-

$

-

$

18,786

 

 

 

Loss

 

-

 

46

 

10

 

-

 

-

 

-

 

-

 

-

 

56

 

 

 

Pass

 

679,718

 

929,832

 

757,510

 

519,933

 

235,230

 

147,962

 

-

 

-

 

3,270,185

 

Total Auto

$

679,985

$

933,682

$

763,921

$

524,337

$

237,314

$

149,788

$

-

$

-

$

3,289,027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other consumer

 

 

 

Substandard

$

-

$

120

$

-

$

337

$

-

$

122

$

900

$

-

$

1,479

 

 

 

Loss

 

-

 

-

 

-

 

799

 

239

 

490

 

11,281

 

-

 

12,809

 

 

 

Pass

 

13,616

 

12,441

 

12,275

 

7,450

 

4,232

 

1,600

 

60,360

 

-

 

111,974

 

Total Other consumer

$

13,616

$

12,561

$

12,275

$

8,586

$

4,471

$

2,212

$

72,541

$

-

$

126,262

Total Popular Inc.

$

3,624,206

$

4,686,003

$

3,810,818

$

2,630,269

$

1,852,663

$

10,679,645

$

1,711,491

$

67,522

$

29,062,617

52

 

December 31, 2020

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2020

 

2019

 

2018

 

2017

 

2016

 

Prior

Years

 

 

 

Total

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

 

 

 

Watch

$

-

$

-

$

-

$

-

$

-

$

460

$

-

$

-

$

460

 

 

 

Special mention

 

-

 

-

 

-

 

-

 

-

 

4,160

 

-

 

-

 

4,160

 

 

 

Substandard

 

-

 

-

 

-

 

-

 

-

 

400

 

100

 

-

 

500

 

 

 

Pass

 

5,216

 

36,433

 

26,051

 

2,106

 

2,563

 

74,791

 

-

 

-

 

147,160

 

 

Total commercial multi-family

$

5,216

$

36,433

$

26,051

$

2,106

$

2,563

$

79,811

$

100

$

-

$

152,280

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate non-owner occupied

 

 

 

Watch

$

160,960

$

73,561

$

27,592

$

40,654

$

33,277

$

197,912

$

2,100

$

-

$

536,056

 

 

 

Special Mention

 

-

 

26,331

 

124,560

 

29,711

 

19,895

 

62,839

 

836

 

-

 

264,172

 

 

 

Substandard

 

43,399

 

74,303

 

26,799

 

4,932

 

29,974

 

130,218

 

95

 

-

 

309,720

 

 

 

Pass

 

88,324

 

53,385

 

39,814

 

60,585

 

124,643

 

527,282

 

3,352

 

-

 

897,385

 

 

Total commercial real estate non-owner occupied

$

292,683

$

227,580

$

218,765

$

135,882

$

207,789

$

918,251

$

6,383

$

-

$

2,007,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate owner occupied

 

 

 

Watch

$

96,046

$

10,319

$

14,412

$

9,760

$

9,584

$

146,445

$

2,627

$

-

$

289,193

 

 

 

Special Mention

 

850

 

6,638

 

249

 

6,571

 

282

 

172,078

 

-

 

-

 

186,668

 

 

 

Substandard

 

1,774

 

2,181

 

37,686

 

1,878

 

27,094

 

145,193

 

-

 

-

 

215,806

 

 

 

Doubtful

 

-

 

-

 

-

 

-

 

-

 

1,714

 

-

 

-

 

1,714

 

 

 

Pass

 

204,840

 

54,274

 

31,917

 

57,854

 

128,392

 

417,376

 

10,861

 

-

 

905,514

 

 

Total commercial real estate owner occupied

$

303,510

$

73,412

$

84,264

$

76,063

$

165,352

$

882,806

$

13,488

$

-

$

1,598,895

 

 

Commercial and industrial

 

 

 

Watch

$

131,556

$

77,821

$

182,776

$

40,318

$

63,968

$

267,856

$

243,335

$

-

$

1,007,630

 

 

 

Special Mention

 

28,310

 

10,297

 

19,220

 

45,861

 

910

 

28,507

 

86,263

 

-

 

219,368

 

 

 

Substandard

 

32,941

 

2,180

 

26,921

 

26,769

 

1,824

 

55,220

 

49,036

 

-

 

194,891

 

 

 

Doubtful

 

-

 

67

 

-

 

1

 

-

 

54

 

1

 

-

 

123

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

-

 

13

 

-

 

13

 

 

 

Pass

 

1,181,399

 

492,778

 

119,709

 

168,174

 

105,442

 

218,716

 

520,865

 

-

 

2,807,083

 

 

Total commercial and industrial

$

1,374,206

$

583,143

$

348,626

$

281,123

$

172,144

$

570,353

$

899,513

$

-

$

4,229,108

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

Watch

$

-

$

105

$

4,895

$

-

$

-

$

-

$

960

$

-

$

5,960

 

 

 

Substandard

 

-

 

-

 

-

 

21,497

 

-

 

-

 

-

 

-

 

21,497

 

 

 

Pass

 

15,723

 

22,408

 

3,423

 

63,582

 

-

 

-

 

24,513

 

-

 

129,649

 

Total construction

$

15,723

$

22,513

$

8,318

$

85,079

$

-

$

-

$

25,473

$

-

$

157,106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage

 

 

 

Substandard

$

754

$

903

$

1,172

$

3,129

$

4,374

$

159,359

$

-

$

-

$

169,691

 

 

 

Pass

 

263,473

 

224,390

 

177,537

 

212,650

 

225,824

 

5,496,578

 

-

 

-

 

6,600,452

 

Total mortgage

$

264,227

$

225,293

$

178,709

$

215,779

$

230,198

$

5,655,937

$

-

$

-

$

6,770,143

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

 

 

Substandard

$

200

$

822

$

748

$

913

$

617

$

136

$

-

$

-

$

3,436

 

 

 

Pass

 

480,964

 

315,022

 

209,340

 

109,708

 

63,955

 

15,236

 

-

 

-

 

1,194,225

 

Total leasing

$

481,164

$

315,844

$

210,088

$

110,621

$

64,572

$

15,372

$

-

$

-

$

1,197,661

53

 

December 31, 2020

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2020

 

2019

 

2018

 

2017

 

2016

 

Prior

Years

 

 

 

Total

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

Credit cards

 

 

 

Substandard

$

-

$

-

$

-

$

-

$

-

$

-

$

12,798

$

-

$

12,798

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

-

 

907,137

 

-

 

907,137

 

Total credit cards

$

-

$

-

$

-

$

-

$

-

$

-

$

919,935

$

-

$

919,935

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HELOCs

 

 

 

Pass

$

-

$

-

$

-

$

-

$

-

$

540

$

3,639

$

-

$

4,179

 

Total HELOCs

$

-

$

-

$

-

$

-

$

-

$

540

$

3,639

$

-

$

4,179

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

Substandard

$

1,288

$

4,782

$

1,741

$

1,022

$

971

$

18,647

$

152

$

1,545

$

30,148

 

 

 

Pass

 

323,170

 

413,973

 

168,142

 

99,768

 

57,319

 

137,693

 

2,144

 

45,390

 

1,247,599

 

Total Personal

$

324,458

$

418,755

$

169,883

$

100,790

$

58,290

$

156,340

$

2,296

$

46,935

$

1,277,747

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

Substandard

$

1,975

$

6,029

$

3,612

$

1,760

$

1,369

$

990

$

-

$

-

$

15,735

 

 

 

Pass

 

1,064,082

 

881,343

 

628,657

 

299,677

 

168,157

 

74,577

 

-

 

-

 

3,116,493

 

Total Auto

$

1,066,057

$

887,372

$

632,269

$

301,437

$

169,526

$

75,567

$

-

$

-

$

3,132,228

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other consumer

 

 

 

Substandard

$

-

$

16

$

1,376

$

240

$

174

$

13,075

$

-

$

-

$

14,881

 

 

 

Pass

 

16,912

 

15,698

 

13,158

 

4,966

 

2,828

 

3,785

 

54,437

 

-

 

111,784

 

Total Other consumer

$

16,912

$

15,714

$

14,534

$

5,206

$

3,002

$

16,860

$

54,437

$

-

$

126,665

Total Puerto Rico

$

4,144,156

$

2,806,059

$

1,891,507

$

1,314,086

$

1,073,436

$

8,371,837

$

1,925,264

$

46,935

$

21,573,280

54

 

December 31, 2020

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2020

 

2019

 

2018

 

2017

 

2016

 

Prior

Years

 

 

 

Total

Popular U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

 

 

 

Watch

$

1,643

$

16,787

$

39,980

$

39,713

$

52,989

$

61,369

$

-

$

-

$

212,481

 

 

 

Special mention

 

3,122

 

30,708

 

4,380

 

19,593

 

37,745

 

20,463

 

-

 

-

 

116,011

 

 

 

Substandard

 

-

 

17,376

 

21,771

 

1,755

 

20,085

 

6,247

 

-

 

-

 

67,234

 

 

 

Pass

 

326,008

 

289,652

 

163,812

 

100,555

 

132,400

 

332,709

 

2,849

 

-

 

1,347,985

 

 

Total commercial multi-family

$

330,773

$

354,523

$

229,943

$

161,616

$

243,219

$

420,788

$

2,849

$

-

$

1,743,711

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate non-owner occupied

 

 

 

Watch

$

10,057

$

23,877

$

76,629

$

56,112

$

49,166

$

62,766

$

1,055

$

-

$

279,662

 

 

 

Special Mention

 

-

 

4,760

 

15,304

 

14,623

 

70,224

 

20,028

 

350

 

-

 

125,289

 

 

 

Substandard

 

771

 

18,642

 

36,495

 

11,007

 

40,528

 

28,984

 

-

 

-

 

136,427

 

 

 

Pass

 

397,686

 

231,904

 

224,256

 

236,008

 

142,432

 

214,495

 

5,651

 

-

 

1,452,432

 

 

Total commercial real estate non-owner occupied

$

408,514

$

279,183

$

352,684

$

317,750

$

302,350

$

326,273

$

7,056

$

-

$

1,993,810

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate owner occupied

 

 

 

Watch

$

393

$

8,266

$

7,941

$

4,060

$

16,689

$

16,108

$

4,222

$

-

$

57,679

 

 

 

Special Mention

 

-

 

-

 

192

 

-

 

-

 

1,467

 

-

 

-

 

1,659

 

 

 

Substandard

 

-

 

1,152

 

2,361

 

-

 

1,348

 

20,305

 

-

 

-

 

25,166

 

 

 

Pass

 

48,684

 

47,484

 

47,451

 

28,761

 

18,296

 

68,739

 

461

 

-

 

259,876

 

 

Total commercial real estate owner occupied

$

49,077

$

56,902

$

57,945

$

32,821

$

36,333

$

106,619

$

4,683

$

-

$

344,380

 

 

Commercial and industrial

 

 

 

Watch

$

16,126

$

1,973

$

30

$

3,621

$

1,196

$

8,488

$

3,972

$

-

$

35,406

 

 

 

Special Mention

 

14,056

 

-

 

-

 

1,634

 

4,807

 

4,756

 

1,637

 

-

 

26,890

 

 

 

Substandard

 

2,029

 

6,568

 

-

 

-

 

-

 

5,980

 

2,394

 

-

 

16,971

 

 

 

Pass

 

410,349

 

196,958

 

198,249

 

132,993

 

123,762

 

300,846

 

102,369

 

-

 

1,465,526

 

 

Total commercial and industrial

$

442,560

$

205,499

$

198,279

$

138,248

$

129,765

$

320,070

$

110,372

$

-

$

1,544,793

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

Watch

$

8,451

$

-

$

-

$

37,015

$

-

$

2,065

$

-

$

-

$

47,531

 

 

 

Special Mention

 

-

 

-

 

-

 

3,089

 

-

 

30,083

 

-

 

-

 

33,172

 

 

 

Substandard

 

-

 

-

 

20,655

 

9,372

 

7,560

 

-

 

-

 

-

 

37,587

 

 

 

Pass

 

79,489

 

288,865

 

168,411

 

99,814

 

8,392

 

5,841

 

-

 

-

 

650,812

 

Total construction

$

87,940

$

288,865

$

189,066

$

149,290

$

15,952

$

37,989

$

-

$

-

$

769,102

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage

 

 

 

Substandard

$

29

$

-

$

1,221

$

-

$

328

$

13,287

$

-

$

-

$

14,865

 

 

 

Pass

 

356,839

 

275,289

 

103,160

 

9,337

 

9,530

 

351,517

 

-

 

-

 

1,105,672

 

Total mortgage

$

356,868

$

275,289

$

104,381

$

9,337

$

9,858

$

364,804

$

-

$

-

$

1,120,537

55

 

December 31, 2020

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2020

 

2019

 

2018

 

2017

 

2016

 

Prior

Years

 

 

 

Total

Popular U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

Credit cards

 

 

 

Pass

$

-

$

-

$

-

$

-

$

-

$

-

$

31

$

-

$

31

 

Total credit cards

$

-

$

-

$

-

$

-

$

-

$

-

$

31

$

-

$

31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HELOCs

 

 

 

Substandard

$

-

$

-

$

-

$

-

$

-

$

112

$

-

$

357

$

469

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

156

 

-

 

6,867

 

7,023

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

11,907

 

39,366

 

35,806

 

87,079

 

Total HELOCs

$

-

$

-

$

-

$

-

$

-

$

12,175

$

39,366

$

43,030

$

94,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

Substandard

$

83

$

784

$

165

$

74

$

18

$

6

$

-

$

-

$

1,130

 

 

 

Loss

 

-

 

17

 

63

 

12

 

6

 

244

 

2

 

-

 

344

 

 

 

Pass

 

40,539

 

109,606

 

27,693

 

9,623

 

1,855

 

8,256

 

192

 

-

 

197,764

 

Total Personal

$

40,622

$

110,407

$

27,921

$

9,709

$

1,879

$

8,506

$

194

$

-

$

199,238

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other consumer

 

 

 

Substandard

$

-

 

-

 

-

 

-

 

-

 

-

 

20

 

-

 

20

 

 

 

Pass

$

-

$

-

$

-

$

-

$

-

$

-

$

1,723

$

-

$

1,723

 

Total Other consumer

$

-

$

-

$

-

$

-

$

-

$

-

$

1,743

$

-

$

1,743

Total Popular U.S.

$

1,716,354

$

1,570,668

$

1,160,219

$

818,771

$

739,356

$

1,597,224

$

166,294

$

43,030

$

7,811,916

56

 

December 31, 2020

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2020

 

2019

 

2018

 

2017

 

2016

 

Prior

Years

 

 

 

Total

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

 

 

 

Watch

$

1,643

$

16,787

$

39,980

$

39,713

$

52,989

$

61,829

$

-

$

-

$

212,941

 

 

 

Special mention

 

3,122

 

30,708

 

4,380

 

19,593

 

37,745

 

24,623

 

-

 

-

 

120,171

 

 

 

Substandard

 

-

 

17,376

 

21,771

 

1,755

 

20,085

 

6,647

 

100

 

-

 

67,734

 

 

 

Pass

 

331,224

 

326,085

 

189,863

 

102,661

 

134,963

 

407,500

 

2,849

 

-

 

1,495,145

 

 

Total commercial multi-family

$

335,989

$

390,956

$

255,994

$

163,722

$

245,782

$

500,599

$

2,949

$

-

$

1,895,991

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate non-owner occupied

 

 

 

Watch

$

171,017

$

97,438

$

104,221

$

96,766

$

82,443

$

260,678

$

3,155

$

-

$

815,718

 

 

 

Special Mention

 

-

 

31,091

 

139,864

 

44,334

 

90,119

 

82,867

 

1,186

 

-

 

389,461

 

 

 

Substandard

 

44,170

 

92,945

 

63,294

 

15,939

 

70,502

 

159,202

 

95

 

-

 

446,147

 

 

 

Pass

 

486,010

 

285,289

 

264,070

 

296,593

 

267,075

 

741,777

 

9,003

 

-

 

2,349,817

 

 

Total commercial real estate non-owner occupied

$

701,197

$

506,763

$

571,449

$

453,632

$

510,139

$

1,244,524

$

13,439

$

-

$

4,001,143

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate owner occupied

 

 

 

Watch

$

96,439

$

18,585

$

22,353

$

13,820

$

26,273

$

162,553

$

6,849

$

-

$

346,872

 

 

 

Special Mention

 

850

 

6,638

 

441

 

6,571

 

282

 

173,545

 

-

 

-

 

188,327

 

 

 

Substandard

 

1,774

 

3,333

 

40,047

 

1,878

 

28,442

 

165,498

 

-

 

-

 

240,972

 

 

 

Doubtful

 

-

 

-

 

-

 

-

 

-

 

1,714

 

-

 

-

 

1,714

 

 

 

Pass

 

253,524

 

101,758

 

79,368

 

86,615

 

146,688

 

486,115

 

11,322

 

-

 

1,165,390

 

 

Total commercial real estate owner occupied

$

352,587

$

130,314

$

142,209

$

108,884

$

201,685

$

989,425

$

18,171

$

-

$

1,943,275

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 

 

Watch

$

147,682

$

79,794

$

182,806

$

43,939

$

65,164

$

276,344

$

247,307

$

-

$

1,043,036

 

 

 

Special Mention

 

42,366

 

10,297

 

19,220

 

47,495

 

5,717

 

33,263

 

87,900

 

-

 

246,258

 

 

 

Substandard

 

34,970

 

8,748

 

26,921

 

26,769

 

1,824

 

61,200

 

51,430

 

-

 

211,862

 

 

 

Doubtful

 

-

 

67

 

-

 

1

 

-

 

54

 

1

 

-

 

123

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

-

 

13

 

-

 

13

 

 

 

Pass

 

1,591,748

 

689,736

 

317,958

 

301,167

 

229,204

 

519,562

 

623,234

 

-

 

4,272,609

 

 

Total commercial and industrial

$

1,816,766

$

788,642

$

546,905

$

419,371

$

301,909

$

890,423

$

1,009,885

$

-

$

5,773,901

57

 

December 31, 2020

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2020

 

2019

 

2018

 

2017

 

2016

 

Prior

Years

 

 

 

Total

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

Watch

$

8,451

$

105

$

4,895

$

37,015

$

-

$

2,065

$

960

$

-

$

53,491

 

 

 

Special Mention

 

-

 

-

 

-

 

3,089

 

-

 

30,083

 

-

 

-

 

33,172

 

 

 

Substandard

 

-

 

-

 

20,655

 

30,869

 

7,560

 

-

 

-

 

-

 

59,084

 

 

 

Pass

 

95,212

 

311,273

 

171,834

 

163,396

 

8,392

 

5,841

 

24,513

 

-

 

780,461

 

Total construction

$

103,663

$

311,378

$

197,384

$

234,369

$

15,952

$

37,989

$

25,473

$

-

$

926,208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage

 

 

 

Substandard

$

783

$

903

$

2,393

$

3,129

$

4,702

$

172,646

$

-

$

-

$

184,556

 

 

 

Pass

 

620,312

 

499,679

 

280,697

 

221,987

 

235,354

 

5,848,095

 

-

 

-

 

7,706,124

 

Total mortgage

$

621,095

$

500,582

$

283,090

$

225,116

$

240,056

$

6,020,741

$

-

$

-

$

7,890,680

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

 

 

Substandard

$

200

$

822

$

748

$

913

$

617

$

136

$

-

$

-

$

3,436

 

 

 

Pass

 

480,964

 

315,022

 

209,340

 

109,708

 

63,955

 

15,236

 

-

 

-

 

1,194,225

 

Total leasing

$

481,164

$

315,844

$

210,088

$

110,621

$

64,572

$

15,372

$

-

$

-

$

1,197,661

58

 

December 31, 2020

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2020

 

2019

 

2018

 

2017

 

2016

 

Prior

Years

 

 

 

Total

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

Credit cards

 

 

 

Substandard

$

-

$

-

$

-

$

-

$

-

$

-

$

12,798

$

-

$

12,798

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

-

 

907,168

 

-

 

907,168

 

Total credit cards

$

-

$

-

$

-

$

-

$

-

$

-

$

919,966

$

-

$

919,966

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HELOCs

 

 

 

Substandard

$

-

$

-

$

-

$

-

$

-

$

112

$

-

$

357

$

469

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

156

 

-

 

6,867

 

7,023

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

12,447

 

43,005

 

35,806

 

91,258

 

Total HELOCs

$

-

$

-

$

-

$

-

$

-

$

12,715

$

43,005

$

43,030

$

98,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

Substandard

$

1,371

$

5,566

$

1,906

$

1,096

$

989

$

18,653

$

152

$

1,545

$

31,278

 

 

 

Loss

 

-

 

17

 

63

 

12

 

6

 

244

 

2

 

-

 

344

 

 

 

Pass

 

363,709

 

523,579

 

195,835

 

109,391

 

59,174

 

145,949

 

2,336

 

45,390

 

1,445,363

 

Total Personal

$

365,080

$

529,162

$

197,804

$

110,499

$

60,169

$

164,846

$

2,490

$

46,935

$

1,476,985

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

Substandard

$

1,975

$

6,029

$

3,612

$

1,760

$

1,369

$

990

$

-

$

-

$

15,735

 

 

 

Pass

 

1,064,082

 

881,343

 

628,657

 

299,677

 

168,157

 

74,577

 

-

 

-

 

3,116,493

 

Total Auto

$

1,066,057

$

887,372

$

632,269

$

301,437

$

169,526

$

75,567

$

-

$

-

$

3,132,228

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other consumer

 

 

 

Substandard

$

-

$

16

$

1,376

$

240

$

174

$

13,075

$

20

$

-

$

14,901

 

 

 

Pass

 

16,912

 

15,698

 

13,158

 

4,966

 

2,828

 

3,785

 

56,160

 

-

 

113,507

 

Total Other consumer

$

16,912

$

15,714

$

14,534

$

5,206

$

3,002

$

16,860

$

56,180

$

-

$

128,408

Total Popular Inc.

$

5,860,510

$

4,376,727

$

3,051,726

$

2,132,857

$

1,812,792

$

9,969,061

$

2,091,558

$

89,965

$

29,385,196

59

 

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, lower-of-cost-or-market valuation adjustments to residential mortgage loans held for sale, if any, are recorded as part of the mortgage banking activities.

The following table presents the components of mortgage banking activities:

 

 

 

Quarters ended June 30,

Six months ended June 30,

(In thousands)

 

2021

 

2020

 

2021

 

2020

Mortgage servicing fees, net of fair value adjustments:

 

 

 

 

 

 

 

 

 

Mortgage servicing fees

$

9,522

$

9,058

$

19,237

$

20,026

 

Mortgage servicing rights fair value adjustments

 

(6,239)

 

(7,640)

 

(5,727)

 

(12,869)

Total mortgage servicing fees, net of fair value adjustments

 

3,283

 

1,418

 

13,510

 

7,157

Net gain on sale of loans, including valuation on loans held-for-sale

 

5,197

 

5,487

 

10,172

 

9,473

Trading account (loss) profit:

 

 

 

 

 

 

 

 

 

Unrealized gains on outstanding derivative positions

 

-

 

1,695

 

-

 

-

 

Realized (losses) gains on closed derivative positions

 

(866)

 

(4,823)

 

1,636

 

(6,433)

Total trading account (loss) profit

 

(866)

 

(3,128)

 

1,636

 

(6,433)

Losses on repurchased loans, including interest advances [1]

 

(166)

 

-

 

(527)

 

-

Total mortgage banking activities

$

7,448

$

3,777

$

24,791

$

10,197

[1]

The Corporation, from time to time, repurchases delinquent loans from its GNMA servicing portfolio, in compliance with Guarantor guidelines, and may incur in losses related to previously advanced interest on delinquent loans. Effective for the quarter ended September 30, 2020, the Corporation has determined to present these losses as part of its Mortgage Banking Activities, which were previously presented within the indemnity reserves on loans sold component of non-interest income. The amount of these losses for prior years were considered immaterial for reclassification.

60

 

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 19 to the Consolidated Financial Statements for a description of such arrangements.

 

No liabilities were incurred as a result of these securitizations during the quarters and six months ended June 30, 2021 and 2020 because they did not contain any credit recourse arrangements. During the quarter and six months ended June 30, 2021, the Corporation recorded a net gain of $4.7 million and $8.4 million, respectively (June 30, 2020 - $4.7 million and $8.5 million, respectively) related to the residential mortgage loans securitized.

 

The following tables present the initial fair value of the assets obtained as proceeds from residential mortgage loans securitized during the quarters and six months ended June 30, 2021 and 2020:

 

 

 

Proceeds Obtained During the Quarter Ended June 30, 2021

(In thousands)

Level 1

Level 2

Level 3

Initial Fair Value

Assets

 

 

 

 

 

 

 

 

Trading account debt securities:

 

 

 

 

 

 

 

 

Mortgage-backed securities - GNMA

$

-

$

106,729

$

-

$

106,729

Mortgage-backed securities - FNMA

 

-

 

72,555

 

-

 

72,555

Mortgage-backed securities - FHLMC

 

-

 

13,501

 

-

 

13,501

Total trading account debt securities

$

-

$

192,785

$

-

$

192,785

Mortgage servicing rights

$

-

$

-

$

2,880

$

2,880

Total

$

-

$

192,785

$

2,880

$

195,665

 

 

 

Proceeds Obtained During the Six Months Ended June 30, 2021

(In thousands)

Level 1

Level 2

Level 3

Initial Fair Value

Assets

 

 

 

 

 

 

 

 

Trading account debt securities:

 

 

 

 

 

 

 

 

Mortgage-backed securities - GNMA

$

-

$

208,717

$

-

$

208,717

Mortgage-backed securities - FNMA

 

-

 

158,835

 

-

 

158,835

Mortgage-backed securities - FHLMC

 

-

 

13,501

 

-

 

13,501

Total trading account debt securities

$

-

$

381,053

$

-

$

381,053

Mortgage servicing rights

$

-

$

-

$

5,689

$

5,689

Total

$

-

$

381,053

$

5,689

$

386,742

 

 

 

Proceeds Obtained During the Quarter Ended June 30, 2020

(In thousands)

Level 1

Level 2

Level 3

Initial Fair Value

Assets

 

 

 

 

 

 

 

 

Trading account debt securities:

 

 

 

 

 

 

 

 

Mortgage-backed securities - GNMA

$

-

$

63,384

$

-

$

63,384

Mortgage-backed securities - FNMA

 

-

 

5,941

 

-

 

5,941

Total trading account debt securities

$

-

$

69,325

$

-

$

69,325

Mortgage servicing rights

$

-

$

-

$

1,100

$

1,100

Total

$

-

$

69,325

$

1,100

$

70,425

61

 

 

 

Proceeds Obtained During the Six Months Ended June 30, 2020

(In thousands)

Level 1

Level 2

Level 3

Initial Fair Value

Assets

 

 

 

 

 

 

 

 

Trading account debt securities:

 

 

 

 

 

 

 

 

Mortgage-backed securities - GNMA

$

-

$

114,032

$

-

$

114,032

Mortgage-backed securities - FNMA

 

-

 

39,514

 

-

 

39,514

Total trading account debt securities

$

-

$

153,546

$

-

$

153,546

Mortgage servicing rights

$

-

$

-

$

2,587

$

2,587

Total

$

-

$

153,546

$

2,587

$

156,133

 

 

During the six months ended June 30, 2021, the Corporation retained servicing rights on whole loan sales involving approximately $84 million in principal balance outstanding (June 30, 2020 - $39 million), with net realized gains of approximately $1.8 million (June 30, 2020 - gains of $0.9 million). All loan sales performed during the six months ended June 30, 2021 and 2020 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 (“MSR”) 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 Corporation’s loan characteristics and portfolio behavior.

The following table presents the changes in MSRs measured using the fair value method for the six months ended June 30, 2021 and 2020.

62

 

Residential MSRs

(In thousands)

June 30, 2021

June 30, 2020

Fair value at beginning of period

$

118,395

$

150,906

Additions

 

6,809

 

3,107

Changes due to payments on loans [1]

 

(8,012)

 

(4,989)

Reduction due to loan repurchases

 

(851)

 

(518)

Changes in fair value due to changes in valuation model inputs or assumptions

 

3,126

 

(7,386)

Other

 

-

 

24

Fair value at end of period [2]

$

119,467

$

141,144

[1] Represents changes due to collection / realization of expected cash flows over time.

[2] At June 30, 2021, PB had MSRs amounting to $1.3 million (June 30, 2020 - $0.2 million).

 

 

Residential mortgage loans serviced for others were $12.5 billion at June 30, 2021 (December 31, 2020 -$12.9 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 June 30, 2021, those weighted average mortgage servicing fees were 0.30% (June 30, 2020 - 0.28%). Under these servicing agreements, the banking subsidiaries do not generally earn significant prepayment penalty fees on the underlying loans serviced.

 

The section below includes information on assumptions used in the valuation model of the MSRs, originated and purchased. Key economic assumptions used in measuring the servicing rights derived from loans securitized or sold by the Corporation during the quarters and six months ended June 30, 2021 and 2020 were as follows:

 

Quarters ended

 

 

Six months ended

 

June 30, 2021

 

 

June 30, 2020

 

 

June 30, 2021

 

June 30, 2020

 

BPPR

 

PB

 

 

BPPR

 

PB

 

 

BPPR

 

PB

 

 

BPPR

 

PB

 

Prepayment speed

5.9

%

12.5

%

 

7.2

%

22.7

%

 

7.4

%

21.2

%

 

6.5

%

22.7

%

Weighted average life (in years)

8.9

 

6.0

 

 

8.8

 

3.5

 

 

8.0

 

9.5

 

 

9.3

 

3.5

 

Discount rate (annual rate)

10.4

%

11.0

%

 

10.8

%

9.5

%

 

10.5

%

11.0

%

 

10.8

%

9.5

%

Key economic assumptions used to estimate the fair value of MSRs derived from sales and securitizations of mortgage loans performed by the banking subsidiaries and servicing rights purchased from other financial institutions, and the sensitivity to immediate changes in those assumptions, were as follows as of the end of the periods reported:

 

 

 

Originated MSRs

Purchased MSRs

 

 

June 30,

December 31,

June 30,

December 31,

(In thousands)

2021

2020

2021

2020

Fair value of servicing rights

$

41,310

 

$

44,129

 

$

78,157

 

$

74,266

 

Weighted average life (in years)

 

6.2

 

 

6.2

 

 

6.2

 

 

5.9

 

Weighted average prepayment speed (annual rate)

 

6.0

%

 

6.6

%

 

6.1

%

 

7.1

%

 

Impact on fair value of 10% adverse change

$

(926)

 

$

(1,115)

 

$

(1,964)

 

$

(2,206)

 

 

Impact on fair value of 20% adverse change

$

(1,826)

 

$

(2,194)

 

$

(3,856)

 

$

(4,312)

 

Weighted average discount rate (annual rate)

 

11.3

%

 

11.3

%

 

11.0

%

 

11.1

%

 

Impact on fair value of 10% adverse change

$

(1,499)

 

$

(1,640)

 

$

(3,011)

 

$

(2,740)

 

 

Impact on fair value of 20% adverse change

$

(2,904)

 

$

(3,175)

 

$

(5,816)

 

$

(5,301)

 

63

 

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 June 30, 2021, the Corporation serviced $0.8 billion in residential mortgage loans with credit recourse to the Corporation (December 31, 2020 - $0.9 billion). Also refer to Note 19 for information on changes in the Corporation’s liability of estimated losses related to loans serviced with credit recourse.

 

Under the GNMA securitizations, the Corporation, as servicer, has the right to repurchase (but not the obligation), at its option and without GNMA’s prior authorization, any loan that is collateral for a GNMA guaranteed mortgage-backed security when certain delinquency criteria are met. At the time that individual loans meet GNMA’s specified delinquency criteria and are eligible for repurchase, the Corporation is deemed to have regained effective control over these loans if the Corporation was the pool issuer. At June 30, 2021, the Corporation had recorded $15 million in mortgage loans on its Consolidated Statements of Financial Condition related to this buy-back option program (December 31, 2020 - $57 million). Loans in our serviced GNMA portfolio benefit from payment forbearance programs but continue to reflect the contractual delinquency until the borrower repays deferred payments or completes a payment deferral modification or other borrower assistance alternative. As long as the Corporation continues to service the loans that continue to be collateral in a GNMA guaranteed mortgage-backed security, the MSR is recognized by the Corporation.

 

During the six months ended June 30, 2021, the Corporation repurchased approximately $65 million (June 30, 2020 - $38 million) of mortgage loans from its GNMA servicing portfolio. The determination to repurchase these loans was based on the economic benefits of the transaction, which results in a reduction of the servicing costs for these severely delinquent loans, 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 COVID-19 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.

64

 

Note 11 – Other real estate owned

The following tables present the activity related to Other Real Estate Owned (“OREO”), for the quarters and six months ended June 30, 2021 and 2020.

 

 

 

For the quarter ended June 30, 2021

 

 

OREO

 

OREO

 

 

(In thousands)

 

Commercial/Construction

 

Mortgage

 

Total

Balance at beginning of period

$

15,085

$

56,975

$

72,060

Write-downs in value

 

(157)

 

(549)

 

(706)

Additions

 

2,125

 

17,067

 

19,192

Sales

 

(2,653)

 

(14,519)

 

(17,172)

Other adjustments

 

181

 

(283)

 

(102)

Ending balance

$

14,581

$

58,691

$

73,272

 

 

 

For the quarter ended June 30, 2020

 

 

OREO

 

OREO

 

 

(In thousands)

 

Commercial/Construction

 

Mortgage

 

Total

Balance at beginning of period

$

17,537

$

106,385

$

123,922

Write-downs in value

 

(805)

 

(671)

 

(1,476)

Additions

 

-

 

842

 

842

Sales

 

(250)

 

(9,089)

 

(9,339)

Other adjustments

 

-

 

(9)

 

(9)

Ending balance

$

16,482

$

97,458

$

113,940

 

 

 

For the six months ended June 30, 2021

 

 

OREO

 

OREO

 

 

(In thousands)

 

Commercial/Construction

 

Mortgage

 

Total

Balance at beginning of period

$

13,214

$

69,932

$

83,146

Write-downs in value

 

(464)

 

(1,519)

 

(1,983)

Additions

 

5,975

 

18,940

 

24,915

Sales

 

(4,325)

 

(28,379)

 

(32,704)

Other adjustments

 

181

 

(283)

 

(102)

Ending balance

$

14,581

$

58,691

$

73,272

 

 

 

For the six months ended June 30, 2020

 

 

OREO

 

OREO

 

 

(In thousands)

 

Commercial/Construction

 

Mortgage

 

Total

Balance at beginning of period

$

16,959

$

105,113

$

122,072

Write-downs in value

 

(1,314)

 

(1,571)

 

(2,885)

Additions

 

2,120

 

16,249

 

18,369

Sales

 

(1,283)

 

(22,429)

 

(23,712)

Other adjustments

 

-

 

96

 

96

Ending balance

$

16,482

$

97,458

$

113,940

65

 

Note 12 − Other assets

The caption of other assets in the consolidated statements of financial condition consists of the following major categories:

 

(In thousands)

June 30, 2021

December 31, 2020

Net deferred tax assets (net of valuation allowance)

$

745,613

$

851,592

Investments under the equity method

 

273,088

 

250,467

Prepaid taxes

 

52,373

 

32,615

Other prepaid expenses

 

76,761

 

74,572

Derivative assets

 

23,573

 

20,785

Trades receivable from brokers and counterparties

 

78,664

 

65,429

Receivables from investments maturities

 

50,000

 

-

Principal, interest and escrow servicing advances

 

60,347

 

65,671

Guaranteed mortgage loan claims receivable

 

91,189

 

80,477

Operating ROU assets (Note 27)

 

124,223

 

131,921

Finance ROU assets (Note 27)

 

14,409

 

15,464

Others

 

159,911

 

148,048

Total other assets

$

1,750,151

$

1,737,041

 

The Corporation enters in the ordinary course of business into hosting arrangements that are service contracts. These arrangements can include capitalizable implementation costs that are amortized during the term of the hosting arrangement. The Corporation recognizes capitalizable implementation costs related to hosting arrangements that are service contracts within the Other assets line item in the accompanying Consolidated Statements of Financial Condition. As of June 30, 2021, the total capitalized implementation costs amounted to $18.0 million with an accumulated amortization of $6.8 million for a net value of $11.2 million, compared to total capitalized implementation costs amounting to $17.4 million with an accumulated amortization of $4.9 million for a net value of $12.5 million as of December 31, 2020. Total amortization expense for all capitalized implementation costs of hosting arrangements that are service contracts for the quarter and six months ended June 30, 2021 was $1.1 million and $1.9 million, respectively (June 30, 2020 - $0.5 million and $1.0 million respectively).

66

 

Note 13 – Goodwill and other intangible assets

Goodwill

 

There were no changes in the carrying amount of goodwill for the quarters and six months ended June 30, 2021 and 2020.

 

The following tables present the gross amount of goodwill and accumulated impairment losses by reportable segments:

June 30, 2021

 

Balance at

 

 

Balance at

 

June 30,

Accumulated

June 30,

 

2021

impairment

2021

(In thousands)

(gross amounts)

losses

(net amounts)

Banco Popular de Puerto Rico

$

324,049

$

3,801

$

320,248

Popular U.S.

 

515,285

 

164,411

 

350,874

Total Popular, Inc.

$

839,334

$

168,212

$

671,122

 

December 31, 2020

 

Balance at

 

 

Balance at

 

December 31,

Accumulated

December 31,

 

2020

impairment

2020

(In thousands)

(gross amounts)

losses

(net amounts)

Banco Popular de Puerto Rico

$

324,049

$

3,801

$

320,248

Popular U.S.

 

515,285

 

164,411

 

350,874

Total Popular, Inc.

$

839,334

$

168,212

$

671,122

 

Other Intangible Assets

At June 30, 2021 and December 31, 2020, the Corporation had $6.1 million of identifiable intangible assets with indefinite useful lives, mostly associated with the E-LOAN trademark.

The following table reflects the components of other intangible assets subject to amortization:

 

 

Gross Carrying

 

Accumulated

 

Net Carrying

(In thousands)

 

Amount

 

Amortization

 

Value

June 30, 2021

 

 

 

 

 

 

 

Core deposits

$

12,810

$

8,113

$

4,697

 

Other customer relationships

 

26,677

 

17,098

 

9,579

Total other intangible assets

$

39,487

$

25,211

$

14,276

December 31, 2020

 

 

 

 

 

 

 

Core deposits

$

12,810

$

7,473

$

5,337

 

Other customer relationships

 

26,397

 

15,684

 

10,713

 

Trademark

 

488

 

236

 

252

Total other intangible assets

$

39,695

$

23,393

$

16,302

 

67

 

During the quarter ended June 30, 2021, the Corporation recognized $ 1.3 million in amortization expense related to other intangible assets with definite useful lives (June 30, 2020 - $ 1.8 million). During the six months ended June 30, 2021, the Corporation recognized $ 2.3 million in amortization related to other intangible assets with definite useful lives (June 30, 2020 - $ 4.3 million).

 

The following table presents the estimated amortization of the intangible assets with definite useful lives for each of the following periods:

 

(In thousands)

 

 

Remaining 2021

$

1,440

Year 2022

 

2,630

Year 2023

 

2,630

Year 2024

 

2,389

Year 2025

 

1,200

Later years

 

3,987

68

 

Note 14 – Deposits

Total interest bearing deposits as of the end of the periods presented consisted of:

(In thousands)

June 30, 2021

December 31, 2020

Savings accounts

$

15,438,889

$

14,031,736

NOW, money market and other interest bearing demand deposits

 

27,273,992

 

22,398,057

Total savings, NOW, money market and other interest bearing demand deposits

 

42,712,881

 

36,429,793

Certificates of deposit:

 

 

 

 

 

Under $100,000

 

2,804,596

 

2,917,700

 

$100,000 and over

 

4,203,412

 

4,390,148

Total certificates of deposit

 

7,008,008

 

7,307,848

Total interest bearing deposits

$

49,720,889

$

43,737,641

 

A summary of certificates of deposits by maturity at June 30, 2021 follows:

(In thousands)

 

 

2021

$

3,279,143

2022

 

1,368,073

2023

 

757,229

2024

 

663,454

2025

 

533,464

2026 and thereafter

 

406,645

Total certificates of deposit

$

7,008,008

 

At June 30, 2021, the Corporation had brokered deposits amounting to $ 0.7 billion (December 31, 2020 - $ 0.8 billion).

 

The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans was $3 million at June 30, 2021 (December 31, 2020 - $3 million)

 

At June 30, 2021, public sector deposits amounted to $19 billion. These balances are expected to decline over the long term, however, the receipt by the P.R. Government of additional COVID-19 and hurricane recovery related Federal assistance, and seasonal tax collections, could increase public deposit balances at BPPR in the near term. The rate at which public deposit balances will decline is uncertain and difficult to predict. The amount and timing of any such reduction is likely to be impacted by, for example, the timeline of current debt restructuring efforts under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) and the speed at which COVID-19 federal assistance is distributed.

69

 

Note 15 – Borrowings

 

Assets sold under agreements to repurchase amounted to $91 million at June 30, 2021 and $121 million December 31, 2020.

 

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, 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

 

 

 

June 30, 2021

December 31, 2020

 

 

 

Repurchase

 

Repurchase

 

(In thousands)

 

liability

 

liability

 

U.S. Treasury securities

 

 

 

 

 

 

Within 30 days

$

29,398

$

67,157

 

 

After 30 to 90 days

 

24,423

 

39,318

 

 

After 90 days

 

25,302

 

9,979

 

Total U.S. Treasury securities

 

79,123

 

116,454

 

Mortgage-backed securities

 

 

 

 

 

 

Within 30 days

 

1,349

 

3,778

 

 

After 30 to 90 days

 

387

 

268

 

 

After 90 days

 

9,345

 

-

 

Total mortgage-backed securities

 

11,081

 

4,046

 

Collateralized mortgage obligations

 

 

 

 

 

 

Within 30 days

 

721

 

803

 

Total collateralized mortgage obligations

 

721

 

803

 

Total

$

90,925

$

121,303

 

 

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.

 

There were no other short-term borrowings outstanding at June 30, 2021 and December 31, 2020.

 

The following table presents the composition of notes payable at June 30, 2021 and December 31, 2020.

70

 

(In thousands)

June 30, 2021

 

December 31, 2020

Advances with the FHLB with maturities ranging from 2021 through 2029 paying interest at monthly fixed rates ranging from 0.39% to 3.18%

$

494,469

 

$

542,469

Advances with the FRB maturing on 2022 paying interest annually at a fixed rate of 0.35%[1]

 

-

 

 

1,009

Unsecured senior debt securities maturing on 2023 paying interest semiannually at a fixed rate of 6.125%, net of debt issuance costs of $ 2,792

 

297,208

 

 

296,574

Junior subordinated deferrable interest debentures (related to trust preferred securities) with maturities ranging from 2033 to 2034 with fixed interest rates ranging from 6.125% to 6.7%, net of debt issuance costs of $355

 

384,943

 

 

384,929

Total notes payable

$

1,176,620

 

$

1,224,981

[1] During the second quarter of 2021, the Paycheck Protection Program Liquidity Facility advance was prepaid.

Note: Refer to the Corporation's 2020 Form 10-K for rates information at December 31, 2020.

A breakdown of borrowings by contractual maturities at June 30, 2021 is included in the table below.

 

 

Assets sold under

 

 

 

(In thousands)

 

agreements to repurchase

 

Notes payable

Total

2021

$

66,190

$

2,040

$

68,230

2022

 

24,735

 

103,148

 

127,883

2023

 

-

 

340,469

 

340,469

2024

 

-

 

91,943

 

91,943

2025

 

-

 

139,920

 

139,920

Later years

 

-

 

499,100

 

499,100

Total borrowings

$

90,925

$

1,176,620

$

1,267,545

 

At June 30, 2021 and December 31, 2020, the Corporation had FHLB borrowing facilities whereby the Corporation could borrow up to $2.8 billion and $3.0 billion, respectively, of which $0.5 billion were used at each period. In addition, at June 30, 2021 and December 31, 2020, the Corporation had placed $1.0 billion and $0.9 billion, respectively, of the available FHLB credit facility as collateral for municipal letters of credit to secure deposits. The FHLB borrowing facilities are collateralized with loans held-in-portfolio, and do not have restrictive covenants or callable features.

 

Also, at June 30, 2021, the Corporation has a borrowing facility at the discount window of the Federal Reserve Bank of New York amounting to $1.3 billion (2020 - $1.4 billion), which remained unused at June 30, 2021 and December 31, 2020. The facility is a collateralized source of credit that is highly reliable even under difficult market conditions.

71

 

Note 16 − Other liabilities

The caption of other liabilities in the consolidated statements of financial condition consists of the following major categories:

 

(In thousands)

June 30, 2021

December 31, 2020

Accrued expenses

$

253,273

$

235,449

Accrued interest payable

 

34,744

 

38,622

Accounts payable

 

83,526

 

69,784

Dividends payable

 

36,294

 

33,701

Trades payable

 

12,400

 

720,212

Liability for GNMA loans sold with an option to repurchase

 

14,921

 

57,189

Reserves for loan indemnifications

 

17,740

 

24,781

Reserve for operational losses

 

45,699

 

41,452

Operating lease liabilities (Note 27)

 

136,613

 

152,588

Finance lease liabilities (Note 27)

 

20,880

 

22,572

Pension benefit obligation

 

24,140

 

35,568

Postretirement benefit obligation

 

178,309

 

179,211

Others

 

74,819

 

73,560

Total other liabilities

$

933,358

$

1,684,689

72

 

Note 17 – Stockholders’ equity

As of June 30, 2021, stockholder’s equity totaled $5.8 billion. During the six months ended June 30, 2021, the Corporation declared cash dividends of $0.85 (2020 - $0.80) per common share outstanding to $70.0 million (2020 - $69.2 million). The quarterly dividend declared to shareholders of record as of the close of business on May 26, 2021 was paid on July 1, 2021.

 

Preferred Stocks

 

On February 24, 2020, the Corporation redeemed all the outstanding shares of the 2008 Series B Preferred Stock. The redemption price of the 2008 Series B Preferred Stock was $25.00 per share, plus $0.1375 (representing the amount of accrued and unpaid dividends for the current monthly dividend period to the redemption date), for a total payment per share in the amount of $25.1375.

 

Accelerated share repurchase transaction (“ASR”)

 

On May 3, 2021, the Corporation announced that it had entered into an accelerated share repurchase agreement (the “ASR Agreement”) to repurchase an aggregate of $350 million of Corporation’s common stock. Under the terms of the ASR Agreement, on May 4, 2021 the Corporation made an initial payment of $350 million and received an initial delivery of 3,785,831 shares of Corporation’s Common Stock (the “Initial Shares”). The transaction was accounted for as a treasury stock transaction. Furthermore, as a result of the receipt of the Initial Shares, the Corporation recognized in stockholders’ equity approximately $280 million in treasury stock and $70 million as a reduction in capital surplus. Upon the final settlement of the ASR Agreement, the Corporation expects to further adjust its treasury stock and capital surplus accounts to reflect the final delivery or receipt of cash or shares, which will depend on the volume-weighted average price of the Corporation’s common stock during the term of the ASR Agreement, less a discount. The final settlement of the ASR Agreement is expected to occur no later than the third quarter of 2021.

 

On January 30, 2020, the Corporation entered into a $500 million ASR transaction with respect to its common stock, which was accounted for as a treasury stock transaction. As a result of the receipt of the initial 7,055,919 shares, the Corporation recognized in shareholder’s equity approximately $400 million in treasury stock and $100 million as a reduction in capital surplus. On March 19, 2020 (the “early termination date”), the dealer counterparty to the ASR exercised its right to terminate the ASR as a result of the trading price of the Corporation’s common stock falling below a specified level due to the effects of the COVID-19 pandemic on the global markets. As a result of such early termination, the final settlement of the ASR, which was expected to occur during the fourth quarter of 2020, occurred during the second quarter of 2020. The Corporation completed the transaction on May 27, 2020 and received 4,763,216 additional shares of common stock after the early termination date. In total the Corporation repurchased 11,819,135 shares at an average price per share of $42.3043 under the ASR.

 

73

 

Note 18 – Other comprehensive (loss) income

The following table presents changes in accumulated other comprehensive (loss) income by component for the quarters and six months ended June 30, 2021 and 2020.

 

 

 

Changes in Accumulated Other Comprehensive (Loss) Income by Component [1]

 

 

 

 

Quarters ended

Six months ended

 

 

 

June 30,

June 30,

(In thousands)

 

 

2021

 

2020

 

2021

 

2020

Foreign currency translation

Beginning Balance

$

(70,685)

$

(58,601)

$

(71,254)

$

(56,783)

 

 

Other comprehensive income (loss)

 

2,726

 

(10,857)

 

3,295

 

(12,675)

 

 

Net change

 

2,726

 

(10,857)

 

3,295

 

(12,675)

 

 

Ending balance

$

(67,959)

$

(69,458)

$

(67,959)

$

(69,458)

Adjustment of pension and postretirement benefit plans

Beginning Balance

$

(191,814)

$

(199,465)

$

(195,056)

$

(202,816)

 

 

Amounts reclassified from accumulated other comprehensive loss for amortization of net losses

 

3,242

 

3,351

 

6,484

 

6,702

 

 

Net change

 

3,242

 

3,351

 

6,484

 

6,702

 

 

Ending balance

$

(188,572)

$

(196,114)

$

(188,572)

$

(196,114)

Unrealized net holding gains on debt securities

Beginning Balance

$

90,955

$

473,931

$

460,900

$

92,155

 

 

Other comprehensive income (loss)

 

73,027

 

15,174

 

(296,918)

 

396,950

 

 

Net change

 

73,027

 

15,174

 

(296,918)

 

396,950

 

 

Ending balance

$

163,982

$

489,105

$

163,982

$

489,105

Unrealized net losses on cash flow hedges

Beginning Balance

$

(3,194)

$

(5,242)

$

(4,599)

$

(2,494)

 

 

Other comprehensive (loss) income before reclassifications

 

(230)

 

(393)

 

1,127

 

(3,982)

 

 

Amounts reclassified from accumulated other comprehensive loss

 

282

 

1,451

 

330

 

2,292

 

 

Net change

 

52

 

1,058

 

1,457

 

(1,690)

 

 

Ending balance

$

(3,142)

$

(4,184)

$

(3,142)

$

(4,184)

 

 

Total

$

(95,691)

$

219,349

$

(95,691)

$

219,349

[1]

All amounts presented are net of tax.

 

 

 

 

 

 

 

 

74

 

The following table presents the amounts reclassified out of each component of accumulated other comprehensive (loss) income during the quarters and six months ended June 30, 2021 and 2020.

 

 

 

Reclassifications Out of Accumulated Other Comprehensive (Loss) Income

 

 

 

 

Quarters ended

Six months ended

 

 

Affected Line Item in the

June 30,

June 30,

(In thousands)

Consolidated Statements of Operations

 

2021

 

2020

 

2021

 

2020

Adjustment of pension and postretirement benefit plans

 

 

 

 

 

 

 

 

 

 

Amortization of net losses

Personnel costs

$

(5,189)

$

(5,362)

$

(10,379)

$

(10,724)

 

 

Total before tax

 

(5,189)

 

(5,362)

 

(10,379)

 

(10,724)

 

 

Income tax benefit

 

1,947

 

2,011

 

3,895

 

4,022

 

 

Total net of tax

$

(3,242)

$

(3,351)

$

(6,484)

$

(6,702)

 

 

 

 

 

 

 

 

 

 

 

Unrealized net losses on cash flow hedges

 

 

 

 

 

 

 

 

 

 

Forward contracts

Mortgage banking activities

$

5

$

(1,963)

$

375

$

(3,259)

 

Interest rate swaps

Other operating income

 

(285)

 

(224)

 

(564)

 

(255)

 

 

Total before tax

 

(280)

 

(2,187)

 

(189)

 

(3,514)

 

 

Income tax (expense) benefit

 

(2)

 

736

 

(141)

 

1,222

 

 

Total net of tax

$

(282)

$

(1,451)

$

(330)

$

(2,292)

 

 

Total reclassification adjustments, net of tax

$

(3,524)

$

(4,802)

$

(6,814)

$

(8,994)

75

 

Note 19 – Guarantees

 

At June 30, 2021, the Corporation recorded a liability of $0.2 million (December 31, 2020 - $0.2 million), which represents the unamortized balance of the obligations undertaken in issuing the guarantees under the standby letters of credit. Management does not anticipate any material losses related to these instruments.

From time to time, the Corporation securitized mortgage loans into guaranteed mortgage-backed securities subject to limited, and in certain instances, lifetime credit recourse on the loans that serve as collateral for the mortgage-backed securities. The Corporation has not sold any mortgage loans subject to credit recourse since 2009. At June 30, 2021, the Corporation serviced $0.8 billion (December 31, 2020 - $0.9 billion) in residential mortgage loans subject to credit recourse provisions, principally loans associated with FNMA and FHLMC residential mortgage loan securitization programs. In the event of any customer default, pursuant to the credit recourse provided, the Corporation is required to repurchase the loan or reimburse the third party investor for the incurred loss. The maximum potential amount of future payments that the Corporation would be required to make under the recourse arrangements in the event of nonperformance by the borrowers is equivalent to the total outstanding balance of the residential mortgage loans serviced with recourse and interest, if applicable. During the quarter and six months ended June 30, 2021, the Corporation repurchased approximately $7 million and $15 million, respectively, of unpaid principal balance in mortgage loans subject to the credit recourse provisions (June 30, 2020 - $4 million and $11 million, respectively). In the event of nonperformance by the borrower, the Corporation has rights to the underlying collateral securing the mortgage loan. The Corporation suffers ultimate losses on these loans when the proceeds from a foreclosure sale of the property underlying a defaulted mortgage loan are less than the outstanding principal balance of the loan plus any uncollected interest advanced and the costs of holding and disposing the related property. At June 30, 2021, the Corporation’s liability established to cover the estimated credit loss exposure related to loans sold or serviced with credit recourse amounted to $16 million (December 31, 2020 - $22 million).

The following table shows the changes in the Corporation’s liability of estimated losses related to loans serviced with credit recourse provisions during the quarters and six months ended June 30, 2021 and 2020.

 

Quarters ended June 30,

 

Six months ended June 30,

(In thousands)

2021

 

2020

 

2021

 

2020

Balance as of beginning of period

$

20,244

 

$

31,719

 

$

22,484

 

$

34,862

Impact of adopting CECL

 

-

 

 

-

 

 

-

 

 

(3,831)

Provision (reversal) for recourse liability

 

(1,568)

 

 

1,050

 

 

(751)

 

 

5,414

Net charge-offs

 

(3,014)

 

 

(1,464)

 

 

(6,071)

 

 

(5,140)

Balance as of end of period

$

15,662

 

$

31,305

 

$

15,662

 

$

31,305

 

 

When the Corporation sells or securitizes mortgage loans, it generally makes customary representations and warranties regarding the characteristics of the loans sold. To the extent the loans do not meet specified characteristics, the Corporation may be required to repurchase such loans or indemnify for losses and bear any subsequent loss related to the loans. There were no repurchases of loans under representation and warranty arrangements during the quarters and six month period ended June 30, 2021 and 2020. A substantial amount of these loans reinstates to performing status or have mortgage insurance, and thus the ultimate losses on the loans are not deemed significant.

From time to time, the Corporation sells loans and agrees to indemnify the purchaser for credit losses or any breach of certain representations and warranties made in connection with the sale. The following table presents the changes in the Corporation’s liability for estimated losses associated with indemnifications and representations and warranties related to loans sold by BPPR for the quarters and six month period ended June 30, 2021 and 2020.

76

 

 

 

Quarters ended June 30,

 

Six months ended June 30,

(In thousands)

 

2021

 

2020

 

2021

 

2020

Balance as of beginning of period

$

2,178

$

3,143

$

2,297

$

3,212

Provision (reversal) for representation and warranties

 

(100)

 

(21)

 

(219)

 

(90)

Balance as of end of period

$

2,078

$

3,122

$

2,078

$

3,122

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 June 30, 2021, the Corporation serviced $12.5 billion in mortgage loans for third-parties, including the loans serviced with credit recourse (December 31, 2020 - $12.9 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 June 30, 2021, the outstanding balance of funds advanced by the Corporation under such mortgage loan servicing agreements was approximately $60 million (December 31, 2020 - $66 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 June 30, 2021 and December 31, 2020. In addition, at June 30, 2021 and December 31, 2020, PIHC fully and unconditionally guaranteed on a subordinated basis $374 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 in the 2020 Form 10-K for further information on the trust preferred securities.

77

 

Note 20 – 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)

June 30, 2021

December 31, 2020

Commitments to extend credit:

 

 

 

 

 

Credit card lines

$

5,279,515

$

5,226,660

 

Commercial and construction lines of credit

 

3,957,517

 

3,805,459

 

Other consumer unused credit commitments

 

252,929

 

257,312

Commercial letters of credit

 

3,674

 

1,864

Standby letters of credit

 

22,695

 

22,266

Commitments to originate or fund mortgage loans

 

84,874

 

96,786

 

At June 30, 2021 and December 31, 2020, the Corporation maintained a reserve of approximately $10 million and $16 million, respectively, for potential losses associated with unfunded loan commitments related to commercial, construction and consumer lines of credit.

 

Other commitments

At June 30, 2021, and December 31, 2020, the Corporation also maintained other non-credit commitments for approximately $1.4 million, primarily for the acquisition of other investments.

 

Business concentration

Since the Corporation’s business activities are concentrated primarily in Puerto Rico, its results of operations and financial condition are dependent upon the general trends of the Puerto Rico economy and, in particular, the residential and commercial real estate markets. The concentration of the Corporation’s operations in Puerto Rico exposes it to greater risk than other banking companies with a wider geographic base. Its asset and revenue composition by geographical area is presented in Note 32 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 a Fiscal Oversight and Management Board for Puerto Rico (the “Oversight Board”) and a framework for the restructuring of the debts of the Commonwealth, its instrumentalities and municipalities. The Commonwealth and several of its instrumentalities have commenced debt restructuring proceedings under PROMESA. As of the date of this report, while municipalities have been designated as covered entities under PROMESA, no municipality has commenced, or has been authorized by the Oversight Board to commence, any such debt restructuring proceeding under PROMESA.

 

At June 30, 2021 and December 31, 2020, the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities totaled $375 million and $377 million, respectively, which amounts were fully outstanding on such dates. Of this amount, $342 million consists of loans and $33 million are securities ($342 million and $ 35 million at December 31, 2020). Substantially all of the amount outstanding at June 30, 2021 and June 30, 2020 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 June 30, 2021, 74% of the Corporation’s exposure to municipal loans and securities was concentrated in

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the municipalities of San Juan, Guaynabo, Carolina and Bayamón. On July 1, 2021, the Corporation received scheduled principal payments amounting to $32 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 June 30, 2021:

 

(In thousands)

 

Investment Portfolio

 

Loans

 

Total Outstanding

 

Total Exposure

Central Government

 

 

 

 

 

 

 

 

After 1 to 5 years

$

3

$

-

$

3

$

3

After 5 to 10 years

 

17

 

-

 

17

 

17

After 10 years

 

38

 

-

 

38

 

38

Total Central Government

 

58

 

-

 

58

 

58

Municipalities

 

 

 

 

 

 

 

 

Within 1 year

 

4,165

 

17,147

 

21,312

 

21,312

After 1 to 5 years

 

14,765

 

133,365

 

148,130

 

148,130

After 5 to 10 years

 

13,210

 

120,935

 

134,145

 

134,145

After 10 years

 

450

 

70,478

 

70,928

 

70,928

Total Municipalities

 

32,590

 

341,925

 

374,515

 

374,515

Total Direct Government Exposure

$

32,648

$

341,925

$

374,573

$

374,573

 

In addition, at June 30, 2021, the Corporation had $302 million in loans insured or securities issued by Puerto Rico governmental entities but for which the principal source of repayment is non-governmental ($317 million at December 31, 2020). These included $248 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, 2020 - $260 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 June 30, 2021, $44 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, 2020 - $46 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. In addition, at June 30, 2021, the Corporation had $10 million of commercial real estate notes issued by government entities but that are payable from rent paid by non-governmental parties (December 31, 2020 - $11 million).

 

BPPR’s commercial loan portfolio also includes loans to private borrowers who are service providers, lessors, suppliers or have other relationships with the government. These borrowers could be negatively affected by the Commonwealth’s fiscal crisis and the ongoing Title III proceedings under PROMESA. Similarly, BPPR’s mortgage and consumer loan portfolios include loans to government employees and retirees, which could also be negatively affected by fiscal measures such as employee layoffs or furloughs or reductions in pension benefits.

 

In addition, $1.7 billion of residential mortgages, $1.0 billion of Small Business Administration (“SBA”) loans under the Paycheck Protection Program (“PPP”) and $63 million commercial loans were insured or guaranteed by the U.S. Government or its agencies at June 30, 2021 (compared to $1.8 billion, $1.3 billion and $60 million, respectively, at December 31, 2020).

 

At June 30, 2021, the Corporation has operations in the United States Virgin Islands (the “USVI”) and has approximately $73 million in direct exposure to USVI government entities (December 31, 2020 - $105 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.

 

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At June 30, 2021, the Corporation has operations in the British Virgin Islands (“BVI”), which has been negatively affected by the COVID-19 pandemic, particularly as a reduction in the tourism activity which accounts for a significant portion of its economy. Although the Corporation has no significant exposure to a single borrower in the BVI, it has a loan portfolio amounting to approximately $228 million comprised of various retail and commercial clients, compared to a loan portfolio of $251 million at December 31, 2020, which included a $19 million loan with the BVI Government that was paid off during the second quarter of 2021.

 

Legal Proceedings

 

The nature of Popular’s business ordinarily generates claims, litigation, investigations, and legal and administrative cases and proceedings (collectively, “Legal Proceedings”). When the Corporation determines that it has meritorious defenses to the claims asserted, it vigorously defends itself. The Corporation will consider the settlement of cases (including cases where it has meritorious defenses) when, in management’s judgment, it is in the best interest of the Corporation and its stockholders to do so. On at least a quarterly basis, Popular assesses its liabilities and contingencies relating to outstanding Legal Proceedings utilizing the most current information available. For matters where it is probable that the Corporation will incur a material loss and the amount can be reasonably estimated, the Corporation establishes an accrual for the loss. Once established, the accrual is adjusted on at least a quarterly basis to reflect any relevant developments, as appropriate. For matters where a material loss is not probable, or the amount of the loss cannot be reasonably estimated, no accrual is established.

 

In certain cases, exposure to loss exists in excess of the 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 $36.1 million as of June 30, 2021. In certain cases, management cannot reasonably estimate the possible loss at this time. Any estimate involves significant judgment, given the varying stages of the Legal Proceedings (including the fact that many of them are currently in preliminary stages), the existence of multiple defendants in several of the current Legal Proceedings whose share of liability has yet to be determined, the numerous unresolved issues in many of the Legal Proceedings, and the inherent uncertainty of the various potential outcomes of such Legal Proceedings. Accordingly, management’s estimate will change from time-to-time, and actual losses may be more or less than the current estimate.

 

While the outcome of Legal Proceedings is inherently uncertain, based on information currently available, advice of counsel, and available insurance coverage, management believes that the amount it has already accrued is adequate and any incremental liability arising from the Legal Proceedings in matters in which a loss amount can be reasonably estimated will not have a material adverse effect on the Corporation’s consolidated financial position. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters in a reporting period, if unfavorable, could have a material adverse effect on the Corporation’s consolidated financial position for that period.

 

Set forth below is a description of the Corporation’s significant Legal Proceedings.

 

BANCO POPULAR DE PUERTO RICO

 

Hazard Insurance Commission-Related Litigation

 

Popular, Inc., BPPR and Popular Insurance, LLC (the “Popular Defendants”) have been named defendants in a class action complaint captioned Pérez Díaz v. Popular, Inc., et al, filed before the Court of First Instance, Arecibo Part. The complaint originally sought damages and preliminary and permanent injunctive relief on behalf of the class against the Popular Defendants, as well as Antilles Insurance Company and MAPFRE-PRAICO Insurance Company (the “Defendant Insurance Companies”). Plaintiffs allege that the Popular Defendants have been unjustly enriched by failing to reimburse them for commissions paid by the Defendant Insurance Companies to the insurance agent and/or mortgagee for policy years when no claims were filed against their hazard insurance policies. They demand the reimbursement to the purported “class” of an estimated $400 million plus legal interest, for the “good experience” commissions allegedly paid by the Defendant Insurance Companies during the relevant time period, as well as injunctive relief seeking to enjoin the Defendant Insurance Companies from paying commissions to the insurance agent/mortgagee and ordering them to pay those fees directly to the insured. A motion for dismissal on the merits filed by the Defendant Insurance Companies was denied with a right to replead following limited targeted discovery. Each of the Puerto Rico Court of Appeals and the Puerto Rico Supreme Court denied the Popular Defendants’ request to review the lower court’s denial of the motion to dismiss. In

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December 2017, plaintiffs amended the complaint and, in January 2018, defendants filed an answer thereto. Separately, in October 2017, the Court entered an order whereby it broadly certified the class, after which the Popular Defendants filed a certiorari petition before the Puerto Rico Court of Appeals in relation to the class certification, which the Court declined to entertain. In November 2018 and in January 2019, plaintiffs filed voluntary dismissal petitions against MAPFRE-PRAICO Insurance Company and Antilles Insurance Company, respectively, leaving the Popular Defendants as the sole remaining defendants in the action.

 

In April 2019, the Court amended the class definition to limit it to individual homeowners whose residential units were subject to a mortgage from BPPR who, in turn, obtained risk insurance policies with Antilles Insurance or MAPFRE Insurance through Popular Insurance from 2002 to 2015, and who did not make insurance claims against said policies during their effective term. The Court approved in September 2020 the notice to the class, which is yet to be published.

 

On May 7, 2021, the Popular Defendants filed a motion for summary judgment with respect to plaintiffs’ unjust enrichment theory of liability, reserving the right to file an additional motion for summary judgment regarding damages should the court deny the Popular Defendant’s pending motion to exclude an economic expert recently designated by Plaintiffs. Plaintiffs opposed the motion for summary judgment on July 6, 2021 and the Popular Defendants replied on July 28, 2021. On May 7, 2021, Popular, Inc. and BPPR also filed a separate motion for summary judgment alleging that, even taking as true and correct Plaintiffs’ theory of liability, Popular, Inc. and BPPR are not liable to Plaintiffs since they do not receive—and are legally prohibited from receiving insurance commissions. Plaintiffs failed to respond to such motion, and on July 9, 2021, Popular, Inc. and BPPR filed a motion requesting the Court to deem Popular, Inc. and BPPR’s motion for summary judgment as unopposed.

 

Mortgage-Related Litigation

 

BPPR was named a defendant in a putative class action captioned Yiries Josef Saad Maura v. Banco Popular, et al. on behalf of residential customers of the defendant banks who have allegedly been subject to illegal foreclosures and/or loan modifications through their mortgage servicers. Plaintiffs contend that when they sought to reduce their loan payments, defendants failed to provide them with such reduced loan payments, instead subjecting them to lengthy loss mitigation processes while filing foreclosure claims against them in parallel, all in violation of the Truth In Lending Act (“TILA”), the Real Estate Settlement Procedures Act (“RESPA”), the Equal Credit Opportunity Act (“ECOA”), the Fair Credit Reporting Act (“FCRA”), the Fair Debt Collection Practices Act (“FDCPA”) and other consumer-protection laws and regulations. Plaintiffs did not include a specific amount of damages in their complaint. After waiving service of process, BPPR filed a motion to dismiss the complaint (as did most co-defendants, separately). BPPR further filed a motion to oppose class certification, which the Court granted in September 2018. In April 2019, the Court entered an Opinion and Order granting BPPR’s and several other defendants’ motions to dismiss with prejudice. Plaintiffs filed a Motion for Reconsideration in April 2019, which Popular timely opposed. In September 2019, the Court issued an Amended Opinion and Order dismissing plaintiffs’ claims against all defendants, denying the reconsideration requests and other pending motions, and issuing final judgment. In October 2019, plaintiffs filed a Motion for Reconsideration of the Court’s Amended Opinion and Order, which was denied in December 2019. In January 2020, plaintiffs filed a Notice of Appeal to the U.S. Court of Appeals for the First Circuit. Plaintiffs filed their appeal brief in July 2020, Appellees filed their brief in September 2020, and Appellants filed their reply brief in January 2021. The appeal is now fully briefed and pending resolution.

 

Insufficient Funds and Overdraft Fees Class Actions

 

In February 2020, BPPR was served with a putative class action complaint captioned Soto-Melendez v. Banco Popular de Puerto Rico, filed before the United States District Court for the District of Puerto Rico. The complaint alleges breach of contract, breach of the covenant of good faith and fair dealing and unjust enrichment due to BPPR’s purported practice of (a) assessing more than one insufficient funds fee (“NSF Fees”) on the same “item” or transaction and (b) charging both NSF Fees and overdraft fees (“OD Fees”) on the same item or transaction, and is filed on behalf of all persons who during the applicable statute of limitations period were charged NSF Fees and/or OD Fees pursuant to these purported practices. In April 2020, BPPR filed a motion to dismiss the case. On April 21, 2021, the Court issued an order granting in part and denying in part BPPR’s motion to dismiss; the unjust enrichment claim was dismissed, whereas the breach of contract and covenant of good faith and fair dealing claims survived the motion. Discovery is ongoing.

 

Popular has been also named as a defendant on a putative class action complaint captioned Golden v. Popular, Inc. filed in March 2020 before the U.S. District Court for the Southern District of New York, seeking damages, restitution and injunctive relief. Plaintiff

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alleges breach of contract, violation of the covenant of good faith and fair dealing, unjust enrichment and violation of New York consumer protection law due to Popular’s purported practice of charging OD Fees on transactions that, under plaintiffs’ theory, do not overdraw the account. Plaintiff describes Popular’s purported practice of charging OD Fees as “Authorize Positive, Purportedly Settle Negative Transactions” (“APPSN”) and states that Popular assesses OD Fees over authorized transactions for which sufficient funds are held for settlement. In August 2020, Popular filed a Motion to Dismiss on several grounds, including failure to state a claim against Popular, Inc. and improper venue. In October 2020, Plaintiffs filed a Notice of Voluntary Dismissal before the U.S. District Court for the Southern District of New York and, simultaneously, filed an identical complaint in the U.S. District Court for the District of the Virgin Islands against Popular, Inc., Popular Bank and BPPR. In November 2020, Plaintiffs filed a Notice of Voluntary Dismissal against Popular, Inc. and Popular Bank following a Motion to Dismiss filed on behalf of such entities which argued failure to state a claim and lack of minimum contacts of such parties with the U.S.V.I. district court jurisdiction. BPPR, the only defendant remaining in the case, was served with process in November 2020 and filed a Motion to Dismiss in January 2021 which is now fully briefed and pending resolution.

 

Other Proceedings

 

In June 2017, a syndicate comprised of BPPR and other local banks (the “Lenders”) filed an involuntary Chapter 11 bankruptcy proceeding against Betteroads Asphalt and Betterecycling Corporation (the “Involuntary Debtors”). This filing followed attempts by the Lenders to restructure and resolve the Involuntary Debtors’ obligations and outstanding defaults under a certain credit agreement, first through good faith negotiations and subsequently, through the filing of a collection action against the Involuntary Debtors in local court. The Involuntary Debtors subsequently counterclaimed, asserting damages in excess of $900 million. The Lenders ultimately joined in the commencement of these involuntary bankruptcy proceedings against the Debtors in order to preserve and recover the Involuntary Debtors’ assets, having confirmed that the Involuntary Debtors were transferring assets out of their estate for little or no consideration.

 

The Involuntary Debtors filed a motion to dismiss the proceedings and for damages against the syndicate, arguing both that this petition was filed in bad faith and that there was a bona fide dispute as to the petitioners’ claims, as set forth in the counterclaim filed by the Involuntary Debtors in local court. In October 2019, the Court entered an Opinion and Order determining that the involuntary petitions were not filed in bad faith and issued an order for relief under Chapter 11 of the U.S. Bankruptcy Code granting the involuntary petitions. In October 2019, the debtors filed a Notice of Appeal to the U.S. District Court, which affirmed the Bankruptcy Court’s order for relief in November 2020. In January 2021, Debtors filed a Notice of Appeal from this decision before the U.S. Court of Appeals for the First Circuit.

 

In February 2020, the Debtors initiated an adversary proceeding seeking in excess of $80 million in damages, alleging that in 2016 the Lenders illegally foreclosed on their accounts receivable and as a result illegally interfered with contracts entered with third parties, forcing the Debtors into bankruptcy. Debtors further sought a judgment declaring that Lenders did not possess security interests over certain personal property of the Debtors because either such security interests were not adequately perfected according to Puerto Rico law, or the security interests were lost upon the lapsing date of the financing statements that the Lenders had originally perfected in connection with such interests. Debtors amended their adversary complaint to include references to the Lenders’ Syndicate and BPPR’s proof of claims and formally object to such proof of claims, as well as to demand that the District Court, not the Bankruptcy Court, entertain the complaint, requesting trial by jury on all counts. Lenders filed a Motion to dismiss in June 2020. In September 2020, the Court granted the parties an extension of all pending deadlines for 30 days in furtherance of settlement negotiations, and, thereafter, the Court granted, at the request of the parties, multiple additional 30-day extensions for the parties to continue settlement conversations. On April 28, 2021, the Lenders, the Debtors and other related parties executed a settlement agreement that contemplated the resolution of any and all claims between the parties as part of the bankruptcy proceedings. On May 17, 2021, the Bankruptcy Court entered an order approving the settlement agreement, and, on May 21 and June 9, 2021, the Bankruptcy Court entered orders approving the disclosure statement and the Chapter 11 plan of reorganization, respectively. The financial closing of the settlement agreement took place on June 30, 2021. This matter is now closed.

 

POPULAR BANK

 

Employment-Related Litigation

 

In July 2019, Popular Bank (“PB”) was served in a putative class complaint in which it was named as a defendant along with five (5) current PB employees (collectively, the “AB Defendants”), captioned Aileen Betances, et al. v. Popular Bank, et al., filed before the

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Supreme Court of the State of New York (the “AB Action”). The complaint, filed by five (5) current and former PB employees, seeks to recover damages for the AB Defendants' alleged violation of local and state sexual harassment, discrimination and retaliation laws. Additionally, in July 2019, PB was served in a putative class complaint in which it was named as a defendant along with six (6) current PB employees (collectively, the “DR Defendants”), captioned Damian Reyes, et al. v. Popular Bank, et al., filed before the Supreme Court of the State of New York (the “DR Action”). The DR Action, filed by three (3) current and former PB employees, seeks to recover damages for the DR Defendants’ alleged violation of local and state discrimination and retaliation laws. Plaintiffs in both complaints are represented by the same legal counsel, and five of the six named individual defendants in the DR Action are the same named individual defendants in the AB Action. Both complaints are related, among other things, to allegations of purported sexual harassment and/or misconduct by a former PB employee as well as PB’s actions in connection thereto and seek no less than $100 million in damages each. In October 2019, PB and the other defendants filed several Motions to Dismiss. Plaintiffs opposed the motions in December 2019 and PB and the other defendants replied in January 2020. In July 2020, a hearing to discuss the motions to dismiss filed by PB in both actions was held, at which the Court dismissed one of the causes of action included by plaintiffs in the AB Action.

 

On June 28, 2021, the Court in the AB Action entered a judgment dismissing all claims except those regarding the principal plaintiff Aileen Betances against PB for retaliation, and Betances’ claim against three (3) other AB Defendants for aiding/abetting the alleged retaliation. Also, on July 1, 2021, the Court in the DR action entered a partial judgment dismissing all claims against the individual DR Defendants, with all surviving claims being against PB and limited to local retaliation claims and local and state discrimination claims. On July 22, 2021, Plaintiffs in both the AB Action and the DR Action filed notices of appeal of both judgments. PB’s and the remaining AB Defendants’ answer to the complaint as to the surviving claims in the AB Action, as well as PB’s answer to the complaint as to the surviving claims in the DR Action, are both due on August 11, 2021.

 

POPULAR SECURITIES

 

Puerto Rico Bonds and Closed-End Investment Funds

 

The volatility in prices and declines in value that Puerto Rico municipal bonds and closed-end investment companies that invest primarily in Puerto Rico municipal bonds have experienced since August 2013 have led to regulatory inquiries, customer complaints and arbitrations for most broker-dealers in Puerto Rico, including Popular Securities. Popular Securities has received customer complaints and, as of June 30, 2021, is named as a respondent (among other broker-dealers) in 120 pending arbitration proceedings with aggregate claimed amounts of approximately $131 million, including one arbitration with claimed damages of approximately $30 million. While Popular Securities believes it has meritorious defenses to the claims asserted in these proceedings, it has often determined that it is in its best interest to settle certain claims rather than expend the money and resources required to see such cases to completion. The Puerto Rico Government’s defaults and non-payment of its various debt obligations, as well as the Commonwealth’s and the Financial Oversight Management Board’s (the “Oversight Board”) decision to pursue restructurings under Title III and Title VI of PROMESA, have impacted the number of customer complaints (and claimed damages) filed against Popular Securities concerning Puerto Rico bonds and closed-end investment companies that invest primarily in Puerto Rico bonds. An adverse result in the arbitration proceedings described above, or a significant increase in customer complaints, could have a material adverse effect on Popular.

 

PROMESA Title III Proceedings

 

In 2017, the Oversight Board engaged the law firm of Kobre & Kim to carry out an independent investigation on behalf of the Oversight Board regarding, among other things, the causes of the Puerto Rico financial crisis. Popular, Inc., BPPR and Popular Securities (collectively, the “Popular Companies”) were served by, and cooperated with, the Oversight Board in connection with requests for the preservation and voluntary production of certain documents and witnesses with respect to Kobre & Kim’s independent investigation.

 

On August 20, 2018, Kobre & Kim issued its Final Report, which contained various references to the Popular Companies, including an allegation that Popular Securities participated as an underwriter in the Commonwealth’s 2014 issuance of government obligation bonds notwithstanding having allegedly advised against it. The report noted that such allegation could give rise to an unjust enrichment claim against the Corporation and could also serve as a basis to equitably subordinate claims filed by the Corporation in the Title III proceeding to other third-party claims.

 

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After the publication of the Final Report, the Oversight Board created a special claims committee (“SCC”) and, before the end of the applicable two-year statute of limitations for the filing of such claims pursuant to the U.S. Bankruptcy Code, the SCC, along with the Commonwealth’s Unsecured Creditors’ Committee (“UCC”), filed various avoidance, fraudulent transfer and other claims against third parties, including government vendors and financial institutions and other professionals involved in bond issuances being challenged as invalid by the SCC and the UCC. The Popular Companies, the SCC and the UCC have entered into a tolling agreement with respect to potential claims the SCC and the UCC, on behalf of the Commonwealth or other Title III debtors, may assert against the Popular Companies for the avoidance and recovery of payments and/or transfers made to the Popular Companies or as a result of any role of the Popular Companies in the offering of the aforementioned challenged bond issuances.

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Note 21 – 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. 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 23 to the Consolidated Financial Statements for additional information on the debt securities outstanding at June 30, 2021 and December 31, 2020, 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 June 30, 2021 and December 31, 2020.

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(In thousands)

June 30, 2021

December 31, 2020

Assets

 

 

 

 

Servicing assets:

 

 

 

 

 

Mortgage servicing rights

$

93,391

$

90,273

Total servicing assets

$

93,391

$

90,273

Other assets:

 

 

 

 

 

Servicing advances

$

9,392

$

8,769

Total other assets

$

9,392

$

8,769

Total assets

$

102,783

$

99,042

Maximum exposure to loss

$

102,783

$

99,042

 

 

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 $8.5 billion at June 30, 2021 (December 31, 2020 - $8.7 billion).

The Corporation determined that the maximum exposure to loss includes the fair value of the MSRs and the assumption that the servicing advances at June 30, 2021 and December 31, 2020, 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 June 30, 2021.

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Note 22 – Related party transactions

The Corporation considers its equity method investees as related parties. The following provides information on transactions with equity method investees considered related parties.

 

EVERTEC

 

The Corporation has an investment in EVERTEC, Inc. (“EVERTEC”), which provides various processing and information technology services to the Corporation and its subsidiaries and gives BPPR access to the ATH network owned and operated by EVERTEC. As of June 30, 2021, the Corporation held 11,654,803 shares of EVERTEC, representing an ownership stake of 16.19%. The Corporation continues to have significant influence over EVERTEC. Accordingly, the investment in EVERTEC is accounted for under the equity method and is evaluated for impairment if events or circumstances indicate that a decrease in value of the investment has occurred that is other than temporary.

 

The Corporation recorded $1.2 million in dividends distributions during the six months ended June 30, 2021 from its investments in EVERTEC (June 30, 2020 - $1.2 million). The Corporation’s equity in EVERTEC is presented in the table which follows and is included as part of “other assets” in the Consolidated Statements of Financial Condition.

(In thousands)

 

June 30, 2021

 

 

December 31, 2020

Equity investment in EVERTEC

$

99,987

 

$

86,158

 

 

 

 

 

 

The Corporation had the following financial condition balances outstanding with EVERTEC at June 30, 2021 and December 31, 2020. Items that represent liabilities to the Corporation are presented with parenthesis.

(In thousands)

June 30, 2021

December 31, 2020

Accounts receivable (Other assets)

$

3,376

$

5,678

Deposits

 

(109,701)

 

(125,361)

Accounts payable (Other liabilities)

 

(3,374)

 

(2,395)

Net total

$

(109,699)

$

(122,078)

 

The Corporation’s proportionate share of income or loss from EVERTEC is included in other operating income in the consolidated statements of operations. The following table presents the Corporation’s proportionate share of EVERTEC’s income (loss) and changes in stockholders’ equity for the quarters and six months ended June 30, 2021 and 2020.

 

 

Quarter ended

 

 

Six months ended

(In thousands)

 

June 30, 2021

 

 

June 30, 2021

Share of income from the investment in EVERTEC

$

7,967

 

$

13,716

Share of other changes in EVERTEC's stockholders' equity

 

237

 

 

400

Share of EVERTEC's changes in equity recognized in income

$

8,204

 

$

14,116

 

 

 

Quarter ended

 

 

Six months ended

(In thousands)

 

June 30, 2020

 

 

June 30, 2020

Share of income from the investment in EVERTEC

$

2,511

 

$

6,113

Share of other changes in EVERTEC's stockholders' equity

 

(119)

 

 

666

Share of EVERTEC's changes in equity recognized in income

$

2,392

 

$

6,779

 

The following tables present the transactions and service payments between the Corporation and EVERTEC (as an affiliate) and their impact on the results of operations for the quarters and six months ended June 30, 2021 and 2020. Items that represent expenses to the Corporation are presented with parenthesis.

87

 

 

 

Quarter ended

Six months ended

 

(In thousands)

June 30, 2021

June 30, 2021

Category

Interest expense on deposits

 

$

(75)

 

$

(164)

Interest expense

ATH and credit cards interchange income from services to EVERTEC

 

 

6,976

 

 

13,429

Other service fees

Rental income charged to EVERTEC

 

 

1,396

 

 

2,943

Net occupancy

Processing fees on services provided by EVERTEC

 

 

(60,740)

 

 

(120,881)

Professional fees

Other services provided to EVERTEC

 

 

219

 

 

340

Other operating expenses

Total

 

$

(52,224)

 

$

(104,333)

 

 

 

 

Quarter ended

Six months ended

 

(In thousands)

 

June 30, 2020

June 30, 2020

Category

Interest expense on deposits

 

$

(90)

 

$

(157)

Interest expense

ATH and credit cards interchange income from services to EVERTEC

 

 

4,530

 

 

10,019

Other service fees

Rental income charged to EVERTEC

 

 

1,768

 

 

3,536

Net occupancy

Processing fees on services provided by EVERTEC

 

 

(51,405)

 

 

(107,001)

Professional fees

Other services provided to EVERTEC

 

 

280

 

 

541

Other operating expenses

Total

 

$

(44,917)

 

$

(93,062)

 

 

Centro Financiero BHD León

At June 30, 2021, the Corporation had a 15.84% equity interest in Centro Financiero BHD León, S.A. (“BHD León”), one of the largest banking and financial services groups in the Dominican Republic. During the six months ended June 30, 2021, the Corporation recorded $12.6 million in earnings from its investment in BHD León (June 30, 2020 - $14.9 million), which had a carrying amount of $164.5 million at June 30, 2021 (December 31, 2020 - $153.1 million). The Corporation received $4.3 million in dividends distributions during the six months ended June 30, 2021 from its investment in BHD León (June 30, 2020 - $13.2 million).

Investment Companies

The Corporation, through its subsidiary Popular Asset Management LLC (“PAM”), provides advisory services to several investment companies registered under the Investment Company Act of 1940 in exchange for a fee. The Corporation, through its subsidiary BPPR, also provides administrative, custody and transfer agency services to these investment companies. These fees are calculated at an annual rate of the average net assets of the investment company, as defined in each agreement. Due to its advisory role, the Corporation considers these investment companies as related parties.

For the six months ended June 30, 2021 administrative fees charged to these investment companies amounted to $2.3 million (June 30, 2020 - $3.2 million) and waived fees amounted to $0.8 million (June 30, 2020 - $1.2 million), for a net fee of $1.5 million (June 30, 2020 - $2.0 million).

The Corporation, through its subsidiary BPPR, has also entered into certain uncommitted credit facilities with those investment companies. As of June 30, 2021, the available lines of credit facilities amounted to $255 million (December 31, 2020 - $275 million). The aggregate sum of all outstanding balances under all credit facilities that may be made available by BPPR, from time to time, to those investment companies for which PAM acts as investment advisor or co-investment advisor, shall never exceed the lesser of $200 million or 10% of BPPR’s capital. At June 30, 2021 there was no outstanding balance for these credit facilities.

88

 

Note 23 – 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 assumptions about assumptions that market participants would use in pricing the asset or liability.

 

The Corporation maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Fair value is based upon quoted market prices when available. If listed prices or quotes are not available, the Corporation employs internally-developed models that primarily use market-based inputs including yield curves, interest rates, volatilities, and credit curves, among others. Valuation adjustments are limited to those necessary to ensure that the financial instrument’s fair value is adequately representative of the price that would be received or paid in the marketplace. These adjustments include amounts that reflect counterparty credit quality, the Corporation’s credit standing, constraints on liquidity and unobservable parameters that are applied consistently. There have been no changes in the Corporation’s methodologies used to estimate the fair value of assets and liabilities from those disclosed in the 2020 Form 10-K.

The estimated fair value may be subjective in nature and may involve uncertainties and matters of significant judgment for certain financial instruments. Changes in the underlying assumptions used in calculating fair value could significantly affect the results.

Fair Value on a Recurring and Nonrecurring Basis

The following fair value hierarchy tables present information about the Corporation’s assets and liabilities measured at fair value on a recurring basis at June 30, 2021 and December 31, 2020:

89

 

At June 30, 2021

(In thousands)

Level 1

Level 2

Level 3

Total

RECURRING FAIR VALUE MEASUREMENTS

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Debt securities available-for-sale:

 

 

 

 

 

 

 

 

U.S. Treasury securities

$

399,994

$

11,579,320

$

-

$

11,979,314

Obligations of U.S. Government sponsored entities

 

-

 

90

 

-

 

90

Collateralized mortgage obligations - federal agencies

 

-

 

282,922

 

-

 

282,922

Mortgage-backed securities

 

-

 

10,071,727

 

938

 

10,072,665

Other

 

-

 

176

 

-

 

176

Total debt securities available-for-sale

$

399,994

$

21,934,235

$

938

$

22,335,167

Trading account debt securities, excluding derivatives:

 

 

 

 

 

 

 

 

U.S. Treasury securities

$

10,060

$

-

$

-

$

10,060

Obligations of Puerto Rico, States and political subdivisions

 

-

 

96

 

-

 

96

Collateralized mortgage obligations

 

-

 

64

 

250

 

314

Mortgage-backed securities

 

-

 

25,100

 

-

 

25,100

Other

 

-

 

-

 

361

 

361

Total trading account debt securities, excluding derivatives

$

10,060

$

25,260

$

611

$

35,931

Equity securities

$

-

$

33,781

$

-

$

33,781

Mortgage servicing rights

 

-

 

-

 

119,467

 

119,467

Derivatives

 

-

 

23,573

 

-

 

23,573

Total assets measured at fair value on a recurring basis

$

410,054

$

22,016,849

$

121,016

$

22,547,919

Liabilities

 

 

 

 

 

 

 

 

Derivatives

$

-

$

(20,960)

$

-

$

(20,960)

Total liabilities measured at fair value on a recurring basis

$

-

$

(20,960)

$

-

$

(20,960)

90

 

At December 31, 2020

(In thousands)

Level 1

Level 2

Level 3

Total

RECURRING FAIR VALUE MEASUREMENTS

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Debt securities available-for-sale:

 

 

 

 

 

 

 

 

U.S. Treasury securities

$

3,499,781

$

7,288,259

$

-

$

10,788,040

Obligations of U.S. Government sponsored entities

 

-

 

60,184

 

-

 

60,184

Collateralized mortgage obligations - federal agencies

 

-

 

392,132

 

-

 

392,132

Mortgage-backed securities

 

-

 

10,319,547

 

1,014

 

10,320,561

Other

 

-

 

235

 

-

 

235

Total debt securities available-for-sale

$

3,499,781

$

18,060,357

$

1,014

$

21,561,152

Trading account debt securities, excluding derivatives:

 

 

 

 

 

 

 

 

U.S. Treasury securities

$

11,506

$

-

$

-

$

11,506

Obligations of Puerto Rico, States and political subdivisions

 

-

 

103

 

-

 

103

Collateralized mortgage obligations

 

-

 

68

 

278

 

346

Mortgage-backed securities

 

-

 

24,338

 

-

 

24,338

Other

 

-

 

-

 

381

 

381

Total trading account debt securities, excluding derivatives

$

11,506

$

24,509

$

659

$

36,674

Equity securities

$

-

$

29,590

$

-

$

29,590

Mortgage servicing rights

 

-

 

-

 

118,395

 

118,395

Derivatives

 

-

 

20,785

 

-

 

20,785

Total assets measured at fair value on a recurring basis

$

3,511,287

$

18,135,241

$

120,068

$

21,766,596

Liabilities

 

 

 

 

 

 

 

 

Derivatives

$

-

$

(18,925)

$

-

$

(18,925)

Total liabilities measured at fair value on a recurring basis

$

-

$

(18,925)

$

-

$

(18,925)

 

The fair value information included in the following tables is not as of period end, but as of the date that the fair value measurement was recorded during the quarters and six months ended June 30, 2021 and 2020 and excludes nonrecurring fair value measurements of assets no longer outstanding as of the reporting date.

 

91

 

Six months ended June 30, 2021

(In thousands)

Level 1

Level 2

Level 3

Total

 

 

NONRECURRING FAIR VALUE MEASUREMENTS

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Write-downs

Loans[1]

$

-

$

-

$

19,369

$

19,369

$

(2,957)

Loans held-for-sale[2]

 

-

 

-

 

8,700

 

8,700

 

(596)

Other real estate owned[3]

 

-

 

-

 

7,942

 

7,942

 

(1,503)

Long-lived assets held-for-sale[4]

 

-

 

-

 

2,728

 

2,728

 

(303)

Total assets measured at fair value on a nonrecurring basis

$

-

$

-

$

38,739

$

38,739

$

(5,359)

[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] Relates to a quarterly valuation on loans held-for-sale. Costs to sell are excluded from the reported fair value amount.

[3] Represents the fair value of foreclosed real estate and other collateral owned that were written down to their fair value. Costs to sell are excluded from the reported fair value amount.

[4] Represents the fair value of long-lived assets held-for-sale that were written down to their fair value.

Six months ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

(In thousands)

Level 1

Level 2

Level 3

Total

 

 

NONRECURRING FAIR VALUE MEASUREMENTS

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Write-downs

Loans[1]

$

-

$

-

$

5,121

$

5,121

$

(872)

Other real estate owned[2]

 

-

 

-

 

17,581

 

17,581

 

(2,636)

Other foreclosed assets[2]

 

-

 

-

 

1,021

 

1,021

 

(152)

Total assets measured at fair value on a nonrecurring basis

$

-

$

-

$

23,723

$

23,723

$

(3,660)

[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.

 

The following tables present the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarters and six months ended June 30, 2021 and 2020.

 

 

Quarter ended June 30, 2021

 

 

MBS

CMOs

Other

 

 

 

 

 

 

classified

classified

securities

 

 

 

 

 

 

as debt

as trading

classified

 

 

 

 

 

 

securities

account

as trading

Mortgage

 

 

 

available-

debt

account debt

servicing

Total

(In thousands)

for-sale

securities

securities

rights

assets

Balance at March 31, 2021

$

934

$

251

$

372

$

122,543

$

124,100

Gains (losses) included in earnings

 

-

 

-

 

(11)

 

(6,249)

 

(6,260)

Gains (losses) included in OCI

 

4

 

-

 

-

 

-

 

4

Additions

 

-

 

23

 

-

 

3,173

 

3,196

Settlements

 

-

 

(24)

 

-

 

-

 

(24)

Balance at June 30, 2021

$

938

$

250

$

361

$

119,467

$

121,016

Changes in unrealized gains (losses) included in earnings relating to assets still held at June 30, 2021

$

-

$

-

$

5

$

(2,036)

$

(2,031)

92

 

 

Six months ended June 30, 2021

 

 

MBS

 

 

Other

 

 

 

 

 

 

classified

CMOs

securities

 

 

 

 

 

 

as investment

classified

classified

 

 

 

 

 

 

securities

as trading

as trading

Mortgage

 

 

 

available-

account

account

servicing

Total

(In thousands)

for-sale

securities

securities

rights

assets

Balance at January 1, 2021

$

1,014

$

278

$

381

$

118,395

$

120,068

Gains (losses) included in earnings

 

-

 

-

 

(20)

 

(5,737)

 

(5,757)

Gains (losses) included in OCI

 

(1)

 

-

 

-

 

-

 

(1)

Additions

 

-

 

24

 

-

 

6,809

 

6,833

Settlements

 

(75)

 

(52)

 

-

 

-

 

(127)

Balance at June 30, 2021

$

938

$

250

$

361

$

119,467

$

121,016

Changes in unrealized gains (losses) included in earnings relating to assets still held at June 30, 2021

$

-

$

-

$

9

$

3,126

$

3,135

 

 

Quarter ended June 30, 2020

 

 

MBS

 

 

Other

 

 

 

 

 

 

classified

CMOs

securities

 

 

 

 

 

 

as investment

classified

classified

 

 

 

 

 

 

securities

as trading

as trading

Mortgage

 

 

 

available-

account

account

servicing

Total

(In thousands)

for-sale

securities

securities

rights

assets

Balance at March 31, 2020

$

1,177

$

467

$

428

$

147,311

$

149,383

Gains (losses) included in earnings

 

-

 

(1)

 

(5)

 

(7,640)

 

(7,646)

Gains (losses) included in OCI

 

(1)

 

-

 

-

 

-

 

(1)

Additions

 

-

 

-

 

-

 

1,473

 

1,473

Settlements

 

(25)

 

(24)

 

-

 

-

 

(49)

Balance at June 30, 2020

$

1,151

$

442

$

423

$

141,144

$

143,160

Changes in unrealized gains (losses) included in earnings relating to assets still held at June 30, 2020

$

-

$

(1)

$

2

$

(4,947)

$

(4,946)

 

 

Six months ended June 30, 2020

 

 

MBS

 

 

Other

 

 

 

 

 

 

classified

CMOs

securities

 

 

 

 

 

 

as investment

classified

classified

 

 

 

 

 

 

securities

as trading

as trading

Mortgage

 

 

 

available-

account

account

servicing

Total

(In thousands)

for-sale

securities

securities

rights

assets

Balance at January 1, 2020

$

1,182

$

530

$

440

$

150,906

$

153,058

Gains (losses) included in earnings

 

-

 

-

 

(17)

 

(12,869)

 

(12,886)

Gains (losses) included in OCI

 

(6)

 

-

 

-

 

-

 

(6)

Additions

 

-

 

2

 

-

 

3,107

 

3,109

Settlements

 

(25)

 

(90)

 

-

 

-

 

(115)

Balance at June 30, 2020

$

1,151

$

442

$

423

$

141,144

$

143,160

Changes in unrealized gains (losses) included in earnings relating to assets still held at June 30, 2020

$

-

$

1

$

8

$

(7,386)

$

(7,377)

Gains and losses (realized and unrealized) included in earnings for the quarters and six months ended June 30, 2021 and 2020 for Level 3 assets and liabilities included in the previous tables are reported in the consolidated statement of operations as follows:

 

 

Quarter ended June 30, 2021

Six months ended June 30, 2021

 

 

 

Changes in unrealized

 

 

Changes in unrealized

 

Total gains

gains (losses) relating to

Total gains

gains (losses) relating to

 

(losses) included

assets still held at

(losses) included

assets still held at

(In thousands)

in earnings

reporting date

in earnings

reporting date

Mortgage banking activities

$

(6,249)

$

(2,036)

$

(5,737)

$

3,126

Trading account profit (loss)

 

(11)

 

5

 

(20)

 

9

Total

$

(6,260)

$

(2,031)

$

(5,757)

$

3,135

 

93

 

 

Quarter ended June 30, 2020

Six months ended June 30, 2020

 

 

 

Changes in unrealized

 

 

Changes in unrealized

 

Total gains

gains (losses) relating to

Total gains

gains (losses) relating to

 

(losses) included

assets still held at

(losses) included

assets still held at

(In thousands)

in earnings

reporting date

in earnings

reporting date

Mortgage banking activities

$

(7,640)

$

(4,947)

$

(12,869)

$

(7,386)

Trading account profit (loss)

 

(6)

 

1

 

(17)

 

9

Total

$

(7,646)

$

(4,946)

$

(12,886)

$

(7,377)

 

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 June 30, 2021 and 2020.

 

 

 

 

Fair value

 

 

 

 

 

 

 

at June 30,

 

 

 

 

 

(In thousands)

 

2021

 

Valuation technique

Unobservable inputs

Weighted average (range) [1]

CMO's - trading

$

250

 

Discounted cash flow model

Weighted average life

1.0 years (0.3 - 1.2 years)

 

 

 

 

 

 

 

Yield

3.6% (3.6% - 4.1%)

 

 

 

 

 

 

 

Prepayment speed

13.1% (10.2% - 18.1%)

 

Other - trading

$

361

 

Discounted cash flow model

Weighted average life

3.6 years

 

 

 

 

 

 

 

Yield

12.0%

 

 

 

 

 

 

 

Prepayment speed

10.8%

 

Mortgage servicing rights

$

119,467

 

Discounted cash flow model

Prepayment speed

6.0% (0.3% - 33.1%)

 

 

 

 

 

 

 

Weighted average life

6.2 years (0.1 - 13.1 years)

 

 

 

 

 

 

 

Discount rate

11.1% (9.5% - 14.7%)

 

Loans held-in-portfolio

$

18,565

[2]

External appraisal

Haircut applied on

 

 

 

 

 

 

 

 

external appraisals

11.1% (10.0% - 30.5%)

 

Other real estate owned

$

6,672

[3]

External appraisal

Haircut applied on

 

 

 

 

 

 

 

 

external appraisals

20.3% (5.0% - 35.0%)

 

[1]

Weighted average of significant unobservable inputs used to develop Level 3 fair value measurements were calculated by relative fair value.

[2]

Loans held-in-portfolio in which haircuts were not applied to external appraisals were excluded from this table.

[3]

Other real estate owned in which haircuts were not applied to external appraisals were excluded from this table.

 

 

 

 

Fair value

 

 

 

 

 

 

 

at June 30,

 

 

 

 

 

(In thousands)

 

2020

 

Valuation technique

Unobservable inputs

Weighted average (range) [1]

CMO's - trading

$

442

 

Discounted cash flow model

Weighted average life

1.4 years (0.7 - 1.5 years)

 

 

 

 

 

 

 

Yield

3.8% (3.7% - 4.3%)

 

 

 

 

 

 

 

Prepayment speed

18.3% (15.2% - 19.6%)

 

Other - trading

$

423

 

Discounted cash flow model

Weighted average life

3.8 years

 

 

 

 

 

 

 

Yield

12.0%

 

 

 

 

 

 

 

Prepayment speed

10.8%

 

Mortgage servicing rights

$

141,144

 

Discounted cash flow model

Prepayment speed

6.7% (0.3% - 24.6%)

 

 

 

 

 

 

 

Weighted average life

6.2 years (0.1 - 14.4 years)

 

 

 

 

 

 

 

Discount rate

11.2% (9.5% - 14.7%)

 

Loans held-in-portfolio

$

5,121

[2]

External appraisal

Haircut applied on

 

 

 

 

 

 

 

 

external appraisals

24.6% (10.0% - 40.1%)

 

Other real estate owned

$

11,853

[3]

External appraisal

Haircut applied on

 

 

 

 

 

 

 

 

external appraisals

21.7% (5.0% - 30.0%)

 

[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.

94

 

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.

95

 

Note 24 – 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 June 30, 2021 and December 31, 2020, 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.

 

96

 

 

 

June 30, 2021

 

Carrying

 

 

 

 

(In thousands)

amount

Level 1

Level 2

Level 3

Fair value

Financial Assets:

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

$

530,849

$

530,849

$

-

$

-

$

530,849

Money market investments

 

17,802,801

 

17,796,803

 

5,997

 

-

 

17,802,800

Trading account debt securities, excluding derivatives[1]

 

35,931

 

10,060

 

25,260

 

611

 

35,931

Debt securities available-for-sale[1]

 

22,335,167

 

399,994

 

21,934,235

 

938

 

22,335,167

Debt securities held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

Obligations of Puerto Rico, States and political subdivisions

$

66,996

$

-

$

-

$

80,012

$

80,012

 

Collateralized mortgage obligation-federal agency

 

30

 

-

 

-

 

31

 

31

 

Securities in wholly owned statutory business trusts

 

11,561

 

-

 

11,561

 

-

 

11,561

Total debt securities held-to-maturity

$

78,587

$

-

$

11,561

$

80,043

$

91,604

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

FHLB stock

$

56,436

$

-

$

56,436

$

-

$

56,436

 

FRB stock

 

94,498

 

-

 

94,498

 

-

 

94,498

 

Other investments

 

36,568

 

-

 

33,781

 

3,136

 

36,917

Total equity securities

$

187,502

$

-

$

184,715

$

3,136

$

187,851

Loans held-for-sale

$

85,315

$

-

$

-

$

86,797

$

86,797

Loans held-in-portfolio

 

28,276,827

 

-

 

-

 

27,238,968

 

27,238,968

Mortgage servicing rights

 

119,467

 

-

 

-

 

119,467

 

119,467

Derivatives

 

23,573

 

-

 

23,573

 

-

 

23,573

 

 

June 30, 2021

 

Carrying

 

 

 

 

(In thousands)

amount

Level 1

Level 2

Level 3

Fair value

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

$

57,633,768

$

-

$

57,633,768

$

-

$

57,633,768

 

Time deposits

 

7,008,008

 

-

 

6,974,494

 

-

 

6,974,494

Total deposits

$

64,641,776

$

-

$

64,608,262

$

-

$

64,608,262

Assets sold under agreements to repurchase

$

90,925

$

-

$

90,905

$

-

$

90,905

Notes payable:

 

 

 

 

 

 

 

 

 

 

 

FHLB advances

$

494,469

$

-

$

504,583

$

-

$

504,583

 

Unsecured senior debt securities

 

297,208

 

-

 

323,643

 

-

 

323,643

 

Junior subordinated deferrable interest debentures (related to trust preferred securities)

 

384,943

 

-

 

402,045

 

-

 

402,045

Total notes payable

$

1,176,620

$

-

$

1,230,271

$

-

$

1,230,271

Derivatives

$

20,960

$

-

$

20,960

$

-

$

20,960

[1]

Refer to Note 23 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level.

97

 

 

 

December 31, 2020

 

Carrying

 

 

 

 

(In thousands)

amount

Level 1

Level 2

Level 3

Fair value

Financial Assets:

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

$

491,065

$

491,065

$

-

$

-

$

491,065

Money market investments

 

11,640,880

 

11,634,851

 

6,029

 

-

 

11,640,880

Trading account debt securities, excluding derivatives[1]

 

36,674

 

11,506

 

24,509

 

659

 

36,674

Debt securities available-for-sale[1]

 

21,561,152

 

3,499,781

 

18,060,357

 

1,014

 

21,561,152

Debt securities held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

Obligations of Puerto Rico, States and political subdivisions

$

70,768

$

-

$

-

$

83,298

$

83,298

 

Collateralized mortgage obligation-federal agency

 

31

 

-

 

-

 

32

 

32

 

Securities in wholly owned statutory business trusts

 

11,561

 

-

 

11,561

 

-

 

11,561

Total debt securities held-to-maturity

$

82,360

$

-

$

11,561

$

83,330

$

94,891

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

FHLB stock

$

49,799

$

-

$

49,799

$

-

$

49,799

 

FRB stock

 

93,045

 

-

 

93,045

 

-

 

93,045

 

Other investments

 

30,893

 

-

 

29,590

 

1,495

 

31,085

Total equity securities

$

173,737

$

-

$

172,434

$

1,495

$

173,929

Loans held-for-sale

$

99,455

$

-

$

-

$

102,189

$

102,189

Loans held-in-portfolio

 

28,488,946

 

-

 

-

 

27,098,297

 

27,098,297

Mortgage servicing rights

 

118,395

 

-

 

-

 

118,395

 

118,395

Derivatives

 

20,785

 

-

 

20,785

 

-

 

20,785

 

 

December 31, 2020

 

Carrying

 

 

 

 

(In thousands)

amount

Level 1

Level 2

Level 3

Fair value

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

$

49,558,492

$

-

$

49,558,492

$

-

$

49,558,492

 

Time deposits

 

7,307,848

 

-

 

7,319,963

 

-

 

7,319,963

Total deposits

$

56,866,340

$

-

$

56,878,455

$

-

$

56,878,455

Assets sold under agreements to repurchase

$

121,303

$

-

$

121,257

$

-

$

121,257

Notes payable:

 

 

 

 

 

 

 

 

 

 

 

FHLB advances

$

542,469

$

-

$

561,977

$

-

$

561,977

 

Unsecured senior debt securities

 

296,574

 

-

 

321,078

 

-

 

321,078

 

Junior subordinated deferrable interest debentures (related to trust preferred securities)

 

384,929

 

-

 

395,078

 

-

 

395,078

 

FRB advances

 

1,009

 

-

 

1,009

 

-

 

1,009

Total notes payable

$

1,224,981

$

-

$

1,279,142

$

-

$

1,279,142

Derivatives

$

18,925

$

-

$

18,925

$

-

$

18,925

[1]

Refer to Note 23 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level.

 

The notional amount of commitments to extend credit at June 30, 2021 and December 31, 2020 is $ 9.5 billion and $ 9.3 billion, respectively, and represents the unused portion of credit facilities granted to customers. The notional amount of letters of credit at June 30, 2021 and December 31, 2020 is $ 26 million and $ 24 million respectively, and represents the contractual amount that is required to be paid in the event of nonperformance. The fair value of commitments to extend credit and letters of credit, which are based on the fees charged to enter into those agreements, are not material to Popular’s financial statements.

 

98

 

Note 25 – Net income per common share

The following table sets forth the computation of net income per common share (“EPS”), basic and diluted, for the quarters and six months ended June 30, 2021 and 2020:

 

 

Quarters ended June 30,

Six months ended June 30,

(In thousands, except per share information)

2021

2020

2021

2020

Net income

$

218,079

$

127,628

$

480,711

$

161,930

Preferred stock dividends

 

(353)

 

(353)

 

(706)

 

(1,053)

Net income applicable to common stock

$

217,726

$

127,275

$

480,005

$

160,877

Average common shares outstanding

 

81,609,435

 

85,135,522

 

82,748,275

 

87,962,040

Average potential dilutive common shares

 

163,354

 

26,139

 

140,103

 

77,672

Average common shares outstanding - assuming dilution

 

81,772,789

 

85,161,661

 

82,888,378

 

88,039,712

Basic EPS

$

2.67

$

1.49

$

5.80

$

1.83

Diluted EPS

$

2.66

$

1.49

$

5.79

$

1.83

 

As disclosed in Note 17, during the quarter ended June 30, 2021, the Corporation entered into a $350 million accelerated share repurchase transaction (“ASR”) and, in connection therewith, received an initial delivery of 3,785,831 shares of common stock. The initial share delivery was accounted for as a treasury stock transaction. As part of this transaction, the Corporation entered into a forward contract, which remains outstanding as of June 30, 2021, for which the Corporation expects to receive additional shares upon termination of the ASR agreement. The dilutive EPS computation excludes 686,616 shares that at June 30, 2021 were estimated to be received under the ASR since the effect would be antidilutive.

For the quarter and six months ended June 30, 2021, the Corporation calculated the impact of potential dilutive common shares under the treasury stock method, consistent with the method used for the preparation of the financial statements for the year ended December 31, 2020. For a discussion of the calculation under the treasury stock method, refer to Note 30 of the Consolidated Financial Statements included in the 2020 Form 10-K.

99

 

Note 26 – Revenue from contracts with customers

The following table presents the Corporation’s revenue streams from contracts with customers by reportable segment for the quarters and six months ended June 30, 2021 and 2020.

 

 

Quarter ended June 30,

 

Six months ended June 30,

(In thousands)

2021

 

 

2021

 

 

 

BPPR

 

Popular U.S.

 

 

BPPR

 

Popular U.S.

Service charges on deposit accounts

$

37,377

$

2,776

 

$

74,236

$

5,537

Other service fees:

 

 

 

 

 

 

 

 

 

 

Debit card fees

 

12,213

 

245

 

 

23,555

 

480

 

Insurance fees, excluding reinsurance

 

9,835

 

820

 

 

18,073

 

1,429

 

Credit card fees, excluding late fees and membership fees

 

29,717

 

266

 

 

55,127

 

514

 

Sale and administration of investment products

 

5,970

 

-

 

 

11,510

 

-

 

Trust fees

 

6,289

 

-

 

 

12,304

 

-

Total revenue from contracts with customers [1]

$

101,401

$

4,107

 

$

194,805

$

7,960

[1]

The amounts include intersegment transactions of $2.0 million and $2.3 million, respectively, for the quarter and six months ended June 30, 2021.

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30,

 

Six months ended June 30,

(In thousands)

2020

 

 

2020

 

 

 

BPPR

 

Popular U.S.

 

 

BPPR

 

Popular U.S.

Service charges on deposit accounts

$

28,104

$

2,059

 

$

66,435

$

5,387

Other service fees:

 

 

 

 

 

 

 

 

 

 

Debit card fees

 

6,853

 

229

 

 

16,852

 

467

 

Insurance fees, excluding reinsurance

 

8,183

 

531

 

 

15,871

 

1,268

 

Credit card fees, excluding late fees and membership fees

 

17,378

 

161

 

 

37,146

 

403

 

Sale and administration of investment products

 

4,910

 

-

 

 

11,173

 

-

 

Trust fees

 

5,731

 

-

 

 

11,117

 

-

Total revenue from contracts with customers [1]

$

71,159

$

2,980

 

$

158,594

$

7,525

[1]

The amounts include intersegment transactions of $2.1 million and $2.4 million, respectively, for the quarter and six months ended June 30, 2020.

 

 

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.

 

100

 

Debit card fees

Debit card fees include, but are not limited to, interchange fees, surcharging income and foreign transaction fees. These transaction-based fees are recognized at a point in time, upon occurrence of an activity or event or upon the occurrence of a condition which triggers the fee assessment. Interchange fees are recognized upon settlement of the debit card payment transactions. The Corporation is acting as principal in these transactions.

 

Insurance fees

Insurance fees include, but are not limited to, commissions and contingent commissions. Commissions and fees are recognized when related policies are effective since the Corporation does not have an enforceable right to payment for services completed to date. An allowance is created for expected adjustments to commissions earned related to policy cancellations. Contingent commissions are recorded on an accrual basis when the amount to be received is notified by the insurance company. The Corporation is acting as an agent since it arranges for the sale of the policies and receives commissions if, and when, it achieves the sale.

 

Credit card fees

Credit card fees include, but are not limited to, interchange fees, additional card fees, cash advance fees, balance transfer fees, foreign transaction fees, and returned payments fees. Credit card fees are recognized at a point in time, upon the occurrence of an activity or an event. Interchange fees are recognized upon settlement of the credit card payment transactions. The Corporation is acting as principal in these transactions.

 

Sale and administration of investment products

Fees from the sale and administration of investment products include, but are not limited to, commission income from the sale of investment products, asset management fees, underwriting fees, and mutual fund fees.

 

Commission income from investment products is recognized on the trade date since clearing, trade execution, and custody services are satisfied when the customer acquires or disposes of the rights to obtain the economic benefits of the investment products and brokerage contracts have no fixed duration and are terminable at will by either party. The Corporation is acting as principal in these transactions since it performs the service of providing the customer with the ability to acquire or dispose of the rights to obtain the economic benefits of investment products.

 

Asset management fees are satisfied over time and are recognized in arrears. At contract inception, the estimate of the asset management fee is constrained from the inclusion in the transaction price since the promised consideration is dependent on the market and thus is highly susceptible to factors outside the manager’s influence. As advisor, the broker-dealer subsidiary is acting as principal.

 

Underwriting fees are recognized at a point in time, when the investment products are sold in the open market at a markup. When the broker-dealer subsidiary is lead underwriter, it is acting as an agent. In turn, when it is a participating underwriter, it is acting as principal.

 

Mutual fund fees, such as distribution fees, are considered variable consideration and are recognized over time, as the uncertainty of the fees to be received is resolved as NAV is determined and investor activity occurs. The promise to provide distribution-related services is considered a single performance obligation as it requires the provision of a series of distinct services that are substantially the same and have the same pattern of transfer. When the broker-dealer subsidiary is acting as a distributor, it is acting as principal. In turn, when it acts as third-party dealer, it is acting as an agent.

 

Trust fees

Trust fees are recognized from retirement plan, mutual fund administration, investment management, trustee, escrow, and custody and safekeeping services. These asset management services are considered a single performance obligation as it requires the provision of a series of distinct services that are substantially the same and have the same pattern of transfer. The performance obligation is satisfied over time, except for optional services and certain other services that are satisfied at a point in time. Revenues are recognized in arrears, when, or as, the services are rendered. The Corporation is acting as principal since, as asset 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.

101

 

Note 27 – Leases

The Corporation enters in the ordinary course of business into operating and finance leases for land, buildings and equipment. These contracts generally do not include purchase options or residual value guarantees. The remaining lease terms of 0.1 to 32.5 years considers options to extend the leases for up to 20.0 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 12 and Note 16, 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.

On October 27, 2020, PB, the United States mainland banking subsidiary of the Corporation, authorized and approved a strategic realignment of its New York Metro branch network that resulted in eleven branch closures, of which nine were leased properties. The branch closures were completed on January 29, 2021. An impairment loss of ROU assets amounting to $15.9 million was recognized in connection with this transaction during the fourth quarter of 2020.

The following table presents the undiscounted cash flows of operating and finance leases for each of the following periods:

June 30, 2021

(In thousands)

 

Remaining

2021

 

2022

 

2023

 

2024

 

2025

 

Later Years

 

Total Lease Payments

 

Less: Imputed Interest

 

Total

Operating Leases

$

13,961

$

25,535

$

23,358

$

22,055

$

19,087

$

52,626

$

156,622

$

(20,009)

$

136,613

Finance Leases

 

1,666

 

3,402

 

3,492

 

3,589

 

3,702

 

8,850

 

24,701

 

(3,821)

 

20,880

 

 

The following table presents the lease cost recognized by the Corporation in the Consolidated Statements of Operations as follows:

 

 

 

 

Quarters ended June 30,

Six months ended June 30,

(In thousands)

2021

2020

2021

2020

Finance lease cost:

 

 

 

 

 

 

 

 

 

Amortization of ROU assets

$

475

$

467

$

1,056

$

987

 

Interest on lease liabilities

 

265

 

288

 

538

 

601

Operating lease cost

 

7,150

 

7,914

 

14,205

 

15,828

Short-term lease cost

 

88

 

77

 

175

 

134

Variable lease cost

 

20

 

14

 

50

 

25

Sublease income

 

(19)

 

(30)

 

(38)

 

(60)

Net gain recognized from sale and leaseback transaction[1]

 

-

 

(5,550)

 

-

 

(5,550)

Total lease cost[2]

$

7,979

$

3,180

$

15,986

$

11,965

[1]

During the quarter ended June 30, 2020, the Corporation recognized the transfer of the Caparra Center as a sale. Since the sale and partial leaseback was considered to be at fair value, no portion of the gain on sale was deferred.

[2]

Total lease cost is recognized as part of net occupancy expense, except for the net gain recognized from the sale and leaseback transaction which was included as part of other operating income.

102

 

The following table presents supplemental cash flow information and other related information related to operating and finance leases.

 

 

 

 

Six months ended June 30,

(Dollars in thousands)

 

2021

 

2020

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

Operating cash flows from operating leases[1]

$

22,542

$

15,769

 

Operating cash flows from finance leases

 

538

 

601

 

Financing cash flows from finance leases[1]

 

1,692

 

1,047

ROU assets obtained in exchange for new lease obligations:

 

 

 

 

 

Operating leases

$

2,801

$

11,457

Weighted-average remaining lease term:

 

 

 

 

 

 

 

Operating leases

 

8.1

years

 

8.3

years

 

Finance leases

 

8.7

years

 

7.0

years

Weighted-average discount rate:

 

 

 

 

 

 

 

Operating leases

 

3.0

%

 

3.2

%

 

Finance leases

 

5.1

%

 

5.7

%

[1]

During the quarter ended March 31, 2021, the Corporation made base lease termination payments amounting to $7.8 million in connection with the closure of nine branches as a result of the strategic realignment of PB’s New York Metro branch network.

 

As of June 30, 2021, the Corporation has additional operating leases contracts that have not yet commenced with an undiscounted contract amount of $2.9 million, which will have lease terms ranging from 10 to 20 years.

103

 

Note 28 – Pension and postretirement benefits

The Corporation has a non-contributory defined benefit pension plan and supplementary pension benefit restoration plans for regular employees of certain of its subsidiaries (the “Pension Plans”). The accrual of benefits under the Pension Plans is frozen to all participants. The Corporation also provides certain postretirement health care benefits for retired employees of certain subsidiaries (the “OPEB Plan”).

The components of net periodic cost for the Pension Plans and the OPEB Plan for the periods presented were as follows:

 

 

 

 

 

 

 

 

 

 

 

Pension Plans

 

OPEB Plan

 

 

Quarters ended June 30,

 

Quarters ended June 30,

(In thousands)

 

2021

 

2020

 

2021

 

2020

Personnel Cost:

 

 

 

 

 

 

 

 

Service cost

$

-

$

-

$

160

$

178

Other operating expenses:

 

 

 

 

 

 

 

 

Interest cost

 

3,998

 

5,847

 

893

 

1,228

Expected return on plan assets

 

(9,670)

 

(9,526)

 

-

 

-

Amortization of prior service cost/(credit)

 

-

 

-

 

-

 

-

Amortization of net loss

 

4,720

 

5,220

 

469

 

142

Total net periodic pension cost

$

(952)

$

1,541

$

1,522

$

1,548

 

 

 

Pension Plans

 

OPEB Plan

 

 

Six months ended June 30,

 

Six months ended June 30,

(In thousands)

 

2021

 

2020

 

2021

 

2020

Personnel Cost:

 

 

 

 

 

 

 

 

Service cost

$

-

$

-

$

320

$

356

Other operating expenses:

 

 

 

 

 

 

 

 

Interest cost

 

7,996

 

11,694

 

1,785

 

2,456

Expected return on plan assets

 

(19,341)

 

(19,052)

 

-

 

-

Amortization prior service cost/(credit)

 

-

 

-

 

-

 

-

Amortization of net loss

 

9,440

 

10,440

 

939

 

284

Total net periodic pension cost

$

(1,905)

$

3,082

$

3,044

$

3,096

 

The Corporation paid the following contributions to the plans for the six months ended June 30, 2021 and expects to pay the following contributions for the year ending December 31, 2021.

 

For the six months ended

For the year ending

(In thousands)

June 30, 2021

December 31, 2021

Pension Plans

$

114

$

229

OPEB Plan

$

3,030

$

6,333

104

 

Note 29 - 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 for its employees and restricted stock and restricted stock units (“RSU”) 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 is determined based on a two-prong vesting schedule. The first part is vested ratably over five years commencing at the date of grant (“the graduated vesting portion”) and the second part is vested at termination of employment after attainment of 55 years of age and 10 years of service (“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. The vesting schedule for restricted shares granted on or after 2014 and prior to 2021 was modified as follows, the graduated vesting portion is vested ratably over four years commencing at the date of the grant and the retirement vesting portion is vested at termination of employment after attainment of the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service. The graduated vesting portion is accelerated at termination of employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service. Restricted stock granted on or after 2021 will vest ratably in equal annual installments over a period of 4 years or 3 years, depending on the classification of the employee.

The 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 Earnings per Share (“EPS”) goals. For grants issued on 2020 and 2021, the EPS goal is substituted by the Absolute Return on Average Assets (“ROA”) goal and the Absolute Return on Average Tangible Common Equity (“ROATCE”) respectively. 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 EPS, ROA and ROATCE metrics are considered to be a performance condition under ASC 718. The fair value is determined based on the probability of achieving the EPS, ROA or ROATCE goal as of each reporting period. The TSR and EPS, ROA or 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 (EPS, ROA and 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.

105

 

(Not in thousands)

Shares

 

Weighted-Average Grant Date Fair Value

Non-vested at December 31, 2019

345,365

$

41.68

Granted

253,943

 

42.49

Performance Shares Quantity Adjustment

(7)

 

48.79

Vested

(234,421)

 

42.64

Forfeited

(6,368)

 

44.26

Non-vested at December 31, 2020

358,512

$

41.23

Granted

191,479

 

69.38

Performance Shares Quantity Adjustment

54,306

 

54.21

Vested

(268,202)

 

55.29

Forfeited

(2,429)

 

42.52

Non-vested at June 30, 2021

333,666

$

47.89

 

 

During the quarter ended June 30, 2021, 66,866 shares of restricted stock (June 30, 2020 – 125,539) were awarded to management under the Incentive Plan. During the quarters ended June 30, 2021 and 2020, no performance shares were awarded to management under the Incentive Plan. For the six months ended June 30, 2021, 120,105 shares of restricted stock (June 30, 2020 – 213,245) and 71,374 performance shares (June 30, 2020 - 64,815) were awarded to management under the Incentive Plan.

During the quarter ended June 30, 2021, the Corporation recognized $2.3 million of restricted stock expense related to management incentive awards, with a tax benefit of $0.5 million (June 30, 2020 - $2.0 million, with a tax benefit of $0.5 million). For the six months ended June 30, 2021, the Corporation recognized $6.2 million of restricted stock expense related to management incentive awards, with a tax benefit of $1.1 million (June 30, 2020 - $5.7 million, with a tax benefit of $0.9 million). For the six months ended June 30, 2021, the fair market value of the restricted stock and performance shares vested was $6.9 million at grant date and $10.2 million at vesting date. This differential triggers a windfall of $2.5 million that was recorded as a reduction on income tax expense. During the quarter ended June 30, 2021 the Corporation recognized $0.3 million of performance shares expense, with a tax benefit of $12 thousand (June 30, 2020 - $0.3 million, with a tax benefit of $24 thousand). For the six months ended June 30, 2021, the Corporation recognized $4.6 million of performance shares expense, with a tax benefit of $0.5 million (June 30, 2020 - $2.8 million, with a tax benefit of $0.3 million). The total unrecognized compensation cost related to non-vested restricted stock awards and performance shares to members of management at June 30, 2021 was $12.1 million and is expected to be recognized over a weighted-average period of 2.0 years.

The following table summarizes the restricted stock activity under the Incentive Plan for members of the Board of Directors:

(Not in thousands)

 

Restricted Stock units

 

Weighted-Average Grant Date Fair Value per Unit

Non-vested at December 31, 2019

$

-

$

-

Granted

 

43,866

 

35.47

Vested

 

(43,866)

 

35.47

Forfeited

 

-

 

-

Non-vested at December 31, 2020

$

-

$

-

Granted

 

19,534

 

78.24

Vested

 

(19,534)

 

78.24

Forfeited

 

-

 

-

Non-vested at June 30, 2021

$

-

$

-

 

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 on May 2019 all equity awards granted to the Directors may be paid in either restricted stocks or RSU, at the Directors’ election. If RSU are elected the Directors may defer the delivery of the shares of common stocks

106

 

underlying the RSU award after their retirement. To the extent that cash dividends are paid on the Corporation’s outstanding common stocks, the Directors will receive an additional number of RSU that reflect reinvested dividend equivalent.

 

For 2021 and 2020, all Directors elected RSU. During the quarter ended June 30, 2021, 19,010 RSUs were granted to the Directors (June 30, 2020 - 42,003) and the Corporation recognized expense related to these RSUs of $1.8 million with a tax benefit of $0.3 million (June 30, 2020 - $1.5 million with a tax benefit of $0.3 million). For the six months ended June 30, 2021, the Corporation granted 19,534 RSU to the Directors (June 30, 2020 - 42,301) and the Corporation recognized $1.8 million of expense related to these RSU, with a tax benefit of $0.3 million, (June 30, 2020 - $1.5 million, with a tax benefit of $0.3 million). The fair value at vesting date of the RSU vested during the six months ended June 30, 2021 for directors was $1.5 million.

107

 

Note 30 – Income taxes

The reason for the difference between the income tax expense applicable to income before provision for income taxes and the amount computed by applying the statutory tax rate in Puerto Rico, were as follows:

 

 

 

Quarters ended

 

 

 

 

June 30, 2021

 

 

 

June 30, 2020

 

(In thousands)

 

Amount

% of pre-tax income

 

 

 

Amount

% of pre-tax income

 

Computed income tax expense at statutory rates

$

109,189

38

%

 

$

57,096

38

%

Net benefit of tax exempt interest income

 

(36,840)

(13)

 

 

 

(29,424)

(19)

 

Deferred tax asset valuation allowance

 

5,832

2

 

 

 

2,610

2

 

Difference in tax rates due to multiple jurisdictions

 

(4,881)

(2)

 

 

 

(4,210)

(3)

 

Effect of income subject to preferential tax rate

 

(1,405)

(1)

 

 

 

(2,727)

(2)

 

Adjustment due to estimate on the annual effective rate

 

(405)

-

 

 

 

(2,153)

(2)

 

State and local taxes

 

2,530

1

 

 

 

2,614

2

 

Others

 

(927)

-

 

 

 

822

-

 

Income tax expense

$

73,093

25

%

 

$

24,628

16

%

 

 

 

 

Six months ended

 

 

 

 

June 30, 2021

 

 

 

June 30, 2020

 

(In thousands)

 

Amount

% of pre-tax income

 

 

 

Amount

% of pre-tax income

 

Computed income tax expense at statutory rates

$

236,488

38

%

 

$

71,121

38

%

Net benefit of tax exempt interest income

 

(71,003)

(11)

 

 

 

(62,320)

(33)

 

Deferred tax asset valuation allowance

 

16,153

3

 

 

 

8,148

4

 

Difference in tax rates due to multiple jurisdictions

 

(15,829)

(3)

 

 

 

4,665

2

 

Effect of income subject to preferential tax rate

 

(4,734)

(1)

 

 

 

(4,627)

(2)

 

Adjustment due to estimate on the annual effective rate

 

(10,733)

(2)

 

 

 

6,851

4

 

State and local taxes

 

2,591

-

 

 

 

2,059

1

 

Others

 

(3,009)

-

 

 

 

1,828

1

 

Income tax expense

$

149,924

24

%

 

$

27,725

15

%

 

 

For the quarter and six months ended June 30, 2021, the Corporation recorded an income tax expense of $73.1 million and $149.9 million, respectively, compared to $24.6 million and $27.7 million for the respective periods of 2020. The increase in income tax expense was primarily due to higher pre-tax income net of the impact of higher net exempt interest income during the quarter and six months ended June 30, 2021.

 

The following table presents a breakdown of the significant components of the Corporation’s deferred tax assets and liabilities.

108

 

 

 

 

June 30, 2021

(In thousands)

 

PR

 

US

 

Total

Deferred tax assets:

 

 

 

 

 

 

Tax credits available for carryforward

$

3,003

$

2,781

$

5,784

Net operating loss and other carryforward available

 

131,938

 

690,284

 

822,222

Postretirement and pension benefits

 

75,555

 

-

 

75,555

Deferred loan origination fees

 

20,174

 

(3,570)

 

16,604

Allowance for credit losses

 

270,124

 

39,463

 

309,587

Accelerated depreciation

 

4,400

 

7,283

 

11,683

FDIC-assisted transaction

 

152,665

 

-

 

152,665

Intercompany deferred gains

 

1,782

 

-

 

1,782

Lease liability

 

21,554

 

25,042

 

46,596

Difference in outside basis from pass-through entities

 

61,140

 

-

 

61,140

Other temporary differences

 

39,801

 

8,335

 

48,136

 

Total gross deferred tax assets

 

782,136

 

769,618

 

1,551,754

Deferred tax liabilities:

 

 

 

 

 

 

Indefinite-lived intangibles

 

74,970

 

49,933

 

124,903

Unrealized net gain (loss) on trading and available-for-sale securities

 

43,406

 

6,776

 

50,182

Right of use assets

 

19,466

 

21,314

 

40,780

Other temporary differences

 

51,885

 

1,507

 

53,392

 

Total gross deferred tax liabilities

 

189,727

 

79,530

 

269,257

Valuation allowance

 

121,614

 

416,119

 

537,733

Net deferred tax asset

$

470,795

$

273,969

$

744,764

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

(In thousands)

 

PR

 

US

 

Total

Deferred tax assets:

 

 

 

 

 

 

Tax credits available for carryforward

$

3,003

$

5,269

$

8,272

Net operating loss and other carryforward available

 

124,355

 

698,842

 

823,197

Postretirement and pension benefits

 

80,179

 

-

 

80,179

Deferred loan origination fees

 

12,079

 

(2,652)

 

9,427

Allowance for credit losses

 

373,010

 

38,606

 

411,616

Accelerated depreciation

 

3,439

 

5,390

 

8,829

FDIC-assisted transaction

 

152,665

 

-

 

152,665

Intercompany deferred gains

 

1,728

 

-

 

1,728

Lease liability

 

22,790

 

18,850

 

41,640

Difference in outside basis from pass-through entities

 

61,222

 

-

 

61,222

Other temporary differences

 

38,954

 

7,344

 

46,298

 

Total gross deferred tax assets

 

873,424

 

771,649

 

1,645,073

Deferred tax liabilities:

 

 

 

 

 

 

Indefinite-lived intangibles

 

73,305

 

37,745

 

111,050

Unrealized net gain (loss) on trading and available-for-sale securities

 

67,003

 

8,595

 

75,598

Right of use assets

 

20,708

 

15,510

 

36,218

Other temporary differences

 

50,247

 

1,169

 

51,416

 

Total gross deferred tax liabilities

 

211,263

 

63,019

 

274,282

Valuation allowance

 

112,871

 

407,225

 

520,096

Net deferred tax asset

$

549,290

$

301,405

$

850,695

 

109

 

The net deferred tax asset shown in the table above at June 30, 2021 is reflected in the consolidated statements of financial condition as $0.7 billion in net deferred tax assets in the “Other assets” caption (December 31, 2020 - $0.9 billion) and $849 thousand in deferred tax liabilities in the “Other liabilities” caption (December 31, 2020 - $897 thousand), reflecting the aggregate deferred tax assets or liabilities of individual tax-paying subsidiaries of the Corporation in their respective tax jurisdiction, Puerto Rico or the United States.

 

At June 30, 2021 the net deferred tax asset of the U.S. operations amounted to $690 million with a valuation allowance of approximately $416 million, for a net deferred tax asset after valuation allowance of approximately $274 million. The Corporation evaluates the realization of the deferred tax asset by taxing jurisdiction. The U.S. operation is not in a cumulative three-year loss position and had sustained profitability for the three-year period ended June 30, 2021 with strong pre-tax income for the first two quarters of 2021. This objectively verifiable positive evidence, together with the positive evidence of stable credit metrics, in combination with the length of the expiration of the NOLs are enough to overcome any negative evidence related to the COVID-19 pandemic and the uncertainty created by new variants. As of June 30, 2021, after weighting all positive and negative evidence, the Corporation concluded that it is more likely than not that approximately $274 million of the deferred tax asset from the U.S. operations, comprised mainly of net operating losses, will be realized. The Corporation based this determination on its estimated earnings available to realize the deferred tax asset for the remaining carryforward period, together with the historical level of book income adjusted by permanent differences. Management will continue to monitor and review the U.S. operation’s results and the pre-tax earnings forecast on a quarterly basis to assess the future realization of the deferred tax asset. Management will closely monitor factors, including, net income versus forecast, targeted loan growth, net interest income margin, allowance for credit losses, charge offs, NPLs inflows and NPA balances.

 

At June 30, 2021, the Corporation’s net deferred tax assets related to its Puerto Rico operations amounted to $471 million net of valuation allowance pertaining to the Holding Company operation.

 

The Corporation’s Puerto Rico Banking operation is not in a cumulative three-year loss position and had sustained profitability for the three-year period ended June 30, 2021. This is considered a strong piece of objectively verifiable positive evidence that outweighs any negative evidence considered by management in the evaluation of the realization of the deferred tax asset. Based on this evidence and management’s estimate of future taxable income, the Corporation has concluded that it is more likely than not that such net deferred tax asset of the Puerto Rico Banking operations will be realized as of June 30, 2021.

 

The Holding Company operation is in a cumulative loss position, taking into account taxable income exclusive of reversing temporary differences, for the three years period ending June 30, 2021. Management expects these losses will be a trend in future years. This objectively verifiable negative evidence is considered by management a strong negative evidence that will suggest that income in future years will be insufficient to support the realization of all deferred tax asset. 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, considering the criteria of ASC Topic 740. Accordingly, the Corporation has maintained a valuation allowance on the deferred tax asset of $122 million as of June 30, 2021.

 

The reconciliation of unrecognized tax benefits, excluding interest, was as follows:

 

(In millions)

 

2021

 

 

2020

Balance at January 1

$

14.8

 

$

16.3

Balance at March 31

$

14.8

 

$

16.3

Balance at June 30

$

14.8

 

$

16.3

 

At June 30, 2021, the total amount of accrued interest recognized in the statement of financial condition approximated $5.5 million (December 31, 2020 - $4.8 million). The total interest expense recognized at June 30, 2021 was $727 thousand (June 30, 2020 - $1.3 million). Management determined that at June 30, 2021 and December 31, 2020 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.

110

 

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 $10.8 million at June 30, 2021 (December 31, 2020 - $10.2 million).

The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration of open income tax returns due to the statutes of limitation, changes in management’s judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the addition or elimination of uncertain tax positions.

The Corporation and its subsidiaries file income tax returns in Puerto Rico, the U.S. federal jurisdiction, various U.S. states and political subdivisions, and foreign jurisdictions. At June 30, 2021, the following years remain subject to examination in the U.S. Federal jurisdiction: 2017 and thereafter; and in the Puerto Rico jurisdiction, 2014, 2016 and thereafter. The Corporation anticipates a reduction in the total amount of unrecognized tax benefits within the next 12 months, which could amount to approximately $14.2 million, including interest.

111

 

Note 31 – Supplemental disclosure on the consolidated statements of cash flows

Additional disclosures on cash flow information and non-cash activities for the six months ended June 30, 2021 and June 30, 2020 are listed in the following table:

 

 

 

 

 

 

(In thousands)

 

June 30, 2021

 

June 30, 2020

Non-cash activities:

 

 

 

 

Loans transferred to other real estate

$

22,012

$

16,394

Loans transferred to other property

 

22,450

 

18,306

Total loans transferred to foreclosed assets

 

44,462

 

34,700

Loans transferred to other assets

 

2,846

 

3,613

Financed sales of other real estate assets

 

7,329

 

7,671

Financed sales of other foreclosed assets

 

21,398

 

14,845

Total financed sales of foreclosed assets

 

28,727

 

22,516

Financed sale of premises and equipment

 

8,502

 

31,350

Transfers from premises and equipment to long-lived assets held-for-sale

 

26,222

 

-

Transfers from loans held-in-portfolio to loans held-for-sale

 

47,227

 

28,557

Transfers from loans held-for-sale to loans held-in-portfolio

 

1,886

 

11,880

Loans securitized into investment securities[1]

 

381,053

 

153,546

Trades receivable from brokers and counterparties

 

78,007

 

33,206

Trades payable to brokers and counterparties

 

12,400

 

470,849

Receivables from investments maturities

 

50,000

 

-

Recognition of mortgage servicing rights on securitizations or asset transfers

 

6,809

 

3,107

Loans booked under the GNMA buy-back option

 

19,669

 

457,703

Capitalization of lease right of use asset

 

4,567

 

17,138

[1]

Includes loans securitized into trading securities and subsequently sold before quarter end.

 

 

 

 

The following table provides a reconciliation of cash and due from banks, and restricted cash reported within the Consolidated Statement of Financial Condition that sum to the total of the same such amounts shown in the Consolidated Statement of Cash Flows.

 

 

 

(In thousands)

June 30, 2021

June 30, 2020

Cash and due from banks

$

524,083

$

430,077

Restricted cash and due from banks

 

6,766

 

5,002

Restricted cash in money market investments

 

5,997

 

6,046

Total cash and due from banks, and restricted cash[2]

$

536,846

$

441,125

[2]

Refer to Note 4 - Restrictions on cash and due from banks and certain securities for nature of restrictions.

112

 

Note 32 – Segment reporting

 

The Corporation’s corporate structure consists of two reportable segments – Banco Popular de Puerto Rico and Popular U.S. Management determined the reportable segments based on the internal reporting used to evaluate performance and to assess where to allocate resources. The segments were determined based on the organizational structure, which focuses primarily on the markets the segments serve, as well as on the products and services offered by the segments.

 

Banco Popular de Puerto Rico:

Given that Banco Popular de Puerto Rico constitutes a significant portion of the Corporation’s results of operations and total assets at June 30, 2021, additional disclosures are provided for the business areas included in this reportable segment, as described below:

 

Commercial banking represents the Corporation’s banking operations conducted at BPPR, which are targeted mainly to corporate, small and middle size businesses. It includes aspects of the lending and depository businesses, as well as other finance and advisory services. BPPR allocates funds across business areas based on duration matched transfer pricing at market rates. This area also incorporates income related with the investment of excess funds, as well as a proportionate share of the investment function of BPPR.

 

Consumer and retail banking represents the branch banking operations of BPPR which focus on retail clients. It includes the consumer lending business operations of BPPR, as well as the lending operations of Popular Auto and Popular Mortgage. Popular Auto focuses on auto and lease financing, while Popular Mortgage focuses principally on residential mortgage loan originations. The consumer and retail banking area also incorporates income related with the investment of excess funds from the branch network, as well as a proportionate share of the investment function of BPPR.

 

Other financial services include the trust service units of BPPR, asset management services of Popular Asset Management, the brokerage and investment banking operations of Popular Securities, and the insurance agency and reinsurance businesses of Popular Insurance, Popular Risk Services, and Popular Life Re. Most of the services that are provided by these subsidiaries generate profits based on fee income.

 

Popular U.S.:

Popular U.S. reportable segment consists of the banking operations of Popular Bank (PB) and Popular Insurance Agency, U.S.A. PB operates through a retail branch network in the U.S. mainland under the name of Popular. Popular Insurance Agency, U.S.A. offers investment and insurance services across the PB branch network.

 

The Corporate group consists primarily of the holding companies Popular, Inc., Popular North America, Popular International Bank and certain of the Corporation’s investments accounted for under the equity method, including EVERTEC and Centro Financiero BHD, León.

 

The accounting policies of the individual operating segments are the same as those of the Corporation. Transactions between reportable segments are primarily conducted at market rates, resulting in profits that are eliminated for reporting consolidated results of operations.

 

The tables that follow present the results of operations and total assets by reportable segments:

113

 

2021

For the quarter ended June 30, 2021

 

 

 

 

Banco Popular

 

 

 

Intersegment

(In thousands)

 

 

 

de Puerto Rico

 

Popular U.S.

 

Eliminations

Net interest income

 

 

$

419,200

$

78,743

$

1

Provision for credit losses (benefit)

 

 

 

(22,042)

 

4,856

 

-

Non-interest income

 

 

 

136,052

 

5,267

 

(137)

Amortization of intangibles

 

 

 

860

 

167

 

-

Depreciation expense

 

 

 

11,808

 

1,597

 

-

Other operating expenses

 

 

 

307,663

 

48,533

 

(136)

Income tax expense

 

 

 

63,614

 

10,163

 

-

Net income

 

 

$

193,349

$

18,694

$

-

Segment assets

 

 

$

62,104,522

$

10,197,371

$

(23,954)

 

 

 

 

 

 

 

 

 

For the quarter ended June 30, 2021

 

 

Reportable

 

 

 

 

 

 

(In thousands)

 

Segments

 

Corporate

 

Eliminations

 

Total Popular, Inc.

Net interest income (expense)

$

497,944

$

(10,142)

$

-

$

487,802

Provision for credit losses (benefit)

 

(17,186)

 

171

 

-

 

(17,015)

Non-interest income

 

141,182

 

15,274

 

(1,916)

 

154,540

Amortization of intangibles

 

1,027

 

228

 

-

 

1,255

Depreciation expense

 

13,405

 

265

 

-

 

13,670

Other operating expenses

 

356,060

 

(1,852)

 

(948)

 

353,260

Income tax expense (benefit)

 

73,777

 

(313)

 

(371)

 

73,093

Net income

$

212,043

$

6,633

$

(597)

$

218,079

Segment assets

$

72,277,939

$

5,407,659

$

(5,028,305)

$

72,657,293

 

For the six months ended June 30, 2021

 

 

 

 

Banco Popular

 

 

 

Intersegment

(In thousands)

 

 

 

de Puerto Rico

 

Popular U.S.

 

Eliminations

Net interest income

 

 

$

829,523

$

157,912

$

3

Provision for credit losses (benefit)

 

 

 

(67,403)

 

(31,864)

 

-

Non-interest income

 

 

 

271,260

 

10,933

 

(275)

Amortization of intangibles

 

 

 

1,721

 

333

 

-

Depreciation expense

 

 

 

23,951

 

3,925

 

-

Other operating expenses

 

 

 

614,583

 

101,727

 

(272)

Income tax expense

 

 

 

122,427

 

28,198

 

-

Net income

 

 

$

405,504

$

66,526

$

-

Segment assets

 

 

$

62,104,522

$

10,197,371

$

(23,954)

 

 

 

 

 

 

 

 

 

For the six months ended June 30, 2021

 

 

Reportable

 

 

 

 

 

Total

(In thousands)

 

Segments

 

Corporate

 

Eliminations

 

Popular, Inc.

Net interest income (expense)

$

987,438

$

(20,524)

$

-

$

966,914

Provision for credit losses (benefit)

 

(99,267)

 

26

 

-

 

(99,241)

Non-interest income

 

281,918

 

28,424

 

(2,149)

 

308,193

Amortization of intangibles

 

2,054

 

252

 

-

 

2,306

Depreciation expense

 

27,876

 

532

 

-

 

28,408

Other operating expenses

 

716,038

 

(1,182)

 

(1,857)

 

712,999

Income tax expense (benefit)

 

150,625

 

(646)

 

(55)

 

149,924

Net income

$

472,030

$

8,918

$

(237)

$

480,711

Segment assets

$

72,277,939

$

5,407,659

$

(5,028,305)

$

72,657,293

114

 

2020

For the quarter ended June 30, 2020

 

 

 

 

Banco Popular

 

 

 

Intersegment

(In thousands)

 

 

 

de Puerto Rico

 

Popular U.S.

 

Eliminations

Net interest income

 

 

$

387,164

$

73,704

$

4

Provision for credit losses

 

 

 

59,789

 

2,681

 

-

Non-interest income

 

 

 

95,803

 

6,413

 

(136)

Amortization of intangibles

 

 

 

1,605

 

166

 

-

Depreciation expense

 

 

 

12,074

 

2,105

 

-

Other operating expenses

 

 

 

283,533

 

50,876

 

(135)

Income tax expense

 

 

 

18,105

 

7,267

 

-

Net income

 

 

$

107,861

$

17,022

$

3

Segment assets

 

 

$

51,967,412

$

10,594,628

$

(35,439)

 

 

 

 

 

 

 

 

 

For the quarter ended June 30, 2020

 

 

Reportable

 

 

 

 

 

 

(In thousands)

 

Segments

 

Corporate

 

Eliminations

 

Total Popular, Inc.

Net interest income (expense)

$

460,872

$

(9,991)

$

-

$

450,881

Provision for credit losses (benefit)

 

62,470

 

(21)

 

-

 

62,449

Non-interest income

 

102,080

 

11,954

 

(1,979)

 

112,055

Amortization of intangibles

 

1,771

 

25

 

-

 

1,796

Depreciation expense

 

14,179

 

236

 

-

 

14,415

Other operating expenses

 

334,274

 

(1,345)

 

(909)

 

332,020

Income tax expense (benefit)

 

25,372

 

(330)

 

(414)

 

24,628

Net income

$

124,886

$

3,398

$

(656)

$

127,628

Segment assets

$

62,526,601

$

5,219,408

$

(4,900,657)

$

62,845,352

 

For the six months ended June 30, 2020

 

 

 

 

Banco Popular

 

 

 

Intersegment

(In thousands)

 

 

 

de Puerto Rico

 

Popular U.S.

 

Eliminations

Net interest income

 

 

$

796,790

$

146,393

$

7

Provision for credit losses

 

 

 

173,371

 

78,672

 

-

Non-interest income

 

 

 

207,945

 

11,645

 

(276)

Amortization of intangibles

 

 

 

3,887

 

333

 

-

Depreciation expense

 

 

 

24,361

 

4,058

 

-

Other operating expenses

 

 

 

583,910

 

106,070

 

(272)

Income tax expense (benefit)

 

 

 

33,206

 

(4,684)

 

-

Net income (loss)

 

 

$

186,000

$

(26,411)

$

3

Segment assets

 

 

$

51,967,412

$

10,594,628

$

(35,439)

 

 

 

 

 

 

 

 

 

For the six months ended June 30, 2020

 

 

Reportable

 

 

 

 

 

Total

(In thousands)

 

Segments

 

Corporate

 

Eliminations

 

Popular, Inc.

Net interest income (expense)

$

943,190

$

(19,214)

$

-

$

923,976

Provision for credit losses

 

252,043

 

137

 

-

 

252,180

Non-interest income

 

219,314

 

21,415

 

(2,031)

 

238,698

Amortization of intangibles

 

4,220

 

49

 

-

 

4,269

Depreciation expense

 

28,419

 

482

 

-

 

28,901

Other operating expenses

 

689,708

 

(308)

 

(1,731)

 

687,669

Income tax expense (benefit)

 

28,522

 

(652)

 

(145)

 

27,725

Net income

$

159,592

$

2,493

$

(155)

$

161,930

Segment assets

$

62,526,601

$

5,219,408

$

(4,900,657)

$

62,845,352

 

Additional disclosures with respect to the Banco Popular de Puerto Rico reportable segment are as follows:

115

 

2021

For the quarter ended June 30, 2021

Banco Popular de Puerto Rico

 

 

 

 

Consumer

 

Other

 

 

 

Total Banco

 

 

Commercial

 

and Retail

 

Financial

 

 

 

Popular de

(In thousands)

 

Banking

 

Banking

 

Services

 

Eliminations

 

Puerto Rico

Net interest income

$

180,840

$

237,155

$

1,205

$

-

$

419,200

Provision for credit losses (benefit)

 

(17,751)

 

(4,291)

 

-

 

-

 

(22,042)

Non-interest income

 

28,832

 

81,294

 

26,329

 

(403)

 

136,052

Amortization of intangibles

 

53

 

694

 

113

 

-

 

860

Depreciation expense

 

5,231

 

6,413

 

164

 

-

 

11,808

Other operating expenses

 

90,132

 

193,716

 

24,238

 

(423)

 

307,663

Income tax expense

 

44,341

 

18,113

 

1,160

 

-

 

63,614

Net income

$

87,666

$

103,804

$

1,859

$

20

$

193,349

Segment assets

$

61,313,631

$

30,633,318

$

2,313,470

$

(32,155,897)

$

62,104,522

 

For the six months ended June 30, 2021

Banco Popular de Puerto Rico

 

 

 

 

Consumer

 

Other

 

 

 

Total Banco

 

 

Commercial

 

and Retail

 

Financial

 

 

 

Popular de

(In thousands)

 

Banking

 

Banking

 

Services

 

Eliminations

 

Puerto Rico

Net interest income

$

360,351

$

466,541

$

2,631

$

-

$

829,523

Provision for credit losses (benefit)

 

(45,357)

 

(22,046)

 

-

 

-

 

(67,403)

Non-interest income

 

54,573

 

167,491

 

49,987

 

(791)

 

271,260

Amortization of intangibles

 

107

 

1,388

 

226

 

-

 

1,721

Depreciation expense

 

10,520

 

13,098

 

333

 

-

 

23,951

Other operating expenses

 

176,960

 

393,032

 

45,506

 

(915)

 

614,583

Income tax expense

 

86,449

 

33,695

 

2,283

 

-

 

122,427

Net income

$

186,245

$

214,865

$

4,270

$

124

$

405,504

Segment assets

$

61,313,631

$

30,633,318

$

2,313,470

$

(32,155,897)

$

62,104,522

 

2020

 

For the quarter ended June 30, 2020

 

Banco Popular de Puerto Rico

 

 

 

 

 

Consumer

 

Other

 

 

 

Total Banco

 

 

 

Commercial

 

and Retail

 

Financial

 

 

 

Popular de

(In thousands)

 

Banking

 

Banking

 

Services

 

Eliminations

 

Puerto Rico

Net interest income

$

159,725

$

223,634

$

3,805

$

-

$

387,164

Provision for credit losses

 

8,870

 

50,919

 

-

 

-

 

59,789

Non-interest income

 

25,255

 

47,266

 

23,525

 

(243)

 

95,803

Amortization of intangibles

 

50

 

902

 

653

 

-

 

1,605

Depreciation expense

 

5,077

 

6,836

 

161

 

-

 

12,074

Other operating expenses

 

73,451

 

189,631

 

20,705

 

(254)

 

283,533

Income tax expense (benefit)

 

24,324

 

(8,235)

 

2,016

 

-

 

18,105

Net income

$

73,208

$

30,847

$

3,795

$

11

$

107,861

Segment assets

$

44,866,934

$

27,443,801

$

2,524,764

$

(22,868,087)

$

51,967,412

 

 

For the six months ended June 30, 2020

 

Banco Popular de Puerto Rico

 

 

 

 

Consumer

 

Other

 

 

 

Total Banco

 

 

Commercial

 

and Retail

 

Financial

 

 

 

Popular de

(In thousands)

 

Banking

 

Banking

 

Services

 

Eliminations

 

Puerto Rico

Net interest income

$

321,259

$

466,690

$

8,841

$

-

$

796,790

Provision for credit losses

 

19,183

 

154,188

 

-

 

-

 

173,371

Non-interest income

 

49,967

 

111,250

 

47,265

 

(537)

 

207,945

Amortization of intangibles

 

98

 

2,212

 

1,577

 

-

 

3,887

Depreciation expense

 

10,227

 

13,814

 

320

 

-

 

24,361

Other operating expenses

 

148,326

 

391,673

 

44,474

 

(563)

 

583,910

Income tax expense (benefit)

 

49,940

 

(21,187)

 

4,453

 

-

 

33,206

Net income

$

143,452

$

37,240

$

5,282

$

26

$

186,000

Segment assets

$

44,866,934

$

27,443,801

$

2,524,764

$

(22,868,087)

$

51,967,412

 

116

 

Geographic Information

 

The following information presents selected financial information based on the geographic location where the Corporation conducts its business. The banking operations of BPPR are primarily based in Puerto Rico, where it has the largest retail banking franchise. BPPR also conducts banking operations in the U.S. Virgin Islands, the British Virgin Islands and New York. BPPR’s banking operations in the United States include E-loan, an online platform used to offer personal loans, co-branded credit cards offerings and an online deposit gathering platform. In the Virgin Islands, the BPPR segment offers banking products, including loans and deposits. During the quarter ended June 30, 2021, the BPPR segment generated approximately $25.5 million (2020 - $28.7 million) in revenues from its operations in the United States, including net interest income, service charges on deposit accounts and other service fees. In addition, the BPPR segment generated $23.4 million in revenues (2020 - $22.3 million) from its operations in the U.S. and British Virgin Islands. At June 30, 2021, total assets for the BPPR segment related to its operations in the United States amounted to $595 million (2020 - $608 million).

 

Geographic Information

 

 

 

 

 

 

 

Quarter ended

 

Six months ended

(In thousands)

 

June 30, 2021

 

June 30, 2020

 

June 30, 2021

 

June 30, 2020

Revenues:[1]

 

 

 

 

 

 

 

 

Puerto Rico

$

529,143

$

451,744

$

1,047,852

$

941,380

United States

 

95,276

 

92,422

 

191,288

 

184,101

Other

 

17,923

 

18,770

 

35,967

 

37,193

Total consolidated revenues

$

642,342

$

562,936

$

1,275,107

$

1,162,674

[1]

Total revenues include net interest income, service charges on deposit accounts, other service fees, mortgage banking activities, net gain (loss), including impairment on equity securities, net (loss) profit on trading account debt securities, net (loss) gain on sale of loans, including valuation adjustment on loans held-for-sale, adjustments (expense) to indemnity reserves on loans sold, and other operating income.

 

Selected Balance Sheet Information:

(In thousands)

 

June 30, 2021

 

December 31, 2020

Puerto Rico

 

 

 

 

 

Total assets

$

60,973,387

$

54,143,954

 

Loans

 

20,030,055

 

20,413,112

 

Deposits

 

55,220,372

 

47,586,880

United States

 

 

 

 

 

Total assets

$

10,788,871

$

10,878,030

 

Loans

 

8,466,962

 

8,396,983

 

Deposits

 

7,651,800

 

7,672,549

Other

 

 

 

 

 

Total assets

$

895,035

$

904,016

 

Loans

 

650,915

 

674,556

 

Deposits[1]

 

1,769,604

 

1,606,911

[1]

Represents deposits from BPPR operations located in the U.S. and British Virgin Islands.

117

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report includes management’s discussion and analysis (“MD&A”) of the consolidated financial position and financial performance of Popular, Inc. (the “Corporation” or “Popular”). All accompanying tables, financial statements and notes included elsewhere in this report should be considered an integral part of this analysis.

 

The Corporation is a diversified, publicly-owned financial holding company subject to the supervision and regulation of the Board of Governors of the Federal Reserve System. The Corporation has operations in Puerto Rico, the United States (“U.S.”) mainland and the U.S. and British Virgin Islands. In Puerto Rico, the Corporation provides retail, mortgage and commercial banking services through its principal banking subsidiary, Banco Popular de Puerto Rico (“BPPR”), as well as investment banking, broker-dealer, auto and equipment leasing and financing, and insurance services through specialized subsidiaries. The Corporation’s mortgage origination business is conducted under the brand name Popular Mortgage, a division of BPPR. In the U.S. mainland, the Corporation provides retail, mortgage and commercial banking services through its New York-chartered banking subsidiary, Popular Bank (“PB”), which has branches located in New York, New Jersey and Florida. Note 32 to the Consolidated Financial Statements presents information about the Corporation’s business segments.

 

The Corporation has several investments which it accounts for under the equity method. As of June 30, 2021, the Corporation had a 16.19% interest in EVERTEC, Inc. (“EVERTEC”), whose operating subsidiaries provide transaction processing services throughout the Caribbean and Latin America, and service many of the Corporation’s systems infrastructure and transaction processing businesses. During the quarter and six months ended June 30, 2021, the Corporation recorded $8.2 million and $14.1 million, respectively, in earnings from its investment in EVERTEC, which had a carrying amount of $100 million as of the end of the quarter. Also, the Corporation had a 15.84% equity interest in Centro Financiero BHD León, S.A. (“BHD León”), one of the largest banking and financial services groups in the Dominican Republic. During the quarter and six months ended June 30, 2021, the Corporation recorded $6.2 million and $12.6 million, respectively, in earnings from its investment in BHD León, which had a carrying amount of $165 million, as of the end of the quarter.

 

SIGNIFICANT EVENTS

 

Capital Actions

 

On May 3, 2021, the Corporation announced that it had entered into an accelerated share repurchase agreement (the “ASR Agreement”) to repurchase an aggregate of $350 million of Popular’s common stock. Under the terms of the ASR Agreement, on May 4, 2021 the Corporation made an initial payment of $350 million and received an initial delivery of 3,785,831 shares of Popular’s Common Stock (the “Initial Shares”). The transaction was accounted for as a treasury stock transaction. As a result of the receipt of the Initial Shares, the Corporation recognized in shareholders’ equity approximately $280 million in treasury stock and $70 million as a reduction in capital surplus. Upon the final settlement of the ASR Agreement, the Corporation expects to further adjust its treasury stock and capital surplus accounts to reflect the final delivery or receipt of cash or shares, which will depend on the volume-weighted average price of the Corporation’s common stock during the term of the ASR Agreement, less a discount. The final settlement of the ASR Agreement is expected to occur no later than the third quarter of 2021.

 

On May 6, 2021, the Corporation’s Board of Directors approved a quarterly cash dividend of $0.45 per share, an increase from the previous $0.40 per share quarterly dividend, on its outstanding common stock. The dividend was paid on July 1, 2021 to shareholders of record at the close of business on May 26, 2021.

OVERVIEW

Table 1 provides selected financial data and performance indicators for the quarters and six-month periods ended June 30, 2021 and 2020.

118

 

Net interest income on a taxable equivalent basis – Non-GAAP Financial Measure

 

The Corporation’s interest earning assets include investment securities and loans that are exempt from income tax, principally in Puerto Rico. The main sources of tax-exempt interest income are certain investments in obligations of the U.S. Government, its agencies and sponsored entities, certain obligations of the Commonwealth of Puerto Rico and/or its agencies and municipalities and assets held by the Corporation’s international banking entities. To facilitate the comparison of all interest related to these assets, the interest income has been converted to a taxable equivalent basis, using the applicable statutory income tax rates for each period. The taxable equivalent computation considers the interest expense and other related expense disallowances required by Puerto Rico tax law. Thereunder, the exempt interest can be deducted up to the amount of taxable income.

Net interest income on a taxable equivalent basis is a non-GAAP financial measure. Management believes that this presentation provides meaningful information since it facilitates the comparison of revenues arising from taxable and tax-exempt sources. Net interest income on a taxable equivalent basis is presented with its different components in Tables 2 and 3, along with the reconciliation to net interest income (GAAP), for the quarter and six-month periods ended June 30, 2021 as compared with the same periods in 2020, segregated by major categories of interest earning assets and interest-bearing liabilities.

Non-GAAP financial measures used by the Corporation may not be comparable to similarly named Non-GAAP financial measures used by other companies.

Financial highlights for the quarter ended June 30, 2021

For the quarter ended June 30, 2021, the Corporation recorded net income of $ 218.1 million, compared to net income of $ 127.6 million for the same quarter of the previous year. Net interest margin for the second quarter of 2021 was 2.91%, a decrease of 34 basis points when compared to 3.25% for the same quarter of the previous year, mainly driven by higher money market and investment securities which carry a low yield, and the low interest rate environment, partially offset by higher interest and fees from loans under the U.S. Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”), and lower cost of deposits. On a taxable equivalent basis, the net interest margin was of 3.22%, compared to 3.56% for the same quarter of the previous year. The provision for credit losses for the loan portfolio was a benefit of $17.5 million, a decrease of $80.6 million when compared to the same quarter of 2020, reflecting positive changes to the economic outlook, qualitative reserves, and portfolio credit quality. Non-interest income was higher by $42.5 million mostly due to higher other service fees (credit and debit service fees) and higher service charges on deposit accounts, resulting from higher transactional volumes in part due to the business disruptions and the waiver of service charges and late fees related to the COVID-19 pandemic during 2020. Operating expenses were higher by $20.0 million principally due to higher personnel costs, mostly related to incentive compensation, and higher professional fees expenses.

Total assets at June 30, 2021 amounted to $72.7 billion, compared to $65.9 billion, at December 31, 2020. The increase was mainly due to higher money market investments and debt securities available-for-sale.

Total deposits at June 30, 2021 increased by $7.7 billion when compared to deposits at December 31, 2020, mainly due to higher Puerto Rico public sector deposits and higher retail and commercial demand deposits at BPPR.

At June 30, 2021, the Corporation’s tangible book value per common share was $63.24.

Capital ratios continued to be strong. As of June 30, 2021, the Corporation’s common equity tier 1 capital ratio was 16.55%, the tier 1 leverage ratio was 7.34%, and the total capital ratio was 19.09%. Refer to Table 8 for capital ratios.

Refer to the Operating Results Analysis and Financial Condition Analysis within this MD&A for additional discussion of significant quarterly variances and items impacting the financial performance of the Corporation.

As a financial services company, the Corporation’s earnings are significantly affected by general business and economic conditions in the markets which we serve. Lending and deposit activities and fee income generation are influenced by the level of business spending and investment, consumer income, spending and savings, capital market activities, competition, customer preferences, interest rate conditions and prevailing market rates on competing products.

119

 

The Corporation operates in a highly regulated environment and may be adversely affected by changes in federal and local laws and regulations. Also, competition with other financial institutions could adversely affect its profitability.

The Corporation continuously monitors general business and economic conditions, industry-related indicators and trends, competition, interest rate volatility, credit quality indicators, loan and deposit demand, operational and systems efficiencies, revenue enhancements and changes in the regulation of financial services companies.

The description of the Corporation’s business contained in Item 1 of the Corporation’s 2020 Form 10-K, while not all inclusive, discusses additional information about the business of the Corporation. Readers should also refer to “Part I - Item 1A” of the 2020 Form 10-K and “Part II - Item 1A” of any subsequent Form 10-Q for a discussion of certain risks and uncertainties to which the Corporation is subject, many beyond the Corporation’s control that, in addition to the other information in this Form 10-Q, readers should consider.

The Corporation’s common stock is traded on the NASDAQ Global Select Market under the symbol BPOP.

120

 

Table 1 - Financial Highlights

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Condition Highlights

 

 

 

 

 

 

 

 

Ending balances at

 

 

Average for the six months ended

(In thousands)

 

June 30, 2021

December 31, 2020

 

 

Variance

 

 

June 30, 2021

 

June 30, 2020

 

Variance

 

Money market investments

$

17,802,801

 

$

11,640,880

 

$

6,161,921

 

$

14,003,612

 

$

5,999,029

 

$

8,004,583

 

Investment securities

 

22,647,401

 

 

21,864,184

 

 

783,217

 

 

21,954,354

 

 

18,051,429

 

 

3,902,925

 

Loans

 

29,147,932

 

 

29,484,651

 

 

(336,719)

 

 

29,234,350

 

 

27,842,471

 

 

1,391,879

 

Earning assets

 

69,598,134

 

 

62,989,715

 

 

6,608,419

 

 

65,192,316

 

 

51,892,929

 

 

13,299,387

 

Total assets

 

72,657,293

 

 

65,926,000

 

 

6,731,293

 

 

68,237,653

 

 

55,076,592

 

 

13,161,061

 

Deposits

 

64,641,776

 

 

56,866,340

 

 

7,775,436

 

 

60,116,322

 

 

47,315,592

 

 

12,800,730

 

Borrowings

 

1,267,545

 

 

1,346,284

 

 

(78,739)

 

 

1,329,988

 

 

1,331,345

 

 

(1,357)

 

Stockholders’ equity

 

5,814,614

 

 

6,028,687

 

 

(214,073)

 

 

5,688,471

 

 

5,377,625

 

 

310,846

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Highlights

Quarters ended June 30,

 

Six months ended June 30,

 

(In thousands, except per share information)

 

2021

 

 

2020

 

 

Variance

 

 

2021

 

 

2020

 

 

Variance

 

Net interest income

$

487,802

 

$

450,881

 

$

36,921

 

$

966,914

 

$

923,976

 

$

42,938

 

Provision for credit losses (benefit)

 

(17,015)

 

 

62,449

 

 

(79,464)

 

 

(99,241)

 

 

252,180

 

 

(351,421)

 

Non-interest income

 

154,540

 

 

112,055

 

 

42,485

 

 

308,193

 

 

238,698

 

 

69,495

 

Operating expenses

 

368,185

 

 

348,231

 

 

19,954

 

 

743,713

 

 

720,839

 

 

22,874

 

Income before income tax

 

291,172

 

 

152,256

 

 

138,916

 

 

630,635

 

 

189,655

 

 

440,980

 

Income tax expense

 

73,093

 

 

24,628

 

 

48,465

 

 

149,924

 

 

27,725

 

 

122,199

 

Net income

$

218,079

 

$

127,628

 

$

90,451

 

$

480,711

 

$

161,930

 

$

318,781

 

Net income applicable to common stock

$

217,726

 

$

127,275

 

$

90,451

 

$

480,005

 

$

160,877

 

$

319,128

 

Net income per common share – basic

$

2.67

 

$

1.49

 

$

1.18

 

$

5.80

 

$

1.83

 

$

3.97

 

Net income per common share – diluted

$

2.66

 

$

1.49

 

$

1.17

 

$

5.79

 

$

1.83

 

$

3.96

 

Dividends declared per common share

$

0.45

 

$

0.40

 

$

0.05

 

$

0.85

 

$

0.80

 

$

0.05

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters ended June 30,

 

 

 

Six months ended June 30,

Selected Statistical Information

 

 

 

 

2021

 

 

2020

 

 

 

 

 

2021

 

 

2020

 

Common Stock Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

End market price

 

 

 

$

75.05

 

 

37.17

 

 

 

 

$

75.05

 

 

37.17

 

Book value per common share at period end

 

 

71.82

 

 

68.40

 

 

 

 

 

71.82

 

 

68.40

 

Profitability Ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on assets

 

 

 

 

1.24

%

0.87

%

 

 

 

1.42

%

0.59

%

Return on common equity

 

 

 

 

15.43

 

 

9.74

 

 

 

 

 

17.08

 

 

6.06

 

Net interest spread

 

 

2.82

 

 

3.11

 

 

 

 

 

2.89

 

 

3.40

 

Net interest spread (taxable equivalent) - Non-GAAP

 

 

3.13

 

 

3.42

 

 

 

 

 

3.21

 

 

3.75

 

Net interest margin

 

 

2.91

 

 

3.25

 

 

 

 

 

2.99

 

 

3.58

 

Net interest margin (taxable equivalent) - Non-GAAP

 

 

3.22

 

 

3.56

 

 

 

 

 

3.31

 

 

3.93

 

Capitalization Ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average equity to average assets

 

 

 

 

8.08

%

8.97

%

 

 

 

8.34

%

9.76

%

Common equity Tier 1 capital

 

 

 

 

16.55

 

 

15.71

 

 

 

 

 

16.55

 

 

15.71

 

Tier I capital

 

 

 

 

16.62

 

 

15.78

 

 

 

 

 

16.62

 

 

15.78

 

Total capital

 

 

 

 

19.09

 

 

18.29

 

 

 

 

 

19.09

 

 

18.29

 

Tier 1 leverage

 

 

 

 

7.34

 

 

8.13

 

 

 

 

 

7.34

 

 

8.13

 

121

 

CRITICAL ACCOUNTING POLICIES / ESTIMATES

 

The accounting and reporting policies followed by the Corporation and its subsidiaries conform to generally accepted accounting principles in the United States of America and general practices within the financial services industry. Various elements of the Corporation’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. These estimates are made under facts and circumstances at a point in time and changes in those facts and circumstances could produce actual results that differ from those estimates.

Management has discussed the development and selection of the critical accounting policies and estimates with the Corporation’s Audit Committee. The Corporation has identified as critical accounting policies those related to: (i) Fair Value Measurement of Financial Instruments; (ii) Loans and Allowance for Credit Losses; (iii) Loans Acquired with Deteriorated Credit Quality; (iv) Income Taxes; (v) Goodwill; and (vi) Pension and Postretirement Benefit Obligations. For a summary of these critical accounting policies and estimates, refer to that particular section in the MD&A included in Popular, Inc.’s 2020 Form 10-K. Also, refer to Note 2 to the Consolidated Financial Statements included in the 2020 Form 10-K for a summary of the Corporation’s significant accounting policies and to Note 3 to the Consolidated Financial Statements included in this Form 10-Q for information on recently adopted accounting standard updates.

122

 

OPERATING RESULTS ANALYSIS

NET INTEREST INCOME

Net interest income for the second quarter of 2021 was $487.8 million, an increase of $36.9 million when compared to $450.9 million for the same quarter of 2020. Taxable equivalent net interest income was $541.2 million for the second quarter of 2021 compared to $493.0 million in the second quarter of 2020, an increase of $48.2 million.

Net interest margin for the second quarter of 2021 was 2.91%, a decrease of 34 basis points when compared to 3.25% for the same quarter of the previous year. The decrease in net interest margin is mainly driven by a higher proportion of money market and investment securities which carry a low yield, and the low interest rate environment that has prevailed since March 2020 when, at the beginning of the COVID-19 pandemic, the Federal Reserve decreased rates by 150 basis points. This was partially offset by higher interest and fees related to loans issued under the SBA’s PPP, and lower cost of deposits. The net interest margin, on a taxable equivalent basis, for the second quarter of 2021 was 3.22%, a decrease of 34 basis points when compared to 3.56% for the same quarter of 2020. The detailed variances of the increase in net interest income are described below:

Higher interest income from money market and investment securities resulting from an increase in deposits stemming from the COVID-19 relief programs;

Higher interest income from loans driven by higher average loan balances, mainly in the mortgage loans portfolio as a result of the loan repurchases from the GNMA, FNMA and FHMLC loan servicing portfolios, which occurred in the third quarter of 2020, higher volume of auto loans and lease financing and higher volume and amortization of fees from PPP loans. These positive variances were partially offset by lower interest income from the decrease in consumer loans, and by the impact of the origination of loans in a lower interest rate environment. The average balance and yield of PPP loans in Q2 2021 was $1.2 billion and 4.45%, respectively, compared to $913.9 million and 2.85%, respectively, in the same quarter of 2020 or an increase in interest income and fees of $7.4 million; and

Lower interest expense on deposits due to the decrease in interest cost by 19 basis points resulting from the decrease in market rates that occurred in March 2020 and that prompted the decrease in cost of variable rate deposits, mostly Puerto Rico Government and also management’s actions to reduce rates in most deposit categories, partially offset by higher average balance of interest-bearing deposits increasing by $7.6 billion when compared with the same quarter in 2020.

Interest income for the quarter ended June 30, 2021, included the amortization of deferred loans fees, prepayment penalties, late fees and the amortization of premium/discounts, including the amortization of the discount of PCD loans, amounted to $31.1 million compared to $20.8 million reported in the same quarter of 2020. The increase in this amortization is related to higher amortized fees resulting mainly from the forgiveness of PPP loans of $10.9 million compared to $4.2 million in the second quarter of 2020, partially offset by a lower amortization of the fair value discount of auto and credit card portfolios acquired in previous years.

123

 

 

Table 2 - Analysis of Levels & Yields on a Taxable Equivalent Basis (Non-GAAP)

 

Quarters ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variance

 

Average Volume

 

Average Yields / Costs

 

 

 

Interest

 

Attributable to

 

2021

 

2020

Variance

 

2021

 

2020

 

Variance

 

 

 

 

 

2021

 

2020

 

Variance

 

Rate

 

Volume

 

(In millions)

 

 

 

 

 

 

 

 

 

 

(In thousands)

$

15,540

$

7,973

$

7,567

 

0.11

%

0.10

%

0.01

%

 

Money market investments

$

4,275

$

2,016

$

2,259

$

192

$

2,067

 

22,509

 

19,332

 

3,177

 

2.35

 

2.25

 

0.10

 

 

Investment securities [1]

 

132,105

 

108,608

 

23,497

 

3,894

 

19,603

 

87

 

51

 

36

 

5.22

 

6.82

 

(1.60)

 

 

Trading securities

 

1,134

 

861

 

273

 

(236)

 

509

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total money market,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

investment and trading

 

 

 

 

 

 

 

 

 

 

 

38,136

 

27,356

 

10,780

 

1.44

 

1.64

 

(0.20)

 

 

 

securities

 

137,514

 

111,485

 

26,029

 

3,850

 

22,179

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

13,539

 

13,350

 

189

 

5.24

 

5.09

 

0.15

 

 

 

Commercial

 

176,857

 

168,799

 

8,058

 

5,642

 

2,416

 

858

 

935

 

(77)

 

5.43

 

5.69

 

(0.26)

 

 

 

Construction

 

11,603

 

13,223

 

(1,620)

 

(555)

 

(1,065)

 

1,262

 

1,082

 

180

 

6.01

 

5.97

 

0.04

 

 

 

Leasing

 

18,964

 

16,142

 

2,822

 

121

 

2,701

 

7,765

 

7,038

 

727

 

5.12

 

5.24

 

(0.12)

 

 

 

Mortgage

 

99,364

 

92,221

 

7,143

 

(2,201)

 

9,344

 

2,431

 

2,918

 

(487)

 

11.47

 

11.43

 

0.04

 

 

 

Consumer

 

68,746

 

82,792

 

(14,046)

 

(544)

 

(13,502)

 

3,280

 

2,957

 

323

 

8.58

 

8.98

 

(0.40)

 

 

 

Auto

 

70,137

 

66,048

 

4,089

 

(2,897)

 

6,986

 

29,135

 

28,280

 

855

 

6.13

 

6.24

 

(0.11)

 

 

Total loans

 

445,671

 

439,225

 

6,446

 

(434)

 

6,880

$

67,271

$

55,636

$

11,635

 

3.47

%

3.98

%

(0.51)

%

 

Total earning assets

$

583,185

$

550,710

$

32,475

$

3,416

$

29,059

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

$

25,102

$

19,392

$

5,710

 

0.13

%

0.24

%

(0.11)

%

 

 

NOW and money market [2]

$

7,972

$

11,551

$

(3,579)

$

(6,570)

$

2,991

 

15,384

 

11,856

 

3,528

 

0.18

 

0.35

 

(0.17)

 

 

 

Savings

 

6,916

 

10,250

 

(3,334)

 

(6,025)

 

2,691

 

7,104

 

8,730

 

(1,626)

 

0.74

 

0.97

 

(0.23)

 

 

 

Time deposits

 

13,172

 

20,979

 

(7,807)

 

(4,420)

 

(3,387)

 

47,590

 

39,978

 

7,612

 

0.24

 

0.43

 

(0.19)

 

 

Total interest bearing deposits

 

28,060

 

42,780

 

(14,720)

 

(17,015)

 

2,295

 

91

 

167

 

(76)

 

0.27

 

1.55

 

(1.28)

 

 

Short-term borrowings

 

62

 

646

 

(584)

 

(381)

 

(203)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other medium and

 

 

 

 

 

 

 

 

 

 

 

1,224

 

1,169

 

55

 

4.53

 

4.90

 

(0.37)

 

 

 

long-term debt

 

13,837

 

14,263

 

(426)

 

(702)

 

276

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest bearing

 

 

 

 

 

 

 

 

 

 

 

48,905

 

41,314

 

7,591

 

0.34

 

0.56

 

(0.22)

 

 

 

liabilities

 

41,959

 

57,689

 

(15,730)

 

(18,098)

 

2,368

 

14,920

 

11,006

 

3,914

 

 

 

 

 

 

 

 

Demand deposits

 

 

 

 

 

 

 

 

 

 

 

3,446

 

3,316

 

130

 

 

 

 

 

 

 

 

Other sources of funds

 

 

 

 

 

 

 

 

 

 

$

67,271

$

55,636

$

11,635

 

0.25

%

0.42

%

(0.17)

%

 

Total source of funds

 

41,959

 

57,689

 

(15,730)

 

(18,098)

 

2,368

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin/

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.22

%

3.56

%

(0.34)

%

 

 

income on a taxable equivalent basis (Non-GAAP)

 

541,226

 

493,021

 

48,205

$

21,514

$

26,691

 

 

 

 

 

 

 

3.13

%

3.42

%

(0.29)

%

 

Net interest spread

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable equivalent adjustment

 

53,424

 

42,140

 

11,284

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin/ income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.91

%

3.25

%

(0.34)

%

 

 

non-taxable equivalent basis (GAAP)

$

487,802

$

450,881

$

36,921

 

 

 

 

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 outstanding securities balances are based upon amortized cost excluding any unrealized gains or losses on securities available-for-sale.

[2] Includes interest bearing demand deposits corresponding to certain government entities in Puerto Rico.

124

 

Net interest income for the first six months of 2021 was $966.9 million, or $42.9 million higher than the same period in 2020. Taxable equivalent net interest income was $1.1 billion for the six months ended June 30, 2021, or $58.2 million higher than the same period in 2020. Net interest margin was 2.99%, a decrease of 59 basis points when compared to 3.58% in 2020. The higher volume of investment securities and money market deposits resulted in higher interest income, but contributed negatively to the decrease in net interest margin, given the low rate of these assets coupled with the low interest rate environment as mentioned above. Net interest margin, on a taxable equivalent basis, for the six months ended June 30, 2021, was 3.31%, a decrease of 62 basis points when compared to the 3.93% for the same period of 2020. The drivers of the variances in net interest income for the six-month period are:

Positive variances:

Higher interest income from money market, trading and investment securities resulting from the higher volume of deposits, partially offset by lower rates and;

 

Lower interest expense on deposits due to lower interest cost resulting from the decrease in market rates, mostly on Puerto Rico Government deposits and management actions taken to reduce deposit costs in most categories, partially offset by higher average balance of deposits.

Negative variances:

Lower interest income from loans mainly consumer loans driven by lower volume of credit cards and personal loans and the origination of loans in a lower interest rate environment, partially offset by a higher volume of lease financing and auto loans and increased demand and higher amortization on the discount of PPP loans during 2021.

Interest income for the six months ended June 30, 2021, included the amortization of deferred loans fees, prepayment penalties, late fees and the amortization of premium/discounts, including the amortization of the discount of PCD loans, amounted to $64.8 million, compared to $48.9 million in the same period of 2020. The increase in loan fee income was driven by PPP loan fees, which amounted to $30.9 million for the six-month periods ended June 30, 2021 versus $4.2 million in the six-month period ended June 30, 2020.

125

 

Table 3 - Analysis of Levels & Yields on a Taxable Equivalent Basis from Continuing Operations (Non-GAAP)

 

Six months ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variance

Average Volume

 

Average Yields / Costs

 

 

 

Interest

 

Attributable to

 

2021

 

2020

Variance

 

2021

 

2020

 

Variance

 

 

 

 

 

2021

 

2020

 

Variance

 

Rate

 

Volume

 

(In millions)

 

 

 

 

 

 

 

 

 

 

(In thousands)

$

14,004

$

5,999

$

8,005

 

0.11

%

0.47

%

(0.36)

%

 

Money market investments

$

7,386

$

14,016

$

(6,630)

$

(16,173)

$

9,543

 

21,868

 

17,995

 

3,873

 

2.37

 

2.58

 

(0.21)

 

 

Investment securities [1]

 

257,411

 

231,323

 

26,088

 

(22,358)

 

48,446

 

86

 

56

 

30

 

5.10

 

6.74

 

(1.64)

 

 

Trading securities

 

2,167

 

1,881

 

286

 

(543)

 

829

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total money market,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

investment and trading

 

 

 

 

 

 

 

 

 

 

 

35,958

 

24,050

 

11,908

 

1.49

 

2.06

 

(0.57)

 

 

 

securities

 

266,964

 

247,220

 

19,744

 

(39,074)

 

58,818

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

13,582

 

12,846

 

736

 

5.30

 

5.51

 

(0.21)

 

 

 

Commercial

 

355,922

 

352,002

 

3,920

 

(15,774)

 

19,694

 

884

 

898

 

(14)

 

5.38

 

5.91

 

(0.53)

 

 

 

Construction

 

23,504

 

26,398

 

(2,894)

 

(2,496)

 

(398)

 

1,239

 

1,077

 

162

 

6.02

 

6.02

 

-

 

 

 

Leasing

 

37,318

 

32,411

 

4,907

 

30

 

4,877

 

7,816

 

7,033

 

783

 

5.06

 

5.27

 

(0.21)

 

 

 

Mortgage

 

197,792

 

185,422

 

12,370

 

(7,673)

 

20,043

 

2,472

 

3,014

 

(542)

 

11.35

 

11.49

 

(0.14)

 

 

 

Consumer

 

139,147

 

172,215

 

(33,068)

 

(2,676)

 

(30,392)

 

3,241

 

2,975

 

266

 

8.63

 

9.04

 

(0.41)

 

 

 

Auto

 

138,289

 

133,768

 

4,521

 

(7,105)

 

11,626

 

29,234

 

27,843

 

1,391

 

6.15

 

6.51

 

(0.36)

 

 

Total loans

 

891,972

 

902,216

 

(10,244)

 

(35,694)

 

25,450

$

65,192

$

51,893

$

13,299

 

3.58

%

4.45

%

(0.87)

%

 

Total earning assets

$

1,158,936

$

1,149,436

$

9,500

$

(74,768)

$

84,268

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

$

23,895

$

17,811

$

6,084

 

0.14

%

0.42

%

(0.28)

%

 

 

NOW and money market [2]

$

16,234

$

36,846

$

(20,612)

$

(30,207)

$

9,595

 

14,876

 

11,290

 

3,586

 

0.19

 

0.39

 

(0.20)

 

 

 

Savings

 

13,935

 

21,911

 

(7,976)

 

(14,009)

 

6,033

 

7,184

 

8,211

 

(1,027)

 

0.79

 

1.13

 

(0.34)

 

 

 

Time deposits

 

28,092

 

46,124

 

(18,032)

 

(12,236)

 

(5,796)

 

45,955

 

37,312

 

8,643

 

0.26

 

0.57

 

(0.31)

 

 

Total interest bearing deposits

 

58,261

 

104,881

 

(46,620)

 

(56,452)

 

9,832

 

95

 

198

 

(103)

 

0.44

 

1.72

 

(1.28)

 

 

Short-term borrowings

 

205

 

1,693

 

(1,488)

 

(909)

 

(579)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other medium and

 

 

 

 

 

 

 

 

 

 

 

1,235

 

1,133

 

102

 

4.53

 

5.02

 

(0.49)

 

 

 

long-term debt

 

27,832

 

28,377

 

(545)

 

(2,544)

 

1,999

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest bearing

 

 

 

 

 

 

 

 

 

 

 

47,285

 

38,643

 

8,642

 

0.37

 

0.70

 

(0.33)

 

 

 

liabilities

 

86,298

 

134,951

 

(48,653)

 

(59,905)

 

11,252

 

14,161

 

10,004

 

4,157

 

 

 

 

 

 

 

 

Demand deposits

 

 

 

 

 

 

 

 

 

 

 

3,746

 

3,246

 

500

 

 

 

 

 

 

 

 

Other sources of funds

 

 

 

 

 

 

 

 

 

 

$

65,192

$

51,893

$

13,299

 

0.27

%

0.52

%

(0.25)

%

 

Total source of funds

 

86,298

 

134,951

 

(48,653)

 

(59,905)

 

11,252

 

 

 

 

 

 

3.31

%

3.93

%

(0.62)

%

 

Net interest margin/ income on a taxable equivalent basis (Non-GAAP)

 

1,072,638

 

1,014,485

 

58,153

$

(14,863)

$

73,016

 

 

 

 

 

 

 

3.21

%

3.75

%

(0.54)

%

 

Net interest spread

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable equivalent adjustment

 

105,724

 

90,509

 

15,215

 

 

 

 

 

 

 

 

 

 

 

2.99

%

3.58

%

(0.59)

%

 

Net interest margin/ income non-taxable equivalent basis (GAAP)

$

966,914

$

923,976

$

42,938

 

 

 

 

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 outstanding securities balances are based upon amortized cost excluding any unrealized gains or losses on securities available-for-sale.

[2] Includes interest bearing demand deposits corresponding to certain government entities in Puerto Rico.

126

 

Provision for Credit Losses - Loans Held-in-Portfolio and Unfunded Commitments

For the quarter ended June 30, 2021, the Corporation recorded a release of $17.1 million for its reserve for credit losses related to loans held-in-portfolio and unfunded commitments. The Corporation’s provision for credit losses for its loans-held-in-portfolio for the quarter ended June 30, 2021 decreased by $80.6 million to a benefit of $17.5 million, compared to a provision expense of $63.1 million for the quarter ended June 30, 2020. The decrease reflects the improvements in credit quality and the macroeconomic outlook, and changes in qualitative reserves. The provision for unfunded commitments for the second quarter of 2021 was $0.4 million, compared to $2.3 million for the same period of 2020, when it was recorded as part of other operating expenses.

 

The provision for credit losses for the BPPR segment was a benefit of $22.5 million for the quarter ended June 30, 2021, compared to a provision expense of $60.4 million for the quarter ended June 30, 2020, a decrease of $82.9 million. The Popular U.S. segment provision for credit losses was $5.0 million for the quarter ended June 30, 2021, an increase of $2.3 million, compared to a provision expense of $2.7 million for the same quarter in 2020.

 

For the six month period ended June 30, 2021, the Corporation recorded a release of $99.2 million for its reserve for credit losses related to loans held-in-portfolio and unfunded commitments. The Corporation’s provision for credit losses for its loans-held-in-portfolio for the six month period ended June 30, 2021 decreased by $345.4 million to a benefit of $93.3 million, compared to a provision expense of $252.1 million for the six month period ended June 30, 2020. The decrease reflects the improvements in credit quality and the macroeconomic outlook, and changes in qualitative reserves. The provision for unfunded commitments for the six month period of 2021 reflected a benefit of $5.9 million, compared to a provision expense of $3.5 million for the same period of 2020.

 

The provision for credit losses for the BPPR segment was a benefit of $62.5 million for the six month period ended June 30, 2021, compared to a provision expense of $173.4 million for the six month period ended June 30, 2020, a decrease of $235.9 million. The Popular U.S. segment provision for credit losses was a benefit of $30.8 million for the six month period ended June 30, 2021, a decrease of $109.5 million, compared to a provision expense of $78.7 million for the same period in 2020.

 

At June 30, 2021, the total allowance for credit losses for loans held-in-portfolio amounted to $785.8 million, compared to $896.3 million as of December 31, 2020. The ratio of the allowance for credit losses to loans held-in-portfolio was 2.70% at June 30, 2021, compared to 3.05% at December 31, 2020. Refer to Note 8 to the Consolidated Financial Statements, for additional information on the Corporation’s methodology to estimate its allowance for credit losses (“ACL”). Refer to the Credit Risk section of this MD&A for a detailed analysis of net charge-offs, non-performing assets, the allowance for credit losses and selected loan losses statistics.

 

 

Provision for Credit Losses – Investment Securities

 

The Corporation’s provision for credit losses related to its investment securities held-to-maturity is related to the portfolio of obligations from the Government of Puerto Rico, states and political subdivisions. For the quarter and six month period ended June 30, 2021, the provision for credit losses was $0.1 million expense and $0.1 million benefit, respectively, compared to a benefit of $0.7 million and $0.1 million provision expense, respectively, for the quarter and six month period ended June 30, 2020. At June 30, 2021, the total allowance for credit losses for this portfolio amounted to $10.2 million, compared to $10.3 million as of December 31, 2020. Refer to Note 8 for additional information on the ACL for this portfolio.

 

127

 

Non-Interest Income

 

Non-interest income amounted to $154.5 million for the quarter ended June 30, 2021, compared to $112.0 million for the same quarter of the previous year. The increase in non-interest income by $42.5 million was primarily driven by:

higher service charges on deposit accounts by $10.0 million principally due to higher fees on transactional cash management services at BPPR in part due to the business disruptions and the waiver of fees related to the COVID-19 pandemic during 2020;

higher other service fees by $24.3 million, principally at the BPPR segment, due to higher credit and debit card fees by $15.0 million and $5.4 million, respectively, mainly in interchange income resulting from higher transactional volumes in part due to the business disruptions and the waiver of service charges and late fees related to the COVID-19 pandemic during 2020;

higher income from mortgage banking activities by $3.7 million mainly due to lower unfavorable fair value adjustments on mortgage servicing rights (“MSRs”) by $1.4 million and lower realized losses on closed derivatives positions by $4.0 million, partially offset by $1.7 million in lower unrealized gains on outstanding derivatives positions;

a favorable variance in adjustments to indemnity reserves of $2.8 million mainly due to a reserve release related to loans previously sold with credit recourse; and

higher other operating income by $5.0 million mainly due to higher net earnings from the combined portfolio of investments under the equity method by $4.6 million.

 

Non-interest income amounted to $308.2 million for the six months ended June 30, 2021, compared to $238.7 million for the same period of the previous year. Non-interest income increased by $69.5 million primarily driven by:

higher service charges on deposit accounts by $8.0 million principally due to higher fees on transactional cash management services at BPPR in part due to the business disruptions and the waiver of fees related to the COVID-19 pandemic during 2020;

higher other service fees by $30.2 million, principally at the BPPR segment, due to higher credit and debit card fees by $20.5 million and $6.7 million, respectively, mainly in interchange income resulting from higher transactional volumes in part due to the business disruptions and the waiver of service charges and late fees related to the COVID-19 pandemic during 2020;

higher income from mortgage banking activities by $14.6 million mainly due to lower unfavorable fair value adjustments on MSRs by $7.1 million and higher realized gains on closed derivatives positions by $8.1 million;

a favorable variance in adjustments to indemnity reserves of $6.9 million mainly due to a reserve release related to loans previously sold with credit recourse; and

higher other operating income by $11.5 million principally due to higher net earnings from the combined portfolio of investments under the equity method by $6.9 million and a higher gain on sale of daily rental auto units by $3.0 million;

partially offset by:

an unfavorable variance in net (loss) gain on sale of loans, including valuation adjustments on loans held-for-sale, of $3.3 million at PB due to higher losses on the sale of taxi medallions.

 

 

128

 

Operating Expenses

 

Operating expenses amounted to $368.2 million for the quarter ended June 30, 2021, an increase of $20.0 million when compared with the same quarter of 2020, driven primarily by:

 

Higher personnel cost by $15.0 million mainly due to higher incentives related to the profit-sharing plan which is tied to the Corporation’s financial performance by $7.2 million and higher commission, incentive and other bonuses by $10.3 million;

 

Higher professional fees by $8.6 million due higher programming, processing and other technology services by $7.8 million mainly due to higher volume of transactions; and

 

Higher business promotions by $4.2 million due to higher customer reward program expense in our credit card business by $3.1 million and higher advertising expense by $1.6 million.

 

These increases were partially offset by:

 

Lower OREO expenses by $4.0 million due to higher gain on sale on mortgage properties by $4.0 million; and

 

Lower other operating expenses by $5.2 million mainly due to lower write-down of foreclosed auto units by $3.3 million and lower pension plan cost by $2.5 million due to annual changes in actuarial assumptions.

 

Operating expenses amounted to $743.7 million for the six months ended June 30, 2021, an increase of $22.9 million when compared with the same period of 2020, driven primarily by:

 

Higher personnel cost by $27.7 million mainly due to due to higher incentives related to the profit-sharing plan by $14.6 million and higher commission, incentive and other bonuses by $18.3 million due to higher annual incentives for employees; partially offset by lower salaries by $6.6 million due to higher deferred salaries as a result of higher loan originations during 2021;

 

Higher professional fees by $7.5 million primarily due to higher programming, processing and other technology services by $11.3 million due to higher volume of transactions; partially offset by lower advisory expense by $3.2 million; and

 

Higher business promotions by $2.6 million due to higher customer reward program expense in our credit card business by and higher advertising expense.

 

These increases were partially offset by:

 

Lower OREO expenses by $11.0 million due to higher gain on sale on mortgage, commercial and construction properties by $7.9 million; and

 

Lower other operating expenses by $6.5 million mainly due to lower pension plan cost by $5.0 million due to annual changes in actuarial assumptions, provision for unfunded commitments by $3.5 million since in the fourth quarter of 2020 the Corporation reclassified the provision expense for unfunded loan commitments to the provision for credit losses caption; partially offset by higher credit and debit card processing expenses due to higher transactional volumes.

129

 

Table 4 - Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

Quarters ended June 30,

 

Six months ended June 30,

(In thousands)

2021

2020

Variance

 

2021

 

2020

 

Variance

Personnel costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries

$

90,294

$

93,969

$

(3,675)

$

179,629

$

186,225

$

(6,596)

 

Commissions, incentives and other bonuses

 

26,374

 

16,076

 

10,298

 

59,592

 

41,334

 

18,258

 

Pension, postretirement and medical insurance

 

13,289

 

11,392

 

1,897

 

24,213

 

21,030

 

3,183

 

Other personnel costs, including payroll taxes

 

24,247

 

17,729

 

6,518

 

50,249

 

37,408

 

12,841

 

Total personnel costs

 

154,204

 

139,166

 

15,038

 

313,683

 

285,997

 

27,686

Net occupancy expenses

 

24,562

 

25,487

 

(925)

 

50,575

 

50,645

 

(70)

Equipment expenses

 

22,805

 

20,844

 

1,961

 

44,380

 

42,449

 

1,931

Other taxes

 

13,205

 

13,323

 

(118)

 

27,164

 

27,004

 

160

Professional fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

Collections, appraisals and other credit related fees

 

3,486

 

2,897

 

589

 

6,806

 

6,778

 

28

 

Programming, processing and other technology services

 

67,152

 

59,387

 

7,765

 

133,518

 

122,206

 

11,312

 

Legal fees, excluding collections

 

2,367

 

2,184

 

183

 

4,732

 

5,170

 

(438)

 

Other professional fees

 

28,148

 

28,079

 

69

 

56,045

 

59,464

 

(3,419)

 

Total professional fees

 

101,153

 

92,547

 

8,606

 

201,101

 

193,618

 

7,483

Communications

 

6,005

 

5,574

 

431

 

12,838

 

11,528

 

1,310

Business promotion

 

16,511

 

12,281

 

4,230

 

29,032

 

26,478

 

2,554

FDIC deposit insurance

 

5,742

 

5,340

 

402

 

11,710

 

10,420

 

1,290

Other real estate owned (OREO) (income) expenses

 

(4,299)

 

(344)

 

(3,955)

 

(8,832)

 

2,135

 

(10,967)

Other operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit and debit card processing, volume and interchange expenses

 

10,917

 

9,873

 

1,044

 

23,371

 

20,155

 

3,216

 

Operational losses

 

6,528

 

4,128

 

2,400

 

14,424

 

12,502

 

1,922

 

All other

 

9,597

 

18,216

 

(8,619)

 

21,961

 

33,639

 

(11,678)

 

Total other operating expenses

 

27,042

 

32,217

 

(5,175)

 

59,756

 

66,296

 

(6,540)

Amortization of intangibles

 

1,255

 

1,796

 

(541)

 

2,306

 

4,269

 

(1,963)

Total operating expenses

$

368,185

$

348,231

$

19,954

$

743,713

$

720,839

$

22,874

 

INCOME TAXES

For the quarter and six months ended June 30, 2021, the Corporation recorded an income tax expense of $73.1 million and $149.9 million with an effective tax rate (“ETR”) of 25% and 24%, respectively, compared to $24.6 million and $27.7 million with an ETR of 16% and 15% for the respective periods of 2020. The increase in income tax expense was primarily due to higher pre-tax income net of the impact of higher net exempt interest income during the quarter and six months ended June 30, 2021.

At June 30, 2021, the Corporation had a net deferred tax asset amounting to $0.7 billion, net of a valuation allowance of $0.5 billion. The net deferred tax asset related to the U.S. operations was $0.3 billion, net of a valuation allowance of $0.4 billion.

Refer to Note 30 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.

 

130

 

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 32 to the Consolidated Financial Statements.

 

The Corporate group reported a net income of $6.6 million for the quarter ended June 30, 2021, compared with a net income of $3.4 million for the same quarter of the previous year. The increase in net income was mainly attributed to higher income from the portfolio of equity method investments. For the six months ended June 30, 2021 the Corporate group reported a net income of $8.9 million, an increase of $6.4 million compared to a net income of $2.5 million for the same period of the previous year mainly due to higher income from the portfolio of equity method investments.

 

Highlights on the earnings results for the reportable segments are discussed below:

 

Banco Popular de Puerto Rico

 

The Banco Popular de Puerto Rico reportable segment’s net income amounted to $193.3 million for the quarter ended June 30, 2021, compared with net income of $107.9 million for the same quarter of the previous year. The increase in net income was principally driven by the benefit of $22.0 million in the reserve for credit losses and unfunded commitments recorded in the quarter ended June 30, 2021, compared to a provision expense of $59.8 million for the same quarter of the previous year. The principal factors that contributed to the variance in the financial results include the following:

 

Higher net interest income by $32.0 million mainly due to:

 

higher interest income from money market and investment securities by $19.3 million largely due to higher average balance of money market investments and mortgage-backed securities available-for-sale funded from the increase in deposit balances and higher yields from U.S. Treasury securities;

 

higher interest income from loans by $8.2 million mainly due to higher yields in the commercial portfolio and higher average balance in the mortgage and auto loans portfolio, partially offset by lower average balance in personal and credit card loans portfolio; and

 

lower interest expense on deposits by $4.2 million mainly due to lower yields, partially offset by higher average balance of deposits.

 

The net interest margin for the quarter ended June 30, 2021 was 2.91% compared to 3.39% for the same quarter in the previous year. The decrease in net interest margin is driven by earnings assets mix and a lower yield in earning assets, partially offset by a lower cost of deposits.

 

The BPPR segment recorded a benefit of $22.0 million in its reserve for credit losses and unfunded commitments for the quarter ended June 30, 2021 due to the improvements in the macroeconomic outlook and portfolio credit metrics. This compared to a provision expense of $59.8 million for the second quarter of 2020.

 

Non-interest income was higher by $40.2 million mainly due to:

 

Higher service charges on deposit accounts by $9.3 million and higher other service fees by $23.8 million, mainly from debit and credit card fees, from higher transactional volumes due in part to the business disruptions and waiver of fees related to the COVID-19 pandemic in 2020;

 

higher income from mortgage banking activities by $3.6 million due to lower unfavorable fair value adjustment on mortgage servicing rights and lower realized losses on closed derivatives, offset by lower unrealized gains on outstanding derivative positions; and

131

 

 

a favorable variance in adjustments to indemnity reserves of $2.8 million mainly due to a reserve release for loans previously sold with credit recourse.

 

Higher operating expenses by $23.1 million mostly due to:

 

Higher personnel costs by $11.4 million driven by higher salaries and annual incentives tied to the Corporation’s financial performance;

 

higher professional fees by $9.5 million mainly due to programing, processing and technology related services due to higher volume of transactions; and

 

higher business promotion expenses by $4.9 million due to customer rewards programs and advertising expenses;

 

Partially offset by:

 

lower OREO expenses by $4.6 million mainly due higher gains on sales of residential properties.

 

Higher income tax expense by $45.5 million mainly due to higher income before tax.

 

For the six months ended June 30, 2021, the BPPR reportable segment recorded a net income of $405.5 million, compared to $186.0 million for the same period of the previous year. The increase in net income was principally driven by the benefit of $67.4 million in the reserve for credit losses and unfunded commitments recorded in the period, compared to a provision expense of $173.4 million for the same period of the previous year. The principal factors that contributed to the variance in the financial results include the following:

 

Higher net interest income by $32.7 million mainly due to:

 

higher interest income from money market and investment securities by $11.0 million largely due to higher average balance of money market investments and mortgage-backed securities available-for-sale funded from the increase in deposit balances, offset by lower yields; and

 

lower interest expense on deposits by $24.1 million mainly due to lower yields, partially offset by higher average balance of deposits across various sectors;

 

Partially offset by

 

lower income from loans by $3.1 million due to lower yields and lower average balance in personal and credit card loans portfolio, offset by higher average balances in the commercial, auto and mortgage loans portfolio.

 

The net interest margin for the six months ended June 30, 2021 was 3.00% compared to 3.77% for the same period of the previous year. The decrease in net interest margin is driven by the earnings assets mix and lower yield, partially offset by a lower cost of deposits.

 

The BPPR segment recorded a benefit of $67.4 million in its reserve for credit losses and unfunded commitments due to the improvements in the macroeconomic outlook and portfolio credit metrics. This compared to a provision expense of $173.4 million for the same period of 2020.

 

Non-interest income was higher by $63.3 million mainly due to:

 

Higher service charges on deposit accounts by $7.8 million and higher other service fees by $29.9 million mainly from debit and credit card fees, due to higher transactional volumes due in part to the business disruptions and waiver of fees related to the COVID-19 pandemic in 2020;

132

 

 

 

higher income from mortgage banking activities by $14.0 million mainly due to lower unfavorable fair value adjustments on mortgage servicing rights and higher realized gains on closed derivative positions;

 

a favorable variance in adjustments to indemnity reserves of $6.9 million mainly due to a release of reserve for loans previously sold with credit recourse; and

 

higher other operating income by $5.1 million mainly due to higher gain on sale of daily rental auto units.

 

Higher operating expenses by $28.1 million mostly due to:

 

Higher personnel costs by $15.8 million driven by higher salaries and annual incentives tied to the Corporation’s financial performance;

 

higher professional fees by $6.5 million mainly due to programing, processing and technology related services due to higher volume of transactions;

 

higher business promotion expenses by $3.6 million due to customer rewards programs and advertising expenses; and

 

higher other operating expenses by $9.5 million due higher expenses allocated from the Corporate group, mainly for advisory services, offset by lower post-retirement benefits expense;

 

Partially offset by:

 

Lower OREO expenses by $11.2 million mainly due to higher gains on sales of residential properties and lower maintenance expenses.

 

Higher income tax expense by $89.2 million mainly due to higher income before tax.

 

 

Popular U.S.

For the quarter ended June 30, 2021, the reportable segment of Popular U.S. reported a net income of $18.7 million, compared with a net income of $17.0 million for the same quarter of the previous year. The factors that contributed to the variance in the financial results included the following:

 

higher net interest income by $5.0 million due to:

 

lower interest expense on deposits by $10.9 million mainly due to lower interest rates and lower average balance of time deposits.

 

Partially offset by:

 

lower interest income from loans by $4.0 million due to lower yield and lower average balance in personal loans, partially offset by an increase in the commercial portfolio; and

lower income from money market and investment securities by $2.4 million due to lower average balances and lower yields.

 

The net interest margin for the quarter ended June 30, 2021 was 3.33% compared to 3.07% for the same quarter in the previous year.

 

The provision for credit losses and unfunded commitments for the quarter ended June 30, 2021 was of $4.9 million, compared to $2.7 million for the same quarter of the previous year.

133

 

 

Lower operating expenses by $2.8 million due to:

 

lower occupancy expense by $1.8 million due to lower rent expense related to the benefits of the completed branch optimization initiative in our New York Metro region.

 

Income tax unfavorable variance of $2.9 million due to higher income before tax and an increase in the blended state income tax rate during the second quarter of 2021.

 

For the six-month period ended June 30, 2021, the reportable segment of Popular U.S. reported a net income of $66.5 million, compared with a net loss of $26.4 million for the same period of the previous year. The increase in net income was principally driven by the release of $31.9 million in the reserve for credit losses and unfunded commitments recorded for the period, due to improvements in credit quality and the economic outlook, compared to a provision expense of $78.7 million for the same period of the previous year. The factors that contributed to the variance in the financial results included the following:

 

higher net interest income by $11.5 million due to:

 

lower interest expense on deposits by $24.0 million mainly due to lower interest rates and lower average balance of time deposits.

 

Partially offset by:

 

lower interest income from loans by $8.5 million due to lower yield and lower average balance in personal loans, partially offset by an increase in the commercial portfolio; and

 

lower income from money market and investment securities by $5.2 million due to lower average balances and lower yields.

 

The net interest margin for the six-month period ended June 30, 2021 was 3.35% compared to 3.14% for the same period of the previous year.

 

The provision for credit losses and unfunded commitments for the six-months ended June 30, 2021 was a release of $31.9 million due to changes in the portfolio credit quality and economic outlook, compared to a provision of $78.7 million for the same period of 2020.

 

Lower operating expenses by $4.5 million due to:

 

lower occupancy expense by $3.2 million due to lower rent expense related to the benefits of the completed branch optimization initiative in our New York Metro region; and

 

Lower professional fees by $5.3 million, a portion of which is now centralized at the Corporate group and charged back to operating units and reflected in higher other operating expenses.

 

Partially offset by:

 

Higher other operating expenses by $2.9 million due to allocations of from the Corporate group, mainly from advisory related fees, offset by a lower provision for unfunded commitments which for 2021 is recorded within the provision for credit losses.

 

Unfavorable variance in income tax expense of $32.9 million due to higher income before tax and an increase in the blended state income tax rate during the second quarter of 2021.

134

 

FINANCIAL CONDITION ANALYSIS

Assets

The Corporation’s total assets were $72.7 billion at June 30, 2021, compared to $65.9 billion at December 31, 2020. Refer to the Consolidated Statements of Financial Condition included in this report for additional information.

Money market investments and debt securities available-for-sale

Money market investments and debt securities available-for-sale increased by $6.2 billion and $0.8 billion, respectively, at June 30, 2021. This was largely driven by the additional funds available to invest resulting from the increase in deposits across various sectors, partially offset by paydowns of agency mortgage-backed securities and collateralized mortgage obligations and a decrease in unrealized gains of $0.3 billion in this portfolio. Refer to Note 5 to the Consolidated Financial Statements for additional information with respect to the Corporation’s debt securities available-for-sale.

Loans

Refer to Table 5 for a breakdown of the Corporation’s loan portfolio. Also, refer to Note 7 in the Consolidated Financial Statements for detailed information about the Corporation’s loan portfolio composition and loan purchases and sales.

 

Loans held-in-portfolio decreased by $0.3 billion to $29.1 billion at June 30, 2021, mainly due to a decrease in commercial loans at BPPR of $0.4 billion in part due to repayments of PPP loans and a decrease in mortgage loans at BPPR of $0.3 billion mainly due to paydowns, partially offset by growth in auto loans and leases at BPPR by $0.3 billion and commercial loans at PB by $0.2 billion.

 

 

 

Table 5 - Loans Ending Balances

 

 

 

 

(In thousands)

 

June 30, 2021

 

December 31, 2020

 

Variance

Loans held-in-portfolio:

 

 

 

 

 

 

Commercial

$

13,437,932

$

13,614,310

$

(176,378)

Construction

 

865,113

 

926,208

 

(61,095)

Lease financing

 

1,297,928

 

1,197,661

 

100,267

Mortgage

 

7,678,478

 

7,890,680

 

(212,202)

Auto

 

3,289,027

 

3,132,228

 

156,799

Consumer

 

2,494,139

 

2,624,109

 

(129,970)

Total loans held-in-portfolio

 

29,062,617

 

29,385,196

 

(322,579)

Loans held-for-sale:

 

 

 

 

 

 

Commercial

 

1,700

 

2,738

 

(1,038)

Construction

 

7,000

 

-

 

7,000

Mortgage

 

76,615

 

96,717

 

(20,102)

Total loans held-for-sale

 

85,315

 

99,455

 

(14,140)

Total loans

$

29,147,932

$

29,484,651

$

(336,719)

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Other assets

Other assets amounted to $1.8 billion at June 30, 2021, compared to $1.7 billion at December 31, 2020. Refer to Note 12 for a breakdown of the principal categories that comprise the caption of “Other Assets” in the Consolidated Statements of Financial Condition at June 30, 2021 and December 31, 2020.

 

Liabilities

The Corporation’s total liabilities were $66.8 billion at June 30, 2021, an increase of $6.9 billion, compared to $59.9 billion at December 31, 2020, mainly due to increases in deposits as discussed below.

 

Deposits and Borrowings

The composition of the Corporation’s financing to total assets at June 30, 2021 and December 31, 2020 is included in Table 6.

 

Table 6 - Financing to Total Assets

 

 

 

 

 

 

 

June 30,

December 31,

% increase (decrease)

 

% of total assets

(In millions)

 

2021

 

2020

from 2020 to 2021

 

2021

 

2020

 

Non-interest bearing deposits

$

14,921

$

13,129

13.7

%

20.5

%

19.9

%

Interest-bearing core deposits

 

44,823

 

38,599

16.1

 

61.7

 

58.5

 

Other interest-bearing deposits

 

4,898

 

5,138

(4.7)

 

6.7

 

7.8

 

Repurchase agreements

 

91

 

121

(24.8)

 

0.1

 

0.2

 

Notes payable

 

1,177

 

1,225

(3.9)

 

1.6

 

1.9

 

Other liabilities

 

933

 

1,685

(44.6)

 

1.3

 

2.6

 

Stockholders’ equity

 

5,814

 

6,029

(3.6)

 

8.0

 

9.1

 

 

Deposits

 

The Corporation’s deposits totaled $64.6 billion at June 30, 2021, compared to $56.9 billion at December 31, 2020. The deposits increase of $7.7 billion was mainly due to higher Puerto Rico public sector deposits by $4.2 billion and higher retail and commercial demand deposits by $2.7 billion at BPPR. Public sector deposit balances, which amounted to $19.3 billion at June 30, 2021, are expected to decline over the long term. However, the receipt by the P.R. Government of additional COVID-19 and hurricane recovery-related Federal assistance and seasonal tax collections could to increase public deposit balances at BPPR in the near term. The rate at which public deposit balances will decline is uncertain and difficult to predict. The amount and timing of any such reduction is likely to be impacted by, for example, the timeline of current debt restructuring efforts under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) and the speed at which the COVID-19 federal assistance is distributed. Refer to Table 7 for a breakdown of the Corporation’s deposits at June 30, 2021 and December 31, 2020.

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Table 7 - Deposits Ending Balances

(In thousands)

June 30, 2021

 

December 31, 2020

 

Variance

Demand deposits [1]

$

24,497,918

 

$

22,532,729

 

$

1,965,189

Savings, NOW and money market deposits (non-brokered)

 

32,452,829

 

 

26,390,565

 

 

6,062,264

Savings, NOW and money market deposits (brokered)

 

683,021

 

 

635,198

 

 

47,823

Time deposits (non-brokered)

 

6,979,349

 

 

7,130,749

 

 

(151,400)

Time deposits (brokered CDs)

 

28,659

 

 

177,099

 

 

(148,440)

Total deposits

$

64,641,776

 

$

56,866,340

 

$

7,775,436

[1] Includes interest and non-interest bearing demand deposits.

 

Borrowings

The Corporation’s borrowings remained flat at $1.3 billion at June 30, 2021 and December 31, 2020. Refer to Note 15 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.

 

Other liabilities

The Corporation’s other liabilities decreased by $0.8 billion to $0.9 billion at June 30, 2021, when compared to December 31, 2020, mainly due to the settlement of purchases of debt securities.

 

Stockholders’ Equity

 

Stockholders’ equity totaled $5.8 billion at June 30, 2021, a decrease of $214.1 million when compared to December 31, 2020, principally due to the impact of the $350.0 million accelerated share repurchase transaction and lower accumulated unrealized gains on debt securities available-for-sale by $296.9 million, offset by net income for the six months ended June 30, 2021 of $480.7 million, less declared dividends of $70.0 million on common stock and $0.7 million in dividends on preferred stock. Refer to the Consolidated Statements of Financial Condition, Comprehensive Income and of Changes in Stockholders’ Equity for information on the composition of stockholders’ equity.

 

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REGULATORY CAPITAL

 

The Corporation, BPPR and PB are subject to regulatory capital requirements established by the Federal Reserve Board. The risk-based capital standards applicable to the Corporation, BPPR and PB (“Basel III capital rules”) are based on the final capital framework for strengthening international capital standards, known as Basel III, of the Basel Committee on Banking Supervision. As of June 30, 2021, the Corporation’s, BPPR’s and PB’s capital ratios continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules.

 

The risk-based capital ratios presented in Table 8, which include common equity tier 1, Tier 1 capital, total capital and leverage capital as of June 30, 2021 and December 31, 2020.

 

Table 8 - Capital Adequacy Data

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

June 30, 2021

 

 

December 31, 2020

 

Common equity tier 1 capital:

 

 

 

 

 

 

 

Common stockholders equity - GAAP basis

$

5,792,471

 

$

6,006,544

 

 

CECL transitional amount [1]

 

187,570

 

 

218,398

 

 

AOCI related adjustments due to opt-out election

 

27,732

 

 

(261,245)

 

 

Goodwill, net of associated deferred tax liability (DTL)

 

(545,276)

 

 

(591,931)

 

 

Intangible assets, net of associated DTLs

 

(20,440)

 

 

(22,466)

 

 

Deferred tax assets and other deductions

 

(344,019)

 

 

(357,204)

 

Common equity tier 1 capital

$

5,098,038

 

$

4,992,096

 

Additional tier 1 capital:

 

 

 

 

 

 

 

Preferred stock

 

22,143

 

 

22,143

 

Additional tier 1 capital

$

22,143

 

$

22,143

 

Tier 1 capital

$

5,120,181

 

$

5,014,239

 

Tier 2 capital:

 

 

 

 

 

 

 

Trust preferred securities subject to phase in as tier 2

 

373,737

 

 

373,737

 

 

Other inclusions (deductions), net

 

386,002

 

 

385,943

 

Tier 2 capital

$

759,739

 

$

759,680

 

Total risk-based capital

$

5,879,920

 

$

5,773,919

 

Minimum total capital requirement to be well capitalized

$

3,079,940

 

$

3,070,209

 

Excess total capital over minimum well capitalized

$

2,799,980

 

$

2,703,710

 

Total risk-weighted assets

$

30,799,399

 

$

30,702,091

 

Total assets for leverage ratio

$

69,758,962

 

$

64,305,022

 

Risk-based capital ratios:

 

Common equity tier 1 capital

 

16.55

%

 

16.26

%

Tier 1 capital

 

16.62

 

 

16.33

 

 

Total capital

 

19.09

 

 

18.81

 

 

Tier 1 leverage

7.34

 

 

7.80

 

[1] The CECL transitional amount includes the impact of Popular's adoption of the new CECL accounting standard on January 1, 2020.

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The Basel III capital rules provide that a depository institution will be deemed to be well capitalized if it maintains a leverage ratio of at least 5%, a common equity Tier 1 ratio of at least 6.5%, a Tier 1 capital ratio of at least 8% and a total risk-based ratio of at least 10%. Management has determined that as of June 30, 2021, the Corporation, BPPR and PB continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules.

 

Pursuant to the adoption of the CECL accounting standard on January 1, 2020, the Corporation elected to use the five-year transition period option as provided in the final interim regulatory capital rules effective March 31, 2020. The five-year transition period provision delays for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay.

 

On April 9, 2020, federal banking regulators issued an interim final rule to modify the Basel III regulatory capital rules applicable to banking organizations to allow those organizations participating in the Paycheck Protection Program (“PPP”) established under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) to neutralize the regulatory capital effects of participating in the program. Specifically, the agencies have clarified that banking organizations, including the Corporation and its Bank subsidiaries, are permitted to assign a zero percent risk weight to PPP loans for purposes of determining risk-weighted assets and risk-based capital ratios. Additionally, in order to facilitate use of the Paycheck Protection Program Liquidity Facility (the “PPPL Facility”), which provides Federal Reserve Bank loans to eligible financial institutions such as the Corporation’s Bank subsidiaries to fund PPP loans, the agencies further clarified that, for purposes of determining leverage ratios, a banking organization is permitted to exclude from total average assets PPP loans that have been pledged as collateral for a PPPL Facility. As of June 30, 2021, the Corporation has $1.0 billion in PPP loans and no loans were pledge as collateral for PPPL Facilities.

 

The increase in the common equity Tier I capital ratio, Tier I capital ratio, and total capital ratio as of June 30, 2021 as compared to December 31, 2020 was mainly attributed to the six months period earnings, partially offset by the accelerated share repurchase agreement to repurchase an aggregate of $350 million of Popular’s common stock. The decrease in leverage capital ratio was mainly due to the increase in average total assets, which did not have a significant impact on the risk-weighted assets.

 

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Non-GAAP financial measures

The tangible common equity, tangible common equity ratio, tangible assets and tangible book value per common share, which are presented in the table that follows, are non-GAAP measures. Management and many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase accounting method for mergers and acquisitions. Neither tangible common equity nor tangible assets or related measures should be considered in isolation or as a substitute for stockholders' equity, total assets or any other measure calculated in accordance with GAAP. Moreover, the manner in which the Corporation calculates its tangible common equity, tangible assets and any other related measures may differ from that of other companies reporting measures with similar names.

 

Table 9 provides a reconciliation of total stockholders’ equity to tangible common equity and total assets to tangible assets as of June 30, 2021, and December 31, 2020.

 

Table 9 - Reconciliation of Tangible Common Equity and Tangible Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands, except share or per share information)

 

 

June 30, 2021

 

 

 

December 31, 2020

 

Total stockholders’ equity

 

$

5,814,614

 

 

$

6,028,687

 

Less: Preferred stock

 

 

(22,143)

 

 

 

(22,143)

 

Less: Goodwill

 

 

(671,122)

 

 

 

(671,122)

 

Less: Other intangibles

 

 

(20,440)

 

 

 

(22,466)

 

Total tangible common equity

 

$

5,100,909

 

 

$

5,312,956

 

Total assets

 

$

72,657,293

 

 

$

65,926,000

 

Less: Goodwill

 

 

(671,122)

 

 

 

(671,122)

 

Less: Other intangibles

 

 

(20,440)

 

 

 

(22,466)

 

Total tangible assets

 

$

71,965,731

 

 

$

65,232,412

 

Tangible common equity to tangible assets

 

 

7.09

%

 

 

8.14

%

Common shares outstanding at end of period

 

 

80,656,480

 

 

 

84,244,235

 

Tangible book value per common share

 

$

63.24

 

 

$

63.07

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarterly average

 

Total stockholders’ equity [1]

 

$

5,683,325

 

 

$

5,540,456

 

Less: Preferred Stock

 

 

(22,143)

 

 

 

(22,143)

 

Less: Goodwill

 

 

(671,121)

 

 

 

(671,121)

 

Less: Other intangibles

 

 

(21,350)

 

 

 

(23,166)

 

Total tangible common equity

 

$

4,968,711

 

 

$

4,824,026

 

Return on average tangible common equity

 

 

17.58

%

 

 

14.50

%

[1] Average balances exclude unrealized gains or losses on debt securities available-for-sale.

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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. Other types of off-balance sheet arrangements that the Corporation enters in the ordinary course of business include derivatives and provision of guarantees, indemnifications, and representation and warranties. Refer to Note 19 in the Consolidated Financial Statements for a detailed discussion related to the Corporation’s obligations under credit recourse and representation and warranties arrangements.

Contractual Obligations and Commercial Commitments

The Corporation has various financial obligations, including contractual obligations and commercial commitments, which require future cash payments on debt agreements.

As previously indicated, the Corporation also enters into derivative contracts under which it is required either to receive or pay cash, depending on changes in interest rates. These contracts are carried at fair value on the Consolidated Statement of Financial Condition with the fair value representing the net present value of the expected future cash receipts and payments based on market rates of interest as of the statement of condition date. The fair value of the contract changes daily as interest rates change. The Corporation may also be required to post additional collateral on margin calls on the derivatives and repurchase transactions.

Refer to Note 15 in the Consolidated Financial Statements for a breakdown of long-term borrowings by maturity.

The Corporation utilizes lending-related financial instruments in the normal course of business to accommodate the financial needs of its customers. The Corporation’s exposure to credit losses in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit and commercial letters of credit is represented by the contractual notional amount of these instruments. The Corporation uses credit procedures and policies in making those commitments and conditional obligations as it does in extending loans to customers. Since many of the commitments expire without being drawn upon or a default occurring, the total contractual amounts are not representative of the Corporation’s actual future credit exposure or liquidity requirements for these commitments.

Table 10 presents the contractual amounts related to the Corporation’s off-balance sheet lending and other activities at June 30, 2021.

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Table 10 - Off-Balance Sheet Lending and Other Activities

 

 

 

Amount of commitment - Expiration Period

(In thousands)

 

2021

Years 2022 - 2023

Years 2024 - 2025

Years 2026 - thereafter

Total

Commitments to extend credit

 

$

7,567,923

$

1,667,696

$

123,549

$

130,793

$

9,489,961

Commercial letters of credit

 

 

3,441

 

233

 

-

 

-

 

3,674

Standby letters of credit

 

 

13,218

 

9,477

 

-

 

-

 

22,695

Commitments to originate or fund mortgage loans

 

 

78,162

 

6,712

 

-

 

-

 

84,874

Total

 

$

7,662,744

$

1,684,118

$

123,549

$

130,793

$

9,601,204

 

RISK MANAGEMENT

Market / Interest Rate Risk

The financial results and capital levels of the Corporation are constantly exposed to market, interest rate and liquidity risks.

Market risk refers to the risk of a reduction in the Corporation’s capital due to changes in the market valuation of its assets and/or liabilities.

Most of the assets subject to market valuation risk are debt securities classified as available-for-sale. Refer to Notes 5 and 6 for further information on the debt securities available-for-sale and held-to-maturity portfolios. Debt securities classified as available-for-sale amounted to $22.3 billion as of June 30, 2021. Other assets subject to market risk include loans held-for-sale, which amounted to $85 million, mortgage servicing rights (“MSRs”) which amounted to $119 million and securities classified as “trading”, which amounted to $36 million, as of June 30, 2021.

Interest Rate Risk (“IRR”)

The Corporation’s net interest income is subject to various categories of interest rate risk, including repricing, basis, yield curve and option risks. In managing interest rate risk, management may alter the mix of floating and fixed rate assets and liabilities, change pricing schedules, adjust maturities through sales and purchases of investment securities, and enter into derivative contracts, among other alternatives.

Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate rate risk position given line of business forecasts, management objectives, market expectations and policy constraints.

Management utilizes various tools to assess IRR, including Net Interest Income (“NII”) simulation modeling, static gap analysis, and Economic Value of Equity (“EVE”). The three methodologies complement each other and are used jointly in the evaluation of the Corporation’s IRR. NII simulation modeling is prepared for a five-year period, which in conjunction with the EVE analysis, provides management a better view of long-term IRR.

Net interest income simulation analysis performed by legal entity and on a consolidated basis is a tool used by the Corporation in estimating the potential change in net interest income resulting from hypothetical changes in interest rates. Sensitivity analysis is calculated using a simulation model which incorporates actual balance sheet figures detailed by maturity and interest yields or costs.

Management assesses interest rate risk by comparing various NII simulations under different interest rate scenarios that differ in direction of interest rate changes, the degree of change and the projected shape of the yield curve. For example, the types of rate scenarios processed during the quarter include flat rates, implied forwards, and parallel and non-parallel rate shocks. Management also performs analyses to isolate and measure basis and prepayment risk exposures.

The asset and liability management group perform validation procedures on various assumptions used as part of the simulation analyses as well as validations of results on a monthly basis. In addition, the model and processes used to assess IRR are subject to independent validations according to the guidelines established in the Model Governance and Validation policy.

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The Corporation processes NII simulations under interest rate scenarios in which the yield curve is assumed to rise and decline by the same amount (parallel shifts). The rate scenarios considered in these market risk simulations reflect instantaneous parallel changes of -100, -200, +100, +200 and +400 basis points during the succeeding twelve-month period. Simulation analyses are based on many assumptions, including relative levels of market interest rates across all yield curve points and indexes, interest rate spreads, loan prepayments and deposit elasticity. Thus, they should not be relied upon as indicative of actual results. Further, the estimates do not contemplate actions that management could take to respond to changes in interest rates. By their nature, these forward-looking computations are only estimates and may be different from what may actually occur in the future. The following table presents the results of the simulations at June 30, 2021 and December 31, 2020, assuming a static balance sheet and parallel changes over flat spot rates over a one-year time horizon:

 

Table 11 - Net Interest Income Sensitivity (One Year Projection)

 

June 30, 2021

 

 

December 31, 2020

(Dollars in thousands)

 

Amount Change

Percent Change

 

 

Amount Change

Percent Change

 

Change in interest rate

 

 

 

 

 

 

 

 

+400 basis points

$

296,756

15.44

%

$

167,474

9.19

%

+200 basis points

 

212,421

11.05

 

 

81,690

4.49

 

+100 basis points

 

170,939

8.89

 

 

39,361

2.16

 

-100 basis points

 

(73,410)

(3.82)

 

 

(53,952)

(2.96)

 

-200 basis points

 

(106,794)

(5.56)

 

 

(71,517)

(3.93)

 

 

As of June 30, 2021, NII simulations show the Corporation maintains an asset sensitive position and is expected to benefit from an overall rising rate environment. The increases in sensitivity for the period are primarily driven by significant deposit increases, which have increased the level of cash reserves maintained at the Federal Reserve. These short-term assets reprice immediately, thus increasing the NII benefit in rising rate scenarios. The declining rate scenarios show a smaller impact in sensitivity as rates continue to be close to their lower bound and Popular does not allow rates to turn negative in its IRR simulations.

 

The Corporation’s loan and investment portfolios are subject to prepayment risk, which results from the ability of a third-party to repay debt obligations prior to maturity. Prepayment risk also could have a significant impact on the duration of mortgage-backed securities and collateralized mortgage obligations since prepayments could shorten (or lower prepayments could extend) the weighted average life of these portfolios.

 

Trading

The Corporation engages in trading activities in the ordinary course of business at its subsidiaries, BPPR and Popular Securities. Popular Securities’ trading activities consist primarily of market-making activities to meet expected customers’ needs related to its retail brokerage business, and purchases and sales of U.S. Government and government sponsored securities with the objective of realizing gains from expected short-term price movements. BPPR’s trading activities consist primarily of holding U.S. Government sponsored mortgage-backed securities classified as “trading” and hedging the related market risk with “TBA” (to-be-announced) market transactions. The objective is to derive spread income from the portfolio and not to benefit from short-term market movements. In addition, BPPR uses forward contracts or TBAs to hedge its securitization pipeline. Risks related to variations in interest rates and market volatility are hedged with TBAs that have characteristics similar to that of the forecasted security and its conversion timeline.

At June 30, 2021, the Corporation held trading securities with a fair value of $36 million, representing approximately 0.05% of the Corporation’s total assets, compared with $37 million and 0.1%, respectively, at December 31, 2020. As shown in Table 12, the trading portfolio consists principally of mortgage-backed securities which at June 30, 2021 were investment grade securities. As of June 30, 2021 and December 31, 2020, the trading portfolio also included $0.1 million in Puerto Rico government obligations. Trading instruments are recognized at fair value, with changes resulting from fluctuations in market prices, interest rates or

143

 

exchange rates reported in current period earnings. The Corporation recognized a net trading account loss of $47 thousand for the quarter ended June 30, 2021 and a net trading account gain of $82 thousand for the quarter ended June 30, 2020.

 

Table 12 - Trading Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2021

 

 

December 31, 2020

 

(Dollars in thousands)

 

Amount

 

Weighted Average Yield[1]

 

 

Amount

 

Weighted Average Yield[1]

 

Mortgage-backed securities

$

25,100

 

5.00

%

$

24,338

 

5.19

%

U.S. Treasury securities

 

10,060

 

0.02

 

 

11,506

 

0.04

 

Collateralized mortgage obligations

 

314

 

5.65

 

 

346

 

5.65

 

Puerto Rico government obligations

 

96

 

0.47

 

 

103

 

0.48

 

Interest-only strips

 

361

 

12.00

 

 

381

 

12.00

 

Total

$

35,931

 

3.67

%

$

36,674

 

3.64

%

[1] Not on a taxable equivalent basis.

 

 

 

 

 

 

 

 

 

 

 

The Corporation’s trading activities are limited by internal policies. For each of the two subsidiaries, the market risk assumed under trading activities is measured by the 5-day net value-at-risk (“VAR”), with a confidence level of 99%. The VAR measures the maximum estimated loss that may occur over a 5-day holding period, given a 99% probability.

The Corporation’s trading portfolio had a 5-day VAR of approximately $0.4 million for the last week in June 2021. There are numerous assumptions and estimates associated with VAR modeling, and actual results could differ from these assumptions and estimates. Backtesting is performed to compare actual results against maximum estimated losses, in order to evaluate model and assumptions accuracy.

In the opinion of management, the size and composition of the trading portfolio does not represent a significant source of market risk for the Corporation.

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Liquidity

The objective of effective liquidity management is to ensure that the Corporation has sufficient liquidity to meet all of its financial obligations, finance expected future growth, fund planned capital distributions and maintain a reasonable safety margin for cash commitments under both normal and stressed market conditions. The Board of Directors is responsible for establishing the Corporation’s tolerance for liquidity risk, including approving relevant risk limits and policies. The Board of Directors has delegated the monitoring of these risks to the Board’s Risk Management Committee and the Asset/Liability Management Committee. The management of liquidity risk, on a long-term and day-to-day basis, is the responsibility of the Corporate Treasury Division. The Corporation’s Corporate Treasurer is responsible for implementing the policies and procedures approved by the Board of Directors and for monitoring the Corporation’s liquidity position on an ongoing basis. Also, the Corporate Treasury Division coordinates corporate wide liquidity management strategies and activities with the reportable segments, oversees policy breaches and manages the escalation process. The Financial and Operational Risk Management Division is responsible for the independent monitoring and reporting of adherence with established policies.

An institution’s liquidity may be pressured if, for example, it experiences a sudden and unexpected substantial cash outflow due to exogenous events such as the current COVID-19 pandemic, its credit rating is downgraded, or some other event causes counterparties to avoid exposure to the institution. Factors that the Corporation does not control, such as the economic outlook, adverse ratings of its principal markets and regulatory changes, could also affect its ability to obtain funding.

Liquidity is managed by the Corporation at the level of the holding companies that own the banking and non-banking subsidiaries. It is also managed at the level of the banking and non-banking subsidiaries. As further explained below, a principal source of liquidity for the bank holding companies (the “BHCs”) are dividends received from banking and non-banking subsidiaries. The Corporation has adopted policies and limits to monitor more effectively the Corporation’s liquidity position and that of the banking subsidiaries. Additionally, contingency funding plans are used to model various stress events of different magnitudes and affecting different time horizons that assist management in evaluating the size of the liquidity buffers needed if those stress events occur. However, such models may not predict accurately how the market and customers might react to every event, and are dependent on many assumptions.

Deposits, including customer deposits, brokered deposits and public funds deposits, continue to be the most significant source of funds for the Corporation, funding 89% of the Corporation’s total assets at June 30, 2021 and 86% at December 31, 2020. The ratio of total ending loans to deposits was 45% at June 30, 2021, compared to 52% at December 31, 2020. In addition to traditional deposits, the Corporation maintains borrowing arrangements, which amounted to approximately $1.3 billion in outstanding balances at June 30, 2021 and December 31, 2020. A detailed description of the Corporation’s borrowings, including their terms, is included in Note 15 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.

Refer to Note 15 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, credit card licensing agreements and support to several mutual funds administered by BPPR.

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.

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The Corporation’s ability to compete successfully in the marketplace for deposits, excluding brokered deposits, depends on various factors, including pricing, service, convenience and financial stability as reflected by operating results, credit ratings (by nationally recognized credit rating agencies), and importantly, FDIC deposit insurance. Although a downgrade in the credit ratings of the Corporation’s banking subsidiaries may impact their ability to raise retail and commercial deposits or the rate that it is required to pay on such deposits, management does not believe that the impact should be material. Deposits at all of the Corporation’s banking subsidiaries are federally insured (subject to FDIC limits) and this is expected to mitigate the potential effect of a downgrade in the credit ratings.

Deposits are a key source of funding as they tend to be less volatile than institutional borrowings and their cost is less sensitive to changes in market rates. Refer to Table 7 for a breakdown of deposits by major types. Core deposits are generated from a large base of consumer, corporate and public sector customers. Core deposits include all non-interest bearing deposits, savings deposits and certificates of deposit under $100,000, excluding brokered deposits with denominations under $100,000. Core deposits have historically provided the Corporation with a sizable source of relatively stable and low-cost funds. Core deposits totaled $ 59.7 billion, or 92% of total deposits, at June 30, 2021, compared with $51.7 billion, or 91% of total deposits, at December 31, 2020. Core deposits financed 86% of the Corporation’s earning assets at June 30, 2021, compared with 82% at December 31, 2020.

The distribution by maturity of certificates of deposits with denominations of $100,000 and over at June 30, 2021 is presented in the table that follows:

 

Table 13 - Distribution by Maturity of Certificate of Deposits of $100,000 and Over

 

 

 

(In thousands)

 

 

 

3 months or less

 

$

2,279,311

3 to 6 months

 

 

298,072

6 to 12 months

 

 

516,346

Over 12 months

 

 

1,109,683

Total

 

$

4,203,412

 

The Corporation had $ 0.7 billion in brokered deposits at June 30, 2021, which financed approximately 1% of its total assets (December 31, 2020 - $0.8 billion and 1%, respectively). In the event that any of the Corporation’s banking subsidiaries’ regulatory capital ratios fall below those required by a well-capitalized institution or are subject to capital restrictions by the regulators, that banking subsidiary faces the risk of not being able to raise or maintain brokered deposits and faces limitations on the rate paid on deposits, which may hinder the Corporation’s ability to effectively compete in its retail markets and could affect its deposit raising efforts.

Deposits from the public sector represent an important source of funds for the Corporation. As of June 30, 2021, total public sector deposits were $19.3 billion, compared to $15.1 billion at December 31, 2020. Generally, these deposits require that the bank pledge high credit quality securities as collateral; therefore liquidity risks arising from public sector deposit outflows are lower given that the bank receives its collateral in return. This, now unpledged, collateral can either be financed via repurchase agreements or sold for cash. However, there are some timing differences between the time the deposit outflow occurs and when the bank receives its collateral.

At June 30, 2021, management believes that the banking subsidiaries had sufficient current and projected liquidity sources to meet their anticipated cash flow obligations, as well as special needs and off-balance sheet commitments, in the ordinary course of business and have sufficient liquidity resources to address a stress event. Although the banking subsidiaries have historically been able to replace maturing deposits and advances, no assurance can be given that they would be able to replace those funds in the future if the Corporation’s financial condition or general market conditions were to deteriorate. The Corporation’s financial flexibility will be severely constrained if the banking subsidiaries are unable to maintain access to funding or if adequate financing is not available to accommodate future financing needs at acceptable interest rates. The banking subsidiaries also are required to deposit cash or qualifying securities to meet margin requirements. To the extent that the value of securities previously pledged as collateral declines because of market changes, the Corporation will be required to deposit additional cash or securities to meet its margin requirements, thereby adversely affecting its liquidity. Finally, if management is required to rely more heavily on more expensive funding sources to meet its future growth, revenues may not increase proportionately to cover costs. In this case, profitability would be adversely affected.

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Bank Holding Companies

The principal sources of funding for the BHCs, which are Popular, Inc. (holding company only) and PNA, include cash on hand, investment securities, dividends received from banking and non-banking subsidiaries, asset sales, credit facilities available from affiliate banking subsidiaries and proceeds from potential securities offerings. Dividends from banking and non-banking subsidiaries are subject to various regulatory limits and authorization requirements that are further described below and that may limit the ability of those subsidiaries to act as a source of funding to the BHCs.

The principal use of these funds includes the repayment of debt, and interest payments to holders of senior debt and junior subordinated deferrable interest (related to trust preferred securities), the payment of dividends to common stockholders and capitalizing its banking subsidiaries.

The BHCs have in the past borrowed in the money markets and in the corporate debt market primarily to finance their non-banking subsidiaries; however, the cash needs of the Corporation’s non-banking subsidiaries other than to repay indebtedness and interest are now minimal. These sources of funding are more costly due to the fact that two out of the three principal credit rating agencies rate the Corporation below “investment grade”, which affects the Corporation’s cost and ability to raise funds in the capital markets. 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.

The outstanding balance of notes payable at the BHCs amounted to $682 million at June 30, 2021 and December 31, 2020.

The contractual maturities of the BHCs notes payable at June 30, 2021 are presented in Table 14.

 

Table 14 - Distribution of BHC's Notes Payable by Contractual Maturity

 

 

 

 

 

Year

 

(In thousands)

2023

$

297,208

Later years

 

384,942

Total

$

682,150

 

Annual debt service at the BHCs is approximately $44 million, and the Corporation’s latest quarterly dividend was $0.45 per share, for a total of $36.3 million for the quarter ended June 30, 2021. The BHCs liquidity position continues to be adequate with sufficient cash on hand, investments and other sources of liquidity which are expected to be enough to meet all BHCs obligations during the foreseeable future. As of June 30, 2021, the BHCs had cash and money markets investments totaling $337 million, borrowing potential of $158 million from its secured facility with BPPR. In addition to these liquidity sources, the stake in EVERTEC had a market value of $509 million as of June 30, 2021 and it represents an additional source of contingent liquidity.

Non-Banking Subsidiaries

The principal sources of funding for the non-banking subsidiaries include internally generated cash flows from operations, loan sales, repurchase agreements, capital injections and borrowed funds from their direct parent companies or the holding companies. The principal uses of funds for the non-banking subsidiaries include repayment of maturing debt, operational expenses and payment of dividends to the BHCs. The liquidity needs of the non-banking subsidiaries are minimal since most of them are funded internally from operating cash flows or from intercompany borrowings or capital contributions from their holding companies. During 2021, Popular, Inc. made a capital contribution to its wholly owned subsidiary Popular Securities amounting to $5 million.

Dividends

During the six months ended June 30, 2021, the Corporation declared cash dividend of $0.85 per common share outstanding to $ 70.0 million. The dividends for the Corporation’s Series A preferred stock amounted to $0.7 million. During the quarter ended June 30, 2021, the BHC’s received dividends amounting to $575 million from BPPR, $4 million from PIBI which main source of income is derived from its investment in BHD, $4 million in dividends from its non-banking subsidiaries and $1 million in dividends from EVERTEC. Dividends from BPPR constitute Popular, Inc.’s primary source of liquidity.

Other Funding Sources and Capital

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The debt securities portfolio provides an additional source of liquidity, which may be realized through either securities sales or repurchase agreements. The Corporation’s debt securities portfolio consists primarily of liquid U.S. government debt securities, U.S. government sponsored agency debt securities, U.S. government sponsored agency mortgage-backed securities, and U.S. government sponsored agency collateralized mortgage obligations that can be used to raise funds in the repo markets. The availability of the repurchase agreement would be subject to having sufficient unpledged collateral available at the time the transactions are to be consummated, in addition to overall liquidity and risk appetite of the various counterparties. The Corporation’s unpledged debt securities amounted to $1.1 billion at June 30, 2021 and $3.4 billion at December 31, 2020. A substantial portion of these debt securities could be used to raise financing in the U.S. money markets or from secured lending sources.

Additional liquidity may be provided through loan maturities, prepayments and sales. The loan portfolio can also be used to obtain funding in the capital markets. In particular, mortgage loans and some types of consumer loans, have secondary markets which the Corporation could use.

 

Financial information of guarantor and issuers of registered guaranteed securities

The Corporation (not including any of its subsidiaries, “PIHC”) is the parent holding company of Popular North America “PNA” and has other subsidiaries through which it conducts its financial services operations. PNA is an operating, 100% subsidiary of Popular, Inc. Holding Company (“PIHC”) and is the holding company of its wholly-owned subsidiaries: Equity One, Inc. and Popular Bank, including Popular Bank’s wholly-owned subsidiaries Popular Equipment Finance, Inc., Popular Insurance Agency, U.S.A., and E-LOAN, Inc.

PNA has issued junior subordinated debentures guaranteed by PIHC (together with PNA, the “obligor group”) purchased by statutory trusts established by the Corporation. These debentures were purchased by the statutory trust using the proceeds from trust preferred securities issued to the public (referred to as “capital securities”), together with the proceeds of the related issuances of common securities of the trusts.

PIHC fully and unconditionally guarantees the junior subordinated debentures issued by PNA. PIHC’s obligation to make a guarantee payment may be satisfied by direct payment of the required amounts to the holders of the applicable capital securities or by causing the applicable trust to pay such amounts to such holders. Each guarantee does not apply to any payment of distributions by the applicable trust except to the extent such trust has funds available for such payments. If PIHC does not make interest payments on the debentures held by such trust, such trust will not pay distributions on the applicable capital securities and will not have funds available for such payments. PIHC’s guarantee of PNA’s junior subordinated debentures is unsecured and ranks subordinate and junior in right of payment to all the PIHC’s other liabilities in the same manner as the applicable debentures as set forth in the applicable indentures; and equally with all other guarantees that the PIHC issues. The guarantee constitutes a guarantee of payment and not of collection, which means that the guaranteed party may sue the guarantor to enforce its rights under the respective guarantee without suing any other person or entity.

The principal sources of funding for PIHC and PNA have included dividends received from their banking and non-banking subsidiaries, asset sales and proceeds from the issuance of debt and equity. As further described below, in the Risk to Liquidity section, various statutory provisions limit the amount of dividends an insured depository institution may pay to its holding company without regulatory approval.

The following summarized financial information presents the financial position of the obligor group, on a combined basis at June 30, 2021 and December 31, 2020, and the results of their operations for the period ended June 30, 2021. Investments in and equity in the earnings from the other subsidiaries and affiliates that are not members of the obligor group have been excluded.

The summarized financial information of the obligor group is presented on a combined basis with intercompany balances and transactions between entities in the obligor group eliminated. The obligor group's amounts due from, amounts due to and transactions with subsidiaries and affiliates have been presented in separate line items, if they are material. In addition, related parties transactions are presented separately.

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Table 15 - Summarized Statement of Condition

 

 

 

 

 

 

 

 

 

(In thousands)

 

June 30, 2021

 

December 31, 2020

Assets

 

 

 

 

Cash and money market investments

$

337,439

$

190,830

Investment securities

 

31,365

 

27,630

Accounts receivables from non-obligor subsidiaries

 

21,062

 

16,338

Other loans (net of allowance for credit losses of $337)

 

30,836

 

31,162

Investment in equity method investees

 

102,159

 

88,272

Other assets

 

47,374

 

46,547

Total assets

$

570,235

$

400,779

Liabilities and Stockholders' deficit

 

 

 

 

Accounts payable to non-obligor subsidiaries

$

4,132

$

3,946

Accounts payable to affiliates and related parties

 

906

 

977

Notes payable

 

682,151

 

681,503

Other liabilities

 

88,907

 

79,208

Stockholders' deficit

 

(205,861)

 

(364,855)

Total liabilities and stockholders' deficit

$

570,235

$

400,779

 

 

 

 

 

Table 16 - Summarized Statement of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended

(In thousands)

 

 

 

June 30, 2021

Income:

 

 

 

 

Dividends from non-obligor subsidiaries

 

 

$

579,000

Interest income from non-obligor subsidiaries and affiliates

 

 

 

442

Earnings from investments in equity method investees

 

 

 

14,669

Other operating income

 

 

 

2,578

Total income

 

 

$

596,689

Expenses:

 

 

 

 

Services provided by non-obligor subsidiaries and affiliates (net of reimbursement by subsidiaries for services provided by parent of ($81,940))

 

 

$

6,514

Other operating expenses

 

 

 

14,529

Total expenses

 

 

$

21,043

Net income

 

 

$

575,646

 

 

 

 

 

During the six months ended June 30, 2021, the Obligor group recorded $1.7 million of distribution from its direct equity method investees, of which $1.2 million are related to dividend distributions.

 

Risks to Liquidity

Total lines of credit outstanding are not necessarily a measure of the total credit available on a continuing basis. Some of these lines could be subject to collateral requirements, standards of creditworthiness, leverage ratios and other regulatory requirements, among other factors. Derivatives, such as those embedded in long-term repurchase transactions or interest rate swaps, and off-balance

149

 

sheet exposures, such as recourse, performance bonds or credit card arrangements, are subject to collateral requirements. As their fair value increases, the collateral requirements may increase, thereby reducing the balance of unpledged securities.

The importance of the Puerto Rico market for the Corporation is an additional risk factor that could affect its financing activities. In the case of a deterioration in economic and fiscal conditions in Puerto Rico, the credit quality of the Corporation could be affected and result in higher credit costs. Refer to the Geographic and Government Risk section of this MD&A for some highlights on the current status of the Puerto Rico economy and the ongoing fiscal crisis.

Factors that the Corporation does not control, such as the economic outlook and credit ratings of its principal markets and regulatory changes, could also affect its ability to obtain funding. In order to prepare for the possibility of such scenario, management has adopted contingency plans for raising financing under stress scenarios when important sources of funds that are usually fully available are temporarily unavailable. These plans call for using alternate funding mechanisms, such as the pledging of certain asset classes and accessing secured credit lines and loan facilities put in place with the FHLB and the FRB.

The credit ratings of Popular’s debt obligations are a relevant factor for liquidity because they impact the Corporation’s ability to borrow in the capital markets, its cost and access to funding sources. Credit ratings are based on the financial strength, credit quality and concentrations in the loan portfolio, the level and volatility of earnings, capital adequacy, the quality of management, geographic concentration in Puerto Rico, the liquidity of the balance sheet, the availability of a significant base of core retail and commercial deposits, and the Corporation’s ability to access a broad array of wholesale funding sources, among other factors.

Furthermore, various statutory provisions limit the amount of dividends an insured depository institution may pay to its holding company without regulatory approval. A member bank must obtain the approval of the Federal Reserve Board for any dividend, if the total of all dividends declared by the member bank during the calendar year would exceed the total of its net income for that year, combined with its retained net income for the preceding two years, less any required transfers to surplus or to a fund for the retirement of any preferred stock. In addition, a member bank may not declare or pay a dividend in an amount greater than its undivided profits as reported in its Report of Condition and Income, unless the member bank has received the approval of the Federal Reserve Board. A member bank also may not permit any portion of its permanent capital to be withdrawn unless the withdrawal has been approved by the Federal Reserve Board. Pursuant to these requirements, PB may not declare or pay a dividend without the prior approval of the Federal Reserve Board and the NYSDFS. The ability of a bank subsidiary to up-stream dividends to its BHC could thus be impacted by its financial performance, 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, for example.

The Corporation’s banking subsidiaries have historically not used unsecured capital market borrowings to finance its operations, and therefore are less sensitive to the level and changes in the Corporation’s overall credit ratings.

Obligations Subject to Rating Triggers or Collateral Requirements

The Corporation’s banking subsidiaries currently do not use borrowings that are rated by the major rating agencies, as these banking subsidiaries are funded primarily with deposits and secured borrowings. The banking subsidiaries had $9 million in deposits at June 30, 2021 that are subject to rating triggers.

In addition, certain mortgage servicing and custodial agreements that BPPR has with third parties include rating covenants. In the event of a credit rating downgrade, the third parties have the right to require the institution to engage a substitute cash custodian for escrow deposits and/or increase collateral levels securing the recourse obligations. Also, as discussed in Note 19 to the Consolidated Financial Statements, the Corporation services residential mortgage loans subject to credit recourse provisions. Certain contractual agreements require the Corporation to post collateral to secure such recourse obligations if the institution’s required credit ratings are not maintained. Collateral pledged by the Corporation to secure recourse obligations amounted to approximately $39 million at June 30, 2021. The Corporation could be required to post additional collateral under the agreements. Management expects that it would be able to meet additional collateral requirements if and when needed. The requirements to post collateral under certain agreements or the loss of escrow deposits could reduce the Corporation’s liquidity resources and impact its operating results.

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Credit Risk

 

Geographic and Government Risk

 

The Corporation is exposed to geographic and government risk. The Corporation’s assets and revenue composition by geographical area and by business segment reporting are presented in Note 33 to the Consolidated Financial Statements.

Commonwealth of Puerto Rico

A significant portion of our financial activities and credit exposure is concentrated in the Commonwealth of Puerto Rico (the “Commonwealth” or “Puerto Rico”), which faces severe economic and fiscal challenges.

COVID-19 Pandemic

On December 2019, a novel strain of coronavirus (COVID-19) surfaced in Wuhan, China and has since spread globally to other countries and jurisdictions, including the mainland United States and Puerto Rico. In March 2020, the World Health Organization declared COVID-19 a pandemic. The pandemic has significantly disrupted and negatively impacted the global economy, disrupted global supply chains, created significant volatility in financial markets, and increased unemployment levels worldwide, including in the markets in which we do business.

In Puerto Rico, former Governor Wanda Vázquez issued an executive order in March 2020 declaring a health emergency, ordering residents to shelter in place, implementing a mandatory curfew, and requiring the closure of non-essential businesses. Some of the restrictions, including the mandatory curfew, remained in place until July 5, 2021, when Governor Pierluisi lifted all remaining restrictions and delegated to the Puerto Rico Secretary of Health the authority to issue guidelines and protocols to address the COVID-19 emergency. Although many of these restrictive measures have been eased or lifted, allowing for the gradual reopening of the economy, certain restrictive measures remain in place and additional restrictive measures may be implemented in the future as a result of a resurgence in the spread of the virus or new strains of the virus. Since the beginning of the pandemic, most businesses have had to make significant adjustments to protect customers and employees, including transitioning to telework and suspending or modifying certain operations in compliance with health and safety guidelines. The Puerto Rico Legislative Assembly enacted legislation in April 2020 requiring financial institutions to offer moratoriums on consumer financial products to clients impacted by the COVID-19 pandemic, which was effective through August 2020. The Federal Government has also approved several economic stimulus measures that seek to cushion the economic fallout of the pandemic, including providing direct subsidies, expanding eligibility for and increasing unemployment benefits and guaranteeing through the SBA PPP loans to small and medium businesses.

The COVID-19 pandemic and the restrictions imposed to curb the spread of the disease have had and may continue to have a material adverse effect on economic activity worldwide, including in Puerto Rico. The extent to which the COVID-19 pandemic will continue to adversely affect economic activity will depend on future developments, which are highly uncertain and difficult to predict, including the scope and duration of the pandemic (including the appearance of new strains of the virus), the restrictions imposed by governmental authorities and other third parties in response to the same, the pace of global vaccination efforts, and the amount of federal and local assistance offered to offset the impact of the pandemic. Pursuant to the 2021 Fiscal Plan (as defined below), economic stimulus measures have more than offset the estimated income loss due to reduced economic activity in Puerto Rico and are estimated to have caused a temporary increase in personal income on a net basis. However, there can be no assurance that these measures will be sufficient to offset the pandemic’s economic impact in the medium- and long-term.

For a discussion of the impact of the pandemic on the Corporation’s operations and financial results during the second quarter of 2021, refer to the MD&A Significant Events section, on the accompanying financial statements. For additional discussion of risk factors related to the impact of the pandemic, see “Part I – Item 1A – Risk Factors” in the Corporation’s Form 10-K for the year ended December 31, 2020 and “Part II- Item 1A – Risk Factors” of any subsequent Form 10-Q.

Economic Performance

The Commonwealth’s economy entered a recession in the fourth quarter of fiscal year 2006 and its gross national product (“GNP”) contracted (in real terms) every fiscal year between 2007 and 2018, with the exception of fiscal year 2012. Pursuant to the latest Puerto Rico Planning Board (the “Planning Board”) estimates, dated March 2021, the Commonwealth’s real GNP increased by 1.8% in fiscal year 2019 due to the influx of federal funds and private insurance payments to repair damage caused by Hurricanes Irma

151

 

and María. However, the Planning Board estimates that the Commonwealth’s real GNP decreased by approximately 3.2% in fiscal year 2020 due primarily to the adverse impact of the COVID-19 pandemic and the measures taken by the government in response to the same. The Planning Board projected that the negative effects of COVID-19 would continue through fiscal year 2021, resulting in a contraction in real GNP of approximately -2%, followed by 0.8% GNP growth in the current fiscal year.

Fiscal Crisis

The Commonwealth’s central government and many of its instrumentalities, public corporations and municipalities continue to face significant fiscal challenges, which have been primarily the result of economic contraction, persistent and significant budget deficits, a high debt burden, unfunded legacy obligations, and lack of access to the capital markets, among other factors. As a result, the Commonwealth and certain of its instrumentalities have been unable to make debt service payments on their outstanding bonds and notes since 2016. The escalating fiscal and economic crisis and imminent widespread defaults prompted the U.S. Congress to enact the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) in June 2016. As further discussed below under “Pending Title III Proceedings,” the Commonwealth and several of its instrumentalities are currently in the process of restructuring their debts through the debt restructuring mechanisms provided by PROMESA.

PROMESA

PROMESA, among other things, created a seven-member federally-appointed oversight board (the “Oversight Board”) with ample powers over the fiscal and economic affairs of the Commonwealth, its public corporations, instrumentalities and municipalities and established two mechanisms for the restructuring of the obligations of such entities. Pursuant to PROMESA, the Oversight Board will remain in place until market access is restored and balanced budgets, in accordance with modified accrual accounting, are produced for at least four consecutive years. In August 2016, President Obama appointed the seven original voting members of the Oversight Board through the process established in PROMESA, which authorizes the President to select the members from several lists required to be submitted by congressional leaders. Such appointments process was recently upheld by the U.S. Supreme Court. The terms of the original Oversight Board members expired in August 2019, but PROMESA allows members to remain in their roles until their successors have been appointed. All of the original members continued to serve on the Oversight Board on holdover status until 2020, when President Donald Trump reappointed three of the original members and appointed four new members to the Oversight Board.

In October 2016, the Oversight Board designated the Commonwealth and all of its public corporations and instrumentalities as “covered entities” under PROMESA. The only Commonwealth government entities that were not subject to such initial designation were the Commonwealth’s municipalities. In May 2019, however, the Oversight Board designated all of the Commonwealth’s municipalities as covered entities. At the Oversight Board’s request, covered entities are required to submit fiscal plans and annual budgets to the Oversight Board for its review and approval. They are also required to seek Oversight Board approval to issue, guarantee or modify their debts and to enter into contracts with an aggregate value of $10 million or more. Finally, covered entities are potentially eligible to avail themselves of the debt restructuring processes provided by PROMESA. For additional discussion of risk factors related to the Puerto Rico fiscal challenges, see “Part I – Item 1A – Risk Factors” in the Corporation’s Form 10-K for the year ended December 31, 2020.

Fiscal Plans

Commonwealth Fiscal Plan. The Oversight Board has certified several fiscal plans for the Commonwealth since 2017. The most recent fiscal plan for the Commonwealth certified by the Oversight Board is dated April 23, 2021 (the “2021 Fiscal Plan”).

Pursuant to the 2021 Fiscal Plan, while the COVID-19 pandemic and the measures taken in response to the same severely reduced economic activity and caused an unprecedented increase in unemployment in Puerto Rico, pandemic-related federal and local stimulus funding have more than offset the estimated income loss due to reduced economic activity and are estimated to have caused a temporary increase in personal income on a net basis. The 2021 Fiscal Plan’s economic projections incorporate adjustments for these short-term income effects for purposes of estimating tax receipts. For example, the 2021 Fiscal Plan estimates that real GNP contracted by 3% in fiscal year 2020, but estimates the GNP contraction adjusted for short-term income effects to have been approximately 1.1%. For fiscal years 2021 and 2022, the 2021 Fiscal Plan projects that real GNP will grow 1% and 0.6%, respectively, but projects that growth adjusted for income effects for such years will be approximately 3.8% and 1.5%, respectively.

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The 2021 Fiscal Plan projects that, if the fiscal measures and structural reforms contemplated by the plan are not successfully implemented, the Commonwealth will have a pre-contractual debt service deficit starting in fiscal year 2023. It estimates that the fiscal measures could drive approximately $10 billion in savings and extra revenue over fiscal years 2022 through 2026 and that the structural reforms could drive a cumulative 0.90% increase in growth by fiscal year 2051 (equal to approximately $30.7 billion). However, even after the fiscal measures and structural reforms, and before contractual debt service, the 2021 Fiscal Plan projects that there will be an annual deficit starting in fiscal year 2036.

The 2021 Fiscal Plan provides for the gradual reduction and the ultimate elimination of Commonwealth budgetary subsidies to municipalities, which constitute a material portion of the operating revenues of some municipalities. Since fiscal year 2017, Commonwealth appropriations to municipalities have decreased by approximately 64% (from approximately $370 million in fiscal year 2017 to approximately $132 million in fiscal year 2020). In response to the COVID-19 crisis, reductions in appropriations to municipalities were paused in fiscal year 2021. Municipalities have also received extraordinary appropriations and other funds from federally-funded programs during the current fiscal year, which has helped temporarily offset the impact of the reduced Commonwealth support. However, the 2021 Fiscal Plan contemplates additional reductions in appropriations to municipalities starting in fiscal year 2022, before eventually phasing out all appropriations in fiscal year 2025. Further, while the Commonwealth had enacted legislation in 2019 suspending the municipality’s obligations to contribute to the Commonwealth’s health plan and pay-as-you go retirement system, such legislation was challenged by the Oversight Board and eventually declared null by the Title III court in April 2020. As a result, municipalities are required to cover their own employees’ healthcare costs and retirement benefits and had to reimburse the Commonwealth for such costs corresponding to the period during which the law in effect. Finally, the 2021 Fiscal Plan notes that municipalities have made little or no progress towards implementing fiscal discipline required to reduce reliance on Commonwealth appropriations and that this lack of fiscal management threatens the ability of municipalities to provide necessary services, such as health, sanitation, public safety, and emergency services to their residents, forcing them to prioritize expenditures.

Other Fiscal Plans. Pursuant to PROMESA, the Oversight Board has also requested and certified fiscal plans for several public corporations and instrumentalities. The certified fiscal plan for the Puerto Rico Electric Power Authority (“PREPA”), Puerto Rico’s electric power utility, contemplated the transformation of Puerto Rico’s electric system through, among other things, the establishment of a public-private partnership with respect to PREPA’s transmission and distribution system (the “T&D System”), and calls for significant structural reforms at PREPA. The procurement process for the establishment of a public-private partnership with respect to the T&D System was completed in June 2020. The selected proponent, LUMA Energy LLC (“LUMA”), and PREPA entered into a 15-year agreement whereby, since June 1, 2021, LUMA is responsible for operating, maintaining and modernizing the T&D System.

On April 23, 2021, the Oversight Board certified the latest version of the fiscal plan (the “CRIM Fiscal Plan”) for the Municipal Revenue Collection Center (“CRIM”), the government entity responsible for collecting property taxes and distributing them among the municipalities. The CRIM Fiscal Plan outlines a series of measures centered around improving the competitiveness of Puerto Rico’s property tax regime and the enhancement of property tax collections, including identifying and appraising new properties as well as improvements to existing properties, and implementing operational and technological initiatives.

Pending Title III Proceedings

On May 3, 2017, the Oversight Board, on behalf of the Commonwealth, filed a petition in the U.S. District Court to restructure the Commonwealth’s liabilities under Title III of PROMESA. The Oversight Board has subsequently filed analogous petitions with respect to the Puerto Rico Sales Tax Financing Corporation (“COFINA”), the Employees Retirement System of the Government of the Commonwealth of Puerto Rico (“ERS”), the Puerto Rico Highways and Transportation Authority, PREPA and the Puerto Rico Public Buildings Authority (“PBA”). On February 12, 2019, the government completed a restructuring of COFINA’s debts pursuant to a plan of adjustment confirmed by the U.S. District Court.

On July 27, 2021, the Oversight Board filed the Sixth Amended Title III Joint Plan of Adjustment for the Commonwealth, et. al. (the “Proposed Plan”) in the pending debt restructuring proceedings under Title III of PROMESA. The Proposed Plan, which has substantial support from several creditor constituencies but is still subject to confirmation in the Title III proceeding, seeks to restructure approximately $35 billion of debt and other claims against the Commonwealth, PBA and ERS, and more than $50 billion of unfunded pension liabilities. On July 29, 2021, the Title III court approved the disclosure statement for the Proposed Plan. The Oversight Board has proposed that final hearings on confirmation of a plan of adjustment take place in November 2021.

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Seismic Activity

On January 7, 2020, Puerto Rico was struck by a magnitude 6.4 earthquake, which caused island-wide power outages and significant damage to infrastructure and property in the southwest region of the island. The 6.4 earthquake was preceded by foreshocks and followed by aftershocks. The Commonwealth’s government has estimated total earthquake-related damages at approximately $1 billion.

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. The effects of the prolonged recession have been reflected in limited loan demand, an increase in the rate of foreclosures and delinquencies on loans granted in Puerto Rico. While PROMESA provided a process to address the Commonwealth’s fiscal crisis, the complexity and uncertainty of the Title III proceedings for the Commonwealth and various of its instrumentalities and the adjustment measures required by the fiscal plans still present significant economic risks. In addition, the COVID-19 outbreak has affected many of our individual customers and customers’ businesses. This, when added to Puerto Rico’s ongoing fiscal crisis and recession, could cause credit losses that adversely affect us and may negatively affect consumer confidence, result in reductions in consumer spending, and adversely impact our interest and non-interest revenues. If global or local economic conditions worsen or the Government of Puerto Rico and the Oversight Board are unable to adequately manage the Commonwealth’s fiscal and economic challenges, including by controlling the COVID-19 pandemic and consummating an orderly restructuring of the Commonwealth’s debt obligations while continuing to provide essential services, these adverse effects could continue or worsen in ways that we are not able to predict.

 

At June 30, 2021 and December 31, 2020, the Corporation’s direct exposure to the Puerto Rico government’s instrumentalities and municipalities totaled $375 million and $377 million, respectively, which amounts were fully outstanding on such dates. Further deterioration of the Commonwealth’s fiscal and economic situation could adversely affect the value of our Puerto Rico government obligations, resulting in losses to us. Of the amount outstanding, $342 million consists of loans and $33 million are securities ($342 million and $35 million, respectively, at December 31, 2020). Substantially all of the amount outstanding at June 30, 2021 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 June 30, 2021, 74% of the Corporation’s exposure to municipal loans and securities was concentrated in the municipalities of San Juan, Guaynabo, Carolina and Bayamón. On July 1, 2021, the Corporation received scheduled principal payments amounting to $32 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 20 – Commitments and Contingencies.

 

In addition, at June 30, 2021, the Corporation had $302 million in loans insured or securities issued by Puerto Rico governmental entities, but for which the principal source of repayment is non-governmental ($317 million at December 31, 2020). These included $248 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, 2020 - $260 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 June 30, 2021, $44 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, 2020 - $46 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 this 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. In addition, at June 30, 2021, the Corporation had $10 million of commercial real estate notes issued by government entities but that are payable from rent paid by non-governmental parties (December 31, 2020 - $11 million).

 

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

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ongoing Title III proceedings under PROMESA described above. 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.

 

BPPR also has a significant amount of deposits from the Commonwealth, its instrumentalities, and municipalities. The amount of such deposits may fluctuate depending on the financial condition and liquidity of such entities, as well as on the ability of BPPR to maintain these customer relationships.

 

The Corporation may also have direct exposure with regards to avoidance and other causes of action initiated by the Oversight Board on behalf of the Commonwealth or other Title III debtors. For additional information regarding such exposure, refer to Note 20 of the Consolidated Financial Statements.

 

United States Virgin Islands

 

The Corporation has operations in the United States Virgin Islands (the “USVI”) and has credit exposure to USVI government entities.

 

The USVI has been experiencing a number of fiscal and economic challenges, which have been and maybe be further exacerbated as a result of the effects of the COVID-19 pandemic, and 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 June 30, 2021, the Corporation’s direct exposure to USVI instrumentalities and public corporations amounted to approximately $73 million, of which $70 million is outstanding (compared to $105 million and $70 million, respectively, at December 31, 2020). Of the amount outstanding, approximately (i) $43 million represents loans to the West Indian Company LTD, a government-owned company that owns and operates a cruise ship pier and shopping mall complex in St. Thomas, (ii) $20 million represents loans to the Virgin Islands Water and Power Authority, a public corporation of the USVI that operates USVI’s water production and electric generation plants, (iii) $1 million represents loans to the Virgin Islands Public Finance Authority (“VI PFA” ), a public corporation of the USVI created for the purpose of raising capital for public projects and (iv) $6 million in loans to the Virgin Islands Porth Authority (compared to $43 million, $20 million, $3 million, and $4 million, respectively, at December 31, 2020).

 

British Virgin Islands

 

The Corporation has operations in the British Virgin Islands (“BVI”), which has been negatively affected by the COVID-19 pandemic, particularly as a reduction in the tourism activity which accounts for a significant portion of its economy. Although the Corporation has no significant exposure to a single borrower in the BVI, at June 30, 2020 it has a loan portfolio amounting to approximately $228 million comprised of various retail and commercial clients, compared to a loan portfolio of $251 million at December 31, 2020, which included a $18 million loan with the BVI Government that was paid off during the second quarter of 2021.

 

 

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, $1.7 billion of residential mortgages, $1.0 billion of SBA loans under the PPP and $63 million commercial loans were insured or guaranteed by the U.S. Government or its agencies at June 30, 2021 (compared to $1.8 billion, $1.3 billion and $60 million, respectively, at December 31, 2020).

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Non-Performing Assets

Non-performing assets 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 17.

The Corporation adopted the CECL accounting standard effective January 1, 2020. This framework requires management to estimate credit losses over the full remaining expected life of the loan using economic forecasts over a reasonable and supportable period, and historical information thereafter.

During the second quarter of 2021, the Corporation’s assets continued to exhibit favorable credit quality and low credit costs, outperforming pre-pandemic trends. These improvements have been aided by the significant government stimulus and the rebound in the economy. We will continue to closely monitor post COVID-19 risks and the effects of the receding stimulus on macroeconomic conditions and on borrower performance. However, management believes that the improvement over the last few years in the risk profile of the Corporation’s loan portfolios, positions Popular to operate successfully under the current environment.

 

Total NPAs decreased by $57 million when compared with December 31, 2020. Total non-performing loans held-in-portfolio (“NPLs”) decreased by $53 million from December 31, 2020. BPPR’s NPLs decreased by $44 million, mainly driven by lower mortgage NPLs by $44 million, as improvements in early delinquencies led to lower NPL inflows for the quarter, and lower consumer NPLs by $6 million. BPPR’s construction NPLs decreased by $7 million mostly due to a previously reserved loan that was partially charged-off during the first quarter of 2021. These decreases were in part offset by higher commercial NPLs by $14 million, mostly due to a single $32 million inflow, partially offset by the resolution of an $9 million relationship. Popular U.S. NPLs decreased by $9 million from December 31, 2020, mostly related to a $7 million construction loan transferred to loans-held-for-sale. At June 30, 2021, the ratio of NPLs to total loans held-in-portfolio was 2.4% compared to 2.5% in the fourth quarter of 2020. In addition, other real estate owned loans (“OREOs”) decreased by $10 million, mostly related to sales activity and the suspension of foreclosure activity due to the COVID-19 pandemic.

At June 30, 2021, NPLs secured by real estate amounted to $560 million in the Puerto Rico operations and $36 million in Popular U.S. These figures were $630 million and $34 million, respectively, at December 31, 2020.

The Corporation’s commercial loan portfolio secured by real estate (“CRE”) amounted to $7.8 billion at June 30, 2021, of which $1.8 billion was secured with owner occupied properties, compared with $7.8 billion and $1.9 billion, respectively, at December 31, 2020. CRE NPLs amounted to $159 million at June 30, 2021, compared with $173 million at December 31, 2020. The CRE NPL ratios for the BPPR and Popular U.S. segments were 4.23% and 0.15%, respectively, at June 30, 2021, compared with 4.51% and 0.07%, respectively, at December 31, 2020.

In addition to the NPLs included in Table 17, at June 30, 2021, there were $197 million of performing loans, mostly commercial loans, which in management’s opinion, are currently subject to potential future classification as non-performing and are considered impaired (December 31, 2020 - $228 million).

For the quarter ended June 30, 2021, total inflows of NPLs held-in-portfolio, excluding consumer loans, decreased by approximately $11 million, when compared to the inflows for the same period in 2020. Inflows of NPLs held-in-portfolio at the BPPR segment decreased by $14 million compared to the same period in 2020, driven by lower mortgage inflows by $39 million, offset in part by higher commercial inflows by $25 million related to the abovementioned $32 million relationship. Inflows of NPLs held-in-portfolio at the Popular U.S. segment increased by $3 million from the same period in 2020, mostly due to due to higher commercial NPL inflows.

 

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Table 17 - Non-Performing Assets

 

June 30, 2021

 

 

December 31, 2020

 

(Dollars in thousands)

 

BPPR

 

Popular U.S.

 

Popular, Inc.

 

As a % of loans HIP by category

 

 

BPPR

 

Popular U.S.

 

Popular, Inc.

 

As a % of loans HIP by category

 

Commercial

$

217,703

$

7,862

$

225,565

 

1.7

%

$

204,092

$

5,988

$

210,080

 

1.5

%

Construction

 

14,877

 

-

 

14,877

 

1.7

 

 

21,497

 

7,560

 

29,057

 

3.1

 

Leasing

 

2,286

 

-

 

2,286

 

0.2

 

 

3,441

 

-

 

3,441

 

0.3

 

Mortgage

 

370,653

 

13,323

 

383,976

 

5.0

 

 

414,343

 

14,864

 

429,207

 

5.4

 

Auto

 

13,286

 

-

 

13,286

 

0.4

 

 

15,736

 

-

 

15,736

 

0.5

 

Consumer

 

37,984

 

7,209

 

45,193

 

1.8

 

 

41,268

 

8,985

 

50,253

 

1.9

 

Total non-performing loans held-in-portfolio

 

656,789

 

28,394

 

685,183

 

2.4

%

 

700,377

 

37,397

 

737,774

 

2.5

%

Non-performing loans held-for-sale [1]

 

-

 

8,700

 

8,700

 

 

 

 

-

 

2,738

 

2,738

 

 

 

Other real estate owned (“OREO”)

 

71,749

 

1,523

 

73,272

 

 

 

 

81,512

 

1,634

 

83,146

 

 

 

Total non-performing assets

$

728,538

$

38,617

$

767,155

 

 

 

$

781,889

$

41,769

$

823,658

 

 

 

Accruing loans past due 90 days or more[2]

$

633,315

$

-

$

633,315

 

 

 

$

1,028,061

$

3

$

1,028,064

 

 

 

Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing assets to total assets

 

1.18

%

0.36

%

1.06

%

 

 

 

1.42

%

0.38

%

1.25

%

 

 

Non-performing loans held-in-portfolio to loans held-in-portfolio

 

3.11

 

0.36

 

2.36

 

 

 

 

3.25

 

0.48

 

2.51

 

 

 

Allowance for credit losses to loans held-in-portfolio

 

3.13

 

1.57

 

2.70

 

 

 

 

3.43

 

2.00

 

3.05

 

 

 

Allowance for credit losses to non-performing loans, excluding held-for-sale

 

100.77

 

436.49

 

114.68

 

 

 

 

105.62

 

418.48

 

121.48

 

 

 

HIP = “held-in-portfolio”

[1] Non-performing loans held-for-sale as of June 30, 2021, were $7 million in construction loans and $2 million commercial loans (December 31, 2020 - $3 million in commercial loans).

[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. The balance of these loans includes $15 million at June 30, 2021 related to the rebooking of loans previously pooled into GNMA securities, in which the Corporation had a buy-back option as further described below (December 31, 2020 - $57 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 repurchases option are required to be reflected (rebooked) on the financial statements of BPPR with an offsetting liability. While the borrowers for our serviced GNMA portfolio benefited from the moratorium, the delinquency status of these loans continued to be reported to GNMA without considering the moratorium. These balances include $363 million of residential mortgage loans insured by FHA or guaranteed by the VA that are no longer accruing interest as of June 30, 2021 (December 31, 2020 - $329 million). Furthermore, the Corporation has approximately $56 million in reverse mortgage loans which are guaranteed by FHA, but which are currently not accruing interest. Due to the guaranteed nature of the loans, it is the Corporation’s policy to exclude these balances from non-performing assets (December 31, 2020 - $60 million).

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Table 18 - Activity in Non-Performing Loans Held-in-Portfolio (Excluding Consumer Loans)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended June 30, 2021

 

For the six months ended June 30, 2021

(Dollars in thousands)

 

BPPR

 

Popular U.S.

Popular, Inc.

 

BPPR

 

Popular U.S.

Popular, Inc.

Beginning balance

$

606,521

$

24,223

$

630,744

$

639,932

$

28,412

$

668,344

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

New non-performing loans

 

83,089

 

12,344

 

95,433

 

149,210

 

30,501

 

179,711

 

Advances on existing non-performing loans

 

-

 

12

 

12

 

-

 

23

 

23

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing loans transferred to OREO

 

(10,603)

 

-

 

(10,603)

 

(15,254)

 

-

 

(15,254)

 

Non-performing loans charged-off

 

(5,812)

 

(1,147)

 

(6,959)

 

(23,545)

 

(1,500)

 

(25,045)

 

Loans returned to accrual status / loan collections

 

(69,962)

 

(7,247)

 

(77,209)

 

(147,110)

 

(27,478)

 

(174,588)

 

Loans transferred to held-for-sale

 

-

 

(7,000)

 

(7,000)

 

-

 

(8,773)

 

(8,773)

Ending balance NPLs

$

603,233

$

21,185

$

624,418

$

603,233

$

21,185

$

624,418

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 19 - Activity in Non-Performing Loans Held-in-Portfolio (Excluding Consumer Loans)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended June 30, 2020

 

For the six months ended June 30, 2020

(Dollars in thousands)

 

BPPR

 

Popular U.S.

Popular, Inc.

 

BPPR

 

Popular U.S.

Popular, Inc.

Beginning balance

$

655,569

$

21,560

$

677,129

$

431,082

$

16,621

$

447,703

Transition of PCI to PCD loans under CECL

 

-

 

-

 

-

 

245,703

 

18,547

 

264,250

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

New non-performing loans

 

96,747

 

9,426

 

106,173

 

177,667

 

13,599

 

191,266

 

Advances on existing non-performing loans

 

-

 

137

 

137

 

-

 

308

 

308

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing loans transferred to OREO

 

(48)

 

-

 

(48)

 

(10,438)

 

-

 

(10,438)

 

Non-performing loans charged-off

 

(9,249)

 

(375)

 

(9,624)

 

(16,142)

 

(929)

 

(17,071)

 

Loans returned to accrual status / loan collections

 

(91,867)

 

(7,365)

 

(99,232)

 

(176,720)

 

(14,084)

 

(190,804)

 

Loans transferred to held-for-sale

 

-

 

-

 

-

 

-

 

(10,679)

 

(10,679)

Ending balance NPLs

$

651,152

$

23,383

$

674,535

$

651,152

$

23,383

$

674,535

 

Table 20 - Activity in Non-Performing Commercial Loans Held-in-Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended June 30, 2021

 

For the six months ended June 30, 2021

(Dollars in thousands)

 

BPPR

 

Popular U.S.

 

Popular, Inc.

 

 

BPPR

 

Popular U.S.

 

Popular, Inc.

Beginning balance

$

200,863

$

1,907

$

202,770

 

$

204,092

$

5,988

$

210,080

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New non-performing loans

 

39,657

 

7,570

 

47,227

 

 

47,381

 

9,263

 

56,644

 

Advances on existing non-performing loans

 

-

 

1

 

1

 

 

-

 

7

 

7

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing loans transferred to OREO

 

(2,346)

 

-

 

(2,346)

 

 

(6,196)

 

-

 

(6,196)

 

Non-performing loans charged-off

 

(1,515)

 

(624)

 

(2,139)

 

 

(3,906)

 

(976)

 

(4,882)

 

Loans returned to accrual status / loan collections

 

(18,956)

 

(992)

 

(19,948)

 

 

(23,668)

 

(4,647)

 

(28,315)

 

Loans transferred to held-for-sale

 

-

 

-

 

-

 

 

-

 

(1,773)

 

(1,773)

Ending balance NPLs

$

217,703

$

7,862

$

225,565

 

$

217,703

$

7,862

$

225,565

158

 

Table 21 - Activity in Non-Performing Commercial Loans Held-in-Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended June 30, 2020

 

For the six months ended June 30, 2020

(Dollars in thousands)

 

BPPR

 

Popular U.S.

 

Popular, Inc.

 

 

BPPR

 

Popular U.S.

 

Popular, Inc.

Beginning balance

$

251,104

$

9,384

$

260,488

 

$

147,255

$

5,504

$

152,759

Transition of PCI to PCD loans under CECL

 

-

 

-

 

-

 

 

112,517

 

18,547

 

131,064

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New non-performing loans

 

14,187

 

1,986

 

16,173

 

 

19,141

 

2,152

 

21,293

 

Advances on existing non-performing loans

 

-

 

126

 

126

 

 

-

 

245

 

245

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing loans transferred to OREO

 

-

 

-

 

-

 

 

(2,202)

 

-

 

(2,202)

 

Non-performing loans charged-off

 

(1,402)

 

(368)

 

(1,770)

 

 

(3,548)

 

(922)

 

(4,470)

 

Loans returned to accrual status / loan collections

 

(9,999)

 

(1,889)

 

(11,888)

 

 

(19,273)

 

(5,608)

 

(24,881)

 

Loans transferred to held-for-sale

 

-

 

-

 

-

 

 

-

 

(10,679)

 

(10,679)

Ending balance NPLs

$

253,890

$

9,239

$

263,129

 

$

253,890

$

9,239

$

263,129

 

Table 22 - Activity in Non-Performing Construction Loans Held-in-Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended June 30, 2021

 

For the six months ended June 30, 2021

(Dollars in thousands)

 

BPPR

 

Popular U.S.

 

Popular, Inc.

 

 

BPPR

 

Popular U.S.

 

Popular, Inc.

Beginning balance

$

14,877

$

7,523

$

22,400

 

$

21,497

$

7,560

$

29,057

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New non-performing loans

 

-

 

-

 

-

 

 

-

 

12,141

 

12,141

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing loans charged-off

 

-

 

(523)

 

(523)

 

 

(6,620)

 

(523)

 

(7,143)

 

Loans returned to accrual status / loan collections

 

-

 

-

 

-

 

 

-

 

(12,178)

 

(12,178)

 

Loans transferred to held-for-sale

 

-

 

(7,000)

 

(7,000)

 

 

-

 

(7,000)

 

(7,000)

Ending balance NPLs

$

14,877

$

-

$

14,877

 

$

14,877

$

-

$

14,877

 

Table 23 - Activity in Non-Performing Construction Loans Held-in-Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended June 30, 2020

 

For the six months ended June 30, 2020

(Dollars in thousands)

 

BPPR

 

Popular U.S.

 

Popular, Inc.

 

 

BPPR

 

Popular U.S.

 

Popular, Inc.

Beginning balance

$

-

$

-

$

-

 

$

119

$

26

$

145

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans returned to accrual status / loan collections

 

-

 

-

 

-

 

 

(119)

 

(26)

 

(145)

Ending balance NPLs

$

-

$

-

$

-

 

$

-

$

-

$

-

159

 

Table 24 - Activity in Non-Performing Mortgage Loans Held-in-Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended June 30, 2021

 

For the six months ended June 30, 2021

(Dollars in thousands)

 

BPPR

 

Popular U.S.

 

Popular, Inc.

 

 

BPPR

 

Popular U.S.

 

Popular, Inc.

Beginning balance

$

390,781

$

14,793

$

405,574

 

$

414,343

$

14,864

$

429,207

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New non-performing loans

 

43,432

 

4,774

 

48,206

 

 

101,829

 

9,097

 

110,926

 

Advances on existing non-performing loans

 

-

 

11

 

11

 

 

-

 

16

 

16

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing loans transferred to OREO

 

(8,257)

 

-

 

(8,257)

 

 

(9,058)

 

-

 

(9,058)

 

Non-performing loans charged-off

 

(4,297)

 

-

 

(4,297)

 

 

(13,019)

 

(1)

 

(13,020)

 

Loans returned to accrual status / loan collections

 

(51,006)

 

(6,255)

 

(57,261)

 

 

(123,442)

 

(10,653)

 

(134,095)

Ending balance NPLs

$

370,653

$

13,323

$

383,976

 

$

370,653

$

13,323

$

383,976

 

Table 25 - Activity in Non-Performing Mortgage Loans Held-in-Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended June 30, 2020

 

For the six months ended June 30, 2020

(Dollars in thousands)

 

BPPR

 

Popular U.S.

 

Popular, Inc.

 

 

BPPR

 

Popular U.S.

 

Popular, Inc.

Beginning balance

$

404,465

$

12,176

$

416,641

 

$

283,708

$

11,091

$

294,799

Transition of PCI to PCD loans under CECL

 

-

 

-

 

-

 

 

133,186

 

-

 

133,186

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New non-performing loans

 

82,560

 

7,440

 

90,000

 

 

158,526

 

11,447

 

169,973

 

Advances on existing non-performing loans

 

-

 

11

 

11

 

 

-

 

63

 

63

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing loans transferred to OREO

 

(48)

 

-

 

(48)

 

 

(8,236)

 

-

 

(8,236)

 

Non-performing loans charged-off

 

(7,847)

 

(7)

 

(7,854)

 

 

(12,594)

 

(7)

 

(12,601)

 

Loans returned to accrual status / loan collections

 

(81,868)

 

(5,476)

 

(87,344)

 

 

(157,328)

 

(8,450)

 

(165,778)

Ending balance NPLs

$

397,262

$

14,144

$

411,406

 

$

397,262

$

14,144

$

411,406

160

 

Loan Delinquencies

Another key measure used to evaluate and monitor the Corporation’s asset quality is loan delinquencies. Loans delinquent 30 days or more, as a percentage of their related portfolio category at June 30, 2021 and December 31, 2020, are presented below.

 

Table 26 - Loan Delinquencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

June 30, 2021

 

 

December 31, 2020

 

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

$

271,769

$

13,437,932

 

2.02

%

$

249,484

$

13,614,310

 

1.83

%

Construction

 

17,957

 

865,113

 

2.08

 

 

50,369

 

926,208

 

5.44

 

Leasing

 

10,443

 

1,297,928

 

0.80

 

 

14,009

 

1,197,661

 

1.17

 

Mortgage [1]

 

1,254,272

 

7,678,478

 

16.33

 

 

1,775,902

 

7,890,680

 

22.51

 

Consumer

 

136,321

 

5,783,166

 

2.36

 

 

179,789

 

5,756,337

 

3.12

 

Loans held-for-sale

 

8,986

 

85,315

 

10.53

 

 

3,108

 

99,455

 

3.13

 

Total

$

1,699,748

$

29,147,932

 

5.83

%

$

2,272,661

$

29,484,651

 

7.71

%

[1] Loans delinquent 30 days or more includes $0.7 billion of residential mortgage loans insured by FHA or guaranteed by the VA as of June 30, 2021 (December 31, 2020 - $1.1 billion). Refer to Note 7 to the Consolidated Financial Statements for additional information of guaranteed loans.

161

 

Allowance for Credit Losses Loans Held-in-Portfolio

The Corporation adopted the new CECL accounting standard effective on January 1, 2020. The allowance for credit losses (“ACL”), represents management’s estimate of expected credit losses through the remaining contractual life of the different loan segments, impacted by expected prepayments. The ACL is maintained at a sufficient level to provide for estimated credit losses on collateral dependent loans as well as troubled debt restructurings separately from the remainder of the loan portfolio. The Corporation’s management evaluates the adequacy of the ACL on a quarterly basis. In this evaluation, management considers current conditions, macroeconomic economic expectations through a reasonable and supportable period, historical loss experience, portfolio composition by loan type and risk characteristics, results of periodic credit reviews of individual loans, and regulatory requirements, amongst other factors.

 

The Corporation 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.

 

At June 30, 2021, the allowance for credit losses amounted to $786 million, a decrease of $110 million, when compared with December 31, 2020, mainly prompted by improvements in credit quality and the macroeconomic outlook. During the first quarter of 2021, the updated economic assumptions included a more optimistic view of the economy compared to the December 31, 2020 scenarios, prompting substantial reductions in reserves across different portfolios. The ACL for BPPR decreased by $78 million to $662 million, when compared to December 31, 2020. The decrease in the allowance for BPPR also included a release in the second quarter of 2021 of a qualitative reserve for the hotel and hospitality portfolio due to the favorable economic environment and improvements in borrower performance. The ACL for Popular U.S. decreased by $32 million to $124 million, when compared to December 31, 2020. The decrease in the reserve for Popular U.S. due to improvements in the economic outlook was partially offset with qualitative reserves aimed at addressing uncertainties mainly in the commercial real estate portfolio. The provision for credit losses for the quarter ended June 30, 2021 amounted to a benefit of $17.5 million, a favorable variance of $80.6 million from the same period in the prior year, driven by improved credit quality and macroeconomic outlook and lower NCOs. Refer to the Provision for Credit Losses section of this MD&A for additional information.

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Table 27 - Allowance for Credit Losses - Loan Portfolios

June 30, 2021

(Dollars in thousands)

Commercial

Construction

 

Mortgage

 

Leasing

Consumer

Total

 

Total ACL

$

271,144

 

$

11,256

 

$

182,619

 

$

17,551

 

$

303,220

 

$

785,790

 

Total loans held-in-portfolio

$

13,437,932

 

$

865,113

 

$

7,678,478

 

$

1,297,928

 

$

5,783,166

 

$

29,062,617

 

ACL to loans held-in-portfolio

 

2.02

%

 

1.30

%

 

2.38

%

 

1.35

%

 

5.24

%

 

2.70

%

 

Table 28 - Allowance for Credit Losses - Loan Portfolios

December 31, 2020

(Dollars in thousands)

Commercial

Construction

 

Mortgage

 

Leasing

Consumer

Total

 

Total ACL

$

333,380

 

$

14,237

 

$

215,716

 

$

16,863

 

$

316,054

 

$

896,250

 

Total loans held-in-portfolio

$

13,614,310

 

$

926,208

 

$

7,890,680

 

$

1,197,661

 

$

5,756,337

 

$

29,385,196

 

ACL to loans held-in-portfolio

 

2.45

%

 

1.54

%

 

2.73

%

 

1.41

%

 

5.49

%

 

3.05

%

 

Annualized net charge-offs (recoveries)

 

The following tables present annualized net charge-offs (recoveries) to average loans held-in-portfolio (“HIP”) by loan category for the quarters and six months ended June 30, 2021 and 2020.

 

Table 29 - Annualized Net Charge-offs (Recoveries) to Average Loans Held-in-Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters ended

 

 

June 30, 2021

 

June 30, 2020

 

 

BPPR

 

Popular U.S.

 

Popular Inc.

 

BPPR

 

Popular U.S.

 

Popular Inc.

 

Commercial

 

(0.51)

%

(0.03)

%

(0.30)

%

0.05

%

(0.06)

%

0.01

%

Construction

 

(1.41)

 

0.05

 

(0.18)

 

(0.45)

 

―

 

(0.08)

 

Mortgage

 

0.06

 

(0.15)

 

0.03

 

0.51

 

(0.01)

 

0.43

 

Leasing

 

0.12

 

―

 

0.12

 

1.25

 

―

 

1.25

 

Consumer

 

0.55

 

1.57

 

0.59

 

3.68

 

3.53

 

3.67

 

Total annualized net charge-offs (recoveries) to average loans held-in-portfolio

 

(0.03)

%

0.01

%

(0.02)

%

1.20

%

0.15

%

0.92

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended

 

 

June 30, 2021

 

June 30, 2020

 

 

BPPR

 

Popular U.S.

 

Popular Inc.

 

BPPR

 

Popular U.S.

 

Popular Inc.

 

Commercial

 

(0.29)

%

(0.01)

%

(0.17)

%

0.04

%

(0.03)

%

0.01

%

Construction

 

7.32

 

0.03

 

1.25

 

(0.27)

 

(0.04)

 

(0.08)

 

Mortgage

 

0.28

 

(0.09)

 

0.23

 

0.44

 

―

 

0.37

 

Leasing

 

0.08

 

―

 

0.08

 

1.24

 

―

 

1.24

 

Consumer

 

0.52

 

1.99

 

0.58

 

3.61

 

3.19

 

3.58

 

Total annualized net charge-offs to average loans held-in-portfolio

 

0.17

%

0.04

%

0.14

%

1.19

%

0.16

%

0.92

%

 

NCOs for the quarter ended June 30, 2021 amounted to a net recovery of $1.3 million, decreasing by $66.2 million when compared to the same period in 2020. The BPPR segment NCOs decreased by $63.6 million mainly driven by lower consumer and mortgage NCOs by $42.8 million and $6.6 million, respectively, aided by measures taken by the Corporation to control the impact of the

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pandemic, as well as the U.S. government stimulus programs. The decrease reflected in the commercial NCOs of approximately $11.0 million, when compared to the same period in 2020, was mostly due to recoveries of $7.9 million related to the resolution of a non-performing relationship. The Popular U.S. segment NCOs were negligible for the period, decreasing by $2.6 million, mainly driven by lower consumer NCOs.

 

Troubled Debt Restructurings

The Corporation’s troubled debt restructurings (“TDRs”) loans amounted to $1.7 billion at June 30, 2021, increasing by $13 million, from December 31, 2020, mainly related to mortgage borrowers that needed additional COVID-19 extensions past the original 6-month moratorium period. TDRs in the BPPR segment increased by $15 million, mostly related to higher mortgage TDRs by $42 million, of which $36 million were related to government guaranteed loans, in part offset by a combined decrease of $22 million in the commercial and construction TDRs, principally related to a commercial loan that paid-off during the second quarter of 2021. The Popular U.S. segment TDRs decreased by $2 million from December 31, 2020, mostly due to lower mortgage TDRs. TDRs in accruing status increased by $43 million from December 31, 2020, mostly related to an increase of $59 million in BPPR’s mortgage, in part offset by a decrease of $12 million in BPPR’s commercial TDRs, while non-accruing TDRs decreased by $29 million.

Refer to Note 8 to the Consolidated Financial Statements for additional information on modifications considered TDRs, including certain qualitative and quantitative data about troubled debt restructurings performed in the past twelve months.

 

ADOPTION OF NEW ACCOUNTING STANDARDS AND ISSUED BUT NOT YET EFFECTIVE ACCOUNTING STANDARDS

Refer to Note 3, “New Accounting Pronouncements” to the Consolidated Financial Statements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Quantitative and qualitative disclosures for the current period can be found in the Market Risk section of this report, which includes changes in market risk exposures from disclosures presented in the Corporation’s 2020 Form 10-K.

 

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Corporation’s management, with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Corporation’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Corporation’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Corporation in the reports that it files or submits under the Exchange Act and such information is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosures.

 

Internal Control Over Financial Reporting

There have been no changes in the Corporation’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

164

 

Part II - Other Information

Item 1. Legal Proceedings

For a discussion of Legal Proceedings, see Note 20, Commitments and Contingencies, to the Consolidated Financial Statements.

 

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed under “Part I - Item 1A - Risk Factors” in our 2020 Form 10-K and under “Part II – Item 1A - Risk Factors” of any subsequent Quarterly Report on Form 10-Q. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. Also refer to the discussion in “Part I - Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report for additional information that may supplement or update the discussion of the risk factors below and in our 2020 Form 10-K and any subsequent Quarterly Reports on Form 10-Q.

 

The risks described in our 2020 Form 10-K and in our Quarterly Reports on Form 10-Q are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, liquidity, results of operations and capital position.

 

There have been no material changes to the risk factors previously disclosed under “Part I - Item 1- A - Risk Factors” in our 2020 Form 10-K, except for the risks included below which supplement the risk factors described in our 2020 Form 10-K.

 

We are subject to a variety of cybersecurity risks, that if realized, may have an adverse effect on our business and results of operations. These cybersecurity risks have been heightened by the increase on our employees’ remote work capabilities and in the use of digital channels by our customers as a result of the COVID-19 pandemic.

 

Information security 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 Internet and mobile banking to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, nation-states, hacktivists and other parties. In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to transmit and store sensitive data. We employ a layered defensive approach that employs people, processes and technology to manage and maintain cybersecurity controls through a variety of preventative and detective tools that monitor, block, and provide alerts regarding suspicious activity and identify suspected advanced persistent threats. Notwithstanding our defensive measures and the significant resources we devote to protect the security of our systems, there is no assurance that all of our security measures will be effective at all times, especially as the threats from cyber-attacks is continuous and severe. The risk of a security breach due to a cyber attack could increase in the future as we continue to expand our mobile banking and other internet-based product offerings and Popular’s 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. We have been the target of phishing attacks in the past, targeting both our customers and employees through brand and email impersonation, that have compromised the email accounts of certain of our customers and employees. We continually monitor and address those vulnerabilities and continue to enhance our security measures to detect and prevent such events, while enhancing employee and customer trainings and awareness campaigns. There can be no assurances, however, that there will not be further compromises of sensitive customer information in the future. Furthermore, increased use of remote access and third-party video conferencing solutions during the COVID-19 pandemic, to facilitate work-from-home arrangements for employees, and facilitating the use of digital channels by our customers, could increase our exposure to cyber attacks. In addition, a third party could misappropriate confidential information obtained by intercepting signals or communications from mobile devices used by Popular’s employees.

 

The most significant cyber-attack risks that we may face are e-fraud, denial-of-service, ransomware and computer intrusion that might result in disruption of services and in the exposure or loss of customer or proprietary data. Loss from e-fraud occurs when cybercriminals compromise our systems and extract funds from customer’s credit cards or bank accounts.

165

 

Denial-of-service disrupts services available to our customers through our on-line banking system. Computer intrusion attempts might result in the compromise of sensitive customer data, such as account numbers and social security numbers, and could present significant reputational, legal and regulatory costs to Popular if successful. Risks and exposures related to cyber security attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as the expanding use of digital channels for banking, such as mobile banking and other technology-based products and services used by us and our customers.

Although we are regularly targeted by unauthorized parties, we have not, to date, experienced any material losses as a result of any cyber-attacks.

 

A successful compromise or circumvention of the security of our systems could have serious negative consequences for us, including significant disruption of our operations and those of our clients, customers and counterparties, misappropriation of confidential information of us or that of our clients, customers, counterparties or employees, or damage to computers or systems used by us or by our clients, customers and counterparties, and could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, customer dissatisfaction, significant litigation exposure and harm to our reputation, all of which could have a material adverse effect on us. For example, if personal, non-public, confidential or proprietary information in our possession were to be mishandled, misused or stolen, we could suffer significant regulatory consequences, reputational damage and financial loss. 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 its clients, customers, counterparties and regulators, as well as the public. Furthermore, it may not be clear how best to contain and remediate the harm caused by the cyber attack, and certain errors or actions could be repeated or compounded before they are discovered and remediated. Any or all of these factors could further increase the costs and consequences of a cyber attack. For a discussion of the guidance that federal banking regulators have released regarding cybersecurity and cyber risk management standards, see “Regulation and Supervision” in Part I, Item 1 — Business, included in our 2020 Form 10-K. Such mishandling or misuse could include, for example, if such information were erroneously provided to parties who are not permitted to have the information, either by fault of our systems, employees, or counterparties, or where such information is intercepted or otherwise inappropriately taken by third parties.

 

We 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 misappropriation of confidential information of us or that of our clients, customers, counterparties or employees, or other negative implications identified above with respect to a cyber attack on our systems, which could have a material adverse effect on us. The most important of these third-party service providers for us is EVERTEC, and certain risks particular to EVERTEC are discussed under “Part I - Item 1- A - Risk Factors” in our 2020 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. As a result, Popular has notified, as required or otherwise deemed appropriate, customers identified as affected by the incident. Although we are not aware of fraudulent activity in connection with this incident, Popular’s networks and systems were not impacted and our third-party service provider has agreed to cover external remediation costs associated with the incident, a compromise of the personal information of our customers maintained by third party vendors could result in significant regulatory consequences, reputational damage and financial loss to us. The success of our business depends in part on the continuing ability of these (and other) third parties to perform these functions and services in a timely and satisfactory manner, which performance could be disrupted or otherwise adversely affected due to failures or other information security events originating at the third parties or at the third parties’ suppliers or vendors (so-called “fourth party risk”). We may not be able to effectively 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 may be required to expend significant additional resources to continue to modify or enhance our layers of defense or to investigate and remediate any information security vulnerabilities. System enhancements and updates may also create risks associated with implementing new systems and integrating them with existing ones, including risks associated with supply chain compromises and the software development lifecycle of the systems used by us and our service providers. Due to the complexity and interconnectedness of information technology systems, the process of enhancing our layers of defense can itself create a risk of systems disruptions and security issues. In addition, addressing certain information security

166

 

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.

 

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 or have other significant shortcomings, Popular could be materially and adversely affected.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Corporation did not have any unregistered sales of equity securities during the quarter ended June 30, 2021.

Issuer Purchases of Equity Securities

 

The following table sets forth the details of purchases of Common Stock by the Corporation during the quarter ended June 30, 2021:

 

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)

Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs

April 1- April 30

-

 

-

-

-

May 1- May 31

3,801,586

$

73.97

3,785,831

$350,000,000

June 1- June 30

2,061

 

74.59

-

53,732,448

Total

3,803,647

$

73.97

3,785,831

$53,732,448

(1) Includes 17,816 shares of the Corporation’s common stock acquired by the Corporation 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.

(2) In May 2021, the Corporation entered into a $350 million accelerated share repurchase transaction with respect to its common stock. As part of this transaction, the Corporation received an initial share delivery of 3,785,831 shares of common stock. Such shares are held as treasury stock.

167

 

Item 3. Defaults Upon Senior Securities

None.

 

 

Item 4. Mine Safety Disclosures

Not applicable.

 

 

Item 5. Other Information

None.

 

 

 

Item 6. Exhibits

 

Exhibit Index

 

Exhibit No

Exhibit Description

10.1

Form of Director Compensation Letter, Election Form and Restricted Stock Unit Award Agreement for Betty DeVita and José R. Rodríguez, effective June 25, 2021(1)

22.1

Issuers of Guaranteed Securities (Incorporated by reference to Exhibit 22.1 of Popular, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020.)

31.1

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)

31.2

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)

32.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)

32.2

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)

 

101. INS

 

XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline Document.

101.SCH

Inline Taxonomy Extension Schema Document(1)

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document(1)

101.DEF

Inline XBRL Taxonomy Extension Definitions Linkbase Document(1)

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document(1)

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document(1)

104

 

 

The cover page of Popular, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline XBRL (included within the Exhibit 101 attachments)(1)

 

 

(1) Included herewith

168

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

POPULAR, INC.

 

(Registrant)

 

 

Date: August 9, 2021

By: /s/ Carlos J. Vázquez

 

Carlos J. Vázquez

 

Executive Vice President &

 

Chief Financial Officer

 

 

Date: August 9, 2021

By: /s/ Jorge J. García

 

Jorge J. García

 

Senior Vice President & Corporate Comptroller

169

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