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Popular, Inc. (Banco Popular de Puerto Rico)
BPOP
#2081
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 FY2022 Q1

Popular, Inc. (Banco Popular de Puerto Rico) - 10-Q quarterly report FY2022 Q1


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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 March 31, 2022

 

 

or

 

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

 

 

 

 

Commission File Number: 001-34084

 

 

 

 

 

 

POPULAR, INC.

(Exact name of registrant as specified in its charter)

Puerto Rico

 

66-0667416

(State or other jurisdiction of Incorporation or

 

(IRS Employer Identification Number)

organization)

 

 

Popular Center Building

 

 

 

209 Muñoz Rivera Avenue

 

 

 

Hato Rey, Puerto Rico

 

00918

(Address of principal executive offices)

 

(Zip code)

(787) 765-9800

(Registrant’s telephone number, including area code)

NOT APPLICABLE

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

 

 

 

 

 

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

 

 

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock ($0.01 par value)

BPOP

The NASDAQ Stock Market

6.125% Cumulative Monthly Income Trust Preferred Securities

BPOPM

The NASDAQ Stock Market

 

 

 

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

 

[X] Yes

[ ] No

 

 

 

 

 

 

 

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

 

[X] Yes

[ ] No

 

 

 

 

 

 

 

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

Large accelerated filer [X]

Accelerated filer [ ]

Non-accelerated filer [ ]

 

Smaller reporting company [ ]

Emerging growth company [ ]

 

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

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

 

[ ] Yes

[X] No

 

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $0.01 par value, 76,572,954 shares outstanding as of May 5, 2022.

 

1

 

 

POPULAR, INC.
INDEX

Part I – Financial Information

Page

 

 

Item 1. Financial Statements

 

 

 

Unaudited Consolidated Statements of Financial Condition at March 31, 2022 and

 

December 31, 2021

6

 

 

Unaudited Consolidated Statements of Operations for the quarters

 

ended March 31, 2022 and 2021

7

 

 

Unaudited Consolidated Statements of Comprehensive Income for the

 

quarters ended March 31, 2022 and 2021

8

 

 

Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the

 

quarters ended March 31, 2022 and 2021

9

 

 

 

 

Unaudited Consolidated Statements of Cash Flows for the quarters

 

ended March 31, 2022 and 2021

11

 

 

Notes to Unaudited Consolidated Financial Statements

13

 

 

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

 

Results of Operations

108

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

146

 

 

Item 4. Controls and Procedures

147

 

 

Part II – Other Information

 

 

 

Item 1. Legal Proceedings

147

 

 

Item 1A. Risk Factors

147

 

 

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

148

 

 

Item 3. Defaults Upon Senior Securities

148

 

 

Item 4. Mine Safety Disclosures

148

 

 

Item 5. Other information

148

 

 

Item 6. Exhibits

148

 

 

Signatures

150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 and future performance. These statements are not guarantees of future performance, are based on management’s current expectations and, by their nature, involve risks, uncertainties, estimates and assumptions. Potential factors, some of which are beyond the Corporation’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. Risks and uncertainties include without limitation the effect of competitive and economic factors, and our reaction to those factors, the adequacy of the allowance for loan losses, delinquency trends, market risk and the impact of interest rate changes, capital markets conditions, capital adequacy and liquidity, and the effect of legal and regulatory proceedings and new accounting standards on the Corporation’s financial condition and results of operations. All statements contained herein that are not clearly historical in nature are forward-looking, and the words “anticipate,” “believe,” “continues,” “expect,” “estimate,” “intend,” “project” and similar expressions and future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions are generally intended to identify forward-looking statements.

 

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

 

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

 

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

 

the amount of Puerto Rico public sector deposits held at the Corporation, whose future balances are uncertain and difficult to predict and may be impacted by factors such as the amount of Federal funds received by the P.R. Government in connection with the COVID-19 pandemic and hurricane recovery assistance and the rate of expenditure of such funds, as well as the financial condition, liquidity and cash management practices of the Puerto Rico Government and its instrumentalities;

 

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;

 

risks related to Popular’s planned acquisition of certain information technology and related assets currently used by EVERTEC, Inc. to service certain of Banco Popular de Puerto Rico’s key channels, as well as the planned entry into amended and restated commercial agreements and the sale or conversion into non-voting of Popular’s ownership stake in Evertec (the “Transaction”), including: the length of time necessary to consummate the Transaction; the ability to satisfy the conditions to the closing thereof; the receipt of any regulatory approvals necessary to effect the Transaction and the contemplated return to stockholders of net gains resulting from a sale of EVERTEC, Inc. shares; the ability to successfully transition and integrate the assets acquired as part of the Transaction, as well as related operations, employees and third party contractors; unexpected costs, including, without limitation, costs due to exposure to any unrecorded liabilities or issues not identified during due diligence investigation of the Transaction or that are not subject to indemnification or reimbursement by EVERTEC, Inc.; risks that Popular may be affected by operational and other risks arising from the acquisition of the acquired assets, including the transition and integration thereof, or by adverse effects on relationships with customers, employees and service providers; and business and other risks arising from the extension of Popular’s current commercial agreements with EVERTEC, Inc., as well as the sale or conversion of EVERTEC, Inc. shares owned by Popular;

 

3

 

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, acts of violence or war 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;

 

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.

 

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

4

 

the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021, as well as “Part II, Item 1A” of our Quarterly Reports on Form 10-Q for a discussion of such factors and certain risks and uncertainties to which the Corporation is subject.

 

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

5

 

POPULAR, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

 

 

 

 

 

March 31,

December 31,

(In thousands, except share information)

2022

2021

Assets:

 

 

 

 

Cash and due from banks

$

439,148

$

428,433

Money market investments:

 

 

 

 

 

 

Time deposits with other banks

 

10,069,692

 

17,536,719

 

 

Total money market investments

 

10,069,692

 

17,536,719

Trading account debt securities, at fair value:

 

 

 

 

 

 

Pledged securities with creditors’ right to repledge

 

-

 

-

 

 

Other trading account debt securities

 

36,042

 

29,711

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

 

 

 

 

 

 

Pledged securities with creditors’ right to repledge

 

72,639

 

93,330

 

 

Other debt securities available-for-sale

 

26,287,276

 

24,874,939

Debt securities held-to-maturity, at amortized cost (fair value 2022 - $75,882; 2021 - $83,368)

 

75,984

 

79,461

 

 

Less – Allowance for credit losses

 

7,844

 

8,096

 

 

Debt securities held-to-maturity, net

 

68,140

 

71,365

Equity securities (realizable value 2022 - $187,137; 2021 - $192,345)

 

186,348

 

189,977

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

 

55,150

 

59,168

Loans held-in-portfolio

 

29,856,356

 

29,506,225

 

 

Less – Unearned income

 

268,166

 

265,668

 

 

Allowance for credit losses

 

677,792

 

695,366

 

 

Total loans held-in-portfolio, net

 

28,910,398

 

28,545,191

Premises and equipment, net

 

488,390

 

494,240

Other real estate

 

90,567

 

85,077

Accrued income receivable

 

204,466

 

203,096

Mortgage servicing rights, at fair value

 

125,358

 

121,570

Other assets

 

1,755,847

 

1,628,571

Goodwill

 

720,293

 

720,293

Other intangible assets

 

15,328

 

16,219

Total assets

$

69,525,082

$

75,097,899

Liabilities and Stockholders’ Equity

 

 

 

 

Liabilities:

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Non-interest bearing

$

16,096,666

$

15,684,482

 

 

Interest bearing

 

46,765,629

 

51,320,606

 

 

Total deposits

 

62,862,295

 

67,005,088

Assets sold under agreements to repurchase

 

72,819

 

91,603

Other short-term borrowings

 

-

 

75,000

Notes payable

 

987,887

 

988,563

Other liabilities

 

930,835

 

968,248

 

 

Total liabilities

 

64,853,836

 

69,128,502

Commitments and contingencies (Refer to Note 20)

 

 

 

 

Stockholders’ equity:

 

 

 

 

Preferred stock, 30,000,000 shares authorized; 885,726 shares issued and outstanding (2021 - 885,726)

 

22,143

 

22,143

Common stock, $0.01 par value; 170,000,000 shares authorized;104,594,794 shares issued (2021 - 104,579,334) and 76,487,523 shares outstanding (2021 - 79,851,169)

 

1,046

 

1,046

Surplus

 

4,571,111

 

4,650,182

Retained earnings

 

3,143,004

 

2,973,745

Treasury stock - at cost, 28,107,271 shares (2021 - 24,728,165)

 

(1,668,820)

 

(1,352,650)

Accumulated other comprehensive loss, net of tax

 

(1,397,238)

 

(325,069)

 

 

Total stockholders’ equity

 

4,671,246

 

5,969,397

Total liabilities and stockholders’ equity

$

69,525,082

$

75,097,899

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

6

 

POPULAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

 

 

 

Quarters ended March 31,

(In thousands, except per share information)

 

2022

 

 

2021

Interest income:

 

 

 

 

 

 

Loans

$

426,791

 

$

434,649

 

Money market investments

 

6,464

 

 

3,112

 

Investment securities

 

96,466

 

 

85,690

 

 

Total interest income

 

529,721

 

 

523,451

Interest expense:

 

 

 

 

 

 

Deposits

 

24,783

 

 

30,201

 

Short-term borrowings

 

80

 

 

143

 

Long-term debt

 

10,546

 

 

13,995

 

 

Total interest expense

 

35,409

 

 

44,339

Net interest income

 

494,312

 

 

479,112

Provision for credit losses (benefit)

 

(15,500)

 

 

(82,226)

Net interest income after provision for credit losses (benefit)

 

509,812

 

 

561,338

Service charges on deposit accounts

 

40,713

 

 

39,620

Other service fees

 

77,134

 

 

70,628

Mortgage banking activities (Refer to Note 9)

 

12,865

 

 

17,343

Net (loss) gain, including impairment, on equity securities

 

(2,094)

 

 

421

Net loss on trading account debt securities

 

(723)

 

 

(45)

Indemnity reserves on loans sold expense

 

(745)

 

 

(698)

Other operating income

 

27,542

 

 

26,384

 

 

Total non-interest income

 

154,692

 

 

153,653

Operating expenses:

 

 

 

 

 

Personnel costs

 

166,996

 

 

159,479

Net occupancy expenses

 

24,723

 

 

26,013

Equipment expenses

 

23,479

 

 

21,575

Other taxes

 

15,715

 

 

13,959

Professional fees

 

108,497

 

 

99,948

Communications

 

6,147

 

 

6,833

Business promotion

 

15,083

 

 

12,521

FDIC deposit insurance

 

7,372

 

 

5,968

Other real estate owned (OREO) income

 

(2,713)

 

 

(4,533)

Other operating expenses

 

36,149

 

 

32,714

Amortization of intangibles

 

891

 

 

1,051

 

 

Total operating expenses

 

402,339

 

 

375,528

Income before income tax

 

262,165

 

 

339,463

Income tax expense

 

50,479

 

 

76,831

Net Income

$

211,686

 

$

262,632

Net Income Applicable to Common Stock

$

211,333

 

$

262,279

Net Income per Common Share - Basic

$

2.69

 

$

3.13

Net Income per Common Share - Diluted

$

2.69

 

$

3.12

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

7

 

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

 

 

 

 

 

 

 

 

Quarters ended March 31,

(In thousands)

 

 

 

2022

 

2021

Net income

 

 

 

$

211,686

 

$

262,632

Other comprehensive (loss) income before tax:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

(2,858)

 

 

569

Adjustment of pension and postretirement benefit plans

 

 

 

 

2,030

 

 

-

Amortization of net losses of pension and postretirement benefit plans

 

 

 

 

3,911

 

 

5,190

Unrealized holding losses on debt securities arising during the period

 

 

 

 

(1,219,023)

 

 

(397,327)

Unrealized net gains on cash flow hedges

 

 

 

 

3,888

 

 

2,223

 

Reclassification adjustment for net gains included in net income

 

 

 

 

(699)

 

 

(91)

Other comprehensive loss before tax

 

 

 

 

(1,212,751)

 

 

(389,436)

Income tax benefit

 

 

 

 

140,582

 

 

24,707

Total other comprehensive loss, net of tax

 

 

 

 

(1,072,169)

 

 

(364,729)

Comprehensive loss, net of tax

 

 

 

$

(860,483)

 

$

(102,097)

 

 

 

 

 

 

 

 

 

 

Tax effect allocated to each component of other comprehensive loss:

 

 

 

 

Quarters ended March 31,

(In thousands)

 

 

 

2022

 

2021

Adjustment of pension and postretirement benefit plans

 

 

 

$

(761)

 

$

-

Amortization of net losses of pension and postretirement benefit plans

 

 

 

 

(1,467)

 

 

(1,948)

Unrealized holding losses on debt securities arising during the period

 

 

 

 

143,193

 

 

27,382

Unrealized net gains on cash flow hedges

 

 

 

 

(749)

 

 

(866)

 

Reclassification adjustment for net gains included in net income

 

 

 

 

366

 

 

139

Income tax benefit

 

 

 

$

140,582

 

$

24,707

The accompanying notes are an integral part of these 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 December 31, 2020

$

1,045

$

22,143

$

4,571,534

$

2,260,928

 

$

(1,016,954)

 

$

189,991

 

$

6,028,687

Net income

 

 

 

 

 

 

 

262,632

 

 

 

 

 

 

 

 

262,632

Issuance of stock

 

 

 

 

 

1,118

 

 

 

 

 

 

 

 

 

 

1,118

Dividends declared:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock[1]

 

 

 

 

 

 

 

(33,754)

 

 

 

 

 

 

 

 

(33,754)

 

Preferred stock

 

 

 

 

 

 

 

(353)

 

 

 

 

 

 

 

 

(353)

Common stock purchases

 

 

 

 

 

 

 

 

 

 

(3,942)

 

 

 

 

 

(3,942)

Stock based compensation

 

 

 

 

 

(733)

 

 

 

 

8,633

 

 

 

 

 

7,900

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

(364,729)

 

 

(364,729)

Balance at March 31, 2021

$

1,045

$

22,143

$

4,571,919

$

2,489,453

 

$

(1,012,263)

 

$

(174,738)

 

$

5,897,559

Balance at December 31, 2021

$

1,046

$

22,143

$

4,650,182

$

2,973,745

 

$

(1,352,650)

 

$

(325,069)

 

$

5,969,397

Net income

 

 

 

 

 

 

 

211,686

 

 

 

 

 

 

 

 

211,686

Issuance of stock

 

 

 

 

 

1,199

 

 

 

 

 

 

 

 

 

 

1,199

Dividends declared:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock[1]

 

 

 

 

 

 

 

(42,074)

 

 

 

 

 

 

 

 

(42,074)

 

Preferred stock

 

 

 

 

 

 

 

(353)

 

 

 

 

 

 

 

 

(353)

Common stock purchases[2]

 

 

 

 

 

(80,000)

 

 

 

 

(324,920)

 

 

 

 

 

(404,920)

Stock based compensation

 

 

 

 

 

(270)

 

 

 

 

8,750

 

 

 

 

 

8,480

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,072,169)

 

 

(1,072,169)

Balance at March 31, 2022

$

1,046

$

22,143

$

4,571,111

$

3,143,004

 

$

(1,668,820)

 

$

(1,397,238)

 

$

4,671,246

[1]

Dividends declared per common share during the quarter ended March 31, 2022 - $0.55 (2021 - $0.40).

[2]

During the quarter ended March 31, 2022, the Corporation entered into a $400 million accelerated share repurchase transaction with respect to its common stock. Refer to Note 17 for additional information.

9

 

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the quarters ended

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

March 31,

Disclosure of changes in number of shares:

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

Preferred Stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning and end of period

 

 

 

 

 

 

 

 

 

 

 

 

 

885,726

 

 

885,726

Common Stock – Issued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

 

 

 

 

 

 

 

 

 

 

 

104,579,334

 

 

104,508,290

 

Issuance of stock

 

 

 

 

 

 

 

 

 

 

 

 

 

15,460

 

 

20,987

 

Balance at end of period

 

 

 

 

 

 

 

 

 

 

 

 

 

104,594,794

 

 

104,529,277

 

Treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,107,271)

 

 

(20,150,097)

Common Stock – Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

76,487,523

 

 

84,379,180

 

 

 

 

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

10

 

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters ended March 31,

(In thousands)

 

2022

 

 

2021

Cash flows from operating activities:

 

 

 

 

 

Net income

$

211,686

 

$

262,632

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

 

 

 

 

 

 

Provision for credit losses (benefit)

 

(15,500)

 

 

(82,226)

 

Amortization of intangibles

 

891

 

 

1,051

 

Depreciation and amortization of premises and equipment

 

13,630

 

 

14,738

 

Net accretion of discounts and amortization of premiums and deferred fees

 

15,843

 

 

(12,361)

 

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

 

(3,416)

 

 

(2,855)

 

Share-based compensation

 

8,276

 

 

8,905

 

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

 

-

 

 

303

 

Fair value adjustments on mortgage servicing rights

 

(1,017)

 

 

(512)

 

Adjustments to indemnity reserves on loans sold

 

745

 

 

698

 

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

 

(15,099)

 

 

(12,088)

 

Deferred income tax expense

 

22,129

 

 

69,633

 

(Loss) gain on:

 

 

 

 

 

 

 

Disposition of premises and equipment and other productive assets

 

(2,363)

 

 

(4,443)

 

 

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

 

1,534

 

 

(4,977)

 

 

Sale of foreclosed assets, including write-downs

 

(7,566)

 

 

(6,090)

 

Acquisitions of loans held-for-sale

 

(55,134)

 

 

(63,261)

 

Proceeds from sale of loans held-for-sale

 

19,739

 

 

218,483

 

Net originations on loans held-for-sale

 

(98,356)

 

 

(327,742)

 

Net decrease (increase) in:

 

 

 

 

 

 

 

Trading debt securities

 

136,941

 

 

182,659

 

 

Equity securities

 

(111)

 

 

(3,197)

 

 

Accrued income receivable

 

(1,379)

 

 

(6,728)

 

 

Other assets

 

4,068

 

 

(4,942)

 

Net decrease in:

 

 

 

 

 

 

 

Interest payable

 

(7,106)

 

 

(8,498)

 

 

Pension and other postretirement benefits obligation

 

(196)

 

 

(1,071)

 

 

Other liabilities

 

(31,053)

 

 

(27,714)

Total adjustments

 

(14,500)

 

 

(72,235)

Net cash provided by operating activities

 

197,186

 

 

190,397

Cash flows from investing activities:

 

 

 

 

 

 

Net decrease in money market investments

 

7,467,248

 

 

72,284

 

Purchases of investment securities:

 

 

 

 

 

 

 

Available-for-sale

 

(5,747,659)

 

 

(6,828,725)

 

 

Equity

 

(845)

 

 

(1,296)

 

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

 

 

 

 

 

 

 

Available-for-sale

 

3,109,090

 

 

4,492,494

 

 

Held-to-maturity

 

4,114

 

 

3,339

 

Proceeds from sale of investment securities:

 

 

 

 

 

 

 

Equity

 

4,585

 

 

64

 

Net (disbursements) repayments on loans

 

(236,365)

 

 

290,232

 

Proceeds from sale of loans

 

752

 

 

48,156

 

Acquisition of loan portfolios

 

(119,479)

 

 

(86,071)

 

Return of capital from equity method investments

 

-

 

 

682

 

Acquisition of premises and equipment

 

(15,205)

 

 

(17,850)

 

Proceeds from sale of:

 

 

 

 

 

 

 

Premises and equipment and other productive assets

 

578

 

 

8,497

 

 

Foreclosed assets

 

23,631

 

 

24,968

Net cash provided by (used in) investing activities

 

4,490,445

 

 

(1,993,226)

11

 

Cash flows from financing activities:

 

 

 

 

 

 

Net (decrease) increase in:

 

 

 

 

 

 

 

Deposits

 

(4,141,068)

 

 

1,881,314

 

 

Assets sold under agreements to repurchase

 

(18,784)

 

 

(34,469)

 

 

Other short-term borrowings

 

(75,000)

 

 

-

 

Payments of notes payable

 

(1,000)

 

 

(1,075)

 

Principal payments of finance leases

 

(833)

 

 

(1,133)

 

Proceeds from issuance of common stock

 

1,199

 

 

1,118

 

Dividends paid

 

(36,289)

 

 

(34,053)

 

Net payments for repurchase of common stock

 

(400,604)

 

 

(279)

 

Payments related to tax withholding for share-based compensation

 

(4,316)

 

 

(3,663)

Net cash (used in) provided by financing activities

 

(4,676,695)

 

 

1,807,760

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

 

10,936

 

 

4,931

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

 

434,512

 

 

497,094

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

$

445,448

 

$

502,025

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

33

Note 9 -

Mortgage banking activities

54

Note 10 -

Transfers of financial assets and mortgage servicing assets

55

Note 11 -

Other real estate owned

58

Note 12 -

Other assets

59

Note 13 -

Goodwill and other intangible assets

60

Note 14 -

Deposits

62

Note 15 -

Borrowings

63

Note 16 -

Other liabilities

65

Note 17 -

Stockholders’ equity

66

Note 18 -

Other comprehensive loss

67

Note 19 -

Guarantees

69

Note 20 -

Commitments and contingencies

71

Note 21-

Non-consolidated variable interest entities

78

Note 22 -

Related party transactions

80

Note 23 -

Fair value measurement

83

Note 24 -

Fair value of financial instruments

89

Note 25 -

Net income per common share

92

Note 26 -

Revenue from contracts with customers

93

Note 27 -

Leases

95

Note 28 -

Pension and postretirement benefits

97

Note 29 -

Stock-based compensation

98

Note 30 -

Income taxes

100

Note 31 -

Supplemental disclosure on the consolidated statements of cash flows

104

Note 32 -

Segment reporting

105

 

 

 

 

 

 

 

 

 

 

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, and equipment leasing and financing services through Popular Equipment Finance (“PEF”), a wholly-owned subsidiary of PB based in Minnesota.

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, 2021 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, 2021, included in the Corporation’s 2021 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 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 at inception a loss would have been recognized.

January 1, 2022

The Corporation was not impacted by the adoption of ASU 2021-05 during the first quarter of 2022 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

The Corporation was not impacted by the adoption of ASU 2021-04 during the first quarter of 2022 since it does not hold freestanding equity-classified written call options under the scope of this guidance.

 

 

FASB ASU 2020-06, Debt – Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity

 

The FASB issued ASU 2020-06 in August 2020 which, among other things, simplifies the accounting for convertible instruments and contracts in an entity’s own equity and amends the diluted EPS computation for these instruments.

January 1, 2022

The Corporation adopted ASU 2020-06 during the first quarter of 2022. There was no material impact upon the adoption in the analysis of the accelerated share repurchase transaction discussed in Note 17, which was classified as an equity instrument and the related potential shares were considered in its dilutive earnings per share calculation.

 

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

Accounting Standards Updates Not Yet Adopted

 

 

 

 

 

 

 

Standard

 

Description

Date of adoption

Effect on the financial statements

 

FASB ASU 2022-02, Financial Instruments—Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures

 

The FASB issued ASU 2022-02 in March 2022, which eliminates the accounting guidance for TDRs in Subtopic 310-40 Receivables—Troubled Debt Restructurings by Creditors and requires to apply the loan refinancing and restructuring guidance to determine whether a modification results in a new loan or a continuation of an existing loan. In addition, the ASU enhances the disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty and enhances the vintage disclosure by requiring to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases.

January 1, 2023

The Corporation is currently evaluating the impact that the adoption of this guidance will have on its presentation and disclosures.

 

FASB ASU 2022-01, Derivatives and Hedging (Topic 815) – Fair Value Hedging—Portfolio Layer Method

 

The FASB issued ASU 2022-01 in March 2022, which amends ASC Topic 815 by allowing non prepayable financial assets also to be included in a closed portfolio hedged using the portfolio layer method. This amendment permits an entity to apply fair value hedging to a stated amount of a closed portfolio of prepayable and non-prepayable financial assets without considering prepayment risk or credit risk when measuring those assets.

January 1, 2023

The Corporation is currently evaluating the impact of this amendment on its consolidated financial statements.

 

 

 

 

 

 

 

For other recently issued Accounting Standards Updates not yet effective, refer to Note 3 to the Consolidated Financial Statements included in the 2021 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 $2.8 billion at March 31, 2022 (December 31, 2021 - $2.7 billion). Cash and due from banks, as well as other highly liquid securities, are used to cover the required average reserve balances.

 

At March 31, 2022, the Corporation held $92 million in restricted assets in the form of funds deposited in money market accounts, debt securities available for sale and equity securities (December 31, 2021 - $50 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 March 31, 2022 and December 31, 2021.

 

 

 

At March 31, 2022

 

 

 

 

 

Gross

Gross

 

 

Weighted

 

 

 

Amortized

unrealized

unrealized

Fair

average

 

(In thousands)

cost

gains

losses

value

yield

 

U.S. Treasury securities

 

 

 

 

 

 

 

 

 

 

 

Within 1 year

$

3,330,374

$

7,509

$

3,844

$

3,334,039

0.98

%

 

After 1 to 5 years

 

10,844,508

 

5,396

 

416,936

 

10,432,968

1.17

 

 

After 5 to 10 years

 

4,704,946

 

-

 

292,842

 

4,412,104

1.32

 

Total U.S. Treasury securities

 

18,879,828

 

12,905

 

713,622

 

18,179,111

1.18

 

Obligations of U.S. Government sponsored entities

 

 

 

 

 

 

 

 

 

 

 

Within 1 year

 

70

 

1

 

-

 

71

5.59

 

Total obligations of U.S. Government sponsored entities

 

70

 

1

 

-

 

71

5.59

 

Collateralized mortgage obligations - federal agencies

 

 

 

 

 

 

 

 

 

 

 

After 1 to 5 years

 

2,062

 

-

 

18

 

2,044

2.12

 

 

After 5 to 10 years

 

47,568

 

6

 

1,191

 

46,383

1.56

 

 

After 10 years

 

146,811

 

714

 

4,737

 

142,788

2.19

 

Total collateralized mortgage obligations - federal agencies

 

196,441

 

720

 

5,946

 

191,215

2.04

 

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

Within 1 year

 

3

 

-

 

-

 

3

2.11

 

 

After 1 to 5 years

 

65,835

 

256

 

413

 

65,678

2.17

 

 

After 5 to 10 years

 

739,719

 

668

 

9,398

 

730,989

2.06

 

 

After 10 years

 

7,789,911

 

9,667

 

606,841

 

7,192,737

1.65

 

Total mortgage-backed securities

 

8,595,468

 

10,591

 

616,652

 

7,989,407

1.68

 

Other

 

 

 

 

 

 

 

 

 

 

 

After 1 to 5 years

 

109

 

2

 

-

 

111

3.62

 

Total other

 

109

 

2

 

-

 

111

3.62

 

Total debt securities available-for-sale[1]

$

27,671,916

$

24,219

$

1,336,220

$

26,359,915

1.34

%

[1]

Includes $17.7 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 $16.6 billion serve as collateral for public funds.

19

 

 

 

At December 31, 2021

 

 

 

 

 

Gross

Gross

 

 

Weighted

 

 

 

Amortized

unrealized

unrealized

Fair

average

 

(In thousands)

cost

gains

losses

value

yield

 

U.S. Treasury securities

 

 

 

 

 

 

 

 

 

 

 

Within 1 year

$

1,225,558

$

13,556

$

69

$

1,239,045

2.33

%

 

After 1 to 5 years

 

10,059,163

 

98,808

 

65,186

 

10,092,785

1.18

 

 

After 5 to 10 years

 

4,563,265

 

739

 

36,804

 

4,527,200

1.22

 

Total U.S. Treasury securities

 

15,847,986

 

113,103

 

102,059

 

15,859,030

1.27

 

Obligations of U.S. Government sponsored entities

 

 

 

 

 

 

 

 

 

 

 

Within 1 year

 

70

 

-

 

-

 

70

5.63

 

Total obligations of U.S. Government sponsored entities

 

70

 

-

 

-

 

70

5.63

 

Collateralized mortgage obligations - federal agencies

 

 

 

 

 

 

 

 

 

 

 

After 1 to 5 years

 

2,433

 

42

 

-

 

2,475

2.16

 

 

After 5 to 10 years

 

43,241

 

295

 

6

 

43,530

1.54

 

 

After 10 years

 

172,176

 

3,441

 

357

 

175,260

2.13

 

Total collateralized mortgage obligations - federal agencies

 

217,850

 

3,778

 

363

 

221,265

2.01

 

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

Within 1 year

 

11

 

1

 

-

 

12

4.79

 

 

After 1 to 5 years

 

65,749

 

2,380

 

11

 

68,118

2.23

 

 

After 5 to 10 years

 

665,600

 

17,998

 

5

 

683,593

1.97

 

 

After 10 years

 

8,263,835

 

68,128

 

195,910

 

8,136,053

1.67

 

Total mortgage-backed securities

 

8,995,195

 

88,507

 

195,926

 

8,887,776

1.69

 

Other

 

 

 

 

 

 

 

 

 

 

 

After 1 to 5 years

 

123

 

5

 

-

 

128

3.62

 

Total other

 

123

 

5

 

-

 

128

3.62

 

Total debt securities available-for-sale[1]

$

25,061,224

$

205,393

$

298,348

$

24,968,269

1.42

%

[1]

Includes $22.0 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 $20.9 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.

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

There were no debt securities sold during the quarters ended March 31, 2022 and 2021.

The following tables present the Corporation’s fair value and gross unrealized losses of debt securities available-for-sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2022 and December 31, 2021.

20

 

 

 

At March 31, 2022

 

Less than 12 months

12 months or more

Total

 

 

 

 

Gross

 

 

Gross

 

 

Gross

 

 

Fair

unrealized

Fair

unrealized

Fair

unrealized

(In thousands)

value

losses

value

losses

value

losses

U.S. Treasury securities

$

15,249,412

$

681,815

$

553,050

$

31,807

$

15,802,462

$

713,622

Collateralized mortgage obligations - federal agencies

 

157,384

 

5,854

 

997

 

92

 

158,381

 

5,946

Mortgage-backed securities

 

2,763,780

 

126,822

 

4,613,565

 

489,830

 

7,377,345

 

616,652

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

$

18,170,576

$

814,491

$

5,167,612

$

521,729

$

23,338,188

$

1,336,220

 

 

 

At December 31, 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

$

9,590,448

$

102,059

$

-

$

-

$

9,590,448

$

102,059

Collateralized mortgage obligations - federal agencies

 

35,533

 

334

 

1,084

 

29

 

36,617

 

363

Mortgage-backed securities

 

5,767,556

 

170,614

 

595,051

 

25,312

 

6,362,607

 

195,926

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

$

15,393,537

$

273,007

$

596,135

$

25,341

$

15,989,672

$

298,348

 

As of March 31, 2022, the portfolio of available-for-sale debt securities reflects gross unrealized losses of approximately $1.3 billion, driven mainly by fixed-rate U.S. Treasury Securities and mortgage-backed securities, which have been impacted by a decline in fair value as a result of the rising interest rate environment. The portfolio of available for sale securities is comprised mainly of U.S Treasuries and obligations from the U.S. Government, its agencies or government sponsored entities, including FNMA, FHMLC and GNMA. As discussed in Note 2 to the Consolidated Financial Statements included in Form 10-K for the year ended December 31, 2021, these securities carry an explicit or implicit guarantee from the U.S. Government, are highly rated by major rating agencies, and have a long history of no credit losses. Accordingly, the Corporation applies a zero-credit loss assumption and no ACL for these securities has been established.

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 March 31, 2022 and December 31, 2021.

 

 

 

At March 31, 2022

 

 

 

 

 

 

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

$

4,440

$

13

$

4,427

$

13

$

-

$

4,440

6.10

%

 

After 1 to 5 years

 

13,045

 

158

 

12,887

 

158

 

-

 

13,045

6.28

 

 

After 5 to 10 years

 

9,530

 

89

 

9,441

 

24

 

1

 

9,464

1.40

 

 

After 10 years

 

42,985

 

7,584

 

35,401

 

8,067

 

520

 

42,948

1.48

 

Total obligations of Puerto Rico, States and political subdivisions

 

70,000

 

7,844

 

62,156

 

8,262

 

521

 

69,897

2.66

 

Collateralized mortgage obligations - federal agencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After 1 to 5 years

 

24

 

-

 

24

 

1

 

-

 

25

6.44

 

Total collateralized mortgage obligations - federal agencies

 

24

 

-

 

24

 

1

 

-

 

25

6.44

 

Securities in wholly owned statutory business trusts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After 10 years

 

5,960

 

-

 

5,960

 

-

 

-

 

5,960

6.33

 

Total securities in wholly owned statutory business trusts

 

5,960

 

-

 

5,960

 

-

 

-

 

5,960

6.33

 

Total debt securities held-to-maturity

$

75,984

$

7,844

$

68,140

$

8,263

$

521

$

75,882

2.95

%

 

 

 

At December 31, 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

$

4,240

$

7

$

4,233

$

4

$

-

$

4,237

6.07

%

 

After 1 to 5 years

 

14,395

 

148

 

14,247

 

149

 

-

 

14,396

6.23

 

 

After 5 to 10 years

 

11,280

 

122

 

11,158

 

104

 

-

 

11,262

2.18

 

 

After 10 years

 

43,561

 

7,819

 

35,742

 

11,746

 

-

 

47,488

1.50

 

Total obligations of Puerto Rico, States and political subdivisions

 

73,476

 

8,096

 

65,380

 

12,003

 

-

 

77,383

2.79

 

Collateralized mortgage obligations - federal agencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After 1 to 5 years

 

25

 

-

 

25

 

-

 

-

 

25

6.44

 

Total collateralized mortgage obligations - federal agencies

 

25

 

-

 

25

 

-

 

-

 

25

6.44

 

Securities in wholly owned statutory business trusts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After 10 years

 

5,960

 

-

 

5,960

 

-

 

-

 

5,960

6.33

 

Total securities in wholly owned statutory business trusts

 

5,960

 

-

 

5,960

 

-

 

-

 

5,960

6.33

 

Total debt securities held-to-maturity

$

79,461

$

8,096

$

71,365

$

12,003

$

-

$

83,368

3.06

%

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

 

Credit Quality Indicators

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

At March 31, 2022 and December 31, 2021, 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 $27 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, 2021 - $30 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

22

 

required by law to levy property taxes in an amount sufficient for the payment of debt service on such general obligation bonds. The Corporation performs periodic credit quality reviews of these securities and internally assigns standardized credit risk ratings based on its evaluation. The Corporation considers these ratings in its estimate to develop the allowance for credit losses associated with these securities. For the definitions of the obligor risk ratings, refer to the Credit Quality section of Note 8 to the Consolidated Financial Statements.

The following presents the amortized cost basis of securities held by the Corporation issued by municipalities of Puerto Rico aggregated by the internally assigned standardized credit risk rating:

 

 

 

 

 

 

 

 

At March 31, 2022

At December 31, 2021

(In thousands)

Securities issued by Puerto Rico municipalities

Watch

$

15,075

$

16,345

Pass

 

12,170

 

13,800

Total

$

27,245

$

30,145

 

At March 31, 2022, the portfolio of “Obligations of Puerto Rico, States and political subdivisions” also includes $43 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, 2021 - $43 million). These securities are not rated by a credit rating agency. The Corporation assesses the credit risk associated with these securities by evaluating the refreshed FICO scores of a representative sample of the underlying borrowers. At March 31, 2022, the average refreshed FICO score for the representative sample, comprised of 65% of the nominal value of the securities, used for the loss estimate was of 704 (compared to 64% and 704, respectively, at December 31, 2021). 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 to the Consolidated Financial Statements for additional information on the Corporation’s exposure to the Puerto Rico Government.

Delinquency status

At March 31, 2022 and December 31, 2021, there were no securities held-to-maturity in past due or non-performing status.

Allowance for credit losses on debt securities held-to-maturity

The following table provides the activity in the allowance for credit losses related to debt securities held-to-maturity by security type at March 31, 2022 and March 31, 2021:

 

23

 

 

 

 

 

 

 

 

 

For the quarters ended March 31,

 

 

 

2022

 

2021

(In thousands)

Obligations of Puerto Rico, States and political subdivisions

Allowance for credit losses:

 

 

 

 

Beginning balance

 

$

8,096

$

10,261

Provision for credit losses (benefit)

 

 

(252)

 

(165)

Securities charged-off

 

 

-

 

-

Recoveries

 

 

-

 

-

Ending balance

$

7,844

$

10,096

 

 

 

 

 

 

The allowance for credit losses for the Obligations of Puerto Rico, States and political subdivisions includes $0.3 million for securities issued by municipalities of Puerto Rico, and $7.5 million for bonds issued by the Puerto Rico HFA, which are secured by second mortgage loans on Puerto Rico residential properties (compared to $0.3 million and $7.8 million, respectively, at December 31, 2021).

24

 

Note 7 – Loans

For a summary of the accounting policies related to loans, interest recognition and allowance for credit losses refer to Note 2 - Summary of Significant Accounting Policies of the 2021 Form 10-K.

 

During the quarter ended March 31, 2022, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $82 million including $3 million in Purchased Credit Deteriorated (“PCD”) loans and consumer loans of $91 million; compared to purchases (including repurchases) of mortgage loans of $126 million including $6 million in PCD loans and commercial loans of $21 million, during the quarter ended March 31, 2021.

 

The Corporation performed whole-loan sales involving approximately $19 million of residential mortgage loans and $1 million of commercial loans during the quarter ended March 31, 2022 (March 31, 2021 - $66 million of residential mortgage loans and $17 million of commercial loans). Also, during the quarter ended March 31, 2022, the Corporation securitized approximately $78 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities and $58 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities, compared to $102 million and $86 million, respectively, during the quarter ended March 31, 2021. Also, the Corporation securitized approximately $7 million of mortgage loans into Federal Home Loan Mortgage Corporation (“FHLMC”) mortgage-backed securities during the quarter ended March 31, 2022.

 

Delinquency status

 

The following tables present the amortized cost basis of loans held-in-portfolio (“HIP”), net of unearned income, by past due status, and by loan class including those that are in non-performing status or that are accruing interest but are past due 90 days or more at March 31, 2022 and December 31, 2021.

25

 

March 31, 2022

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

$

2,130

 

$

189

 

$

274

$

2,593

 

$

160,648

 

$

163,241

 

 

$

274

 

$

-

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

3,646

 

 

93

 

 

20,627

 

24,366

 

 

2,536,174

 

 

2,560,540

 

 

 

20,627

 

 

-

 

Owner occupied

 

4,024

 

 

50

 

 

49,732

 

53,806

 

 

1,396,696

 

 

1,450,502

 

 

 

49,732

 

 

-

Commercial and industrial

 

1,218

 

 

169

 

 

48,167

 

49,554

 

 

3,333,918

 

 

3,383,472

 

 

 

47,149

 

 

1,018

Construction

 

715

 

 

-

 

 

-

 

715

 

 

126,610

 

 

127,325

 

 

 

-

 

 

-

Mortgage

 

182,397

 

 

79,374

 

 

736,338

 

998,109

 

 

5,125,554

 

 

6,123,663

 

 

 

306,560

 

 

429,778

Leasing

 

9,819

 

 

2,446

 

 

3,766

 

16,031

 

 

1,410,091

 

 

1,426,122

 

 

 

3,766

 

 

-

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit cards

 

5,817

 

 

3,728

 

 

9,049

 

18,594

 

 

896,966

 

 

915,560

 

 

 

-

 

 

9,049

 

Home equity lines of credit

 

-

 

 

-

 

 

23

 

23

 

 

3,093

 

 

3,116

 

 

 

-

 

 

23

 

Personal

 

10,215

 

 

6,184

 

 

19,157

 

35,556

 

 

1,267,920

 

 

1,303,476

 

 

 

19,157

 

 

-

 

Auto

 

51,497

 

 

11,353

 

 

27,514

 

90,364

 

 

3,339,798

 

 

3,430,162

 

 

 

27,514

 

 

-

 

Other

 

537

 

 

37

 

 

12,184

 

12,758

 

 

112,322

 

 

125,080

 

 

 

12,037

 

 

147

Total

$

272,015

 

$

103,623

 

$

926,831

$

1,302,469

 

$

19,709,790

 

$

21,012,259

 

 

$

486,816

 

$

440,015

 

March 31, 2022

Popular U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Past due

 

 

 

 

 

 

 

Past due 90 days or more

 

 

30-59

 

60-89

 

90 days

 

Total

 

 

 

 

 

 

Non-accrual

 

 

Accruing

(In thousands)

days

 

days

 

or more

 

past due

 

Current

 

Loans HIP

 

 

loans

 

loans

Commercial multi-family

$

-

 

$

-

 

$

-

 

$

-

 

$

1,865,623

 

$

1,865,623

 

 

$

-

 

$

-

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied[1]

 

902

 

 

740

 

 

374

 

 

2,016

 

 

1,391,874

 

 

1,393,890

 

 

 

374

 

 

-

 

Owner occupied[1]

 

6,385

 

 

-

 

 

677

 

 

7,062

 

 

1,398,580

 

 

1,405,642

 

 

 

677

 

 

-

Commercial and industrial

 

10,925

 

 

602

 

 

4,891

 

 

16,418

 

 

1,788,918

 

 

1,805,336

 

 

 

4,352

 

 

539

Construction

 

-

 

 

-

 

 

-

 

 

-

 

 

617,458

 

 

617,458

 

 

 

-

 

 

-

Mortgage

 

13,006

 

 

1,069

 

 

21,826

 

 

35,901

 

 

1,166,782

 

 

1,202,683

 

 

 

21,826

 

 

-

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit cards

 

-

 

 

-

 

 

-

 

 

-

 

 

26

 

 

26

 

 

 

-

 

 

-

 

Home equity lines of credit

 

259

 

 

15

 

 

5,248

 

 

5,522

 

 

68,437

 

 

73,959

 

 

 

5,248

 

 

-

 

Personal

 

739

 

 

558

 

 

627

 

 

1,924

 

 

203,381

 

 

205,305

 

 

 

627

 

 

-

 

Other

 

-

 

 

1

 

 

1

 

 

2

 

 

6,007

 

 

6,009

 

 

 

1

 

 

-

Total

$

32,216

 

$

2,985

 

$

33,644

 

$

68,845

 

$

8,507,086

 

$

8,575,931

 

 

$

33,105

 

$

539

[1] During the first quarter of 2022, the Corporation reclassified $0.9 billion of loans from the Commercial Real Estate (“CRE”) Non-Owner-Occupied category to the CRE Owner-Occupied category. The selected loans are primarily to skilled and assisted living nursing homes where the majority of the revenues, which are the basis for the repayment of the loans, are generated from medical and related operational activities. These loans meet the type of business and source requirements as defined in the regulatory guidance allowing this classification.

26

 

March 31, 2022

 

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

Past due

 

 

 

 

 

 

 

Past due 90 days or more

 

 

 

30-59

 

60-89

 

90 days

Total

 

 

 

 

 

Non-accrual

 

 

Accruing

 

(In thousands)

days

 

days

 

or more

past due

 

Current

 

Loans HIP[2] [3]

 

 

loans

 

loans

 

Commercial multi-family

$

2,130

 

$

189

 

$

274

$

2,593

 

$

2,026,271

 

$

2,028,864

 

 

$

274

 

$

-

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

4,548

 

 

833

 

 

21,001

 

26,382

 

 

3,928,048

 

 

3,954,430

 

 

 

21,001

 

 

-

 

 

Owner occupied

 

10,409

 

 

50

 

 

50,409

 

60,868

 

 

2,795,276

 

 

2,856,144

 

 

 

50,409

 

 

-

 

Commercial and industrial

 

12,143

 

 

771

 

 

53,058

 

65,972

 

 

5,122,836

 

 

5,188,808

 

 

 

51,501

 

 

1,557

 

Construction

 

715

 

 

-

 

 

-

 

715

 

 

744,068

 

 

744,783

 

 

 

-

 

 

-

 

Mortgage[1]

 

195,403

 

 

80,443

 

 

758,164

 

1,034,010

 

 

6,292,336

 

 

7,326,346

 

 

 

328,386

 

 

429,778

 

Leasing

 

9,819

 

 

2,446

 

 

3,766

 

16,031

 

 

1,410,091

 

 

1,426,122

 

 

 

3,766

 

 

-

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit cards

 

5,817

 

 

3,728

 

 

9,049

 

18,594

 

 

896,992

 

 

915,586

 

 

 

-

 

 

9,049

 

 

Home equity lines of credit

 

259

 

 

15

 

 

5,271

 

5,545

 

 

71,530

 

 

77,075

 

 

 

5,248

 

 

23

 

 

Personal

 

10,954

 

 

6,742

 

 

19,784

 

37,480

 

 

1,471,301

 

 

1,508,781

 

 

 

19,784

 

 

-

 

 

Auto

 

51,497

 

 

11,353

 

 

27,514

 

90,364

 

 

3,339,798

 

 

3,430,162

 

 

 

27,514

 

 

-

 

 

Other

 

537

 

 

38

 

 

12,185

 

12,760

 

 

118,329

 

 

131,089

 

 

 

12,038

 

 

147

 

Total

$

304,231

 

$

106,608

 

$

960,475

$

1,371,314

 

$

28,216,876

 

$

29,588,190

 

 

$

519,921

 

$

440,554

 

[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 $13 million at March 31, 2022 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. These balances include $266 million of residential mortgage loans insured by FHA or guaranteed by the VA that are no longer accruing interest as of March 31, 2022. Furthermore, the Corporation has approximately $45 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 $268 million in unearned income and exclude $55 million in loans held-for-sale.

[3]

Includes $6.4 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $3.0 billion were pledged at the Federal Home Loan Bank ("FHLB") as collateral for borrowings and $1.7 billion at the Federal Reserve Bank ("FRB") for discount window borrowings and $1.7 billion serve as collateral for public funds.

27

 

December 31, 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

$

314

 

$

-

 

$

272

 

$

586

$

154,183

 

$

154,769

 

 

$

272

 

$

-

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

2,399

 

 

136

 

 

20,716

 

 

23,251

 

2,266,672

 

 

2,289,923

 

 

 

20,716

 

 

-

 

 

Owner occupied

 

3,329

 

 

278

 

 

54,335

 

 

57,942

 

1,365,787

 

 

1,423,729

 

 

 

54,335

 

 

-

 

Commercial and industrial

 

3,438

 

 

1,727

 

 

45,242

 

 

50,407

 

3,478,041

 

 

3,528,448

 

 

 

44,724

 

 

518

 

Construction

 

-

 

 

-

 

 

485

 

 

485

 

86,626

 

 

87,111

 

 

 

485

 

 

-

 

Mortgage

 

217,830

 

 

81,754

 

 

805,245

 

 

1,104,829

 

5,147,037

 

 

6,251,866

 

 

 

333,887

 

 

471,358

 

Leasing

 

9,240

 

 

2,037

 

 

3,102

 

 

14,379

 

1,366,940

 

 

1,381,319

 

 

 

3,102

 

 

-

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit cards

 

5,768

 

 

3,520

 

 

8,577

 

 

17,865

 

901,986

 

 

919,851

 

 

 

-

 

 

8,577

 

 

Home equity lines of credit

 

46

 

 

-

 

 

23

 

 

69

 

3,502

 

 

3,571

 

 

 

-

 

 

23

 

 

Personal

 

10,027

 

 

6,072

 

 

21,235

 

 

37,334

 

1,250,726

 

 

1,288,060

 

 

 

21,235

 

 

-

 

 

Auto

 

59,128

 

 

15,019

 

 

23,085

 

 

97,232

 

3,314,955

 

 

3,412,187

 

 

 

23,085

 

 

-

 

 

Other

 

432

 

 

714

 

 

12,621

 

 

13,767

 

110,781

 

 

124,548

 

 

 

12,448

 

 

173

 

Total

$

311,951

 

$

111,257

 

$

994,938

 

$

1,418,146

$

19,447,236

 

$

20,865,382

 

 

$

514,289

 

$

480,649

 

 

December 31, 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

 

$

3,826

 

$

-

 

$

-

 

$

3,826

 

$

1,804,035

 

$

1,807,861

 

 

$

-

 

$

-

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

 

5,721

 

 

683

 

 

622

 

 

7,026

 

 

2,316,441

 

 

2,323,467

 

 

 

622

 

 

-

 

Owner occupied

 

 

1,095

 

 

-

 

 

1,013

 

 

2,108

 

 

392,265

 

 

394,373

 

 

 

1,013

 

 

-

Commercial and industrial

 

 

9,410

 

 

2,680

 

 

4,015

 

 

16,105

 

 

1,794,026

 

 

1,810,131

 

 

 

3,897

 

 

118

Construction

 

 

-

 

 

-

 

 

-

 

 

-

 

 

629,109

 

 

629,109

 

 

 

-

 

 

-

Mortgage

 

 

11,711

 

 

2,573

 

 

21,969

 

 

36,253

 

 

1,139,077

 

 

1,175,330

 

 

 

21,969

 

 

-

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit cards

 

 

-

 

 

-

 

 

-

 

 

-

 

 

10

 

 

10

 

 

 

-

 

 

-

 

Home equity lines of credit

 

 

71

 

 

34

 

 

5,406

 

 

5,511

 

 

69,780

 

 

75,291

 

 

 

5,406

 

 

-

 

Personal

 

 

863

 

 

574

 

 

681

 

 

2,118

 

 

152,827

 

 

154,945

 

 

 

681

 

 

-

 

Other

 

 

-

 

 

-

 

 

-

 

 

-

 

 

4,658

 

 

4,658

 

 

 

-

 

 

-

Total

 

$

32,697

 

$

6,544

 

$

33,706

 

$

72,947

 

$

8,302,228

 

$

8,375,175

 

 

$

33,588

 

$

118

28

 

December 31, 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

$

4,140

 

$

-

 

$

272

$

4,412

 

$

1,958,218

 

$

1,962,630

 

 

$

272

 

$

-

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

8,120

 

 

819

 

 

21,338

 

30,277

 

 

4,583,113

 

 

4,613,390

 

 

 

21,338

 

 

-

 

Owner occupied

 

4,424

 

 

278

 

 

55,348

 

60,050

 

 

1,758,052

 

 

1,818,102

 

 

 

55,348

 

 

-

Commercial and industrial

 

12,848

 

 

4,407

 

 

49,257

 

66,512

 

 

5,272,067

 

 

5,338,579

 

 

 

48,621

 

 

636

Construction

 

-

 

 

-

 

 

485

 

485

 

 

715,735

 

 

716,220

 

 

 

485

 

 

-

Mortgage[1]

 

229,541

 

 

84,327

 

 

827,214

 

1,141,082

 

 

6,286,114

 

 

7,427,196

 

 

 

355,856

 

 

471,358

Leasing

 

9,240

 

 

2,037

 

 

3,102

 

14,379

 

 

1,366,940

 

 

1,381,319

 

 

 

3,102

 

 

-

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit cards

 

5,768

 

 

3,520

 

 

8,577

 

17,865

 

 

901,996

 

 

919,861

 

 

 

-

 

 

8,577

 

Home equity lines of credit

 

117

 

 

34

 

 

5,429

 

5,580

 

 

73,282

 

 

78,862

 

 

 

5,406

 

 

23

 

Personal

 

10,890

 

 

6,646

 

 

21,916

 

39,452

 

 

1,403,553

 

 

1,443,005

 

 

 

21,916

 

 

-

 

Auto

 

59,128

 

 

15,019

 

 

23,085

 

97,232

 

 

3,314,955

 

 

3,412,187

 

 

 

23,085

 

 

-

 

Other

 

432

 

 

714

 

 

12,621

 

13,767

 

 

115,439

 

 

129,206

 

 

 

12,448

 

 

173

Total

$

344,648

 

$

117,801

 

$

1,028,644

$

1,491,093

 

$

27,749,464

 

$

29,240,557

 

 

$

547,877

 

$

480,767

[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 $13 million at December 31, 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. These balances include $304 million of residential mortgage loans insured by FHA or guaranteed by the VA that are no longer accruing interest as of December 31, 2021. Furthermore, the Corporation has approximately $50 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 $266 million in unearned income and exclude $59 million in loans held-for-sale.

[3]

Includes $6.6 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $3.2 billion were pledged at the FHLB as collateral for borrowings and $1.7 billion at the FRB for discount window borrowings and $1.7 billion serve as collateral for public funds.

 

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

 

At March 31, 2022, mortgage loans held-in-portfolio include $1.9 billion (December 31, 2021 - $1.9 billion) of loans insured by the FHA, or guaranteed VA of which $0.4 billion (December 31, 2021 - $0.5 billion) are 90 days or more past due. These balances include $721 million in loans modified under a TDR (December 31, 2021 - $716 million), that are presented as accruing loans. The portfolio of guaranteed loans includes $266 million of residential mortgage loans in Puerto Rico that are no longer accruing interest as of March 31, 2022 (December 31, 2021 - $304 million). The Corporation has approximately $45 million in reverse mortgage loans in Puerto Rico which are guaranteed by FHA, but which are currently not accruing interest at March 31, 2022 (December 31, 2021 - $50 million).

 

Loans with a delinquency status of 90 days past due as of March 31, 2022 include $13 million in loans previously pooled into GNMA securities (December 31, 2021 - $13 million). Under the GNMA program, issuers such as BPPR have the option but not the obligation to repurchase loans that are 90 days or more past due. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements of BPPR with an offsetting liability. Loans in our serviced GNMA portfolio benefit from payment forbearance programs but continue to reflect the contractual delinquency until the borrower repays deferred payments or completes a payment deferral modification or other borrower assistance alternative.

 

The following tables present the amortized cost basis of non-accrual loans as of March 31, 2022 and 2021 by class of loans:

29

 

March 31, 2022

 

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

$

-

$

274

 

$

-

$

-

 

$

-

$

274

Commercial real estate non-owner occupied

 

15,477

 

5,150

 

 

-

 

374

 

 

15,477

 

5,524

Commercial real estate owner occupied

 

9,720

 

40,012

 

 

-

 

677

 

 

9,720

 

40,689

Commercial and industrial

 

27,536

 

19,613

 

 

-

 

4,352

 

 

27,536

 

23,965

Mortgage

 

159,025

 

147,535

 

 

-

 

21,826

 

 

159,025

 

169,361

Leasing

 

228

 

3,538

 

 

-

 

-

 

 

228

 

3,538

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HELOCs

 

-

 

-

 

 

-

 

5,248

 

 

-

 

5,248

Personal

 

6,590

 

12,567

 

 

74

 

553

 

 

6,664

 

13,120

Auto

 

1,153

 

26,361

 

 

-

 

-

 

 

1,153

 

26,361

Other

 

263

 

11,774

 

 

-

 

1

 

 

263

 

11,775

Total

$

219,992

$

266,824

 

$

74

$

33,031

 

$

220,066

$

299,855

 

December 31, 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

$

-

$

272

 

$

-

$

-

 

$

-

$

272

Commercial real estate non-owner occupied

 

15,819

 

4,897

 

 

-

 

622

 

 

15,819

 

5,519

Commercial real estate owner occupied

 

13,491

 

40,844

 

 

-

 

1,013

 

 

13,491

 

41,857

Commercial and industrial

 

30,177

 

14,547

 

 

-

 

3,897

 

 

30,177

 

18,444

Construction

 

-

 

485

 

 

-

 

-

 

 

-

 

485

Mortgage

 

169,827

 

164,060

 

 

29

 

21,940

 

 

169,856

 

186,000

Leasing

 

276

 

2,826

 

 

-

 

-

 

 

276

 

2,826

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HELOCs

 

-

 

-

 

 

-

 

5,406

 

 

-

 

5,406

Personal

 

6,279

 

14,956

 

 

81

 

600

 

 

6,360

 

15,556

Auto

 

879

 

22,206

 

 

-

 

-

 

 

879

 

22,206

Other

 

-

 

12,448

 

 

-

 

-

 

 

-

 

12,448

Total

$

236,748

$

277,541

 

$

110

$

33,478

 

$

236,858

$

311,019

 

 

Loans in non-accrual status with no allowance at March 31, 2022 include $220 million in collateral dependent loans (December 31, 2021 - $237 million). The Corporation recognized $4 million in interest income on non-accrual loans during the quarter ended March 31, 2022 (March 31, 2021 - $4 million).

 

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

 

The following tables present the amortized cost basis of collateral-dependent loans, for which the ACL was measured based on the fair value of the collateral less cost to sell, by class of loans and type of collateral as of March 31, 2022 and December 31, 2021:

30

 

 

 

March 31, 2022

(In thousands)

 

Real Estate

 

Auto

 

Equipment

 

Accounts Receivables

 

Other

 

Total

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

$

1,367

$

-

$

-

$

-

$

-

$

1,367

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

215,343

 

-

 

-

 

-

 

-

 

215,343

 

Owner occupied

 

40,200

 

-

 

-

 

-

 

-

 

40,200

Commercial and industrial

 

1,731

 

-

 

668

 

10,250

 

32,149

 

44,798

Mortgage

 

165,879

 

-

 

-

 

-

 

-

 

165,879

Leasing

 

-

 

652

 

6

 

-

 

-

 

658

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

6,585

 

-

 

-

 

-

 

-

 

6,585

 

Auto

 

-

 

6,781

 

-

 

-

 

-

 

6,781

 

Other

 

-

 

-

 

-

 

-

 

263

 

263

Total Puerto Rico

$

431,105

$

7,433

$

674

$

10,250

$

32,412

$

481,874

Popular U.S.

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage

$

731

 

-

 

-

 

-

 

-

$

731

Total Popular U.S.

$

731

$

-

$

-

$

-

$

-

$

731

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

$

1,367

$

-

$

-

$

-

$

-

$

1,367

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

215,343

 

-

 

-

 

-

 

-

 

215,343

 

Owner occupied

 

40,200

 

-

 

-

 

-

 

-

 

40,200

Commercial and industrial

 

1,731

 

-

 

668

 

10,250

 

32,149

 

44,798

Mortgage

 

166,610

 

-

 

-

 

-

 

-

 

166,610

Leasing

 

-

 

652

 

6

 

-

 

-

 

658

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

6,585

 

-

 

-

 

-

 

-

 

6,585

 

Auto

 

-

 

6,781

 

-

 

-

 

-

 

6,781

 

Other

 

-

 

-

 

-

 

-

 

263

 

263

Total Popular, Inc.

$

431,836

$

7,433

$

674

$

10,250

$

32,412

$

482,605

31

 

 

 

December 31, 2021

(In thousands)

 

Real Estate

 

Auto

 

Equipment

 

Accounts Receivables

 

Other

 

Total

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

$

1,374

$

-

$

-

$

-

$

-

$

1,374

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

211,026

 

-

 

-

 

-

 

-

 

211,026

 

Owner occupied

 

47,268

 

-

 

-

 

-

 

-

 

47,268

Commercial and industrial

 

2,650

 

-

 

680

 

10,675

 

27,893

 

41,898

Mortgage

 

179,774

 

-

 

-

 

-

 

-

 

179,774

Leasing

 

-

 

574

 

-

 

-

 

-

 

574

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

6,165

 

-

 

-

 

-

 

-

 

6,165

 

Auto

 

-

 

8,983

 

-

 

-

 

-

 

8,983

Total Puerto Rico

$

448,257

$

9,557

$

680

$

10,675

$

27,893

$

497,062

Popular U.S.

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage

$

926

 

-

 

-

 

-

 

-

$

926

Total Popular U.S.

$

926

$

-

$

-

$

-

$

-

$

926

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

$

1,374

$

-

$

-

$

-

$

-

$

1,374

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

211,026

 

-

 

-

 

-

 

-

 

211,026

 

Owner occupied

 

47,268

 

-

 

-

 

-

 

-

 

47,268

Commercial and industrial

 

2,650

 

-

 

680

 

10,675

 

27,893

 

41,898

Mortgage

 

180,700

 

-

 

-

 

-

 

-

 

180,700

Leasing

 

-

 

574

 

-

 

-

 

-

 

574

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

6,165

 

-

 

-

 

-

 

-

 

6,165

 

Auto

 

-

 

8,983

 

-

 

-

 

-

 

8,983

Total Popular, Inc.

$

449,183

$

9,557

$

680

$

10,675

$

27,893

$

497,988

 

Purchased Credit Deteriorated (PCD) Loans

 

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

 

 

 

 

 

 

(In thousands)

 

March 31, 2022

 

March 31, 2021

Purchase price of loans at acquisition

$

2,002

$

4,935

Allowance for credit losses at acquisition

 

612

 

1,356

Non-credit discount / (premium) at acquisition

 

99

 

121

Par value of acquired loans at acquisition

$

2,713

$

6,412

32

 

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 recorded in current operations is based on this methodology. Loan losses are charged and recoveries are credited to the ACL.

At March 31, 2022, the Corporation estimated the ACL by weighting the outputs of optimistic, baseline, and pessimistic scenarios. Among the three scenarios used to estimate the ACL, the baseline is assigned the highest probability, followed by the pessimistic scenario given the uncertainties in the economic outlook and downside risk. The weightings applied are subject to evaluation on a quarterly basis as part of the ACL’s governance process. The current baseline forecast continues to show a favorable economic scenario. 2022 annualized GDP growth of 3.5% and 3.7% is expected for Puerto Rico and United States, respectively. This represents a reduction for both Puerto Rico and United States since last quarter’s GDP growth forecast was 4.0% and 4.6%, respectively. Changes in assumptions related to fiscal stimulus and higher energy prices contributed to the reduction. The 2022 average unemployment rate is forecasted at 7.3% and 3.6% for Puerto Rico and United States, respectively, consistent with the previous estimate of 7.4% and 3.7%.

 

The following tables present the changes in the ACL of loans held-in-portfolio and unfunded commitments for the quarters ended March 31, 2022 and 2021.

 

For the quarter ended March 31, 2022

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

 

Construction

 

Mortgage

 

Leasing

 

Consumer

 

Total

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

151,928

 

$

1,641

 

$

138,286

 

$

17,578

 

$

284,729

 

$

594,162

 

Provision for credit losses (benefit)

 

(10,687)

 

 

357

 

 

(10,528)

 

 

386

 

 

7,811

 

 

(12,661)

 

Initial allowance for credit losses - PCD Loans

 

-

 

 

-

 

 

612

 

 

-

 

 

-

 

 

612

 

Charge-offs

 

(527)

 

 

-

 

 

(1,321)

 

 

(407)

 

 

(22,065)

 

 

(24,320)

 

Recoveries

 

4,757

 

 

416

 

 

4,313

 

 

841

 

 

8,491

 

 

18,818

Ending balance - loans

$

145,471

 

$

2,414

 

$

131,362

 

$

18,398

 

$

278,966

 

$

576,611

Allowance for credit losses - unfunded commitments:

Beginning balance

$

1,751

 

$

2,388

 

$

-

 

$

-

 

$

-

 

$

4,139

 

Provision for credit losses (benefit)

 

(104)

 

 

(464)

 

 

-

 

 

-

 

 

-

 

 

(568)

Ending balance - unfunded commitments [1]

$

1,647

 

$

1,924

 

$

-

 

$

-

 

$

-

 

$

3,571

[1]

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

33

 

For the quarter ended March 31, 2022

Popular U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

 

Construction

 

Mortgage

 

Consumer

 

Total

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

63,877

 

$

4,722

 

$

16,192

 

$

16,413

 

$

101,204

 

Provision for credit losses (benefit)

 

(5,332)

 

 

(1,725)

 

 

1,632

 

 

3,681

 

 

(1,744)

 

Charge-offs

 

(127)

 

 

-

 

 

-

 

 

(1,305)

 

 

(1,432)

 

Recoveries

 

754

 

 

1,128

 

 

20

 

 

1,251

 

 

3,153

Ending balance - loans

$

59,172

 

$

4,125

 

$

17,844

 

$

20,040

 

$

101,181

Allowance for credit losses - unfunded commitments:

Beginning balance

$

1,384

 

$

2,337

 

$

-

 

$

37

 

$

3,758

 

Provision for credit losses (benefit)

 

(66)

 

 

(202)

 

 

-

 

 

(7)

 

 

(275)

Ending balance - unfunded commitments [1]

$

1,318

 

$

2,135

 

$

-

 

$

30

 

$

3,483

[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 March 31, 2022

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

 

Construction

 

Mortgage

 

Leasing

 

Consumer

 

Total

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

215,805

 

$

6,363

 

$

154,478

 

$

17,578

 

$

301,142

 

$

695,366

 

Provision for credit losses (benefit)

 

(16,019)

 

 

(1,368)

 

 

(8,896)

 

 

386

 

 

11,492

 

 

(14,405)

 

Initial allowance for credit losses - PCD Loans

 

-

 

 

-

 

 

612

 

 

-

 

 

-

 

 

612

 

Charge-offs

 

(654)

 

 

-

 

 

(1,321)

 

 

(407)

 

 

(23,370)

 

 

(25,752)

 

Recoveries

 

5,511

 

 

1,544

 

 

4,333

 

 

841

 

 

9,742

 

 

21,971

Ending balance - loans

$

204,643

 

$

6,539

 

$

149,206

 

$

18,398

 

$

299,006

 

$

677,792

Allowance for credit losses - unfunded commitments:

Beginning balance

$

3,135

 

$

4,725

 

$

-

 

$

-

 

$

37

 

$

7,897

 

Provision for credit losses (benefit)

 

(170)

 

 

(666)

 

 

-

 

 

-

 

 

(7)

 

 

(843)

Ending balance - unfunded commitments [1]

$

2,965

 

$

4,059

 

$

-

 

$

-

 

$

30

 

$

7,054

[1]

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

34

 

For the quarter ended March 31, 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)

 

(29,646)

 

 

1,306

 

 

(2,805)

 

 

(4,058)

 

 

(4,773)

 

 

(39,976)

 

Initial allowance for credit losses - PCD Loans

 

-

 

 

-

 

 

1,356

 

 

-

 

 

-

 

 

1,356

 

Charge-offs

 

(2,883)

 

 

(6,619)

 

 

(10,381)

 

 

(1,058)

 

 

(24,029)

 

 

(44,970)

 

Recoveries

 

4,317

 

 

702

 

 

2,078

 

 

940

 

 

17,459

 

 

25,496

Ending balance - loans

$

197,111

 

$

260

 

$

185,805

 

$

12,687

 

$

285,793

 

$

681,656

Allowance for credit losses - unfunded commitments:

Beginning balance

$

4,913

 

$

4,610

 

$

-

 

$

-

 

$

-

 

$

9,523

 

Provision for credit losses (benefit)

 

(1,000)

 

 

(4,365)

 

 

-

 

 

-

 

 

-

 

 

(5,365)

Ending balance - unfunded commitments [1]

$

3,913

 

$

245

 

$

-

 

$

-

 

$

-

 

$

4,158

[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 March 31, 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)

 

(28,933)

 

 

(431)

 

 

(3,918)

 

 

(2,521)

 

 

(35,803)

 

Charge-offs

 

(383)

 

 

-

 

 

(1)

 

 

(3,256)

 

 

(3,640)

 

Recoveries

 

367

 

 

-

 

 

81

 

 

1,636

 

 

2,084

Ending balance - loans

$

79,108

 

$

8,935

 

$

16,321

 

$

14,777

 

$

119,141

Allowance for credit losses - unfunded commitments:

Beginning balance

$

1,753

 

$

4,469

 

$

-

 

$

106

 

$

6,328

 

Provision for credit losses (benefit)

 

(310)

 

 

(566)

 

 

-

 

 

(41)

 

 

(917)

Ending balance - unfunded commitments [1]

$

1,443

 

$

3,903

 

$

-

 

$

65

 

$

5,411

[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 March 31, 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)

 

(58,579)

 

875

 

(6,723)

 

(4,058)

 

(7,294)

 

(75,779)

 

Initial allowance for credit losses - PCD Loans

 

-

 

-

 

1,356

 

-

 

-

 

1,356

 

Charge-offs

 

(3,266)

 

(6,619)

 

(10,382)

 

(1,058)

 

(27,285)

 

(48,610)

 

Recoveries

 

4,684

 

702

 

2,159

 

940

 

19,095

 

27,580

Ending balance - loans

$

276,219

$

9,195

$

202,126

$

12,687

$

300,570

$

800,797

Allowance for credit losses - unfunded commitments:

Beginning balance

$

6,666

$

9,079

$

-

$

-

$

106

$

15,851

 

Provision for credit losses (benefit)

 

(1,310)

 

(4,931)

 

-

 

-

 

(41)

 

(6,282)

Ending balance - unfunded commitments [1]

$

5,356

$

4,148

$

-

$

-

$

65

$

9,569

[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 2021 Form 10-K.

The outstanding balance of loans classified as TDRs amounted to $1.7 billion at March 31, 2022 (December 31, 2021 - $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 $9 million related to the commercial loan portfolio at March 31, 2022 (December 31, 2021 - $9 million).

The following table presents the outstanding balance of loans classified as TDRs according to their accruing status and the related allowance at March 31, 2022 and December 31, 2021.

 

 

March 31, 2022

 

 

December 31, 2021

(In thousands)

 

Accruing

 

Non-Accruing

 

Total

 

Related Allowance

 

 

 

Accruing

 

Non-Accruing

 

Total

 

Related Allowance

Loans held-in-portfolio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

$

302,795

$

66,334

$

369,129

$

21,007

 

 

$

261,344

$

64,744

$

326,088

$

24,736

Mortgage[1]

 

1,151,887

 

101,024

 

1,252,911

 

60,308

 

 

 

1,143,204

 

112,509

 

1,255,713

 

61,888

Leasing

 

188

 

28

 

216

 

30

 

 

 

325

 

47

 

372

 

42

Consumer

 

60,652

 

10,194

 

70,846

 

15,592

 

 

 

64,093

 

10,556

 

74,649

 

16,124

Loans held-in-portfolio

$

1,515,522

$

177,580

$

1,693,102

$

96,937

 

 

$

1,468,966

$

187,856

$

1,656,822

$

102,790

[1] At March 31, 2022, accruing mortgage loan TDRs include $721 million guaranteed by U.S. sponsored entities at BPPR, compared to $716 million at December 31, 2021.

 

The following tables present the loan count by type of modification for those loans modified in a TDR during the quarters ended March 31, 2022 and 2021. Loans modified as TDRs for the U.S. operations are considered insignificant to the Corporation.

36

 

For the quarter ended March 31, 2022

 

Reduction in interest rate

 

Extension of maturity date

 

Combination of reduction in interest rate and extension of maturity date

 

Other

Commercial real estate non-owner occupied

-

 

-

 

-

 

1

Commercial real estate owner occupied

1

 

1

 

-

 

-

Commercial and industrial

1

 

5

 

-

 

11

Mortgage

1

 

34

 

288

 

1

Consumer:

 

 

 

 

 

 

 

Credit cards

15

 

-

 

-

 

15

Personal

25

 

20

 

-

 

-

Auto

-

 

1

 

-

 

-

Total

43

 

61

 

288

 

28

 

For the quarter ended March 31, 2021

 

Reduction in interest rate

 

Extension of maturity date

 

Combination of reduction in interest rate and extension of maturity date

 

Other

Commercial multi-family

-

 

1

 

-

 

-

Commercial real estate non-owner occupied

-

 

9

 

-

 

-

Commercial real estate owner occupied

2

 

20

 

-

 

-

Commercial and industrial

-

 

8

 

-

 

-

Mortgage

8

 

40

 

360

 

-

Leasing

-

 

-

 

1

 

-

Consumer:

 

 

 

 

 

 

 

Credit cards

52

 

-

 

-

 

14

HELOCs

-

 

-

 

1

 

-

Personal

61

 

2

 

1

 

-

Auto

-

 

1

 

2

 

-

Other

4

 

-

 

-

 

-

Total

127

 

81

 

365

 

14

37

 

The following tables present, by class, quantitative information related to loans modified as TDRs during the quarters ended March 31, 2022 and 2021.

 

 

Popular, Inc.

For the quarter ended March 31, 2022

(Dollars in thousands)

Loan count

Pre-modification outstanding recorded investment

Post-modification outstanding recorded investment

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

Commercial real estate non-owner occupied

1

$

3,400

$

3,400

$

-

Commercial real estate owner occupied

2

 

729

 

727

 

-

Commercial and industrial

17

 

49,346

 

49,155

 

2,030

Mortgage

324

 

34,876

 

35,592

 

1,020

Consumer:

 

 

 

 

 

 

 

Credit cards

30

 

248

 

273

 

5

Personal

45

 

729

 

728

 

130

Auto

1

 

28

 

28

 

5

Total

420

$

89,356

$

89,903

$

3,190

 

Popular, Inc.

For the quarter ended March 31, 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

$

87

$

86

$

4

Commercial real estate non-owner occupied

9

 

3,295

 

3,281

 

141

Commercial real estate owner occupied

22

 

29,750

 

29,484

 

572

Commercial and industrial

8

 

222

 

218

 

8

Mortgage

408

 

47,654

 

49,729

 

1,046

Leasing

1

 

32

 

32

 

4

Consumer:

 

 

 

 

 

 

 

Credit cards

66

 

824

 

854

 

27

HELOCs

1

 

63

 

116

 

28

Personal

64

 

1,062

 

1,062

 

304

Auto

3

 

48

 

53

 

10

Other

4

 

6

 

6

 

1

Total

587

$

83,043

$

84,921

$

2,145

38

 

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.

 

Defaulted during the quarter ended March 31, 2022

(Dollars in thousands)

Loan count

Recorded investment as of first default date

Mortgage

6

$

1,870

Consumer:

 

 

 

Credit cards

16

 

127

Personal

12

 

128

Total

34

$

2,125

 

Defaulted during the quarter ended March 31, 2021

(Dollars in thousands)

Loan count

Recorded investment as of first default date

Commercial real estate owner occupied

2

$

3,754

Commercial and industrial

2

 

224

Mortgage

23

 

1,732

Consumer:

 

 

 

Credit cards

40

 

535

Personal

6

 

260

Total

73

$

6,505

 

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 March 31, 2022 and December 31, 2021 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, 2021.

39

 

March 31, 2022

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2022

 

2021

 

2020

 

2019

 

2018

 

Prior

Years

 

 

 

Total

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

 

 

 

Watch

$

-

$

-

$

-

$

-

$

-

$

4,418

$

-

$

-

$

4,418

 

 

 

Special mention

 

-

 

-

 

-

 

-

 

-

 

2,952

 

-

 

-

 

2,952

 

 

 

Substandard

 

-

 

-

 

-

 

986

 

-

 

6,102

 

100

 

-

 

7,188

 

 

 

Pass

 

12,788

 

24,608

 

21,061

 

34,410

 

25,152

 

30,451

 

213

 

-

 

148,683

 

 

Total commercial multi-family

$

12,788

$

24,608

$

21,061

$

35,396

$

25,152

$

43,923

$

313

$

-

$

163,241

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate non-owner occupied

 

 

 

Watch

$

29,903

$

117,431

$

226,357

$

29,725

$

134,641

$

167,332

$

3,087

$

-

$

708,476

 

 

 

Special Mention

 

-

 

26,258

 

12,015

 

7,627

 

-

 

29,273

 

-

 

-

 

75,173

 

 

 

Substandard

 

3,393

 

4,294

 

27,555

 

19,856

 

37,249

 

72,503

 

-

 

-

 

164,850

 

 

 

Pass

 

181,148

 

499,552

 

197,587

 

87,349

 

36,193

 

601,857

 

8,355

 

-

 

1,612,041

 

 

Total commercial real estate non-owner occupied

$

214,444

$

647,535

$

463,514

$

144,557

$

208,083

$

870,965

$

11,442

$

-

$

2,560,540

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate owner occupied

 

 

 

Watch

$

675

$

7,705

$

6,952

$

7,887

$

7,044

$

108,001

$

-

$

-

$

138,264

 

 

 

Special Mention

 

118

 

5,550

 

949

 

7,150

 

1,412

 

107,134

 

-

 

-

 

122,313

 

 

 

Substandard

 

-

 

4,999

 

1,021

 

988

 

34,997

 

108,747

 

-

 

-

 

150,752

 

 

 

Doubtful

 

-

 

-

 

-

 

-

 

-

 

641

 

-

 

-

 

641

 

 

 

Pass

 

29,665

 

273,843

 

151,427

 

48,295

 

53,440

 

462,038

 

19,824

 

-

 

1,038,532

 

 

Total commercial real estate owner occupied

$

30,458

$

292,097

$

160,349

$

64,320

$

96,893

$

786,561

$

19,824

$

-

$

1,450,502

 

 

Commercial and industrial

 

 

 

Watch

$

8,608

$

93,150

$

11,684

$

23,180

$

101,967

$

80,917

$

99,008

$

-

$

418,514

 

 

 

Special Mention

 

-

 

7,878

 

4,865

 

12,573

 

27,081

 

51,740

 

52,803

 

-

 

156,940

 

 

 

Substandard

 

35

 

2,189

 

5,933

 

2,983

 

23,533

 

89,083

 

41,040

 

-

 

164,796

 

 

 

Doubtful

 

-

 

-

 

-

 

-

 

-

 

96

 

-

 

-

 

96

 

 

 

Pass

 

224,627

 

766,346

 

187,160

 

272,866

 

48,585

 

372,756

 

770,786

 

-

 

2,643,126

 

 

Total commercial and industrial

$

233,270

$

869,563

$

209,642

$

311,602

$

201,166

$

594,592

$

963,637

$

-

$

3,383,472

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

Watch

$

6,644

$

-

$

-

$

-

$

-

$

-

$

-

$

-

$

6,644

 

 

 

Special Mention

 

1,797

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

1,797

 

 

 

Pass

 

184

 

28,486

 

58,323

 

1,903

 

-

 

-

 

29,988

 

-

 

118,884

 

Total construction

$

8,625

$

28,486

$

58,323

$

1,903

$

-

$

-

$

29,988

$

-

$

127,325

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage

 

 

 

Substandard

$

119

$

108

$

1,224

$

4,780

$

5,402

$

116,846

$

-

$

-

$

128,479

 

 

 

Pass

 

59,395

 

473,279

 

299,789

 

217,561

 

254,971

 

4,690,189

 

-

 

-

 

5,995,184

 

Total mortgage

$

59,514

$

473,387

$

301,013

$

222,341

$

260,373

$

4,807,035

$

-

$

-

$

6,123,663

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

 

 

Substandard

$

-

$

678

$

652

$

1,051

$

705

$

631

$

-

$

-

$

3,717

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

49

 

-

 

-

 

49

 

 

 

Pass

 

207,900

 

526,319

 

307,398

 

202,190

 

119,085

 

59,464

 

-

 

-

 

1,422,356

 

Total leasing

$

207,900

$

526,997

$

308,050

$

203,241

$

119,790

$

60,144

$

-

$

-

$

1,426,122

40

 

March 31, 2022

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2022

 

2021

 

2020

 

2019

 

2018

 

Prior

Years

 

 

 

Total

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

Credit cards

 

 

 

Substandard

$

-

$

-

$

-

$

-

$

-

$

-

$

9,049

$

-

$

9,049

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

-

 

906,511

 

-

 

906,511

 

Total credit cards

$

-

$

-

$

-

$

-

$

-

$

-

$

915,560

$

-

$

915,560

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HELOCs

 

 

 

Substandard

$

-

$

-

$

-

$

-

$

-

$

-

$

23

$

-

$

23

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

-

 

3,093

 

-

 

3,093

 

Total HELOCs

$

-

$

-

$

-

$

-

$

-

$

-

$

3,116

$

-

$

3,116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

Substandard

$

630

$

1,078

$

641

$

1,956

$

785

$

13,421

$

-

$

1,321

$

19,832

 

 

 

Loss

 

-

 

-

 

-

 

1

 

3

 

23

 

-

 

-

 

27

 

 

 

Pass

 

168,643

 

491,177

 

166,166

 

192,611

 

78,207

 

152,766

 

-

 

34,047

 

1,283,617

 

Total Personal

$

169,273

$

492,255

$

166,807

$

194,568

$

78,995

$

166,210

$

-

$

35,368

$

1,303,476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

Substandard

$

-

$

5,973

$

8,556

$

9,371

$

4,900

$

3,373

$

-

$

-

$

32,173

 

 

 

Loss

 

-

 

32

 

33

 

58

 

16

 

14

 

-

 

-

 

153

 

 

 

Pass

 

311,670

 

1,174,172

 

756,985

 

580,986

 

373,406

 

200,617

 

-

 

-

 

3,397,836

 

Total Auto

$

311,670

$

1,180,177

$

765,574

$

590,415

$

378,322

$

204,004

$

-

$

-

$

3,430,162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other consumer

 

 

 

Substandard

$

-

$

-

$

110

$

20

$

537

$

7

$

11,121

$

-

$

11,795

 

 

 

Loss

 

-

 

-

 

-

 

-

 

389

 

-

 

-

 

-

 

389

 

 

 

Pass

 

6,302

 

22,933

 

8,908

 

8,523

 

5,196

 

4,352

 

56,682

 

-

 

112,896

 

Total Other consumer

$

6,302

$

22,933

$

9,018

$

8,543

$

6,122

$

4,359

$

67,803

$

-

$

125,080

Total Puerto Rico

$

1,254,244

$

4,558,038

$

2,463,351

$

1,776,886

$

1,374,896

$

7,537,793

$

2,011,683

$

35,368

$

21,012,259

41

 

March 31, 2022

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2022

 

2021

 

2020

 

2019

 

2018

 

Prior

Years

 

 

 

Total

Popular U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

 

 

 

Watch

$

-

$

8,569

$

43,642

$

40,570

$

20,576

$

123,917

$

-

$

-

$

237,274

 

 

 

Special mention

 

-

 

-

 

1,217

 

8,973

 

29,613

 

35,180

 

-

 

-

 

74,983

 

 

 

Substandard

 

-

 

-

 

-

 

67,018

 

12,685

 

16,514

 

-

 

-

 

96,217

 

 

 

Pass

 

76,737

 

422,609

 

239,450

 

208,367

 

143,251

 

364,174

 

2,561

 

-

 

1,457,149

 

 

Total commercial multi-family

$

76,737

$

431,178

$

284,309

$

324,928

$

206,125

$

539,785

$

2,561

$

-

$

1,865,623

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate non-owner occupied

 

 

 

Watch

$

-

$

12,704

$

16,909

$

26,886

$

46,012

$

120,879

$

97

$

-

$

223,487

 

 

 

Special Mention

 

-

 

-

 

-

 

3,183

 

1,808

 

25,948

 

-

 

-

 

30,939

 

 

 

Substandard

 

-

 

2,920

 

753

 

-

 

1,567

 

35,538

 

-

 

-

 

40,778

 

 

 

Pass

 

96,512

 

206,434

 

214,871

 

101,177

 

95,335

 

378,221

 

6,136

 

-

 

1,098,686

 

 

Total commercial real estate non-owner occupied

$

96,512

$

222,058

$

232,533

$

131,246

$

144,722

$

560,586

$

6,233

$

-

$

1,393,890

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate owner occupied

 

 

 

Watch

$

-

$

-

$

5,343

$

7,775

$

12,654

$

60,557

$

4,222

$

-

$

90,551

 

 

 

Special Mention

 

-

 

-

 

-

 

-

 

5,174

 

15,902

 

-

 

-

 

21,076

 

 

 

Substandard

 

-

 

-

 

-

 

7,527

 

2,300

 

43,602

 

-

 

-

 

53,429

 

 

 

Pass

 

124,847

 

428,804

 

142,310

 

94,258

 

144,834

 

301,051

 

4,482

 

-

 

1,240,586

 

 

Total commercial real estate owner occupied

$

124,847

$

428,804

$

147,653

$

109,560

$

164,962

$

421,112

$

8,704

$

-

$

1,405,642

 

 

Commercial and industrial

 

 

 

Watch

$

691

$

3,210

$

3,104

$

3,187

$

8,894

$

1,041

$

17,121

$

-

$

37,248

 

 

 

Special Mention

 

825

 

2,323

 

6,896

 

635

 

530

 

207

 

8,983

 

-

 

20,399

 

 

 

Substandard

 

114

 

134

 

260

 

4,648

 

1,212

 

1,974

 

369

 

-

 

8,711

 

 

 

Loss

 

-

 

433

 

120

 

29

 

14

 

218

 

-

 

-

 

814

 

 

 

Pass

 

20,935

 

277,342

 

336,892

 

205,703

 

186,778

 

435,798

 

274,716

 

-

 

1,738,164

 

 

Total commercial and industrial

$

22,565

$

283,442

$

347,272

$

214,202

$

197,428

$

439,238

$

301,189

$

-

$

1,805,336

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

Watch

$

-

$

3,959

$

14,222

$

26,775

$

29,549

$

35,090

$

-

$

-

$

109,595

 

 

 

Special Mention

 

-

 

-

 

-

 

-

 

-

 

13,655

 

-

 

-

 

13,655

 

 

 

Substandard

 

-

 

-

 

-

 

-

 

15,841

 

10,184

 

-

 

-

 

26,025

 

 

 

Pass

 

7,352

 

134,447

 

145,675

 

136,487

 

5,650

 

38,572

 

-

 

-

 

468,183

 

Total construction

$

7,352

$

138,406

$

159,897

$

163,262

$

51,040

$

97,501

$

-

$

-

$

617,458

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage

 

 

 

Substandard

$

-

$

1,595

$

4,338

$

4,110

$

1,054

$

10,729

$

-

$

-

$

21,826

 

 

 

Pass

 

63,698

 

318,614

 

258,525

 

206,391

 

60,663

 

272,966

 

-

 

-

 

1,180,857

 

Total mortgage

$

63,698

$

320,209

$

262,863

$

210,501

$

61,717

$

283,695

$

-

$

-

$

1,202,683

42

 

March 31, 2022

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2022

 

2021

 

2020

 

2019

 

2018

 

Prior

Years

 

 

 

Total

Popular U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

Credit cards

 

 

 

Pass

$

-

$

-

$

-

$

-

$

-

$

-

$

26

$

-

$

26

 

Total credit cards

$

-

$

-

$

-

$

-

$

-

$

-

$

26

$

-

$

26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HELOCs

 

 

 

Substandard

$

-

$

-

$

-

$

-

$

-

$

2,928

$

-

$

814

$

3,742

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

161

 

-

 

1,345

 

1,506

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

10,512

 

40,677

 

17,522

 

68,711

 

Total HELOCs

$

-

$

-

$

-

$

-

$

-

$

13,601

$

40,677

$

19,681

$

73,959

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

Substandard

$

-

$

62

$

73

$

156

$

82

$

151

$

-

$

-

$

524

 

 

 

Loss

 

-

 

5

 

62

 

2

 

-

 

34

 

-

 

-

 

103

 

 

 

Pass

 

75,243

 

69,809

 

15,416

 

31,855

 

5,688

 

6,667

 

-

 

-

 

204,678

 

Total Personal

$

75,243

$

69,876

$

15,551

$

32,013

$

5,770

$

6,852

$

-

$

-

$

205,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other consumer

 

 

 

Substandard

$

-

$

-

$

-

$

-

$

-

$

-

$

1

$

-

$

1

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

-

 

6,008

 

-

 

6,008

 

Total Other consumer

$

-

$

-

$

-

$

-

$

-

$

-

$

6,009

$

-

$

6,009

Total Popular U.S.

$

466,954

$

1,893,973

$

1,450,078

$

1,185,712

$

831,764

$

2,362,370

$

365,399

$

19,681

$

8,575,931

43

 

March 31, 2022

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2022

 

2021

 

2020

 

2019

 

2018

 

Prior

Years

 

 

 

Total

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

 

 

 

Watch

$

-

$

8,569

$

43,642

$

40,570

$

20,576

$

128,335

$

-

$

-

$

241,692

 

 

 

Special mention

 

-

 

-

 

1,217

 

8,973

 

29,613

 

38,132

 

-

 

-

 

77,935

 

 

 

Substandard

 

-

 

-

 

-

 

68,004

 

12,685

 

22,616

 

100

 

-

 

103,405

 

 

 

Pass

 

89,525

 

447,217

 

260,511

 

242,777

 

168,403

 

394,625

 

2,774

 

-

 

1,605,832

 

 

Total commercial multi-family

$

89,525

$

455,786

$

305,370

$

360,324

$

231,277

$

583,708

$

2,874

$

-

$

2,028,864

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate non-owner occupied

 

 

 

Watch

$

29,903

$

130,135

$

243,266

$

56,611

$

180,653

$

288,211

$

3,184

$

-

$

931,963

 

 

 

Special Mention

 

-

 

26,258

 

12,015

 

10,810

 

1,808

 

55,221

 

-

 

-

 

106,112

 

 

 

Substandard

 

3,393

 

7,214

 

28,308

 

19,856

 

38,816

 

108,041

 

-

 

-

 

205,628

 

 

 

Pass

 

277,660

 

705,986

 

412,458

 

188,526

 

131,528

 

980,078

 

14,491

 

-

 

2,710,727

 

 

Total commercial real estate non-owner occupied

$

310,956

$

869,593

$

696,047

$

275,803

$

352,805

$

1,431,551

$

17,675

$

-

$

3,954,430

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate owner occupied

 

 

 

Watch

$

675

$

7,705

$

12,295

$

15,662

$

19,698

$

168,558

$

4,222

$

-

$

228,815

 

 

 

Special Mention

 

118

 

5,550

 

949

 

7,150

 

6,586

 

123,036

 

-

 

-

 

143,389

 

 

 

Substandard

 

-

 

4,999

 

1,021

 

8,515

 

37,297

 

152,349

 

-

 

-

 

204,181

 

 

 

Doubtful

 

-

 

-

 

-

 

-

 

-

 

641

 

-

 

-

 

641

 

 

 

Pass

 

154,512

 

702,647

 

293,737

 

142,553

 

198,274

 

763,089

 

24,306

 

-

 

2,279,118

 

 

Total commercial real estate owner occupied

$

155,305

$

720,901

$

308,002

$

173,880

$

261,855

$

1,207,673

$

28,528

$

-

$

2,856,144

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 

 

Watch

$

9,299

$

96,360

$

14,788

$

26,367

$

110,861

$

81,958

$

116,129

$

-

$

455,762

 

 

 

Special Mention

 

825

 

10,201

 

11,761

 

13,208

 

27,611

 

51,947

 

61,786

 

-

 

177,339

 

 

 

Substandard

 

149

 

2,323

 

6,193

 

7,631

 

24,745

 

91,057

 

41,409

 

-

 

173,507

 

 

 

Doubtful

 

-

 

-

 

-

 

-

 

-

 

96

 

-

 

-

 

96

 

 

 

Loss

 

-

 

433

 

120

 

29

 

14

 

218

 

-

 

-

 

814

 

 

 

Pass

 

245,562

 

1,043,688

 

524,052

 

478,569

 

235,363

 

808,554

 

1,045,502

 

-

 

4,381,290

 

 

Total commercial and industrial

$

255,835

$

1,153,005

$

556,914

$

525,804

$

398,594

$

1,033,830

$

1,264,826

$

-

$

5,188,808

44

 

March 31, 2022

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2022

 

2021

 

2020

 

2019

 

2018

 

Prior

Years

 

 

 

Total

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

Watch

$

6,644

$

3,959

$

14,222

$

26,775

$

29,549

$

35,090

$

-

$

-

$

116,239

 

 

 

Special Mention

 

1,797

 

-

 

-

 

-

 

-

 

13,655

 

-

 

-

 

15,452

 

 

 

Substandard

 

-

 

-

 

-

 

-

 

15,841

 

10,184

 

-

 

-

 

26,025

 

 

 

Pass

 

7,536

 

162,933

 

203,998

 

138,390

 

5,650

 

38,572

 

29,988

 

-

 

587,067

 

Total construction

$

15,977

$

166,892

$

218,220

$

165,165

$

51,040

$

97,501

$

29,988

$

-

$

744,783

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage

 

 

 

Substandard

$

119

$

1,703

$

5,562

$

8,890

$

6,456

$

127,575

$

-

$

-

$

150,305

 

 

 

Pass

 

123,093

 

791,893

 

558,314

 

423,952

 

315,634

 

4,963,155

 

-

 

-

 

7,176,041

 

Total mortgage

$

123,212

$

793,596

$

563,876

$

432,842

$

322,090

$

5,090,730

$

-

$

-

$

7,326,346

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

 

 

Substandard

$

-

$

678

$

652

$

1,051

$

705

$

631

$

-

$

-

$

3,717

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

49

 

-

 

-

 

49

 

 

 

Pass

 

207,900

 

526,319

 

307,398

 

202,190

 

119,085

 

59,464

 

-

 

-

 

1,422,356

 

Total leasing

$

207,900

$

526,997

$

308,050

$

203,241

$

119,790

$

60,144

$

-

$

-

$

1,426,122

45

 

March 31, 2022

 

 

 

 

Term Loans

 

Revolving Loans Amortized Cost Basis

 

Revolving Loans Converted to Term Loans Amortized Cost Basis

 

 

 

 

 

 

Amortized Cost Basis by Origination Year

 

 

 

 

(In thousands)

 

2022

 

2021

 

2020

 

2019

 

2018

 

Prior

Years

 

 

 

Total

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer:

 

 

Credit cards

 

 

 

Substandard

$

-

$

-

$

-

$

-

$

-

$

-

$

9,049

$

-

$

9,049

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

-

 

906,537

 

-

 

906,537

 

Total credit cards

$

-

$

-

$

-

$

-

$

-

$

-

$

915,586

$

-

$

915,586

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HELOCs

 

 

 

Substandard

$

-

$

-

$

-

$

-

$

-

$

2,928

$

23

$

814

$

3,765

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

161

 

-

 

1,345

 

1,506

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

10,512

 

43,770

 

17,522

 

71,804

 

Total HELOCs

$

-

$

-

$

-

$

-

$

-

$

13,601

$

43,793

$

19,681

$

77,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

Substandard

$

630

$

1,140

$

714

$

2,112

$

867

$

13,572

$

-

$

1,321

$

20,356

 

 

 

Loss

 

-

 

5

 

62

 

3

 

3

 

57

 

-

 

-

 

130

 

 

 

Pass

 

243,886

 

560,986

 

181,582

 

224,466

 

83,895

 

159,433

 

-

 

34,047

 

1,488,295

 

Total Personal

$

244,516

$

562,131

$

182,358

$

226,581

$

84,765

$

173,062

$

-

$

35,368

$

1,508,781

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

Substandard

$

-

$

5,973

$

8,556

$

9,371

$

4,900

$

3,373

$

-

$

-

$

32,173

 

 

 

Loss

 

-

 

32

 

33

 

58

 

16

 

14

 

-

 

-

 

153

 

 

 

Pass

 

311,670

 

1,174,172

 

756,985

 

580,986

 

373,406

 

200,617

 

-

 

-

 

3,397,836

 

Total Auto

$

311,670

$

1,180,177

$

765,574

$

590,415

$

378,322

$

204,004

$

-

$

-

$

3,430,162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other consumer

 

 

 

Substandard

$

-

$

-

$

110

$

20

$

537

$

7

$

11,122

$

-

$

11,796

 

 

 

Loss

 

-

 

-

 

-

 

-

 

389

 

-

 

-

 

-

 

389

 

 

 

Pass

 

6,302

 

22,933

 

8,908

 

8,523

 

5,196

 

4,352

 

62,690

 

-

 

118,904

 

Total Other consumer

$

6,302

$

22,933

$

9,018

$

8,543

$

6,122

$

4,359

$

73,812

$

-

$

131,089

Total Popular Inc.

$

1,721,198

$

6,452,011

$

3,913,429

$

2,962,598

$

2,206,660

$

9,900,163

$

2,377,082

$

55,049

$

29,588,190

46

 

December 31, 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

$

-

$

-

$

-

$

-

$

-

$

4,485

$

-

$

-

$

4,485

 

 

 

Special mention

 

-

 

-

 

-

 

-

 

-

 

3,025

 

-

 

-

 

3,025

 

 

 

Substandard

 

-

 

-

 

982

 

-

 

-

 

6,257

 

100

 

-

 

7,339

 

 

 

Pass

 

24,936

 

21,288

 

34,840

 

25,311

 

2,066

 

31,468

 

11

 

-

 

139,920

 

 

Total commercial multi-family

$

24,936

$

21,288

$

35,822

$

25,311

$

2,066

$

45,235

$

111

$

-

$

154,769

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate non-owner occupied

 

 

 

Watch

$

100,465

$

228,852

$

25,443

$

137,044

$

2,406

$

205,304

$

3,237

$

-

$

702,751

 

 

 

Special Mention

 

18,509

 

12,563

 

7,271

 

-

 

4,608

 

24,056

 

-

 

-

 

67,007

 

 

 

Substandard

 

30,155

 

27,790

 

24,200

 

25,456

 

2,770

 

72,407

 

-

 

-

 

182,778

 

 

 

Pass

 

513,087

 

88,662

 

88,353

 

37,999

 

42,522

 

557,052

 

9,712

 

-

 

1,337,387

 

 

Total commercial real estate non-owner occupied

$

662,216

$

357,867

$

145,267

$

200,499

$

52,306

$

858,819

$

12,949

$

-

$

2,289,923

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate owner occupied

 

 

 

Watch

$

8,393

$

8,612

$

8,972

$

6,958

$

3,039

$

121,716

$

-

$

-

$

157,690

 

 

 

Special Mention

 

5,573

 

857

 

7,598

 

1,427

 

2,449

 

103,472

 

-

 

-

 

121,376

 

 

 

Substandard

 

6,960

 

1,028

 

1,646

 

35,529

 

1,869

 

113,288

 

-

 

-

 

160,320

 

 

 

Doubtful

 

-

 

-

 

-

 

-

 

76

 

612

 

-

 

-

 

688

 

 

 

Pass

 

238,533

 

198,442

 

44,943

 

23,112

 

32,585

 

429,651

 

16,389

 

-

 

983,655

 

 

Total commercial real estate owner occupied

$

259,459

$

208,939

$

63,159

$

67,026

$

40,018

$

768,739

$

16,389

$

-

$

1,423,729

 

 

Commercial and industrial

 

 

 

Watch

$

186,529

$

12,542

$

21,536

$

103,835

$

14,577

$

90,776

$

108,183

$

-

$

537,978

 

 

 

Special Mention

 

7,380

 

9,936

 

14,856

 

28,473

 

1,012

 

28,448

 

60,397

 

-

 

150,502

 

 

 

Substandard

 

2,190

 

1,091

 

3,041

 

35,826

 

66,771

 

45,168

 

38,003

 

-

 

192,090

 

 

 

Doubtful

 

-

 

-

 

-

 

-

 

-

 

62

 

-

 

-

 

62

 

 

 

Pass

 

843,661

 

335,369

 

275,357

 

84,084

 

72,580

 

333,869

 

702,896

 

-

 

2,647,816

 

 

Total commercial and industrial

$

1,039,760

$

358,938

$

314,790

$

252,218

$

154,940

$

498,323

$

909,479

$

-

$

3,528,448

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

Substandard

 

-

$

-

$

485

$

-

$

-

$

-

$

-

$

-

 

485

 

 

 

Pass

 

21,596

 

41,622

 

1,148

 

-

 

-

 

-

 

22,260

 

-

 

86,626

 

Total construction

$

21,596

$

41,622

$

1,633

$

-

$

-

$

-

$

22,260

$

-

$

87,111

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage

 

 

 

Substandard

$

-

$

954

$

5,212

$

5,613

$

4,310

$

122,690

$

-

$

-

$

138,779

 

 

 

Pass

 

463,742

 

304,780

 

223,464

 

265,239

 

194,982

 

4,660,880

 

-

 

-

 

6,113,087

 

Total mortgage

$

463,742

$

305,734

$

228,676

$

270,852

$

199,292

$

4,783,570

$

-

$

-

$

6,251,866

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

 

 

Substandard

$

124

$

618

$

880

$

613

$

613

$

235

$

-

$

-

$

3,083

 

 

 

Loss

 

-

 

-

 

-

 

1

 

16

 

2

 

-

 

-

 

19

 

 

 

Pass

 

613,452

 

328,085

 

222,770

 

133,112

 

62,881

 

17,917

 

-

 

-

 

1,378,217

 

Total leasing

$

613,576

$

328,703

$

223,650

$

133,726

$

63,510

$

18,154

$

-

$

-

$

1,381,319

47

 

December 31, 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

$

-

$

-

$

-

$

-

$

-

$

-

$

8,577

$

-

$

8,577

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

-

 

911,274

 

-

 

911,274

 

Total credit cards

$

-

$

-

$

-

$

-

$

-

$

-

$

919,851

$

-

$

919,851

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HELOCs

 

 

 

Substandard

$

-

$

-

$

-

$

-

$

-

$

-

$

23

$

-

$

23

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

-

 

3,548

 

-

 

3,548

 

Total HELOCs

$

-

$

-

$

-

$

-

$

-

$

-

$

3,571

$

-

$

3,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

Substandard

$

426

$

610

$

2,105

$

866

$

936

$

15,680

$

-

$

1,385

$

22,008

 

 

 

Loss

 

30

 

2

 

3

 

-

 

-

 

3

 

-

 

-

 

38

 

 

 

Pass

 

539,604

 

197,652

 

227,328

 

91,341

 

53,630

 

120,065

 

-

 

36,394

 

1,266,014

 

Total Personal

$

540,060

$

198,264

$

229,436

$

92,207

$

54,566

$

135,748

$

-

$

37,779

$

1,288,060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

Substandard

$

3,080

$

7,520

$

9,498

$

4,739

$

2,210

$

1,422

$

-

$

-

$

28,469

 

 

 

Loss

 

42

 

11

 

-

 

-

 

-

 

-

 

-

 

-

 

53

 

 

 

Pass

 

1,259,800

 

808,339

 

637,300

 

420,293

 

177,104

 

80,829

 

-

 

-

 

3,383,665

 

Total Auto

$

1,262,922

$

815,870

$

646,798

$

425,032

$

179,314

$

82,251

$

-

$

-

$

3,412,187

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other consumer

 

 

 

Substandard

$

-

$

114

$

21

$

487

$

-

$

135

$

11,250

$

-

$

12,007

 

 

 

Loss

 

-

 

-

 

-

 

579

 

-

 

34

 

-

 

-

 

613

 

 

 

Pass

 

24,845

 

9,781

 

9,348

 

5,610

 

3,914

 

947

 

57,483

 

-

 

111,928

 

Total Other consumer

$

24,845

$

9,895

$

9,369

$

6,676

$

3,914

$

1,116

$

68,733

$

-

$

124,548

Total Puerto Rico

$

4,913,112

$

2,647,120

$

1,898,600

$

1,473,547

$

749,926

$

7,191,955

$

1,953,343

$

37,779

$

20,865,382

48

 

December 31, 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

$

8,600

$

41,348

$

56,229

$

20,682

$

37,343

$

48,753

$

-

$

-

$

212,955

 

 

 

Special mention

 

-

 

3,752

 

9,013

 

30,244

 

11,071

 

28,297

 

-

 

-

 

82,377

 

 

 

Substandard

 

-

 

-

 

67,149

 

12,748

 

-

 

18,644

 

-

 

-

 

98,541

 

 

 

Pass

 

422,613

 

241,805

 

201,298

 

144,534

 

46,809

 

352,724

 

4,205

 

-

 

1,413,988

 

 

Total commercial multi-family

$

431,213

$

286,905

$

333,689

$

208,208

$

95,223

$

448,418

$

4,205

$

-

$

1,807,861

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate non-owner occupied

 

 

 

Watch

$

12,716

$

22,109

$

42,067

$

56,576

$

28,604

$

154,289

$

780

$

-

$

317,141

 

 

 

Special Mention

 

2,939

 

-

 

3,205

 

7,025

 

10,573

 

15,569

 

-

 

-

 

39,311

 

 

 

Substandard

 

-

 

756

 

6,405

 

14,544

 

11,384

 

60,323

 

-

 

-

 

93,412

 

 

 

Pass

 

543,667

 

356,071

 

156,925

 

211,432

 

250,516

 

346,606

 

8,386

 

-

 

1,873,603

 

 

Total commercial real estate non-owner occupied

$

559,322

$

378,936

$

208,602

$

289,577

$

301,077

$

576,787

$

9,166

$

-

$

2,323,467

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate owner occupied

 

 

 

Watch

$

-

$

239

$

7,825

$

8,150

$

1,676

$

17,132

$

4,222

$

-

$

39,244

 

 

 

Special Mention

 

-

 

-

 

-

 

-

 

-

 

1,800

 

-

 

-

 

1,800

 

 

 

Substandard

 

-

 

-

 

1,148

 

2,878

 

-

 

20,841

 

-

 

-

 

24,867

 

 

 

Pass

 

129,898

 

46,737

 

34,355

 

23,845

 

26,236

 

63,463

 

3,928

 

-

 

328,462

 

 

Total commercial real estate owner occupied

$

129,898

$

46,976

$

43,328

$

34,873

$

27,912

$

103,236

$

8,150

$

-

$

394,373

 

 

Commercial and industrial

 

 

 

Watch

$

3,747

$

4,667

$

4,292

$

9,273

$

5

$

1,530

$

3,925

$

-

$

27,439

 

 

 

Special Mention

 

2,504

 

7,203

 

670

 

481

 

59

 

215

 

8,177

 

-

 

19,309

 

 

 

Substandard

 

537

 

97

 

4,559

 

495

 

168

 

1,890

 

159

 

-

 

7,905

 

 

 

Loss

 

262

 

58

 

108

 

17

 

51

 

191

 

-

 

-

 

687

 

 

 

Pass

 

273,254

 

339,564

 

211,695

 

191,086

 

115,146

 

339,336

 

284,710

 

-

 

1,754,791

 

 

Total commercial and industrial

$

280,304

$

351,589

$

221,324

$

201,352

$

115,429

$

343,162

$

296,971

$

-

$

1,810,131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

Watch

$

-

$

14,300

$

23,547

$

28,757

$

34,205

$

-

$

-

$

-

$

100,809

 

 

 

Special Mention

 

-

 

-

 

-

 

-

 

-

 

13,622

 

-

 

-

 

13,622

 

 

 

Substandard

 

-

 

-

 

-

 

15,438

 

10,231

 

-

 

-

 

-

 

25,669

 

 

 

Pass

 

130,587

 

136,045

 

165,105

 

13,634

 

36,500

 

7,138

 

-

 

-

 

489,009

 

Total construction

$

130,587

$

150,345

$

188,652

$

57,829

$

80,936

$

20,760

$

-

$

-

$

629,109

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage

 

 

 

Substandard

$

-

$

4,338

$

3,894

$

967

$

217

$

12,680

$

-

$

-

$

22,096

 

 

 

Pass

 

326,641

 

266,212

 

215,071

 

61,986

 

6,376

 

276,948

 

-

 

-

 

1,153,234

 

Total mortgage

$

326,641

$

270,550

$

218,965

$

62,953

$

6,593

$

289,628

$

-

$

-

$

1,175,330

49

 

December 31, 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

$

-

$

-

$

-

$

-

$

-

$

-

$

10

$

-

$

10

 

Total credit cards

$

-

$

-

$

-

$

-

$

-

$

-

$

10

$

-

$

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HELOCs

 

 

 

Substandard

$

-

$

-

$

-

$

-

$

-

$

3,006

$

-

$

935

$

3,941

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

207

 

-

 

1,258

 

1,465

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

11,423

 

38,267

 

20,195

 

69,885

 

Total HELOCs

$

-

$

-

$

-

$

-

$

-

$

14,636

$

38,267

$

22,388

$

75,291

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

Substandard

$

72

$

81

$

250

$

73

$

17

$

163

$

2

$

-

$

658

 

 

 

Loss

 

-

 

-

 

4

 

-

 

-

 

19

 

-

 

-

 

23

 

 

 

Pass

 

75,538

 

19,411

 

43,346

 

7,418

 

2,802

 

5,625

 

124

 

-

 

154,264

 

Total Personal

$

75,610

$

19,492

$

43,600

$

7,491

$

2,819

$

5,807

$

126

$

-

$

154,945

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other consumer

 

 

 

Pass

$

-

$

-

$

-

$

-

$

-

$

-

$

4,658

$

-

$

4,658

 

Total Other consumer

$

-

$

-

$

-

$

-

$

-

$

-

$

4,658

$

-

$

4,658

Total Popular U.S.

$

1,933,575

$

1,504,793

$

1,258,160

$

862,283

$

629,989

$

1,802,434

$

361,553

$

22,388

$

8,375,175

50

 

December 31, 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

$

8,600

$

41,348

$

56,229

$

20,682

$

37,343

$

53,238

$

-

$

-

$

217,440

 

 

 

Special mention

 

-

 

3,752

 

9,013

 

30,244

 

11,071

 

31,322

 

-

 

-

 

85,402

 

 

 

Substandard

 

-

 

-

 

68,131

 

12,748

 

-

 

24,901

 

100

 

-

 

105,880

 

 

 

Pass

 

447,549

 

263,093

 

236,138

 

169,845

 

48,875

 

384,192

 

4,216

 

-

 

1,553,908

 

 

Total commercial multi-family

$

456,149

$

308,193

$

369,511

$

233,519

$

97,289

$

493,653

$

4,316

$

-

$

1,962,630

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate non-owner occupied

 

 

 

Watch

$

113,181

$

250,961

$

67,510

$

193,620

$

31,010

$

359,593

$

4,017

$

-

$

1,019,892

 

 

 

Special Mention

 

21,448

 

12,563

 

10,476

 

7,025

 

15,181

 

39,625

 

-

 

-

 

106,318

 

 

 

Substandard

 

30,155

 

28,546

 

30,605

 

40,000

 

14,154

 

132,730

 

-

 

-

 

276,190

 

 

 

Pass

 

1,056,754

 

444,733

 

245,278

 

249,431

 

293,038

 

903,658

 

18,098

 

-

 

3,210,990

 

 

Total commercial real estate non-owner occupied

$

1,221,538

$

736,803

$

353,869

$

490,076

$

353,383

$

1,435,606

$

22,115

$

-

$

4,613,390

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate owner occupied

 

 

 

Watch

$

8,393

$

8,851

$

16,797

$

15,108

$

4,715

$

138,848

$

4,222

$

-

$

196,934

 

 

 

Special Mention

 

5,573

 

857

 

7,598

 

1,427

 

2,449

 

105,272

 

-

 

-

 

123,176

 

 

 

Substandard

 

6,960

 

1,028

 

2,794

 

38,407

 

1,869

 

134,129

 

-

 

-

 

185,187

 

 

 

Doubtful

 

-

 

-

 

-

 

-

 

76

 

612

 

-

 

-

 

688

 

 

 

Pass

 

368,431

 

245,179

 

79,298

 

46,957

 

58,821

 

493,114

 

20,317

 

-

 

1,312,117

 

 

Total commercial real estate owner occupied

$

389,357

$

255,915

$

106,487

$

101,899

$

67,930

$

871,975

$

24,539

$

-

$

1,818,102

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 

 

Watch

$

190,276

$

17,209

$

25,828

$

113,108

$

14,582

$

92,306

$

112,108

$

-

$

565,417

 

 

 

Special Mention

 

9,884

 

17,139

 

15,526

 

28,954

 

1,071

 

28,663

 

68,574

 

-

 

169,811

 

 

 

Substandard

 

2,727

 

1,188

 

7,600

 

36,321

 

66,939

 

47,058

 

38,162

 

-

 

199,995

 

 

 

Doubtful

 

-

 

-

 

-

 

-

 

-

 

62

 

-

 

-

 

62

 

 

 

Loss

 

262

 

58

 

108

 

17

 

51

 

191

 

-

 

-

 

687

 

 

 

Pass

 

1,116,915

 

674,933

 

487,052

 

275,170

 

187,726

 

673,205

 

987,606

 

-

 

4,402,607

 

 

Total commercial and industrial

$

1,320,064

$

710,527

$

536,114

$

453,570

$

270,369

$

841,485

$

1,206,450

$

-

$

5,338,579

51

 

December 31, 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

$

-

$

14,300

$

23,547

$

28,757

$

34,205

$

-

$

-

$

-

$

100,809

 

 

 

Special Mention

 

-

 

-

 

-

 

-

 

-

 

13,622

 

-

 

-

 

13,622

 

 

 

Substandard

 

-

 

-

 

485

 

15,438

 

10,231

 

-

 

-

 

-

 

26,154

 

 

 

Pass

 

152,183

 

177,667

 

166,253

 

13,634

 

36,500

 

7,138

 

22,260

 

-

 

575,635

 

Total construction

$

152,183

$

191,967

$

190,285

$

57,829

$

80,936

$

20,760

$

22,260

$

-

$

716,220

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage

 

 

 

Substandard

$

-

$

5,292

$

9,106

$

6,580

$

4,527

$

135,370

$

-

$

-

$

160,875

 

 

 

Pass

 

790,383

 

570,992

 

438,535

 

327,225

 

201,358

 

4,937,828

 

-

 

-

 

7,266,321

 

Total mortgage

$

790,383

$

576,284

$

447,641

$

333,805

$

205,885

$

5,073,198

$

-

$

-

$

7,427,196

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

 

 

Substandard

$

124

$

618

$

880

$

613

$

613

$

235

$

-

$

-

$

3,083

 

 

 

Loss

 

-

 

-

 

-

 

1

 

16

 

2

 

-

 

-

 

19

 

 

 

Pass

 

613,452

 

328,085

 

222,770

 

133,112

 

62,881

 

17,917

 

-

 

-

 

1,378,217

 

Total leasing

$

613,576

$

328,703

$

223,650

$

133,726

$

63,510

$

18,154

$

-

$

-

$

1,381,319

52

 

December 31, 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

$

-

$

-

$

-

$

-

$

-

$

-

$

8,577

$

-

$

8,577

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

-

 

911,284

 

-

 

911,284

 

Total credit cards

$

-

$

-

$

-

$

-

$

-

$

-

$

919,861

$

-

$

919,861

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HELOCs

 

 

 

Substandard

$

-

$

-

$

-

$

-

$

-

$

3,006

$

23

$

935

$

3,964

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

207

 

-

 

1,258

 

1,465

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

11,423

 

41,815

 

20,195

 

73,433

 

Total HELOCs

$

-

$

-

$

-

$

-

$

-

$

14,636

$

41,838

$

22,388

$

78,862

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

Substandard

$

498

$

691

$

2,355

$

939

$

953

$

15,843

$

2

$

1,385

$

22,666

 

 

 

Loss

 

30

 

2

 

7

 

-

 

-

 

22

 

-

 

-

 

61

 

 

 

Pass

 

615,142

 

217,063

 

270,674

 

98,759

 

56,432

 

125,690

 

124

 

36,394

 

1,420,278

 

Total Personal

$

615,670

$

217,756

$

273,036

$

99,698

$

57,385

$

141,555

$

126

$

37,779

$

1,443,005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

Substandard

$

3,080

$

7,520

$

9,498

$

4,739

$

2,210

$

1,422

$

-

$

-

$

28,469

 

 

 

Loss

 

42

 

11

 

-

 

-

 

-

 

-

 

-

 

-

 

53

 

 

 

Pass

 

1,259,800

 

808,339

 

637,300

 

420,293

 

177,104

 

80,829

 

-

 

-

 

3,383,665

 

Total Auto

$

1,262,922

$

815,870

$

646,798

$

425,032

$

179,314

$

82,251

$

-

$

-

$

3,412,187

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other consumer

 

 

 

Substandard

$

-

$

114

$

21

$

487

$

-

$

135

$

11,250

$

-

$

12,007

 

 

 

Loss

 

-

 

-

 

-

 

579

 

-

 

34

 

-

 

-

 

613

 

 

 

Pass

 

24,845

 

9,781

 

9,348

 

5,610

 

3,914

 

947

 

62,141

 

-

 

116,586

 

Total Other consumer

$

24,845

$

9,895

$

9,369

$

6,676

$

3,914

$

1,116

$

73,391

$

-

$

129,206

Total Popular Inc.

$

6,846,687

$

4,151,913

$

3,156,760

$

2,335,830

$

1,379,915

$

8,994,389

$

2,314,896

$

60,167

$

29,240,557

53

 

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 March 31,

(In thousands)

 

2022

 

2021

Mortgage servicing fees, net of fair value adjustments:

 

 

 

 

 

Mortgage servicing fees

$

9,323

$

9,715

 

Mortgage servicing rights fair value adjustments

 

1,088

 

512

Total mortgage servicing fees, net of fair value adjustments

 

10,411

 

10,227

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

 

(1,534)

 

4,975

Trading account profit:

 

 

 

 

 

Unrealized gains on outstanding derivative positions

 

2

 

-

 

Realized profit on closed derivative positions

 

4,135

 

2,502

Total trading account profit

 

4,137

 

2,502

Losses on repurchased loans, including interest advances

 

(149)

 

(361)

Total mortgage banking activities

$

12,865

$

17,343

54

 

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 ended March 31, 2022 and 2021 because they did not contain any credit recourse arrangements. During the quarter ended March 31, 2022, the Corporation recorded a net loss of $1.1 million (March 31, 2021 - a net gain of $3.7 million) related to the residential mortgage loans securitized.

The following tables present the initial fair value of the assets obtained as proceeds from residential mortgage loans securitized during the quarters ended March 31, 2022 and 2021:

 

 

 

Proceeds Obtained During the Quarter Ended March 31, 2022

(In thousands)

Level 1

Level 2

Level 3

Initial Fair Value

Assets

 

 

 

 

 

 

 

 

Trading account debt securities:

 

 

 

 

 

 

 

 

Mortgage-backed securities - GNMA

$

-

$

77,894

$

-

$

77,894

Mortgage-backed securities - FNMA

 

-

 

57,690

 

-

 

57,690

Mortgage-backed securities - FHLMC

 

-

 

7,118

 

-

 

7,118

Total trading account debt securities

$

-

$

142,702

$

-

$

142,702

Mortgage servicing rights

$

-

$

-

$

2,409

$

2,409

Total

$

-

$

142,702

$

2,409

$

145,111

 

 

 

Proceeds Obtained During the Quarter Ended March 31, 2021

(In thousands)

Level 1

Level 2

Level 3

Initial Fair Value

Assets

 

 

 

 

 

 

 

 

Trading account debt securities:

 

 

 

 

 

 

 

 

Mortgage-backed securities - GNMA

$

-

$

101,988

$

-

$

101,988

Mortgage-backed securities - FNMA

 

-

 

86,280

 

-

 

86,280

Total trading account debt securities

$

-

$

188,268

$

-

$

188,268

Mortgage servicing rights

$

-

$

-

$

2,809

$

2,809

Total

$

-

$

188,268

$

2,809

$

191,077

 

During the quarter ended March 31, 2022, the Corporation retained servicing rights on whole loan sales involving approximately $19 million in principal balance outstanding (March 31, 2021 - $65 million), with net realized gains of approximately $0.2 million (March 31, 2021 - gains of $1.3 million). All loan sales performed during the quarters ended March 31, 2022 and 2021 were without credit recourse agreements.

The Corporation recognizes as assets the rights to service loans for others, whether these rights are purchased or result from asset transfers such as sales and securitizations. These mortgage servicing rights (“MSRs”) are measured at fair value.

The Corporation uses a discounted cash flow model to estimate the fair value of MSRs. The discounted cash flow model incorporates assumptions that market participants would use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, cost to service, escrow account earnings, contractual servicing fee income, prepayment and late fees, among other considerations. Prepayment speeds are adjusted for the loans’ characteristics and portfolio behavior.

The following table presents the changes in MSRs measured using the fair value method for the quarters ended March 31, 2022 and 2021.

55

 

Residential MSRs

(In thousands)

March 31, 2022

March 31, 2021

Fair value at beginning of period

$

121,570

$

118,395

Additions

 

2,771

 

3,636

Changes due to payments on loans[1]

 

(2,983)

 

(4,094)

Reduction due to loan repurchases

 

(252)

 

(556)

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

 

4,252

 

5,162

Fair value at end of period[2]

$

125,358

$

122,543

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

[2] At March 31, 2022, PB had MSRs amounting to $1.8 million (March 31, 2021 - $1.0 million).

 

Residential mortgage loans serviced for others were $11.9 billion at March 31, 2022 (December 31, 2021 - $12.1 billion).

Net mortgage servicing fees, a component of mortgage banking activities in the Consolidated Statements of Operations, include the changes from period to period in the fair value of the MSRs, including changes due to collection / realization of expected cash flows. The banking subsidiaries receive servicing fees based on a percentage of the outstanding loan balance. These servicing fees are credited to income when they are collected. At March 31, 2022, those weighted average mortgage servicing fees were 0.31% (March 31, 2021 - 0.30%). Under these servicing agreements, the banking subsidiaries do not generally earn significant prepayment penalty fees on the underlying loans serviced.

The section below includes information on assumptions used in the valuation model of the MSRs, originated and purchased. Key economic assumptions used in measuring the servicing rights derived from loans securitized or sold by the Corporation during the quarters ended March 31, 2022 and 2021 were as follows:

 

Quarters ended

 

March 31, 2022

 

March 31, 2021

 

BPPR

PB

 

BPPR

PB

Prepayment speed

5.2

%

10.0

%

 

8.8

%

21.4

%

Weighted average life (in years)

9.4

 

6.9

 

 

7.2

 

3.5

 

Discount rate (annual rate)

10.3

%

10.0

%

 

10.5

%

11.0

%

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

 

 

 

Originated MSRs

Purchased MSRs

 

 

March 31,

December 31,

March 31,

December 31,

(In thousands)

2022

2021

2022

2021

Fair value of servicing rights

$

40,155

 

$

40,058

 

$

85,203

 

$

81,512

 

Weighted average life (in years)

 

5.9

 

 

7.1

 

 

6.2

 

 

7.5

 

Weighted average prepayment speed (annual rate)

 

7.5

%

 

7.7

%

 

7.3

%

 

7.6

%

 

Impact on fair value of 10% adverse change

$

(598)

 

$

(1,500)

 

$

(2,186)

 

$

(1,486)

 

 

Impact on fair value of 20% adverse change

$

(1,376)

 

$

(2,359)

 

$

(4,091)

 

$

(3,495)

 

Weighted average discount rate (annual rate)

 

11.2

%

 

11.2

%

 

11.0

%

 

11.0

%

 

Impact on fair value of 10% adverse change

$

(1,326)

 

$

(2,079)

 

$

(3,726)

 

$

(2,731)

 

 

Impact on fair value of 20% adverse change

$

(2,754)

 

$

(3,452)

 

$

(6,991)

 

$

(5,832)

 

56

 

The sensitivity analyses presented in the table above for servicing rights are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10 and 20 percent variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in the sensitivity tables included herein, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities.

 

At March 31, 2022, the Corporation serviced $0.7 billion in residential mortgage loans with credit recourse to the Corporation (December 31, 2021 - $0.7 billion). Also refer to Note 19 to the Consolidated Financial Statements for information on changes in the Corporation’s liability of estimated losses related to loans serviced with credit recourse.

 

Under the GNMA securitizations, the Corporation, as servicer, has the right to repurchase (but not the obligation), at its option and without GNMA’s prior authorization, any loan that is collateral for a GNMA guaranteed mortgage-backed security when certain delinquency criteria are met. At the time that individual loans meet GNMA’s specified delinquency criteria and are eligible for repurchase, the Corporation is deemed to have regained effective control over these loans if the Corporation was the pool issuer. At March 31, 2022, the Corporation had recorded $13 million in mortgage loans on its Consolidated Statements of Financial Condition related to this buy-back option program (December 31, 2021 - $13 million). Loans in our serviced GNMA portfolio benefit from payment forbearance programs but continue to reflect the contractual delinquency until the borrower repays deferred payments or completes a payment deferral modification or other borrower assistance alternative. As long as the Corporation continues to service the loans that continue to be collateral in a GNMA guaranteed mortgage-backed security, the MSR is recognized by the Corporation.

 

During the quarter ended March 31, 2022, the Corporation repurchased approximately $19 million (March 31, 2021 - $44 million) of mortgage loans from its GNMA servicing portfolio. The determination to repurchase these loans was based on the economic benefits of the transaction, which results in a reduction of the servicing costs for these severely delinquent loans, mainly related to principal and interest advances. The risk associated with the loans is reduced due to their guaranteed nature. The Corporation may place these loans under 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.

57

 

Note 11 – Other real estate owned

The following tables present the activity related to Other Real Estate Owned (“OREO”), for the quarters ended March 31, 2022 and 2021.

 

 

 

For the quarter ended March 31, 2022

 

 

OREO

 

OREO

 

 

(In thousands)

 

Commercial/Construction

 

Mortgage

 

Total

Balance at beginning of period

$

15,017

$

70,060

$

85,077

Write-downs in value

 

(364)

 

(328)

 

(692)

Additions

 

2,687

 

19,240

 

21,927

Sales

 

(1,980)

 

(13,543)

 

(15,523)

Other adjustments

 

108

 

(330)

 

(222)

Ending balance

$

15,468

$

75,099

$

90,567

 

 

 

For the quarter ended March 31, 2021

 

 

OREO

 

OREO

 

 

(In thousands)

 

Commercial/Construction

 

Mortgage

 

Total

Balance at beginning of period

$

13,214

$

69,932

$

83,146

Write-downs in value

 

(307)

 

(970)

 

(1,277)

Additions

 

3,850

 

1,873

 

5,723

Sales

 

(1,672)

 

(13,860)

 

(15,532)

Ending balance

$

15,085

$

56,975

$

72,060

58

 

Note 12 − Other assets

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

 

(In thousands)

March 31, 2022

December 31, 2021

Net deferred tax assets (net of valuation allowance)

$

776,243

$

657,597

Investments under the equity method

 

313,420

 

298,988

Prepaid taxes

 

32,147

 

37,924

Other prepaid expenses

 

89,245

 

79,845

Derivative assets

 

24,848

 

26,093

Trades receivable from brokers and counterparties

 

60,497

 

65,460

Principal, interest and escrow servicing advances

 

49,877

 

53,942

Guaranteed mortgage loan claims receivable

 

94,401

 

98,001

Operating ROU assets (Note 27)

 

132,229

 

141,748

Finance ROU assets (Note 27)

 

19,479

 

13,459

Others

 

163,461

 

155,514

Total other assets

$

1,755,847

$

1,628,571

 

The Corporation enters in the ordinary course of business into technology 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 Others in the table above. As of March 31, 2022, the total capitalized implementation costs amounted to $21.6 million with an accumulated amortization of $9.7 million for a net value of $11.9 million, compared to total capitalized implementation costs amounting to $18.4 million with an accumulated amortization of $8.8 million for a net value of $9.6 million as of December 31, 2021. Total amortization expense for all capitalized implementation costs of hosting arrangements that are service contracts for the quarter ended March 31, 2022 was $0.9 million (March 31, 2021 - $0.8 million).

59

 

Note 13 – Goodwill and other intangible assets

Goodwill

 

There were no changes in the carrying amount of goodwill during the quarters ended March 31, 2022 and 2021.

 

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

 

 

 

 

 

 

 

March 31, 2022

 

Balance at

 

 

Balance at

 

March 31,

Accumulated

March 31,

 

2022

impairment

2022

(In thousands)

(gross amounts)

losses

(net amounts)

Banco Popular de Puerto Rico

$

324,049

$

3,801

$

320,248

Popular U.S.

 

564,456

 

164,411

 

400,045

Total Popular, Inc.

$

888,505

$

168,212

$

720,293

 

December 31, 2021

 

Balance at

 

 

Balance at

 

December 31,

Accumulated

December 31,

 

2021

impairment

2021

(In thousands)

(gross amounts)

losses

(net amounts)

Banco Popular de Puerto Rico

$

324,049

$

3,801

$

320,248

Popular U.S.

 

564,456

 

164,411

 

400,045

Total Popular, Inc.

$

888,505

$

168,212

$

720,293

 

Other Intangible Assets

At March 31, 2022 and December 31, 2021, the Corporation had $0.7 million of identifiable intangible assets with indefinite useful lives.

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

 

 

Gross Carrying

 

Accumulated

 

Net Carrying

(In thousands)

 

Amount

 

Amortization

 

Value

March 31, 2022

 

 

 

 

 

 

 

Core deposits

$

12,810

$

9,074

$

3,736

 

Other customer relationships

 

14,286

 

3,454

 

10,832

Total other intangible assets

$

27,096

$

12,528

$

14,568

December 31, 2021

 

 

 

 

 

 

 

Core deposits

$

12,810

$

8,754

$

4,056

 

Other customer relationships

 

14,286

 

2,883

 

11,403

Total other intangible assets

$

27,096

$

11,637

$

15,459

 

 

During the quarter ended March 31, 2022, the Corporation recognized $0.9 million in amortization expense related to other intangible assets with definite useful lives (March 31, 2021 - $1.1 million).

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

 

60

 

(In thousands)

 

 

Remaining 2022

$

2,384

Year 2023

 

3,179

Year 2024

 

2,938

Year 2025

 

1,750

Year 2026

 

1,440

Later years

 

2,877

61

 

Note 14 – Deposits

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

(In thousands)

March 31, 2022

December 31, 2021

Savings accounts

$

16,209,748

$

15,871,998

NOW, money market and other interest bearing demand deposits

 

23,465,192

 

28,736,459

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

 

39,674,940

 

44,608,457

Certificates of deposit:

 

 

 

 

 

Under $250,000

 

4,116,459

 

4,086,059

 

$250,000 and over

 

2,974,230

 

2,626,090

Total certificates of deposit

 

7,090,689

 

6,712,149

Total interest bearing deposits

$

46,765,629

$

51,320,606

 

A summary of certificates of deposits by maturity at March 31, 2022 follows:

(In thousands)

 

 

2022

$

3,914,729

2023

 

1,112,216

2024

 

747,887

2025

 

573,506

2026

 

508,775

2027 and thereafter

 

233,576

Total certificates of deposit

$

7,090,689

 

At March 31, 2022, the Corporation had brokered deposits amounting to $ 0.9 billion (December 31, 2021 - $ 0.8 billion).

 

The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans was $6 million at March 31, 2022 (December 31, 2021 - $6 million)

 

At March 31, 2022, public sector deposits amounted to $14.8 billion. The receipt by the Puerto Rico Government of additional COVID-19 pandemic and hurricane recovery related Federal assistance, and seasonal tax collections, could increase public deposit balances at BPPR in the near term. However, the rate at which public deposit balances may decline is uncertain and difficult to predict. The amount and timing of any such reduction is likely to be impacted by, for example, the speed at which COVID-19 pandemic and hurricane recovery federal assistance is distributed and the financial condition, liquidity and cash management practices of the Puerto Rico Government and its instrumentalities. During the quarter ended March 31, 2022, approximately $10.1 billion were withdrawn from the public sector deposits held by the Bank to make debt service payments and other administrative payments pursuant to the Plan of Adjustment for Puerto Rico.

62

 

Note 15 – Borrowings

 

Assets sold under agreements to repurchase

 

Assets sold under agreements to repurchase amounted to $73 million at March 31, 2022 and $92 million December 31, 2021.

 

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

 

 

 

March 31, 2022

December 31, 2021

 

 

 

Repurchase

 

Repurchase

 

(In thousands)

 

liability

 

liability

 

U.S. Treasury securities

 

 

 

 

 

 

Within 30 days

$

14,525

$

19,538

 

 

After 30 to 90 days

 

14,975

 

30,295

 

 

After 90 days

 

32,867

 

29,036

 

Total U.S. Treasury securities

 

62,367

 

78,869

 

Mortgage-backed securities

 

 

 

 

 

 

Within 30 days

 

2,763

 

11,733

 

 

After 90 days

 

7,395

 

722

 

Total mortgage-backed securities

 

10,158

 

12,455

 

Collateralized mortgage obligations

 

 

 

 

 

 

Within 30 days

 

294

 

279

 

Total collateralized mortgage obligations

 

294

 

279

 

Total

$

72,819

$

91,603

 

 

Repurchase agreements in this portfolio are generally short-term, often overnight. As such our risk is very limited. We manage the liquidity risks arising from secured funding by sourcing funding globally from a diverse group of counterparties, providing a range of securities collateral and pursuing longer durations, when appropriate.

 

Other short-term borrowings

 

There were no other short-term borrowings outstanding at March 31, 2022, compared to $75 million in FHLB Advances at December 31, 2021.

63

 

Notes Payable

 

The following table presents the composition of notes payable at March 31, 2022 and December 31, 2021.

 

(In thousands)

March 31, 2022

 

December 31, 2021

Advances with the FHLB with maturities ranging from 2022 through 2029 paying interest at monthly fixed rates ranging from 0.39% to 3.18%

$

491,429

 

$

492,429

Unsecured senior debt securities maturing on 2023 paying interest semiannually at a fixed rate of 6.125%, net of debt issuance costs of $1,841

 

298,159

 

 

297,842

Junior subordinated deferrable interest debentures (related to trust preferred securities) maturing on 2034 with fixed interest rates ranging from 6.125% to 6.564%, net of debt issuance costs of $335

 

198,299

 

 

198,292

Total notes payable

$

987,887

 

$

988,563

Note: Refer to the Corporation's 2021 Form 10-K for rates information at December 31, 2021.

A breakdown of borrowings by contractual maturities at March 31, 2022 is included in the table below.

 

 

 

Assets sold under

 

 

 

(In thousands)

 

agreements to repurchase

 

Notes payable

Total

2022

$

72,819

$

102,148

$

174,967

2023

 

-

 

341,420

 

341,420

2024

 

-

 

91,943

 

91,943

2025

 

-

 

139,920

 

139,920

2026

 

-

 

74,500

 

74,500

Later years

 

-

 

237,956

 

237,956

Total borrowings

$

72,819

$

987,887

$

1,060,706

 

At March 31, 2022 and December 31, 2021, the Corporation had FHLB borrowing facilities whereby the Corporation could borrow up to $2.9 billion and $3.0 billion, respectively, of which $0.5 billion and $0.6 billion, respectively, were used at each period. In addition, at March 31, 2022 and December 31, 2021, the Corporation had placed $0.5 billion and $1.2 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 March 31, 2022, the Corporation has a borrowing facility at the discount window of the Federal Reserve Bank of New York amounting to $1.3 billion (2021 - $1.3 billion), which remained unused at March 31, 2022 and December 31, 2021. The facility is a collateralized source of credit that is highly reliable even under difficult market conditions.

64

 

Note 16 − Other liabilities

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

 

(In thousands)

March 31, 2022

December 31, 2021

Accrued expenses

$

285,700

$

308,594

Accrued interest payable

 

26,121

 

33,227

Accounts payable

 

99,866

 

91,804

Dividends payable

 

42,074

 

35,937

Trades payable

 

10,710

 

13,789

Liability for GNMA loans sold with an option to repurchase

 

12,570

 

12,806

Reserves for loan indemnifications

 

11,148

 

12,639

Reserve for operational losses

 

41,836

 

43,886

Operating lease liabilities (Note 27)

 

144,484

 

154,114

Finance lease liabilities (Note 27)

 

25,665

 

19,719

Pension benefit obligation

 

8,496

 

8,778

Postretirement benefit obligation

 

159,940

 

161,988

Others

 

62,225

 

70,967

Total other liabilities

$

930,835

$

968,248

65

 

Note 17 – Stockholders’ equity

As of March 31, 2022, stockholder’s equity totaled $4.7 billion. During the quarter ended March 31, 2022, the Corporation declared cash dividends of $0.55 (2021 - $0.40) per common share amounting to $42.0 million (2021 - $33.8 million). The quarterly dividend declared to stockholders of record as of the close of business on March 15, 2022 was paid on April 1, 2022.

 

Accelerated share repurchase transaction (“ASR”)

 

On March 1, 2022, the Corporation announced that on February 28, 2022 it entered into an accelerated share repurchase agreement (the “ASR Agreement”) to repurchase an aggregate of $400 million of Corporation’s common stock. Under the terms of the ASR Agreement, on March 2, 2022 the Corporation made an initial payment of $400 million and received an initial delivery of 3,483,942 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 shareholders’ equity approximately $320 million in treasury stock and $80 million as a reduction of 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 2022.

66

 

Note 18 – Other comprehensive loss

The following table presents changes in accumulated other comprehensive loss by component for the quarters ended March 31, 2022 and 2021.

 

 

Changes in Accumulated Other Comprehensive Loss by Component [1]

 

 

 

Quarters ended March 31,

(In thousands)

 

2022

2021

Foreign currency translation

Beginning Balance

$

(67,307)

$

(71,254)

 

 

Other comprehensive (loss) income

 

(2,858)

 

569

 

 

Net change

 

(2,858)

 

569

 

 

Ending balance

$

(70,165)

$

(70,685)

Adjustment of pension and postretirement benefit plans

Beginning Balance

$

(158,994)

$

(195,056)

 

 

Other comprehensive loss before reclassifications

 

1,269

 

-

 

 

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

 

2,444

 

3,242

 

 

Net change

 

3,713

 

3,242

 

 

Ending balance

$

(155,281)

$

(191,814)

Unrealized net holding (losses) gains on debt securities

Beginning Balance

$

(96,120)

$

460,900

 

 

Other comprehensive loss

 

(1,075,830)

 

(369,945)

 

 

Net change

 

(1,075,830)

 

(369,945)

 

 

Ending balance

$

(1,171,950)

$

90,955

Unrealized net gains (losses) on cash flow hedges

Beginning Balance

$

(2,648)

$

(4,599)

 

 

Other comprehensive income before reclassifications

 

3,139

 

1,357

 

 

Amounts reclassified from accumulated other comprehensive gains (losses)

 

(333)

 

48

 

 

Net change

 

2,806

 

1,405

 

 

Ending balance

$

158

$

(3,194)

 

 

Total

$

(1,397,238)

$

(174,738)

[1] All amounts presented are net of tax.

 

 

 

 

67

 

The following table presents the amounts reclassified out of each component of accumulated other comprehensive loss during the quarters ended March 31, 2022 and 2021.

 

 

Reclassifications Out of Accumulated Other Comprehensive Loss

 

 

Affected Line Item in the

Quarters ended March 31,

(In thousands)

Consolidated Statements of Operations

2022

2021

 

 

 

 

 

 

 

 

Adjustment of pension and postretirement benefit plans

 

 

 

 

 

 

Amortization of net losses

Other operating expenses

$

(3,911)

$

(5,190)

 

 

Total before tax

 

(3,911)

 

(5,190)

 

 

Income tax benefit

 

1,467

 

1,948

 

 

Total net of tax

$

(2,444)

$

(3,242)

Unrealized net gains (losses) on cash flow hedges

 

 

 

 

 

 

Forward contracts

Mortgage banking activities

$

978

$

370

 

Interest rate swaps

Other operating income

$

(279)

$

(279)

 

 

Total before tax

 

699

 

91

 

 

Income tax expense

 

(366)

 

(139)

 

 

Total net of tax

$

333

$

(48)

 

 

Total reclassification adjustments, net of tax

$

(2,111)

$

(3,290)

68

 

Note 19 – Guarantees

At March 31, 2022 the Corporation had a liability of $0.1 million (December 31, 2021 - $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 March 31, 2022, the Corporation serviced $0.7 billion (December 31, 2021 - $0.7 billion) in residential mortgage loans subject to credit recourse provisions, principally loans associated with FNMA and FHLMC residential mortgage loan securitization programs. In the event of any customer default, pursuant to the credit recourse provided, the Corporation is required to repurchase the loan or reimburse the third party investor for the incurred loss. The maximum potential amount of future payments that the Corporation would be required to make under the recourse arrangements in the event of nonperformance by the borrowers is equivalent to the total outstanding balance of the residential mortgage loans serviced with recourse and interest, if applicable. During the quarter ended March 31, 2022, the Corporation repurchased approximately $3 million of unpaid principal balance in mortgage loans subject to the credit recourse provisions (March 31, 2021 - $8 million). In the event of nonperformance by the borrower, the Corporation has rights to the underlying collateral securing the mortgage loan. The Corporation suffers ultimate losses on these loans when the proceeds from a foreclosure sale of the property underlying a defaulted mortgage loan are less than the outstanding principal balance of the loan plus any uncollected interest advanced and the costs of holding and disposing the related property. At March 31, 2022 the Corporation’s liability established to cover the estimated credit loss exposure related to loans sold or serviced with credit recourse amounted to $10 million (December 31, 2021 - $12 million).

The following table shows the changes in the Corporation’s liability of estimated losses related to loans serviced with credit recourse provisions during the quarters ended March 31, 2022 and 2021.

 

 

 

Quarters ended March 31,

(In thousands)

 

2022

 

2021

Balance as of beginning of period

$

11,800

$

22,484

Provision for recourse liability

 

46

 

817

Net charge-offs

 

(1,511)

 

(3,057)

Balance as of end of period

$

10,335

$

20,244

 

 

When the Corporation sells or securitizes mortgage loans, it generally makes customary representations and warranties regarding the characteristics of the loans sold. To the extent the loans do not meet specified characteristics, the Corporation may be required to repurchase such loans or indemnify for losses and bear any subsequent loss related to the loans. During the quarter ended March 31, 2022 the Corporation purchased $927 thousand under representation and warranty arrangements. There were no repurchases of loans under representation and warranty arrangements during the quarter ended March 31, 2021. A substantial amount of these loans reinstate to performing status or have mortgage insurance, and thus the ultimate losses on the loans are not deemed significant.

From time to time, the Corporation sells loans and agrees to indemnify the purchaser for credit losses or any breach of certain representations and warranties made in connection with the sale. 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 ended March 31, 2022 and 2021.

 

 

 

Quarters ended March 31,

(In thousands)

 

2022

 

 

2021

Balance as of beginning of period

$

839

 

$

2,297

Provision (benefit) for representation and warranties

 

699

 

 

(119)

Net charge-offs

 

(725)

 

 

-

Balance as of end of period

$

813

 

$

2,178

69

 

Servicing agreements relating to the mortgage-backed securities programs of FNMA, FHLMC and GNMA, and to mortgage loans sold or serviced to certain other investors, including FHLMC, require the Corporation to advance funds to make scheduled payments of principal, interest, taxes and insurance, if such payments have not been received from the borrowers. At March 31, 2022, the Corporation serviced $11.9 billion in mortgage loans for third-parties, including the loans serviced with credit recourse (December 31, 2021 - $12.1 billion). The Corporation generally recovers funds advanced pursuant to these arrangements from the mortgage owner, from liquidation proceeds when the mortgage loan is foreclosed or, in the case of FHA/VA loans, under the applicable FHA and VA insurance and guarantees programs. However, in the meantime, the Corporation must absorb the cost of the funds it advances during the time the advance is outstanding. The Corporation must also bear the costs of attempting to collect on delinquent and defaulted mortgage loans. In addition, if a defaulted loan is not cured, the mortgage loan would be canceled as part of the foreclosure proceedings and the Corporation would not receive any future servicing income with respect to that loan. At March 31, 2022, the outstanding balance of funds advanced by the Corporation under such mortgage loan servicing agreements was approximately $50 million (December 31, 2021 - $54 million). To the extent the mortgage loans underlying the Corporation’s servicing portfolio experience increased delinquencies, the Corporation would be required to dedicate additional cash resources to comply with its obligation to advance funds as well as incur additional administrative costs related to increases in collection efforts.

Popular, Inc. Holding Company (“PIHC”) fully and unconditionally guarantees certain borrowing obligations issued by certain of its 100% owned consolidated subsidiaries amounting to $94 million at March 31, 2022 and December 31, 2021. In addition, at March 31, 2022 and December 31, 2021, PIHC fully and unconditionally guaranteed on a subordinated basis $193 million of capital securities (trust preferred securities) issued by wholly-owned issuing trust entities to the extent set forth in the applicable guarantee agreement. Refer to Note 18 to the Consolidated Financial Statements in the 2021 Form 10-K for further information on the trust preferred securities.

70

 

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)

March 31, 2022

December 31, 2021

Commitments to extend credit:

 

 

 

 

 

Credit card lines

$

5,480,888

$

5,382,089

 

Commercial and construction lines of credit

 

3,977,223

 

3,830,601

 

Other consumer unused credit commitments

 

248,708

 

250,229

Commercial letters of credit

 

3,640

 

3,260

Standby letters of credit

 

31,643

 

27,848

Commitments to originate or fund mortgage loans

 

113,755

 

95,372

 

At March 31, 2022 and December 31, 2021, the Corporation maintained a reserve of approximately $7.1 million and $7.9 million, respectively, for potential losses associated with unfunded loan commitments related to commercial and construction lines of credit.

 

Other commitments

At March 31, 2022, and December 31, 2021, the Corporation also maintained other non-credit commitments for approximately $1.0 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 March 31, 2022, the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities totaled $364 million, of which $346 million were outstanding ($367 million and $349 million at December 31, 2021). Of the amount outstanding, $319 million consists of loans and $27 million are securities ($319 million and $30 million at December 31, 2021). Substantially all of the amount outstanding at March 31, 2022 and March 31, 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 March 31, 2022, 75% of the Corporation’s exposure to municipal loans and securities was concentrated in the municipalities of San Juan, Guaynabo, Carolina and Bayamón.

 

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The following table details the loans and investments representing the Corporation’s direct exposure to the Puerto Rico government according to their maturities as of March 31, 2022:

 

(In thousands)

 

Investment Portfolio

 

Loans

 

Total Outstanding

 

Total Exposure

Central Government

 

 

 

 

 

 

 

 

After 1 to 5 years

$

16

$

-

$

16

$

16

After 5 to 10 years

 

1

 

-

 

1

 

1

After 10 years

 

35

 

-

 

35

 

35

Total Central Government

 

52

 

-

 

52

 

52

Municipalities

 

 

 

 

 

 

 

 

Within 1 year

 

4,440

 

72,065

 

76,505

 

94,694

After 1 to 5 years

 

13,045

 

67,472

 

80,517

 

80,517

After 5 to 10 years

 

9,530

 

123,507

 

133,037

 

133,037

After 10 years

 

230

 

55,257

 

55,487

 

55,487

Total Municipalities

 

27,245

 

318,301

 

345,546

 

363,735

Total Direct Government Exposure

$

27,297

$

318,301

$

345,598

$

363,787

 

In addition, at March 31, 2022, the Corporation had $268 million in loans insured or securities issued by Puerto Rico governmental entities but for which the principal source of repayment is non-governmental ($275 million at December 31, 2021). These included $225 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, 2021 - $232 million). These mortgage loans are secured by first mortgages on Puerto Rico residential properties and the HFA insurance covers losses in the event of a borrower default and upon the satisfaction of certain other conditions. The Corporation also had at March 31, 2022, $43 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, 2021 - $43 million). In the event that the mortgage loans insured by HFA and held by the Corporation directly or those serving as collateral for the HFA bonds default and the collateral is insufficient to satisfy the outstanding balance of these loans, HFA’s ability to honor its insurance will depend, among other factors, on the financial condition of HFA at the time such obligations become due and payable. The Corporation does not consider the government guarantee when estimating the credit losses associated with this portfolio. Although the Governor is currently authorized by local legislation to impose a temporary moratorium on the financial obligations of the HFA, a moratorium on such obligations has not been imposed as of the date hereof.

 

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

 

In addition, $1.6 billion of residential mortgages, $173 million of Small Business Administration (“SBA”) loans under the Paycheck Protection Program (“PPP”) and $67 million commercial loans were insured or guaranteed by the U.S. Government or its agencies at March 31, 2022 (compared to $1.6 billion, $353 million and $67 million, respectively, at December 31, 2021). The Corporation also had U.S. Treasury and obligations from the U.S. Government, its agencies or government sponsored entities within the portfolio of available-for-sale securities as described in Note 5 to the Consolidated Financial Statements.

 

At March 31, 2022, the Corporation has operations in the United States Virgin Islands (the “USVI”) and has approximately $70 million in direct exposure to USVI government entities (December 31, 2021 - $70 million). The USVI has been experiencing a number of fiscal and economic challenges that could adversely affect the ability of its public corporations and instrumentalities to service their outstanding debt obligations.

 

At March 31, 2022, 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

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approximately $218 million comprised of various retail and commercial clients, compared to a loan portfolio of $221 million at December 31, 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 $26.9 million as of March 31, 2022. 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 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.

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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.

 

In May 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. Also, in May 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. In September 27, 2021, the Court held an oral hearing to discuss the pending motions for summary judgment. At such hearing, Plaintiffs notified they did not object the dismissal of the action with prejudice as to Popular, Inc. and BPPR, leaving Popular Insurance, LLC as the sole remaining defendant in the case.

 

On December 29, 2021, Popular Insurance filed a petition of certiorari to the Puerto Rico Court of Appeals, seeking review from the denial of the motion for summary judgment, which Plaintiffs timely opposed. On February 28, 2022, the Court of Appeals entered a judgment reversing the lower court’s decision, after concluding it was unable to review de novo the denial of the motion for summary judgment since such decision failed to comply with the summary judgment standard. The Court of Appeals remanded the case to the lower court with instructions to enter a summary judgment that identifies the material contested issues of facts that prevents the lower court from granting Popular’s summary judgment motion. On April 22, 2022, the Court of Appeals issued the formal mandate to the Court of First Instance.

 

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 ACH “item” or transaction and (b) charging both NSF Fees and overdraft fees (“OD Fees”) on the same ACH item or transaction, and is filed on behalf of all persons who during the applicable statute of limitations period were charged NSF Fees and/or OD Fees pursuant to these purported practices. In April 2020, BPPR filed a motion to dismiss the case. In April 2021, the Court issued an order granting in part and denying in part BPPR’s motion to dismiss; the unjust enrichment claim was dismissed, whereas the breach of contract and covenant of good faith and fair dealing claims survived the motion.

 

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On March 3, 2022, BPPR was also named as a defendant on a putative class action complaint captioned Orama-Caraballo v. Banco Popular, filed before the U.S. District Court for the District of Puerto Rico by the same Plaintiffs’ attorneys of the Soto-Melendez complaint. Similar to the claims set forth in the Soto-Melendez complaint, Plaintiffs allege breach of contract, breach of the covenant of good faith and fair dealing, and unjust enrichment due to the bank’s purported practice of (a) assessing more than one NSF Fee on the same “item” and (b) charging both NSF Fees and OD Fees on the same “item”, but included allegations with respect to “checks” in addition to ACH payments.

 

During a mediation hearing held on April 5, 2022, the parties in both the Soto Melendez and Orama-Caraballo complaints reached a settlement in principle on a class-wide basis subject to final court approval. On April 28, 2022, the parties filed before the Court a notice of settlement and a request to stay the proceedings in both cases while Plaintiffs submit a motion for the preliminary approval of the class action settlement, which is expected to be filed by June 15, 2022.

 

Popular was also named as a defendant on a putative class action complaint captioned Golden v. Popular, Inc. filed in March 2020 before the U.S. District Court for the Southern District of New York, seeking damages, restitution and injunctive relief. Plaintiff 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 described Popular’s purported practice of charging OD Fees as “Authorize Positive, Purportedly Settle Negative” (“APPSN”) transactions and alleged that Popular assesses OD Fees over authorized transactions for which sufficient funds are held for settlement. In August 2020, Popular filed a Motion to Dismiss on several grounds, including failure to state a claim against Popular, Inc. and improper venue. In October 2020, Plaintiff filed a Notice of Voluntary Dismissal before the U.S. District Court for the Southern District of New York and, simultaneously, filed an identical complaint in the U.S. District Court for the District of the Virgin Islands against Popular, Inc., Popular Bank and BPPR. In November 2020, Plaintiff filed a Notice of Voluntary Dismissal against Popular, Inc. and Popular Bank following a Motion to Dismiss filed on behalf of such entities, which argued failure to state a claim and lack of minimum contacts of such parties with the U.S.V.I. district court jurisdiction. BPPR, the only defendant remaining in the case, was served with process in November 2020 and filed a Motion to Dismiss in January 2021.

 

On October 4, 2021, the District Court, notwithstanding that BPPR’s Motion to Dismiss remains pending resolution, held an initial scheduling conference and, thereafter, issued a trial management order where it scheduled the deadline for all discovery for November 1, 2022, the deadline for the filing of a joint pre-trial brief for June 1, 2023, and the trial for June 20 to June 30, 2023.

 

On January 31, 2022, Popular was also named as a defendant on a putative class action complaint captioned Lipsett v. Popular, Inc. d/b/a Banco Popular, filed before the U.S. District Court for the Southern District of New York, seeking damages, restitution and injunctive relief. Similar to the claims set forth in the aforementioned Golden complaint, Plaintiff alleges breach of contract, including violations of the covenant of good faith and fair dealing, as a result of Popular’s purported practice of charging OD Fees for APPSN transactions. The complaint further alleged that Popular assesses OD Fees over authorized transactions for which sufficient funds are held for settlement. Popular waived service of process and filed a Motion to Compel Arbitration on April 4, 2022. In response to Popular’s motion, Plaintiff filed a Notice of Voluntary Dismissal on April 27, 2022. 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 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

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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.

 

In June 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, in July 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. Plaintiffs in both the AB Action and the DR Action have filed notices of appeal of both judgments. On August 11, 2021, PB and the remaining AB Defendants in the AB Action, as well as PB in the DR Action, answered the respective complaints as to the surviving claims. Discovery is ongoing.

 

On March 25, 2022, Plaintiffs in both the AB Action and the DR Action perfected their appeals seeking to reverse both partial judgments. Popular has until August 10, 2022 to file a reply brief as to both appeals.

 

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 March 31, 2022, was named as a respondent (among other broker-dealers) in 60 pending arbitration proceedings with initial claimed amounts of approximately $51 million in the aggregate. While Popular Securities believes it has meritorious defenses to the claims asserted in these proceedings, it has often determined that it is in its best interest to settle certain claims rather than expend the money and resources required to see such cases to completion. The Puerto Rico Government’s defaults and non-payment of its various debt obligations, as well as the 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.

 

On October 28, 2021, a panel in an arbitration proceeding with claimed damages arising from trading losses of approximately $30 million ordered Popular Securities to pay claimants approximately $6.9 million in compensatory damages and expenses. On November 4, 2021, the claimants in such arbitration proceeding filed a complaint captioned Trinidad García v. Popular, Inc. et. al. before the United States District Court for the District of Puerto Rico against Popular, Inc., BPPR and Popular Securities (the “Popular Defendants”) alleging, inter alia, that they sustained monetary losses as a result of the Popular Defendants’ anticompetitive, unfair, and predatory practices, including tying arrangements prohibited by the Bank Holding Company Act. Plaintiffs claim that the Popular Defendants caused them to enter a tying arrangement scheme whereby BPPR allegedly would extend secured credit lines to the Plaintiffs on the conditions that they transfer their portfolios to Popular Securities to be used as pledged collateral and obtain additional investment services and products solely from Popular Securities, not from any of its competitors. Plaintiffs also invoke federal court’s supplemental jurisdiction to allege several state law claims against the Popular Defendants, including contractual fault, fault in causing losses in value of the pledge collateral, breach of contract, request for specific compliance thereof, fault in pre-contractual negotiations, emotional distress, and punitive damages. On January 27, 2022, Plaintiffs filed an Amended Complaint and the Popular Defendants were served with summons on that same date. Plaintiffs demand no less than $390 million in damages, plus an award for costs and attorney's fees. The Popular Defendants filed a Motion to Dismiss on March 21, 2022. Plaintiffs are expected to oppose to the Popular Defendants’ motion by May 19, 2022.

 

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.

 

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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.

 

After the publication of the Final Report, the Oversight Board created a special claims committee (“SCC”) and, before the end of the applicable two-year statute of limitations for the filing of such claims pursuant to the U.S. Bankruptcy Code, the SCC, along with the Commonwealth’s Unsecured Creditors’ Committee (“UCC”), filed various avoidance, fraudulent transfer and other claims against third parties, including government vendors and financial institutions and other professionals involved in bond issuances then being challenged as invalid by the SCC and the UCC. The Popular Companies, the SCC and the UCC entered into a tolling agreement with respect to potential claims the SCC and the UCC, on behalf of the Commonwealth or other Title III debtors, may assert against the Popular Companies for the avoidance and recovery of payments and/or transfers made to the Popular Companies or as a result of any role of the Popular Companies in the offering of the aforementioned challenged bond issuances. On January 12, 2022, the SCC, the UCC and the Popular Companies executed a settlement agreement as to potential claims related to the avoidance and recovery of payments and/or transfers made to the Popular Companies. The tolling agreement as to potential claims the SCC and the UCC may assert against the Popular Companies as a result of any role of the Popular Companies in the offering of certain challenged bond issuances remains in effect.

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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. The Corporation has also engaged in securitization transactions with FHLMC, but considers its exposure in the form of servicing fees and servicing advances not to be significant at March 31, 2022. 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 March 31, 2022 and December 31, 2021, which are classified as available-for-sale and trading securities in the Corporation’s Consolidated Statements of Financial Condition. In addition, the Corporation holds variable interests in the form of servicing fees, since it retains the right to service the transferred loans in those government-sponsored special purpose entities (“SPEs”) and may also purchase the right to service loans in other government-sponsored SPEs that were transferred to those SPEs by a third-party.

The following table presents the carrying amount and classification of the assets related to the Corporation’s variable interests in non-consolidated VIEs and the maximum exposure to loss as a result of the Corporation’s involvement as servicer of GNMA and FNMA loans at March 31, 2022 and December 31, 2021.

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(In thousands)

March 31, 2022

December 31, 2021

Assets

 

 

 

 

Servicing assets:

 

 

 

 

 

Mortgage servicing rights

$

97,717

$

94,464

Total servicing assets

$

97,717

$

94,464

Other assets:

 

 

 

 

 

Servicing advances

$

7,283

$

7,968

Total other assets

$

7,283

$

7,968

Total assets

$

105,000

$

102,432

Maximum exposure to loss

$

105,000

$

102,432

 

 

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 $8.2 billion at March 31, 2022 (December 31, 2021 - $8.3 billion).

The Corporation determined that the maximum exposure to loss includes the fair value of the MSRs and the assumption that the servicing advances at March 31, 2022 and December 31, 2021, will not be recovered. The agency debt securities are not included as part of the maximum exposure to loss since they are guaranteed by the related agencies.

 

ASU 2009-17 requires that an ongoing primary beneficiary assessment should be made to determine whether the Corporation is the primary beneficiary of any of the VIEs it is involved with. The conclusion on the assessment of these non-consolidated VIEs has not changed since their initial evaluation. The Corporation concluded that it is still not the primary beneficiary of these VIEs, and therefore, these VIEs are not required to be consolidated in the Corporation’s financial statements at March 31, 2022.

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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 March 31, 2022, the Corporation held 11,654,803 shares of EVERTEC, representing an ownership stake of 16.26%. 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.

 

As disclosed in Note 39 - Subsequent Events - to the financial statements included in Form 10K for the year ended December 31, 2021, on February 24, 2022, the Corporation and BPPR, entered into an Asset Purchase Agreement (the “Purchase Agreement”), with EVERTEC and Evertec Group, LLC, a wholly owned subsidiary of EVERTEC (“EVERTEC Group”), pursuant to which BPPR will purchase from EVERTEC Group certain information technology and related assets currently used by EVERTEC to service certain of BPPR’s key channels (the “Acquired Assets”) under the Amended and Restated Master Service Agreement (the “MSA”), dated September 30, 2010, among the Corporation, BPPR and EVERTEC. In connection with the purchase of the Acquired Assets, BPPR will assume certain liabilities relating to the Acquired Assets (together with the purchase of the Acquired Assets, the “Transaction”). The Transaction is expected to close on or about June 30, 2022, subject to the satisfaction of certain closing conditions.

 

In connection with the consummation of the Transaction (the “Closing”), the Corporation will transfer to EVERTEC Group, as consideration for the Transaction, shares of EVERTEC’s common stock (“EVERTEC Common Stock”) having an aggregate value of approximately $197 million, subject to certain purchase price adjustments, based on a price per share of $42.84, which value was determined at the time of entering into the Purchase Agreement. As a result of this transfer, the Corporation expects that its percentage ownership of the outstanding shares of EVERTEC Common Stock will be reduced from its current level, which is approximately 16.2%, to approximately 10.5% immediately following the Closing. As part of the transaction, the Corporation has also agreed to reduce its voting interest in EVERTEC below 4.5%, whether through selling shares of EVERTEC common stock or a conversion of such shares into non-voting preferred stock. The Corporation expects to sell down its stake in EVERTEC below 4.5% following the closing and intends to return to shareholders, via common stock repurchases, the after-tax gains resulting from such sale, subject to the receipt of regulatory approvals.

 

Additionally, as part of the Closing, the Corporation and BPPR will also enter with EVERTEC into, among other commercial agreements, a Second Amended and Restated Master Services Agreement (the “Second A&R MSA”), pursuant to which EVERTEC Group will continue to provide various key information technology and various transaction processing services to the Corporation, BPPR and their respective subsidiaries, which services are provided under the currently effective MSA.

 

The Corporation recorded $0.6 million in dividends distributions during the quarter ended March 31, 2022 from its investments in EVERTEC (March 31, 2021 - $0.6 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)

 

March 31, 2022

 

 

December 31, 2021

Equity investment in EVERTEC

$

119,579

 

$

110,299

 

 

 

 

 

 

The Corporation had the following financial condition balances outstanding with EVERTEC at March 31, 2022 and December 31, 2021. Items that represent liabilities to the Corporation are presented with parenthesis.

80

 

(In thousands)

March 31, 2022

December 31, 2021

Accounts receivable (Other assets)

$

5,640

$

5,668

Deposits

 

(157,209)

 

(150,737)

Accounts payable (Other liabilities)

 

(1,242)

 

(3,431)

Net total

$

(152,811)

$

(148,500)

 

The Corporation’s proportionate share of income 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 and changes in stockholders’ equity for the quarters ended March 31, 2022 and 2021.

 

 

 

Quarters ended March 31,

(In thousands)

 

2022

 

 

2021

Share of income from investment in EVERTEC

$

6,318

 

$

5,734

Share of other changes in EVERTEC's stockholders' equity

 

1,787

 

 

178

Share of EVERTEC's changes in equity recognized in income

$

8,105

 

$

5,912

 

The following table presents the impact of transactions and service payments between the Corporation and EVERTEC (as an affiliate) and their impact on the results of operations for the quarters ended March 31, 2022 and 2021. Items that represent expenses to the Corporation are presented with parenthesis.

81

 

 

Quarters ended March 31,

 

(In thousands)

2022

2021

Category

Interest expense on deposits

$

(132)

$

(89)

Interest expense

ATH and credit cards interchange income from services to EVERTEC

 

6,683

 

6,454

Other service fees

Rental income charged to EVERTEC

 

1,681

 

1,547

Net occupancy

Processing fees on services provided by EVERTEC

 

(62,222)

 

(60,141)

Professional fees

Other services provided to EVERTEC

 

218

 

121

Other operating expenses

Total

$

(53,772)

$

(52,108)

 

 

Centro Financiero BHD León

At March 31, 2022, the Corporation had a 15.84% equity interest in Centro Financiero BHD León, S.A. (“BHD León”), one of the largest banking and financial services groups in the Dominican Republic. During the quarter ended March 31, 2022, the Corporation recorded $7.4 million in earnings from its investment in BHD León (March 31, 2021 - $6.4 million), which had a carrying amount of $185.3 million at March 31, 2022 (December 31, 2021 - $160.1 million). There were no dividends distributions received by the Corporation from its investment in BHD León, during the quarter ended March 31, 2022 and 2021.

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 quarter ended March 31, 2022 administrative fees charged to these investment companies amounted to $0.7 million (March 31, 2021 - $1.2 million) and waived fees amounted to $0.3 million (March 31, 2021 - $0.5 million), for a net fee of $0.4 million (March 31, 2021 - $0.7 million).

The Corporation, through its subsidiary BPPR, had also entered into certain uncommitted credit facilities with those investment companies. The aggregate sum of all outstanding balances under all credit facilities that could be made available by BPPR, from time to time, to those investment companies for which PAM acted as investment advisor or co-investment advisor, could have never exceed the lesser of $200 million or 10% of BPPR’s capital. During the year ended December 31, 2021, these credit facilities expired.

 

82

 

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 judgements about assumptions that market participants would use in pricing the asset or liability.

The Corporation maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Fair value is based upon quoted market prices when available. If listed prices or quotes are not available, the Corporation employs internally-developed models that primarily use market-based inputs including yield curves, interest rates, volatilities, and credit curves, among others. Valuation adjustments are limited to those necessary to ensure that the financial instrument’s fair value is adequately representative of the price that would be received or paid in the marketplace. These adjustments include amounts that reflect counterparty credit quality, the Corporation’s credit standing, constraints on liquidity and unobservable parameters that are applied consistently. There have been no changes in the Corporation’s methodologies used to estimate the fair value of assets and liabilities from those disclosed in the 2021 Form 10-K.

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

Fair Value on a Recurring and Nonrecurring Basis

The following fair value hierarchy tables present information about the Corporation’s assets and liabilities measured at fair value on a recurring basis at March 31, 2022 and December 31, 2021:

83

 

At March 31, 2022

(In thousands)

Level 1

Level 2

Level 3

Measured at NAV

Total

RECURRING FAIR VALUE MEASUREMENTS

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

Debt securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

$

1,799,951

$

16,379,160

$

-

$

-

$

18,179,111

Obligations of U.S. Government sponsored entities

 

-

 

71

 

-

 

-

 

71

Collateralized mortgage obligations - federal agencies

 

-

 

191,215

 

-

 

-

 

191,215

Mortgage-backed securities

 

-

 

7,988,614

 

793

 

-

 

7,989,407

Other

 

-

 

111

 

-

 

-

 

111

Total debt securities available-for-sale

$

1,799,951

$

24,559,171

$

793

$

-

$

26,359,915

Trading account debt securities, excluding derivatives:

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

$

16,686

$

-

$

-

$

-

$

16,686

Obligations of Puerto Rico, States and political subdivisions

 

-

 

81

 

-

 

-

 

81

Collateralized mortgage obligations

 

-

 

53

 

174

 

-

 

227

Mortgage-backed securities

 

-

 

18,779

 

-

 

-

 

18,779

Other

 

-

 

-

 

267

 

-

 

267

Total trading account debt securities, excluding derivatives

$

16,686

$

18,913

$

441

$

-

$

36,040

Equity securities

$

-

$

30,872

$

-

$

166

$

31,038

Mortgage servicing rights

 

-

 

-

 

125,358

 

-

 

125,358

Derivatives

 

-

 

24,848

 

-

 

-

 

24,848

Total assets measured at fair value on a recurring basis

$

1,816,637

$

24,633,804

$

126,592

$

166

$

26,577,199

Liabilities

 

 

 

 

 

 

 

 

 

 

Derivatives

$

-

$

(20,218)

$

-

$

-

$

(20,218)

Contingent consideration

 

-

 

-

 

(9,241)

 

-

 

(9,241)

Total liabilities measured at fair value on a recurring basis

$

-

$

(20,218)

$

(9,241)

$

-

$

(29,459)

84

 

At December 31, 2021

(In thousands)

Level 1

Level 2

Level 3

 

Measured at NAV

Total

RECURRING FAIR VALUE MEASUREMENTS

Assets

 

 

 

 

 

 

 

 

 

 

Debt securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

$

-

$

15,859,030

$

-

$

-

$

15,859,030

Obligations of U.S. Government sponsored entities

 

-

 

70

 

-

 

-

 

70

Collateralized mortgage obligations - federal agencies

 

-

 

221,265

 

-

 

-

 

221,265

Mortgage-backed securities

 

-

 

8,886,950

 

826

 

-

 

8,887,776

Other

 

-

 

128

 

-

 

-

 

128

Total debt securities available-for-sale

$

-

$

24,967,443

$

826

$

-

$

24,968,269

Trading account debt securities, excluding derivatives:

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

$

6,530

$

-

$

-

$

-

$

6,530

Obligations of Puerto Rico, States and political subdivisions

 

-

 

85

 

-

 

-

 

85

Collateralized mortgage obligations

 

-

 

59

 

198

 

-

 

257

Mortgage-backed securities

 

-

 

22,559

 

-

 

-

 

22,559

Other

 

-

 

-

 

280

 

-

 

280

Total trading account debt securities, excluding derivatives

$

6,530

$

22,703

$

478

$

-

$

29,711

Equity securities

$

-

$

32,429

$

-

$

77

$

32,506

Mortgage servicing rights

 

-

 

-

 

121,570

 

-

 

121,570

Derivatives

 

-

 

26,093

 

-

 

-

 

26,093

Total assets measured at fair value on a recurring basis

$

6,530

$

25,048,668

$

122,874

$

77

$

25,178,149

Liabilities

 

 

 

 

 

 

 

 

 

 

Derivatives

$

-

$

(22,878)

$

-

$

-

$

(22,878)

Contingent consideration

 

-

 

-

 

(9,241)

 

-

 

(9,241)

Total liabilities measured at fair value on a recurring basis

$

-

$

(22,878)

$

(9,241)

$

-

$

(32,119)

 

The fair value information included in the following tables is not as of period end, but as of the date that the fair value measurement was recorded during the quarters ended March 31, 2022 and 2021 and excludes nonrecurring fair value measurements of assets no longer outstanding as of the reporting date.

85

 

Quarter ended March 31, 2022

(In thousands)

Level 1

Level 2

Level 3

Total

 

 

NONRECURRING FAIR VALUE MEASUREMENTS

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Write-downs

Loans[1]

$

-

$

-

$

4,891

$

4,891

$

(180)

Loans held-for-sale[2]

 

-

 

-

 

55,150

 

55,150

 

(675)

Other real estate owned[3]

 

-

 

-

 

1,432

 

1,432

 

(495)

Total assets measured at fair value on a nonrecurring basis

$

-

$

-

$

61,473

$

61,473

$

(1,350)

[1] Relates mainly to certain impaired collateral dependent loans. The impairment was measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations. Costs to sell are excluded from the reported fair value amount.

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

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

 

Quarter ended March 31, 2021

 

 

 

 

 

 

 

 

 

 

(In thousands)

Level 1

Level 2

Level 3

Total

 

 

NONRECURRING FAIR VALUE MEASUREMENTS

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Write-downs

Loans[1]

$

-

$

-

$

2,384

$

2,384

$

(406)

Loans held-for-sale[2]

 

-

 

-

 

3,549

 

3,549

 

(846)

Other real estate owned[3]

 

-

 

-

 

6,205

 

6,205

 

(1,073)

Other foreclosed assets[3]

 

-

 

-

 

48

 

48

 

(7)

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

 

-

 

-

 

2,728

 

2,728

 

(303)

Total assets measured at fair value on a nonrecurring basis

$

-

$

-

$

14,914

$

14,914

$

(2,635)

[1] Relates mainly to certain impaired collateral dependent loans. The impairment was measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations. Costs to sell are excluded from the reported fair value amount.

[2] 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.

 

The following tables present the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarters ended March 31, 2022 and 2021.

 

 

Quarter ended March 31, 2022

 

 

 

 

 

 

MBS

CMOs

Other

 

 

 

 

 

 

 

 

 

 

classified

classified

securities

 

 

 

 

 

 

 

 

 

 

as debt

as trading

classified

 

 

 

 

 

 

 

 

 

 

securities

account

as trading

Mortgage

 

 

 

 

 

 

available-

debt

account debt

servicing

Total

Contingent

Total

(In thousands)

for-sale

securities

securities

rights

assets

consideration

liabilities

Balance at December 31, 2021

$

826

$

198

$

280

$

121,570

$

122,874

$

9,241

$

9,241

Gains (losses) included in earnings

 

-

 

(1)

 

(13)

 

1,017

 

1,003

 

-

 

-

Gains (losses) included in OCI

 

(8)

 

-

 

-

 

-

 

(8)

 

-

 

-

Additions

 

-

 

2

 

-

 

2,771

 

2,773

 

-

 

-

Settlements

 

(25)

 

(25)

 

-

 

-

 

(50)

 

-

 

-

Balance at March 31, 2022

$

793

$

174

$

267

$

125,358

$

126,592

$

9,241

$

9,241

Changes in unrealized gains (losses) included in earnings relating to assets still held at March 31, 2022

$

-

$

(1)

$

5

$

4,252

$

4,256

$

-

$

-

86

 

 

Quarter ended March 31, 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 December 31, 2020

$

1,014

$

278

$

381

$

118,395

$

120,068

Gains (losses) included in earnings

 

-

 

-

 

(9)

 

512

 

503

Gains (losses) included in OCI

 

(5)

 

-

 

-

 

-

 

(5)

Additions

 

-

 

1

 

-

 

3,636

 

3,637

Settlements

 

(75)

 

(28)

 

-

 

-

 

(103)

Balance at March 31, 2021

$

934

$

251

$

372

$

122,543

$

124,100

Changes in unrealized gains (losses) included in earnings relating to assets still held at March 31, 2021

$

-

$

-

$

4

$

5,162

$

5,166

 

Gains and losses (realized and unrealized) included in earnings for the quarters ended March 31, 2022 and 2021 for Level 3 assets and liabilities included in the previous tables are reported in the consolidated statements of operations as follows:

 

 

Quarter ended March 31, 2022

Quarter ended March 31, 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

$

1,017

$

4,252

$

512

$

5,162

Trading account (loss) profit

 

(14)

 

4

 

(9)

 

4

Total

$

1,003

$

4,256

$

503

$

5,166

 

The following tables include quantitative information about significant unobservable inputs used to derive the fair value of Level 3 instruments, excluding those instruments for which the unobservable inputs were not developed by the Corporation such as prices of prior transactions and/or unadjusted third-party pricing sources at March 31, 2022 and 2021.

87

 

 

 

 

Fair value at

 

 

 

 

 

 

 

March 31,

 

 

 

 

 

 

(In thousands)

 

2022

 

 

Valuation technique

Unobservable inputs

Weighted average (range) [1]

CMO's - trading

$

174

 

 

Discounted cash flow model

Weighted average life

0.7 years (0.5 - 1.0 years)

 

 

 

 

 

 

 

 

Yield

3.9% (3.9% - 4.5%)

 

 

 

 

 

 

 

 

Prepayment speed

8.4% (0.1% - 15.7%)

 

Other - trading

$

267

 

 

Discounted cash flow model

Weighted average life

2.9 years

 

 

 

 

 

 

 

 

Yield

12.0%

 

 

 

 

 

 

 

 

Prepayment speed

10.8%

 

Contingent consideration

$

(9,241)

 

 

Probability weighted

 

 

 

 

 

 

 

 

 

discounted cash flows

Discount rate

2.52%

 

Loans held-in-portfolio

$

4,653

 

[2]

External appraisal

Haircut applied on

 

 

 

 

 

 

 

 

 

external appraisals

12.6%

 

[1]

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

[2]

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

 

 

 

 

Fair value at

 

 

 

 

 

 

 

March 31,

 

 

 

 

 

 

(In thousands)

 

2021

 

 

Valuation technique

Unobservable inputs

Weighted average (range) [1]

CMO's - trading

$

251

 

 

Discounted cash flow model

Weighted average life

1.1 years (0.3 - 1.3 years)

 

 

 

 

 

 

 

 

Yield

3.6% (3.6% - 4.1%)

 

 

 

 

 

 

 

 

Prepayment speed

12.9% (10.4% - 18.3%)

 

Other - trading

$

372

 

 

Discounted cash flow model

Weighted average life

3.6 years

 

 

 

 

 

 

 

 

Yield

12.0%

 

 

 

 

 

 

 

 

Prepayment speed

10.8%

 

Mortgage servicing rights

$

122,543

 

 

Discounted cash flow model

Prepayment speed

6.0% (0.4% - 24.6)%)

 

 

 

 

 

 

 

 

Weighted average life

6.3 years (0.1 - 12.8 years)

 

 

 

 

 

 

 

 

Discount rate

11.1% (9.5% - 14.7%)

 

Loans held-in-portfolio

$

2,162

 

[2]

External appraisal

Haircut applied on

 

 

 

 

 

 

 

 

 

external appraisals

16.3% (12.6% - 21.4%)

 

Other real estate owned

$

5,772

 

[3]

External appraisal

Haircut applied on

 

 

 

 

 

 

 

 

 

external appraisals

22.1% (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.

 

Effective the fourth quarter 2021, the mortgage servicing rights fair value was provided by a third-party valuation specialist. Refer to Note 10 to the Consolidated Financial Statements for additional information on MSRs.

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.

88

 

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 March 31, 2022 and December 31, 2021, 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.

 

89

 

 

 

March 31, 2022

 

Carrying

 

 

 

 

Measured

 

(In thousands)

amount

Level 1

Level 2

Level 3

 

at NAV

Fair value

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

$

439,148

$

439,148

$

-

$

-

$

-

$

439,148

Money market investments

 

10,069,692

 

10,063,392

 

6,300

 

-

 

-

 

10,069,692

Trading account debt securities, excluding derivatives[1]

 

36,040

 

16,686

 

18,913

 

441

 

-

 

36,040

Debt securities available-for-sale[1]

 

26,359,915

 

1,799,951

 

24,559,171

 

793

 

-

 

26,359,915

Debt securities held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of Puerto Rico, States and political subdivisions

$

62,156

$

-

$

-

$

69,897

$

-

$

69,897

 

Collateralized mortgage obligation-federal agency

 

24

 

-

 

-

 

25

 

-

 

25

 

Securities in wholly owned statutory business trusts

 

5,960

 

-

 

5,960

 

-

 

-

 

5,960

Total debt securities held-to-maturity

$

68,140

$

-

$

5,960

$

69,922

$

-

$

75,882

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

FHLB stock

$

55,648

$

-

$

55,648

$

-

$

-

$

55,648

 

FRB stock

 

96,747

 

-

 

96,747

 

-

 

-

 

96,747

 

Other investments

 

33,953

 

-

 

30,872

 

3,704

 

166

 

34,742

Total equity securities

$

186,348

$

-

$

183,267

$

3,704

$

166

$

187,137

Loans held-for-sale

$

55,150

$

-

$

-

$

55,150

$

-

$

55,150

Loans held-in-portfolio

 

28,910,398

 

-

 

-

 

28,008,363

 

-

 

28,008,363

Mortgage servicing rights

 

125,358

 

-

 

-

 

125,358

 

-

 

125,358

Derivatives

 

24,848

 

-

 

24,848

 

-

 

-

 

24,848

 

 

March 31, 2022

 

Carrying

 

 

 

 

Measured

 

(In thousands)

amount

Level 1

Level 2

Level 3

 

at NAV

Fair value

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

$

55,771,606

$

-

$

55,771,606

$

-

$

-

$

55,771,606

 

Time deposits

 

7,090,689

 

-

 

6,912,361

 

-

 

-

 

6,912,361

Total deposits

$

62,862,295

$

-

$

62,683,967

$

-

$

-

$

62,683,967

Assets sold under agreements to repurchase

$

72,819

$

-

$

72,889

$

-

$

-

$

72,889

Notes payable:

 

 

 

 

 

 

 

 

 

 

 

 

 

FHLB advances

$

491,429

$

-

$

477,283

$

-

$

-

$

477,283

 

Unsecured senior debt securities

 

298,159

 

-

 

312,375

 

-

 

-

 

312,375

 

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

 

198,299

 

-

 

206,425

 

-

 

-

 

206,425

Total notes payable

$

987,887

$

-

$

996,083

$

-

$

-

$

996,083

Derivatives

$

20,218

$

-

$

20,218

$

-

$

-

$

20,218

Contingent consideration

$

9,241

$

-

$

-

$

9,241

$

-

$

9,241

[1]

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

90

 

 

 

December 31, 2021

 

Carrying

 

 

 

 

Measured

 

(In thousands)

amount

Level 1

Level 2

Level 3

 

at NAV

Fair value

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

$

428,433

$

428,433

$

-

$

-

$

-

$

428,433

Money market investments

 

17,536,719

 

17,530,640

 

6,079

 

-

 

-

 

17,536,719

Trading account debt securities, excluding derivatives[1]

 

29,711

 

6,530

 

22,703

 

478

 

-

 

29,711

Debt securities available-for-sale[1]

 

24,968,269

 

-

 

24,967,443

 

826

 

-

 

24,968,269

Debt securities held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of Puerto Rico, States and political subdivisions

$

65,380

$

-

$

-

$

77,383

$

-

$

77,383

 

Collateralized mortgage obligation-federal agency

 

25

 

-

 

-

 

25

 

-

 

25

 

Securities in wholly owned statutory business trusts

 

5,960

 

-

 

5,960

 

-

 

-

 

5,960

Total debt securities held-to-maturity

$

71,365

$

-

$

5,960

$

77,408

$

-

 

83,368

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

FHLB stock

$

59,918

$

-

$

59,918

$

-

$

-

$

59,918

 

FRB stock

 

96,217

 

-

 

96,217

 

-

 

-

 

96,217

 

Other investments

 

33,842

 

-

 

32,429

 

3,704

 

77

 

36,210

Total equity securities

$

189,977

$

-

$

188,564

$

3,704

$

77

 

192,345

Loans held-for-sale

$

59,168

$

-

$

-

$

59,885

$

-

$

59,885

Loans held-in-portfolio

 

28,545,191

 

-

 

-

 

27,489,583

 

-

 

27,489,583

Mortgage servicing rights

 

121,570

 

-

 

-

 

121,570

 

-

 

121,570

Derivatives

 

26,093

 

-

 

26,093

 

-

 

-

 

26,093

 

 

December 31, 2021

 

Carrying

 

 

 

 

Measured

 

 

(In thousands)

amount

Level 1

Level 2

Level 3

 

at NAV

 

Fair value

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

$

60,292,939

$

-

$

60,292,939

$

-

$

-

$

60,292,939

 

Time deposits

 

6,712,149

 

-

 

6,647,301

 

-

 

-

 

6,647,301

Total deposits

$

67,005,088

$

-

$

66,940,240

$

-

$

-

 

66,940,240

Assets sold under agreements to repurchase

$

91,603

$

-

$

91,602

$

-

$

-

$

91,602

Other short-term borrowings[2]

$

75,000

$

-

$

75,000

$

-

$

-

$

75,000

Notes payable:

 

 

 

 

 

 

 

 

 

 

 

 

 

FHLB advances

$

492,429

$

-

$

496,091

$

-

$

-

$

496,091

 

Unsecured senior debt securities

 

297,842

 

-

 

319,296

 

-

 

-

 

319,296

 

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

 

198,292

 

-

 

201,879

 

-

 

-

 

201,879

Total notes payable

$

988,563

$

-

$

1,017,266

$

-

$

-

 

1,017,266

Derivatives

$

22,878

$

-

$

22,878

$

-

$

-

$

22,878

Contingent consideration

$

9,241

$

-

$

-

$

9,241

$

-

$

9,241

[1]

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

[2]

Refer to Note 15 to the Consolidated Financial Statements for the composition of other short-term borrowings.

 

The notional amount of commitments to extend credit at March 31, 2022 and December 31, 2021 is $9.7 billion and $9.5 billion, respectively, and represents the unused portion of credit facilities granted to customers. The notional amount of letters of credit at March 31, 2022 and December 31, 2021 is $35 million and $31 million respectively, and represents the contractual amount that is required to be paid in the event of nonperformance. The fair value of commitments to extend credit and letters of credit, which are based on the fees charged to enter into those agreements, are not material to Popular’s financial statements.

 

91

 

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 ended March 31, 2022 and 2021:

 

 

Quarters ended March 31,

(In thousands, except per share information)

 

2022

 

2021

Net income

$

211,686

$

262,632

Preferred stock dividends

 

(353)

 

(353)

Net income applicable to common stock

$

211,333

$

262,279

Average common shares outstanding

 

78,443,706

 

83,899,769

Average potential dilutive common shares

 

151,757

 

152,166

Average common shares outstanding - assuming dilution

 

78,595,463

 

84,051,935

Basic EPS

$

2.69

$

3.13

Diluted EPS

$

2.69

$

3.12

 

 

As disclosed in Note 17 to the Consolidated Financial Statements, during the quarter ended March 31, 2022, the Corporation entered into a $400 million accelerated share repurchase transaction (“ASR”) and, in connection therewith, received an initial delivery of 3,483,942 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 March 31, 2022, for which the Corporation expects to receive additional shares upon termination of the ASR agreement. The dilutive EPS computation excludes 1,379,886 shares that at March 31, 2022 were estimated to be received under the ASR since the effect would be antidilutive.

For the quarters ended March 31, 2022 and 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, 2021. For a discussion of the calculation under the treasury stock method, refer to Note 31 of the Consolidated Financial Statements included in the 2021 Form 10-K.

92

 

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 ended March 31, 2022 and 2021.

 

 

 

Quarters ended March 31,

(In thousands)

2022

 

2021

 

 

 

BPPR

 

Popular U.S.

 

 

BPPR

 

Popular U.S.

Service charges on deposit accounts

$

37,985

$

2,728

 

$

36,859

$

2,761

Other service fees:

 

 

 

 

 

 

 

 

 

 

Debit card fees

 

11,562

 

217

 

 

11,342

 

235

 

Insurance fees, excluding reinsurance

 

10,038

 

1,322

 

 

8,238

 

609

 

Credit card fees, excluding late fees and membership fees

 

30,222

 

324

 

 

25,410

 

248

 

Sale and administration of investment products

 

5,791

 

-

 

 

5,540

 

-

 

Trust fees

 

6,149

 

-

 

 

6,015

 

-

Total revenue from contracts with customers[1]

$

101,747

$

4,591

 

$

93,404

$

3,853

[1] The amounts include intersegment transactions of $1.5 million and $0.3 million, respectively, for the quarters ended March 31, 2022 and 2021.

 

 

Revenue from contracts with customers is recognized when, or as, the performance obligations are satisfied by the Corporation by transferring the promised services to the customers. A service is transferred to the customer when, or as, the customer obtains control of that service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized based on the services that have been rendered to date. Revenue from a performance obligation satisfied at a point in time is recognized when the customer obtains control over the service. The transaction price, or the amount of revenue recognized, reflects the consideration the Corporation expects to be entitled to in exchange for those promised services. In determining the transaction price, the Corporation considers the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Corporation is the principal in a transaction if it obtains control of the specified goods or services before they are transferred to the customer. If the Corporation acts as principal, revenues are presented in the gross amount of consideration to which it expects to be entitled and are not netted with any related expenses. On the other hand, the Corporation is an agent if it does not control the specified goods or services before they are transferred to the customer. If the Corporation acts as an agent, revenues are presented in the amount of consideration to which it expects to be entitled, net of related expenses.

 

Following is a description of the nature and timing of revenue streams from contracts with customers:

 

Service charges on deposit accounts

Service charges on deposit accounts are earned on retail and commercial deposit activities and include, but are not limited to, nonsufficient fund fees, overdraft fees and checks stop payment fees. These transaction-based fees are recognized at a point in time, upon occurrence of an activity or event or upon the occurrence of a condition which triggers the fee assessment. The Corporation is acting as principal in these transactions.

 

Debit card fees

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

 

Insurance fees

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

93

 

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.

94

 

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 31.8 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 to the Consolidated Financial Statements, respectively, for information on the balances of these lease assets and liabilities.

 

The Corporation uses the incremental borrowing rate for purposes of discounting lease payments for operating and finance leases, since it does not have enough information to determine the rates implicit in the leases. The discount rates are based on fixed-rate and fully amortizing borrowing facilities of its banking subsidiaries that are collateralized. For leases held by non-banking subsidiaries, a credit spread is added to this rate based on financing transactions with a similar credit risk profile.

 

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

 

March 31, 2022

(In thousands)

 

Remaining

2022

 

2023

 

2024

 

2025

 

2026

 

Later Years

 

Total Lease Payments

 

Less: Imputed Interest

 

Total

Operating Leases

$

22,112

$

27,896

$

26,483

$

23,555

$

15,113

$

47,965

$

163,124

$

(18,640)

$

144,484

Finance Leases

 

3,060

 

4,167

 

4,264

 

4,376

 

4,025

 

9,668

 

29,560

 

(3,895)

 

25,665

 

 

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

 

 

 

 

Quarters ended March 31,

(In thousands)

2022

2021

Finance lease cost:

 

 

 

 

 

Amortization of ROU assets

$

759

$

581

 

Interest on lease liabilities

 

308

 

273

Operating lease cost

 

7,627

 

7,055

Short-term lease cost

 

55

 

87

Variable lease cost

 

23

 

30

Sublease income

 

(9)

 

(19)

Total lease cost[1]

$

8,763

$

8,007

[1]

Total lease cost is recognized as part of net occupancy expense.

95

 

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

 

 

 

 

Quarters ended March 31,

(Dollars in thousands)

 

2022

 

2021

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

 

 

 

 

 

 

 

Operating cash flows from operating leases[1]

$

7,506

$

15,197

 

Operating cash flows from finance leases

 

308

 

273

 

Financing cash flows from finance leases[1]

 

833

 

1,133

ROU assets obtained in exchange for new lease obligations:

 

 

 

 

 

Operating leases

$

1,553

$

2,394

Weighted-average remaining lease term:

 

 

 

 

 

 

 

Operating leases

 

7.6

years

 

8.2

years

 

Finance leases

 

8.7

years

 

8.9

years

Weighted-average discount rate:

 

 

 

 

 

 

 

Operating leases

 

2.8

%

 

3.0

%

 

Finance leases

 

4.4

%

 

5.1

%

[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 March 31, 2022, the Corporation has additional operating and finance leases contracts that have not yet commenced with an undiscounted contract amount of $15.3 million and $2.2 million, respectively, which will have lease terms ranging from 10 to 20 years.

96

 

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 March 31,

 

Quarters ended March 31,

(In thousands)

 

2022

 

2021

 

2022

 

2021

Personnel Cost:

 

 

 

 

 

 

 

 

Service cost

$

-

$

-

$

121

$

159

Other operating expenses:

 

 

 

 

 

 

 

 

Interest cost

 

4,800

 

3,998

 

983

 

893

Expected return on plan assets

 

(8,847)

 

(9,670)

 

-

 

-

Amortization of prior service cost/(credit)

 

-

 

-

 

-

 

-

Amortization of net loss

 

3,911

 

4,720

 

-

 

470

Total net periodic pension cost

$

(136)

$

(952)

$

1,104

$

1,522

 

The Corporation paid the following contributions to the plans for the three months ended March 31, 2022 and expects to pay the following contributions for the year ending December 31, 2022.

 

For the three months ended

For the year ending

(In thousands)

March 31, 2022

December 31, 2022

Pension Plans

$

57

$

227

OPEB Plan

$

1,645

$

5,971

97

 

Note 29 - Stock-based compensation

On May 12, 2020, the stockholders of the Corporation approved the Popular, Inc. 2020 Omnibus Incentive Plan, which permits the Corporation to issue several types of stock-based compensation to employees and directors of the Corporation and/or any of its subsidiaries (the “2020 Incentive Plan”). The 2020 Incentive Plan replaced the Popular, Inc. 2004 Omnibus Incentive Plan, which was in effect prior to the adoption of the 2020 Incentive Plan (the “2004 Incentive Plan” and, together with the 2020 Incentive Plan, the “Incentive Plan”). Participants under the Incentive Plan are designated by the Talent and Compensation Committee of the Board of Directors (or its delegate, as determined by the Board). Under the Incentive Plan, the Corporation has issued restricted stock and performance shares 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 granted prior to 2021 was determined based on a two-prong vesting schedule. The first part is vested ratably over five or four years commencing at the date of grant (“the graduated vesting portion”) and the second part is vested at termination of employment after attainment of 55 years of age and 10 years of service or 60 years of age and 5 years of service (“the retirement vesting portion”). The graduated vesting portion is accelerated at termination of employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service. Restricted stock granted on or after 2021 will vest ratably in equal annual installments over a period of 4 years or 3 years, depending on the classification of the employee. The vesting schedule is accelerated at termination of employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service.

The performance share award 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, depending on the date of the grant, the Absolute Return on Average Assets (“ROA”) goal or the Absolute Return on Average Tangible Common Equity (“ROATCE”). The TSR metric is considered to be a market condition under ASC 718. For equity settled awards based on a market condition, the fair value is determined as of the grant date and is not subsequently revised based on actual performance. The 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 ROA or ROATCE goal as of each reporting period. The TSR and 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 (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.

 

98

 

(Not in thousands)

Shares

 

Weighted-Average Grant Date Fair Value

Non-vested at December 31, 2020

358,512

$

41.23

Granted

191,479

 

69.38

Performance Shares Quantity Adjustment

54,306

 

54.21

Vested

(273,974)

 

55.11

Forfeited

(8,440)

 

43.48

Non-vested at December 31, 2021

321,883

$

47.98

Granted

109,441

 

87.10

Performance Shares Quantity Adjustment

20,608

 

77.65

Vested

(169,260)

 

71.47

Non-vested at March 31, 2022

282,672

$

51.23

During the quarter ended March 31, 2022, 52,584 shares of restricted stock (March 31, 2021 - 53,239) and 56,857 performance shares (March 31, 2021 - 71,374) were awarded to management under the Incentive Plan.

During the quarter ended March 31, 2022, the Corporation recognized $4.5 million of restricted stock expense related to management incentive awards, with a tax benefit of $0.5 million (March 31, 2021 - $3.9 million, with a tax benefit of $0.5 million). For the quarter ended March 31, 2022, the fair market value of the restricted stock and performance shares vested was $8.0 million at grant date and $14.7 million at vesting date. This differential triggers a windfall, of $2.5 million that was recorded as a reduction in income tax expense. For the quarter ended March 31, 2022, the Corporation recognized $3.7 million of performance shares expense, with a tax benefit of $0.3 million (March 31, 2021 - $4.3 million, with a tax benefit of $0.4 million). The total unrecognized compensation cost related to non-vested restricted stock awards and performance shares to members of management at March 31, 2022 was $9.5 million and is expected to be recognized over a weighted-average period of 2.05 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, 2020

$

-

$

-

Granted

 

20,638

 

78.20

Vested

 

(20,638)

 

78.20

Forfeited

 

-

 

-

Non-vested at December 31, 2021

$

-

$

-

Granted

 

530

 

82.73

Vested

 

(530)

 

82.73

Forfeited

 

-

 

-

Non-vested at March 31, 2022

$

-

$

-

 

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 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 2020, 2021 and 2022, all Directors elected RSU. During the quarter ended March 31, 2022, 530 RSU were granted to the Directors (March 31, 2021 - 524). During this period, the Corporation recognized $44 thousand of restricted stock expense related to these RSU, with a tax benefit of $8 thousand (March 31, 2021 - $29 thousand, with a tax benefit of $5 thousand). The fair value at vesting date of the RSU vested during the quarter ended March 31, 2022 for directors was $44 thousand.

99

 

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

 

 

 

 

March 31, 2022

 

 

 

March 31, 2021

 

(In thousands)

 

Amount

% of pre-tax income

 

 

 

Amount

% of pre-tax income

 

Computed income tax expense at statutory rates

$

98,312

38

%

 

$

127,299

38

%

Net benefit of tax exempt interest income

 

(36,489)

(14)

 

 

 

(34,163)

(10)

 

Deferred tax asset valuation allowance

 

3,891

1

 

 

 

10,321

3

 

Difference in tax rates due to multiple jurisdictions

 

(6,493)

(2)

 

 

 

(10,948)

(3)

 

Effect of income subject to preferential tax rate

 

(3,945)

(2)

 

 

 

(3,329)

(1)

 

Adjustment due to estimate on the annual effective rate

 

(6,380)

(2)

 

 

 

(10,328)

(3)

 

State and local taxes

 

3,665

1

 

 

 

61

-

 

Others

 

(2,082)

(1)

 

 

 

(2,082)

(1)

 

Income tax expense

$

50,479

19

%

 

$

76,831

23

%

 

 

For the quarter ended March 31, 2022, the Corporation recorded an income tax expense of $50.5 million compared to $76.8 million for the quarter ended March 31, 2021. The decrease in income tax expense was primarily due to lower pre-tax income and higher tax-exempt income.

 

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

100

 

 

 

 

March 31, 2022

(In thousands)

 

PR

 

US

 

Total

Deferred tax assets:

 

 

 

 

 

 

Tax credits available for carryforward

$

261

$

2,781

$

3,042

Net operating loss and other carryforward available

 

117,016

 

663,751

 

780,767

Postretirement and pension benefits

 

54,701

 

-

 

54,701

Deferred loan origination fees/cost

 

245

 

-

 

245

Allowance for credit losses

 

228,627

 

30,955

 

259,582

Accelerated depreciation

 

5,246

 

7,350

 

12,596

FDIC-assisted transaction

 

152,665

 

-

 

152,665

Intercompany deferred gains

 

1,739

 

-

 

1,739

Lease liability

 

31,292

 

22,856

 

54,148

Unrealized net gain on trading and available-for-sale securities

 

138,994

 

9,600

 

148,594

Difference in outside basis from pass-through entities

 

52,251

 

-

 

52,251

Other temporary differences

 

36,380

 

8,547

 

44,927

 

Total gross deferred tax assets

 

819,417

 

745,840

 

1,565,257

Deferred tax liabilities:

 

 

 

 

 

 

Indefinite-lived intangibles

 

77,467

 

52,012

 

129,479

Right of use assets

 

29,103

 

19,310

 

48,413

Deferred loan origination fees/cost

 

-

 

3,635

 

3,635

Other temporary differences

 

44,079

 

1,530

 

45,609

 

Total gross deferred tax liabilities

 

150,649

 

76,487

 

227,136

Valuation allowance

 

132,449

 

430,447

 

562,896

Net deferred tax asset

$

536,319

$

238,906

$

775,225

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

(In thousands)

 

PR

 

US

 

Total

Deferred tax assets:

 

 

 

 

 

 

Tax credits available for carryforward

$

261

$

2,781

$

3,042

Net operating loss and other carryforward available

 

112,331

 

665,164

 

777,495

Postretirement and pension benefits

 

57,002

 

-

 

57,002

Deferred loan origination fees/cost

 

2,788

 

-

 

2,788

Allowance for credit losses

 

233,500

 

31,872

 

265,372

Deferred gains

 

1,642

 

-

 

1,642

Accelerated depreciation

 

5,246

 

7,422

 

12,668

FDIC-assisted transaction

 

152,665

 

-

 

152,665

Lease liability

 

31,211

 

23,894

 

55,105

Difference in outside basis from pass-through entities

 

54,781

 

-

 

54,781

Other temporary differences

 

38,512

 

8,418

 

46,930

 

Total gross deferred tax assets

 

689,939

 

739,551

 

1,429,490

Deferred tax liabilities:

 

 

 

 

 

 

Indefinite-lived intangibles

 

76,635

 

51,150

 

127,785

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

 

4,329

 

2,817

 

7,146

Right of use assets

 

29,025

 

20,282

 

49,307

Deferred loan origination fees/cost

 

-

 

3,567

 

3,567

Other temporary differences

 

43,856

 

1,530

 

45,386

 

Total gross deferred tax liabilities

 

153,845

 

79,346

 

233,191

Valuation allowance

 

128,557

 

410,970

 

539,527

Net deferred tax asset

$

407,537

$

249,235

$

656,772

 

101

 

The net deferred tax asset shown in the table above at March 31, 2022 is reflected in the consolidated statements of financial condition as $0.8 billion in net deferred tax assets in the “Other assets” caption (December 31, 2021 - $0.7 billion) and $1.0 million in deferred tax liabilities in the “Other liabilities” caption (December 31, 2021 - $825 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 March 31, 2022 the net deferred tax asset of the U.S. operations amounted to $669 million with a valuation allowance of approximately $430 million, for a net deferred tax asset after valuation allowance of approximately $239 million. The Corporation evaluates the realization of the deferred tax asset by taxing jurisdiction. The U.S. operation had sustained profitability for the year ended December 31, 2021, and the quarter ended March 31, 2022. Years 2020 and 2021 have been impacted by the COVID-19 pandemic and other events. Year 2020 was unfavorably impacted by the ACL reserve build-ups and the impairment of expenses on the branch closures in the New York region. Year 2021 has been favorably impacted by a strong economic recovery that resulted in ACL reserve releases, reversing the year 2020 build-up. The financial results for year December 31,2021 and the quarter ended March 31,2022 is objectively verifiable positive evidence, evaluated together with the positive evidence of stable credit metrics, in combination with the length of the expiration of the NOLs. On the other hand, the Corporation evaluated the negative evidence accumulated over the years, including financial results lower than expectations and challenges to the economy due to new variants of COVID-19 and geopolitical uncertainty. As of March 31, 2022, after weighting all positive and negative evidence, the Corporation concluded that it is more likely than not that approximately $239 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. Strong financial results during year 2022 together with the additional income expected from the recent acquisition of K2 assets, along with new tax initiatives could be considered additional positive evidence that, in the future, could overcome totally or partially the negative evidence evaluated as of March 31, 2022, that could result in future adjustments to the valuation allowance.

 

At March 31, 2022, the Corporation’s net deferred tax assets related to its Puerto Rico operations amounted to $536 million.

 

The Corporation’s Puerto Rico Banking operation is not in a cumulative loss position and has sustained profitability for the three year period ended March 31, 2022. This is considered a strong piece of objectively verifiable positive evidence that outweighs any negative evidence considered by management in the evaluation of the realization of the deferred tax asset. Based on this evidence and management’s estimate of future taxable income, the Corporation has concluded that it is more likely than not that such net deferred tax asset of the Puerto Rico Banking operations will be realized.

 

The Holding Company operation is in a cumulative loss position, taking into account taxable income exclusive of reversing temporary differences, for the three years period ending March 31, 2022. Management expects these losses will be a trend in future years. This objectively verifiable negative evidence is considered by management strong negative evidence that will suggest that income in future years will be insufficient to support the realization of all deferred tax assets. After weighting of all positive and negative evidence management concluded, as of the reporting date, that it is more likely than not that the Holding Company will not be able to realize any portion of the deferred tax assets, considering the criteria of ASC Topic 740. Accordingly, the Corporation has maintained a valuation allowance on the deferred tax asset of $132 million as of March 2022.

 

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

102

 

(In millions)

 

2022

 

 

2021

Balance at January 1

$

3.5

 

$

14.8

Balance at March 31

$

3.5

 

$

14.8

 

At March 31, 2022, the total amount of accrued interest recognized in the statement of financial condition approximated $2.8 million (December 31, 2021 - $2.8 million). The total interest expense recognized at March 31, 2022 was $83 thousand, (March 31, 2021 - $364 thousand). Management determined that at March 31, 2022 and December 31, 2021 there was no need to accrue for the payment of penalties. The Corporation’s policy is to report interest related to unrecognized tax benefits in income tax expense, while the penalties, if any, are reported in other operating expenses in the consolidated statements of operations.

After consideration of the effect on U.S. federal tax of unrecognized U.S. state tax benefits, the total amount of unrecognized tax benefits, including U.S. and Puerto Rico, that if recognized, would affect the Corporation’s effective tax rate, was approximately $5.6 million at March 31, 2022 (December 31, 2021 - $5.5 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 March 31, 2022, the following years remain subject to examination in the U.S. Federal jurisdiction: 2018 and thereafter; and in the Puerto Rico jurisdiction, 2017 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 $1.4 million, including interest.

103

 

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

Additional disclosures on cash flow information and non-cash activities for the quarters ended March 31, 2022 and March 31, 2021 are listed in the following table:

 

 

 

 

 

 

(In thousands)

 

March 31, 2022

 

March 31, 2021

Non-cash activities:

 

 

 

 

Loans transferred to other real estate

$

18,647

$

2,900

Loans transferred to other property

 

13,425

 

13,029

Total loans transferred to foreclosed assets

 

32,072

 

15,929

Loans transferred to other assets

 

2,228

 

1,156

Financed sales of other real estate assets

 

2,109

 

3,206

Financed sales of other foreclosed assets

 

9,384

 

9,417

Total financed sales of foreclosed assets

 

11,493

 

12,623

Financed sale of premises and equipment

 

11,738

 

-

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

 

7,607

 

38,959

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

 

786

 

1,136

Loans securitized into investment securities[1]

 

142,702

 

188,268

Trades receivable from brokers and counterparties

 

60,186

 

70,965

Trades payable to brokers and counterparties

 

10,710

 

12,180

Recognition of mortgage servicing rights on securitizations or asset transfers

 

2,771

 

3,636

Loans booked under the GNMA buy-back option

 

4,961

 

7,393

Capitalization of lease right of use asset

 

3,689

 

1,774

[1]

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

 

 

 

 

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

 

 

 

(In thousands)

March 31, 2022

March 31, 2021

Cash and due from banks

$

381,658

$

489,084

Restricted cash and due from banks

 

57,490

 

6,831

Restricted cash in money market investments

 

6,300

 

6,110

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

$

445,448

$

502,025

[2]

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

104

 

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:

The Banco Popular de Puerto Rico reportable segment includes commercial, consumer and retail banking operations conducted at BPPR. It also includes the lending operations of Popular Auto and Popular Mortgage. Other financial services within the BPPR segment include the trust service units of BPPR, asset management services of Popular Asset Management, the brokerage and investment banking operations of Popular Securities, and the insurance agency and reinsurance businesses of Popular Insurance, Popular Risk Services, Popular Life Re, and Popular Re.

 

Popular U.S.:

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

 

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

105

 

2022

For the quarter ended March 31, 2022

 

 

 

 

Banco Popular

 

 

 

Intersegment

(In thousands)

 

 

 

de Puerto Rico

 

Popular U.S.

 

Eliminations

Net interest income

 

 

$

415,169

$

86,520

$

1

Provision for credit losses (benefit)

 

 

 

(13,690)

 

(2,019)

 

-

Non-interest income

 

 

 

135,862

 

5,954

 

(137)

Amortization of intangibles

 

 

 

484

 

407

 

-

Depreciation expense

 

 

 

11,517

 

1,824

 

-

Other operating expenses

 

 

 

334,878

 

53,639

 

(136)

Income tax expense

 

 

 

39,316

 

11,592

 

-

Net income

 

 

$

178,526

$

27,031

$

-

Segment assets

 

 

$

58,708,519

$

10,579,410

$

(167,754)

 

 

 

 

 

 

 

 

 

For the quarter ended March 31, 2022

 

 

Reportable

 

 

 

 

 

 

(In thousands)

 

Segments

 

Corporate

 

Eliminations

 

Total Popular, Inc.

Net interest income (expense)

$

501,690

$

(7,378)

$

-

$

494,312

Provision for credit losses (benefit)

 

(15,709)

 

209

 

-

 

(15,500)

Non-interest income

 

141,679

 

14,265

 

(1,252)

 

154,692

Amortization of intangibles

 

891

 

-

 

-

 

891

Depreciation expense

 

13,341

 

289

 

-

 

13,630

Other operating expenses

 

388,381

 

444

 

(1,007)

 

387,818

Income tax expense (benefit)

 

50,908

 

(332)

 

(97)

 

50,479

Net income

$

205,557

$

6,277

$

(148)

$

211,686

Segment assets

$

69,120,175

$

5,490,318

$

(5,085,411)

$

69,525,082

 

2021

For the quarter ended March 31, 2021

 

 

 

 

Banco Popular

 

 

 

Intersegment

(In thousands)

 

 

 

de Puerto Rico

 

Popular U.S.

 

Eliminations

Net interest income

 

 

$

410,323

$

79,169

$

2

Provision for credit losses (benefit)

 

 

 

(45,361)

 

(36,720)

 

-

Non-interest income

 

 

 

135,208

 

5,666

 

(138)

Amortization of intangibles

 

 

 

861

 

166

 

-

Depreciation expense

 

 

 

12,143

 

2,328

 

-

Other operating expenses

 

 

 

306,920

 

53,194

 

(136)

Income tax expense

 

 

 

58,813

 

18,035

 

-

Net income

 

 

$

212,155

$

47,832

$

-

Segment assets

 

 

$

55,990,801

$

10,557,751

$

(41,613)

 

 

 

 

 

 

 

 

 

For the quarter ended March 31, 2021

 

 

Reportable

 

 

 

 

 

 

(In thousands)

 

Segments

 

Corporate

 

Eliminations

 

Total Popular, Inc.

Net interest income (expense)

$

489,494

$

(10,382)

$

-

$

479,112

Provision for credit losses (benefit)

 

(82,081)

 

(145)

 

-

 

(82,226)

Non-interest income

 

140,736

 

13,150

 

(233)

 

153,653

Amortization of intangibles

 

1,027

 

24

 

-

 

1,051

Depreciation expense

 

14,471

 

267

 

-

 

14,738

Other operating expenses

 

359,978

 

670

 

(909)

 

359,739

Income tax expense (benefit)

 

76,848

 

(333)

 

316

 

76,831

Net income

$

259,987

$

2,285

$

360

$

262,632

Segment assets

$

66,506,939

$

5,193,058

$

(4,829,729)

$

66,870,268

106

 

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 March 31, 2022, the BPPR segment generated approximately $12.0 million (2021- $12.7 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 $10.8 million in revenues (2021- $11.6 million) from its operations in the U.S. and British Virgin Islands. At March 31, 2022, total assets for the BPPR segment related to its operations in the United States amounted to $700 million (December 31, 2021- $589 million).



Geographic Information

 

 

 

Quarter ended

(In thousands)

 

March 31, 2022

 

March 31, 2021

Revenues:[1]

 

 

 

 

Puerto Rico

$

527,673

$

518,709

United States

 

103,174

 

96,012

Other

 

18,157

 

18,044

Total consolidated revenues

$

649,004

$

632,765

[1]

Total revenues include net interest income, service charges on deposit accounts, other service fees, mortgage banking activities, net (loss) gain, including impairment on equity securities, net loss on trading account debt securities, indemnity reserves on loans sold expense and other operating income.

 

Selected Balance Sheet Information:

(In thousands)

 

March 31, 2022

 

December 31, 2021

Puerto Rico

 

 

 

 

 

Total assets

$

56,904,970

$

63,221,282

 

Loans

 

19,823,507

 

19,770,118

 

Deposits

 

53,004,727

 

57,211,608

United States

 

 

 

 

 

Total assets

$

11,234,624

$

10,986,055

 

Loans

 

9,201,713

 

8,903,493

 

Deposits

 

7,843,062

 

7,777,232

Other

 

 

 

 

 

Total assets

$

1,385,488

$

890,562

 

Loans

 

618,120

 

626,115

 

Deposits[1]

 

2,014,506

 

2,016,248

[1]

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

107

 

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 March 31, 2022, the Corporation had a 16.26% 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 ended March 31, 2022, the Corporation recorded $8.1 million in earnings from its investment in EVERTEC, which had a carrying amount of $120 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 ended March 31, 2022, the Corporation recorded $7.4 million in earnings from its investment in BHD León, which had a carrying amount of $185 million, as of the end of the quarter.

 

SIGNIFICANT EVENTS

 

Entry into Asset Purchase Agreement with Evertec; Renegotiation and Extension of Commercial Agreements

 

On February 24, 2022, the Corporation and Banco Popular de Puerto Rico (“BPPR”) entered into an Asset Purchase Agreement (the “Purchase Agreement”), with Evertec, Inc. (“EVERTEC”) and Evertec Group, LLC, a wholly owned subsidiary of EVERTEC (“EVERTEC Group”), pursuant to which BPPR will purchase from EVERTEC Group certain information technology and related assets currently used by EVERTEC to service certain of BPPR’s key channels (the “Acquired Assets”) under the Amended and Restated Master Service Agreement (the “MSA”), dated September 30, 2010, among the Corporation, BPPR and EVERTEC. In connection with the purchase of the Acquired Assets, BPPR will assume certain liabilities relating to the Acquired Assets (together with the purchase of the Acquired Assets, the “Transaction”). The Transaction is expected to close on or about June 30, 2022, subject to the satisfaction of certain closing conditions.

 

In connection with the consummation of the Transaction (the “Closing”), the Corporation will transfer to EVERTEC Group, as consideration for the Transaction, shares of EVERTEC’s common stock (“EVERTEC Common Stock”) having an aggregate value of approximately $197 million, subject to certain purchase price adjustments, based on a price per share of $42.84, which value was determined at the time of entering into the Purchase Agreement. As a result of this transfer, the Corporation expects that its percentage ownership of the outstanding shares of EVERTEC Common Stock will be reduced from its current level, which is approximately 16.2%, to approximately 10.5% immediately following the Closing. As part of the transaction, the Corporation has also agreed to reduce its voting interest in EVERTEC below 4.5%, whether through selling shares of EVERTEC Common Stock or a conversion of such shares into non-voting preferred stock. The Corporation expects to sell down its stake in EVERTEC below 4.5% following the closing and intends to return to shareholders, via common stock repurchases, the after-tax gains resulting from such sale, subject to the receipt of regulatory approvals.

 

Additionally, as part of the Closing, the Corporation and BPPR will also enter into with EVERTEC, among other commercial agreements, a Second Amended and Restated Master Services Agreement (the “Second A&R MSA”), pursuant to which EVERTEC Group will continue to provide various key information technology and various transaction processing services to the Corporation, BPPR and their respective subsidiaries, which services are provided under the currently effective MSA.

108

 

 

Capital Actions

 

On March 1, 2022 the Corporation announced that on February 28, 2022 it entered into an accelerated share repurchase agreement (the “ASR Agreement”) to repurchase an aggregate of $400 million of Popular’s common stock. Popular previously disclosed in a press release on January 12, 2022 its plan to repurchase up to $500 million of its common stock as part of its planned capital actions for 2022.

 

Under the terms of the ASR Agreement, on March 2, 2022 the Corporation made an initial payment of $400 million and received an initial delivery of 3,483,942 shares of Popular’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 $320 million in treasury stock and $80 million as a reduction of 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 2022.

 

Popular expects to execute during the remainder of the year, in the open market or in privately negotiated transactions, the remaining $100 million in common stock repurchases contemplated as part of the Corporation’s 2022 capital actions announced in January 2022. The timing and exact amount of such additional repurchases will be subject to various factors, including market conditions and the Corporation’s capital position and financial performance.

 

On February 23, 2022, the Corporation’s Board of Directors approved a quarterly cash dividend of $0.55 per share, an increase from the previous $0.45 per share quarterly dividend, on its outstanding common stock. The dividend was paid on April 1, 2022 to stockholders of record at the close of business on March 15, 2022.

OVERVIEW

Table 1 provides selected financial data and performance indicators for the quarters ended March 31, 2022 and 2021.

109

 

Table 1 - Financial highlights

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Condition Highlights

 

 

Ending Balances at

Average for the Quarter Ended [1]

(In thousands)

 

 

March 31, 2022

 

December 31, 2021

 

 

Variance

 

 

March 31, 2022

 

 

March 31, 2021

 

 

Variance

Money market investments

 

$

10,069,692

 

$

17,536,719

 

$

(7,467,027)

 

$

14,763,104

 

$

12,450,533

 

$

2,312,571

Investment securities

 

 

26,658,289

 

 

25,267,418

 

 

1,390,871

 

 

28,540,438

 

 

21,305,160

 

 

7,235,278

Loans

 

 

29,643,340

 

 

29,299,725

 

 

343,615

 

 

29,246,344

 

 

29,335,164

 

 

(88,820)

Earning assets

 

 

66,371,321

 

 

72,103,862

 

 

(5,732,541)

 

 

72,549,886

 

 

63,090,857

 

 

9,459,029

Total assets

 

 

69,525,082

 

 

75,097,899

 

 

(5,572,817)

 

 

75,628,669

 

 

66,086,263

 

 

9,542,406

Deposits

 

 

62,862,295

 

 

67,005,088

 

 

(4,142,793)

 

 

67,601,597

 

 

57,696,863

 

 

9,904,734

Borrowings

 

 

1,060,706

 

 

1,155,166

 

 

(94,460)

 

 

1,079,096

 

 

1,322,431

 

 

(243,335)

Stockholders’ equity

 

 

4,671,246

 

 

5,969,397

 

 

(1,298,151)

 

 

5,983,308

 

 

5,693,673

 

 

289,635

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Highlights

 

 

 

 

 

 

 

 

 

 

First Quarter

(In thousands, except per share information)

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

Variance

Net interest income

 

 

 

 

 

 

 

 

 

 

$

494,312

 

$

479,112

 

$

15,200

Provision for credit losses (benefit)

 

 

 

 

 

 

 

 

 

 

 

(15,500)

 

 

(82,226)

 

 

66,726

Non-interest income

 

 

 

 

 

 

 

 

 

 

 

154,692

 

 

153,653

 

 

1,039

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

402,339

 

 

375,528

 

 

26,811

Income before income tax

 

 

 

 

 

 

 

 

262,165

 

 

339,463

 

 

(77,298)

Income tax expense

 

 

 

 

 

 

 

 

 

 

 

50,479

 

 

76,831

 

 

(26,352)

Net income

 

 

 

 

 

 

 

 

 

 

$

211,686

 

$

262,632

 

$

(50,946)

Net income applicable to common stock

 

 

 

 

 

 

 

 

 

 

$

211,333

 

$

262,279

 

$

(50,946)

Net income per common share - basic

 

 

 

 

 

 

 

 

 

 

$

2.69

 

$

3.13

 

$

(0.44)

Net income per common share - diluted

 

 

 

 

 

 

 

 

 

 

$

2.69

 

$

3.12

 

$

(0.43)

Dividends declared per common share

 

 

 

 

 

 

 

 

 

 

$

0.55

 

$

0.40

 

$

0.15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Quarter

 

 

 

Selected Statistical Information

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

 

Common Stock Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

End market price

 

 

 

 

 

 

 

 

 

 

$

81.74

 

$

70.32

 

 

 

Book value per common share at period end

 

 

 

 

 

 

 

 

 

 

 

60.78

 

 

69.63

 

 

 

Profitability Ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on assets

 

 

 

 

 

 

 

 

 

 

 

1.14

%

 

1.61

%

 

Return on common equity

 

 

 

 

 

 

 

 

 

 

 

14.38

 

 

18.76

 

 

 

Net interest spread

 

 

 

 

 

 

 

 

 

 

 

2.69

 

 

2.96

 

 

 

Net interest spread (taxable equivalent) - Non-GAAP

 

 

 

 

 

 

 

 

2.98

 

 

3.28

 

 

 

Net interest margin

 

 

 

 

 

 

 

 

 

 

 

2.75

 

 

3.07

 

 

 

Net interest margin (taxable equivalent) - Non-GAAP

 

 

 

 

 

 

 

 

3.05

 

 

3.39

 

 

 

Capitalization Ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average equity to average assets

 

 

 

 

 

 

 

 

 

 

 

7.91

%

 

8.62

%

 

Common equity Tier 1 capital

 

 

 

 

 

 

 

 

 

 

 

16.26

 

 

17.08

 

 

 

Tier I capital

 

 

 

 

 

 

 

 

 

 

 

16.33

 

 

17.15

 

 

 

Total capital

 

 

 

 

 

 

 

 

 

 

 

18.19

 

 

19.62

 

 

 

Tier 1 leverage

 

 

 

 

 

 

 

 

 

 

 

6.98

 

 

8.06

 

 

 

110

 

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 Table 2, along with the reconciliation to net interest income (GAAP), for the quarter ended March 31, 2022 as compared with the same period in 2021, segregated by major categories of interest earning assets and interest-bearing liabilities.

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

Financial highlights for the quarter ended March 31, 2022

For the quarter ended March 31, 2022, the Corporation recorded net income of $ 211.7 million, compared to net income of $ 262.6 million for the same quarter of the previous year. Net interest margin for the first quarter of 2022 was 2.75%, a decrease of 32 basis points when compared to 3.07% for the same quarter of the previous year, mainly due to earning asset mix driven by higher money market and investment securities which carry a low yield, and lower interest from loans under the U.S. Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”), partially offset by lower cost of deposits. On a taxable equivalent basis, the net interest margin was of 3.05%, compared to 3.39% for the same quarter of the previous year. The Corporation recorded a release of $15.5 million on its reserve for credit losses, compared to a reserve release of $82.2 million in the same quarter of 2021, reflecting changes to the economic outlook, qualitative reserves, and portfolio credit quality. Non-interest income remained flat at $154.7 million at March 31, 2022, when compared to $153.7 million at March 31, 2021. Operating expenses were higher by $26.8 million principally due to higher personnel costs and professional fees.

Total assets at March 31, 2022 amounted to $69.5 billion, compared to $75.1 billion, at December 31, 2021. The decrease was mainly due to lower money market investments, partially offset by higher debt securities available-for-sale.

Total deposits at March 31, 2022 decreased by $4.1 billion when compared to deposits at December 31, 2021, mainly due to lower Puerto Rico public sector deposits by $5.5 billion at BPPR as a result of the payments made by Puerto Rico pursuant to the Plan of Adjustment for Puerto Rico under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”).

 

Total stockholders' equity decreased by $1.3 billion when compared to December 31, 2021, principally due to an increase in accumulated unrealized losses on debt securities available-for-sale by $1.1 billion due to a decline in fair value of fixed-rate debt securities as a result of the rising interest rate environment, the impact of the $400 million ASR and declared quarterly common stock dividends, partially offset by the net income of $211.7 million for the quarter.

At March 31, 2022, the Corporation’s tangible book value per common share was $51.16.

Capital ratios continued to be strong. As of March 31, 2022, the Corporation’s common equity tier 1 capital ratio was 16.26%, the tier 1 leverage ratio was 6.98%, and the total capital ratio was 18.19%. Refer to Table 7 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.

111

 

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

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

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

The description of the Corporation’s business contained in Item 1 of the Corporation’s 2021 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 2021 Form 10-K and “Part II - Item 1A” of this Form 10-Q for a discussion of certain risks and uncertainties to which the Corporation is subject, many beyond the Corporation’s control that, in addition to the other information in this Form 10-Q, readers should consider.

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

 

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 2021 Form 10-K. Also, refer to Note 2 to the Consolidated Financial Statements included in the 2021 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.

112

 

OPERATING RESULTS ANALYSIS

NET INTEREST INCOME

Net interest income for the first quarter of 2022 was $494.3 million, an increase of $15.2 million when compared to $479.1 million for the same quarter of 2021. Taxable equivalent net interest income was $548.1 million for the first quarter of 2022 compared to $529.8 million in the first quarter of 2021, an increase of $18.3 million.

Net interest margin for the first quarter of 2022 was 2.75%, a decrease of 32 basis points when compared to 3.07% for the same quarter of the previous year. The decrease in the net interest margin is driven by earning asset mix due to a higher proportion of money market and investment securities, resulting from a higher volume of deposits in the quarter, and lower loan fees related to SBA PPP loans, partially offset by a lower cost of deposits. The net interest margin, on a taxable equivalent basis, for the first quarter of 2022 was 3.05%, a decrease of 34 basis points when compared to 3.39% for the same quarter of 2021. The detailed variances of the increase in net interest income are described below:

Positive variances:

Higher interest income from money market, investment, and trading securities by $17.0 million due a higher volume by $9.5 billion due to purchases of U.S. Treasury securities and a higher volume of money market investments. The increase is associated to a higher volume of deposits of a similar amount. The yield of the portfolio decreased by 17 basis points due to investments in a lower interest rate environment and maturities of higher yielding mortgage-backed securities, partially offset by a higher interest rate received on excess reserves at the Federal Reserve by 8 basis points

The average auto and lease financing portfolios increased by $435.0 million and reflected higher interest income by $3.5 million driven by a sustained demand for automobiles; and

Lower interest expense on deposits due to the decrease in interest cost by 8 basis points, mainly at Popular Bank., as a result of the low interest rate environment that has prevailed since March 2020. In the U.S. the cost of interest-bearing deposits decreased 20 basis points when compared to the same quarter in 2021 and in P.R. the decrease was 5 basis points. The impact from lower rates was partially offset by higher average balance of interest-bearing deposits by $7.2 billon when compared with the same quarter in 2021. The Corporation reported increase in most deposits categories in P.R. including public, commercial and retail deposits;

Partially offset by:

Lower interest income from commercial loans by $6.9 billion resulting from lower PPP loan fees by $12.5 million, partially offset by a higher volume by $117.0 million. The increase in volume over the same quarter in 2021 was mostly in Popular Bank as the BPPR portfolio decreased mainly as a result of the repayment of PPP loans; and

Lower interest expense on medium and long-term debt due to redemption, in the fourth quarter of 2021, of all outstanding 6.70% Cumulative Monthly Income Trust Preferred Securities ($186.7 million).

Prepayment penalties, late fees collected and the amortization of premiums on purchased loans are included as part of the loan yield. Interest income related to these items for the quarters ended March 31, 2022 and 2021 amounted to $16.3 million and $33.7 million, respectively. The decrease of $17.4 million is mainly related to lower amortized fees resulting from the forgiveness of PPP loans of $10.0 million compared to $20.0 million in the first quarter of 2021 and lower amortization of the fair value discount of loan portfolios acquired in previous years.

 

113

 

 

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

 

Quarter ended March 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variance

 

Average Volume

 

Average Yields / Costs

 

 

 

Interest

 

Attributable to

 

2022

 

2021

Variance

 

2022

 

2021

 

Variance

 

 

 

 

 

2022

 

2021

 

Variance

 

Rate

 

Volume

 

(In millions)

 

 

 

 

 

 

 

 

 

 

(In thousands)

$

14,763

$

12,451

$

2,312

 

0.18

%

0.10

%

0.08

%

 

Money market investments

$

6,464

$

3,112

$

3,352

$

2,688

$

664

 

28,471

 

21,221

 

7,250

 

1.95

 

2.35

 

(0.40)

 

 

Investment securities [1]

 

137,350

 

123,665

 

13,685

 

(17,819)

 

31,504

 

70

 

84

 

(14)

 

5.90

 

4.96

 

0.94

 

 

Trading securities

 

1,019

 

1,033

 

(14)

 

178

 

(192)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total money market,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

investment and trading

 

 

 

 

 

 

 

 

 

 

 

43,304

 

33,756

 

9,548

 

1.35

 

1.52

 

(0.17)

 

 

 

securities

 

144,833

 

127,810

 

17,023

 

(14,953)

 

31,976

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

13,741

 

13,624

 

117

 

5.08

 

5.33

 

(0.25)

 

 

 

Commercial

 

172,128

 

179,064

 

(6,936)

 

(8,460)

 

1,524

 

727

 

911

 

(184)

 

5.45

 

5.30

 

0.15

 

 

 

Construction

 

9,758

 

11,901

 

(2,143)

 

332

 

(2,475)

 

1,393

 

1,215

 

178

 

5.95

 

6.04

 

(0.09)

 

 

 

Leasing

 

20,720

 

18,354

 

2,366

 

(274)

 

2,640

 

7,388

 

7,869

 

(481)

 

5.24

 

5.00

 

0.24

 

 

 

Mortgage

 

96,768

 

98,429

 

(1,661)

 

4,513

 

(6,174)

 

2,537

 

2,513

 

24

 

11.20

 

11.36

 

(0.16)

 

 

 

Consumer

 

70,062

 

70,401

 

(339)

 

(1,334)

 

995

 

3,460

 

3,203

 

257

 

8.12

 

8.63

 

(0.51)

 

 

 

Auto

 

69,252

 

68,152

 

1,100

 

(4,192)

 

5,292

 

29,246

 

29,335

 

(89)

 

6.06

 

6.15

 

(0.09)

 

 

Total loans

 

438,688

 

446,301

 

(7,613)

 

(9,415)

 

1,802

$

72,550

$

63,091

$

9,459

 

3.25

%

3.67

%

(0.42)

%

 

Total earning assets

$

583,521

$

574,111

$

9,410

$

(24,368)

$

33,778

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

$

28,288

$

22,674

$

5,614

 

0.10

%

0.15

%

(0.05)

%

 

 

NOW and money market [2]

$

7,323

$

8,262

$

(939)

$

(2,661)

$

1,722

 

16,434

 

14,364

 

2,070

 

0.16

 

0.20

 

(0.04)

 

 

 

Savings

 

6,564

 

7,020

 

(456)

 

(1,633)

 

1,177

 

6,737

 

7,265

 

(528)

 

0.66

 

0.83

 

(0.17)

 

 

 

Time deposits

 

10,896

 

14,919

 

(4,023)

 

(2,649)

 

(1,374)

 

51,459

 

44,303

 

7,156

 

0.20

 

0.28

 

(0.08)

 

 

Total interest bearing deposits

 

24,783

 

30,201

 

(5,418)

 

(6,943)

 

1,525

 

91

 

98

 

(7)

 

0.36

 

0.59

 

(0.23)

 

 

Short-term borrowings

 

80

 

143

 

(63)

 

(51)

 

(12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other medium and

 

 

 

 

 

 

 

 

 

 

 

1,013

 

1,246

 

(233)

 

4.18

 

4.51

 

(0.33)

 

 

 

long-term debt

 

10,546

 

13,995

 

(3,449)

 

(268)

 

(3,181)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest bearing

 

 

 

 

 

 

 

 

 

 

 

52,563

 

45,647

 

6,916

 

0.27

 

0.39

 

(0.12)

 

 

 

liabilities

 

35,409

 

44,339

 

(8,930)

 

(7,262)

 

(1,668)

 

16,143

 

13,394

 

2,749

 

 

 

 

 

 

 

 

Demand deposits

 

 

 

 

 

 

 

 

 

 

 

3,844

 

4,050

 

(206)

 

 

 

 

 

 

 

 

Other sources of funds

 

 

 

 

 

 

 

 

 

 

$

72,550

$

63,091

$

9,459

 

0.20

%

0.28

%

(0.08)

%

 

Total source of funds

 

35,409

 

44,339

 

(8,930)

 

(7,262)

 

(1,668)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin/

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.05

%

3.39

%

(0.34)

%

 

 

income on a taxable equivalent basis (Non-GAAP)

 

548,112

 

529,772

 

18,340

$

(17,106)

$

35,446

 

 

 

 

 

 

 

2.98

%

3.28

%

(0.30)

%

 

Net interest spread

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable equivalent adjustment

 

53,800

 

50,661

 

3,139

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin/ income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.75

%

3.07

%

(0.32)

%

 

 

non-taxable equivalent basis (GAAP)

$

494,312

$

479,111

$

15,201

 

 

 

 

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.

114

 

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

For the quarter ended March 31, 2022, the Corporation recorded a release of $15.2 million for its reserve for credit losses related to loans held-in-portfolio and unfunded commitments. The reserve release related to the loans-held-in-portfolio for the quarter ended March 31, 2022 was $14.4 million, compared to a reserve release of $75.8 million for the quarter ended March 31, 2021. The reserve release reflects the improvements in credit quality, changes in the macroeconomic outlook, and changes in qualitative reserves. The reserve release related to unfunded commitments for the first quarter of 2022 was $0.8 million, compared to a reserve release of $6.3 million for the same period of 2021.

 

For the quarter ended March 31, 2022, the Corporation recorded a release of $12.7 million of its reserve for loans-held-in-portfolio for the BPPR segment, compared to a reserve release of $40.0 million for the quarter ended March 31, 2021. The Popular U.S. segment recorded a reserve release of $1.7 million for the quarter ended March 31, 2022, compared to a reserve release of $35.8 million for the same quarter in 2021.

 

At March 31, 2022, the total allowance for credit losses for loans held-in-portfolio amounted to $677.8 million, compared to $695.4 million as of December 31, 2021. The ratio of the allowance for credit losses to loans held-in-portfolio was 2.29% at March 31, 2022, compared to 2.38% at December 31, 2021. As discussed in Note 8 to the Consolidated Financial Statements, within the process to estimate its allowance for credit losses (“ACL”), the Corporation applies probability weightings to the outcomes of simulations using Moody’s Analytics’ Baseline, S3 (pessimistic) and S1 (optimistic) scenarios. The baseline scenario is assigned the highest probability, followed by the pessimistic scenario given the uncertainties in the economic outlook and downside risk. Refer to Note 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 ended March 31, 2022, the Corporation recorded a reserve release of $0.3 million, compared to a benefit of $0.2 million for the quarter ended March 31, 2021. At March 31, 2022, the total allowance for credit losses for this portfolio amounted to $7.8 million, compared to $8.1 million as of December 31, 2021. Refer to Note 6 to Consolidated Financial Statements for additional information on the ACL for this portfolio.

 

115

 

Non-Interest Income

 

Non-interest income was $154.7 million for the first quarter of 2022, an increase of $1.0 million when compared with the same quarter of the previous year. The increase in non-interest income was primarily driven by:

 

higher other service fees by $6.5 million mainly due to higher credit card fees by $5.0 million as a result of higher interchange transactional volumes; and

 

higher other operating income by $1.2 million mainly due to higher net earnings from the combined portfolio of investments under the equity method;

 

partially offset by

 

lower income from mortgage banking activities by $4.5 million mainly due to an unfavorable variance of $6.5 million in net gains (losses) on the sale and valuation adjustments of mortgage loans due to changes in market rates, partially offset by higher realized gains on closed derivative positions; and

 

an unfavorable variance in unrealized net gains on equity securities by $2.5 million mainly on deferred compensation plans that have an offsetting expense in personnel related expenses.

 

 

Operating Expenses

 

Operating expenses for the quarter ended March 31, 2022 increased by $26.8 million when compared with the same quarter of 2021, driven primarily by:

higher personnel cost by $7.5 million mainly related to higher salaries by $9.3 million due to merit increases and minimum salary adjustments and higher pension, postretirement and medical insurance expense by $1.9 million; partially offset by $3.2 million in lower incentives related to the profit-sharing plan which is tied to the Corporation’s financial performance;

higher equipment expense by $1.9 million due to higher amortization of software packages;

higher professional fees by $8.5 million due to higher advisory expenses related to corporate initiatives;

higher business promotions by $2.6 million due to credit cards rewards expense as a result of transactional volumes;

lower net recoveries from other real estate owned by $1.8 million mainly due to higher corporate advances in mortgage properties; and

higher operating expenses by $3.4 million mainly due to higher legal reserves.

116

 

Table 3 - Operating Expenses

 

 

 

 

 

 

 

 

 

Quarters ended March 31,

(In thousands)

 

2022

 

2021

 

Variance

Personnel costs:

 

 

 

 

 

 

 

 

 

 

Salaries

 

$

98,673

 

$

89,335

 

$

9,338

 

Commissions, incentives and other bonuses

 

 

31,339

 

 

33,218

 

 

(1,879)

 

Pension, postretirement and medical insurance

 

 

12,783

 

 

10,924

 

 

1,859

 

Other personnel costs, including payroll taxes

 

 

24,201

 

 

26,002

 

 

(1,801)

 

Total personnel costs

 

 

166,996

 

 

159,479

 

 

7,517

Net occupancy expenses

 

 

24,723

 

 

26,013

 

 

(1,290)

Equipment expenses

 

 

23,479

 

 

21,575

 

 

1,904

Other taxes

 

 

15,715

 

 

13,959

 

 

1,756

Professional fees:

 

 

 

 

 

 

 

 

 

 

Collections, appraisals and other credit related fees

 

 

2,226

 

 

3,320

 

 

(1,094)

 

Programming, processing and other technology services

 

 

69,374

 

 

66,366

 

 

3,008

 

Legal fees, excluding collections

 

3,954

 

 

2,365

 

 

1,589

 

Other professional fees

 

 

32,943

 

 

27,897

 

 

5,046

 

Total professional fees

 

 

108,497

 

 

99,948

 

 

8,549

Communications

 

 

6,147

 

 

6,833

 

 

(686)

Business promotion

 

 

15,083

 

 

12,521

 

 

2,562

FDIC deposit insurance

 

 

7,372

 

 

5,968

 

 

1,404

Other real estate owned (OREO) (income) expenses

 

 

(2,713)

 

 

(4,533)

 

 

1,820

Other operating expenses:

 

 

 

 

 

 

 

 

 

 

Credit and debit card processing, volume and interchange expenses

 

 

12,509

 

 

12,454

 

 

55

 

Operational losses

 

 

11,825

 

 

7,896

 

 

3,929

 

All other

 

 

11,815

 

 

12,364

 

 

(549)

 

Total other operating expenses

 

 

36,149

 

 

32,714

 

 

3,435

Amortization of intangibles

 

 

891

 

 

1,051

 

 

(160)

Total operating expenses

 

$

402,339

 

$

375,528

 

$

26,811

 

Income Taxes

For the quarter ended March 31, 2022, the Corporation recorded an income tax expense of $50.5 million with an effective tax rate (“ETR”) of 19%, compared to $76.8 million with an ETR of 23% for the same period of 2021. The income tax expense for the quarter ended March 31, 2022 reflects the impact of lower pre-tax income and higher tax exempt income.

 

At March 31, 2022, the Corporation had a net deferred tax asset amounting to $0.8 billion, net of a valuation allowance of $0.5 billion. The net deferred tax asset related to the U.S. operations was $0.2 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.

 

117

 

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 $6.3 million for the quarter ended March 31, 2022, compared with a net income of $2.3 million for the same quarter of the previous year. The increase in net income was mainly attributed to lower interest expense related to the redemption of $186.7 million in Trust Preferred Securities issued by Popular Capital Trust I in the fourth quarter of 2021 and 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 $178.5 million for the quarter ended March 31, 2022, compared with net income of $212.2 million for the same quarter of the previous year. The decrease in net income was principally driven by the following:

 

Higher net interest income by $4.8 million mainly due to:

 

higher interest income from money market and investment securities by $15.6 million due to higher average balances of U.S. Treasury securities, offset by lower yields due to changes in market rates;

 

lower interest expense on deposits by $2.1 million mainly due to lower costs, partially offset by higher average balance of deposits;

 

partially offset by

 

lower interest income from loans by $13.0 million mainly from commercial loans due to lower fees from PPP loans.

 

 

The net interest margin for the quarter ended March 31, 2022 was 2.67% compared to 3.10% 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.

 

 

Non-interest income was higher by $0.8 million mainly due to:

 

Higher other service fees by $6.8 million mainly due to higher credit card fees as a result of higher interchange transactional volumes;

 

partially offset by

 

lower income from mortgage banking activities by $4.3 million mainly due to an unfavorable variance in net gains (losses) on the sale and valuation adjustments of mortgage loans due to changes in market rates, partially offset by higher realized gains on closed derivative positions; and

 

 

lower other operating income by $1.6 million mostly due to a gain of $0.9 million from the sale of fully charged off consumer loans in the first quarter of 2021.

118

 

 

 

Higher operating expenses by $27.1 million mostly due to:

 

Higher personnel costs by $7.1 million driven by higher salaries due to merit increases and minimum salary adjustments;

 

higher other taxes by $2.0 million, mainly form personal property taxes;

 

higher business promotions by $2.6 million due to credit cards rewards expense as a result higher transactional volumes;

 

lower net recoveries from OREO by $1.7 million mainly due to higher corporate advances in mortgage properties; and

 

higher other operating expenses by $12.8 million due to higher charges allocated from the Corporate segment, mainly advisory services, and higher legal reserves.

 

 

Lower income tax expense by $19.5 million mainly due to lower income before tax and higher tax-exempt income.

 

 

 

Popular U.S.

 

For the quarter ended March 31, 2022, the reportable segment of Popular U.S. reported a net income of $27.0 million, compared with a net income of $47.8 million for the same quarter of the previous year. The decrease in net income was principally driven by the benefit of $36.7 million in the reserve for credit losses and unfunded commitments recorded in the quarter ended March 31, 2021, compared to a benefit of $2.0 million recorded in the current quarter. The factors that contributed to the variance in the financial results included the following:

 

Higher net interest income by $7.4 million due to:

 

higher interest income from loans by $5.3 million, mainly from growth in the commercial portfolio; and

 

lower interest expense on deposits by $3.2 million mainly due to lower interest rates and lower average balance of time deposits.

 

partially offset by:

 

lower income from debt securities by $1.5 million due to lower average balances.

 

The net interest margin for the quarter ended March 31, 2022 was 3.56% compared to 3.35% for the same quarter in the previous year.

 

an unfavorable variance of $34.7 million on the provision for loan losses and unfunded commitments due to the above-mentioned reserve release of $36.7 million recorded in the quarter ended March 31, 2021, reflective of credit metrics and the macroeconomic outlook;

 

non-interest income and operating expenses were relatively flat when compared to the quarter ended March 31, 2021;

 

lower income tax expense by $6.4 million due mainly to a lower income before tax.

119

 

FINANCIAL CONDITION ANALYSIS

Assets

The Corporation’s total assets were $69.5 billion at March 31, 2022, compared to $75.1 billion at December 31, 2021. 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 decreased by $7.5 billion mainly due to lower Puerto Rico public sector deposits. Debt securities available-for-sale increased by $1.4 billion at March 31, 2022, due to purchases of U.S. Treasury securities. 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 4 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 increased by $0.3 billion to $29.6 billion at March 31, 2022, mainly due to an increase in commercial loans at both BPPR and PB by $0.3 billion.

 

 

 

Table 4 - Loans Ending Balances

 

 

 

 

(In thousands)

 

March 31, 2022

 

December 31, 2021

 

Variance

Loans held-in-portfolio:

 

 

 

 

 

 

Commercial

$

14,028,246

$

13,732,701

$

295,545

Construction

 

744,783

 

716,220

 

28,563

Leasing

 

1,426,122

 

1,381,319

 

44,803

Mortgage

 

7,326,346

 

7,427,196

 

(100,850)

Auto

 

3,430,162

 

3,412,187

 

17,975

Consumer

 

2,632,531

 

2,570,934

 

61,597

Total loans held-in-portfolio

$

29,588,190

$

29,240,557

$

347,633

Loans held-for-sale:

 

 

 

 

 

 

Mortgage

$

55,150

$

59,168

$

(4,018)

Total loans held-for-sale

$

55,150

$

59,168

$

(4,018)

Total loans

$

29,643,340

$

29,299,725

$

343,615

120

 

Other assets

Other assets amounted to $1.8 billion at March 31, 2022, compared to $1.6 billion at December 31, 2021. Refer to Note 12 to the Consolidated Financial Statements for a breakdown of the principal categories that comprise the caption of “Other Assets” in the Consolidated Statements of Financial Condition at March 31, 2022 and December 31, 2021.

 

Liabilities

The Corporation’s total liabilities were $64.9 billion at March 31, 2022, a decrease of $4.2 billion, compared to $69.1 billion at December 31, 2021, mainly due to lower deposits as discussed below.

 

Deposits and Borrowings

The composition of the Corporation’s financing to total assets at March 31, 2022 and December 31, 2021 is included in Table 5.

 

Table 5 - Financing to Total Assets

 

 

 

 

 

 

 

March 31,

December 31,

% increase (decrease)

 

% of total assets

(In millions)

 

2022

 

2021

from 2020 to 2021

 

2022

 

2021

 

Non-interest bearing deposits

$

16,097

$

15,684

2.6

%

23.2

%

20.9

%

Interest-bearing core deposits

 

42,911

 

47,954

(10.5)

 

61.7

 

63.9

 

Other interest-bearing deposits

 

3,854

 

3,367

14.5

 

5.6

 

4.5

 

Repurchase agreements

 

73

 

92

(20.7)

 

0.1

 

0.1

 

Other short-term borrowings

 

-

 

75

N.M.

 

-

 

0.1

 

Notes payable

 

988

 

989

(0.1)

 

1.4

 

1.3

 

Other liabilities

 

931

 

968

(3.8)

 

1.3

 

1.3

 

Stockholders’ equity

 

4,671

 

5,969

(21.7)

 

6.7

 

7.9

 

 

Deposits

 

 

The Corporation’s deposits totaled $62.9 billion at March 31, 2022, compared to $67.0 billion at December 31, 2021. The deposits decrease of $4.1 billion was mainly due to lower Puerto Rico public sector deposits by $5.5 billion at BPPR, as a result of the payments made by Puerto Rico pursuant to the Plan of Adjustment for Puerto Rico under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) which became effective on March 15, 2022. At March 31, 2022, public sector deposits amounted to $14.8 billion. The receipt by the Puerto Rico Government of additional COVID-19 pandemic and hurricane recovery related Federal assistance, and seasonal tax collections, could increase public deposit balances at BPPR in the near term. However, the rate at which public deposit balances may decline is uncertain and difficult to predict. The amount and timing of any such reduction is likely to be impacted by, for example, the speed at which COVID-19 pandemic and hurricane recovery federal assistance is distributed and the financial condition, liquidity and cash management practices of the Puerto Rico Government and its instrumentalities. During the quarter ended March 31, 2022, approximately $10.1 billion were withdrawn from the public sector deposits held by the Bank to make debt service payments and other administrative payments pursuant to the Plan of Adjustment for Puerto Rico.

 

Refer to Table 6 for a breakdown of the Corporation’s deposits at March 31, 2022 and December 31, 2021.

121

 

Table 6 - Deposits Ending Balances

(In thousands)

March 31, 2022

 

December 31, 2021

 

Variance

Demand deposits [1]

$

25,684,715

 

$

25,889,732

 

$

(205,017)

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

 

29,318,333

 

 

33,674,134

 

 

(4,355,801)

Savings, NOW and money market deposits (brokered)

 

768,558

 

 

729,073

 

 

39,485

Time deposits (non-brokered)

 

6,964,848

 

 

6,685,938

 

 

278,910

Time deposits (brokered CDs)

 

125,841

 

 

26,211

 

 

99,630

Total deposits

$

62,862,295

 

$

67,005,088

 

$

(4,142,793)

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

 

Borrowings

The Corporation’s borrowings totaled $1.1 billion at March 31, 2022 and December 31, 2021. 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.

 

Stockholders’ Equity

 

Stockholders’ equity totaled $4.7 billion at March 31, 2022, a decrease of $1.3 billion when compared to December 31, 2021, principally due to an increase in accumulated unrealized losses on debt securities available-for-sale by $1.1 billion due to a decline in fair value of fixed-rate debt securities as a result of the rising interest rate environment, the impact of the $400 million ASR and declared quarterly common stock dividends, partially offset by the net income of $211.7 million for the quarter. Refer to the Consolidated Statements of Financial Condition, Comprehensive Income and of Changes in Stockholders’ Equity for information on the composition of stockholders’ equity.

 

122

 

REGULATORY CAPITAL

 

The Corporation, BPPR and PB are subject to regulatory capital requirements established by the Federal Reserve Board. The risk-based capital standards applicable to the Corporation, BPPR and PB (“Basel III capital rules”) are based on the final capital framework for strengthening international capital standards, known as Basel III, of the Basel Committee on Banking Supervision. As of March 31, 2022, 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 7, which include common equity tier 1, Tier 1 capital, total capital and leverage capital as of March 31, 2022 and December 31, 2021.

 

Table 7 - Capital Adequacy Data

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

March 31, 2022

 

 

December 31, 2021

 

Common equity tier 1 capital:

 

 

 

 

 

 

 

Common stockholders equity - GAAP basis

$

4,649,103

 

$

5,947,254

 

 

CECL transitional amount [1]

 

127,127

 

 

169,502

 

 

AOCI related adjustments due to opt-out election

 

1,327,073

 

 

257,762

 

 

Goodwill, net of associated deferred tax liability (DTL)

 

(590,227)

 

 

(591,703)

 

 

Intangible assets, net of associated DTLs

 

(15,328)

 

 

(16,219)

 

 

Deferred tax assets and other deductions

 

(280,547)

 

 

(290,565)

 

Common equity tier 1 capital

$

5,217,201

 

$

5,476,031

 

Additional tier 1 capital:

 

 

 

 

 

 

 

Preferred stock

 

22,143

 

 

22,143

 

Additional tier 1 capital

$

22,143

 

$

22,143

 

Tier 1 capital

$

5,239,344

 

$

5,498,174

 

Tier 2 capital:

 

 

 

 

 

 

 

Trust preferred securities subject to phase in as tier 2

 

192,674

 

 

192,674

 

 

Other inclusions (deductions), net

 

401,719

 

 

393,257

 

Tier 2 capital

$

594,393

 

$

585,931

 

Total risk-based capital

$

5,833,737

 

$

6,084,105

 

Minimum total capital requirement to be well capitalized

$

3,207,795

 

$

3,144,122

 

Excess total capital over minimum well capitalized

$

2,625,943

 

$

2,939,983

 

Total risk-weighted assets

$

32,077,945

 

$

31,441,224

 

Total assets for leverage ratio

$

75,053,225

 

$

74,238,367

 

Risk-based capital ratios:

 

Common equity tier 1 capital

 

16.26

%

 

17.42

%

Tier 1 capital

 

16.33

 

 

17.49

 

 

Total capital

 

18.19

 

 

19.35

 

 

Tier 1 leverage

6.98

 

 

7.41

 

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

123

 

The Basel III capital rules provide that a depository institution will be deemed to be well capitalized if it maintains a leverage ratio of at least 5%, a common equity Tier 1 ratio of at least 6.5%, a Tier 1 capital ratio of at least 8% and a total risk-based ratio of at least 10%. Management has determined that as of March 31, 2022, the Corporation, BPPR and PB continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules.

 

Pursuant to the adoption of the CECL accounting standard on January 1, 2020, the Corporation elected to use the five-year transition period option as provided in the final interim regulatory capital rules effective March 31, 2020. The five-year transition period provision delays for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay. As of March 31, 2022, the Corporation had phased-in 25% of the cumulative CECL deferral with the remaining impact to be recognized over the remainder of the three-year transition period.

 

On April 9, 2020, federal banking regulators issued an interim final rule to modify the Basel III regulatory capital rules applicable to banking organizations to allow those organizations participating in the Paycheck Protection Program (“PPP”) established under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) to neutralize the regulatory capital effects of participating in the program. Specifically, the agencies have clarified that banking organizations, including the Corporation and its Bank subsidiaries, are permitted to assign a zero percent risk weight to PPP loans for purposes of determining risk-weighted assets and risk-based capital ratios. Additionally, in order to facilitate use of the Paycheck Protection Program Liquidity Facility (the “PPPL Facility”), which provides Federal Reserve Bank loans to eligible financial institutions such as the Corporation’s Bank subsidiaries to fund PPP loans, the agencies further clarified that, for purposes of determining leverage ratios, a banking organization is permitted to exclude from total average assets PPP loans that have been pledged as collateral for a PPPL Facility. As of March 31, 2022, the Corporation has $173 million in PPP loans and no loans were pledge as collateral for PPPL Facilities.

 

The decrease in the common equity Tier I capital ratio, Tier I capital ratio, and total capital ratio as of March 31, 2022 as compared to December 31, 2021 was mainly attributed to the accelerated share repurchase agreement to repurchase an aggregate of $400 million of Popular’s common stock, and an increase in risk-weighted assets driven by the growth in the commercial loans portfolio, partially offset by the three month period earnings. The decrease in leverage capital ratio was mainly due to the increase in average total assets, which mostly did not have a significant impact on the risk-weighted assets.

 

124

 

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 8 provides a reconciliation of total stockholders’ equity to tangible common equity and total assets to tangible assets as of March 31, 2022, and December 31, 2021.

 

Table 8 - Reconciliation of Tangible Common Equity and Tangible Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands, except share or per share information)

 

 

March 31, 2022

 

 

 

December 31, 2021

 

Total stockholders’ equity

 

$

4,671,246

 

 

$

5,969,397

 

Less: Preferred stock

 

 

(22,143)

 

 

 

(22,143)

 

Less: Goodwill

 

 

(720,293)

 

 

 

(720,293)

 

Less: Other intangibles

 

 

(15,328)

 

 

 

(16,219)

 

Total tangible common equity

 

$

3,913,482

 

 

$

5,210,742

 

Total assets

 

$

69,525,082

 

 

$

75,097,899

 

Less: Goodwill

 

 

(720,293)

 

 

 

(720,293)

 

Less: Other intangibles

 

 

(15,328)

 

 

 

(16,219)

 

Total tangible assets

 

$

68,789,461

 

 

$

74,361,387

 

Tangible common equity to tangible assets

 

 

5.69

%

 

 

7.01

%

Common shares outstanding at end of period

 

 

76,487,523

 

 

 

79,851,169

 

Tangible book value per common share

 

$

51.16

 

 

$

65.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarterly average

 

Total stockholders’ equity [1]

 

$

5,983,309

 

 

$

5,961,214

 

Less: Preferred Stock

 

 

(22,143)

 

 

 

(22,143)

 

Less: Goodwill

 

 

(720,292)

 

 

 

(706,184)

 

Less: Other intangibles

 

 

(15,881)

 

 

 

(19,889)

 

Total tangible common equity

 

$

5,224,993

 

 

$

5,212,998

 

Return on average tangible common equity

 

 

16.40

%

 

 

15.66

%

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

125

 

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 to the Consolidated Financial Statements for further information on the debt securities available-for-sale and held-to-maturity portfolios. Debt securities classified as available-for-sale amounted to $26.4 billion as of March 31, 2022. Other assets subject to market risk include loans held-for-sale, which amounted to $55 million, mortgage servicing rights (“MSRs”) which amounted to $125 million and securities classified as “trading”, which amounted to $36 million, as of March 31, 2022.

Interest Rate Risk (“IRR”)

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

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

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

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

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

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

The Corporation processes NII simulations under interest rate scenarios in which the yield curve is assumed to rise and decline by the same magnitude (parallel shifts). The rate scenarios considered in these market risk simulations reflect instantaneous parallel changes of -100, -200, +100, +200 and +400 basis points during the succeeding twelve-month period. Simulation analyses are based on many assumptions, including relative levels of market interest rates across all yield curve points and indexes, interest rate spreads, loan prepayments and deposit elasticity. Thus, they should not be relied upon as indicative of actual results. Further, the estimates do not contemplate actions that management could take to respond to changes in interest rates. By their nature, these forward-looking computations are only estimates and may be different from what may actually occur in the future. The following table presents the results of the simulations at March 31, 2022 and December 31, 2021, assuming a static balance sheet and parallel changes over flat spot rates over a one-year time horizon:

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Table 9 - Net Interest Income Sensitivity (One Year Projection)

 

March 31, 2022

 

 

December 31, 2021

(Dollars in thousands)

 

Amount Change

Percent Change

 

 

Amount Change

Percent Change

 

Change in interest rate

 

 

 

 

 

 

 

 

+400 basis points

$

125,033

6.13

%

$

257,223

13.21

%

+200 basis points

 

84,308

4.14

 

 

197,354

10.14

 

+100 basis points

 

66,244

3.25

 

 

166,920

8.57

 

-100 basis points

 

(90,493)

(4.44)

 

 

(78,408)

(4.03)

 

-200 basis points

 

(143,311)

(7.03)

 

 

(120,661)

(6.20)

 

 

As of March 31, 2022, NII simulations show the Corporation maintains an asset sensitive position and is expected to benefit from an overall rising rate environment. The decrease in sensitivity for the period in rising rate scenarios is primarily driven by the reduction of $7.5 billion in money market investments due to lower Puerto Rico public sector deposits as a result of the payments made by Puerto Rico pursuant to the Plan of Adjustment for Puerto Rico under Title III of PROMESA. This reduction in assets that re-price instantaneously when the Federal Reserve adjusts its short term rates was the main contributor to the change in sensitivity. This affects the rising rate scenarios because there are fewer assets that re-price upwards in the simulation horizon thus producing less income than previously simulated. The declining rate scenarios would typically be affected in the opposite direction, but since short term rates were still close to zero at the end of the quarter, the sensitivity effect on these assets is muted in both declining rate scenarios. The slight increase in sensitivity to down rate scenarios is due to rates in the intermediate part of the yield curve being significantly higher at quarter end, and thus being able to fall further in the declining rate scenarios, therefore negatively affecting the assets that reprice based on the other points of the yield curve.

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

 

Trading

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

At March 31, 2022, the Corporation held trading securities with a fair value of $36 million, representing approximately 0.05% of the Corporation’s total assets, compared with $30 million and 0.04%, respectively, at December 31, 2021. As shown in Table 10, the trading portfolio consists principally of mortgage-backed securities and U.S. Treasuries, which at March 31, 2022 were investment grade securities. As of March 31, 2022 and December 31, 2021, the trading portfolio also included $0.1 million in Puerto Rico government obligations. Trading instruments are recognized at fair value, with changes resulting from fluctuations in market prices, interest rates or exchange rates reported in current period earnings. The Corporation recognized net trading account losses of $723 thousand and $45 thousand, respectively, for the quarters ended March 31, 2022 and March 31, 2021.

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Table 10 - Trading Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2022

 

 

December 31, 2021

 

(Dollars in thousands)

 

Amount

 

Weighted Average Yield[1]

 

 

Amount

 

Weighted Average Yield[1]

 

Mortgage-backed securities

$

18,779

 

5.44

%

$

22,559

 

5.12

%

U.S. Treasury securities

 

16,686

 

0.26

 

 

6,530

 

0.03

 

Collateralized mortgage obligations

 

227

 

5.59

 

 

257

 

5.61

 

Puerto Rico government obligations

 

81

 

0.47

 

 

85

 

0.47

 

Interest-only strips

 

267

 

12.00

 

 

280

 

12.00

 

Other (includes related trading derivatives)

 

2

 

4.63

 

 

-

 

-

 

Total

$

36,042

 

3.08

%

$

29,711

 

4.06

%

[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 $0.2 million for the last week in March 2022. There are numerous assumptions and estimates associated with VAR modeling, and actual results could differ from these assumptions and estimates. Backtesting is performed to compare actual results against maximum estimated losses, in order to evaluate model and assumptions accuracy.

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

 

Liquidity

The objective of effective liquidity management is to ensure that the Corporation has sufficient liquidity to meet all of its financial obligations, finance expected future growth, fund planned capital distributions and maintain a reasonable safety margin for cash 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.

128

 

Deposits, including customer deposits, brokered deposits and public funds deposits, continue to be the most significant source of funds for the Corporation, funding 90% of the Corporation’s total assets at March 31, 2022 and 89% at December 31, 2021. The ratio of total ending loans to deposits was 47% at March 31, 2022, compared to 44% at December 31, 2021. In addition to traditional deposits, the Corporation maintains borrowing arrangements, which amounted to approximately $1.1 billion in outstanding balances at March 31, 2022 (December 31, 2021 - $1.2 billion). 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.

As disclosed in Note 17 to the Consolidated Financial Statements, during the quarter ended March 31, 2022, the Corporation entered into a $400 million ASR and received an initial delivery of 3,483,942 shares of common stock.

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.

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 6 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 $250,000, excluding brokered deposits with denominations under $250,000. Core deposits have historically provided the Corporation with a sizable source of relatively stable and low-cost funds. Core deposits totaled $59.0 billion, or 94% of total deposits, at March 31, 2022, compared with $63.6 billion, or 95% of total deposits, at December 31, 2021. Core deposits financed 89% of the Corporation’s earning assets at March 31, 2022, compared with 88% at December 31, 2021.

The distribution by maturity of certificates of deposits with denominations of $250,000 and over at March 31, 2022 is presented in the table that follows:

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Table 11 - Distribution by Maturity of Certificate of Deposits of $250,000 and Over

 

 

 

(In thousands)

 

 

 

3 months or less

 

$

2,143,245

Over 3 to 12 months

 

 

473,284

Over 1 year to 3 years

 

 

226,856

Over 3 years

 

 

130,845

Total

 

$

2,974,230

 

The Corporation had $0.9 billion in brokered deposits at March 31, 2022, which financed approximately 1% of its total assets (December 31, 2021 - $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 March 31, 2022, total public sector deposits were $14.8 billion, compared to $20.3 billion at December 31, 2021. 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 March 31, 2022, 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.

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 $496 million at March 31, 2022 and December 31, 2021.

130

 

The contractual maturities of the BHCs notes payable at March 31, 2022 are presented in Table 12.

Table 12 - Distribution of BHC's Notes Payable by Contractual Maturity

 

 

 

 

 

Year

 

(In thousands)

2023

$

298,158

Later years

 

198,299

Total

$

496,457

 

Annual debt service at the BHCs is approximately $32 million, and the Corporation’s latest quarterly dividend was $0.55 per share. 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 March 31, 2022, the BHCs had cash and money markets investments totaling $283 million, borrowing potential of $157 million from its secured facility with BPPR. In addition to these liquidity sources, the stake in EVERTEC had a market value of $477 million as of March 31, 2022 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. Popular, Inc. made a capital contribution to its wholly owned subsidiary Popular Securities amounting to $10 million during the first quarter of 2022. Additionally, during the first quarter of 2022, Popular, Inc. made a capital contribution of $25 million to its wholly owned captive insurance subsidiary, Popular Re, Inc.

Dividends

During the quarter ended March 31, 2022, the Corporation declared a cash dividend of $0.55 per common share outstanding ($42.1 million in the aggregate). The dividends for the Corporation’s Series A preferred stock amounted to $0.4 million. During the quarter ended March 31, 2022, the BHC’s received dividends amounting to $450 million from BPPR and $54 million from PNA. Dividends from BPPR constitute Popular, Inc.’s primary source of liquidity.

Other Funding Sources and Capital

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 $8.7 billion at March 31, 2022 and $3.0 billion at December 31, 2021. 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.

 

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

131

 

subject to the same credit policies and approval process used for on-balance sheet instruments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position. Refer to Note 20 to the Consolidated Financial Statements for information on the Corporation’s commitments to extent credit and other non-credit commitments.

Other types of off-balance sheet arrangements that the Corporation enters in the ordinary course of business include derivatives, operating leases and provision of guarantees, indemnifications, and representation and warranties. Refer to Note 27 to the Consolidated Financial Statements for information on operating leases and to Note 19 to the Consolidated Financial Statements for a detailed discussion related to the Corporation’s obligations under credit recourse and representation and warranties arrangements.

The Corporation monitors its cash requirements, including its contractual obligations and debt commitments. As discussed above, liquidity is managed by the Corporation in order to meet its short- and long-term cash obligations. Note 15 to the Consolidated Financial Statements has information on the Corporation’s borrowings by maturity, which amounted to $1.1 billion at March 31, 2022 (December 31, 2021 - $1.2 billion).

 

Financial information of guarantor and issuers of registered guaranteed securities

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

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

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

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

The following summarized financial information presents the financial position of the obligor group, on a combined basis at March 31, 2022 and December 31, 2021, and the results of their operations for the period ended March 31, 2022 and March 31, 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 13 - Summarized Statement of Condition

 

 

 

 

 

 

 

 

 

(In thousands)

 

March 31, 2022

 

December 31, 2021

Assets

 

 

 

 

Cash and money market investments

$

282,853

$

291,540

Investment securities

 

27,164

 

25,691

Accounts receivables from non-obligor subsidiaries

 

38,597

 

17,634

Accounts receivables from affiliates and related parties

 

583

 

-

Other loans (net of allowance for credit losses of $305 (2021 - $96))

 

28,779

 

29,349

Investment in equity method investees

 

124,236

 

114,955

Other assets

 

64,740

 

42,251

Total assets

$

566,952

$

521,420

Liabilities and Stockholders' deficit

 

 

 

 

Accounts payable to non-obligor subsidiaries

$

7,452

$

6,481

Accounts payable to affiliates and related parties

 

1,172

 

1,254

Notes payable

 

496,458

 

496,134

Other liabilities

 

109,582

 

97,172

Stockholders' deficit

 

(47,712)

 

(79,621)

Total liabilities and stockholders' deficit

$

566,952

$

521,420

 

 

 

 

 

Table 14 - Summarized Statement of Operations

 

 

 

 

 

 

 

 

 

 

 

For the quarters ended

(In thousands)

 

March 31, 2022

 

March 31, 2021

Income:

 

 

 

 

Dividends from non-obligor subsidiaries

$

450,000

$

2,000

Interest income from non-obligor subsidiaries and affiliates

 

204

 

192

Earnings from investments in equity method investees

 

8,105

 

6,465

Other operating (expense) income

 

(755)

 

908

Total income

$

457,554

$

9,565

Expenses:

 

 

 

 

Services provided by non-obligor subsidiaries and affiliates (net of reimbursement by subsidiaries for services provided by parent of $120,032 (2021 - $41,438))

$

3,867

$

2,825

Other operating expenses

 

4,637

 

8,701

Total expenses

$

8,504

$

11,526

Net income (loss)

$

449,050

$

(1,961)

 

 

 

 

 

The Obligor group recorded $0.6 million of dividend receivable from its direct equity method investees for the quarter ended March 31, 2022 (2021 - $0.6 million).

 

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

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other factors. Derivatives, such as those embedded in long-term repurchase transactions or interest rate swaps, and off-balance sheet exposures, such as recourse, performance bonds or credit card arrangements, are subject to collateral requirements. As their fair value increases, the collateral requirements may increase, thereby reducing the balance of unpledged securities.

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

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

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

Furthermore, various statutory provisions limit the amount of dividends an insured depository institution may pay to its holding company without regulatory approval. A member bank must obtain the approval of the Federal Reserve Board for any dividend, if the total of all dividends declared by the member bank during the calendar year would exceed the total of its net income for that year, combined with its retained net income for the preceding two years, after considering those years’ dividend activity, less any required transfers to surplus or to a fund for the retirement of any preferred stock. During the quarter ended March 31, 2022, BPPR declared cash dividends of $450 million. At March 31, 2022, BPPR would have needed to obtain prior approval of the Federal Reserve Board before declaring a dividend due to its declared dividend activity and transfers to statutory reserves over the latest three years. 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 March 31, 2022 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 $29 million at March 31, 2022. 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 32 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. Although the most restrictive measures have been eased or lifted, allowing for the gradual reopening of the economy, certain measures remain in place and additional 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 2022 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.

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 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

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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 defaulted on their debt obligations. 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 recently emerged from a bankruptcy-like process under 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. In 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.

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 January 27, 2022 (the “2022 Fiscal Plan”).

Pursuant to the 2022 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 2022 Fiscal Plan’s economic projections incorporate adjustments for these short-term income effects for purposes of estimating tax receipts. For example, the 2022 Fiscal Plan estimates that, for fiscal years 2022 and 2023, real GNP will grow 2.6% and 0.9%, respectively, but projects that growth adjusted for income effects for such years will be approximately 5.2% and 0.6%, respectively.

The 2022 Fiscal Plan incorporates the debt service costs of the Commonwealth’s restructured debt as contemplated by the Plan of Adjustment (as defined and further explained below). Therefore, it projects an unrestricted surplus after debt service average of $1 billion annually between fiscal years 2022 to 2031. This surplus declines over time as federal disaster relief funding slows, nominal GNP growth declines, revenues decline, and healthcare expenditures rise. The 2022 Fiscal Plan estimates that fiscal measures could drive approximately $6.3 billion in savings and extra revenue over fiscal years 2022 through 2026 and that structural reforms could drive a cumulative 0.90% increase in growth by fiscal year 2051 (equal to approximately $33 billion).

The 2022 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 2022 Fiscal Plan contemplates additional reductions in appropriations to municipalities

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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 was in effect. Finally, the 2022 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 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 (“HTA”), 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 November 3, 2021, the Oversight Board filed the Eighth Amended Title III Joint Plan of Adjustment for the Commonwealth, ERS and PBA (the “Plan of Adjustment”). On March 15, 2022 (the “Effective Date”), the Plan of Adjustment became effective. As of the Effective Date, the Plan of Adjustment reduced the Commonwealth’s debt obligations from approximately $34.3 billion of prepetition debt to approximately $7.4 billion in new general obligation bonds and approximately $8.7 billion in new contingent value instruments. This also resulted in a reduction of the Commonwealth’s maximum annual debt service by approximately 73%.

There are still ongoing debt restructuring processes under Title III of PROMESA for the Commonwealth’s highways and electric power authorities (HTA and PREPA).

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

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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 March 31, 2022, the Corporation’s direct exposure to the Puerto Rico government’s instrumentalities and municipalities totaled $364 million of which $346 million were outstanding, compared to $367 million at December 31, 2021, of which $349 million were outstanding. 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, $319 million consists of loans and $27 million are securities ($319 million and $30 million, respectively, at December 31, 2021). Substantially all of the amount outstanding at March 31, 2022 were obligations from various Puerto Rico municipalities. In most cases, these were “general obligations” of a municipality, to which the applicable municipality has pledged its good faith, credit and unlimited taxing power, or “special obligations” of a municipality, to which the applicable municipality has pledged other revenues. At March 31, 2022, 75% of the Corporation’s exposure to municipal loans and securities was concentrated in the municipalities of San Juan, Guaynabo, Carolina and Bayamón. For additional discussion of the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities, refer to Note 20 – Commitments and Contingencies.

 

In addition, at March 31, 2022, the Corporation had $268 million in loans insured or securities issued by Puerto Rico governmental entities, but for which the principal source of repayment is non-governmental ($275 million at December 31, 2021). These included $225 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, 2021 - $232 million). These mortgage loans are secured by first mortgages on Puerto Rico residential properties and the HFA insurance covers losses in the event of a borrower default and upon the satisfaction of certain other conditions. The Corporation also had, at March 31, 2022, $43 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, 2021 - $43 million). In the event that the mortgage loans insured by HFA and held by the Corporation directly or those serving as collateral for the HFA bonds default and the collateral is insufficient to satisfy the outstanding balance of these loans, HFA’s ability to honor its insurance will depend, among other factors, on the financial condition of HFA at the time such obligations become due and payable. The Corporation does not consider the government guarantee when estimating the credit losses associated with this portfolio. Although the Governor is currently authorized by local legislation to impose a temporary moratorium on the financial obligations of the HFA, a moratorium on such obligations has not been imposed as of the date hereof.

 

BPPR’s commercial loan portfolio also includes loans to private borrowers who are service providers, lessors, suppliers or have other relationships with the government. These borrowers could be negatively affected by the Commonwealth’s fiscal crisis. 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.

 

As of March 31, 2022, BPPR had $14.8 billion in deposits from the Commonwealth, its instrumentalities, and municipalities. During the first quarter of 2022, the amount of government deposits decreased as a result of $10.1 billion cash payments made by the Commonwealth pursuant to the Plan of Adjustment. The rate at which public deposit balances may decline is uncertain and difficult to predict. The amount and timing of any such reduction is likely to be impacted by, for example, the speed at which COVID-19 pandemic and hurricane recovery federal assistance is distributed and the financial condition, liquidity and cash management practices of such entities, as well as on the ability of BPPR to maintain these customer relationships.

 

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

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instrumentalities to service their outstanding debt obligations. PROMESA does not apply to the USVI and, as such, there is currently no federal legislation permitting the restructuring of the debts of the USVI and its public corporations and instrumentalities.

 

To the extent that the fiscal condition of the USVI continues to deteriorate, the U.S. Congress or the Government of the USVI may enact legislation allowing for the restructuring of the financial obligations of USVI government entities or imposing a stay on creditor remedies, including by making PROMESA applicable to the USVI.

 

At March 31, 2022, the Corporation had approximately $70 million in direct exposure to USVI government entities (December 31, 2021 - $70 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.

British Virgin Islands

 

The Corporation has operations in the British Virgin Islands (“BVI”), which has been negatively affected by the COVID-19 pandemic, particularly as a reduction in the tourism activity which accounts for a significant portion of its economy. Although the Corporation has no significant exposure to a single borrower in the BVI, at March 31, 2022 it has a loan portfolio amounting to approximately $218 million comprised of various retail and commercial clients, compared to a loan portfolio of $221 million at December 31, 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, $1.6 billion of residential mortgages, $173 million of SBA loans under the PPP and $67 million commercial loans were insured or guaranteed by the U.S. Government or its agencies at March 31, 2022 (compared to $1.6 billion, $353 million and $67 million, respectively, at December 31, 2021).

 

Non-Performing Assets

Non-performing assets (“NPAs”) include primarily past-due loans that are no longer accruing interest, renegotiated loans, and real estate property acquired through foreclosure. A summary, including certain credit quality metrics, is presented in Table 15.

During the first quarter of 2022, the Corporation continued to exhibit strong credit quality trends and low credit costs with low level of NCOs and decreasing NPLs. We continue to closely monitor changes on borrower performance and in the pace of economic recovery, given the rising interest rate environment and geopolitical uncertainty. 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 $22 million at March 31, 2022 when compared with December 31, 2021. Total non-performing loans held-in-portfolio (“NPLs”) decreased by $28 million at March 31, 2022 from December 31, 2021. BPPR’s NPLs decreased by $27 million at March 31, 2022, mainly driven by lower mortgage NPLs due to the combined effects of collection efforts, increased foreclosure activity and the on-going low levels of early delinquency compared with pre-pandemic trends. Popular U.S. NPLs remained flat at $33 million from December 31, 2021. At March 31, 2022, the ratio of NPLs to total loans held-in-portfolio was 1.8% compared to 1.9% in the December 31, 2021. Other real estate owned loans (“OREOs”) increased by $5 million at March 31, 2022, mainly due to the end of the COVID-19 related foreclosure moratorium period.

At March 31, 2022, NPLs secured by real estate amounted to $394 million in the Puerto Rico operations and $30 million in Popular U.S. These figures were $428 million and $31 million, respectively, at December 31, 2021.

The Corporation’s commercial loan portfolio secured by real estate (“CRE”) amounted to $8.8 billion at March 31, 2022, of which $2.9 billion was secured with owner occupied properties, compared with $8.4 billion and $1.8 billion, respectively, at December 31, 2021. During the first quarter of 2022, the Corporation reclassified $0.9 billion of loans from the Commercial Real Estate (“CRE”) Non-Owner-Occupied category to the CRE Owner-Occupied category. The selected loans are primarily to skilled and assisted living nursing homes where the majority of the revenues, which are the basis for the repayment of the loans, are generated from medical and related operational activities. These loans meet the type of business and source requirements as defined in the regulatory guidance allowing this classification. CRE NPLs amounted to $72 million at March 31, 2022, compared with $77 million at December

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31, 2021. The CRE NPL ratios for the BPPR and Popular U.S. segments were 1.69% and 0.02%, respectively, at March 31, 2022, compared with 1.95% and 0.04%, respectively, at December 31, 2021.

In addition to the NPLs included in Table 15, at March 31, 2022, there were $260 million of performing loans, mainly commercial loans, which in management’s opinion, were currently subject to potential future classification as non-performing (December 31, 2021 - $214 million).

For the year ended March 31, 2022, total inflows of NPLs held-in-portfolio, excluding consumer loans, decreased by approximately $30 million, when compared to the inflows for the same period in 2021. Inflows of NPLs held-in-portfolio at the BPPR segment decreased by $22 million compared to the same period in 2021, driven by lower mortgage inflows by $20 million. Inflows of NPLs held-in-portfolio at the Popular U.S. segment decreased by $8 million from the same period in 2021.

 

 

Table 15 - Non-Performing Assets

 

March 31, 2022

 

 

December 31, 2021

 

(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

$

117,782

$

5,403

$

123,185

 

0.9

%

$

120,047

$

5,532

$

125,579

 

0.9

%

Construction

 

-

 

-

 

-

 

-

 

 

485

 

-

 

485

 

0.1

 

Leasing

 

3,766

 

-

 

3,766

 

0.3

 

 

3,102

 

-

 

3,102

 

0.2

 

Mortgage

 

306,560

 

21,826

 

328,386

 

4.5

 

 

333,887

 

21,969

 

355,856

 

4.8

 

Auto

 

27,514

 

-

 

27,514

 

0.8

 

 

23,085

 

-

 

23,085

 

0.7

 

Consumer

 

31,194

 

5,876

 

37,070

 

1.4

 

 

33,683

 

6,087

 

39,770

 

1.5

 

Total non-performing loans held-in-portfolio

 

486,816

 

33,105

 

519,921

 

1.8

%

 

514,289

 

33,588

 

547,877

 

1.9

%

Other real estate owned (“OREO”)

 

89,023

 

1,544

 

90,567

 

 

 

 

83,618

 

1,459

 

85,077

 

 

 

Total non-performing assets[1]

$

575,839

$

34,649

$

610,488

 

 

 

$

597,907

$

35,047

$

632,954

 

 

 

Accruing loans past due 90 days or more[2]

$

440,015

$

539

$

440,554

 

 

 

$

480,649

$

118

$

480,767

 

 

 

Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing assets to total assets

 

0.99

%

0.31

%

0.88

%

 

 

 

0.93

%

0.32

%

0.84

%

 

 

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

 

2.32

 

0.39

 

1.76

 

 

 

 

2.46

 

0.40

 

1.87

 

 

 

Allowance for credit losses to loans held-in-portfolio

 

2.74

 

1.18

 

2.29

 

 

 

 

2.85

 

1.21

 

2.38

 

 

 

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

 

118.45

 

305.64

 

130.36

 

 

 

 

115.53

 

301.31

 

126.92

 

 

 

HIP = “held-in-portfolio”

[1] There were no non-performing loans held-for-sale as of March 31, 2022 and December 31, 2021.

[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 $13 million at March 31, 2022, 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, 2021 - $13 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. These balances include $266 million of residential mortgage loans insured by FHA or guaranteed by the VA that are no longer accruing interest as of March 31, 2022 (December 31, 2021 - $304 million). Furthermore, the Corporation has approximately $45 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, 2021 - $50 million).

140

 

Table 16 - Activity in Non-Performing Loans Held-in-Portfolio (Excluding Consumer Loans)

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended March 31, 2022

(Dollars in thousands)

 

BPPR

 

 

Popular U.S.

 

Popular, Inc.

Beginning balance

$

454,419

 

$

27,501

 

$

481,920

Plus:

 

 

 

 

 

 

 

 

 

New non-performing loans

 

44,320

 

 

7,799

 

 

52,119

 

Advances on existing non-performing loans

 

-

 

 

2,639

 

 

2,639

Less:

 

 

 

 

 

 

 

 

 

Non-performing loans transferred to OREO

 

(13,396)

 

 

(85)

 

 

(13,481)

 

Non-performing loans charged-off

 

(723)

 

 

(73)

 

 

(796)

 

Loans returned to accrual status / loan collections

 

(60,278)

 

 

(10,552)

 

 

(70,830)

Ending balance NPLs

$

424,342

 

$

27,229

 

$

451,571

 

 

 

 

 

 

 

 

 

 

Table 17 - Activity in Non-Performing Loans Held-in-Portfolio (Excluding Consumer Loans)

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended March 31, 2021

(Dollars in thousands)

 

BPPR

 

 

Popular U.S.

 

Popular, Inc.

Beginning balance

$

639,932

 

$

28,412

 

$

668,344

Plus:

 

 

 

 

 

 

 

 

 

New non-performing loans

 

66,121

 

 

18,157

 

 

84,278

 

Advances on existing non-performing loans

 

-

 

 

11

 

 

11

Less:

 

 

 

 

 

 

 

 

 

Non-performing loans transferred to OREO

 

(4,651)

 

 

-

 

 

(4,651)

 

Non-performing loans charged-off

 

(17,733)

 

 

(353)

 

 

(18,086)

 

Loans returned to accrual status / loan collections

 

(77,148)

 

 

(20,231)

 

 

(97,379)

 

Loans transferred to held-for-sale

 

-

 

 

(1,773)

 

 

(1,773)

Ending balance NPLs

$

606,521

 

$

24,223

 

$

630,744

 

Table 18 - Activity in Non-Performing Commercial Loans Held-In-Portfolio

 

 

For the quarter ended March 31, 2022

(In thousands)

 

BPPR

 

 

Popular U.S.

 

 

Popular, Inc.

Beginning balance - NPLs

$

120,047

 

$

5,532

 

$

125,579

Plus:

 

 

 

 

 

 

 

 

 

New non-performing loans

 

6,127

 

 

2,999

 

 

9,126

 

Advances on existing non-performing loans

 

-

 

 

2,505

 

 

2,505

Less:

 

 

 

 

 

 

 

 

 

Non-performing loans transferred to OREO

 

(3,052)

 

 

-

 

 

(3,052)

 

Non-performing loans charged-off

 

(256)

 

 

(73)

 

 

(329)

 

Loans returned to accrual status / loan collections

 

(5,084)

 

 

(5,560)

 

 

(10,644)

Ending balance - NPLs

$

117,782

 

$

5,403

 

$

123,185

141

 

Table 19 - Activity in Non-Performing Commercial Loans Held-In-Portfolio

 

 

For the quarter ended March 31, 2021

(In thousands)

 

BPPR

 

 

Popular U.S.

 

 

Popular, Inc.

Beginning balance - NPLs

$

204,092

 

$

5,988

 

$

210,080

Plus:

 

 

 

 

 

 

 

 

 

New non-performing loans

 

7,724

 

 

1,693

 

 

9,417

 

Advances on existing non-performing loans

 

-

 

 

6

 

 

6

Less:

 

 

 

 

 

 

 

 

 

Non-performing loans transferred to OREO

 

(3,850)

 

 

-

 

 

(3,850)

 

Non-performing loans charged-off

 

(2,391)

 

 

(352)

 

 

(2,743)

 

Loans returned to accrual status / loan collections

 

(4,712)

 

 

(3,655)

 

 

(8,367)

 

Loans transferred to held-for-sale

 

-

 

 

(1,773)

 

 

(1,773)

Ending balance - NPLs

$

200,863

 

$

1,907

 

$

202,770

 

Table 20 - Activity in Non-Performing Construction Loans Held-In-Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended March 31, 2022

(In thousands)

 

BPPR

 

 

Popular U.S.

 

 

Popular, Inc.

Beginning balance - NPLs

$

485

 

$

-

 

$

485

Less:

 

 

 

 

 

 

 

 

 

Loans returned to accrual status / loan collections

 

(485)

 

 

-

 

 

(485)

Ending balance - NPLs

$

-

 

$

-

 

$

-

142

 

Table 21 - Activity in Non-Performing Construction Loans Held-In-Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended March 31, 2021

(In thousands)

 

BPPR

 

 

Popular U.S.

 

 

Popular, Inc.

Beginning balance - NPLs

$

21,497

 

$

7,560

 

$

29,057

Plus:

 

 

 

 

 

 

 

 

 

New non-performing loans

 

-

 

 

12,141

 

 

12,141

Less:

 

-

 

 

-

 

 

 

 

Non-performing loans charged-off

 

(6,620)

 

 

-

 

 

(6,620)

 

Loans returned to accrual status / loan collections

 

-

 

 

(12,178)

 

 

(12,178)

Ending balance - NPLs

$

14,877

 

$

7,523

 

$

22,400

 

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

 

 

For the quarter ended March 31, 2022

(Dollars in thousands)

 

BPPR

 

 

Popular U.S.

 

 

Popular, Inc.

Beginning balance - NPLs

$

333,887

 

$

21,969

 

$

355,856

Plus:

 

 

 

 

 

 

 

 

 

New non-performing loans

 

38,193

 

 

4,800

 

 

42,993

 

Advances on existing non-performing loans

 

-

 

 

134

 

 

134

Less:

 

 

 

 

 

 

 

 

 

Non-performing loans transferred to OREO

 

(10,344)

 

 

(85)

 

 

(10,429)

 

Non-performing loans charged-off

 

(467)

 

 

-

 

 

(467)

 

Loans returned to accrual status / loan collections

 

(54,709)

 

 

(4,992)

 

 

(59,701)

Ending balance - NPLs

$

306,560

 

$

21,826

 

$

328,386

 

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

 

 

For the quarter ended March 31, 2021

(Dollars in thousands)

 

BPPR

 

 

Popular U.S.

 

 

Popular, Inc.

Beginning balance - NPLs

$

414,343

 

$

14,864

 

$

429,207

Plus:

 

 

 

 

 

 

 

 

 

New non-performing loans

 

58,397

 

 

4,323

 

 

62,720

 

Advances on existing non-performing loans

 

-

 

 

5

 

 

5

Less:

 

 

 

 

 

 

 

 

 

Non-performing loans transferred to OREO

 

(801)

 

 

-

 

 

(801)

 

Non-performing loans charged-off

 

(8,722)

 

 

(1)

 

 

(8,723)

 

Loans returned to accrual status / loan collections

 

(72,436)

 

 

(4,398)

 

 

(76,834)

Ending balance - NPLs

$

390,781

 

$

14,793

 

$

405,574

143

 

Loan Delinquencies

Another key measure used to evaluate and monitor the Corporation’s asset quality is loan delinquencies. Loans delinquent 30 days or more, as a percentage of their related portfolio category at March 31, 2022 and December 31, 2021, are presented below.

 

Table 24 - Loan Delinquencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

March 31, 2022

 

 

December 31, 2021

 

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

$

155,815

$

14,028,246

 

1.11

%

$

161,251

$

13,732,701

 

1.17

%

Construction

 

715

 

744,783

 

0.10

 

 

485

 

716,220

 

0.07

 

Leasing

 

16,031

 

1,426,122

 

1.12

 

 

14,379

 

1,381,319

 

1.04

 

Mortgage [1]

 

1,034,010

 

7,326,346

 

14.11

 

 

1,141,082

 

7,427,196

 

15.36

 

Consumer

 

164,743

 

6,062,693

 

2.72

 

 

173,896

 

5,983,121

 

2.91

 

Loans held-for-sale

 

125

 

55,150

 

0.23

 

 

-

 

59,168

 

-

 

Total

$

1,371,439

$

29,643,340

 

4.63

%

$

1,491,093

$

29,299,725

 

5.09

%

[1] Loans delinquent 30 days or more includes $0.6 billion of residential mortgage loans insured by FHA or guaranteed by the VA as of March 31, 2022 (December 31, 2021 - $0.6 billion). Refer to Note 7 to the Consolidated Financial Statements for additional information of guaranteed loans.

 

Allowance for Credit Losses Loans Held-in-Portfolio

The Corporation adopted the new CECL accounting standard effective on January 1, 2020. The allowance for credit losses (“ACL”), represents management’s estimate of expected credit losses through the remaining contractual life of the different loan segments, impacted by expected prepayments. The ACL is maintained at a sufficient level to provide for estimated credit losses on collateral dependent loans as well as 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 March 31, 2022, the allowance for credit losses amounted to $678 million, a decrease of $18 million, when compared with December 31, 2021. The ACL incorporated updated macroeconomic scenarios for Puerto Rico and the United States. Given that any one economic outlook is inherently uncertain, the Corporation uses multiple scenarios to estimate its ACL. The baseline scenario continues to be assigned the highest probability, followed by the pessimistic scenario.

 

The current baseline forecast continues to show a favorable economic scenario. 2022 annualized GDP growth of 3.5% and 3.7% is expected for Puerto Rico and United States, respectively. This represents a reduction for both Puerto Rico and United States since last quarter’s GDP growth forecast was 4.0% and 4.6%, respectively. Changes in assumptions related to fiscal stimulus and higher energy prices contributed to the reduction. The 2022 average unemployment rate is forecasted at 7.3% and 3.6% for Puerto Rico and United States, respectively. This is consistent with previous expectations for both regions. Puerto Rico’s unemployment rate forecast benefits from the Bureau of Labor Statistics (“BLS”) revisions that show a stronger than expected labor market.

 

144

 

The ACL for BPPR decreased by $18 million to $577 million at March 31, 2022, when compared to December 31, 2021. The ACL for Popular U.S. remained flat at $101 million at March 31, 2022, when compared to December 31, 2021. The decrease in BPPR’s ACL was mainly driven by reductions in qualitative reserves due to substantial improvements in employment levels in Puerto Rico. Recent updates by the BLS show that employment levels in Puerto Rico have already surpassed pre-pandemic levels. This contributed to a lower commercial, mortgage and consumer loans ACL. The decrease in qualitative reserves was partially offset by the impact of higher loan volumes and changes in the macroeconomic scenario.

 

The provision for credit losses for the quarter ended March 31, 2022, amounted to a benefit of $14.4 million, an unfavorable variance of $61.4 million from the same period in the prior year. The first quarter of 2021 included the impact of updated economic assumptions which considered a more optimistic view of the economy, prompting substantial reductions in reserves across different portfolios, coupled with improvements in credit quality. Refer to Note 8 – Allowance for credit losses – loans held-in-portfolio, and to the Provision for Credit Losses section of this MD&A for additional information.

 

 

Table 25 - Allowance for Credit Losses - Loan Portfolios

 

March 31, 2022

(Dollars in thousands)

Commercial

Construction

 

Mortgage

Leasing

Consumer

Total

 

Total ACL

$

204,643

 

$

6,539

 

$

149,206

 

$

18,398

 

$

299,006

 

$

677,792

 

Total loans held-in-portfolio

 

14,028,246

 

 

744,783

 

 

7,326,346

 

 

1,426,122

 

 

6,062,693

 

 

29,588,190

 

ACL to loans held-in-portfolio

 

1.46

%

 

0.88

%

 

2.04

%

 

1.29

%

 

4.93

%

 

2.29

%

Total non-performing loans held-in-portfolio

$

123,185

 

$

-

 

$

328,386

 

$

3,766

 

$

64,584

 

$

519,921

 

ACL to non-performing loans held-in-portfolio

 

166.13

%

 

N.M.

 

 

45.44

%

 

488.53

%

 

462.97

%

 

130.36

%

N.M. - Not meaningful.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 26 - Allowance for Credit Losses - Loan Portfolios

 

December 31, 2021

(Dollars in thousands)

Commercial

Construction

 

Mortgage

Leasing

Consumer

Total

 

Total ACL

$

215,805

 

$

6,363

 

$

154,478

 

$

17,578

 

$

301,142

 

$

695,366

 

Total loans held-in-portfolio

 

13,732,701

 

 

716,220

 

 

7,427,196

 

 

1,381,319

 

 

5,983,121

 

 

29,240,557

 

ACL to loans held-in-portfolio

 

1.57

%

 

0.89

%

 

2.08

%

 

1.27

%

 

5.03

%

 

2.38

%

Total non-performing loans held-in-portfolio

$

125,579

 

$

485

 

$

355,856

 

$

3,102

 

$

62,855

 

$

547,877

 

ACL to non-performing loans held-in-portfolio

 

171.85

%

 

N.M.

 

 

43.41

%

 

566.67

%

 

479.11

%

 

126.92

%

N.M. - Not meaningful.

145

 

Annualized net charge-offs (recoveries)

 

The following tables present annualized net charge-offs (recoveries) to average loans held-in-portfolio (“HIP”) by loan category for the quarters ended March 31, 2022 and 2021.

 

Table 27 - Annualized Net Charge-offs (Recoveries) to Average Loans Held-in-Portfolio

 

Quarter ended March 31, 2022

Quarter ended March 31, 2021

 

BPPR

 

Popular U.S.

 

Popular, Inc.

 

BPPR

 

Popular U.S.

 

Popular, Inc.

 

Commercial

(0.23)

%

(0.04)

%

(0.14)

%

(0.07)

%

―

%

(0.04)

%

Construction

(1.61)

 

(0.72)

 

(0.85)

 

14.62

 

―

 

2.60

 

Mortgage

(0.19)

 

(0.01)

 

(0.16)

 

0.50

 

(0.03)

 

0.42

 

Leasing

(0.12)

 

―

 

(0.12)

 

0.04

 

―

 

0.04

 

Consumer

0.95

 

0.08

 

0.91

 

0.48

 

2.35

 

0.57

 

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

0.11

%

(0.08)

%

0.05

%

0.36

%

0.08

%

0.29

%

 

NCOs for the quarter ended March 31, 2022 amounted to $3.8 million, a favorable variance by $17.2 million when compared to the same period in 2021. The BPPR segment decreased by $14.0 million mainly driven by lower mortgage and construction NCOs by $11.3 million and $6.3 million, respectively, in part offset by an increase of $7.0 million in the consumer NCOs. The consumer NCOs increase was mainly related to post-pandemic normalization, as NCOs continue at historical low levels. The PB segment NCOs decreased by $3.3 million, mainly driven by lower consumer and construction NCOs by $1.7 million and $1.1 million, respectively. The low level of NCOs was due to the effect of a favorable economic environment and continued borrower performance, as reflected in the ongoing low level of delinquencies and NPLs when compared to pre-pandemic trends.

 

Troubled Debt Restructurings

The Corporation’s troubled debt restructurings (“TDRs”) loans amounted to $1.7 billion at March 31, 2022, increasing by $36 million, from December 31, 2021. A total of $721 million of these TDRs are related to guaranteed loans, which are in accruing status. TDRs in the BPPR segment amounted to $1.7 billion, an increase of $36 million, mainly related to an increase of $43 million in the commercial TDRs, mainly related to a single $41 million relationship. The Popular U.S. segment TDRs remained flat at $14 million from December 31, 2021. TDRs in accruing status increased by $47 million from December 31, 2021, mainly related to an increase of $41 million in BPPR’s commercial TDRs, related to the abovementioned relationship, while non-accruing TDRs decreased by $10 million, mostly related to mortgage TDRs.

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 2021 Form 10-K.

 

146

 

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 March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

 

Part II - Other Information

Item 1. Legal Proceedings

For a discussion of Legal Proceedings, see Note 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 2021 Form 10-K. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. Also refer to the discussion in “Part I - Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report for additional information that may supplement or update the discussion of risk factors below and in our 2021 Form 10-K.

 

There have been no material changes to the risk factors previously disclosed under Item 1A of the Corporation’s 2021 Form 10-K.

 

The risks described in our 2021 Form 10-K and in this report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, liquidity, results of operations and capital position.

147

 

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

The Corporation did not have any unregistered sales of equity securities during the quarter ended March 31, 2022.

Issuer Purchases of Equity Securities

 

The following table sets forth the details of purchases of Common Stock by the Corporation during the quarter ended March 31, 2022:

 

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 (3)

January 1 - January 31

684

$

81.93

-

$500,000,000

February 1 - February 28

3,483,942

 

91.85

3,483,942

100,000,000

March 1 - March 31

51,611

 

89.25

-

100,000,000

Total

3,536,237

$

91.81

3,483,942

$100,000,000

(1) Includes 52,295 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) On February 28, 2022, the Corporation entered into an accelerated share repurchase transaction (“ASR”) of $400 million with respect to its common stock. As part of this transaction, the Corporation received an initial share delivery of 3,483,942 shares of common stock. Such shares are held as treasury stock. The ASR was entered into on February 28, 2022 with a settlement date of March 2, 2022. The final settlement of the ASR Agreement is expected to occur no later than the third quarter of 2022.

(3) As part of its capital plan, in January 2022, the Corporation announced plans to repurchase $500 million in shares. On February 28, 2022, the Corporation entered into an accelerated share repurchase transaction (“ASR”) of $400 million with respect to its common stock. See note (2) above. $100 million remains available for repurchase pursuant to the capital plan.

 

Item 3. Defaults Upon Senior Securities

None.

 

 

Item 4. Mine Safety Disclosures

Not applicable.

 

 

Item 5. Other Information

None.

 

 

Item 6. Exhibits

 

Exhibit Index

 

Exhibit No

Exhibit Description

10.1

Form of Popular, Inc. 2022 Long-Term Equity Incentive Award and Agreement(1)

148

 

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, 2021.)

31.1

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

31.2

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

32.1

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

32.2

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

 

101. INS

 

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

101.SCH

Inline Taxonomy Extension Schema Document(1)

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document(1)

101.DEF

Inline XBRL Taxonomy Extension Definitions Linkbase Document(1)

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document(1)

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document(1)

104

 

 

The cover page of Popular, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL (included within the Exhibit 101 attachments)(1)

 

 

(1) Included herewith

149

 

SIGNATURES

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

 

 

POPULAR, INC.

 

(Registrant)

 

 

Date: May 10, 2022

By: /s/ Carlos J. Vázquez

 

Carlos J. Vázquez

 

Executive Vice President &

 

Chief Financial Officer

 

 

Date: May 10, 2022

By: /s/ Jorge J. García

 

Jorge J. García

 

Senior Vice President & Corporate Comptroller

150

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