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Popular, Inc. (Banco Popular de Puerto Rico)
BPOP
#2110
Rank
$8.90 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$136.81
Share price
0.27%
Change (1 day)
66.96%
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 Q2

Popular, Inc. (Banco Popular de Puerto Rico) - 10-Q quarterly report FY2022 Q2


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UNITED STATES

 

 

SECURITIES AND EXCHANGE COMMISSION

 

 

Washington, D.C. 20549

 

 

 

 

 

Form 10-Q

 

 

 

 

[X]

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

 

 

 

 

 

 

For the quarterly period ended June 30, 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, 75,010,821 shares outstanding as of August 5, 2022.

 

1

 

 

POPULAR INC

 

 

INDEX

 

 

 

 

 

Part I – Financial Information

Page

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

Unaudited Consolidated Statements of Financial Condition at June 30, 2022 and

 

 

December 31, 2021

6

 

 

 

 

Unaudited Consolidated Statements of Operations for the quarters

 

 

and six months ended June 30, 2022 and 2021

7

 

 

 

 

Unaudited Consolidated Statements of Comprehensive Loss for the

 

 

quarters and six months ended June 30, 2022 and 2021

8

 

 

 

 

Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the

 

 

quarters and six months ended June 30, 2022 and 2021

9

 

 

 

 

 

 

 

Unaudited Consolidated Statements of Cash Flows for the six months

 

 

ended June 30, 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

117

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

162

 

 

 

 

Item 4. Controls and Procedures

162

 

 

 

 

Part II – Other Information

 

 

 

 

 

Item 1. Legal Proceedings

162

 

 

 

 

Item 1A. Risk Factors

162

 

 

 

 

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

169

 

 

 

 

Item 3. Defaults Upon Senior Securities

169

 

 

Item 4. Mine Safety Disclosures

169

 

 

Item 5. Other Information

169

 

 

Item 6. Exhibits

 

170

 

 

Signatures

171

 

 

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 acquisition of certain information technology and related assets formerly used by Evertec, Inc. to service certain of Banco Popular de Puerto Rico’s key channels, as well as the entry into amended and restated commercial agreements and the sale or conversion into non-voting of Popular’s ownership stake in Evertec (the “Transaction”), including: the receipt of any regulatory approvals necessary to effect the contemplated return to stockholders of net gains resulting from a sale of Evertec, Inc. shares; Popular’s 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.; operational risks that may affect Popular 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;

 

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;

3

 

 

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 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.

 

4

 

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

 

5

 

POPULAR, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

 

 

 

 

 

June 30,

December 31,

(In thousands, except share information)

2022

2021

Assets:

 

 

 

 

Cash and due from banks

$

528,590

$

428,433

Money market investments:

 

 

 

 

 

 

Time deposits with other banks

 

9,687,356

 

17,536,719

 

 

Total money market investments

 

9,687,356

 

17,536,719

Trading account debt securities, at fair value:

 

 

 

 

 

 

Other trading account debt securities

 

32,317

 

29,711

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

 

 

 

 

 

 

Pledged securities with creditors’ right to repledge

 

71,660

 

93,330

 

 

Other debt securities available-for-sale

 

26,194,591

 

24,874,939

Debt securities held-to-maturity, at amortized cost (fair value 2022 - $1,649,561; 2021 - $83,368)

 

1,664,015

 

79,461

 

 

Less – Allowance for credit losses

 

7,495

 

8,096

 

 

Debt securities held-to-maturity, net

 

1,656,520

 

71,365

Equity securities (realizable value 2022 - $176,697; 2021 - $192,345)

 

175,870

 

189,977

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

 

28,546

 

59,168

Loans held-in-portfolio

 

30,643,443

 

29,506,225

 

 

Less – Unearned income

 

272,507

 

265,668

 

 

Allowance for credit losses

 

681,750

 

695,366

 

 

Total loans held-in-portfolio, net

 

29,689,186

 

28,545,191

Premises and equipment, net

 

490,152

 

494,240

Other real estate

 

92,137

 

85,077

Accrued income receivable

 

216,780

 

203,096

Mortgage servicing rights, at fair value

 

129,877

 

121,570

Other assets

 

1,773,523

 

1,628,571

Goodwill

 

720,293

 

720,293

Other intangible assets

 

14,533

 

16,219

Total assets

$

71,501,931

$

75,097,899

Liabilities and Stockholders’ Equity

 

 

 

 

Liabilities:

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Non-interest bearing

$

16,663,259

$

15,684,482

 

 

Interest bearing

 

48,664,405

 

51,320,606

 

 

Total deposits

 

65,327,664

 

67,005,088

Assets sold under agreements to repurchase

 

70,925

 

91,603

Other short-term borrowings

 

-

 

75,000

Notes payable

 

888,210

 

988,563

Other liabilities

 

921,783

 

968,248

 

 

Total liabilities

 

67,208,582

 

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;104,614,108 shares issued (2021 - 104,579,334) and 76,576,397 shares outstanding (2021 - 79,851,169)

 

1,046

 

1,046

Surplus

 

4,576,478

 

4,650,182

Retained earnings

 

3,311,951

 

2,973,745

Treasury stock - at cost, 28,037,711 shares (2021 - 24,728,165)

 

(1,665,253)

 

(1,352,650)

Accumulated other comprehensive loss, net of tax

 

(1,953,016)

 

(325,069)

 

 

Total stockholders’ equity

 

4,293,349

 

5,969,397

Total liabilities and stockholders’ equity

$

71,501,931

$

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 June 30,

 

Six months ended June 30,

(In thousands, except per share information)

2022

 

2021

 

2022

 

2021

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Loans

$

446,245

 

$

433,781

 

$

873,036

 

$

868,430

 

Money market investments

 

23,742

 

 

4,274

 

 

30,206

 

 

7,386

 

Investment securities

 

101,774

 

 

91,706

 

 

198,240

 

 

177,396

 

 

Total interest income

 

571,761

 

 

529,761

 

 

1,101,482

 

 

1,053,212

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

27,827

 

 

28,060

 

 

52,610

 

 

58,261

 

Short-term borrowings

 

248

 

 

62

 

 

328

 

 

205

 

Long-term debt

 

9,824

 

 

13,837

 

 

20,370

 

 

27,832

 

 

Total interest expense

 

37,899

 

 

41,959

 

 

73,308

 

 

86,298

Net interest income

 

533,862

 

 

487,802

 

 

1,028,174

 

 

966,914

Provision for credit losses (benefit)

 

9,362

 

 

(17,015)

 

 

(6,138)

 

 

(99,241)

Net interest income after provision for credit losses (benefit)

 

524,500

 

 

504,817

 

 

1,034,312

 

 

1,066,155

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

41,809

 

 

40,153

 

 

82,522

 

 

79,773

Other service fees

 

81,451

 

 

76,382

 

 

158,585

 

 

147,010

Mortgage banking activities (Refer to Note 9)

 

13,575

 

 

7,448

 

 

26,440

 

 

24,791

Net (loss) gain, including impairment on equity securities

 

(4,109)

 

 

1,565

 

 

(6,203)

 

 

1,986

Net gain (loss) on trading account debt securities

 

51

 

 

(47)

 

 

(672)

 

 

(92)

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

 

-

 

 

(73)

 

 

-

 

 

(73)

Adjustments (expense) to indemnity reserves on loans sold

 

170

 

 

1,668

 

 

(575)

 

 

970

Other operating income

 

24,464

 

 

27,444

 

 

52,006

 

 

53,828

 

 

Total non-interest income

 

157,411

 

 

154,540

 

 

312,103

 

 

308,193

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Personnel costs

 

168,788

 

 

154,204

 

 

335,784

 

 

313,683

Net occupancy expenses

 

26,214

 

 

24,562

 

 

50,937

 

 

50,575

Equipment expenses

 

25,088

 

 

22,805

 

 

48,567

 

 

44,380

Other taxes

 

15,780

 

 

13,205

 

 

31,495

 

 

27,164

Professional fees

 

114,872

 

 

101,153

 

 

223,369

 

 

201,101

Communications

 

5,993

 

 

6,005

 

 

12,140

 

 

12,838

Business promotion

 

21,353

 

 

16,511

 

 

36,436

 

 

29,032

FDIC deposit insurance

 

6,463

 

 

5,742

 

 

13,835

 

 

11,710

Other real estate owned (OREO) income

 

(7,806)

 

 

(4,299)

 

 

(10,519)

 

 

(8,832)

Other operating expenses

 

28,738

 

 

27,042

 

 

64,887

 

 

59,756

Amortization of intangibles

 

795

 

 

1,255

 

 

1,686

 

 

2,306

 

 

Total operating expenses

 

406,278

 

 

368,185

 

 

808,617

 

 

743,713

Income before income tax

 

275,633

 

 

291,172

 

 

537,798

 

 

630,635

Income tax expense

 

64,212

 

 

73,093

 

 

114,691

 

 

149,924

Net Income

$

211,421

 

$

218,079

 

$

423,107

 

$

480,711

Net Income Applicable to Common Stock

$

211,068

 

$

217,726

 

$

422,401

 

$

480,005

Net Income per Common Share – Basic

$

2.77

 

$

2.67

 

$

5.46

 

$

5.80

Net Income per Common Share – Diluted

$

2.77

 

$

2.66

 

$

5.46

 

$

5.79

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

 

7

 

POPULAR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

 

 

 

 

Quarters ended,

 

Six months ended,

 

 

June 30,

 

June 30,

(In thousands)

2022

 

2021

 

2022

 

2021

Net income

$

211,421

 

$

218,079

 

$

423,107

 

$

480,711

Other comprehensive (loss) income before tax:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

5,998

 

 

2,726

 

 

3,140

 

 

3,295

Adjustment of pension and postretirement benefit plans

 

-

 

 

-

 

 

2,030

 

 

-

Amortization of net losses of pension and postretirement benefit plans

 

3,911

 

 

5,189

 

 

7,822

 

 

10,379

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

 

(620,597)

 

 

76,913

 

 

(1,839,620)

 

 

(320,414)

Unrealized net (losses) gains on cash flow hedges

 

(377)

 

 

(602)

 

 

3,511

 

 

1,621

 

Reclassification adjustment for net (gains) losses included in net income

 

(880)

 

 

280

 

 

(1,579)

 

 

189

Other comprehensive (loss) income before tax

 

(611,945)

 

 

84,506

 

 

(1,824,696)

 

 

(304,930)

Income tax benefit (expense)

 

56,167

 

 

(5,459)

 

 

196,749

 

 

19,248

Total other comprehensive (loss) income, net of tax

 

(555,778)

 

 

79,047

 

 

(1,627,947)

 

 

(285,682)

Comprehensive (loss) income, net of tax

$

(344,357)

 

$

297,126

 

$

(1,204,840)

 

$

195,029

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

Quarters ended

 

Six months ended,

 

 

June 30,

 

June 30,

(In thousands)

2022

 

2021

 

2022

 

2021

Adjustment of pension and postretirement benefit plans

$

-

 

$

-

 

$

(761)

 

$

-

Amortization of net losses of pension and postretirement benefit plans

 

(1,467)

 

 

(1,947)

 

 

(2,934)

 

 

(3,895)

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

 

57,177

 

 

(3,886)

 

 

200,370

 

 

23,496

Unrealized net (losses) gains on cash flow hedges

 

45

 

 

372

 

 

(704)

 

 

(494)

 

Reclassification adjustment for net (gains) losses included in net income

 

412

 

 

2

 

 

778

 

 

141

Income tax benefit (expense)

$

56,167

 

$

(5,459)

 

$

196,749

 

$

19,248

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

 

 

 

 

 

 

8

 

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

other

 

 

 

 

 

 

Common

Preferred

 

 

Retained

 

Treasury

 

comprehensive

 

 

 

(In thousands)

stock

stock

Surplus

earnings

 

stock

 

(loss) income

 

Total

Balance at March 31, 2021

$

1,045

$

22,143

$

4,571,919

$

2,489,453

 

$

(1,012,263)

 

$

(174,738)

 

$

5,897,559

Net income

 

 

 

 

 

 

 

218,079

 

 

 

 

 

 

 

 

218,079

Issuance of stock

 

 

 

 

 

1,108

 

 

 

 

 

 

 

 

 

 

1,108

Dividends declared:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock[1]

 

 

 

 

 

 

 

(36,294)

 

 

 

 

 

 

 

 

(36,294)

 

Preferred stock

 

 

 

 

 

 

 

(353)

 

 

 

 

 

 

 

 

(353)

Common stock purchases[2]

 

 

 

 

 

(70,000)

 

 

 

 

(281,365)

 

 

 

 

 

(351,365)

Stock based compensation

 

 

 

 

 

3,632

 

 

 

 

3,201

 

 

 

 

 

6,833

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

79,047

 

 

79,047

Balance at June 30, 2021

$

1,045

$

22,143

$

4,506,659

$

2,670,885

 

$

(1,290,427)

 

$

(95,691)

 

$

5,814,614

Balance at March 31, 2022

$

1,046

$

22,143

$

4,571,111

$

3,143,004

 

$

(1,668,820)

 

$

(1,397,238)

 

$

4,671,246

Net income

 

 

 

 

 

 

 

211,421

 

 

 

 

 

 

 

 

211,421

Issuance of stock

 

 

 

 

 

1,536

 

 

 

 

 

 

 

 

 

 

1,536

Dividends declared:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock[1]

 

 

 

 

 

 

 

(42,121)

 

 

 

 

 

 

 

 

(42,121)

 

Preferred stock

 

 

 

 

 

 

 

(353)

 

 

 

 

 

 

 

 

(353)

Common stock purchases

 

 

 

 

 

 

 

 

 

 

(1,375)

 

 

 

 

 

(1,375)

Stock based compensation

 

 

 

 

 

3,831

 

 

 

 

4,942

 

 

 

 

 

8,773

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

(555,778)

 

 

(555,778)

Balance at June 30, 2022

$

1,046

$

22,143

$

4,576,478

$

3,311,951

 

$

(1,665,253)

 

$

(1,953,016)

 

$

4,293,349

[1]

Dividends declared per common share during the quarter ended June 30, 2022 - $0.55 (2021 - $0.45).

[2]

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

9

 

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

other

 

 

 

 

 

 

Common

Preferred

 

 

Retained

 

Treasury

 

comprehensive

 

 

 

(In thousands)

stock

stock

Surplus

earnings

 

stock

 

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

 

 

 

 

 

 

 

480,711

 

 

 

 

 

 

 

 

480,711

Issuance of stock

 

 

 

 

 

2,226

 

 

 

 

 

 

 

 

 

 

2,226

Dividends declared:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock[1]

 

 

 

 

 

 

 

(70,048)

 

 

 

 

 

 

 

 

(70,048)

 

Preferred stock

 

 

 

 

 

 

 

(706)

 

 

 

 

 

 

 

 

(706)

Common stock purchases[2]

 

 

 

 

 

(70,000)

 

 

 

 

(285,307)

 

 

 

 

 

(355,307)

Stock based compensation

 

 

 

 

 

2,899

 

 

 

 

11,834

 

 

 

 

 

14,733

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

(285,682)

 

 

(285,682)

Balance at June 30, 2021

$

1,045

$

22,143

$

4,506,659

$

2,670,885

 

$

(1,290,427)

 

$

(95,691)

 

$

5,814,614

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

 

 

 

 

 

 

 

423,107

 

 

 

 

 

 

 

 

423,107

Issuance of stock

 

 

 

 

 

2,735

 

 

 

 

 

 

 

 

 

 

2,735

Dividends declared:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock[1]

 

 

 

 

 

 

 

(84,195)

 

 

 

 

 

 

 

 

(84,195)

 

Preferred stock

 

 

 

 

 

 

 

(706)

 

 

 

 

 

 

 

 

(706)

Common stock purchases[3]

 

 

 

 

 

(80,000)

 

 

 

 

(326,295)

 

 

 

 

 

(406,295)

Stock based compensation

 

 

 

 

 

3,561

 

 

 

 

13,692

 

 

 

 

 

17,253

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,627,947)

 

 

(1,627,947)

Balance at June 30, 2022

$

1,046

$

22,143

$

4,576,478

$

3,311,951

 

$

(1,665,253)

 

$

(1,953,016)

 

$

4,293,349

[1]

Dividends declared per common share during the six months ended June 30, 2022 - $1.10 (2021 - $0.85).

[2]

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

[3]

During the six month ended June 30, 2022, the Corporation entered into a $400 million accelerated share repurchase transaction with respect to its common stock, which was accounted for as a treasury stock transaction. Refer to Note 17 for additional information.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the period ended

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

 

June 30,

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

 

 

 

 

 

 

 

 

 

 

 

 

 

34,774

 

 

37,576

 

Balance at end of period

 

 

 

 

 

 

 

 

 

 

 

 

 

104,614,108

 

 

104,545,866

 

Treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,037,711)

 

 

(23,889,386)

Common Stock – Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

76,576,397

 

 

80,656,480

 

 

 

 

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

10

 

POPULAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30,

(In thousands)

 

2022

 

 

2021

Cash flows from operating activities:

 

 

 

 

 

Net income

$

423,107

 

$

480,711

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

 

 

 

 

 

 

Provision for credit losses (benefit)

 

(6,138)

 

 

(99,241)

 

Amortization of intangibles

 

1,686

 

 

2,306

 

Depreciation and amortization of premises and equipment

 

27,354

 

 

28,408

 

Net accretion of discounts and amortization of premiums and deferred fees

 

39,614

 

 

(17,234)

 

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

 

(6,210)

 

 

(8,330)

 

Share-based compensation

 

13,175

 

 

14,609

 

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

 

-

 

 

303

 

Fair value adjustments on mortgage servicing rights

 

(3,275)

 

 

5,727

 

Adjustments to indemnity reserves on loans sold

 

575

 

 

(970)

 

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

 

(12,616)

 

 

(21,689)

 

Deferred income tax expense

 

37,322

 

 

125,228

 

(Gain) loss on:

 

 

 

 

 

 

 

Disposition of premises and equipment and other productive assets

 

(2,970)

 

 

(8,674)

 

 

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

 

1,498

 

 

(10,106)

 

 

Sale of foreclosed assets, including write-downs

 

(18,694)

 

 

(16,126)

 

Acquisitions of loans held-for-sale

 

(103,192)

 

 

(122,806)

 

Proceeds from sale of loans held-for-sale

 

36,073

 

 

54,262

 

Net originations on loans held-for-sale

 

(158,691)

 

 

(284,298)

 

Net decrease (increase) in:

 

 

 

 

 

 

 

Trading debt securities

 

273,265

 

 

369,194

 

 

Equity securities

 

2,257

 

 

(5,191)

 

 

Accrued income receivable

 

(13,702)

 

 

5,818

 

 

Other assets

 

10,157

 

 

(7,729)

 

Net (decrease) increase in:

 

 

 

 

 

 

 

Interest payable

 

(212)

 

 

(3,878)

 

 

Pension and other postretirement benefits obligation

 

(1,411)

 

 

(1,954)

 

 

Other liabilities

 

(47,640)

 

 

930

Total adjustments

 

68,225

 

 

(1,441)

Net cash provided by operating activities

 

491,332

 

 

479,270

Cash flows from investing activities:

 

 

 

 

 

 

Net decrease (increase) in money market investments

 

7,850,071

 

 

(6,161,953)

 

Purchases of investment securities:

 

 

 

 

 

 

 

Available-for-sale

 

(8,819,124)

 

 

(7,568,621)

 

 

Held-to-maturity

 

(1,588,283)

 

 

-

 

 

Equity

 

(5,500)

 

 

(10,590)

 

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

 

 

 

 

 

 

 

Available-for-sale

 

5,619,609

 

 

5,672,695

 

 

Held-to-maturity

 

5,491

 

 

4,999

 

Proceeds from sale of investment securities:

 

 

 

 

 

 

 

Equity

 

17,350

 

 

2,500

 

Net (disbursements) repayments on loans

 

(893,126)

 

 

422,509

 

Proceeds from sale of loans

 

43,353

 

 

51,032

 

Acquisition of loan portfolios

 

(288,589)

 

 

(150,116)

 

Payments to acquire other intangible assets

 

-

 

 

(1,185)

 

Return of capital from equity method investments

 

-

 

 

2,438

 

Acquisition of premises and equipment

 

(39,695)

 

 

(36,481)

 

Proceeds from sale of:

 

 

 

 

 

 

 

Premises and equipment and other productive assets

 

1,975

 

 

8,185

 

 

Foreclosed assets

 

54,997

 

 

49,271

Net cash provided by (used in) investing activities

 

1,958,529

 

 

(7,715,317)

11

 

Cash flows from financing activities:

 

 

 

 

 

 

Net (decrease) increase in:

 

 

 

 

 

 

 

Deposits

 

(1,668,448)

 

 

7,778,119

 

 

Assets sold under agreements to repurchase

 

(20,678)

 

 

(30,377)

 

 

Other short-term borrowings

 

(75,000)

 

 

-

 

Payments of notes payable

 

(101,000)

 

 

(49,009)

 

Principal payments of finance leases

 

(1,592)

 

 

(1,692)

 

Proceeds from issuance of common stock

 

2,735

 

 

2,226

 

Dividends paid

 

(78,718)

 

 

(68,161)

 

Payments for repurchase of common stock

 

(400,704)

 

 

(350,409)

 

Payments related to tax withholding for share-based compensation

 

(5,591)

 

 

(4,898)

Net cash (used in) provided by financing activities

 

(2,348,996)

 

 

7,275,799

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

 

100,865

 

 

39,752

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

$

535,377

 

$

536,846

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

12

 

Notes to Consolidated Financial

Statements (Unaudited)

 

Note 1 -

Nature of operations

14

Note 2 -

Basis of presentation

15

Note 3 -

New accounting pronouncements

16

Note 4 -

Restrictions on cash and due from banks and certain securities

18

Note 5 -

Debt securities available-for-sale

19

Note 6 -

Debt securities held-to-maturity

22

Note 7 -

Loans

25

Note 8 -

Allowance for credit losses – loans held-in-portfolio

34

Note 9 -

Mortgage banking activities

58

Note 10 -

Transfers of financial assets and mortgage servicing assets

59

Note 11 -

Other real estate owned

63

Note 12 -

Other assets

64

Note 13 -

Goodwill and other intangible assets

65

Note 14 -

Deposits

67

Note 15 -

Borrowings

68

Note 16 -

Other liabilities

70

Note 17 -

Stockholders’ equity

71

Note 18 -

Other comprehensive loss

72

Note 19 -

Guarantees

74

Note 20 -

Commitments and contingencies

76

Note 21-

Non-consolidated variable interest entities

83

Note 22 -

Related party transactions

85

Note 23 -

Fair value measurement

88

Note 24 -

Fair value of financial instruments

95

Note 25 -

Net income per common share

98

Note 26 -

Revenue from contracts with customers

99

Note 27 -

Leases

101

Note 28 -

Pension and postretirement benefits

103

Note 29 -

Stock-based compensation

104

Note 30 -

Income taxes

107

Note 31 -

Supplemental disclosure on the consolidated statements of cash flows

111

Note 32 -

Segment reporting

112

Note 33 -

Subsequent events

116

 

 

 

 

 

 

 

 

 

 

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 a wholly-owned subsidiary of PB.

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 2022-03, Fair Value Measurement (Topic 820) Fair Value Measurement of Equity Securities Subject to Contractual Sale Restriction

 

The FASB issued ASU 2022-03 in June 2022, which clarifies that a contractual restriction that prohibits the sale of an equity security is not considered part of the unit of account of the equity security, therefore, is not considered in measuring its fair value. The ASU also provides enhanced disclosures for equity securities subject to a contractual sale restriction.

January 1, 2024

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

 

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

 

The FASB issued ASU 2022-02 in March 2022, which eliminates the accounting guidance for troubled debt restructurings (“TDRs”) in Subtopic 310-40 Receivables—Troubled Debt Restructurings by Creditors and requires 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 consolidated financial statements and 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 June 30, 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 June 30, 2022, the Corporation held $84 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 June 30, 2022 and December 31, 2021.

 

 

 

At June 30, 2022

 

 

 

 

 

Gross

Gross

 

 

Weighted

 

 

 

Amortized

unrealized

unrealized

Fair

average

 

(In thousands)

cost

gains

losses

value

yield

 

U.S. Treasury securities

 

 

 

 

 

 

 

 

 

 

 

Within 1 year

$

3,846,972

$

862

$

14,196

$

3,833,638

1.40

%

 

After 1 to 5 years

 

11,863,562

 

21

 

593,726

 

11,269,857

1.28

 

 

After 5 to 10 years

 

4,115,435

 

-

 

378,448

 

3,736,987

1.36

 

Total U.S. Treasury securities

 

19,825,969

 

883

 

986,370

 

18,840,482

1.32

 

Obligations of U.S. Government sponsored entities

 

 

 

 

 

 

 

 

 

 

 

Within 1 year

 

70

 

-

 

-

 

70

5.51

 

Total obligations of U.S. Government sponsored entities

 

70

 

-

 

-

 

70

5.51

 

Collateralized mortgage obligations - federal agencies

 

 

 

 

 

 

 

 

 

 

 

After 1 to 5 years

 

1,725

 

-

 

27

 

1,698

2.20

 

 

After 5 to 10 years

 

44,777

 

2

 

1,484

 

43,295

1.65

 

 

After 10 years

 

134,231

 

312

 

6,752

 

127,791

2.24

 

Total collateralized mortgage obligations - federal agencies

 

180,733

 

314

 

8,263

 

172,784

2.09

 

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

Within 1 year

 

3

 

-

 

-

 

3

5.62

 

 

After 1 to 5 years

 

59,826

 

150

 

991

 

58,985

2.21

 

 

After 5 to 10 years

 

836,020

 

136

 

26,286

 

809,870

2.09

 

 

After 10 years

 

7,297,573

 

4,002

 

918,113

 

6,383,462

1.60

 

Total mortgage-backed securities

 

8,193,422

 

4,288

 

945,390

 

7,252,320

1.66

 

Other

 

 

 

 

 

 

 

 

 

 

 

After 1 to 5 years

 

595

 

-

 

-

 

595

3.10

 

Total other

 

595

 

-

 

-

 

595

3.10

 

Total debt securities available-for-sale[1]

$

28,200,789

$

5,485

$

1,940,023

$

26,266,251

1.42

%

[1]

Includes $20.7 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 $19.5 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.

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

No debt securities available-for-sale were sold during the six months ended June 30, 2022 and 2021.

 

20

 

The following tables present the Corporation’s fair value and gross unrealized losses of debt securities available-for-sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2022 and December 31, 2021.

 

 

At June 30, 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

$

15,450,643

$

945,084

$

664,811

$

41,286

$

16,115,454

$

986,370

Collateralized mortgage obligations - federal agencies

 

148,922

 

8,166

 

852

 

97

 

149,774

 

8,263

Mortgage-backed securities

 

2,972,601

 

218,959

 

4,176,733

 

726,431

 

7,149,334

 

945,390

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

$

18,572,166

$

1,172,209

$

4,842,396

$

767,814

$

23,414,562

$

1,940,023

 

 

 

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 June 30, 2022, the portfolio of available-for-sale debt securities reflects gross unrealized losses of approximately $1.9 billion, driven mainly by fixed-rate U.S. Treasury Securities and mortgage-backed securities, which have been impacted by a decline in fair value as a result of the rising interest rate environment. The portfolio of available-for-sale debt securities is comprised mainly of U.S Treasuries and obligations from the U.S. Government, its agencies or government sponsored entities, including FNMA, FHMLC and GNMA. As discussed in Note 2 to the Consolidated Financial Statements 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 June 30, 2022 and December 31, 2021.

 

 

 

At June 30, 2022

 

 

 

 

 

 

Allowance

 

 

Gross

Gross

 

 

Weighted

 

 

 

Amortized

 

for Credit

 

Net of

unrealized

unrealized

Fair

average

 

(In thousands)

cost

 

Losses

 

Allowance

gains

losses

value

yield

 

U.S. Treasury securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Within 1 year

$

98,743

$

-

$

98,743

$

116

$

-

$

98,859

3.03

%

 

After 1 to 5 years

 

1,490,003

 

-

 

1,490,003

 

-

 

11,276

 

1,478,727

2.64

 

Total U.S. Treasury securities

 

1,588,746

 

-

 

1,588,746

 

116

 

11,276

 

1,577,586

2.67

 

Obligations of Puerto Rico, States and political subdivisions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Within 1 year

 

4,440

 

7

 

4,433

 

7

 

1

 

4,439

6.10

 

 

After 1 to 5 years

 

13,045

 

168

 

12,877

 

168

 

-

 

13,045

6.28

 

 

After 5 to 10 years

 

9,530

 

110

 

9,420

 

27

 

112

 

9,335

1.40

 

 

After 10 years

 

42,270

 

7,210

 

35,060

 

5,762

 

1,650

 

39,172

1.46

 

Total obligations of Puerto Rico, States and political subdivisions

 

69,285

 

7,495

 

61,790

 

5,964

 

1,763

 

65,991

2.66

 

Collateralized mortgage obligations - federal agencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After 1 to 5 years

 

24

 

-

 

24

 

-

 

-

 

24

6.44

 

Total collateralized mortgage obligations - federal agencies

 

24

 

-

 

24

 

-

 

-

 

24

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

$

1,664,015

$

7,495

$

1,656,520

$

6,080

$

13,039

$

1,649,561

2.68

%

 

 

 

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.

As discussed in Note 2 to the Consolidated Financial Statements included in Form 10-K for the year ended December 31, 2021, U.S. Treasury securities carry an explicit guarantee from the U.S. Government are highly rated by major rating agencies, and have a

22

 

long history of no credit losses. Accordingly, the Corporation applies a zero-credit loss assumption and no ACL for these securities has been established.

At June 30, 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 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 June 30, 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 June 30, 2022, the portfolio of “Obligations of Puerto Rico, States and political subdivisions” also includes $42 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 June 30, 2022, the average refreshed FICO score for the representative sample, comprised of 64% of the nominal value of the securities, used for the loss estimate was of 707 (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 June 30, 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 June 30, 2022 and June 30, 2021:

 

23

 

 

 

 

 

 

 

 

 

For the quarters ended June 30,

 

 

 

2022

 

2021

(In thousands)

Obligations of Puerto Rico, States and political subdivisions

Allowance for credit losses:

 

 

 

 

Beginning balance

 

$

7,844

$

10,096

Provision for credit losses (benefit)

 

 

(349)

 

118

Securities charged-off

 

 

-

 

-

Recoveries

 

 

-

 

-

Ending balance

$

7,495

$

10,214

 

 

 

 

 

 

 

 

For the six months ended June 30,

 

 

 

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)

 

 

(601)

 

(47)

Securities charged-off

 

 

-

 

-

Recoveries

 

 

-

 

-

Ending balance

$

7,495

$

10,214

 

 

 

 

 

 

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 $7.2 million for bonds issued by the Puerto Rico HFA, which are secured by second mortgage loans on Puerto Rico residential properties (compared to $0.3 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 and six months ended June 30, 2022, the Corporation recorded purchases (including repurchases) of mortgage loans amounting to $71 million and $153 million, respectively, including $1 million and $4 million in PCD loans, respectively, and consumer loans of $123 million and $214 million, respectively. During the quarter and six months ended June 30, 2022, the Corporation recorded purchases of $23 million in commercial loans.

 

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

 

The Corporation performed whole-loan sales involving approximately $14 million and $33 million of residential mortgage loans during the quarter and six months ended June 30, 2022, respectively (June 30, 2021 - $19 million and $85 million, respectively). During the quarter and six months ended June 30, 2022, the Corporation performed sales of commercial loans, including loan participations amounting to $43 million (June 30, 2021 - $2 million and $9 million, respectively).

 

Also, the Corporation securitized approximately $77 million and $155 million of mortgage loans into Government National Mortgage Association (“GNMA”) mortgage-backed securities during the quarter and six months ended June 30, 2022, respectively (June 30, 2021 - $107 million and $209 million, respectively). Furthermore, the Corporation securitized approximately $38 million and $95 million of mortgage loans into Federal National Mortgage Association (“FNMA”) mortgage-backed securities during the quarter and six months ended June 30, 2022, respectively (June 30, 2021 - $73 million and $159 million, respectively). Also, the Corporation securitized approximately $1 million and $9 million of mortgage loans into Federal Home Loan Mortgage Corporation (“FHLMC”) mortgage-backed securities during the quarter and six months ended June 30, 2022, respectively (June 30, 2021 - $14 million for the quarter and six months ended).

 

Delinquency status

 

The following tables present the amortized cost basis of loans held-in-portfolio (“HIP”), net of unearned income, by past due status, and by loan class including those that are in non-performing status or that are accruing interest but are past due 90 days or more at June 30, 2022 and December 31, 2021.

25

 

June 30, 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

$

1,992

 

$

-

 

$

254

$

2,246

 

$

234,308

 

$

236,554

 

 

$

254

 

$

-

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

1,379

 

 

110

 

 

20,435

 

21,924

 

 

2,630,194

 

 

2,652,118

 

 

 

20,435

 

 

-

 

Owner occupied

 

4,894

 

 

2,860

 

 

32,155

 

39,909

 

 

1,366,840

 

 

1,406,749

 

 

 

32,155

 

 

-

Commercial and industrial

 

2,534

 

 

1,526

 

 

44,176

 

48,236

 

 

3,472,447

 

 

3,520,683

 

 

 

43,649

 

 

527

Construction

 

498

 

 

-

 

 

-

 

498

 

 

161,864

 

 

162,362

 

 

 

-

 

 

-

Mortgage

 

211,483

 

 

82,898

 

 

681,757

 

976,138

 

 

5,065,785

 

 

6,041,923

 

 

 

284,670

 

 

397,087

Leasing

 

9,970

 

 

2,164

 

 

4,665

 

16,799

 

 

1,463,423

 

 

1,480,222

 

 

 

4,665

 

 

-

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit cards

 

5,785

 

 

4,142

 

 

8,896

 

18,823

 

 

947,876

 

 

966,699

 

 

 

-

 

 

8,896

 

Home equity lines of credit

 

-

 

 

-

 

 

-

 

-

 

 

3,122

 

 

3,122

 

 

 

-

 

 

-

 

Personal

 

11,216

 

 

6,043

 

 

19,045

 

36,304

 

 

1,351,796

 

 

1,388,100

 

 

 

19,045

 

 

-

 

Auto

 

56,577

 

 

13,815

 

 

28,045

 

98,437

 

 

3,391,539

 

 

3,489,976

 

 

 

28,045

 

 

-

 

Other

 

242

 

 

131

 

 

12,125

 

12,498

 

 

120,651

 

 

133,149

 

 

 

11,913

 

 

212

Total

$

306,570

 

$

113,689

 

$

851,553

$

1,271,812

 

$

20,209,845

 

$

21,481,657

 

 

$

444,831

 

$

406,722

 

June 30, 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

$

-

 

$

187

 

$

280

 

$

467

 

$

1,895,352

 

$

1,895,819

 

 

$

280

 

$

-

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

288

 

 

-

 

 

-

 

 

288

 

 

1,467,935

 

 

1,468,223

 

 

 

-

 

 

-

 

Owner occupied

 

144

 

 

-

 

 

1,416

 

 

1,560

 

 

1,465,252

 

 

1,466,812

 

 

 

1,416

 

 

-

Commercial and industrial

 

9,278

 

 

2,037

 

 

6,326

 

 

17,641

 

 

1,880,702

 

 

1,898,343

 

 

 

5,750

 

 

576

Construction

 

-

 

 

7,000

 

 

-

 

 

7,000

 

 

621,558

 

 

628,558

 

 

 

-

 

 

-

Mortgage

 

1,561

 

 

3,587

 

 

20,192

 

 

25,340

 

 

1,194,692

 

 

1,220,032

 

 

 

20,192

 

 

-

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit cards

 

-

 

 

-

 

 

-

 

 

-

 

 

47

 

 

47

 

 

 

-

 

 

-

 

Home equity lines of credit

 

303

 

 

16

 

 

4,705

 

 

5,024

 

 

66,431

 

 

71,455

 

 

 

4,705

 

 

-

 

Personal

 

755

 

 

470

 

 

749

 

 

1,974

 

 

232,339

 

 

234,313

 

 

 

749

 

 

-

 

Other

 

-

 

 

13

 

 

1

 

 

14

 

 

5,663

 

 

5,677

 

 

 

1

 

 

-

Total

$

12,329

 

$

13,310

 

$

33,669

 

$

59,308

 

$

8,829,971

 

$

8,889,279

 

 

$

33,093

 

$

576

26

 

June 30, 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

$

1,992

 

$

187

 

$

534

$

2,713

 

$

2,129,660

 

$

2,132,373

 

 

$

534

 

$

-

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

1,667

 

 

110

 

 

20,435

 

22,212

 

 

4,098,129

 

 

4,120,341

 

 

 

20,435

 

 

-

 

 

Owner occupied

 

5,038

 

 

2,860

 

 

33,571

 

41,469

 

 

2,832,092

 

 

2,873,561

 

 

 

33,571

 

 

-

 

Commercial and industrial

 

11,812

 

 

3,563

 

 

50,502

 

65,877

 

 

5,353,149

 

 

5,419,026

 

 

 

49,399

 

 

1,103

 

Construction

 

498

 

 

7,000

 

 

-

 

7,498

 

 

783,422

 

 

790,920

 

 

 

-

 

 

-

 

Mortgage[1]

 

213,044

 

 

86,485

 

 

701,949

 

1,001,478

 

 

6,260,477

 

 

7,261,955

 

 

 

304,862

 

 

397,087

 

Leasing

 

9,970

 

 

2,164

 

 

4,665

 

16,799

 

 

1,463,423

 

 

1,480,222

 

 

 

4,665

 

 

-

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit cards

 

5,785

 

 

4,142

 

 

8,896

 

18,823

 

 

947,923

 

 

966,746

 

 

 

-

 

 

8,896

 

 

Home equity lines of credit

 

303

 

 

16

 

 

4,705

 

5,024

 

 

69,553

 

 

74,577

 

 

 

4,705

 

 

-

 

 

Personal

 

11,971

 

 

6,513

 

 

19,794

 

38,278

 

 

1,584,135

 

 

1,622,413

 

 

 

19,794

 

 

-

 

 

Auto

 

56,577

 

 

13,815

 

 

28,045

 

98,437

 

 

3,391,539

 

 

3,489,976

 

 

 

28,045

 

 

-

 

 

Other

 

242

 

 

144

 

 

12,126

 

12,512

 

 

126,314

 

 

138,826

 

 

 

11,914

 

 

212

 

Total

$

318,899

 

$

126,999

 

$

885,222

$

1,331,120

 

$

29,039,816

 

$

30,370,936

 

 

$

477,924

 

$

407,298

 

[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 $11 million at June 30, 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 $237 million of residential mortgage loans insured by FHA or guaranteed by the VA that are no longer accruing interest as of June 30, 2022. Furthermore, the Corporation has approximately $43 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 $273 million in unearned income and exclude $29 million in loans held-for-sale.

[3]

Includes $6.8 billion pledged to secure credit facilities and public funds that the secured parties are not permitted to sell or repledge the collateral, of which $3.1 billion were pledged at the Federal Home Loan Bank ("FHLB") as collateral for borrowings and $1.8 billion at the Federal Reserve Bank ("FRB") for discount window borrowings and $1.9 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 June 30, 2022, mortgage loans held-in-portfolio include $1.9 billion (December 31, 2021 - $1.9 billion) of loans insured by the FHA, or guaranteed by the VA of which $0.4 billion (December 31, 2021 - $0.5 billion) are 90 days or more past due. These balances include $724 million in loans modified under a TDR (December 31, 2021 - $716 million), that are presented as accruing loans. The portfolio of guaranteed loans includes $237 million of residential mortgage loans in Puerto Rico that are no longer accruing interest as of June 30, 2022 (December 31, 2021 - $304 million). The Corporation has approximately $43 million in reverse mortgage loans in Puerto Rico which are guaranteed by FHA, but which are currently not accruing interest at June 30, 2022 (December 31, 2021 - $50 million).

 

Loans with a delinquency status of 90 days past due as of June 30, 2022 include $11 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 June 30, 2022 and 2021 by class of loans:

29

 

June 30, 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

$

-

$

254

 

$

-

$

280

 

$

-

$

534

Commercial real estate non-owner occupied

 

15,463

 

4,972

 

 

-

 

-

 

 

15,463

 

4,972

Commercial real estate owner occupied

 

9,528

 

22,627

 

 

-

 

1,416

 

 

9,528

 

24,043

Commercial and industrial

 

24,748

 

18,901

 

 

-

 

5,750

 

 

24,748

 

24,651

Mortgage

 

146,322

 

138,348

 

 

20

 

20,172

 

 

146,342

 

158,520

Leasing

 

354

 

4,311

 

 

-

 

-

 

 

354

 

4,311

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HELOCs

 

-

 

-

 

 

-

 

4,705

 

 

-

 

4,705

Personal

 

5,330

 

13,715

 

 

-

 

749

 

 

5,330

 

14,464

Auto

 

1,041

 

27,004

 

 

-

 

-

 

 

1,041

 

27,004

Other

 

263

 

11,650

 

 

-

 

1

 

 

263

 

11,651

Total

$

203,049

$

241,782

 

$

20

$

33,073

 

$

203,069

$

274,855

 

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 June 30, 2022 include $203 million in collateral dependent loans (December 31, 2021 - $237 million). The Corporation recognized $3 million in interest income on non-accrual loans during the six months ended June 30, 2022 (June 30, 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 June 30, 2022 and December 31, 2021:

30

 

 

 

June 30, 2022

(In thousands)

 

Real Estate

 

Auto

 

Equipment

 

Accounts Receivables

 

Other

 

Total

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

$

1,355

$

-

$

-

$

-

$

-

$

1,355

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

212,029

 

-

 

-

 

-

 

-

 

212,029

 

Owner occupied

 

24,864

 

-

 

-

 

-

 

-

 

24,864

Commercial and industrial

 

1,425

 

-

 

549

 

10,164

 

29,486

 

41,624

Mortgage

 

159,293

 

-

 

-

 

-

 

-

 

159,293

Leasing

 

-

 

892

 

6

 

-

 

-

 

898

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

6,114

 

-

 

-

 

-

 

-

 

6,114

 

Auto

 

-

 

8,539

 

-

 

-

 

-

 

8,539

 

Other

 

-

 

-

 

-

 

-

 

263

 

263

Total Puerto Rico

$

405,080

$

9,431

$

555

$

10,164

$

29,749

$

454,979

Popular U.S.

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage

$

921

$

-

$

-

$

-

$

-

$

921

Total Popular U.S.

$

921

$

-

$

-

$

-

$

-

$

921

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

Commercial multi-family

$

1,355

$

-

$

-

$

-

$

-

$

1,355

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-owner occupied

 

212,029

 

-

 

-

 

-

 

-

 

212,029

 

Owner occupied

 

24,864

 

-

 

-

 

-

 

-

 

24,864

Commercial and industrial

 

1,425

 

-

 

549

 

10,164

 

29,486

 

41,624

Mortgage

 

160,214

 

-

 

-

 

-

 

-

 

160,214

Leasing

 

-

 

892

 

6

 

-

 

-

 

898

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

6,114

 

-

 

-

 

-

 

-

 

6,114

 

Auto

 

-

 

8,539

 

-

 

-

 

-

 

8,539

 

Other

 

-

 

-

 

-

 

-

 

263

 

263

Total Popular, Inc.

$

406,001

$

9,431

$

555

$

10,164

$

29,749

$

455,900

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

32

 

Purchased Credit Deteriorated (PCD) Loans

 

The Corporation has purchased loans during the quarter and six months ended June 30, 2022 and 2021, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The carrying amount of those loans is as follows:

 

 

 

 

 

 

(In thousands)

 

For the quarter ended June 30, 2022

 

For the six months ended June 30, 2022

Purchase price of loans at acquisition

$

591

$

2,593

Allowance for credit losses at acquisition

 

170

 

782

Non-credit discount / (premium) at acquisition

 

26

 

125

Par value of acquired loans at acquisition

$

787

$

3,500

 

 

 

 

 

 

(In thousands)

 

For the quarter ended June 30, 2021

 

For the six months ended June 30, 2021

Purchase price of loans at acquisition

$

4,049

$

8,984

Allowance for credit losses at acquisition

 

1,202

 

2,558

Non-credit discount / (premium) at acquisition

 

214

 

335

Par value of acquired loans at acquisition

$

5,465

$

11,877

33

 

Note 8 – Allowance for credit losses – loans held-in-portfolio

 

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

At June 30, 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. Annualized 2022 GDP growth of 2.8% is expected for both Puerto Rico and the United States, compared to 3.5% and 3.7%, respectively, in the previous quarter. Changes in assumptions related to fiscal stimulus, higher energy prices and tighter financial market conditions contributed to the reduction. The 2022 average unemployment rate is forecasted at 6.9% and 3.5% for Puerto Rico and the United States, respectively, improving from 7.3% and 3.6%, respectively, in the previous forecast.

 

The following tables present the changes in the ACL of loans held-in-portfolio and unfunded commitments for the quarters and six months ended June 30, 2022 and 2021.

34

 

For the quarter ended June 30, 2022

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

 

Construction

 

Mortgage

 

Leasing

 

Consumer

 

Total

Allowance for credit losses - loans:

Beginning balance

$

145,471

 

$

2,414

 

$

131,362

 

$

18,398

 

$

278,966

 

$

576,611

 

Provision for credit losses (benefit)

 

4,664

 

 

265

 

 

(5,953)

 

 

1,306

 

 

8,846

 

 

9,128

 

Initial allowance for credit losses - PCD Loans

 

-

 

 

-

 

 

170

 

 

-

 

 

-

 

 

170

 

Charge-offs

 

(1,322)

 

 

-

 

 

(1,367)

 

 

(1,496)

 

 

(21,779)

 

 

(25,964)

 

Recoveries

 

4,734

 

 

395

 

 

5,818

 

 

829

 

 

8,856

 

 

20,632

Ending balance

$

153,547

 

$

3,074

 

$

130,030

 

$

19,037

 

$

274,889

 

$

580,577

Allowance for credit losses - unfunded commitments:

Beginning balance

$

1,647

 

$

1,924

 

$

-

 

$

-

 

$

-

 

$

3,571

 

Provision for credit losses (benefit)

 

385

 

 

(390)

 

 

-

 

 

-

 

 

-

 

 

(5)

Ending balance - unfunded commitments [1]

$

2,032

 

$

1,534

 

$

-

 

$

-

 

$

-

 

$

3,566

[1]

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

 

For the quarter ended June 30, 2022

Popular U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

 

Construction

 

Mortgage

 

 

Consumer

 

Total

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

59,172

 

$

4,125

 

$

17,844

 

$

20,040

 

$

101,181

 

Provision for credit losses (benefit)

 

(2,952)

 

 

(290)

 

 

494

 

 

3,481

 

 

733

 

Charge-offs

 

(397)

 

 

-

 

 

(68)

 

 

(1,328)

 

 

(1,793)

 

Recoveries

 

260

 

 

4

 

 

5

 

 

783

 

 

1,052

Ending balance

$

56,083

 

$

3,839

 

$

18,275

 

$

22,976

 

$

101,173

Allowance for credit losses - unfunded commitments:

Beginning balance

$

1,318

 

$

2,135

 

$

-

 

$

30

 

$

3,483

 

Provision for credit losses (benefit)

 

(1)

 

 

(174)

 

 

-

 

 

30

 

 

(145)

Ending balance - unfunded commitments [1]

$

1,317

 

$

1,961

 

$

-

 

$

60

 

$

3,338

[1]

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

35

 

For the quarter ended June 30, 2022

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

 

Construction

 

Mortgage

Leasing

 

Consumer

 

Total

Allowance for credit losses - loans:

Beginning balance

$

204,643

 

$

6,539

 

$

149,206

$

18,398

 

$

299,006

 

$

677,792

 

Provision for credit losses (benefit)

 

1,712

 

 

(25)

 

 

(5,459)

 

1,306

 

 

12,327

 

 

9,861

 

Initial allowance for credit losses - PCD Loans

 

-

 

 

-

 

 

170

 

-

 

 

-

 

 

170

 

Charge-offs

 

(1,719)

 

 

-

 

 

(1,435)

 

(1,496)

 

 

(23,107)

 

 

(27,757)

 

Recoveries

 

4,994

 

 

399

 

 

5,823

 

829

 

 

9,639

 

 

21,684

Ending balance

$

209,630

 

$

6,913

 

$

148,305

$

19,037

 

$

297,865

 

$

681,750

Allowance for credit losses - unfunded commitments:

Beginning balance

$

2,965

 

$

4,059

 

$

-

$

-

 

$

30

 

$

7,054

 

Provision for credit losses (benefit)

 

384

 

 

(564)

 

 

-

 

-

 

 

30

 

 

(150)

Ending balance - unfunded commitments [1]

$

3,349

 

$

3,495

 

$

-

$

-

 

$

60

 

$

6,904

[1]

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

 

For the six months ended June 30, 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)

 

(6,023)

 

 

622

 

 

(16,481)

 

 

1,692

 

 

16,657

 

 

(3,533)

 

Initial allowance for credit losses - PCD Loans

 

-

 

 

-

 

 

782

 

 

-

 

 

-

 

 

782

 

Charge-offs

 

(1,849)

 

 

-

 

 

(2,688)

 

 

(1,903)

 

 

(43,844)

 

 

(50,284)

 

Recoveries

 

9,491

 

 

811

 

 

10,131

 

 

1,670

 

 

17,347

 

 

39,450

Ending balance - loans

$

153,547

 

$

3,074

 

$

130,030

 

$

19,037

 

$

274,889

 

$

580,577

Allowance for credit losses - unfunded commitments:

Beginning balance

$

1,751

 

$

2,388

 

$

-

 

$

-

 

$

-

 

$

4,139

 

Provision for credit losses (benefit)

 

281

 

 

(854)

 

 

-

 

 

-

 

 

-

 

 

(573)

Ending balance - unfunded commitments [1]

$

2,032

 

$

1,534

 

$

-

 

$

-

 

$

-

 

$

3,566

[1]

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

36

 

For the six months ended June 30, 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)

 

(8,284)

 

 

(2,015)

 

 

2,126

 

 

7,162

 

 

(1,011)

 

Charge-offs

 

(524)

 

 

-

 

 

(68)

 

 

(2,633)

 

 

(3,225)

 

Recoveries

 

1,014

 

 

1,132

 

 

25

 

 

2,034

 

 

4,205

Ending balance - loans

$

56,083

 

$

3,839

 

$

18,275

 

$

22,976

 

$

101,173

Allowance for credit losses - unfunded commitments:

Beginning balance

$

1,384

 

$

2,337

 

$

-

 

$

37

 

$

3,758

 

Provision for credit losses (benefit)

 

(67)

 

 

(376)

 

 

-

 

 

23

 

 

(420)

Ending balance - unfunded commitments [1]

$

1,317

 

$

1,961

 

$

-

 

$

60

 

$

3,338

[1]

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

 

For the six months ended June 30, 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)

 

(14,307)

 

 

(1,393)

 

 

(14,355)

 

 

1,692

 

 

23,819

 

 

(4,544)

 

Initial allowance for credit losses - PCD Loans

 

-

 

 

-

 

 

782

 

 

-

 

 

-

 

 

782

 

Charge-offs

 

(2,373)

 

 

-

 

 

(2,756)

 

 

(1,903)

 

 

(46,477)

 

 

(53,509)

 

Recoveries

 

10,505

 

 

1,943

 

 

10,156

 

 

1,670

 

 

19,381

 

 

43,655

Ending balance - loans

$

209,630

 

$

6,913

 

$

148,305

 

$

19,037

 

$

297,865

 

$

681,750

Allowance for credit losses - unfunded commitments:

Beginning balance

$

3,135

 

$

4,725

 

$

-

 

$

-

 

$

37

 

$

7,897

 

Provision for credit losses (benefit)

 

214

 

 

(1,230)

 

 

-

 

 

-

 

 

23

 

 

(993)

Ending balance - unfunded commitments [1]

$

3,349

 

$

3,495

 

$

-

 

$

-

 

$

60

 

$

6,904

[1]

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

37

 

For the quarter ended June 30, 2021

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

 

Construction

 

Mortgage

 

Leasing

 

Consumer

 

Total

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

197,111

 

$

260

 

$

185,805

 

$

12,687

 

$

285,793

 

$

681,656

 

Provision for credit losses (benefit)

 

(20,204)

 

 

481

 

 

(19,264)

 

 

5,257

 

 

11,242

 

 

(22,488)

 

Initial allowance for credit losses - PCD Loans

 

-

 

 

-

 

 

1,202

 

 

-

 

 

-

 

 

1,202

 

Charge-offs

 

(2,035)

 

 

-

 

 

(5,047)

 

 

(1,135)

 

 

(17,366)

 

 

(25,583)

 

Recoveries

 

11,912

 

 

479

 

 

4,112

 

 

742

 

 

9,821

 

 

27,066

Ending balance

$

186,784

 

$

1,220

 

$

166,808

 

$

17,551

 

$

289,490

 

$

661,853

Allowance for credit losses - unfunded commitments:

Beginning balance

$

3,913

 

$

245

 

$

-

 

$

-

 

$

-

 

$

4,158

 

Provision for credit losses

 

(661)

 

 

1,160

 

 

-

 

 

-

 

 

-

 

 

499

Ending balance - unfunded commitments [1]

$

3,252

 

$

1,405

 

$

-

 

$

-

 

$

-

 

$

4,657

[1]

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

 

For the quarter ended June 30, 2021

Popular U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

 

Construction

 

Mortgage

 

Consumer

 

Total

Allowance for credit losses - loans:

Beginning balance

$

79,108

 

$

8,935

 

$

16,321

 

$

14,777

 

$

119,141

 

Provision for credit losses (benefit)

 

4,839

 

 

1,194

 

 

(933)

 

 

(112)

 

 

4,988

 

Charge-offs

 

(690)

 

 

(523)

 

 

-

 

 

(2,374)

 

 

(3,587)

 

Recoveries

 

1,103

 

 

430

 

 

423

 

 

1,439

 

 

3,395

Ending balance - loans

$

84,360

 

$

10,036

 

$

15,811

 

$

13,730

 

$

123,937

Allowance for credit losses - unfunded commitments:

Beginning balance

$

1,443

 

$

3,903

 

$

-

 

$

65

 

$

5,411

 

Provision for credit losses

 

116

 

 

(231)

 

 

-

 

 

(17)

 

 

(132)

Ending balance - unfunded commitments [1]

$

1,559

 

$

3,672

 

$

-

 

$

48

 

$

5,279

[1]

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

 

For the quarter ended June 30, 2021

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

Construction

Mortgage

Leasing

Consumer

Total

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

276,219

$

9,195

$

202,126

$

12,687

$

300,570

$

800,797

 

Provision for credit losses (benefit)

 

(15,365)

 

1,675

 

(20,197)

 

5,257

 

11,130

 

(17,500)

 

Initial allowance for credit losses - PCD Loans

 

-

 

-

 

1,202

 

-

 

-

 

1,202

 

Charge-offs

 

(2,725)

 

(523)

 

(5,047)

 

(1,135)

 

(19,740)

 

(29,170)

 

Recoveries

 

13,015

 

909

 

4,535

 

742

 

11,260

 

30,461

Ending balance

$

271,144

$

11,256

$

182,619

$

17,551

$

303,220

$

785,790

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

5,356

$

4,148

$

-

$

-

$

65

$

9,569

 

Provision for credit losses

 

(545)

 

929

 

-

 

-

 

(17)

 

367

Ending balance - unfunded commitments [1]

$

4,811

$

5,077

$

-

$

-

$

48

$

9,936

[1]

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

38

 

For the six months ended June 30, 2021

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

 

Construction

 

Mortgage

 

Leasing

 

Consumer

 

Total

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

225,323

 

$

4,871

 

$

195,557

 

$

16,863

 

$

297,136

 

$

739,750

 

Provision for credit losses (benefit)

 

(49,850)

 

 

1,787

 

 

(22,069)

 

 

1,199

 

 

6,469

 

 

(62,464)

 

Initial allowance for credit losses - PCD Loans

 

-

 

 

-

 

 

2,558

 

 

-

 

 

-

 

 

2,558

 

Charge-offs

 

(4,918)

 

 

(6,619)

 

 

(15,428)

 

 

(2,193)

 

 

(41,395)

 

 

(70,553)

 

Recoveries

 

16,229

 

 

1,181

 

 

6,190

 

 

1,682

 

 

27,280

 

 

52,562

Ending balance - loans

$

186,784

 

$

1,220

 

$

166,808

 

$

17,551

 

$

289,490

 

$

661,853

Allowance for credit losses - unfunded commitments:

Beginning balance

$

4,913

 

$

4,610

 

$

-

 

$

-

 

$

-

 

$

9,523

 

Provision for credit losses (benefit)

 

(1,661)

 

 

(3,205)

 

 

-

 

 

-

 

 

-

 

 

(4,866)

Ending balance - unfunded commitments [1]

$

3,252

 

$

1,405

 

$

-

 

$

-

 

$

-

 

$

4,657

[1]

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

 

For the six months ended June 30, 2021

Popular U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

 

Construction

 

Mortgage

 

Consumer

 

Total

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

108,057

 

$

9,366

 

$

20,159

 

$

18,918

 

$

156,500

 

Provision for credit losses (benefit)

 

(24,094)

 

 

763

 

 

(4,851)

 

 

(2,633)

 

 

(30,815)

 

Charge-offs

 

(1,073)

 

 

(523)

 

 

(1)

 

 

(5,630)

 

 

(7,227)

 

Recoveries

 

1,470

 

 

430

 

 

504

 

 

3,075

 

 

5,479

Ending balance - loans

$

84,360

 

$

10,036

 

$

15,811

 

$

13,730

 

$

123,937

Allowance for credit losses - unfunded commitments:

Beginning balance

$

1,753

 

$

4,469

 

$

-

 

$

106

 

$

6,328

 

Provision for credit losses (benefit)

 

(194)

 

 

(797)

 

 

-

 

 

(58)

 

 

(1,049)

Ending balance - unfunded commitments [1]

$

1,559

 

$

3,672

 

$

-

 

$

48

 

$

5,279

[1]

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

39

 

For the six months ended June 30, 2021

Popular, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Commercial

Construction

Mortgage

Leasing

Consumer

Total

Allowance for credit losses - loans:

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

333,380

$

14,237

$

215,716

$

16,863

$

316,054

$

896,250

 

Provision for credit losses (benefit)

 

(73,944)

 

2,550

 

(26,920)

 

1,199

 

3,836

 

(93,279)

 

Initial allowance for credit losses - PCD Loans

 

-

 

-

 

2,558

 

-

 

-

 

2,558

 

Charge-offs

 

(5,991)

 

(7,142)

 

(15,429)

 

(2,193)

 

(47,025)

 

(77,780)

 

Recoveries

 

17,699

 

1,611

 

6,694

 

1,682

 

30,355

 

58,041

Ending balance - loans

$

271,144

$

11,256

$

182,619

$

17,551

$

303,220

$

785,790

Allowance for credit losses - unfunded commitments:

Beginning balance

$

6,666

$

9,079

$

-

$

-

$

106

$

15,851

 

Provision for credit losses (benefit)

 

(1,855)

 

(4,002)

 

-

 

-

 

(58)

 

(5,915)

Ending balance - unfunded commitments [1]

$

4,811

$

5,077

$

-

$

-

$

48

$

9,936

[1]

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

 

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 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 $1.6 billion at June 30, 2022 (December 31, 2021 - $1.7 billion). The amount of outstanding commitments to lend additional funds to debtors owing loans whose terms have been modified in TDRs amounted to $9 million related to the commercial loan portfolio at June 30, 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 June 30, 2022 and December 31, 2021.

 

 

June 30, 2022

 

 

December 31, 2021

(In thousands)

 

Accruing

 

Non-Accruing

 

Total

 

Related Allowance

 

 

 

Accruing

 

Non-Accruing

 

Total

 

Related Allowance

Loans held-in-portfolio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

$

267,762

$

60,499

$

328,261

$

22,112

 

 

$

261,344

$

64,744

$

326,088

$

24,736

Mortgage[1]

 

1,160,469

 

93,309

 

1,253,778

 

62,587

 

 

 

1,143,204

 

112,509

 

1,255,713

 

61,888

Leasing

 

151

 

38

 

189

 

29

 

 

 

325

 

47

 

372

 

42

Consumer

 

57,690

 

9,240

 

66,930

 

14,546

 

 

 

64,093

 

10,556

 

74,649

 

16,124

Loans held-in-portfolio

$

1,486,072

$

163,086

$

1,649,158

$

99,274

 

 

$

1,468,966

$

187,856

$

1,656,822

$

102,790

[1] At June 30, 2022, accruing mortgage loan TDRs include $724 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 June 30, 2022 and 2021. Loans modified as TDRs for the U.S. operations are considered insignificant to the Corporation.

40

 

 

Popular, Inc.

 

For the quarter ended June 30, 2022

 

For the six months ended June 30, 2022

 

Reduction in interest rate

Extension of maturity date

Combination of reduction in interest rate and extension of maturity date

Other

 

Reduction in interest rate

Extension of maturity date

Combination of reduction in interest rate and extension of maturity date

Other

Commercial real estate non-owner occupied

-

1

-

1

 

-

1

-

2

Commercial real estate owner occupied

-

5

1

-

 

1

6

1

-

Commercial and industrial

2

-

1

-

 

3

5

1

11

Mortgage

3

31

217

-

 

4

65

505

1

Leasing

-

-

1

-

 

-

-

1

-

Consumer:

 

 

 

 

 

 

 

 

 

Credit cards

9

-

-

7

 

24

-

-

22

Personal

29

36

-

1

 

54

56

-

1

Auto

-

-

-

-

 

-

1

-

-

Total

43

73

220

9

 

86

134

508

37

 

 

Popular, Inc.

 

For the quarter ended June 30, 2021

 

For the six months ended June 30, 2021

 

Reduction in interest rate

Extension of maturity date

Combination of reduction in interest rate and extension of maturity date

Other

 

Reduction in interest rate

Extension of maturity date

Combination of reduction in interest rate and extension of maturity date

Other

Commercial multi-family

-

-

1

-

 

-

1

1

-

Commercial real estate non-owner occupied

-

-

-

-

 

-

9

-

-

Commercial real estate owner occupied

1

3

3

2

 

3

23

3

2

Commercial and industrial

1

-

-

6

 

1

8

-

6

Mortgage

14

39

458

-

 

22

79

818

-

Leasing

-

-

-

-

 

-

-

1

-

Consumer:

 

 

 

 

 

 

 

 

 

Credit cards

37

-

1

13

 

89

-

1

27

HELOCs

-

1

-

-

 

-

1

1

-

Personal

59

61

-

2

 

120

63

1

2

Auto

-

1

-

-

 

-

2

2

-

Other

2

-

-

-

 

6

-

-

-

Total

114

105

463

23

 

241

186

828

37

 

The following tables present by class, quantitative information related to loans modified as TDRs during the quarters and six months ended June 30, 2022 and 2021.

 

Popular, Inc.

For the quarter ended June 30, 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

2

$

52

$

51

$

5

Commercial real estate owner occupied

6

 

12,377

 

12,369

 

(2,073)

Commercial and industrial

3

 

156

 

153

 

30

Mortgage

251

 

29,907

 

31,134

 

1,091

Leasing

1

 

14

 

12

 

2

Consumer:

 

 

 

 

 

 

 

Credit cards

16

 

162

 

172

 

2

Personal

66

 

952

 

1,030

 

135

Total

345

$

43,620

$

44,921

$

(808)

 

41

 

Popular, Inc.

For the quarter ended June 30, 2021

(Dollars in thousands)

Loan count

Pre-modification outstanding recorded investment

Post-modification outstanding recorded investment

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

Commercial multi-family

1

$

159

$

125

$

22

Commercial real estate owner occupied

9

 

51,050

 

50,472

 

564

Commercial and industrial

7

 

491

 

489

 

57

Mortgage

511

 

58,094

 

61,522

 

2,105

Consumer:

 

 

 

 

 

 

 

Credit cards

51

 

730

 

628

 

7

HELOCs

1

 

113

 

112

 

26

Personal

122

 

1,620

 

1,619

 

328

Auto

1

 

16

 

16

 

5

Other

2

 

5

 

5

 

1

Total

705

$

112,278

$

114,988

$

3,115

 

Popular, Inc.

For the six months ended June 30, 2022

(Dollars in thousands)

Loan count

Pre-modification outstanding recorded investment

Post-modification outstanding recorded investment

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

Commercial real estate non-owner occupied

3

$

3,452

$

3,451

$

5

Commercial real estate owner occupied

8

 

13,106

 

13,096

 

(2,073)

Commercial and industrial

20

 

49,502

 

49,308

 

2,060

Mortgage

575

 

64,783

 

66,726

 

2,111

Leasing

1

 

14

 

12

 

2

Consumer:

 

 

 

 

 

 

 

Credit cards

46

 

410

 

445

 

7

Personal

111

 

1,681

 

1,758

 

265

Auto

1

 

28

 

28

 

5

Total

765

$

132,976

$

134,824

$

2,382

 

Popular, Inc.

For the six months ended June 30, 2021

(Dollars in thousands)

Loan count

Pre-modification outstanding recorded investment

Post-modification outstanding recorded investment

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

Commercial multi-family

2

$

246

$

211

$

26

Commercial real estate non-owner occupied

9

 

3,295

 

3,281

 

141

Commercial real estate owner occupied

31

 

80,800

 

79,956

 

1,136

Commercial and industrial

15

 

713

 

707

 

65

Mortgage

919

 

105,748

 

111,251

 

3,151

Leasing

1

 

32

 

32

 

4

Consumer:

 

 

 

 

 

 

 

Credit cards

117

 

1,554

 

1,482

 

34

HELOCs

2

 

176

 

228

 

54

Personal

186

 

2,682

 

2,681

 

632

Auto

4

 

64

 

69

 

15

Other

6

 

11

 

11

 

2

Total

1,292

$

195,321

$

199,909

$

5,260

42

 

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

 

Popular, Inc.

 

Defaulted during the quarter ended
June 30, 2022

 

Defaulted during the six months ended
June 30, 2022

(Dollars in thousands)

Loan count

 

Recorded investment as of first default date

 

Loan count

 

Recorded investment as of first default date

Commercial and industrial

3

$

2,496

 

3

$

2,496

Mortgage

32

 

3,830

 

38

 

5,699

Consumer:

 

 

 

 

 

 

 

Credit cards

8

 

28

 

19

 

135

Personal

7

 

270

 

19

 

398

Total

50

$

6,624

 

79

$

8,728

 

Popular, Inc.

 

Defaulted during the quarter ended
June 30, 2021

 

Defaulted during the six months ended
June 30, 2021

(Dollars in thousands)

Loan count

 

Recorded investment as of first default date

 

Loan count

 

Recorded investment as of first default date

Commercial real estate non-owner occupied

4

$

8,421

 

4

$

8,421

Commercial real estate owner occupied

-

 

-

 

2

 

3,754

Commercial and industrial

3

 

93

 

5

 

317

Mortgage

24

 

3,279

 

47

 

5,011

Consumer:

 

 

 

 

 

 

 

Credit cards

23

 

280

 

60

 

751

Personal

11

 

212

 

14

 

472

Total

65

$

12,285

 

132

$

18,726

 

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

Credit Quality

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

The following tables present the amortized cost basis, net of unearned income, of loans held-in-portfolio based on the Corporation’s assignment of obligor risk ratings as defined at June 30, 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.

43

 

June 30, 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

$

-

$

-

$

-

$

-

$

-

$

4,362

$

-

$

-

$

4,362

 

 

 

Special mention

 

-

 

-

 

-

 

-

 

-

 

2,890

 

-

 

-

 

2,890

 

 

 

Substandard

 

-

 

-

 

-

 

983

 

-

 

6,108

 

100

 

-

 

7,191

 

 

 

Pass

 

89,752

 

23,534

 

20,982

 

34,166

 

24,981

 

28,696

 

-

 

-

 

222,111

 

 

Total commercial multi-family

$

89,752

$

23,534

$

20,982

$

35,149

$

24,981

$

42,056

$

100

$

-

$

236,554

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate non-owner occupied

 

 

 

Watch

$

29,864

$

79,782

$

220,704

$

18,577

$

85,504

$

153,862

$

2,187

$

-

$

590,480

 

 

 

Special Mention

 

-

 

30,152

 

11,759

 

8,653

 

-

 

22,811

 

-

 

-

 

73,375

 

 

 

Substandard

 

3,423

 

206

 

27,449

 

18,786

 

36,934

 

74,135

 

-

 

-

 

160,933

 

 

 

Pass

 

355,064

 

534,328

 

210,145

 

97,235

 

35,018

 

585,865

 

9,675

 

-

 

1,827,330

 

 

Total commercial real estate non-owner occupied

$

388,351

$

644,468

$

470,057

$

143,251

$

157,456

$

836,673

$

11,862

$

-

$

2,652,118

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate owner occupied

 

 

 

Watch

$

2,234

$

10,958

$

5,892

$

6,918

$

6,962

$

100,546

$

-

$

-

$

133,510

 

 

 

Special Mention

 

-

 

-

 

931

 

7,136

 

1,394

 

78,144

 

-

 

-

 

87,605

 

 

 

Substandard

 

11,425

 

4,873

 

1,306

 

859

 

34,762

 

91,428

 

-

 

-

 

144,653

 

 

 

Doubtful

 

-

 

-

 

-

 

-

 

-

 

603

 

-

 

-

 

603

 

 

 

Pass

 

82,073

 

269,710

 

151,909

 

45,526

 

52,826

 

420,051

 

18,283

 

-

 

1,040,378

 

 

Total commercial real estate owner occupied

$

95,732

$

285,541

$

160,038

$

60,439

$

95,944

$

690,772

$

18,283

$

-

$

1,406,749

 

 

Commercial and industrial

 

 

 

Watch

$

31,573

$

74,590

$

9,606

$

23,705

$

98,226

$

58,662

$

80,254

$

-

$

376,616

 

 

 

Special Mention

 

-

 

1,806

 

569

 

1,741

 

24,954

 

49,956

 

20,221

 

-

 

99,247

 

 

 

Substandard

 

19,831

 

396

 

6,927

 

3,217

 

20,798

 

46,432

 

46,296

 

-

 

143,897

 

 

 

Doubtful

 

-

 

-

 

-

 

-

 

-

 

83

 

-

 

-

 

83

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

-

 

7

 

-

 

7

 

 

 

Pass

 

386,907

 

707,961

 

169,375

 

263,358

 

45,636

 

344,309

 

983,287

 

-

 

2,900,833

 

 

Total commercial and industrial

$

438,311

$

784,753

$

186,477

$

292,021

$

189,614

$

499,442

$

1,130,065

$

-

$

3,520,683

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

Watch

$

7,450

$

1,410

$

8,623

$

498

$

-

$

-

$

14,119

$

-

$

32,100

 

 

 

Special Mention

 

1,787

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

1,787

 

 

 

Pass

 

1,589

 

36,280

 

64,524

 

1,116

 

-

 

-

 

24,966

 

-

 

128,475

 

Total construction

$

10,826

$

37,690

$

73,147

$

1,614

$

-

$

-

$

39,085

$

-

$

162,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage

 

 

 

Substandard

$

-

$

50

$

1,307

$

4,417

$

5,483

$

107,988

$

-

$

-

$

119,245

 

 

 

Pass

 

136,373

 

463,858

 

293,940

 

211,365

 

245,782

 

4,571,360

 

-

 

-

 

5,922,678

 

Total mortgage

$

136,373

$

463,908

$

295,247

$

215,782

$

251,265

$

4,679,348

$

-

$

-

$

6,041,923

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

 

 

Substandard

$

180

$

937

$

989

$

972

$

831

$

665

$

-

$

-

$

4,574

 

 

 

Loss

 

-

 

-

 

-

 

26

 

-

 

64

 

-

 

-

 

90

 

 

 

Pass

 

372,931

 

490,928

 

283,111

 

181,773

 

104,791

 

42,024

 

-

 

-

 

1,475,558

 

Total leasing

$

373,111

$

491,865

$

284,100

$

182,771

$

105,622

$

42,753

$

-

$

-

$

1,480,222

44

 

June 30, 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

$

-

$

-

$

-

$

-

$

-

$

-

$

8,879

$

-

$

8,879

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

-

 

17

 

-

 

17

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

-

 

957,803

 

-

 

957,803

 

Total credit cards

$

-

$

-

$

-

$

-

$

-

$

-

$

966,699

$

-

$

966,699

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HELOCs

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

-

 

3,122

 

-

 

3,122

 

Total HELOCs

$

-

$

-

$

-

$

-

$

-

$

-

$

3,122

$

-

$

3,122

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

Substandard

$

69

$

1,375

$

768

$

2,011

$

848

$

13,220

$

-

$

1,188

$

19,479

 

 

 

Loss

 

-

 

60

 

-

 

68

 

-

 

18

 

-

 

2

 

148

 

 

 

Pass

 

402,112

 

430,129

 

139,974

 

163,060

 

66,075

 

135,293

 

-

 

31,830

 

1,368,473

 

Total Personal

$

402,181

$

431,564

$

140,742

$

165,139

$

66,923

$

148,531

$

-

$

33,020

$

1,388,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

Substandard

$

399

$

7,125

$

8,748

$

8,895

$

4,727

$

3,005

$

-

$

-

$

32,899

 

 

 

Loss

 

-

 

-

 

28

 

91

 

-

 

9

 

-

 

-

 

128

 

 

 

Pass

 

646,578

 

1,101,866

 

697,273

 

525,778

 

329,466

 

155,988

 

-

 

-

 

3,456,949

 

Total Auto

$

646,977

$

1,108,991

$

706,049

$

534,764

$

334,193

$

159,002

$

-

$

-

$

3,489,976

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other consumer

 

 

 

Substandard

$

-

$

-

$

130

$

-

$

465

$

5

$

11,082

$

-

$

11,682

 

 

 

Loss

 

-

 

-

 

-

 

-

 

443

 

-

 

-

 

-

 

443

 

 

 

Pass

 

17,719

 

21,774

 

7,323

 

7,455

 

5,042

 

3,714

 

57,997

 

-

 

121,024

 

Total Other consumer

$

17,719

$

21,774

$

7,453

$

7,455

$

5,950

$

3,719

$

69,079

$

-

$

133,149

Total Puerto Rico

$

2,599,333

$

4,294,088

$

2,344,292

$

1,638,385

$

1,231,948

$

7,102,296

$

2,238,295

$

33,020

$

21,481,657

45

 

June 30, 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

$

-

$

8,526

$

43,413

$

48,152

$

20,473

$

64,575

$

-

$

-

$

185,139

 

 

 

Special mention

 

-

 

-

 

1,213

 

942

 

29,452

 

22,477

 

-

 

-

 

54,084

 

 

 

Substandard

 

-

 

-

 

-

 

66,892

 

10,897

 

4,994

 

-

 

-

 

82,783

 

 

 

Pass

 

264,305

 

409,863

 

206,453

 

196,526

 

133,228

 

359,456

 

3,982

 

-

 

1,573,813

 

 

Total commercial multi-family

$

264,305

$

418,389

$

251,079

$

312,512

$

194,050

$

451,502

$

3,982

$

-

$

1,895,819

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate non-owner occupied

 

 

 

Watch

$

-

$

12,692

$

16,783

$

15,033

$

45,671

$

101,497

$

-

$

-

$

191,676

 

 

 

Special Mention

 

-

 

-

 

-

 

3,162

 

1,797

 

21,798

 

-

 

-

 

26,757

 

 

 

Substandard

 

-

 

2,902

 

749

 

11,739

 

1,555

 

32,860

 

-

 

-

 

49,805

 

 

 

Pass

 

208,048

 

199,900

 

207,046

 

100,601

 

93,503

 

383,391

 

7,496

 

-

 

1,199,985

 

 

Total commercial real estate non-owner occupied

$

208,048

$

215,494

$

224,578

$

130,535

$

142,526

$

539,546

$

7,496

$

-

$

1,468,223

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate owner occupied

 

 

 

Watch

$

-

$

-

$

5,317

$

3,795

$

10,867

$

41,669

$

4,222

$

-

$

65,870

 

 

 

Special Mention

 

-

 

-

 

-

 

-

 

5,141

 

16,554

 

-

 

-

 

21,695

 

 

 

Substandard

 

-

 

-

 

-

 

7,479

 

2,287

 

43,495

 

-

 

-

 

53,261

 

 

 

Pass

 

207,879

 

427,167

 

141,530

 

96,425

 

145,376

 

302,040

 

5,569

 

-

 

1,325,986

 

 

Total commercial real estate owner occupied

$

207,879

$

427,167

$

146,847

$

107,699

$

163,671

$

403,758

$

9,791

$

-

$

1,466,812

 

 

Commercial and industrial

 

 

 

Watch

$

2,812

$

2,201

$

2,748

$

2,652

$

8,798

$

727

$

13,515

$

-

$

33,453

 

 

 

Special Mention

 

1,052

 

1,483

 

6,597

 

582

 

447

 

20

 

4,722

 

-

 

14,903

 

 

 

Substandard

 

328

 

1,203

 

1,268

 

4,460

 

796

 

1,857

 

5,224

 

-

 

15,136

 

 

 

Loss

 

-

 

253

 

105

 

255

 

110

 

6

 

-

 

-

 

729

 

 

 

Pass

 

70,371

 

302,851

 

371,225

 

200,441

 

183,865

 

409,491

 

295,878

 

-

 

1,834,122

 

 

Total commercial and industrial

$

74,563

$

307,991

$

381,943

$

208,390

$

194,016

$

412,101

$

319,339

$

-

$

1,898,343

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

Watch

$

-

$

4,016

$

14,143

$

30,941

$

18,166

$

33,444

$

-

$

-

$

100,710

 

 

 

Special Mention

 

-

 

-

 

-

 

-

 

-

 

13,655

 

-

 

-

 

13,655

 

 

 

Substandard

 

-

 

-

 

-

 

-

 

15,892

 

10,154

 

-

 

-

 

26,046

 

 

 

Pass

 

28,379

 

149,831

 

157,216

 

104,036

 

5,650

 

43,035

 

-

 

-

 

488,147

 

Total construction

$

28,379

$

153,847

$

171,359

$

134,977

$

39,708

$

100,288

$

-

$

-

$

628,558

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage

 

 

 

Substandard

$

-

$

639

$

4,338

$

4,285

$

919

$

10,010

$

-

$

-

$

20,191

 

 

 

Pass

 

120,481

 

312,099

 

250,047

 

197,444

 

60,326

 

259,444

 

-

 

-

 

1,199,841

 

Total mortgage

$

120,481

$

312,738

$

254,385

$

201,729

$

61,245

$

269,454

$

-

$

-

$

1,220,032

46

 

June 30, 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

$

-

$

-

$

-

$

-

$

-

$

-

$

47

$

-

$

47

 

Total credit cards

$

-

$

-

$

-

$

-

$

-

$

-

$

47

$

-

$

47

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HELOCs

 

 

 

Substandard

$

-

$

-

$

-

$

-

$

-

$

2,653

$

-

$

813

$

3,466

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

159

 

-

 

1,079

 

1,238

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

9,697

 

40,387

 

16,667

 

66,751

 

Total HELOCs

$

-

$

-

$

-

$

-

$

-

$

12,509

$

40,387

$

18,559

$

71,455

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

Substandard

$

49

$

163

$

168

$

168

$

32

$

142

$

-

$

-

$

722

 

 

 

Loss

 

-

 

-

 

-

 

11

 

-

 

16

 

-

 

-

 

27

 

 

 

Pass

 

127,064

 

61,523

 

12,120

 

23,574

 

4,217

 

5,066

 

-

 

-

 

233,564

 

Total Personal

$

127,113

$

61,686

$

12,288

$

23,753

$

4,249

$

5,224

$

-

$

-

$

234,313

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other consumer

 

 

 

Substandard

$

-

$

-

$

-

$

-

$

-

$

-

$

1

$

-

$

1

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

-

 

5,676

 

-

 

5,676

 

Total Other consumer

$

-

$

-

$

-

$

-

$

-

$

-

$

5,677

$

-

$

5,677

Total Popular U.S.

$

1,030,768

$

1,897,312

$

1,442,479

$

1,119,595

$

799,465

$

2,194,382

$

386,719

$

18,559

$

8,889,279

47

 

June 30, 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

$

-

$

8,526

$

43,413

$

48,152

$

20,473

$

68,937

$

-

$

-

$

189,501

 

 

 

Special mention

 

-

 

-

 

1,213

 

942

 

29,452

 

25,367

 

-

 

-

 

56,974

 

 

 

Substandard

 

-

 

-

 

-

 

67,875

 

10,897

 

11,102

 

100

 

-

 

89,974

 

 

 

Pass

 

354,057

 

433,397

 

227,435

 

230,692

 

158,209

 

388,152

 

3,982

 

-

 

1,795,924

 

 

Total commercial multi-family

$

354,057

$

441,923

$

272,061

$

347,661

$

219,031

$

493,558

$

4,082

$

-

$

2,132,373

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate non-owner occupied

 

 

 

Watch

$

29,864

$

92,474

$

237,487

$

33,610

$

131,175

$

255,359

$

2,187

$

-

$

782,156

 

 

 

Special Mention

 

-

 

30,152

 

11,759

 

11,815

 

1,797

 

44,609

 

-

 

-

 

100,132

 

 

 

Substandard

 

3,423

 

3,108

 

28,198

 

30,525

 

38,489

 

106,995

 

-

 

-

 

210,738

 

 

 

Pass

 

563,112

 

734,228

 

417,191

 

197,836

 

128,521

 

969,256

 

17,171

 

-

 

3,027,315

 

 

Total commercial real estate non-owner occupied

$

596,399

$

859,962

$

694,635

$

273,786

$

299,982

$

1,376,219

$

19,358

$

-

$

4,120,341

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate owner occupied

 

 

 

Watch

$

2,234

$

10,958

$

11,209

$

10,713

$

17,829

$

142,215

$

4,222

$

-

$

199,380

 

 

 

Special Mention

 

-

 

-

 

931

 

7,136

 

6,535

 

94,698

 

-

 

-

 

109,300

 

 

 

Substandard

 

11,425

 

4,873

 

1,306

 

8,338

 

37,049

 

134,923

 

-

 

-

 

197,914

 

 

 

Doubtful

 

-

 

-

 

-

 

-

 

-

 

603

 

-

 

-

 

603

 

 

 

Pass

 

289,952

 

696,877

 

293,439

 

141,951

 

198,202

 

722,091

 

23,852

 

-

 

2,366,364

 

 

Total commercial real estate owner occupied

$

303,611

$

712,708

$

306,885

$

168,138

$

259,615

$

1,094,530

$

28,074

$

-

$

2,873,561

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 

 

Watch

$

34,385

$

76,791

$

12,354

$

26,357

$

107,024

$

59,389

$

93,769

$

-

$

410,069

 

 

 

Special Mention

 

1,052

 

3,289

 

7,166

 

2,323

 

25,401

 

49,976

 

24,943

 

-

 

114,150

 

 

 

Substandard

 

20,159

 

1,599

 

8,195

 

7,677

 

21,594

 

48,289

 

51,520

 

-

 

159,033

 

 

 

Doubtful

 

-

 

-

 

-

 

-

 

-

 

83

 

-

 

-

 

83

 

 

 

Loss

 

-

 

253

 

105

 

255

 

110

 

6

 

7

 

-

 

736

 

 

 

Pass

 

457,278

 

1,010,812

 

540,600

 

463,799

 

229,501

 

753,800

 

1,279,165

 

-

 

4,734,955

 

 

Total commercial and industrial

$

512,874

$

1,092,744

$

568,420

$

500,411

$

383,630

$

911,543

$

1,449,404

$

-

$

5,419,026

48

 

June 30, 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

$

7,450

$

5,426

$

22,766

$

31,439

$

18,166

$

33,444

$

14,119

$

-

$

132,810

 

 

 

Special Mention

 

1,787

 

-

 

-

 

-

 

-

 

13,655

 

-

 

-

 

15,442

 

 

 

Substandard

 

-

 

-

 

-

 

-

 

15,892

 

10,154

 

-

 

-

 

26,046

 

 

 

Pass

 

29,968

 

186,111

 

221,740

 

105,152

 

5,650

 

43,035

 

24,966

 

-

 

616,622

 

Total construction

$

39,205

$

191,537

$

244,506

$

136,591

$

39,708

$

100,288

$

39,085

$

-

$

790,920

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage

 

 

 

Substandard

$

-

$

689

$

5,645

$

8,702

$

6,402

$

117,998

$

-

$

-

$

139,436

 

 

 

Pass

 

256,854

 

775,957

 

543,987

 

408,809

 

306,108

 

4,830,804

 

-

 

-

 

7,122,519

 

Total mortgage

$

256,854

$

776,646

$

549,632

$

417,511

$

312,510

$

4,948,802

$

-

$

-

$

7,261,955

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasing

 

 

 

Substandard

$

180

$

937

$

989

$

972

$

831

$

665

$

-

$

-

$

4,574

 

 

 

Loss

 

-

 

-

 

-

 

26

 

-

 

64

 

-

 

-

 

90

 

 

 

Pass

 

372,931

 

490,928

 

283,111

 

181,773

 

104,791

 

42,024

 

-

 

-

 

1,475,558

 

Total leasing

$

373,111

$

491,865

$

284,100

$

182,771

$

105,622

$

42,753

$

-

$

-

$

1,480,222

49

 

June 30, 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

$

-

$

-

$

-

$

-

$

-

$

-

$

8,879

$

-

$

8,879

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

-

 

17

 

-

 

17

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

-

 

957,850

 

-

 

957,850

 

Total credit cards

$

-

$

-

$

-

$

-

$

-

$

-

$

966,746

$

-

$

966,746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HELOCs

 

 

 

Substandard

$

-

$

-

$

-

$

-

$

-

$

2,653

$

-

$

813

$

3,466

 

 

 

Loss

 

-

 

-

 

-

 

-

 

-

 

159

 

-

 

1,079

 

1,238

 

 

 

Pass

 

-

 

-

 

-

 

-

 

-

 

9,697

 

43,509

 

16,667

 

69,873

 

Total HELOCs

$

-

$

-

$

-

$

-

$

-

$

12,509

$

43,509

$

18,559

$

74,577

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal

 

 

 

Substandard

$

118

$

1,538

$

936

$

2,179

$

880

$

13,362

$

-

$

1,188

$

20,201

 

 

 

Loss

 

-

 

60

 

-

 

79

 

-

 

34

 

-

 

2

 

175

 

 

 

Pass

 

529,176

 

491,652

 

152,094

 

186,634

 

70,292

 

140,359

 

-

 

31,830

 

1,602,037

 

Total Personal

$

529,294

$

493,250

$

153,030

$

188,892

$

71,172

$

153,755

$

-

$

33,020

$

1,622,413

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

Substandard

$

399

$

7,125

$

8,748

$

8,895

$

4,727

$

3,005

$

-

$

-

$

32,899

 

 

 

Loss

 

-

 

-

 

28

 

91

 

-

 

9

 

-

 

-

 

128

 

 

 

Pass

 

646,578

 

1,101,866

 

697,273

 

525,778

 

329,466

 

155,988

 

-

 

-

 

3,456,949

 

Total Auto

$

646,977

$

1,108,991

$

706,049

$

534,764

$

334,193

$

159,002

$

-

$

-

$

3,489,976

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other consumer

 

 

 

Substandard

$

-

$

-

$

130

$

-

$

465

$

5

$

11,083

$

-

$

11,683

 

 

 

Loss

 

-

 

-

 

-

 

-

 

443

 

-

 

-

 

-

 

443

 

 

 

Pass

 

17,719

 

21,774

 

7,323

 

7,455

 

5,042

 

3,714

 

63,673

 

-

 

126,700

 

Total Other consumer

$

17,719

$

21,774

$

7,453

$

7,455

$

5,950

$

3,719

$

74,756

$

-

$

138,826

Total Popular Inc.

$

3,630,101

$

6,191,400

$

3,786,771

$

2,757,980

$

2,031,413

$

9,296,678

$

2,625,014

$

51,579

$

30,370,936

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

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

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

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

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 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

53

 

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

54

 

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

55

 

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

56

 

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

57

 

Note 9 – Mortgage banking activities

Income from mortgage banking activities includes mortgage servicing fees earned in connection with administering residential mortgage loans and valuation adjustments on mortgage servicing rights. It also includes gain on sales and securitizations of residential mortgage loans, losses on repurchased loans, including interest advances, and trading gains and losses on derivative contracts used to hedge the Corporation’s securitization activities. In addition, lower-of-cost-or-market valuation adjustments to residential mortgage loans held for sale, if any, are recorded as part of the mortgage banking activities.

The following table presents the components of mortgage banking activities:

 

 

 

Quarters ended June 30,

Six months ended June 30,

(In thousands)

 

2022

 

2021

 

2022

 

2021

Mortgage servicing fees, net of fair value adjustments:

 

 

 

 

 

 

 

 

 

Mortgage servicing fees

$

9,186

$

9,522

$

18,509

$

19,237

 

Mortgage servicing rights fair value adjustments

 

2,257

 

(6,239)

 

3,345

 

(5,727)

Total mortgage servicing fees, net of fair value adjustments

 

11,443

 

3,283

 

21,854

 

13,510

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

 

36

 

5,197

 

(1,498)

 

10,172

Trading account profit (loss):

 

 

 

 

 

 

 

 

 

Unrealized losses on outstanding derivative positions

 

(2)

 

-

 

-

 

-

 

Realized gains (losses) on closed derivative positions

 

2,430

 

(866)

 

6,565

 

1,636

Total trading account profit (loss)

 

2,428

 

(866)

 

6,565

 

1,636

Losses on repurchased loans, including interest advances

 

(332)

 

(166)

 

(481)

 

(527)

Total mortgage banking activities

$

13,575

$

7,448

$

26,440

$

24,791

58

 

Note 10 – Transfers of financial assets and mortgage servicing assets

The Corporation typically transfers conforming residential mortgage loans in conjunction with GNMA, FNMA and FHLMC securitization transactions whereby the loans are exchanged for cash or securities and servicing rights. As seller, the Corporation has made certain representations and warranties with respect to the originally transferred loans and, in the past, has sold certain loans with credit recourse to a government-sponsored entity, namely FNMA. Refer to Note 19 to the Consolidated Financial Statements for a description of such arrangements.

 

No liabilities were incurred as a result of these securitizations during the quarters and six months ended June 30, 2022 and 2021 because they did not contain any credit recourse arrangements. During the quarter and six months ended June 30, 2022, the Corporation recorded a net loss of $0.7 million and $1.8 million, respectively (June 30, 2021 - a net gain of $4.7 million and $8.4 million, respectively) related to the residential mortgage loans securitized.

 

The following tables present the initial fair value of the assets obtained as proceeds from residential mortgage loans securitized during the quarters and six months ended June 30, 2022 and 2021:

 

 

 

Proceeds Obtained During the Quarter Ended June 30, 2022

(In thousands)

Level 1

Level 2

Level 3

Initial Fair Value

Assets

 

 

 

 

 

 

 

 

Trading account debt securities:

 

 

 

 

 

 

 

 

Mortgage-backed securities - GNMA

$

-

$

77,269

$

-

$

77,269

Mortgage-backed securities - FNMA

 

-

 

37,640

 

-

 

37,640

Mortgage-backed securities - FHLMC

 

-

 

1,387

 

-

 

1,387

Total trading account debt securities

$

-

$

116,296

$

-

$

116,296

Mortgage servicing rights

$

-

$

-

$

1,960

$

1,960

Total

$

-

$

116,296

$

1,960

$

118,256

 

 

 

Proceeds Obtained During the Six Months Ended June 30, 2022

(In thousands)

Level 1

Level 2

Level 3

Initial Fair Value

Assets

 

 

 

 

 

 

 

 

Trading account debt securities:

 

 

 

 

 

 

 

 

Mortgage-backed securities - GNMA

$

-

$

155,163

$

-

$

155,163

Mortgage-backed securities - FNMA

 

-

 

95,330

 

-

 

95,330

Mortgage-backed securities - FHLMC

 

-

 

8,505

 

-

 

8,505

Total trading account debt securities

$

-

$

258,998

$

-

$

258,998

Mortgage servicing rights

$

-

$

-

$

4,369

$

4,369

Total

$

-

$

258,998

$

4,369

$

263,367

 

 

 

Proceeds Obtained During the Quarter Ended June 30, 2021

(In thousands)

Level 1

Level 2

Level 3

Initial Fair Value

Assets

 

 

 

 

 

 

 

 

Trading account debt securities:

 

 

 

 

 

 

 

 

Mortgage-backed securities - GNMA

$

-

$

106,729

$

-

$

106,729

Mortgage-backed securities - FNMA

 

-

 

72,555

 

-

 

72,555

Mortgage-backed securities - FHLMC

 

-

 

13,501

 

-

 

13,501

Total trading account debt securities

$

-

$

192,785

$

-

$

192,785

Mortgage servicing rights

$

-

$

-

$

2,880

$

2,880

Total

$

-

$

192,785

$

2,880

$

195,665

59

 

 

 

Proceeds Obtained During the Six Months Ended June 30, 2021

(In thousands)

Level 1

Level 2

Level 3

Initial Fair Value

Assets

 

 

 

 

 

 

 

 

Trading account debt securities:

 

 

 

 

 

 

 

 

Mortgage-backed securities - GNMA

$

-

$

208,717

$

-

$

208,717

Mortgage-backed securities - FNMA

 

-

 

158,835

 

-

 

158,835

Mortgage-backed securities - FHLMC

 

-

 

13,501

 

-

 

13,501

Total trading account debt securities

$

-

$

381,053

$

-

$

381,053

Mortgage servicing rights

$

-

$

-

$

5,689

$

5,689

Total

$

-

$

381,053

$

5,689

$

386,742

 

 

During the six months ended June 30, 2022, the Corporation retained servicing rights on whole loan sales involving approximately $33 million in principal balance outstanding (June 30, 2021 - $84 million), with net realized gains of approximately $0.4 million (June 30, 2021 - gains of $1.8 million). All loan sales performed during the six months ended June 30, 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 six months ended June 30, 2022 and 2021.

60

 

Residential MSRs

(In thousands)

June 30, 2022

June 30, 2021

Fair value at beginning of period

$

121,570

$

118,395

Additions

 

5,032

 

6,809

Changes due to payments on loans [1]

 

(5,877)

 

(8,012)

Reduction due to loan repurchases

 

(463)

 

(851)

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

 

9,571

 

3,126

Other

 

44

 

-

Fair value at end of period [2]

$

129,877

$

119,467

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

[2] At June 30, 2022, PB had MSRs amounting to $2.0 million (June 30, 2021 - $1.3 million).

 

 

Residential mortgage loans serviced for others were $11.6 billion at June 30, 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 June 30, 2022, those weighted average mortgage servicing fees were 0.31% (June 30, 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 and six months ended June 30, 2022 and 2021 were as follows:

 

Quarters ended

 

 

Six Months ended

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2022

 

June 30, 2021

 

BPPR

 

PB

 

 

BPPR

 

PB

 

 

BPPR

 

PB

 

 

BPPR

 

PB

 

Prepayment speed

4.7

%

7.8

%

 

5.9

%

12.5

%

 

5.0

%

8.9

%

 

7.4

%

21.2

%

Weighted average life (in years)

10.2

 

8.0

 

 

8.9

 

6.0

 

 

9.8

 

7.4

 

 

8.0

 

9.5

 

Discount rate (annual rate)

10.5

%

9.5

%

 

10.4

%

11.0

%

 

10.4

%

9.8

%

 

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

 

 

June 30,

December 31,

June 30,

December 31,

(In thousands)

2022

2021

2022

2021

Fair value of servicing rights

$

40,917

 

$

40,058

 

$

88,960

 

$

81,512

 

Weighted average life (in years)

 

6.8

 

 

7.1

 

 

7.5

 

 

7.5

 

Weighted average prepayment speed (annual rate)

 

6.6

%

 

7.7

%

 

6.5

%

 

7.6

%

 

Impact on fair value of 10% adverse change

$

(765)

 

$

(1,500)

 

$

(1,747)

 

$

(1,486)

 

 

Impact on fair value of 20% adverse change

$

(1,505)

 

$

(2,359)

 

$

(3,438)

 

$

(3,495)

 

Weighted average discount rate (annual rate)

 

11.2

%

 

11.2

%

 

11.0

%

 

11.0

%

 

Impact on fair value of 10% adverse change

$

(1,617)

 

$

(2,079)

 

$

(3,694)

 

$

(2,731)

 

 

Impact on fair value of 20% adverse change

$

(3,118)

 

$

(3,452)

 

$

(7,122)

 

$

(5,832)

 

61

 

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

 

At June 30, 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 June 30, 2022, the Corporation had recorded $11 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 six months ended June 30, 2022, the Corporation repurchased approximately $35 million (June 30, 2021 - $65 million) of mortgage loans from its GNMA servicing portfolio. The determination to repurchase these loans was based on the economic benefits of the transaction, which results in a reduction of the servicing costs for these severely delinquent loans, mainly related to principal and interest advances. The risk associated with the loans is reduced due to their guaranteed nature. The Corporation may place these loans under modification programs offered by FHA, VA or United States Department of Agriculture (USDA) or other loss mitigation programs offered by the Corporation, and once brought back to current status, these may be either retained in portfolio or re-sold in the secondary market.

62

 

Note 11 – Other real estate owned

The following tables present the activity related to Other Real Estate Owned (“OREO”), for the quarters and six months ended June 30, 2022 and 2021.

 

 

 

For the quarter ended June 30, 2022

 

 

OREO

 

OREO

 

 

(In thousands)

 

Commercial/Construction

 

Mortgage

 

Total

Balance at beginning of period

$

15,468

$

75,099

$

90,567

Write-downs in value

 

(486)

 

(245)

 

(731)

Additions

 

832

 

20,663

 

21,495

Sales

 

(1,564)

 

(17,502)

 

(19,066)

Other adjustments

 

-

 

(128)

 

(128)

Ending balance

$

14,250

$

77,887

$

92,137

 

 

 

For the quarter ended June 30, 2021

 

 

OREO

 

OREO

 

 

(In thousands)

 

Commercial/Construction

 

Mortgage

 

Total

Balance at beginning of period

$

15,085

$

56,975

$

72,060

Write-downs in value

 

(157)

 

(549)

 

(706)

Additions

 

2,125

 

17,067

 

19,192

Sales

 

(2,653)

 

(14,519)

 

(17,172)

Other adjustments

 

181

 

(283)

 

(102)

Ending balance

$

14,581

$

58,691

$

73,272

 

 

 

For the six months ended June 30, 2022

 

 

OREO

 

OREO

 

 

(In thousands)

 

Commercial/Construction

 

Mortgage

 

Total

Balance at beginning of period

$

15,017

$

70,060

$

85,077

Write-downs in value

 

(850)

 

(573)

 

(1,423)

Additions

 

3,519

 

39,903

 

43,422

Sales

 

(3,544)

 

(31,045)

 

(34,589)

Other adjustments

 

108

 

(458)

 

(350)

Ending balance

$

14,250

$

77,887

$

92,137

 

 

 

For the six months ended June 30, 2021

 

 

OREO

 

OREO

 

 

(In thousands)

 

Commercial/Construction

 

Mortgage

 

Total

Balance at beginning of period

$

13,214

$

69,932

$

83,146

Write-downs in value

 

(464)

 

(1,519)

 

(1,983)

Additions

 

5,975

 

18,940

 

24,915

Sales

 

(4,325)

 

(28,379)

 

(32,704)

Other adjustments

 

181

 

(283)

 

(102)

Ending balance

$

14,581

$

58,691

$

73,272

63

 

Note 12 − Other assets

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

 

(In thousands)

June 30, 2022

December 31, 2021

Net deferred tax assets (net of valuation allowance)

$

817,867

$

657,597

Investments under the equity method

 

318,836

 

298,988

Prepaid taxes

 

52,721

 

37,924

Other prepaid expenses

 

85,964

 

79,845

Derivative assets

 

17,218

 

26,093

Trades receivable from brokers and counterparties

 

45,118

 

65,460

Principal, interest and escrow servicing advances

 

45,889

 

53,942

Guaranteed mortgage loan claims receivable

 

84,990

 

98,001

Operating ROU assets (Note 27)

 

126,080

 

141,748

Finance ROU assets (Note 27)

 

19,349

 

13,459

Others

 

159,491

 

155,514

Total other assets

$

1,773,523

$

1,628,571

 

The Corporation enters in the ordinary course of business into hosting arrangements that are service contracts. These arrangements can include capitalizable implementation costs that are amortized during the term of the hosting arrangement. The Corporation recognizes capitalizable implementation costs related to hosting arrangements that are service contracts within the Other assets line item in the accompanying Consolidated Statements of Financial Condition. As of June 30, 2022, the total capitalized implementation costs amounted to $22.1 million with an accumulated amortization of $10.8 million for a net value of $11.3 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 and six months ended June 30, 2022 was $1.1 million and $2.0 million, respectively (June 30, 2021 - $1.1 million and $1.9 million, respectively).

64

 

Note 13 – Goodwill and other intangible assets

Goodwill

 

There were no changes in the carrying amount of goodwill for the quarters and six months ended June 30, 2022 and 2021.

 

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

 

 

 

 

 

 

 

June 30, 2022

 

Balance at

 

 

Balance at

 

June 30,

Accumulated

June 30,

 

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 June 30, 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

June 30, 2022

 

 

 

 

 

 

 

Core deposits

$

12,810

$

9,394

$

3,416

 

Other customer relationships

 

14,286

 

3,929

 

10,357

Total other intangible assets

$

27,096

$

13,323

$

13,773

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 June 30, 2022, the Corporation recognized $ 0.8 million in amortization expense related to other intangible assets with definite useful lives (June 30, 2021 - $ 1.3 million). During the six months ended June 30, 2022, the Corporation recognized $ 1.7 million in amortization related to other intangible assets with definite useful lives (June 30, 2021 - $ 2.3 million).

 

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

 

65

 

(In thousands)

 

 

Remaining 2022

$

1,589

Year 2023

 

3,179

Year 2024

 

2,938

Year 2025

 

1,750

Year 2026

 

1,440

Later years

 

2,877

66

 

Note 14 – Deposits

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

(In thousands)

June 30, 2022

December 31, 2021

Savings accounts

$

15,796,175

$

15,871,998

NOW, money market and other interest bearing demand deposits

 

25,772,708

 

28,736,459

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

 

41,568,883

 

44,608,457

Certificates of deposit:

 

 

 

 

 

Under $250,000

 

4,143,611

 

4,086,059

 

$250,000 and over

 

2,951,911

 

2,626,090

Total certificates of deposit

 

7,095,522

 

6,712,149

Total interest bearing deposits

$

48,664,405

$

51,320,606

 

A summary of certificates of deposits by maturity at June 30, 2022 follows:

(In thousands)

 

 

2022

$

3,357,467

2023

 

1,378,319

2024

 

842,853

2025

 

641,308

2026

 

484,722

2027 and thereafter

 

390,853

Total certificates of deposit

$

7,095,522

 

At June 30, 2022, the Corporation had brokered deposits amounting to $1.0 billion (December 31, 2021 - $ 0.8 billion).

 

The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans was $8 million at June 30, 2022 (December 31, 2021 - $6 million)

 

At June 30, 2022, public sector deposits amounted to $17.1 billion. Public deposit balances are difficult to predict. For example, the receipt by the Puerto Rico Government of hurricane recovery related Federal assistance, and seasonal tax collections, could increase public deposit balances at BPPR. On the other hand, the amount and timing of reductions in balances are likely to be impacted by, for example, the speed at which COVID-19 pandemic and hurricane recovery federal assistance is distributed, the financial condition, liquidity and cash management practices of the Puerto Rico Government and its instrumentalities and the implementation of fiscal and debt adjustment plans approved pursuant to PROMESA or other actions mandated by the Fiscal Oversight and Management Board for Puerto Rico (the “Oversight Board”).

67

 

Note 15 – Borrowings

 

Assets sold under agreements to repurchase

 

Assets sold under agreements to repurchase amounted to $71 million at June 30, 2022 and $92 million at 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

 

 

 

June 30, 2022

December 31, 2021

 

 

 

Repurchase

 

Repurchase

 

(In thousands)

 

liability

 

liability

 

U.S. Treasury securities

 

 

 

 

 

 

Within 30 days

$

14,139

$

19,538

 

 

After 30 to 90 days

 

18,198

 

30,295

 

 

After 90 days

 

27,207

 

29,036

 

Total U.S. Treasury securities

 

59,544

 

78,869

 

Mortgage-backed securities

 

 

 

 

 

 

Within 30 days

 

10,534

 

11,733

 

 

After 30 to 90 days

 

847

 

-

 

 

After 90 days

 

-

 

722

 

Total mortgage-backed securities

 

11,381

 

12,455

 

Collateralized mortgage obligations

 

 

 

 

 

 

Within 30 days

 

-

 

279

 

Total collateralized mortgage obligations

 

-

 

279

 

Total

$

70,925

$

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 June 30, 2022, compared to $75 million in FHLB Advances at December 31, 2021.

68

 

Notes Payable

 

The following table presents the composition of notes payable at June 30, 2022 and December 31, 2021.

 

(In thousands)

June 30, 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%

$

391,429

 

$

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 $1,524

 

298,475

 

 

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 $328

 

198,306

 

 

198,292

Total notes payable

$

888,210

 

$

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 June 30, 2022 is included in the table below.

 

 

 

Assets sold under

 

 

 

(In thousands)

 

agreements to repurchase

 

Notes payable

Total

2022

$

70,925

$

2,148

$

73,073

2023

 

-

 

341,736

 

341,736

2024

 

-

 

91,943

 

91,943

2025

 

-

 

139,920

 

139,920

2026

 

-

 

74,500

 

74,500

Later years

 

-

 

237,963

 

237,963

Total borrowings

$

70,925

$

888,210

$

959,135

 

At June 30, 2022 and December 31, 2021, the Corporation had FHLB borrowing facilities whereby the Corporation could borrow up to $3.0 billion, of which $0.4 billion and $0.6 billion, respectively, were used at each period. In addition, at June 30, 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 June 30, 2022, the Corporation has a borrowing facility at the discount window of the Federal Reserve Bank of New York amounting to $1.4 billion (December 31, 2021 - $1.3 billion), which remained unused at June 30, 2022 and December 31, 2021. The facility is a collateralized source of credit that is highly reliable even under difficult market conditions.

69

 

Note 16 − Other liabilities

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

 

(In thousands)

June 30, 2022

December 31, 2021

Accrued expenses

$

280,991

$

308,594

Accrued interest payable

 

33,015

 

33,227

Accounts payable

 

97,220

 

91,804

Dividends payable

 

42,120

 

35,937

Trades payable

 

10,312

 

13,789

Liability for GNMA loans sold with an option to repurchase

 

11,034

 

12,806

Reserves for loan indemnifications

 

9,881

 

12,639

Reserve for operational losses

 

37,718

 

43,886

Operating lease liabilities (Note 27)

 

138,217

 

154,114

Finance lease liabilities (Note 27)

 

25,463

 

19,719

Pension benefit obligation

 

8,214

 

8,778

Postretirement benefit obligation

 

158,904

 

161,988

Others

 

68,694

 

70,967

Total other liabilities

$

921,783

$

968,248

70

 

Note 17 – Stockholders’ equity

As of June 30, 2022, stockholder’s equity totaled $4.3 billion. During the six months ended June 30, 2022, the Corporation declared cash dividends of $1.10 (2021 - $0.85) per common share amounting to $84.2 million (2021 - $70.0 million). The quarterly dividend declared to stockholders of record as of the close of business on June 2, 2022 was paid on July 1, 2022.

 

Accelerated share repurchase transaction (“ASR”)

 

On July 12, 2022, the Corporation completed its previously announced accelerated share repurchase program for the repurchase of an aggregate of $400 million of Popular’s common stock. Under the terms of the accelerated repurchase agreement (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 the Corporation’s Common Stock (the “Initial Shares”). The transaction was accounted for as a treasury stock transaction. As a result of the receipt of the Initial Shares, the Corporation recognized in 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 received an additional 1,582,922 shares of Popular’s common stock and recognized approximately $120 million as treasury stock with a corresponding increase in its capital surplus account. The Corporation repurchased a total of 5,066,864 shares at an average purchased price of $78.9443 under the ASR Agreement.

 

On May 3, 2021, the Corporation entered into a $350 million accelerated share repurchase (“ASR”) transaction with respect to its common stock, which was accounted for as a treasury stock transaction. As a result of the receipt of the initial 3,785,831 shares, the Corporation recognized in stockholders’ equity approximately $280 million in treasury stock and $70 million as a reduction in capital surplus. The Corporation completed the transaction on September 9, 2021 and received 828,965 additional shares of Popular’s common stock and recognized $61 million in treasury stock with a corresponding increase in its capital surplus account. In total, the Corporation repurchased a total of 4,614,796 shares at an average price of $75.8430 under the 2021 ASR transaction.

 

 

 

71

 

Note 18 – Other comprehensive loss

The following table presents changes in accumulated other comprehensive loss by component for the quarters and six months ended June 30, 2022 and 2021.

 

 

 

Changes in Accumulated Other Comprehensive Loss by Component [1]

 

 

 

 

Quarters ended

Six months ended

 

 

 

June 30,

June 30,

(In thousands)

 

 

2022

 

2021

 

2022

 

2021

Foreign currency translation

Beginning Balance

$

(70,165)

$

(70,685)

$

(67,307)

$

(71,254)

 

 

Other comprehensive income

 

5,998

 

2,726

 

3,140

 

3,295

 

 

Net change

 

5,998

 

2,726

 

3,140

 

3,295

 

 

Ending balance

$

(64,167)

$

(67,959)

$

(64,167)

$

(67,959)

Adjustment of pension and postretirement benefit plans

Beginning Balance

$

(155,281)

$

(191,814)

$

(158,994)

$

(195,056)

 

 

Other comprehensive income before reclassifications

 

-

 

-

 

1,269

 

-

 

 

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

 

2,444

 

3,242

 

4,888

 

6,484

 

 

Net change

 

2,444

 

3,242

 

6,157

 

6,484

 

 

Ending balance

$

(152,837)

$

(188,572)

$

(152,837)

$

(188,572)

Unrealized net holding (losses) gains on debt securities

Beginning Balance

$

(1,171,950)

$

90,955

$

(96,120)

$

460,900

 

 

Other comprehensive (loss) income

 

(563,420)

 

73,027

 

(1,639,250)

 

(296,918)

 

 

Net change

 

(563,420)

 

73,027

 

(1,639,250)

 

(296,918)

 

 

Ending balance

$

(1,735,370)

$

163,982

$

(1,735,370)

$

163,982

Unrealized net losses on cash flow hedges

Beginning Balance

$

158

$

(3,194)

$

(2,648)

$

(4,599)

 

 

Other comprehensive (loss) income before reclassifications

 

(332)

 

(230)

 

2,807

 

1,127

 

 

Amounts reclassified from accumulated other comprehensive loss

 

(468)

 

282

 

(801)

 

330

 

 

Net change

 

(800)

 

52

 

2,006

 

1,457

 

 

Ending balance

$

(642)

$

(3,142)

$

(642)

$

(3,142)

 

 

Total

$

(1,953,016)

$

(95,691)

$

(1,953,016)

$

(95,691)

[1]

All amounts presented are net of tax.

 

 

 

 

 

 

 

 

72

 

The following table presents the amounts reclassified out of each component of accumulated other comprehensive loss during the quarters and six months ended June 30, 2022 and 2021.

 

 

 

Reclassifications Out of Accumulated Other Comprehensive Loss

 

 

 

 

Quarters ended

Six Months ended

 

 

Affected Line Item in the

June 30,

June 30,

(In thousands)

Consolidated Statements of Operations

 

2022

 

2021

 

2022

 

2021

Adjustment of pension and postretirement benefit plans

 

 

 

 

 

 

 

 

 

 

Amortization of net losses

Other operating expenses

$

(3,911)

$

(5,189)

$

(7,822)

$

(10,379)

 

 

Total before tax

 

(3,911)

 

(5,189)

 

(7,822)

 

(10,379)

 

 

Income tax benefit

 

1,467

 

1,947

 

2,934

 

3,895

 

 

Total net of tax

$

(2,444)

$

(3,242)

$

(4,888)

$

(6,484)

Unrealized net losses on cash flow hedges

 

 

 

 

 

 

 

 

 

 

Forward contracts

Mortgage banking activities

$

1,099

$

2

$

2,077

$

348

 

Interest rate swaps

Other operating income

 

(219)

 

(282)

 

(498)

 

(537)

 

 

Total before tax

 

880

 

(280)

 

1,579

 

(189)

 

 

Income tax benefit

 

(412)

 

(2)

 

(778)

 

(141)

 

 

Total net of tax

$

468

$

(282)

$

801

$

(330)

 

 

Total reclassification adjustments, net of tax

$

(1,976)

$

(3,524)

$

(4,087)

$

(6,814)

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Note 19 – Guarantees

 

At June 30, 2022, the Corporation recorded a liability of $0.2 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 June 30, 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 and six months ended June 30, 2022, the Corporation repurchased approximately $2 million and $5 million, respectively, of unpaid principal balance in mortgage loans subject to the credit recourse provisions (June 30, 2021 - $7 million and $15 million, respectively). In the event of nonperformance by the borrower, the Corporation has rights to the underlying collateral securing the mortgage loan. The Corporation suffers ultimate losses on these loans when the proceeds from a foreclosure sale of the property underlying a defaulted mortgage loan are less than the outstanding principal balance of the loan plus any uncollected interest advanced and the costs of holding and disposing the related property. At June 30, 2022, the Corporation’s liability established to cover the estimated credit loss exposure related to loans sold or serviced with credit recourse amounted to $9 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 and six months ended June 30, 2022 and 2021.

 

Quarters ended June 30,

 

 

Six months ended June 30,

 

 

(In thousands)

2022

 

 

2021

 

 

2022

 

2021

 

 

Balance as of beginning of period

$

10,335

 

 

$

20,244

 

 

$

11,800

 

$

22,484

 

 

Provision (benefit) for recourse liability

 

(395)

 

 

 

(1,568)

 

 

 

(349)

 

 

(751)

 

 

Net charge-offs

 

(845)

 

 

 

(3,014)

 

 

 

(2,356)

 

 

(6,071)

 

 

Balance as of end of period

$

9,095

 

 

$

15,662

 

 

$

9,095

 

$

15,662

 

 

 

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 six months ended June 30, 2022, the Corporation purchased $1 million under representation and warranty arrangements. There were no repurchases of loans under representation and warranty arrangements during the six months ended June 30, 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. At June 30, 2022, the Corporation’s liability for estimated losses associated with indemnifications and representations and warranties related to loans sold by BPPR amounted to $0.8 million (December 31, 2021 - $0.8 million).

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 June 30, 2022, the Corporation serviced $11.6 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 June

74

 

30, 2022, the outstanding balance of funds advanced by the Corporation under such mortgage loan servicing agreements was approximately $46 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 June 30, 2022 and December 31, 2021. In addition, at June 30, 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.

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Note 20 – Commitments and contingencies

Off-balance sheet risk

The Corporation is a party to financial instruments with off-balance sheet credit risk in the normal course of business to meet the financial needs of its customers. These financial instruments include loan commitments, letters of credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition.

The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit and financial guarantees is represented by the contractual notional amounts of those instruments. The Corporation uses the same credit policies in making these commitments and conditional obligations as it does for those reflected on the consolidated statements of financial condition.

Financial instruments with off-balance sheet credit risk, whose contract amounts represent potential credit risk as of the end of the periods presented were as follows:

(In thousands)

June 30, 2022

December 31, 2021

Commitments to extend credit:

 

 

 

 

 

Credit card lines

$

5,727,176

$

5,382,089

 

Commercial and construction lines of credit

 

3,982,769

 

3,830,601

 

Other consumer unused credit commitments

 

249,490

 

250,229

Commercial letters of credit

 

1,991

 

3,260

Standby letters of credit

 

31,437

 

27,848

Commitments to originate or fund mortgage loans

 

121,631

 

95,372

 

At June 30, 2022 and December 31, 2021, the Corporation maintained a reserve of approximately $6.9 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 June 30, 2022, and December 31, 2021, the Corporation also maintained other non-credit commitments for approximately $1.5 million and $1.0 million, respectively, primarily for the acquisition of other investments.

 

Business concentration

Since the Corporation’s business activities are concentrated primarily in Puerto Rico, its results of operations and financial condition are dependent upon the general trends of the Puerto Rico economy and, in particular, the residential and commercial real estate markets. The concentration of the Corporation’s operations in Puerto Rico exposes it to greater risk than other banking companies with a wider geographic base. Its asset and revenue composition by geographical area is presented in Note 32 to the Consolidated Financial Statements.

 

Puerto Rico has faced significant fiscal and economic challenges for over a decade. In response to such challenges, the U.S. Congress enacted the Puerto Rico Oversight Management and Economic Stability Act (“PROMESA”) in 2016, which, among other things, established a Fiscal Oversight and Management Board for Puerto Rico (the “Oversight Board”) and a framework for the restructuring of the debts of the Commonwealth, its instrumentalities and municipalities. The Commonwealth and several of its instrumentalities have commenced debt restructuring proceedings under PROMESA. As of the date of this report, while municipalities have been designated as covered entities under PROMESA, no municipality has commenced, or has been authorized by the Oversight Board to commence, any such debt restructuring proceeding under PROMESA.

 

At June 30, 2022, the Corporation’s direct exposure to the Puerto Rico government and its instrumentalities and municipalities totaled $396 million, of which $353 million were outstanding ($367 million and $349 million at December 31, 2021). Of the amount outstanding, $326 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 June 30, 2022 and December 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 June 30, 2022, 73% 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 June 30, 2022:

 

(In thousands)

 

Investment Portfolio

 

Loans

 

Total Outstanding

 

Total Exposure

Central Government

 

 

 

 

 

 

 

 

 

After 1 to 5 years

$

15

$

-

$

15

$

15

 

After 5 to 10 years

 

1

 

-

 

1

 

1

 

After 10 years

 

31

 

-

 

31

 

31

Total Central Government

 

47

 

-

 

47

 

47

Municipalities

 

 

 

 

 

 

 

 

 

Within 1 year

 

4,440

 

31,880

 

36,320

 

372,881

 

After 1 to 5 years

 

13,045

 

67,472

 

80,517

 

13,045

 

After 5 to 10 years

 

9,530

 

170,643

 

180,173

 

9,530

 

After 10 years

 

230

 

55,257

 

55,487

 

230

Total Municipalities

 

27,245

 

325,252

 

352,497

 

395,686

Total Direct Government Exposure

$

27,292

$

325,252

$

352,544

$

395,733

 

In addition, at June 30, 2022, the Corporation had $262 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 $220 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 June 30, 2022, $42 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, $1.5 billion of residential mortgages, $89 million of Small Business Administration (“SBA”) loans under the Paycheck Protection Program (“PPP”) and $69 million commercial loans were insured or guaranteed by the U.S. Government or its agencies at June 30, 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 June 30, 2022, the Corporation has operations in the United States Virgin Islands (the “USVI”) and has approximately $29 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 June 30, 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

77

 

approximately $217 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 $30.5 million as of June 30, 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 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.

 

In December 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, and 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 May 9, 2022, the trial court issued an amended resolution denying for a second time Popular Insurance’s Motion for Summary Judgment. On June 14, 2022, 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. Plaintiffs filed their response brief on July 28, 2022. The petition of Certiorari is now fully briefed and pending resolution.

 

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

79

 

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.

 

In March 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. The parties expect to submit the settlement agreement for the Court's approval during August 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.

 

In October 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. During a status hearing held on June 7, 2022, the District Court entered an amended scheduling order extending the discovery deadline to March 31, 2023 and granting plaintiffs until April 14, 2023 to file a motion for class certification.

 

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.

 

On May 13, 2022, Plaintiff in the Lipsett complaint filed a new complaint captioned Lipsett v. Banco Popular North America d/b/a Popular Community Bank with the same allegations of his previous complaint against Popular. On June 10, 2022, after serving Plaintiff with a written notice of election to arbitrate the claims asserted in the complaint which went unanswered, Popular Bank filed a Pre-Motion Conference motion related to a new Motion to Compel Arbitration. The Court has yet to rule on the motion.

 

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

80

 

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

 

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 June 30, 2022, was named as a respondent (among other broker-dealers) in 41 pending arbitration proceedings with initial claimed amounts of approximately $40.5 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

81

 

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, which is yet to be fully briefed.

 

Cyber Incident Related Litigation

 

BPPR was named defendant in a putative class action complaint filed before the U.S. District Court for the District of Puerto Rico, captioned Rosa E. Rivera Marrero v. Banco Popular de Puerto Rico. Plaintiff contends BPPR failed to properly secure and safeguard the class members’ personally identifiable information (“PII”) which was purportedly exposed through a data breach experienced by a BPPR’s vendor in June 2021. Such data breach, which as alleged involved BPPR’s files, occurred via the exploitation of an alleged vulnerability in Accellion FTA, a legacy software product developed by Accellion, Inc used by BPPR’s vendor. Plaintiff further alleges that, during the data breach, an unauthorized actor removed one or more documents that contained PII of the plaintiff and purported class members. Plaintiff demands injunctive relief requesting, among other things, BPPR to protect all data collected through the course of its business in accordance with all applicable regulations, industry standards and federal, state or local laws, as well as an award for damages, attorneys’ fees, costs and litigation expenses. BPPR was served with process on May 27, 2022 and, on August 1, 2022, filed a Motion to Dismiss, which is yet to be fully briefed.

 

PROMESA Title III Proceedings

 

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

 

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

 

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. Potential claims being pursued by the SCC and the UCC, including claims tolled under existing tolling agreements, were transferred to a newly-created Puerto Rico Avoidance Action Trust as part of the approval of the Commonwealth of Puerto Rico’s Plan of Adjustment. The tolling agreement as to potential claims that may be asserted against the Popular Companies by the Puerto Rico Avoidance Action Trust 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 June 30, 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 June 30, 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 June 30, 2022 and December 31, 2021.

83

 

(In thousands)

June 30, 2022

December 31, 2021

Assets

 

 

 

 

Servicing assets:

 

 

 

 

 

Mortgage servicing rights

$

101,094

$

94,464

Total servicing assets

$

101,094

$

94,464

Other assets:

 

 

 

 

 

Servicing advances

$

6,922

$

7,968

Total other assets

$

6,922

$

7,968

Total assets

$

108,016

$

102,432

Maximum exposure to loss

$

108,016

$

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 $8.1 billion at June 30, 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 June 30, 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 June 30, 2022.

84

 

Note 22 – Related party transactions

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

 

EVERTEC

 

The Corporation has an investment in Evertec, Inc. (“Evertec”), which provides various processing and information technology services to the Corporation and its subsidiaries and gives BPPR access to the ATH network owned and operated by Evertec. As of June 30, 2022, the Corporation held 11,654,803 shares of Evertec, representing an ownership stake of 16.3%. As of June 30, 2022, the Corporation had significant influence over Evertec. Accordingly, as of June 30, 2022, the investment in Evertec was accounted for under the equity method and evaluated for impairment if events or circumstances indicate that a decrease in value of the investment has occurred that is other than temporary.

 

As discussed in Note 33, Subsequent Events, on July 1, 2022, the Corporation’s wholly owned subsidiary, Banco Popular de Puerto Rico (“BPPR”), completed its previously announced acquisition of certain assets from Evertec Group, LLC (“Evertec Group”), a wholly owned subsidiary of Evertec, Inc. (“Evertec”) (NYSE: EVTC), to service certain BPPR channels.

 

As a result of the closing of the transaction, BPPR acquired from Evertec Group certain critical channels, including BPPR’s retail and business digital banking and commercial cash management applications. BPPR also entered into amended and restated service agreements with Evertec Group pursuant to which Evertec Group will continue to provide various information technology and transaction processing services to Popular, BPPR and their respective subsidiaries.

 

Under the amended service agreements, the Evertec Group will no longer have exclusive rights to provide certain of Popular’s technology services. The amended service agreements includes discounted pricing and lowered caps on contractual pricing escalators tied to the Consumer Price Index. As part of the transaction, BPPR and Evertec entered into a revenue sharing structure for BPPR in connection with its merchant acquiring relationship with Evertec.

 

As consideration for the transaction, BPPR delivered to Evertec Group 4,589,169 shares of Evertec common stock valued at closing at $169 million (based on Evertec’s stock price on June 30, 2022 of $36.88), resulting in an after-tax gain of approximately $112 million.

 

As a result of the transfer of the shares used as consideration for the transaction, Popular’s ownership stake in Evertec was reduced from approximately 16.3% to approximately 10.6% at the closing of the transaction. In connection with the transaction, Popular has agreed to further reduce its voting interest in Evertec to no more than 4.5%, whether through selling shares of Evertec common stock or a conversion of such shares into non-voting preferred stock within 90 days of the closing of the transaction. Popular expects to sell down its stake in Evertec to no more than 4.5%, subject to market conditions, and intends to return to Popular shareholders, via common stock repurchases, any after-tax gains resulting from such sale, subject to the receipt of regulatory approvals.

 

The Corporation recorded $1.2 million in dividends distributions during the six months ended June 30, 2022 from its investments in Evertec (June 30, 2021 - $1.2 million). The Corporation’s equity in Evertec is presented in the table which follows and is included as part of “other assets” in the Consolidated Statements of Financial Condition.

 

(In thousands)

 

June 30, 2022

 

 

December 31, 2021

Equity investment in Evertec

$

125,330

 

$

110,299

 

 

 

 

 

 

The Corporation had the following financial condition balances outstanding with Evertec at June 30, 2022 and December 31, 2021. Items that represent liabilities to the Corporation are presented with parenthesis.

85

 

(In thousands)

June 30, 2022

December 31, 2021

Accounts receivable (Other assets)

$

2,800

$

5,668

Deposits

 

(106,200)

 

(150,737)

Accounts payable (Other liabilities)

 

(1,252)

 

(3,431)

Net total

$

(104,652)

$

(148,500)

 

The Corporation’s proportionate share of income or loss from Evertec is included in other operating income in the consolidated statements of operations. The following table presents the Corporation’s proportionate share of Evertec’s income (loss) and changes in stockholders’ equity for the quarters and six months ended June 30, 2022 and 2021.

 

 

Quarter ended

 

 

Six Months ended

(In thousands)

 

June 30, 2022

 

 

June 30, 2022

Share of income from the investment in Evertec

$

5,480

 

$

11,827

Share of other changes in Evertec's stockholders' equity

 

1,410

 

 

3,168

Share of Evertec's changes in equity recognized in income

$

6,890

 

$

14,995

 

 

 

Quarter ended

 

 

Six Months ended

(In thousands)

 

June 30, 2021

 

 

June 30, 2021

Share of income from the investment in Evertec

$

7,967

 

$

13,716

Share of other changes in Evertec's stockholders' equity

 

237

 

 

400

Share of Evertec's changes in equity recognized in income

$

8,204

 

$

14,116

 

The following tables present the transactions and service payments between the Corporation and Evertec (as an affiliate) and their impact on the results of operations for the quarters and six months ended June 30, 2022 and 2021. Items that represent expenses to the Corporation are presented with parenthesis.

86

 

 

 

Quarter ended

Six Months ended

 

(In thousands)

June 30, 2022

June 30, 2022

Category

Interest expense on deposits

 

$

(135)

 

$

(267)

Interest expense

ATH and credit cards interchange income from services to Evertec

 

 

7,272

 

 

13,955

Other service fees

Rental income charged to Evertec

 

 

1,577

 

 

3,258

Net occupancy

Processing fees on services provided by Evertec

 

 

(66,459)

 

 

(128,681)

Professional fees

Other services provided to Evertec

 

 

202

 

 

420

Other operating expenses

Total

 

$

(57,543)

 

$

(111,315)

 

 

 

 

Quarter ended

Six Months ended

 

(In thousands)

 

June 30, 2021

June 30, 2021

Category

Interest expense on deposits

 

$

(75)

 

$

(164)

Interest expense

ATH and credit cards interchange income from services to Evertec

 

 

6,976

 

 

13,429

Other service fees

Rental income charged to Evertec

 

 

1,396

 

 

2,943

Net occupancy

Processing fees on services provided by Evertec

 

 

(60,740)

 

 

(120,881)

Professional fees

Other services provided to Evertec

 

 

219

 

 

340

Other operating expenses

Total

 

$

(52,224)

 

$

(104,333)

 

 

Centro Financiero BHD León

At June 30, 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 six months ended June 30, 2022, the Corporation recorded $14.5 million in earnings from its investment in BHD León (June 30, 2021 - $12.6 million), which had a carrying amount of $184.8 million at June 30, 2022 (December 31, 2021 - $180.3 million). The Corporation received $ 16.0 million in dividends distributions during the six months ended June 30, 2022 from its investment in BHD León (June 30, 2021 - $4.3 million).

Investment Companies

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

For the six months ended June 30, 2022 administrative fees charged to these investment companies amounted to $1.3 million (June 30, 2021 - $2.3 million) and waived fees amounted to $0.5 million (June 30, 2021 - $0.8 million), for a net fee of $0.8 million (June 30, 2021 - $1.5 million).

87

 

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 June 30, 2022 and December 31, 2021:

88

 

At June 30, 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

$

2,019,437

$

16,821,045

$

-

$

-

$

18,840,482

Obligations of U.S. Government sponsored entities

 

-

 

70

 

-

 

-

 

70

Collateralized mortgage obligations - federal agencies

 

-

 

172,784

 

-

 

-

 

172,784

Mortgage-backed securities

 

-

 

7,251,541

 

779

 

-

 

7,252,320

Other

 

-

 

95

 

500

 

-

 

595

Total debt securities available-for-sale

$

2,019,437

$

24,245,535

$

1,279

$

-

$

26,266,251

Trading account debt securities, excluding derivatives:

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

$

16,873

$

-

$

-

$

-

$

16,873

Obligations of Puerto Rico, States and political subdivisions

 

-

 

73

 

-

 

-

 

73

Collateralized mortgage obligations

 

-

 

51

 

152

 

-

 

203

Mortgage-backed securities

 

-

 

14,904

 

-

 

-

 

14,904

Other

 

-

 

-

 

264

 

-

 

264

Total trading account debt securities, excluding derivatives

$

16,873

$

15,028

$

416

$

-

$

32,317

Equity securities

$

-

$

28,214

$

-

$

215

$

28,429

Mortgage servicing rights

 

-

 

-

 

129,877

 

-

 

129,877

Derivatives

 

-

 

17,218

 

-

 

-

 

17,218

Total assets measured at fair value on a recurring basis

$

2,036,310

$

24,305,995

$

131,572

$

215

$

26,474,092

Liabilities

 

 

 

 

 

 

 

 

 

 

Derivatives

$

-

$

(16,173)

$

-

$

-

$

(16,173)

Contingent consideration

 

-

 

-

 

(9,241)

 

-

 

(9,241)

Total liabilities measured at fair value on a recurring basis

$

-

$

(16,173)

$

(9,241)

$

-

$

(25,414)

89

 

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 and six months ended June 30, 2022 and 2021 and excludes nonrecurring fair value measurements of assets no longer outstanding as of the reporting date.

 

90

 

Six months ended June 30, 2022

(In thousands)

Level 1

Level 2

Level 3

Total

 

 

NONRECURRING FAIR VALUE MEASUREMENTS

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Write-downs

Loans[1]

$

-

$

-

$

6,694

$

6,694

$

(1,183)

Other real estate owned[2]

 

-

 

-

 

2,161

 

2,161

 

(769)

Total assets measured at fair value on a nonrecurring basis

$

-

$

-

$

8,855

$

8,855

$

(1,952)

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

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

 

Six months ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

(In thousands)

Level 1

Level 2

Level 3

Total

 

 

NONRECURRING FAIR VALUE MEASUREMENTS

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Write-downs

Loans[1]

$

-

$

-

$

19,369

$

19,369

$

(2,957)

Loans held-for-sale[2]

 

-

 

-

 

8,700

 

8,700

 

(596)

Other real estate owned[3]

 

-

 

-

 

7,942

 

7,942

 

(1,503)

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

 

-

 

-

 

2,728

 

2,728

 

(303)

Total assets measured at fair value on a nonrecurring basis

$

-

$

-

$

38,739

$

38,739

$

(5,359)

[1] Relates 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 and six months ended June 30, 2022 and 2021.

 

 

Quarter ended June 30, 2022

 

 

MBS

Other

CMOs

Other

 

 

 

 

 

 

 

 

 

 

classified

securities

classified

securities

 

 

 

 

 

 

 

 

 

 

as debt

classified as

as trading

classified

 

 

 

 

 

 

 

 

 

 

securities

debt securities

account

as trading

Mortgage

 

 

 

 

 

 

available-

available-

debt

account debt

servicing

Total

Contingent

Total

(In thousands)

for-sale

for-sale

securities

securities

rights

assets

consideration

liabilities

Balance at March 31, 2022

$

793

$

-

$

174

$

267

$

125,358

$

126,592

$

9,241

$

9,241

Gains (losses) included in earnings

 

-

 

-

 

-

 

(3)

 

2,258

 

2,255

 

-

 

-

Gains (losses) included in OCI

 

11

 

-

 

-

 

-

 

-

 

11

 

-

 

-

Additions

 

-

 

500

 

-

 

-

 

2,261

 

2,761

 

-

 

-

Settlements

 

(25)

 

-

 

(22)

 

-

 

-

 

(47)

 

-

 

-

Balance at June 30, 2022

$

779

$

500

$

152

$

264

$

129,877

$

131,572

$

9,241

$

9,241

Changes in unrealized gains (losses) included in earnings relating to assets still held at June 30, 2022

$

-

$

-

$

(1)

$

2

$

5,318

$

5,319

$

-

$

-

91

 

 

Six months ended June 30, 2022

 

 

MBS

Other

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

classified

securities

CMOs

securities

 

 

 

 

 

 

 

 

 

 

 

as investment

classified as

classified

classified

 

 

 

 

 

 

 

 

 

 

 

securities

debt securities

as trading

as trading

Mortgage

 

 

 

 

 

 

 

available-

available-

account

account

servicing

Total

Contingent

 

Total

(In thousands)

for-sale

for-sale

securities

securities

rights

assets

consideration

 

liabilities

Balance at January 1, 2022

$

826

$

-

$

198

$

280

$

121,570

$

122,874

$

9,241

 

$

9,241

Gains (losses) included in earnings

 

-

 

-

 

(1)

 

(16)

 

3,275

 

3,258

 

-

 

 

-

Gains (losses) included in OCI

 

3

 

-

 

-

 

-

 

-

 

3

 

-

 

 

-

Additions

 

-

 

500

 

2

 

-

 

5,032

 

5,534

 

-

 

 

-

Settlements

 

(50)

 

-

 

(47)

 

-

 

-

 

(97)

 

-

 

 

-

Balance at June 30, 2022

$

779

$

500

$

152

$

264

$

129,877

$

131,572

$

9,241

 

$

9,241

Changes in unrealized gains (losses) included in earnings relating to assets still held at June 30, 2022

$

-

$

-

$

(1)

$

7

$

9,571

$

9,577

$

-

 

$

-

 

 

Quarter ended June 30, 2021

 

 

MBS

 

 

Other

 

 

 

 

 

 

classified

CMOs

securities

 

 

 

 

 

 

as investment

classified

classified

 

 

 

 

 

 

securities

as trading

as trading

Mortgage

 

 

 

available-

account

account

servicing

Total

(In thousands)

for-sale

securities

securities

rights

assets

Balance at March 31, 2021

$

934

$

251

$

372

$

122,543

$

124,100

Gains (losses) included in earnings

 

-

 

-

 

(11)

 

(6,249)

 

(6,260)

Gains (losses) included in OCI

 

4

 

-

 

-

 

-

 

4

Additions

 

-

 

23

 

-

 

3,173

 

3,196

Settlements

 

-

 

(24)

 

-

 

-

 

(24)

Balance at June 30, 2021

$

938

$

250

$

361

$

119,467

$

121,016

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

$

-

$

-

$

5

$

(2,036)

$

(2,031)

 

 

Six months ended June 30, 2021

 

 

MBS

 

 

Other

 

 

 

 

 

 

classified

CMOs

securities

 

 

 

 

 

 

as investment

classified

classified

 

 

 

 

 

 

securities

as trading

as trading

Mortgage

 

 

 

available-

account

account

servicing

Total

(In thousands)

for-sale

securities

securities

rights

assets

Balance at January 1, 2021

$

1,014

$

278

$

381

$

118,395

$

120,068

Gains (losses) included in earnings

 

-

 

-

 

(20)

 

(5,737)

 

(5,757)

Gains (losses) included in OCI

 

(1)

 

-

 

-

 

-

 

(1)

Additions

 

-

 

24

 

-

 

6,809

 

6,833

Settlements

 

(75)

 

(52)

 

-

 

-

 

(127)

Balance at June 30, 2021

$

938

$

250

$

361

$

119,467

$

121,016

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

$

-

$

-

$

9

$

3,126

$

3,135

Gains and losses (realized and unrealized) included in earnings for the quarters and six months ended June 30, 2022 and 2021 for Level 3 assets and liabilities included in the previous tables are reported in the consolidated statement of operations as follows:

 

 

Quarter ended June 30, 2022

Six months ended June 30, 2022

 

 

 

Changes in unrealized

 

 

Changes in unrealized

 

Total gains

gains (losses) relating to

Total gains

gains (losses) relating to

 

(losses) included

assets still held at

(losses) included

assets still held at

(In thousands)

in earnings

reporting date

in earnings

reporting date

Mortgage banking activities

$

2,258

$

5,318

$

3,275

$

9,571

Trading account profit (loss)

 

(3)

 

1

 

(17)

 

6

Total

$

2,255

$

5,319

$

3,258

$

9,577

92

 

 

 

Quarter ended June 30, 2021

Six months ended June 30, 2021

 

 

 

Changes in unrealized

 

 

Changes in unrealized

 

Total gains

gains (losses) relating to

Total gains

gains (losses) relating to

 

(losses) included

assets still held at

(losses) included

assets still held at

(In thousands)

in earnings

reporting date

in earnings

reporting date

Mortgage banking activities

$

(6,249)

$

(2,036)

$

(5,737)

$

3,126

Trading account profit (loss)

 

(11)

 

5

 

(20)

 

9

Total

$

(6,260)

$

(2,031)

$

(5,757)

$

3,135

 

The following tables include quantitative information about significant unobservable inputs used to derive the fair value of Level 3 instruments, excluding those instruments for which the unobservable inputs were not developed by the Corporation such as prices of prior transactions and/or unadjusted third-party pricing sources at June 30, 2022 and 2021.

 

 

 

 

Fair value at

 

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

(In thousands)

 

2022

 

 

Valuation technique

Unobservable inputs

Weighted average (range) [1]

CMO's - trading

$

152

 

 

Discounted cash flow model

Weighted average life

0.6 years (0.3 - 0.8 years)

 

 

 

 

 

 

 

 

Yield

4.2% (4.2% - 4.8%)

 

 

 

 

 

 

 

 

Prepayment speed

12.5% (12.0% - 16.3%)

 

Other - trading

$

264

 

 

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

$

3,779

 

[2]

External appraisal

Haircut applied on

 

 

 

 

 

 

 

 

 

external appraisals

12.6%

 

Other real estate owned

$

76

 

[3]

External appraisal

Haircut applied on

 

 

 

 

 

 

 

 

 

external appraisals

5.0%

 

[1]

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

[2]

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

[3]

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

 

 

 

 

Fair value at

 

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

(In thousands)

 

2021

 

 

Valuation technique

Unobservable inputs

Weighted average (range) [1]

CMO's - trading

$

250

 

 

Discounted cash flow model

Weighted average life

1.0 years (0.3 - 1.2 years)

 

 

 

 

 

 

 

 

Yield

3.6% (3.6% - 4.1%)

 

 

 

 

 

 

 

 

Prepayment speed

13.1% (10.2% - 18.1%)

 

Other - trading

$

361

 

 

Discounted cash flow model

Weighted average life

3.6 years

 

 

 

 

 

 

 

 

Yield

12.0%

 

 

 

 

 

 

 

 

Prepayment speed

10.8%

 

Mortgage servicing rights

$

119,467

 

 

Discounted cash flow model

Prepayment speed

6.0% (0.3% - 33.1)%)

 

 

 

 

 

 

 

 

Weighted average life

6.2 years (0.1 - 13.1 years)

 

 

 

 

 

 

 

 

Discount rate

11.1% (9.5% - 14.7%)

 

Loans held-in-portfolio

$

18,565

 

[2]

External appraisal

Haircut applied on

 

 

 

 

 

 

 

 

 

external appraisals

11.1% (10.0% - 30.5%)

 

Other real estate owned

$

6,672

 

[3]

External appraisal

Haircut applied on

 

 

 

 

 

 

 

 

 

external appraisals

20.3% (5.0% - 35.0%)

 

[1]

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

[2]

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

[3]

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

 

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.

93

 

 

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.

94

 

Note 24 – Fair value of financial instruments

The fair value of financial instruments is the amount at which an asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. For those financial instruments with no quoted market prices available, fair values have been estimated using present value calculations or other valuation techniques, as well as management’s best judgment with respect to current economic conditions, including discount rates, estimates of future cash flows, and prepayment assumptions. Many of these estimates involve various assumptions and may vary significantly from amounts that could be realized in actual transactions.

 

The fair values reflected herein have been determined based on the prevailing rate environment at June 30, 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.

 

95

 

 

 

June 30, 2022

 

Carrying

 

 

 

 

Measured

 

(In thousands)

amount

Level 1

Level 2

Level 3

 

at NAV

Fair value

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

$

528,590

$

528,590

$

-

$

-

$

-

$

528,590

Money market investments

 

9,687,356

 

9,680,569

 

6,787

 

-

 

-

 

9,687,356

Trading account debt securities, excluding derivatives[1]

 

32,317

 

16,873

 

15,028

 

416

 

-

 

32,317

Debt securities available-for-sale[1]

 

26,266,251

 

2,019,437

 

24,245,535

 

1,279

 

-

 

26,266,251

Debt securities held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

$

1,588,746

$

-

$

1,577,586

$

-

$

-

$

1,577,586

 

Obligations of Puerto Rico, States and political subdivisions

 

61,790

 

-

 

-

 

65,991

 

-

 

65,991

 

Collateralized mortgage obligation-federal agency

 

24

 

-

 

-

 

24

 

-

 

24

 

Securities in wholly owned statutory business trusts

 

5,960

 

-

 

5,960

 

-

 

-

 

5,960

Total debt securities held-to-maturity

$

1,656,520

$

-

$

1,583,546

$

66,015

$

-

$

1,649,561

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

FHLB stock

$

49,595

$

-

$

49,595

$

-

$

-

$

49,595

 

FRB stock

 

94,691

 

-

 

94,691

 

-

 

-

 

94,691

 

Other investments

 

31,584

 

-

 

28,214

 

3,982

 

215

 

32,411

Total equity securities

$

175,870

$

-

$

172,500

$

3,982

$

215

$

176,697

Loans held-for-sale

$

28,546

$

-

$

-

$

29,008

$

-

$

29,008

Loans held-in-portfolio

 

29,689,186

 

-

 

-

 

28,385,203

 

-

 

28,385,203

Mortgage servicing rights

 

129,877

 

-

 

-

 

129,877

 

-

 

129,877

Derivatives

 

17,218

 

-

 

17,218

 

-

 

-

 

17,218

 

 

June 30, 2022

 

Carrying

 

 

 

 

Measured

 

(In thousands)

amount

Level 1

Level 2

Level 3

 

at NAV

Fair value

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

$

58,232,142

$

-

$

58,232,142

$

-

$

-

$

58,232,142

 

Time deposits

 

7,095,522

 

-

 

6,813,156

 

-

 

-

 

6,813,156

Total deposits

$

65,327,664

$

-

$

65,045,298

$

-

$

-

$

65,045,298

Assets sold under agreements to repurchase

$

70,925

$

-

$

70,991

$

-

$

-

$

70,991

Notes payable:

 

 

 

 

 

 

 

 

 

 

 

 

 

FHLB advances

$

391,429

$

-

$

371,908

$

-

$

-

$

371,908

 

Unsecured senior debt securities

 

298,475

 

-

 

305,052

 

-

 

-

 

305,052

 

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

 

198,306

 

-

 

197,151

 

-

 

-

 

197,151

Total notes payable

$

888,210

$

-

$

874,111

$

-

$

-

$

874,111

Derivatives

$

16,173

$

-

$

16,173

$

-

$

-

$

16,173

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.

96

 

 

 

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 June 30, 2022 and December 31, 2021 is $10 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 June 30, 2022 and December 31, 2021 is $33 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.

 

97

 

Note 25 – Net income per common share

The following table sets forth the computation of net income per common share (“EPS”), basic and diluted, for the quarters and six months ended June 30, 2022 and 2021:

 

 

Quarters ended June 30,

Six months ended June 30,

(In thousands, except per share information)

2022

2021

2022

2021

Net income

$

211,421

$

218,079

$

423,107

$

480,711

Preferred stock dividends

 

(353)

 

(353)

 

(706)

 

(706)

Net income applicable to common stock

$

211,068

$

217,726

$

422,401

$

480,005

Average common shares outstanding

 

76,171,784

 

81,609,435

 

77,301,469

 

82,748,275

Average potential dilutive common shares

 

115,099

 

163,354

 

124,805

 

140,103

Average common shares outstanding - assuming dilution

 

76,286,883

 

81,772,789

 

77,426,274

 

82,888,378

Basic EPS

$

2.77

$

2.67

$

5.46

$

5.80

Diluted EPS

$

2.77

$

2.66

$

5.46

$

5.79

 

 

As disclosed in Note 17 to the Consolidated Financial Statements, during the six-month period ended June 30, 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 remained outstanding as of June 30, 2022, for which the Corporation expected to receive additional shares upon the termination of the ASR agreement. The dilutive EPS computation excludes 1,564,406 shares that at June 30, 2022 were estimated to be received under the ASR since the effect would be antidilutive. As discussed in Note 17 to the Consolidated Financial Statements, on July 12, 2022, the Corporation completed the ASR and received an additional 1,582,922 shares of common stock, upon the settlement of the ASR agreement.

For the quarters and six months ended June 30, 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.

98

 

Note 26 – Revenue from contracts with customers

The following table presents the Corporation’s revenue streams from contracts with customers by reportable segment for the quarters and six months ended June 30, 2022 and 2021.

 

 

Quarter ended June 30,

 

Six months ended June 30,

(In thousands)

2022

 

 

2022

 

 

 

BPPR

 

Popular U.S.

 

 

BPPR

 

Popular U.S.

Service charges on deposit accounts

$

38,993

$

2,816

 

$

76,978

$

5,544

Other service fees:

 

 

 

 

 

 

 

 

 

 

Debit card fees

 

12,660

 

222

 

 

24,222

 

439

 

Insurance fees, excluding reinsurance

 

9,982

 

1,374

 

 

20,020

 

2,696

 

Credit card fees, excluding late fees and membership fees

 

34,785

 

311

 

 

65,007

 

635

 

Sale and administration of investment products

 

6,017

 

-

 

 

11,808

 

-

 

Trust fees

 

6,358

 

-

 

 

12,507

 

-

Total revenue from contracts with customers [1]

$

108,795

$

4,723

 

$

210,542

$

9,314

[1]

The amounts include intersegment transactions of $3.5 million and $5 million, respectively, for the quarter and six months ended June 30, 2022.

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended June 30,

 

Six months ended June 30,

(In thousands)

2021

 

 

2021

 

 

 

BPPR

 

Popular U.S.

 

 

BPPR

 

Popular U.S.

Service charges on deposit accounts

$

37,377

$

2,776

 

$

74,236

$

5,537

Other service fees:

 

 

 

 

 

 

 

 

 

 

Debit card fees

 

12,213

 

245

 

 

23,555

 

480

 

Insurance fees, excluding reinsurance

 

9,835

 

820

 

 

18,073

 

1,429

 

Credit card fees, excluding late fees and membership fees

 

29,717

 

266

 

 

55,127

 

514

 

Sale and administration of investment products

 

5,970

 

-

 

 

11,510

 

-

 

Trust fees

 

6,289

 

-

 

 

12,304

 

-

Total revenue from contracts with customers [1]

$

101,401

$

4,107

 

$

194,805

$

7,960

[1]

The amounts include intersegment transactions of $2 million and $2.3 million, respectively, for the quarter and six months ended June 30, 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.

99

 

 

Debit card fees

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

 

Insurance fees

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

 

Credit card fees

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

 

Sale and administration of investment products

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

 

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

 

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

 

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

 

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

 

Trust fees

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

100

 

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 0.2 to 31.5 years considers options to extend the leases for up to 20.0 years. The Corporation identifies leases when it has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.

 

The Corporation recognizes right-of-use assets (“ROU assets”) and lease liabilities related to operating and finance leases in its Consolidated Statements of Financial Condition under the caption of other assets and other liabilities, respectively. Refer to Note 12 and Note 16 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:

 

June 30, 2022

(In thousands)

 

Remaining

2022

 

2023

 

2024

 

2025

 

2026

 

Later Years

 

Total Lease Payments

 

Less: Imputed Interest

 

Total

Operating Leases

$

14,676

$

27,985

$

26,571

$

23,644

$

15,171

$

47,965

$

156,012

$

(17,795)

$

138,217

Finance Leases

 

2,079

 

4,225

 

4,323

 

4,434

 

4,084

 

9,995

 

29,140

 

(3,677)

 

25,463

 

 

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

 

 

 

 

Quarters ended June 30,

Six months ended June 30,

(In thousands)

2022

2021

2022

2021

Finance lease cost:

 

 

 

 

 

 

 

 

 

Amortization of ROU assets

$

686

$

475

$

1,445

$

1,056

 

Interest on lease liabilities

 

279

 

265

 

587

 

538

Operating lease cost

 

7,660

 

7,150

 

15,287

 

14,205

Short-term lease cost

 

113

 

88

 

168

 

175

Variable lease cost

 

30

 

20

 

53

 

50

Sublease income

 

(10)

 

(19)

 

(19)

 

(38)

Total lease cost[1]

$

8,758

$

7,979

$

17,521

$

15,986

[1]

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

101

 

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

 

 

 

 

Six months ended June 30,

(Dollars in thousands)

 

2022

 

2021

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

 

 

 

 

 

 

 

Operating cash flows from operating leases[1]

$

15,005

$

22,542

 

Operating cash flows from finance leases

 

587

 

538

 

Financing cash flows from finance leases[1]

 

1,592

 

1,692

ROU assets obtained in exchange for new lease obligations:

 

 

 

 

 

Operating leases

$

1,806

$

2,801

 

Finance leases

 

556

 

-

Weighted-average remaining lease term:

 

 

 

 

 

 

 

Operating leases

 

7.5

years

 

8.1

years

 

Finance leases

 

8.5

years

 

8.7

years

Weighted-average discount rate:

 

 

 

 

 

 

 

Operating leases

 

2.8

%

 

3.0

%

 

Finance leases

 

4.3

%

 

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 June 30, 2022, the Corporation has additional operating and finance leases contracts that have not yet commenced with an undiscounted contract amount of $17.1 million and $2.2 million, respectively, which will have lease terms ranging from 10 to 20 years.

102

 

Note 28 – Pension and postretirement benefits

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

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

 

 

 

 

 

 

 

 

 

 

 

Pension Plans

 

OPEB Plan

 

 

Quarters ended June 30,

 

Quarters ended June 30,

(In thousands)

 

2022

 

2021

 

2022

 

2021

Personnel Cost:

 

 

 

 

 

 

 

 

Service cost

$

-

$

-

$

121

$

160

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

 

-

 

469

Total net periodic pension cost

$

(136)

$

(952)

$

1,104

$

1,522

 

 

 

Pension Plans

 

OPEB Plan

 

 

Six months ended June 30,

 

Six months ended June 30,

(In thousands)

 

2022

 

2021

 

2022

 

2021

Personnel Cost:

 

 

 

 

 

 

 

 

Service cost

$

-

$

-

$

242

$

320

Other operating expenses:

 

 

 

 

 

 

 

 

Interest cost

 

9,600

 

7,996

 

1,966

 

1,785

Expected return on plan assets

 

(17,694)

 

(19,341)

 

-

 

-

Amortization prior service cost/(credit)

 

-

 

-

 

-

 

-

Amortization of net loss

 

7,822

 

9,440

 

-

 

939

Total net periodic pension cost

$

(272)

$

(1,905)

$

2,208

$

3,044

 

The Corporation paid the following contributions to the plans for the six months ended June 30, 2022 and expects to pay the following contributions for the year ending December 31, 2022.

 

For the six months ended

For the year ending

(In thousands)

June 30, 2022

December 31, 2022

Pension Plans

$

114

$

227

OPEB Plan

$

3,305

$

5,971

103

 

Note 29 - Stock-based compensation

Incentive Plan

On May 12, 2020, the shareholders of the Corporation approved the Popular, Inc. 2020 Omnibus Incentive Plan, which permits the Corporation to issue several types of stock-based compensation to employees and directors of the Corporation and/or any of its subsidiaries (the “2020 Incentive Plan”). The 2020 Incentive Plan replaced the Popular, Inc. 2004 Omnibus Incentive Plan, which was in effect prior to the adoption of the 2020 Incentive Plan (the “2004 Incentive Plan” and, together with the 2020 Incentive Plan, the “Incentive Plan”). Participants under the Incentive Plan are designated by the Talent and Compensation Committee of the Board of Directors (or its delegate, as determined by the Board). Under the Incentive Plan, the Corporation has issued restricted stock and performance shares to its employees and restricted stock and restricted stock units (“RSUs”) to its directors.

 

The restricted stock granted under the Incentive Plan to employees becomes vested based on the employees’ continued service with Popular. Unless otherwise stated in an agreement, the compensation cost associated with the shares of restricted stock granted prior to 2021 was determined based on a two-prong vesting schedule. The first part is vested ratably over five or four years commencing at the date of grant (“the graduated vesting portion”) and the second part is vested at termination of employment after attainment of 55 years of age and 10 years of service or 60 years of age and 5 years of service (“the retirement vesting portion”). The graduated vesting portion is accelerated at termination of employment after attaining 55 years of age and 10 years of service or 60 years of age and 5 years of service. Restricted stock granted on or after 2021 will vest ratably in equal annual installments over a period of 4 years or 3 years, depending on the classification of the employee The vesting schedule is accelerated at termination of employment after attaining the earlier of 55 years of age and 10 years of service or 60 years of age and 5 years of service.

The performance share awards granted under the Incentive Plan consist of the opportunity to receive shares of Popular, Inc.’s common stock provided that the Corporation achieves certain goals during a three-year performance cycle. The goals will be based on two metrics weighted equally: the Relative Total Shareholder Return (“TSR”) and, 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”) goal. The TSR metric is considered to be a market condition under ASC 718. For equity settled awards based on a market condition, the fair value is determined as of the grant date and is not subsequently revised based on actual performance. The 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.

104

 

(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

192,903

 

84.34

Performance Shares Quantity Adjustment

9,255

 

55.51

Vested

(234,158)

 

67.23

Forfeited

(295)

 

76.85

Non-vested at June 30, 2022

289,588

$

56.89

 

 

During the quarter ended June 30, 2022, 83,462 shares of restricted stock (June 30, 2021 – 66,866) were awarded to management under the Incentive Plan. During the quarters ended June 30, 2022 and 2021, no performance shares were awarded to management under the Incentive Plan. For the six months ended June 30, 2022, 136,046 shares of restricted stock (June 30, 2021 – 120,105) and 56,857 performance shares (June 30, 2021 - 71,374) were awarded to management under the Incentive Plan.

During the quarter ended June 30, 2022, the Corporation recognized $2.9 million of restricted stock expense related to management incentive awards, with a tax benefit of $0.7 million (June 30, 2021 - $2.3 million, with a tax benefit of $0.5 million). For the six months ended June 30, 2022, the Corporation recognized $7.5 million of restricted stock expense related to management incentive awards, with a tax benefit of $1.2 million (June 30, 2021 - $6.2 million, with a tax benefit of $1.1 million). For the six months ended June 30, 2022, the fair market value of the restricted stock and performance shares vested was $6.9 million at grant date and $10.5 million at vesting date. This differential triggers a windfall of $3.1 million that was recorded as a reduction on income tax expense. During the quarter ended June 30, 2022 the Corporation recognized $0.3 million of performance shares expense, with a tax benefit of $12 thousand (June 30, 2021 - $0.3 million, with a tax benefit of $12 thousand). For the six months ended June 30, 2022, the Corporation recognized $4.0 million of performance shares expense, with a tax benefit of $0.3 million (June 30, 2021 - $4.6 million, with a tax benefit of $0.5 million). The total unrecognized compensation cost related to non-vested restricted stock awards and performance shares to members of management at June 30, 2022 was $13.1 million and is expected to be recognized over a weighted-average period of 1.9 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

 

23,552

 

77.59

Vested

 

(23,552)

 

77.59

Forfeited

 

-

 

-

Non-vested at June 30, 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 in May 2019, all equity awards granted to the Directors may be paid in either restricted stock or RSUs at each Directors election. If RSUs are elected, the Directors may defer the delivery of the shares of

105

 

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

 

For 2022, 2021 and 2020, all Directors elected RSUs. During the quarter ended June 30, 2022, 23,022 RSUs were granted to the Directors (June 30, 2021 - 19,010) and the Corporation recognized expense related to these RSUs of $1.8 million with a tax benefit of $0.3 million (June 30, 2021 - $1.8 million with a tax benefit of $0.3 million). For the six months ended June 30, 2022, the Corporation granted 23,552 RSUs to the Directors (June 30, 2021 - 19,534) and the Corporation recognized $1.8 million of expense related to these RSUs, with a tax benefit of $0.3 million, (June 30, 2021 - $1.8 million, with a tax benefit of $0.3 million). The fair value at vesting date of the RSU vested during the six months ended June 30, 2022 for the Directors was $1.8 million.

106

 

Note 30 – Income taxes

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

 

 

 

Quarters ended

 

 

 

 

June 30, 2022

 

 

 

June 30, 2021

 

(In thousands)

 

Amount

% of pre-tax income

 

 

 

Amount

% of pre-tax income

 

Computed income tax expense at statutory rates

$

103,362

38

%

 

$

109,189

38

%

Net benefit of tax exempt interest income

 

(41,336)

(15)

 

 

 

(36,840)

(13)

 

Deferred tax asset valuation allowance

 

2,047

-

 

 

 

5,832

2

 

Difference in tax rates due to multiple jurisdictions

 

(6,817)

(3)

 

 

 

(4,881)

(2)

 

Effect of income subject to preferential tax rate

 

(3,097)

(1)

 

 

 

(1,405)

(1)

 

Adjustment due to estimate on the annual effective rate

 

6,939

3

 

 

 

(405)

-

 

State and local taxes

 

3,566

1

 

 

 

2,530

1

 

Others

 

(452)

-

 

 

 

(927)

-

 

Income tax expense

$

64,212

23

%

 

$

73,093

25

%

 

 

 

 

Six months ended

 

 

 

 

June 30, 2022

 

 

 

June 30, 2021

 

(In thousands)

 

Amount

% of pre-tax income

 

 

 

Amount

% of pre-tax income

 

Computed income tax expense at statutory rates

$

201,674

38

%

 

$

236,488

38

%

Net benefit of tax exempt interest income

 

(77,825)

(15)

 

 

 

(71,003)

(11)

 

Deferred tax asset valuation allowance

 

5,938

1

 

 

 

16,153

3

 

Difference in tax rates due to multiple jurisdictions

 

(13,310)

(3)

 

 

 

(15,829)

(3)

 

Effect of income subject to preferential tax rate

 

(7,042)

(1)

 

 

 

(4,734)

(1)

 

Adjustment due to estimate on the annual effective rate

 

559

-

 

 

 

(10,733)

(2)

 

State and local taxes

 

7,231

1

 

 

 

2,591

-

 

Others

 

(2,534)

-

 

 

 

(3,009)

-

 

Income tax expense

$

114,691

21

%

 

$

149,924

24

%

 

 

For the quarter and six months ended June 30, 2022, the Corporation recorded an income tax expense of $64.2 million and $114.7 million, respectively, compared to $73.1 million and $149.9 million for the respective periods of 2021. The decrease in income tax expense was primarily due to lower pre-tax income and higher tax exempt income for the quarter and six months ended June 30, 2022.

 

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

107

 

 

 

 

June 30, 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

 

119,891

 

652,204

 

772,095

Postretirement and pension benefits

 

52,779

 

-

 

52,779

Deferred loan origination fees/cost

 

21

 

-

 

21

Allowance for credit losses

 

233,382

 

31,025

 

264,407

Accelerated depreciation

 

5,246

 

7,268

 

12,514

FDIC-assisted transaction

 

152,665

 

-

 

152,665

Intercompany deferred gains

 

2,477

 

-

 

2,477

Lease liability

 

30,152

 

21,967

 

52,119

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

 

196,221

 

16,138

 

212,359

Difference in outside basis from pass-through entities

 

46,112

 

-

 

46,112

Other temporary differences

 

33,701

 

8,291

 

41,992

 

Total gross deferred tax assets

 

872,908

 

739,674

 

1,612,582

Deferred tax liabilities:

 

 

 

 

 

 

Indefinite-lived intangibles

 

78,300

 

52,874

 

131,174

Right of use assets

 

27,927

 

18,499

 

46,426

Deferred loan origination fees/cost

 

1,431

 

3,661

 

5,092

Other temporary differences

 

43,044

 

1,530

 

44,574

 

Total gross deferred tax liabilities

 

150,702

 

76,564

 

227,266

Valuation allowance

 

134,495

 

434,471

 

568,966

Net deferred tax asset

$

587,711

$

228,639

$

816,350

 

 

 

 

 

 

 

 

 

 

 

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

 

108

 

The net deferred tax asset shown in the table above at June 30, 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 $1.5 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 June 30, 2022 the net deferred tax asset of the U.S. operations amounted to $663 million with a valuation allowance of approximately $434 million, for a net deferred tax asset after valuation allowance of approximately $229 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 period ended June 30, 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 the period ended June 30, 2022 demonstrate financial stability for the U.S. operations, despite the climate of uncertainty as a result of recent global geopolitical and health challenges. These historical financial results are objectively verifiable positive evidence, evaluated together with the positive evidence of stable credit metrics, in combination with the length of the expiration of the NOLs. On the other hand, the Corporation evaluated the negative evidence accumulated over the years, including financial results lower than expectations and challenges to the economy due to global geopolitical uncertainty. As of June 30, 2022, after weighting all positive and negative evidence, the Corporation concluded that it is more likely than not that approximately $229 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. If our U.S. operations continue to show strong financial results during year 2022 together with the additional income expected from the recent acquisition of K2 assets, along with new tax initiatives, this could be considered additional positive evidence that could overcome totally or partially the negative evidence evaluated as of June 30, 2022, that could increase the amount of benefit from net operating losses that the Corporation estimates to be realized in the future resulting in future adjustments to the valuation allowance.

 

At June 30, 2022, the Corporation’s net deferred tax assets related to its Puerto Rico operations amounted to $588 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 June 30, 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 June 30, 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 $134 million as of June 30, 2022.

 

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

 

(In millions)

 

2022

 

 

2021

Balance at January 1

$

3.5

 

$

14.8

Balance at March 31

$

3.5

 

$

14.8

Balance at June 30

$

3.5

 

$

14.8

109

 

 

At June 30, 2022, the total amount of accrued interest recognized in the statement of financial condition approximated $2.9 million (December 31, 2021 - $2.8 million). The total interest expense recognized at June 30, 2022 was $165 thousand, (June 30, 2021 - $727 thousand). Management determined that at June 30, 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 $5.7 million at June 30, 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 June 30, 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 $1.5 million, including interest.

110

 

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

Additional disclosures on cash flow information and non-cash activities for the six months ended June 30, 2022 and June 30, 2021 are listed in the following table:

 

 

 

 

 

 

(In thousands)

 

June 30, 2022

 

June 30, 2021

Non-cash activities:

 

 

 

 

Loans transferred to other real estate

$

37,434

$

22,012

Loans transferred to other property

 

25,836

 

22,450

Total loans transferred to foreclosed assets

 

63,270

 

44,462

Loans transferred to other assets

 

4,183

 

2,846

Financed sales of other real estate assets

 

4,282

 

7,329

Financed sales of other foreclosed assets

 

20,466

 

21,398

Total financed sales of foreclosed assets

 

24,748

 

28,727

Financed sale of premises and equipment

 

19,745

 

8,502

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

 

440

 

26,222

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

 

9,199

 

47,227

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

 

5,773

 

1,886

Loans securitized into investment securities[1]

 

258,998

 

381,053

Trades receivable from brokers and counterparties

 

44,474

 

78,007

Trades payable to brokers and counterparties

 

10,313

 

12,400

Receivables from investments maturities

 

-

 

50,000

Recognition of mortgage servicing rights on securitizations or asset transfers

 

5,032

 

6,809

Loans booked under the GNMA buy-back option

 

5,544

 

19,669

Capitalization of lease right of use asset

 

4,510

 

4,567

[1]

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

 

 

 

 

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

 

 

 

(In thousands)

June 30, 2022

June 30, 2021

Cash and due from banks

$

476,768

$

524,083

Restricted cash and due from banks

 

51,822

 

6,766

Restricted cash in money market investments

 

6,787

 

5,997

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

$

535,377

$

536,846

[2]

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

111

 

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:

112

 

2022

For the quarter ended June 30, 2022

 

 

 

 

Banco Popular

 

 

 

Intersegment

(In thousands)

 

 

 

de Puerto Rico

 

Popular U.S.

 

Eliminations

Net interest income

 

 

$

447,794

$

93,431

$

1

Provision for credit losses (benefit)

 

 

 

8,818

 

588

 

-

Non-interest income

 

 

 

144,377

 

4,919

 

(136)

Amortization of intangibles

 

 

 

485

 

310

 

-

Depreciation expense

 

 

 

11,675

 

1,755

 

-

Other operating expenses

 

 

 

337,979

 

55,911

 

(136)

Income tax expense

 

 

 

53,588

 

11,697

 

-

Net income

 

 

$

179,626

$

28,089

$

1

Segment assets

 

 

$

60,435,535

$

10,820,953

$

(172,039)

 

 

 

 

 

 

 

 

 

For the quarter ended June 30, 2022

 

 

Reportable

 

 

 

 

 

 

(In thousands)

 

Segments

 

Corporate

 

Eliminations

 

Total Popular, Inc.

Net interest income (expense)

$

541,226

$

(7,364)

$

-

$

533,862

Provision for credit losses (benefit)

 

9,406

 

(44)

 

-

 

9,362

Non-interest income

 

149,160

 

11,567

 

(3,316)

 

157,411

Amortization of intangibles

 

795

 

-

 

-

 

795

Depreciation expense

 

13,430

 

294

 

-

 

13,724

Other operating expenses

 

393,754

 

(547)

 

(1,448)

 

391,759

Income tax expense (benefit)

 

65,285

 

(335)

 

(738)

 

64,212

Net income

$

207,716

$

4,835

$

(1,130)

$

211,421

Segment assets

$

71,084,449

$

5,456,518

$

(5,039,036)

$

71,501,931

 

For the six months ended June 30, 2022

 

 

 

 

Banco Popular

 

 

 

Intersegment

(In thousands)

 

 

 

de Puerto Rico

 

Popular U.S.

 

Eliminations

Net interest income

 

 

$

862,963

$

179,951

$

2

Provision for credit losses (benefit)

 

 

 

(4,872)

 

(1,431)

 

-

Non-interest income

 

 

 

280,239

 

10,873

 

(273)

Amortization of intangibles

 

 

 

969

 

717

 

-

Depreciation expense

 

 

 

23,192

 

3,579

 

-

Other operating expenses

 

 

 

672,857

 

109,550

 

(272)

Income tax expense

 

 

 

92,904

 

23,289

 

-

Net income

 

 

$

358,152

$

55,120

$

1

Segment assets

 

 

$

60,435,535

$

10,820,953

$

(172,039)

 

 

 

 

 

 

 

 

 

For the six months ended June 30, 2022

 

 

Reportable

 

 

 

 

 

Total

(In thousands)

 

Segments

 

Corporate

 

Eliminations

 

Popular, Inc.

Net interest income (expense)

$

1,042,916

$

(14,742)

$

-

$

1,028,174

Provision for credit losses (benefit)

 

(6,303)

 

165

 

-

 

(6,138)

Non-interest income

 

290,839

 

25,832

 

(4,568)

 

312,103

Amortization of intangibles

 

1,686

 

-

 

-

 

1,686

Depreciation expense

 

26,771

 

583

 

-

 

27,354

Other operating expenses

 

782,135

 

(103)

 

(2,455)

 

779,577

Income tax expense (benefit)

 

116,193

 

(667)

 

(835)

 

114,691

Net income

$

413,273

$

11,112

$

(1,278)

$

423,107

Segment assets

$

71,084,449

$

5,456,518

$

(5,039,036)

$

71,501,931

113

 

2021

For the quarter ended June 30, 2021

 

 

 

 

Banco Popular

 

 

 

Intersegment

(In thousands)

 

 

 

de Puerto Rico

 

Popular U.S.

 

Eliminations

Net interest income

 

 

$

419,200

$

78,743

$

1

Provision for credit losses (benefit)

 

 

 

(22,042)

 

4,856

 

-

Non-interest income

 

 

 

136,052

 

5,267

 

(137)

Amortization of intangibles

 

 

 

860

 

167

 

-

Depreciation expense

 

 

 

11,808

 

1,597

 

-

Other operating expenses

 

 

 

307,663

 

48,533

 

(136)

Income tax expense

 

 

 

63,614

 

10,163

 

-

Net income

 

 

$

193,349

$

18,694

$

-

Segment assets

 

 

$

62,104,522

$

10,197,371

$

(23,954)

 

 

 

 

 

 

 

 

 

For the quarter ended June 30, 2021

 

 

Reportable

 

 

 

 

 

 

(In thousands)

 

Segments

 

Corporate

 

Eliminations

 

Total Popular, Inc.

Net interest income (expense)

$

497,944

$

(10,142)

$

-

$

487,802

Provision for credit losses (benefit)

 

(17,186)

 

171

 

-

 

(17,015)

Non-interest income

 

141,182

 

15,274

 

(1,916)

 

154,540

Amortization of intangibles

 

1,027

 

228

 

-

 

1,255

Depreciation expense

 

13,405

 

265

 

-

 

13,670

Other operating expenses

 

356,060

 

(1,852)

 

(948)

 

353,260

Income tax expense (benefit)

 

73,777

 

(313)

 

(371)

 

73,093

Net income

$

212,043

$

6,633

$

(597)

$

218,079

Segment assets

$

72,277,939

$

5,407,659

$

(5,028,305)

$

72,657,293

 

For the six months ended June 30, 2021

 

 

 

 

Banco Popular

 

 

 

Intersegment

(In thousands)

 

 

 

de Puerto Rico

 

Popular U.S.

 

Eliminations

Net interest income

 

 

$

829,523

$

157,912

$

3

Provision for credit losses (benefit)

 

 

 

(67,403)

 

(31,864)

 

-

Non-interest income

 

 

 

271,260

 

10,933

 

(275)

Amortization of intangibles

 

 

 

1,721

 

333

 

-

Depreciation expense

 

 

 

23,951

 

3,925

 

-

Other operating expenses

 

 

 

614,583

 

101,727

 

(272)

Income tax expense

 

 

 

122,427

 

28,198

 

-

Net income

 

 

$

405,504

$

66,526

$

-

Segment assets

 

 

$

62,104,522

$

10,197,371

$

(23,954)

 

 

 

 

 

 

 

 

 

For the six months ended June 30, 2021

 

 

Reportable

 

 

 

 

 

Total

(In thousands)

 

Segments

 

Corporate

 

Eliminations

 

Popular, Inc.

Net interest income (expense)

$

987,438

$

(20,524)

$

-

$

966,914

Provision for credit losses (benefit)

 

(99,267)

 

26

 

-

 

(99,241)

Non-interest income

 

281,918

 

28,424

 

(2,149)

 

308,193

Amortization of intangibles

 

2,054

 

252

 

-

 

2,306

Depreciation expense

 

27,876

 

532

 

-

 

28,408

Other operating expenses

 

716,038

 

(1,182)

 

(1,857)

 

712,999

Income tax expense (benefit)

 

150,625

 

(646)

 

(55)

 

149,924

Net income

$

472,030

$

8,918

$

(237)

$

480,711

Segment assets

$

72,277,939

$

5,407,659

$

(5,028,305)

$

72,657,293

114

 

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, an online deposit gathering platform and commercial lending activities. In the Virgin Islands, the BPPR segment offers banking products, including loans and deposits. During the six months period ended June 30, 2022, the BPPR segment generated approximately $26.1 million (2021 - $25.5 million) in revenues from its operations in the United States, including net interest income, service charges on deposit accounts and other service fees. In addition, the BPPR segment generated $23.0 million in revenues (2021 - $23.4 million) from its operations in the U.S. and British Virgin Islands. At June 30, 2022, total assets for the BPPR segment related to its operations in the United States amounted to $831 million (December 31, 2021 - $595 million).

 

Geographic Information

 

 

 

 

 

 

 

Quarter ended

 

Six months ended

(In thousands)

 

June 30, 2022

 

June 30, 2021

 

June 30, 2022

 

June 30, 2021

Revenues:[1]

 

 

 

 

 

 

 

 

Puerto Rico

$

560,635

$

529,143

$

1,088,308

$

1,047,852

United States

 

111,369

 

95,276

 

214,543

 

191,288

Other

 

19,269

 

17,923

 

37,426

 

35,967

Total consolidated revenues

$

691,273

$

642,342

$

1,340,277

$

1,275,107

[1]

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

 

Selected Balance Sheet Information:

(In thousands)

 

June 30, 2022

 

December 31, 2021

Puerto Rico

 

 

 

 

 

Total assets

$

58,506,196

$

63,221,282

 

Loans

 

20,177,693

 

19,770,118

 

Deposits

 

55,140,193

 

57,211,608

United States

 

 

 

 

 

Total assets

$

11,651,798

$

10,986,055

 

Loans

 

9,652,668

 

8,903,493

 

Deposits

 

8,131,590

 

7,777,232

Other

 

 

 

 

 

Total assets

$

1,343,937

$

890,562

 

Loans

 

569,121

 

626,115

 

Deposits[1]

 

2,055,881

 

2,016,248

[1]

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

115

 

Note 33 ─ Subsequent events

 

Acquisition of Key Customer Channels and Amendments to Commercial Contracts with Evertec

 

On July 1, 2022, the Corporation’s wholly owned subsidiary, Banco Popular de Puerto Rico (“BPPR”), completed its previously announced acquisition of certain assets from Evertec Group, LLC (“Evertec Group”), a wholly owned subsidiary of Evertec, Inc. (“Evertec”) (NYSE: EVTC), to service certain BPPR channels.

 

As a result of the closing of the transaction, BPPR acquired from Evertec Group certain critical channels, including BPPR’s retail and business digital banking and commercial cash management applications. BPPR also entered into amended and restated service agreements with Evertec Group pursuant to which Evertec Group will continue to provide various information technology and transaction processing services to Popular, BPPR and their respective subsidiaries.

 

Under the amended service agreements, the Evertec Group no longer has exclusive rights to provide certain of Popular’s technology services. The amended service agreements includes discounted pricing and lowered caps on contractual pricing escalators tied to the Consumer Price Index. As part of the transaction, BPPR and Evertec entered into a revenue sharing structure for BPPR in connection with its merchant acquiring relationship with Evertec.

 

As consideration for the transaction, BPPR delivered to Evertec Group 4,589,169 shares of Evertec common stock valued at closing at $169 million (based on Evertec’s stock price on June 30, 2022 of $36.88), resulting in an after-tax gain of approximately $112 million. The consideration exchanged includes a approximately $145 million, related to the acquisition of the critical channels which will be accounted for as a business combination. Based on its preliminary analysis, the Corporation expects that the purchase price will be allocated primarily to goodwill and other software related intangible assets. The portion of the consideration attributed to the renegotiation of the Master Servicing Agreement (“MSA”) with Evertec amounted to approximately $24 million which will be recorded as an expense.

 

As a result of the transfer of the shares used as consideration for the transaction, Popular’s ownership stake in Evertec was reduced from approximately 16.3% to approximately 10.6% at the closing of the transaction. In connection with the transaction, Popular has agreed to further reduce its voting interest in Evertec to no more than 4.5%, whether through selling shares of Evertec common stock or a conversion of such shares into non-voting preferred stock within 90 days of the closing of the transaction. Popular expects to sell down its stake in Evertec to no more than 4.5%, subject to market conditions, and intends to return to Popular shareholders, via common stock repurchases, any after-tax gains resulting from such sale, subject to the receipt of regulatory approvals.

 

Completion of Accelerated Share Repurchase Transaction

 

On July 12, 2022, the Corporation completed its previously announced accelerated share repurchase program for the repurchase of an aggregate of $400 million of Popular’s common stock. The Corporation repurchased a total of 5,066,864 shares at an average purchase price of $78.9443 under the ASR Agreement. Refer to Note 17 – Stockholders’ Equity for further information on the ASR transaction.

 

116

 

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

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

 

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

 

The Corporation has several investments which it accounts for under the equity method. As of June 30, 2022, the Corporation had a 16.33% 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. On July 1, 2022, the Corporation’s ownership stake in Evertec was reduced to 10.6%, as further discussed below. During the quarter ended June 30, 2022, the Corporation recorded $6.9 million in earnings from its investment in Evertec, which had a carrying amount of $125 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 six months ended June 30, 2022, the Corporation recorded $14.5 million in earnings from its investment in BHD León, which had a carrying amount of $184.8 million, as of the end of the quarter.

 

SIGNIFICANT EVENTS

 

Acquisition of Key Customer Channels and Amendments to Commercial Contracts with Evertec

 

On July 1, 2022, the Corporation’s wholly owned subsidiary, Banco Popular de Puerto Rico (“BPPR”), completed its previously announced acquisition of certain assets from Evertec Group, LLC (“Evertec Group”), a wholly owned subsidiary of Evertec, Inc. (“Evertec”) (NYSE: EVTC), to service certain BPPR channels.

As a result of the closing of the transaction, BPPR acquired from Evertec Group certain critical channels, including BPPR’s retail and business digital banking and commercial cash management applications. BPPR also entered into amended and restated service agreements with Evertec Group pursuant to which Evertec Group will continue to provide various information technology and transaction processing services to Popular, BPPR and their respective subsidiaries.

Under the amended service agreements, Popular will have greater optionality to develop and enhance technology platforms and more flexibility to select service vendors, as Evertec Group no longer has exclusive rights to provide certain of Popular’s technology services. This is expected to improve Popular’s ability to meet its customer needs in a timely manner. In addition, the amended service agreements are projected to reduce service costs as a result of discounted pricing and lowered caps on contractual pricing escalators tied to the Consumer Price Index. As part of the transaction, BPPR also strengthened its relationship with Evertec in the payments business, including through the incorporation of a revenue sharing structure for BPPR in connection with its merchant acquiring relationship with Evertec.

As consideration for the transaction, BPPR delivered to Evertec Group 4,589,169 shares of Evertec common stock valued at closing at $169 million (based on Evertec’s stock price on June 30, 2022 of $36.88), resulting in an after-tax gain of approximately $112 million.

117

 

In terms of capital, the transaction results in a negative impact of approximately $44 million in Popular’s tangible book value as a result of the net effect of the after-tax gain of the Evertec shares used as consideration for the transaction (approximately $112 million), minus approximately $145 million in goodwill and other intangible assets recognized by the Corporation in connection with the transaction and the accounting impact of the renegotiation of the Master Servicing Agreement with Evertec.

As a result of the transfer of the shares used as consideration for the transaction, Popular’s ownership stake in Evertec was reduced from approximately 16.3% to approximately 10.6% at the closing of the transaction. In connection with the transaction, Popular has agreed to further reduce its voting interest in Evertec to no more than 4.5%, whether through selling shares of Evertec common stock or a conversion of such shares into non-voting preferred stock within 90 days of the closing of the transaction. Popular expects to sell down its stake in Evertec to no more than 4.5%, subject to market conditions, and intends to return to Popular shareholders, via common stock repurchases, any after-tax gains resulting from such sale, subject to the receipt of regulatory approvals.

Completion of Accelerated Share Repurchase

 

On July 12, 2022, the Corporation completed its previously announced accelerated share repurchase program for the repurchase of an aggregate $400 million of Popular’s common stock. Under the terms of the accelerated share repurchase agreement (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. 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 in capital surplus. Upon the final settlement of the ASR Agreement, the Corporation received an additional 1,582,922 shares of Popular common stock and recognized approximately $120 million as treasury stock with a corresponding increase in its capital surplus account. The Corporation repurchased a total of 5,066,864 shares at an average purchase price of $78.9443 under the ASR Agreement. Refer to Note 17 – Stockholders’ Equity for further information on the ASR transaction.

OVERVIEW

Table 1 provides selected financial data and performance indicators for the quarters and six months-periods ended June 30, 2022 and 2021.

118

 

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

 

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

Net interest income on a taxable equivalent basis is a non-GAAP financial measure. Management believes that this presentation provides meaningful information since it facilitates the comparison of revenues arising from taxable and tax-exempt sources. Net interest income on a taxable equivalent basis is presented with its different components in Tables 2 and 3, along with the reconciliation to net interest income (GAAP), for the quarter and six month-period ended June 30, 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 June 30, 2022

For the quarter ended June 30, 2022, the Corporation recorded net income of $ 211.4 million, compared to net income of $ 218.1 million for the same quarter of the previous year. Net interest margin for the second quarter of 2022 was 3.09%, an increase of 18 basis points when compared to 2.91% for the same quarter of the previous year, mainly due to higher volume of loans, higher interest rate environment, and the change in mix of the money markets and investment portfolio. On a taxable equivalent basis, the net interest margin was of 3.45%, compared to 3.22% for the same quarter of the previous year. The Corporation recorded a provision for credit losses of $9.4 million, compared to a benefit of $17.0 million for the same quarter of the previous year. The higher provision for 2022 is attributed to the macroeconomic outlook and portfolio growth. Non-interest income was $157.4 million for the quarter, an increase of $2.9 million when compared to the quarter ended June 30, 2021 mainly due to higher credit card fees and mortgage banking activities. Operating expenses were higher by $38.1 million principally due to higher personnel costs and professional fees.

Total assets at June 30, 2022 amounted to $71.5 billion, compared to $75.1 billion, at December 31, 2021. The decrease was mainly due to lower money market investments, due to a decrease in deposits, partially offset by higher debt securities available-for-sale and held-to-maturity and loan growth.

Total deposits at June 30, 2022 decreased by $1.7 billion when compared to deposits at December 31, 2021, mainly due to lower Puerto Rico public sector deposits by $3.3 billion, partially offset by growth in other deposits sectors.

 

Total stockholders' equity decreased by $1.7 billion when compared to December 31, 2021, principally due to an increase in accumulated unrealized losses on debt securities available-for-sale by $1.6 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 $423.1 million for the six months ended June 30, 2022.

At June 30, 2022, the Corporation’s tangible book value per common share was $46.18.

Capital ratios continued to be strong. As of June 30, 2022, the Corporation’s common equity tier 1 capital ratio was 16.39%, the tier 1 leverage ratio was 7.56%, and the total capital ratio was 18.29%. Refer to Table 8 for capital ratios.

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

As a financial services company, the Corporation’s earnings are significantly affected by general business and economic conditions in the markets which we serve. Lending and deposit activities and fee income generation are influenced by the level of business

119

 

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.

120

 

Table 1 - Financial Highlights

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Condition Highlights

 

 

 

 

 

 

 

 

Ending balances at

 

 

Average for the six months ended

(In thousands)

 

June 30, 2022

December 31, 2021

 

 

Variance

 

 

June 30, 2022

 

June 30, 2021

 

Variance

 

Money market investments

$

9,687,356

 

$

17,536,719

 

$

(7,849,363)

 

$

13,128,977

 

$

14,003,612

 

$

(874,635)

 

Investment securities

 

28,138,453

 

 

25,267,418

 

 

2,871,035

 

 

28,174,976

 

 

21,954,354

 

 

6,220,622

 

Loans

 

30,399,482

 

 

29,299,725

 

 

1,099,757

 

 

29,574,964

 

 

29,234,350

 

 

340,614

 

Earning assets

 

68,225,291

 

 

72,103,862

 

 

(3,878,571)

 

 

70,878,917

 

 

65,192,316

 

 

5,686,601

 

Total assets

 

71,501,931

 

 

75,097,899

 

 

(3,595,968)

 

 

73,961,645

 

 

68,237,652

 

 

5,723,993

 

Deposits

 

65,327,664

 

 

67,005,088

 

 

(1,677,424)

 

 

66,071,560

 

 

60,116,322

 

 

5,955,238

 

Borrowings

 

959,135

 

 

1,155,166

 

 

(196,031)

 

 

1,048,084

 

 

1,329,988

 

 

(281,904)

 

Stockholders’ equity

 

4,293,349

 

 

5,969,397

 

 

(1,676,048)

 

 

5,905,057

 

 

5,688,471

 

 

216,586

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Highlights

Quarters ended June 30,

 

Six months ended June 30,

 

(In thousands, except per share information)

 

2022

 

 

2021

 

 

Variance

 

 

2022

 

 

2021

 

 

Variance

 

Net interest income

$

533,862

 

$

487,802

 

$

46,060

 

$

1,028,174

 

$

966,914

 

$

61,260

 

Provision for credit losses (benefit)

 

9,362

 

 

(17,015)

 

 

26,377

 

 

(6,138)

 

 

(99,241)

 

 

93,103

 

Non-interest income

 

157,411

 

 

154,540

 

 

2,871

 

 

312,103

 

 

308,193

 

 

3,910

 

Operating expenses

 

406,278

 

 

368,185

 

 

38,093

 

 

808,617

 

 

743,713

 

 

64,904

 

Income before income tax

 

275,633

 

 

291,172

 

 

(15,539)

 

 

537,798

 

 

630,635

 

 

(92,837)

 

Income tax expense

 

64,212

 

 

73,093

 

 

(8,881)

 

 

114,691

 

 

149,924

 

 

(35,233)

 

Net income

$

211,421

 

$

218,079

 

$

(6,658)

 

$

423,107

 

$

480,711

 

$

(57,604)

 

Net income applicable to common stock

$

211,068

 

$

217,726

 

$

(6,658)

 

$

422,401

 

$

480,005

 

$

(57,604)

 

Net income per common share – basic

$

2.77

 

$

2.67

 

$

0.10

 

$

5.46

 

$

5.80

 

$

(0.34)

 

Net income per common share – diluted

$

2.77

 

$

2.66

 

$

0.11

 

$

5.46

 

$

5.79

 

$

(0.33)

 

Dividends declared per common share

$

0.55

 

$

0.45

 

$

0.10

 

$

1.10

 

$

0.85

 

$

0.25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters ended June 30,

 

 

 

Six months ended June 30,

Selected Statistical Information

 

 

 

 

2022

 

 

2021

 

 

 

 

 

2022

 

 

2021

 

Common Stock Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

End market price

 

 

 

$

76.93

 

 

75.05

 

 

 

 

$

76.93

 

 

75.05

 

Book value per common share at period end

 

 

55.78

 

 

71.82

 

 

 

 

 

55.78

 

 

71.82

 

Profitability Ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on assets

 

 

 

 

1.17

%

1.24

%

 

 

 

1.15

%

1.42

%

Return on common equity

 

 

 

 

14.58

 

 

15.43

 

 

 

 

 

14.48

 

 

17.08

 

Net interest spread

 

 

3.00

 

 

2.82

 

 

 

 

 

2.84

 

 

2.89

 

Net interest spread (taxable equivalent) - Non-GAAP

 

 

3.36

 

 

3.13

 

 

 

 

 

3.16

 

 

3.21

 

Net interest margin

 

 

3.09

 

 

2.91

 

 

 

 

 

2.92

 

 

2.99

 

Net interest margin (taxable equivalent) - Non-GAAP

 

 

3.45

 

 

3.22

 

 

 

 

 

3.24

 

 

3.31

 

Capitalization Ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average equity to average assets

 

 

 

 

8.06

%

8.08

%

 

 

 

7.98

%

8.34

%

Common equity Tier 1 capital

 

 

 

 

16.39

 

 

16.55

 

 

 

 

 

16.39

 

 

16.55

 

Tier I capital

 

 

 

 

16.46

 

 

16.62

 

 

 

 

 

16.46

 

 

16.62

 

Total capital

 

 

 

 

18.29

 

 

19.09

 

 

 

 

 

18.29

 

 

19.09

 

Tier 1 leverage

 

 

 

 

7.56

 

 

7.34

 

 

 

 

 

7.56

 

 

7.34

 

121

 

CRITICAL ACCOUNTING POLICIES / ESTIMATES

 

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

Management has discussed the development and selection of the critical accounting policies and estimates with the Corporation’s Audit Committee. The Corporation has identified as critical accounting policies those related to: (i) Fair Value Measurement of Financial Instruments; (ii) Loans and Allowance for Credit Losses; (iii) Loans Acquired with Deteriorated Credit Quality; (iv) Income Taxes; (v) Goodwill and Other Intangible Assets; and (vi) Pension and Postretirement Benefit Obligations. For a summary of these critical accounting policies and estimates, refer to that particular section in the MD&A included in 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.

 

122

 

OPERATING RESULTS ANALYSIS

NET INTEREST INCOME

Net interest income for the second quarter of 2022 was $533.9 million, an increase of $46.1 million when compared to $487.8 million for the same quarter of 2021. Taxable equivalent net interest income was $595.5 million for the second quarter of 2022 compared to $541.2 million in the second quarter of 2021, an increase of $54.3 million.

Net interest margin for the second quarter of 2022 was 3.09%, an increase of 18 basis points when compared to 2.91% for the same quarter of the previous year. The increase in the net interest margin is mainly due to a higher volume of loans, a higher interest rate environment, and the change in mix of the money markets and investment portfolios. The net interest margin, on a taxable equivalent basis, for the second quarter of 2022 was 3.45%, an increase of 23 basis points when compared to 3.22% 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 $38.2 million due to a higher volume by $1.2 billion and higher yield by 35 basis points related to a higher interest rate environment and the investment in longer term securities. The interest rate received on excess reserves at the Federal Reserve increased by 72 basis points when compared to the same quarter in 2021;

Higher interest income from commercial loans by $6.2 million due to a higher average volume by $688 million, partially offset by lower yield by eight basis points mainly driven by lower income from loans under the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) by $8.8 million;

The auto and lease financing portfolios interest income increased by $2.4 million due to higher average volume by $402.0 million, partially offset by lower yield due to a high volume of originations in a prolonged low interest rate environment. Also impacting the yield on this portfolio is a lower amortization of the portfolio purchased in 2018; and

Higher interest income from consumer loans by $6.2 million due to higher average volume by $223.0 million.

Partially offset by:

Lower interest expense on medium and long-term debt due to the redemption, on 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 June 30, 2022 and 2021 amounted to $12.6 million and $31.1 million, respectively. The decrease of $18.5 million is mainly related to lower amortized fees resulting from the forgiveness of PPP loans of $4.7 million compared to $10.9 million in the second quarter of 2021, lower amortization recorded from the prepayment of previously purchased credit deteriorated loans and lower amortization on the fair value discount of the auto portfolios acquired in previous years.

 

123

 

 

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

 

Quarter ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variance

 

Average Volume

 

Average Yields / Costs

 

 

 

Interest

 

Attributable to

 

2022

 

2021

Variance

 

2022

 

2021

 

Variance

 

 

 

 

 

2022

 

2021

 

Variance

 

Rate

 

Volume

 

(In millions)

 

 

 

 

 

 

 

 

 

 

(In thousands)

$

11,513

$

15,540

$

(4,027)

 

0.83

%

0.11

%

0.72

%

 

Money market investments

$

23,742

$

4,275

$

19,467

$

20,851

$

(1,384)

 

27,748

 

22,509

 

5,239

 

2.18

 

2.35

 

(0.17)

 

 

Investment securities [1]

 

150,890

 

132,105

 

18,785

 

(8,222)

 

27,007

 

65

 

87

 

(22)

 

6.66

 

5.22

 

1.44

 

 

Trading securities

 

1,089

 

1,134

 

(45)

 

272

 

(317)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total money market,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

investment and trading

 

 

 

 

 

 

 

 

 

 

 

39,326

 

38,136

 

1,190

 

1.79

 

1.44

 

0.35

 

 

 

securities

 

175,721

 

137,514

 

38,207

 

12,901

 

25,306

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

14,227

 

13,539

 

688

 

5.16

 

5.24

 

(0.08)

 

 

 

Commercial

 

183,042

 

176,857

 

6,185

 

(2,698)

 

8,883

 

781

 

858

 

(77)

 

5.71

 

5.43

 

0.28

 

 

 

Construction

 

11,116

 

11,603

 

(487)

 

575

 

(1,062)

 

1,445

 

1,262

 

183

 

5.91

 

6.01

 

(0.10)

 

 

 

Leasing

 

21,352

 

18,964

 

2,388

 

(313)

 

2,701

 

7,294

 

7,765

 

(471)

 

5.33

 

5.12

 

0.21

 

 

 

Mortgage

 

97,137

 

99,364

 

(2,227)

 

3,945

 

(6,172)

 

2,654

 

2,431

 

223

 

11.33

 

11.47

 

(0.14)

 

 

 

Consumer

 

74,932

 

68,746

 

6,186

 

(369)

 

6,555

 

3,499

 

3,280

 

219

 

8.04

 

8.58

 

(0.54)

 

 

 

Auto

 

70,145

 

70,137

 

8

 

(4,538)

 

4,546

 

29,900

 

29,135

 

765

 

6.14

 

6.13

 

0.01

 

 

Total loans

 

457,724

 

445,671

 

12,053

 

(3,398)

 

15,451

$

69,226

$

67,271

$

1,955

 

3.67

%

3.47

%

0.20

%

 

Total earning assets

$

633,445

$

583,185

$

50,260

$

9,503

$

40,757

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

$

24,897

$

25,102

$

(205)

 

0.13

%

0.13

%

-

%

 

 

NOW and money market [2]

$

8,301

$

7,972

$

329

$

470

$

(141)

 

16,363

 

15,384

 

979

 

0.17

 

0.18

 

(0.01)

 

 

 

Savings

 

6,901

 

6,916

 

(15)

 

(555)

 

540

 

7,044

 

7,104

 

(60)

 

0.72

 

0.74

 

(0.02)

 

 

 

Time deposits

 

12,625

 

13,172

 

(547)

 

(210)

 

(337)

 

48,304

 

47,590

 

714

 

0.23

 

0.24

 

(0.01)

 

 

Total interest bearing deposits

 

27,827

 

28,060

 

(233)

 

(295)

 

62

 

126

 

91

 

35

 

0.79

 

0.27

 

0.52

 

 

Short-term borrowings

 

248

 

62

 

186

 

90

 

96

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other medium and

 

 

 

 

 

 

 

 

 

 

 

917

 

1,224

 

(307)

 

4.30

 

4.53

 

(0.23)

 

 

 

long-term debt

 

9,824

 

13,837

 

(4,013)

 

(652)

 

(3,361)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest bearing

 

 

 

 

 

 

 

 

 

 

 

49,347

 

48,905

 

442

 

0.31

 

0.34

 

(0.03)

 

 

 

liabilities

 

37,899

 

41,959

 

(4,060)

 

(857)

 

(3,203)

 

16,254

 

14,920

 

1,334

 

 

 

 

 

 

 

 

Demand deposits

 

 

 

 

 

 

 

 

 

 

 

3,625

 

3,446

 

179

 

 

 

 

 

 

 

 

Other sources of funds

 

 

 

 

 

 

 

 

 

 

$

69,226

$

67,271

$

1,955

 

0.22

%

0.25

%

(0.03)

%

 

Total source of funds

 

37,899

 

41,959

 

(4,060)

 

(857)

 

(3,203)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin/

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.45

%

3.22

%

0.23

%

 

 

income on a taxable equivalent basis (Non-GAAP)

 

595,546

 

541,226

 

54,320

$

10,360

$

43,960

 

 

 

 

 

 

 

3.36

%

3.13

%

0.23

%

 

Net interest spread

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable equivalent adjustment

 

61,684

 

53,424

 

8,260

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin/ income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.09

%

2.91

%

0.18

%

 

 

non-taxable equivalent basis (GAAP)

$

533,862

$

487,802

$

46,060

 

 

 

 

Note: The changes that are not due solely to volume or rate are allocated to volume and rate based on the proportion of the change in each category.

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

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

124

 

Net interest income for the six-month period ended June 30, 2022 was $1.0 billion, or $61.3 million higher than the same period in 2021. Taxable equivalent net interest income was $1.1 billion for the six months ended June 30, 2022, or $71.0 million higher than the same period in 2021. Net interest margin was 2.92%, a decrease of seven basis points when compared to 2.99% in 2021. The decrease in net interest margin is mainly driven by a higher volume of money market and investment securities, and a decrease in loan yields driven by lower PPP income when compared to the same period in 2021. Net interest margin, on a taxable equivalent basis, for the six-months ended June 30, 2022, was 3.24%, a decrease of seven basis points when compared to the 3.31% for the same period of 2021. The drivers of the variances in net interest income for the six-month period are:

Positive variances:

Higher interest income from money market, investment, and trading securities by $53.6 million due to a higher volume by $5.3 billion mainly due to purchases of U.S. Treasury securities. This increase results from a higher volume of deposits of $6.0 billion as a result of Covid-19 U.S. Government stimulus and other aid. The yield of the portfolio increased seven basis points due to a higher volume of investment securities and higher interest rate received on excess reserves at the Federal Reserve by 35 basis points, driven by recent increases in the Federal Funds rate;

Higher interest income from the auto and lease financing portfolios due to the increase in volume of $418.3 million, partially offset by lower yield driven by a lower amortization of the discount of previously acquired portfolios and the origination of loans in a prolonged low interest rate environment;

Higher interest income from consumer loans mostly due to a higher average volume of personal loans and credit cards;

Lower interest expense on deposits due to lower cost by five basis points, partially offset by a higher volume of interest-bearing deposits by $3.9 billion; and

 

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

Negative variances:

Lower interest income from mortgage loans by $3.9 million driven by lower average volume mainly related to portfolio run-off.

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 six-months ended June 30, 2022, amounted to $28.9 million, compared to $64.8 million in the same period of 2021. The decrease in loan fee income was driven by PPP loan fees, which amounted to $14.7 million for the six-month period ended June 30, 2022 versus $30.9 million in the six-month period ended June 30, 2021 and lower amortization recorded from the prepayment of previously purchased credit deteriorated loans and lower amortization on the fair value discount of the auto portfolios acquired in previous years.

 

125

 

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

 

Six months ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variance

Average Volume

 

Average Yields / Costs

 

 

 

Interest

 

Attributable to

 

2022

 

2021

Variance

 

2022

 

2021

 

Variance

 

 

 

 

 

2022

 

2021

 

Variance

 

Rate

 

Volume

 

(In millions)

 

 

 

 

 

 

 

 

 

 

(In thousands)

$

13,129

$

14,004

$

(875)

 

0.46

%

0.11

%

0.35

%

 

Money market investments

$

30,206

$

7,386

$

22,820

$

23,310

$

(490)

 

28,107

 

21,868

 

6,239

 

2.06

 

2.37

 

(0.31)

 

 

Investment securities [1]

 

288,241

 

257,411

 

30,830

 

(28,585)

 

59,415

 

68

 

86

 

(18)

 

6.27

 

5.10

 

1.17

 

 

Trading securities

 

2,107

 

2,167

 

(60)

 

447

 

(507)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total money market,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

investment and trading

 

 

 

 

 

 

 

 

 

 

 

41,304

 

35,958

 

5,346

 

1.56

 

1.49

 

0.07

 

 

 

securities

 

320,554

 

266,964

 

53,590

 

(4,828)

 

58,418

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

13,986

 

13,582

 

404

 

5.12

 

5.30

 

(0.18)

 

 

 

Commercial

 

355,171

 

355,922

 

(751)

 

(11,235)

 

10,484

 

754

 

884

 

(130)

 

5.58

 

5.38

 

0.20

 

 

 

Construction

 

20,874

 

23,504

 

(2,630)

 

946

 

(3,576)

 

1,419

 

1,239

 

180

 

5.93

 

6.02

 

(0.09)

 

 

 

Leasing

 

42,071

 

37,318

 

4,753

 

(587)

 

5,340

 

7,341

 

7,816

 

(475)

 

5.28

 

5.06

 

0.22

 

 

 

Mortgage

 

193,905

 

197,792

 

(3,887)

 

8,459

 

(12,346)

 

2,595

 

2,472

 

123

 

11.27

 

11.35

 

(0.08)

 

 

 

Consumer

 

144,994

 

139,147

 

5,847

 

(1,719)

 

7,566

 

3,480

 

3,241

 

239

 

8.08

 

8.63

 

(0.55)

 

 

 

Auto

 

139,397

 

138,289

 

1,108

 

(8,752)

 

9,860

 

29,575

 

29,234

 

341

 

6.10

 

6.15

 

(0.05)

 

 

Total loans

 

896,412

 

891,972

 

4,440

 

(12,888)

 

17,328

$

70,879

$

65,192

$

5,687

 

3.45

%

3.58

%

(0.13)

%

 

Total earning assets

$

1,216,966

$

1,158,936

$

58,030

$

(17,716)

$

75,746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

$

26,584

$

23,895

$

2,689

 

0.12

%

0.14

%

(0.02)

%

 

 

NOW and money market [2]

$

15,624

$

16,234

$

(610)

$

(2,168)

$

1,558

 

16,398

 

14,876

 

1,522

 

0.17

 

0.19

 

(0.02)

 

 

 

Savings

 

13,464

 

13,935

 

(471)

 

(2,173)

 

1,702

 

6,891

 

7,184

 

(293)

 

0.69

 

0.79

 

(0.10)

 

 

 

Time deposits

 

23,522

 

28,092

 

(4,570)

 

(2,700)

 

(1,870)

 

49,873

 

45,955

 

3,918

 

0.21

 

0.26

 

(0.05)

 

 

Total interest bearing deposits

 

52,610

 

58,261

 

(5,651)

 

(7,041)

 

1,390

 

109

 

95

 

14

 

0.61

 

0.44

 

0.17

 

 

Short-term borrowings

 

328

 

205

 

123

 

45

 

78

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other medium and

 

 

 

 

 

 

 

 

 

 

 

965

 

1,235

 

(270)

 

4.25

 

4.53

 

(0.28)

 

 

 

long-term debt

 

20,370

 

27,832

 

(7,462)

 

8

 

(7,470)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total interest bearing

 

 

 

 

 

 

 

 

 

 

 

50,947

 

47,285

 

3,662

 

0.29

 

0.37

 

(0.08)

 

 

 

liabilities

 

73,308

 

86,298

 

(12,990)

 

(6,988)

 

(6,002)

 

16,198

 

14,161

 

2,037

 

 

 

 

 

 

 

 

Demand deposits

 

 

 

 

 

 

 

 

 

 

 

3,734

 

3,746

 

(12)

 

 

 

 

 

 

 

 

Other sources of funds

 

 

 

 

 

 

 

 

 

 

$

70,879

$

65,192

$

5,687

 

0.21

%

0.27

%

(0.06)

%

 

Total source of funds

 

73,308

 

86,298

 

(12,990)

 

(6,988)

 

(6,002)

 

 

 

 

 

 

3.24

%

3.31

%

(0.07)

%

 

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

 

1,143,658

 

1,072,638

 

71,020

$

(10,728)

$

81,748

 

 

 

 

 

 

 

3.16

%

3.21

%

(0.05)

%

 

Net interest spread

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable equivalent adjustment

 

115,484

 

105,724

 

9,760

 

 

 

 

 

 

 

 

 

 

 

2.92

%

2.99

%

(0.07)

%

 

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

$

1,028,174

$

966,914

$

61,260

 

 

 

 

Note: The changes that are not due solely to volume or rate are allocated to volume and rate based on the proportion of the change in each category.

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

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

126

 

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

For the quarter ended June 30, 2022, the Corporation recorded an expense of $9.7 million for its reserve for credit losses related to loans held-in-portfolio and unfunded commitments. The provision for credit loss related to the loans-held-in-portfolio for the quarter ended June 30, 2022 was $9.9 million, compared to a reserve release of $17.5 million for the quarter ended June 30, 2021. The provision expense was mainly driven by higher loan volumes and changes in the macroeconomic scenarios. The reserve release related to unfunded commitments for the second quarter of 2022 was $0.2 million, compared to the provision for unfunded commitments of $0.4 million for the same period of 2021.

 

For the quarter ended June 30, 2022, the Corporation recorded a provision for credit loss of $9.1 million for loans-held-in-portfolio for the BPPR segment, compared to a reserve release of $22.5 million for the quarter ended June 30, 2021. The Popular U.S. segment recorded a provision of $.7 million for the quarter ended June 30, 2022, compared to a provision of $5.0 million for the same quarter in 2021.

For the six-month period ended June 30, 2022, the Corporation recorded a release of $5.5 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 six-month period ended June 30, 2022 was $4.5 million, compared to the reserve release of $93.3 million for the six-month period ended June 30, 2021. The higher reserve release in 2021 reflected the improvements in the macroeconomic environment and outlook, at the time, and the related release of reserves accumulated during early stages of the covid pandemic. The provision for unfunded commitments for the six-month period of 2022 reflected a benefit of $1.0 million, compared to a provision benefit of $5.9 million for the same period of 2021.

The provision for credit losses for the BPPR segment was a benefit of $3.5 million for the six-month period ended June 30, 2022, compared to a benefit of $62.5 million for the six-month period ended June 30, 2021. The Popular U.S. segment recorded a reserve release of $1 million for the six-month period ended June 30, 2022, compared to a benefit of $30.8 million for the same period in 2021.

 

At June 30, 2022, the total allowance for credit losses for loans held-in-portfolio amounted to $681.8 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 2.24% at June 30, 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 and six-month period ended June 30, 2022, the provision for credit losses was $0.3 million benefit and $0.6 million benefit, respectively, compared to a $0.1 million provision expense and a $0.1 million provision benefit, respectively, for the quarter and six-month period ended June 30, 2021. At June 30, 2022, the total allowance for credit losses for this portfolio amounted to $7.5 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.

 

127

 

Non-Interest Income

 

Non-interest income amounted to $157.4 million for the quarter ended June 30, 2022, compared to $154.5 million for the same quarter of the previous year. The increase in non-interest income by $2.9 million was primarily driven by:

 

higher other service fees by $5.1 million, principally at the BPPR segment, due to higher credit and debit card fees by $5.8 million mainly in interchange income resulting from higher transactional volumes; and

higher income from mortgage banking activities by $6.1 million mainly due to a positive variance of $8.5 million in the fair value adjustments on mortgage servicing rights (“MSRs”); and higher realized gains on closed derivative positions by $3.3 million; partially offset by lower gain on sale of mortgage loans and securitization activity by $5.2 million;

partially offset by:

an unfavorable variance in net (loss) gain on equity securities of $5.7 million mainly related to securities held for deferred benefit plans, which have an offsetting positive variance in personnel costs; and

lower other operating income by $3.0 million due to lower earnings from the portfolio of equity method investments.

 

Non-interest income amounted to $312.1 million for the six months ended June 30, 2022, compared to $308.2 million for the same period of the previous year. Non-interest income increased by $3.9 million primarily driven by:

higher service charges on deposit accounts by $2.7 million principally due to higher ACH fees, offset by lower non-balance compensation fees at BPPR; and

higher other service fees by $11.6 million, principally at the BPPR segment, due to higher credit card fees mainly in interchange income resulting from higher volume of transactions;

partially offset by

higher losses on equity securities by $8.2 million due mainly to securities held for deferred benefit plans, which have an offsetting positive variance in personnel costs; and

lower other operating income by $1.8 million principally due to lower net earnings from the combined portfolio of investments under the equity method and lower gains from the sale of long-lived assets.

128

 

Operating Expenses

 

Operating expenses amounted to $406.3 million for the quarter ended June 30, 2022, an increase of $38.1 million when compared with the same quarter of 2021, driven primarily by:

 

higher personnel cost by $14.6 million mainly due to higher salaries as a result of salary adjustments; higher incentive compensation and higher profit-sharing expense, which is tied to the Corporation’s financial performance;

 

higher professional fees by $13.7 million due to higher programming, processing and other technology services by $6.2 million mainly due to higher volume of transactions and higher advisory expense by $6.1 million related to higher increased customer activity and corporate initiatives related to compliance, fraud and cyber security among others; and

 

higher business promotions by $4.8 million due to higher customer reward program expense in our credit card business by $4.0 million.

 

Operating expenses amounted to $808.6 million for the six months ended June 30, 2022, an increase of $64.9 million when compared with the same period of 2021, driven primarily by:

 

higher personnel cost by $22.1 million mainly due to higher salaries as a result of salary adjustments;

 

higher equipment expense by $4.2 million due to higher software amortization expense;

 

higher other operating taxes by $4.3 million due to higher property taxes;

 

higher professional fees by $22.3 million due to higher programming, processing and other technology services by $9.2 million mainly due to higher volume of transactions and higher advisory expense by $12.6 million related to higher increased customer activity and corporate initiatives related to compliance, fraud and cyber security among others;

 

higher business promotions by $7.4 million due to higher customer reward program expense in our credit card business; and

 

higher other operating expenses by $5.1 million due to lower gain on sale of foreclosed auto units and higher pension plan cost due to annual changes in actuarial assumptions; partially offset by lower write-down of foreclosed auto units.

129

 

Table 4 - Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

Quarters ended June 30,

 

Six months ended June 30,

(In thousands)

2022

2021

Variance

 

2022

 

2021

 

Variance

Personnel costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries

$

101,847

$

90,294

$

11,553

$

200,520

$

179,629

$

20,891

 

Commissions, incentives and other bonuses

 

29,787

 

26,374

 

3,413

 

61,126

 

59,592

 

1,534

 

Pension, postretirement and medical insurance

 

13,730

 

13,289

 

441

 

26,513

 

24,213

 

2,300

 

Other personnel costs, including payroll taxes

 

23,424

 

24,247

 

(823)

 

47,625

 

50,249

 

(2,624)

 

Total personnel costs

 

168,788

 

154,204

 

14,584

 

335,784

 

313,683

 

22,101

Net occupancy expenses

 

26,214

 

24,562

 

1,652

 

50,937

 

50,575

 

362

Equipment expenses

 

25,088

 

22,805

 

2,283

 

48,567

 

44,380

 

4,187

Other taxes

 

15,780

 

13,205

 

2,575

 

31,495

 

27,164

 

4,331

Professional fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

Collections, appraisals and other credit related fees

 

2,802

 

3,486

 

(684)

 

5,028

 

6,806

 

(1,778)

 

Programming, processing and other technology services

 

73,305

 

67,152

 

6,153

 

142,679

 

133,518

 

9,161

 

Legal fees, excluding collections

 

3,091

 

2,367

 

724

 

7,045

 

4,732

 

2,313

 

Other professional fees

 

35,674

 

28,148

 

7,526

 

68,617

 

56,045

 

12,572

 

Total professional fees

 

114,872

 

101,153

 

13,719

 

223,369

 

201,101

 

22,268

Communications

 

5,993

 

6,005

 

(12)

 

12,140

 

12,838

 

(698)

Business promotion

 

21,353

 

16,511

 

4,842

 

36,436

 

29,032

 

7,404

FDIC deposit insurance

 

6,463

 

5,742

 

721

 

13,835

 

11,710

 

2,125

Other real estate owned (OREO) income

 

(7,806)

 

(4,299)

 

(3,507)

 

(10,519)

 

(8,832)

 

(1,687)

Other operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit and debit card processing, volume and interchange and other expenses

 

11,375

 

10,917

 

458

 

23,884

 

23,371

 

513

 

Operational losses

 

4,061

 

6,528

 

(2,467)

 

15,886

 

14,424

 

1,462

 

All other

 

13,302

 

9,597

 

3,705

 

25,117

 

21,961

 

3,156

 

Total other operating expenses

 

28,738

 

27,042

 

1,696

 

64,887

 

59,756

 

5,131

Amortization of intangibles

 

795

 

1,255

 

(460)

 

1,686

 

2,306

 

(620)

Total operating expenses

$

406,278

$

368,185

$

38,093

$

808,617

$

743,713

$

64,904

 

Income Taxes

For the quarter and six months ended June 30, 2022, the Corporation recorded an income tax expense of $64.2 million and $114.7 million with an effective tax rate (“ETR”) of 23% and 21%, respectively, compared to $73.1 million and $149.9 million with an ETR of 25% and 24% for the respective periods of 2021. The decrease in income tax expense was primarily due to lower pre-tax income and higher tax exempt income for the quarter and six months ended June 30, 2022.

 

At June 30, 2022, the Corporation had a net deferred tax asset amounting to $0.8 billion, net of a valuation allowance of $0.6 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.

 

130

 

REPORTABLE SEGMENT RESULTS

 

The Corporation’s reportable segments for managerial reporting purposes consist of Banco Popular de Puerto Rico and Popular U.S. A Corporate group has been defined to support the reportable segments.

 

For a description of the Corporation’s reportable segments, including additional financial information and the underlying management accounting process, refer to Note 32 to the Consolidated Financial Statements.

 

The Corporate group reported a net income of $4.8 million for the quarter ended June 30, 2022, compared with a net income of $6.6 million for the same quarter of the previous year. The decrease in net income was mainly attributed to higher salaries and higher professional services expense, offset by lower interest expense related to the redemption in the fourth quarter of 2021 of $186.7 million in Trust Preferred Securities issued by Popular Capital Trust I. For the six months ended June 30, 2022 the Corporate group reported net income of $11.1 million, compared to a net income of $8.9 million for the same period of the previous year. The increase in net income was due to lower interest expense from the redemption of the above mentioned Trust Preferred Securities, and higher earnings from 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 $179.6 million for the quarter ended June 30, 2022, compared with net income of $193.3 million for the same quarter of the previous year. The results for the second quarter of 2021 reflect a release of the reserve for credit losses of $22.0 million, reflective of the credit metrics and macroeconomic outlook. The factors that contributed to the variance in the financial results included the following:

 

Higher net interest income by $28.6 million mainly due to:

 

higher interest income from money market and investment securities by $30.2 million due to higher average balances of U.S. Treasury securities and higher yields from money market investments due to balances maintained at the Federal Reserve;

 

partially offset by

 

lower interest income from loans by $1.0 million mainly from commercial loans due to lower fees from PPP loans and lower income from mortgage loans due to lower average balances, partially offset by higher income from consumer loans and leases due to loan growth; and

 

higher interest expense on deposits by $0.6 million mainly due to higher costs, mainly from time deposits.

 

The net interest margin for the quarter ended June 30, 2022 was 3.02% compared to 2.91% for the same quarter in the previous year. The increase in net interest margin is driven by earnings assets mix and the higher rates for money market investments held at the Federal Reserve.

 

A provision for loan losses expense of $8.8 million, compared to a reserve release of $22.0 million in the second quarter of 2021, or an unfavorable variance of $30.8 million;

 

Non-interest income was higher by $8.3 million mainly due to:

 

Higher other service fees by $5.7 million mainly due to higher credit card fees as a result of higher interchange transactional volumes; and

 

Higher income from mortgage banking activities by $6.2 million due to a favorable variance in the fair value adjustment for MSRs and higher realized gains on closed derivative positions; partially offset by lower gain on sale of mortgage loans and securitization activity;

131

 

 

partially offset by

 

lower other operating income by $2.6 million mostly due to lower earnings from the portfolio of equity method investments.

 

Higher operating expenses by $29.8 million mostly due to:

 

higher personnel costs by $12.8 million driven by higher salaries and benefits due to salary adjustments; higher incentive compensation and higher profit sharing expense;

 

higher other taxes by $2.3 million, mainly from personal property taxes;

 

higher professional fees by $4.5 million due mainly to processing and technology fees;

 

higher business promotions by $4.3 million due to credit cards rewards expense as a result of higher transactional volumes; and

 

higher other operating expenses by $6.2 million due to higher charges allocated from the Corporate segment, mainly advisory services;

 

partially offset by

 

higher net recoveries from OREO by $3.3 million due mainly to higher gains on sale of commercial and residential properties and lower write-downs.

 

 

Lower income tax expense by $10.0 million mainly due to lower income before tax.

 

For the six months ended June 30, 2022, the BPPR segment recorded net income of $358.2 million compared to a net income of $405.5 million for the same period of the previous year. The results for the six months ended June 30, 2021 reflect a release of the reserve for credit losses of $67.4 million, reflective of the credit metrics and macroeconomic outlook, at the time, compared to a release of $4.9 million for the six months-period ended June 30, 2022. The other factors that contributed to the variance in the financial results included the following:

 

Higher net interest income by $33.4 million mainly due to:

 

higher interest income from money market and investment securities by $45.9 million due to higher average balances of U.S. Treasury securities and higher yields from money market investments due to balances maintained at the Federal Reserve; and

 

lower interest expense on deposits by $1.5 million mainly due to lower costs, offset by higher average balances;

 

partially offset by

 

lower interest income from loans by $14.0 million mainly from commercial loans due to lower fees and average balances from PPP loans and lower income from mortgage loans due to lower average balances, partially offset by higher income from consumer loans and leases due to loan growth; and

 

The net interest margin for the six months ended June 30, 2022 was 2.84% compared to 3.00% for the same quarter in the previous year. The decrease in net interest margin is driven by earnings assets mix.

 

 

An unfavorable variance of $62.5 million on the provision for loan losses, due to the reserve release in 2021, as discussed above;

132

 

 

Non-interest income was higher by $9.1 million mainly due to:

 

Higher service charges on deposit accounts by $2.7 million principally due to higher ACH fees, offset by lower non-balance compensation fees;

 

Higher other service fees by $12.4 million mainly due to higher credit card fees as a result of higher interchange transactional volumes;

 

partially offset by

 

lower other operating income by $4.3 million mostly due to lower earnings from the portfolio of equity method investments.

 

Higher operating expenses by $56.9 million mostly due to:

 

Higher personnel costs by $19.9 million driven by higher salaries and benefits due to salary adjustments;

 

Higher other taxes by $4.3 million due mainly to property taxes;

 

Higher professional fees by $4.3 million mainly due to higher programming, processing and other technology services; and

 

Higher business promotion by $6.9 million due to higher customer rewards expense related to higher transactional volumes; and

 

Higher other expenses by $19.0 million to due to higher charges allocated from the Corporate segment, mainly advisory services.

 

Lower income tax expense by $29.5 million due to lower income before tax.

 

 

Popular U.S.

 

For the quarter ended June 30, 2022, the reportable segment of Popular U.S. reported a net income of $28.1 million, compared with a net income of $18.7 million for the same quarter of the previous year. The factors that contributed to the variance in the financial results included the following:

 

Higher net interest income by $14.7 million due to:

 

higher interest income from loans by $13.6 million, mainly from growth in the commercial and personal loans portfolio;

 

lower interest expense on borrowings by $0.7 million due to lower average balance and lower rates; and

 

lower interest expense on deposits by $0.5 million mainly due to lower interest rates.

 

 

The net interest margin for the quarter ended June 30, 2022 was 3.76% compared to 3.33% for the same quarter in the previous year. The increase in net interest margin was driven by earnings assets mix, including the growth in the loan portfolio.

 

A favorable variance of $4.3 million on the provision for loan losses and unfunded commitments, reflective of credit metrics and the macroeconomic outlook;

 

133

 

Higher operating expenses by $7.7 million due to

 

higher personnel costs by $3.0 million due to salary adjustments;

 

higher professional fees by $2.1 million due to higher mortgage servicing fees and lower deferred costs related to mortgage originations; and

 

higher other expenses by $1.7 million due to higher charges allocated from the Corporate segment, mainly advisory services.

 

Higher income tax expense by $1.5 million due mainly to a higher income before tax.

 

 

For the six months ended June 30, 2022 the PB segment recorded net income of $55.1 million, compared to a net income of $66.5 million for the same period of the previous year. The results for the six months ended June 30, 2021 reflect a release of the reserve for credit losses of $31.9 million, reflective of the credit metrics and macroeconomic outlook, compared to a release of $1.4 million for the six months ended June 30, 2022. The other factors that contributed to the variance in the financial results included the following:

 

Higher net interest income by $22.0 million due to:

 

higher interest income from loans by $18.9 million, mainly from growth in the commercial and personal loans portfolio;

 

lower interest expense on deposits by $3.6 million due to lower rates;

 

partially offset by

 

lower income from money market and investment securities by $1.4 million mainly due to lower average balances, offset by higher interest rates.

 

 

The net interest margin for the six months ended June 30, 2022 was 3.66% compared to 3.35% for the same period in the previous year. The increase in net interest margin is driven by earnings assets mix, including the growth in the loan portfolio.

 

An unfavorable variance of $30.4 million on the provision for loan losses and unfunded commitments, due to the reserve release in 2021, as discussed above;

 

Higher operating expenses by $7.9 million due to:

 

higher personnel costs by $4.0 million due to salary adjustments;

 

higher professional fees by $1.7 million lower deferred costs related to mortgage originations and higher technology service fees; and

 

higher other expenses by $2.2 million due to higher charges allocated from the Corporate segment, mainly advisory services.

 

Lower income tax expense by $4.9 million due mainly to a lower income before tax.

 

134

 

FINANCIAL CONDITION ANALYSIS

 

Assets

The Corporation’s total assets were $71.5 billion at June 30, 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 $7.8 billion mainly due to lower Puerto Rico public sector deposits and the deployment of liquidity to purchase investment securities and loan originations. Debt securities available-for-sale and held-to-maturity increased by $1.3 billion and $1.6 billion, respectively at June 30, 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 5 for a breakdown of the Corporation’s loan portfolio. Also, refer to Note 7 in the Consolidated Financial Statements for detailed information about the Corporation’s loan portfolio composition and loan purchases and sales.

 

Loans held-in-portfolio increased by $1.1 billion to $30.4 billion at June 30, 2022, mainly due to an increase in commercial and consumer loans at both BPPR and PB.

 

 

 

Table 5 - Loans Ending Balances

 

 

 

 

(In thousands)

 

June 30, 2022

 

December 31, 2021

 

Variance

Loans held-in-portfolio:

 

 

 

 

 

 

Commercial

$

14,545,301

$

13,732,701

$

812,600

Construction

 

790,920

 

716,220

 

74,700

Leasing

 

1,480,222

 

1,381,319

 

98,903

Mortgage

 

7,261,955

 

7,427,196

 

(165,241)

Auto

 

3,489,976

 

3,412,187

 

77,789

Consumer

 

2,802,562

 

2,570,934

 

231,628

Total loans held-in-portfolio

$

30,370,936

$

29,240,557

$

1,130,379

Loans held-for-sale:

 

 

 

 

 

 

Mortgage

$

28,546

$

59,168

$

(30,622)

Total loans held-for-sale

$

28,546

$

59,168

$

(30,622)

Total loans

$

30,399,482

$

29,299,725

$

1,099,757

135

 

Other assets

Other assets amounted to $1.8 billion at June 30, 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 June 30, 2022 and December 31, 2021.

 

Liabilities

The Corporation’s total liabilities were $67.2 billion at June 30, 2022, a decrease of $1.9 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 June 30, 2022 and December 31, 2021 is included in Table 6.

 

Table 6 - Financing to Total Assets

 

 

 

 

 

 

 

June 30,

December 31,

% increase (decrease)

 

% of total assets

(In millions)

 

2022

 

2021

from 2021 to 2022

 

2022

 

2021

 

Non-interest bearing deposits

$

16,663

$

15,684

6.2

%

23.3

%

20.9

%

Interest-bearing core deposits

 

44,768

 

47,954

(6.6)

 

62.6

 

63.9

 

Other interest-bearing deposits

 

3,897

 

3,367

15.7

 

5.5

 

4.5

 

Repurchase agreements

 

71

 

92

(22.8)

 

0.1

 

0.1

 

Other short-term borrowings

 

-

 

75

N.M.

 

-

 

0.1

 

Notes payable

 

888

 

989

(10.2)

 

1.2

 

1.3

 

Other liabilities

 

922

 

968

(4.8)

 

1.3

 

1.3

 

Stockholders’ equity

 

4,293

 

5,969

(28.1)

 

6.0

 

7.9

 

 

Deposits

 

 

The Corporation’s deposits totaled $65.3 billion at June 30, 2022, compared to $67.0 billion at December 31, 2021. The deposits decrease of $1.7 billion was mainly due to lower Puerto Rico public sector deposits by $3.3 billion at BPPR, partially offset by growth in other deposits sectors. At June 30, 2022, Puerto Rico public sector deposits amounted to $17.1 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, the financial condition, liquidity and cash management practices of the Puerto Rico Government and its instrumentalities and the implementation of fiscal and debt adjustment plans approved pursuant to PROMESA or other actions mandated by the Fiscal Oversight and Management Board for Puerto Rico (the “Oversight Board”).

 

Refer to Table 7 for a breakdown of the Corporation’s deposits at June 30, 2022 and December 31, 2021.

136

 

Table 7 - Deposits Ending Balances

(In thousands)

June 30, 2022

 

December 31, 2021

 

Variance

Demand deposits [1]

$

27,798,243

 

$

25,889,732

 

$

1,908,511

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

 

29,672,655

 

 

33,674,134

 

 

(4,001,479)

Savings, NOW and money market deposits (brokered)

 

761,244

 

 

729,073

 

 

32,171

Time deposits (non-brokered)

 

6,896,786

 

 

6,685,938

 

 

210,848

Time deposits (brokered CDs)

 

198,736

 

 

26,211

 

 

172,525

Total deposits

$

65,327,664

 

$

67,005,088

 

$

(1,677,424)

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

 

Borrowings

The Corporation’s borrowings totaled $1.0 billion at June 30, 2022 compared to $1.2 billion at 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 $4.3 billion at June 30, 2022, a decrease of $1.7 billion when compared to December 31, 2021, principally due to an increase in accumulated unrealized losses on debt securities available-for-sale by $1.6 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 $423.1 million for the six months ended June 30, 2022. Refer to the Consolidated Statements of Financial Condition, Comprehensive Income and of Changes in Stockholders’ Equity for information on the composition of stockholders’ equity.

 

137

 

REGULATORY CAPITAL

 

The Corporation, BPPR and PB are subject to regulatory capital requirements established by the Federal Reserve Board. The risk-based capital standards applicable to the Corporation, BPPR and PB (“Basel III capital rules”) are based on the final capital framework for strengthening international capital standards, known as Basel III, of the Basel Committee on Banking Supervision. As of June 30, 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 8, which include common equity tier 1, Tier 1 capital, total capital and leverage capital as of June 30, 2022 and December 31, 2021.

 

Table 8 - Capital Adequacy Data

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

June 30, 2022

 

 

December 31, 2021

 

Common equity tier 1 capital:

 

 

 

 

 

 

 

Common stockholders equity - GAAP basis

$

4,271,206

 

$

5,947,254

 

 

CECL transitional amount [1]

 

127,127

 

 

169,502

 

 

AOCI related adjustments due to opt-out election

 

1,888,849

 

 

257,762

 

 

Goodwill, net of associated deferred tax liability (DTL)

 

(588,752)

 

 

(591,703)

 

 

Intangible assets, net of associated DTLs

 

(14,533)

 

 

(16,219)

 

 

Deferred tax assets and other deductions

 

(270,588)

 

 

(290,565)

 

Common equity tier 1 capital

$

5,413,309

 

$

5,476,031

 

Additional tier 1 capital:

 

 

 

 

 

 

 

Preferred stock

 

22,143

 

 

22,143

 

Additional tier 1 capital

$

22,143

 

$

22,143

 

Tier 1 capital

$

5,435,452

 

$

5,498,174

 

Tier 2 capital:

 

 

 

 

 

 

 

Trust preferred securities subject to phase in as tier 2

 

192,674

 

 

192,674

 

 

Other inclusions (deductions), net

 

413,540

 

 

393,257

 

Tier 2 capital

$

606,214

 

$

585,931

 

Total risk-based capital

$

6,041,666

 

$

6,084,105

 

Minimum total capital requirement to be well capitalized

$

3,302,848

 

$

3,144,122

 

Excess total capital over minimum well capitalized

$

2,738,818

 

$

2,939,983

 

Total risk-weighted assets

$

33,028,484

 

$

31,441,224

 

Total assets for leverage ratio

$

71,850,332

 

$

74,238,367

 

Risk-based capital ratios:

 

Common equity tier 1 capital

 

16.39

%

 

17.42

%

Tier 1 capital

 

16.46

 

 

17.49

 

 

Total capital

 

18.29

 

 

19.35

 

 

Tier 1 leverage

7.56

 

 

7.41

 

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

138

 

The Basel III capital rules provide that a depository institution will be deemed to be well capitalized if it maintains a leverage ratio of at least 5%, a common equity Tier 1 ratio of at least 6.5%, a Tier 1 capital ratio of at least 8% and a total risk-based ratio of at least 10%. Management has determined that as of June 30, 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 June 30, 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 June 30, 2022, the Corporation has $89 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 June 30, 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 six month period earnings. The increase in leverage capital ratio was mainly due to the decrease in average total assets, which mostly did not have a significant impact on the risk-weighted assets.

 

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Non-GAAP financial measures

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

 

Table 9 provides a reconciliation of total stockholders’ equity to tangible common equity and total assets to tangible assets as of June 30, 2022, and December 31, 2021.

 

Table 9 - Reconciliation of Tangible Common Equity and Tangible Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands, except share or per share information)

 

 

June 30, 2022

 

 

 

December 31, 2021

 

Total stockholders’ equity

 

$

4,293,349

 

 

$

5,969,397

 

Less: Preferred stock

 

 

(22,143)

 

 

 

(22,143)

 

Less: Goodwill

 

 

(720,293)

 

 

 

(720,293)

 

Less: Other intangibles

 

 

(14,533)

 

 

 

(16,219)

 

Total tangible common equity

 

$

3,536,380

 

 

$

5,210,742

 

Total assets

 

$

71,501,931

 

 

$

75,097,899

 

Less: Goodwill

 

 

(720,293)

 

 

 

(720,293)

 

Less: Other intangibles

 

 

(14,533)

 

 

 

(16,219)

 

Total tangible assets

 

$

70,767,105

 

 

$

74,361,387

 

Tangible common equity to tangible assets

 

 

5.00

%

 

 

7.01

%

Common shares outstanding at end of period

 

 

76,576,397

 

 

 

79,851,169

 

Tangible book value per common share

 

$

46.18

 

 

$

65.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarterly average

 

Total stockholders’ equity [1]

 

$

5,827,666

 

 

$

5,961,214

 

Less: Preferred Stock

 

 

(22,143)

 

 

 

(22,143)

 

Less: Goodwill

 

 

(720,292)

 

 

 

(706,184)

 

Less: Other intangibles

 

 

(15,043)

 

 

 

(19,889)

 

Total tangible common equity

 

$

5,070,188

 

 

$

5,212,998

 

Return on average tangible common equity

 

 

16.70

%

 

 

15.66

%

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

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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 $26.3 billion as of June 30, 2022. Other assets subject to market risk include loans held-for-sale, which amounted to $29 million, mortgage servicing rights (“MSRs”) which amounted to $130 million and securities classified as “trading”, which amounted to $32 million, as of June 30, 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. Additionally, the Company is also subject to basis risk in the repricing of its assets and liabilities, including the basis related to using different rate indexes for the repricing of assets and liabilities, as well as the effect of pricing lags which may be contractual or due to historical differences in the timing of management responses to changes in the rate environment. By their nature, these forward-looking computations are only estimates and may be different from what may actually occur in the future. The following table presents the results of the simulations at June 30, 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 10 - Net Interest Income Sensitivity (One Year Projection)

 

June 30, 2022

 

 

December 31, 2021

(Dollars in thousands)

 

Amount Change

Percent Change

 

 

Amount Change

Percent Change

 

Change in interest rate

 

 

 

 

 

 

 

 

+400 basis points

$

29,304

1.31

%

$

257,223

13.21

%

+200 basis points

 

15,465

0.69

 

 

197,354

10.14

 

+100 basis points

 

8,908

0.40

 

 

166,920

8.57

 

-100 basis points

 

(99,097)

(4.44)

 

 

(78,408)

(4.03)

 

-200 basis points

 

(228,558)

(10.23)

 

 

(120,661)

(6.20)

 

 

As of June 30, 2022, NII simulations show the Corporation maintains an asset sensitive position, meaning that changes in net interest income are primarily driven by changes in asset yields. In declining rate scenarios net interest income would fall, as changes in asset yields would decline faster and by a higher magnitude than liability costs. In rising rate scenarios asset sensitive banks usually benefit from faster changes in asset yields relative to deposit costs. However, in the case of Popular, its sensitivity profile is impacted by a large proportion of Puerto Rico public sector deposits which are indexed to market rates. As short-term rates have risen the cost of these deposits is now expected to increase in sync with market rates and therefore reduce the benefit in rising rate environments. As of June 30, 2022, Popular has an asymmetric sensitivity profile meaning that the rate of change in NII in declining rate scenarios is larger than it is in the rising rate scenarios. The sensitivity to rising rates is near neutral this quarter compared to a substantially asset sensitive position as of December 31, 2021. The primary reasons for the reduction in sensitivity are i) the realization of much of the expected benefit in net interest income given the higher interest rates observed during the first half of 2022 ii) a decrease in cash balances (which reprice instantaneously) via the deployment into longer term investments and loans and iii) the market indexed nature of Puerto Rico public sector deposits which represented $17.1 billion or 26% of deposits as of June 30, 2022.

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

Trading

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

At June 30, 2022, the Corporation held trading securities with a fair value of $32 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 11, the trading portfolio consists principally of mortgage-backed securities and U.S. Treasuries, which at June 30, 2022 were investment grade securities. As of June 30, 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 gain of $51 thousand and a net trading account loss of $47 thousand, respectively, for the quarters ended June 30, 2022 and June 30, 2021.

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Table 11 - Trading Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2022

 

 

December 31, 2021

 

(Dollars in thousands)

 

Amount

 

Weighted Average Yield[1]

 

 

Amount

 

Weighted Average Yield[1]

 

Mortgage-backed securities

$

14,904

 

5.80

%

$

22,559

 

5.12

%

U.S. Treasury securities

 

16,873

 

1.20

 

 

6,530

 

0.03

 

Collateralized mortgage obligations

 

203

 

5.57

 

 

257

 

5.61

 

Puerto Rico government obligations

 

73

 

0.47

 

 

85

 

0.47

 

Interest-only strips

 

264

 

12.00

 

 

280

 

12.00

 

Total

$

32,317

 

3.44

%

$

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 $0.3 million for the last week in June 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.

Deposits, including customer deposits, brokered deposits and public funds deposits, continue to be the most significant source of funds for the Corporation, funding 91% of the Corporation’s total assets at June 30, 2022 and 89% at December 31, 2021. The

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ratio of total ending loans to deposits was 47% at June 30, 2022, compared to 44% at December 31, 2021. In addition to traditional deposits, the Corporation maintains borrowing arrangements, which amounted to approximately $1.0 billion in outstanding balances at June 30, 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.

On July 12, 2022, the Corporation completed its previously announced accelerated share repurchase program for the repurchase of an aggregate $400 million of Popular’s common stock, refer to Note 17 to the Consolidated Financial Statements for additional information.

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 7 for a breakdown of deposits by major types. Core deposits are generated from a large base of consumer, corporate and public sector customers. Core deposits include all non-interest bearing deposits, savings deposits and certificates of deposit under $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 $61.4 billion, or 94% of total deposits, at June 30, 2022, compared with $63.6 billion, or 95% of total deposits, at December 31, 2021. Core deposits financed 90% of the Corporation’s earning assets at June 30, 2022, compared with 88% at December 31, 2021.

The distribution by maturity of certificates of deposits with denominations of $250,000 and over at June 30, 2022 is presented in the table that follows:

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Table 12 - Distribution by Maturity of Certificate of Deposits of $250,000 and Over

 

 

 

(In thousands)

 

 

 

3 months or less

 

$

2,349,710

Over 3 to 12 months

 

 

230,766

Over 1 year to 3 years

 

 

231,066

Over 3 years

 

 

140,369

Total

 

$

2,951,911

 

The Corporation had $1.0 billion in brokered deposits at June 30, 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 June 30, 2022, total public sector deposits were $17.1 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 June 30, 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.

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The outstanding balance of notes payable at the BHCs amounted to $497 million at June 30, 2022 and $496 million at December 31, 2021.

The contractual maturities of the BHCs notes payable at June 30, 2022 are presented in Table 13.

Table 13 - Distribution of BHC's Notes Payable by Contractual Maturity

 

 

Year

 

(In thousands)

2023

$

298,475

Later years

 

198,306

Total

$

496,781

 

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 June 30, 2022, the BHCs had cash and money markets investments totaling $264 million, borrowing potential of $193 million from its secured facility with BPPR. In addition to these liquidity sources, the stake in Evertec had a market value of $430 million as of June 30, 2022 and it represents an additional source of contingent liquidity. On July 1, 2022, the Corporation exchanged a portion of these shares as part of a transaction in which it acquired certain critical channels from Evertec and renegotiated several service agreements with Evertec, as discussed in Note 33 to the Consolidated Financial Statements.

Non-Banking Subsidiaries

The principal sources of funding for the non-banking subsidiaries include internally generated cash flows from operations, loan sales, repurchase agreements, capital injections and borrowed funds from their direct parent companies or the holding companies. The principal uses of funds for the non-banking subsidiaries include repayment of maturing debt, operational expenses and payment of dividends to the BHCs. The liquidity needs of the non-banking subsidiaries are minimal since most of them are funded internally from operating cash flows or from intercompany borrowings or capital contributions from their holding companies. During the period ended June 30, 2022, Popular, Inc. made capital contributions to its wholly owned subsidiaries of $25 million to Popular Re, Inc. and $10 million to Popular Securities.

Dividends

During the six months ended June 30, 2022, the Corporation declared cash dividends of $1.10 per common share outstanding ($84.2 million in the aggregate). The dividends for the Corporation’s Series A preferred stock amounted to $0.7 million. During the six months ended June 30, 2022, the BHC’s received dividends amounting to $450 million from BPPR, $54 million from PNA $4 million in dividends from its non-banking subsidiaries and $1 million in dividends from Evertec. In addition, during the six months ended June 30, 2022, Popular International Bank Inc., wholly owned subsidiary of Popular, Inc., received $16 million in dividends from its investment in BHD. 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 $7.2 billion at June 30, 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.

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Off-Balance Sheet arrangements and other commitments

In the ordinary course of business, the Corporation engages in financial transactions that are not recorded on the balance sheet or may be recorded on the balance sheet in amounts that are different than the full contract or notional amount of the transaction. As a provider of financial services, the Corporation routinely enters into commitments with off-balance sheet risk to meet the financial needs of its customers. These commitments may include loan commitments and standby letters of credit. These commitments are subject to the same credit policies and approval process used for on-balance sheet instruments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position. 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 $1.0 billion at June 30, 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 June 30, 2022 and December 31, 2021, and the results of their operations for the period ended June 30, 2022 and June 30, 2021. Investments in and equity in the earnings from the other subsidiaries and affiliates that are not members of the obligor group have been excluded.

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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.

Table 14 - Summarized Statement of Condition

 

 

 

 

 

 

 

 

 

(In thousands)

 

June 30, 2022

 

December 31, 2021

Assets

 

 

 

 

Cash and money market investments

$

264,234

$

291,540

Investment securities

 

24,967

 

25,691

Accounts receivables from non-obligor subsidiaries

 

21,471

 

17,634

Other loans (net of allowance for credit losses of $260 (2021 - $96))

 

28,532

 

29,349

Investment in equity method investees

 

129,986

 

114,955

Other assets

 

46,284

 

42,251

Total assets

$

515,474

$

521,420

Liabilities and Stockholders' deficit

 

 

 

 

Accounts payable to non-obligor subsidiaries

$

4,140

$

6,481

Accounts payable to affiliates and related parties

 

1,209

 

1,254

Notes payable

 

496,781

 

496,134

Other liabilities

 

95,329

 

97,172

Stockholders' deficit

 

(81,985)

 

(79,621)

Total liabilities and stockholders' deficit

$

515,474

$

521,420

 

 

 

 

 

Table 15 - Summarized Statement of Operations

 

 

 

 

 

 

 

 

 

 

 

For the six months ended

(In thousands)

 

June 30, 2022

 

June 30, 2021

Income:

 

 

 

 

Dividends from non-obligor subsidiaries

$

454,000

$

579,000

Interest income from non-obligor subsidiaries and affiliates

 

399

 

442

Earnings from investments in equity method investees

 

14,995

 

14,669

Other operating (expense) income

 

(2,669)

 

2,578

Total income

$

466,725

$

596,689

Expenses:

 

 

 

 

Services provided by non-obligor subsidiaries and affiliates (net of reimbursement by subsidiaries for services provided by parent of $98,651 (2021 - $81,940))

$

8,003

$

6,514

Other operating expenses

 

7,738

 

14,529

Total expenses

$

15,741

$

21,043

Net income (loss)

$

450,984

$

575,646

 

 

 

 

 

During the six months ended June 30, 2022, the Obligor group recorded $1.2 million of dividend distributions from its direct equity method investees. During the six months ended June 30, 2021, the Obligor group recorded $1.7 million of distributions from its direct equity method investees, of which $1.2 million were related to dividend distributions.

 

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Risks to Liquidity

Total lines of credit outstanding are not necessarily a measure of the total credit available on a continuing basis. Some of these lines could be subject to collateral requirements, standards of creditworthiness, leverage ratios and other regulatory requirements, among other factors. Derivatives, such as those embedded in long-term repurchase transactions or interest rate swaps, and off-balance 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 six months ended June 30, 2022, BPPR declared cash dividends of $450 million. At June 30, 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 June 30, 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 $34 million at June 30, 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

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collateral under certain agreements or the loss of escrow deposits could reduce the Corporation’s liquidity resources and impact its operating results.

 

Credit Risk

 

Geographic and Government Risk

 

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

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% and 1.7% GNP growth in fiscal years 2022 and 2023, respectively.

Certain information regarding current economic activity is available in the form of the Economic Development Bank for Puerto Rico (“EDB”) Economic Activity Index (the “EDB Economic Activity Index”), a coincident indicator of ongoing economic activity. The latest EDB Economic Activity Index, which is an indicator of general economic activity and not a direct measurement of real GNP, reflected a 3.3% increase in May 2022, compared to May 2021. From July 2021 to May 2022, the EDB Economic Activity Index reflected a 4.7% increase compared to the same period in fiscal year 2021. The Puerto Rico Consumer Price Index, published by the Department of Labor and Human Resources of Puerto Rico, increased to 130.2 in June 2022, a 7.2% increase to the corresponding figure in June 2021. Over the same period, the United States Consumer Price Index, published by the U.S. Bureau

150

 

of Labor Statistics, increased by 9.1%, the largest year-over-year increase since 1981. Increasing inflation or prolonged periods of high inflation may adversely affect our business and results of operations.

Fiscal Challenges

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 October 2016, the Oversight Board designated the Commonwealth and all of its public corporations and instrumentalities (except its municipalities) as “covered entities” under PROMESA. In May 2019, the Oversight Board also 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 pursuant to the Plan of Adjustment (as defined and further explained below), and projects an unrestricted surplus after debt service averaging $1 billion annually between fiscal years 2022 to 2031. This surplus is projected to decline 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. From fiscal year 2017 to fiscal year 2020, 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 also received extraordinary appropriations and other

151

 

funds from federally-funded programs during fiscal year 2022, which has helped temporarily offset the impact of the reduced Commonwealth support. However, the 2022 Fiscal Plan contemplates additional reductions in appropriations to municipalities each fiscal year, 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 May 20, 2022, 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.

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. While PROMESA provided a process to address the Commonwealth’s fiscal challenges, the complexity and uncertainty of the PROMESA 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. Furthermore, if global or local economic conditions worsen or the Government of Puerto Rico and the Oversight Board are unable to adequately manage the Commonwealth’s fiscal and economic challenges, including by controlling the COVID-19 pandemic and consummating an orderly restructuring of the Commonwealth’s debt obligations while continuing to provide essential services, these adverse effects could continue or worsen in ways that we are not able to predict.

 

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At June 30, 2022, the Corporation’s direct exposure to the Puerto Rico government’s instrumentalities and municipalities totaled $396 million of which $353 million were outstanding, compared to $367 million at December 31, 2021, of which $349 million were outstanding. A deterioration in 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, $326 million consists of loans and $27million are securities ($319 million and $30 million, respectively, at December 31, 2021). All of the Corporation’s direct exposure outstanding at June 30, 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 June 30, 2022, 73% 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 June 30, 2022, the Corporation had $262 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 $220 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 June 30, 2022, $42 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 fiscal and economic measures taken by the Commonwealth government. 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 June 30, 2022, BPPR had $17.1 billion in deposits from the Commonwealth, its instrumentalities, and municipalities. The rate at which public deposit balances may decline is uncertain and difficult to predict. The amount and timing of any such reduction is likely to be impacted by, for example, the speed at which 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 might be further exacerbated as a result of the effects of the COVID-19 pandemic, and which could adversely affect the ability of its public corporations and instrumentalities to service their outstanding debt obligations. PROMESA does not apply to the USVI and, as such, there is currently no federal legislation permitting the restructuring of the debts of the USVI and its public corporations and instrumentalities.

 

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

 

At June 30, 2022, the Corporation had approximately $29 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 June 30, 2022 it has a loan portfolio amounting to approximately $217 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, $1.5 billion of residential mortgages, $89 million of SBA loans under the Paycheck Protection Program (“PPP”) and $69 million commercial loans were insured or guaranteed by the U.S. Government or its agencies at June 30, 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 16.

During the second 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 in the macroeconomic environment and on borrower performance, given potential economic headwinds, rising interest rates 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 challenging environment.

Total NPAs decreased by $63 million at June 30, 2022 when compared with December 31, 2021. Total non-performing loans held-in-portfolio (“NPLs”) decreased by $70 million at June 30, 2022 from December 31, 2021. BPPR’s NPLs decreased by $69 million at June 30, 2022, mainly driven by lower mortgage NPLs by $49 million, 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, coupled with a $24 million decrease in the commercial NPLs. Popular U.S. NPLs remained essentially flat at $33 million from December 31, 2021. At June 30, 2022, the ratio of NPLs to total loans held-in-portfolio was 1.6% compared to 1.9% in the December 31, 2021. Other real estate owned loans (“OREOs”) increased by $7 million at June 30, 2022, mainly due to the end of the COVID-19 related foreclosure moratorium period.

At June 30, 2022, NPLs secured by real estate amounted to $353 million in the Puerto Rico operations and $28 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 $9.1 billion at June 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 $55 million at June 30, 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 1.23% and 0.04%, respectively, at June 30, 2022, compared with 1.95% and 0.04%, respectively, at December 31, 2021.

In addition to the NPLs included in Table 16, at June 30, 2022, there were $382 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 quarter ended June 30, 2022, total inflows of NPLs held-in-portfolio, excluding consumer loans, decreased by approximately $46 million, when compared to the inflows for the same period in 2021. Inflows of NPLs held-in-portfolio at the BPPR segment decreased by $45 million compared to the same period in 2021, driven by lower commercial and mortgage inflows by $38 million and $7 million, respectively. Inflows of NPLs held-in-portfolio at the Popular U.S. segment remained essentially flat from the same period in 2021.

 

Table 16 - Non-Performing Assets

 

June 30, 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

$

96,493

$

7,446

$

103,939

 

0.7

%

$

120,047

$

5,532

$

125,579

 

0.9

%

Construction

 

-

 

-

 

-

 

-

 

 

485

 

-

 

485

 

0.1

 

Leasing

 

4,665

 

-

 

4,665

 

0.3

 

 

3,102

 

-

 

3,102

 

0.2

 

Mortgage

 

284,670

 

20,192

 

304,862

 

4.2

 

 

333,887

 

21,969

 

355,856

 

4.8

 

Auto

 

28,045

 

-

 

28,045

 

0.8

 

 

23,085

 

-

 

23,085

 

0.7

 

Consumer

 

30,958

 

5,455

 

36,413

 

1.3

 

 

33,683

 

6,087

 

39,770

 

1.5

 

Total non-performing loans held-in-portfolio

 

444,831

 

33,093

 

477,924

 

1.6

%

 

514,289

 

33,588

 

547,877

 

1.9

%

Other real estate owned (“OREO”)

 

90,593

 

1,544

 

92,137

 

 

 

 

83,618

 

1,459

 

85,077

 

 

 

Total non-performing assets[1]

$

535,424

$

34,637

$

570,061

 

 

 

$

597,907

$

35,047

$

632,954

 

 

 

Accruing loans past due 90 days or more[2]

$

406,722

$

576

$

407,298

 

 

 

$

480,649

$

118

$

480,767

 

 

 

Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing assets to total assets

 

0.89

%

0.30

%

0.80

%

 

 

 

0.93

%

0.32

%

0.84

%

 

 

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

 

2.07

 

0.37

 

1.57

 

 

 

 

2.46

 

0.40

 

1.87

 

 

 

Allowance for credit losses to loans held-in-portfolio

 

2.70

 

1.14

 

2.24

 

 

 

 

2.85

 

1.21

 

2.38

 

 

 

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

 

130.52

 

305.72

 

142.65

 

 

 

 

115.53

 

301.31

 

126.92

 

 

 

HIP = “held-in-portfolio”

[1] There were no non-performing loans held-for-sale as of June 30, 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 $11 million at June 30, 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 $237 million of residential mortgage loans insured by FHA or guaranteed by the VA that are no longer accruing interest as of June 30, 2022 (December 31, 2021 - $304 million). Furthermore, the Corporation has approximately $43 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).

155

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended June 30, 2022

 

For the six months ended June 30, 2022

(Dollars in thousands)

 

BPPR

 

Popular U.S.

Popular, Inc.

 

BPPR

 

Popular U.S.

Popular, Inc.

Beginning balance

$

424,342

$

27,229

$

451,571

$

454,419

$

27,501

$

481,920

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

New non-performing loans

 

38,331

 

11,118

 

49,449

 

82,651

 

18,917

 

101,568

 

Advances on existing non-performing loans

 

-

 

111

 

111

 

-

 

2,750

 

2,750

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing loans transferred to OREO

 

(11,541)

 

-

 

(11,541)

 

(24,937)

 

(85)

 

(25,022)

 

Non-performing loans charged-off

 

(1,246)

 

(216)

 

(1,462)

 

(1,969)

 

(289)

 

(2,258)

 

Loans returned to accrual status / loan collections

 

(68,723)

 

(10,604)

 

(79,327)

 

(129,001)

 

(21,156)

 

(150,157)

Ending balance NPLs

$

381,163

$

27,638

$

408,801

$

381,163

$

27,638

$

408,801

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended June 30, 2021

 

For the six months ended June 30, 2021

(Dollars in thousands)

 

BPPR

 

Popular U.S.

Popular, Inc.

 

BPPR

 

Popular U.S.

Popular, Inc.

Beginning balance

$

606,521

$

24,223

$

630,744

$

639,932

$

28,412

$

668,344

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

New non-performing loans

 

83,089

 

12,344

 

95,433

 

149,210

 

30,501

 

179,711

 

Advances on existing non-performing loans

 

-

 

12

 

12

 

-

 

23

 

23

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing loans transferred to OREO

 

(10,603)

 

-

 

(10,603)

 

(15,254)

 

-

 

(15,254)

 

Non-performing loans charged-off

 

(5,812)

 

(1,147)

 

(6,959)

 

(23,545)

 

(1,500)

 

(25,045)

 

Loans returned to accrual status / loan collections

 

(69,962)

 

(7,247)

 

(77,209)

 

(147,110)

 

(27,478)

 

(174,588)

 

Loans transferred to held-for-sale

 

-

 

(7,000)

 

(7,000)

 

-

 

(8,773)

 

(8,773)

Ending balance NPLs

$

603,233

$

21,185

$

624,418

$

603,233

$

21,185

$

624,418

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended June 30, 2022

 

For the six months ended June 30, 2022

(Dollars in thousands)

 

BPPR

 

Popular U.S.

 

Popular, Inc.

 

 

BPPR

 

Popular U.S.

 

Popular, Inc.

Beginning balance

$

117,782

$

5,403

$

123,185

 

$

120,047

$

5,532

$

125,579

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New non-performing loans

 

1,666

 

7,325

 

8,991

 

 

7,793

 

10,324

 

18,117

 

Advances on existing non-performing loans

 

-

 

1

 

1

 

 

-

 

2,506

 

2,506

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing loans transferred to OREO

 

(914)

 

-

 

(914)

 

 

(3,966)

 

-

 

(3,966)

 

Non-performing loans charged-off

 

(951)

 

(89)

 

(1,040)

 

 

(1,207)

 

(162)

 

(1,369)

 

Loans returned to accrual status / loan collections

 

(21,090)

 

(5,194)

 

(26,284)

 

 

(26,174)

 

(10,754)

 

(36,928)

Ending balance NPLs

$

96,493

$

7,446

$

103,939

 

$

96,493

$

7,446

$

103,939

156

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended June 30, 2021

 

For the six months ended June 30, 2021

(Dollars in thousands)

 

BPPR

 

Popular U.S.

 

Popular, Inc.

 

 

BPPR

 

Popular U.S.

 

Popular, Inc.

Beginning balance

$

200,863

$

1,907

$

202,770

 

$

204,092

$

5,988

$

210,080

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New non-performing loans

 

39,657

 

7,570

 

47,227

 

 

47,381

 

9,263

 

56,644

 

Advances on existing non-performing loans

 

-

 

1

 

1

 

 

-

 

7

 

7

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing loans transferred to OREO

 

(2,346)

 

-

 

(2,346)

 

 

(6,196)

 

-

 

(6,196)

 

Non-performing loans charged-off

 

(1,515)

 

(624)

 

(2,139)

 

 

(3,906)

 

(976)

 

(4,882)

 

Loans returned to accrual status / loan collections

 

(18,956)

 

(992)

 

(19,948)

 

 

(23,668)

 

(4,647)

 

(28,315)

 

Loans transferred to held-for-sale

 

-

 

-

 

-

 

 

-

 

(1,773)

 

(1,773)

Ending balance NPLs

$

217,703

$

7,862

$

225,565

 

$

217,703

$

7,862

$

225,565

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended June 30, 2022

 

For the six months ended June 30, 2022

(Dollars in thousands)

 

BPPR

 

Popular U.S.

 

Popular, Inc.

 

 

BPPR

 

Popular U.S.

 

Popular, Inc.

Beginning balance

$

-

$

-

$

-

 

$

485

$

-

$

485

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans returned to accrual status / loan collections

 

-

 

-

 

-

 

 

(485)

 

-

 

(485)

Ending balance NPLs

$

-

$

-

$

-

 

$

-

$

-

$

-

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended June 30, 2021

 

For the six months ended June 30, 2021

(Dollars in thousands)

 

BPPR

 

Popular U.S.

 

Popular, Inc.

 

 

BPPR

 

Popular U.S.

 

Popular, Inc.

Beginning balance

$

14,877

$

7,523

$

22,400

 

$

21,497

$

7,560

$

29,057

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New non-performing loans

 

-

 

-

 

-

 

 

-

 

12,141

 

12,141

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing loans charged-off

 

-

 

(523)

 

(523)

 

 

(6,620)

 

(523)

 

(7,143)

 

Loans returned to accrual status / loan collections

 

-

 

-

 

-

 

 

-

 

(12,178)

 

(12,178)

 

Loans transferred to held-for-sale

 

-

 

(7,000)

 

(7,000)

 

 

-

 

(7,000)

 

(7,000)

Ending balance NPLs

$

14,877

$

-

$

14,877

 

$

14,877

$

-

$

14,877

157

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended June 30, 2022

 

For the six months ended June 30, 2022

(Dollars in thousands)

 

BPPR

 

Popular U.S.

 

Popular, Inc.

 

 

BPPR

 

Popular U.S.

 

Popular, Inc.

Beginning balance

$

306,560

$

21,826

$

328,386

 

$

333,887

$

21,969

$

355,856

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New non-performing loans

 

36,665

 

3,793

 

40,458

 

 

74,858

 

8,593

 

83,451

 

Advances on existing non-performing loans

 

-

 

110

 

110

 

 

-

 

244

 

244

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing loans transferred to OREO

 

(10,627)

 

-

 

(10,627)

 

 

(20,971)

 

(85)

 

(21,056)

 

Non-performing loans charged-off

 

(295)

 

(127)

 

(422)

 

 

(762)

 

(127)

 

(889)

 

Loans returned to accrual status / loan collections

 

(47,633)

 

(5,410)

 

(53,043)

 

 

(102,342)

 

(10,402)

 

(112,744)

Ending balance NPLs

$

284,670

$

20,192

$

304,862

 

$

284,670

$

20,192

$

304,862

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the quarter ended June 30, 2021

 

For the six months ended June 30, 2021

(Dollars in thousands)

 

BPPR

 

Popular U.S.

 

Popular, Inc.

 

 

BPPR

 

Popular U.S.

 

Popular, Inc.

Beginning balance

$

390,781

$

14,793

$

405,574

 

$

414,343

$

14,864

$

429,207

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New non-performing loans

 

43,432

 

4,774

 

48,206

 

 

101,829

 

9,097

 

110,926

 

Advances on existing non-performing loans

 

-

 

11

 

11

 

 

-

 

16

 

16

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing loans transferred to OREO

 

(8,257)

 

-

 

(8,257)

 

 

(9,058)

 

-

 

(9,058)

 

Non-performing loans charged-off

 

(4,297)

 

-

 

(4,297)

 

 

(13,019)

 

(1)

 

(13,020)

 

Loans returned to accrual status / loan collections

 

(51,006)

 

(6,255)

 

(57,261)

 

 

(123,442)

 

(10,653)

 

(134,095)

Ending balance NPLs

$

370,653

$

13,323

$

383,976

 

$

370,653

$

13,323

$

383,976

158

 

Loan Delinquencies

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

 

Table 25 - Loan Delinquencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

June 30, 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

$

132,271

$

14,545,301

 

0.91

%

$

161,251

$

13,732,701

 

1.17

%

Construction

 

7,498

 

790,920

 

0.95

 

 

485

 

716,220

 

0.07

 

Leasing

 

16,799

 

1,480,222

 

1.13

 

 

14,379

 

1,381,319

 

1.04

 

Mortgage [1]

 

1,001,478

 

7,261,955

 

13.79

 

 

1,141,082

 

7,427,196

 

15.36

 

Consumer

 

173,074

 

6,292,538

 

2.75

 

 

173,896

 

5,983,121

 

2.91

 

Loans held-for-sale

 

-

 

28,546

 

-

 

 

-

 

59,168

 

-

 

Total

$

1,331,120

$

30,399,482

 

4.38

%

$

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 June 30, 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 June 30, 2022, the allowance for credit losses amounted to $682 million, a decrease of $14 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 2.8% is expected for both Puerto Rico and the United States, compared to 3.5% and 3.7%, respectively, in the previous quarter. Changes in assumptions related to fiscal stimulus, higher energy prices and tighter financial market conditions contributed to the reduction. The 2022 average unemployment rate is forecasted at 6.9% and 3.5% for Puerto Rico and the United States, respectively, improving from 7.3% and 3.6%, respectively, in the previous forecast. Puerto Rico’s unemployment rate forecast benefits from the Bureau of Labor Statistics (“BLS”) revisions that show a stronger than expected labor market.

 

159

 

The ACL for BPPR decreased by $14 million to $581 million at June 30, 2022, when compared to December 31, 2021. The ACL for Popular U.S. remained flat at $101 million at June 30, 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. 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 June 30, 2022, amounted to $9.9 million, compared to a net benefit of $17.5 million in the same period in the prior year. The increase was prompted by higher NCOs, as the prior period was a recovery of $1.3 million, compared to $6.1 million in the second quarter of 2022, coupled with the ACL releases explained above. 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 26 - Allowance for Credit Losses - Loan Portfolios

 

June 30, 2022

(Dollars in thousands)

Commercial

Construction

 

Mortgage

Leasing

Consumer

Total

 

Total ACL

$

209,630

 

$

6,913

 

$

148,305

 

$

19,037

 

$

297,865

 

$

681,750

 

Total loans held-in-portfolio

 

14,545,301

 

 

790,920

 

 

7,261,955

 

 

1,480,222

 

 

6,292,538

 

 

30,370,936

 

ACL to loans held-in-portfolio

 

1.44

%

 

0.87

%

 

2.04

%

 

1.29

%

 

4.73

%

 

2.24

%

Total non-performing loans held-in-portfolio

$

103,939

 

$

-

 

$

304,862

 

$

4,665

 

$

64,458

 

$

477,924

 

ACL to non-performing loans held-in-portfolio

 

201.69

%

 

N.M.

 

 

48.65

%

 

408.08

%

 

462.11

%

 

142.65

%

N.M. - Not meaningful.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 27 - 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.

160

 

Annualized net charge-offs (recoveries)

 

The following tables present annualized net charge-offs (recoveries) to average loans held-in-portfolio (“HIP”) by loan category for the quarters and six months ended June 30, 2022 and 2021.

 

Table 28 - Annualized Net Charge-offs (Recoveries) to Average Loans Held-in-Portfolio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters ended

 

 

June 30, 2022

 

June 30, 2021

 

 

BPPR

 

Popular U.S.

 

Popular Inc.

 

BPPR

 

Popular U.S.

 

Popular Inc.

 

Commercial

 

(0.18)

%

0.01

%

(0.09)

%

(0.51)

%

(0.03)

%

(0.30)

%

Construction

 

(1.06)

 

―

 

(0.20)

 

(1.41)

 

0.05

 

(0.18)

 

Mortgage

 

(0.29)

 

0.02

 

(0.24)

 

0.06

 

(0.15)

 

0.03

 

Leasing

 

0.18

 

―

 

0.18

 

0.12

 

―

 

0.12

 

Consumer

 

0.88

 

0.72

 

0.88

 

0.55

 

1.57

 

0.59

 

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

 

0.10

%

0.03

%

0.08

%

(0.03)

%

0.01

%

(0.02)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months ended

 

 

June 30, 2022

 

June 30, 2021

 

 

BPPR

 

Popular U.S.

 

Popular Inc.

 

BPPR

 

Popular U.S.

 

Popular Inc.

 

Commercial

 

(0.20)

%

(0.02)

%

(0.12)

%

(0.29)

%

(0.01)

%

(0.17)

%

Construction

 

(1.29)

 

(0.36)

 

(0.52)

 

7.32

 

0.03

 

1.25

 

Mortgage

 

(0.24)

 

0.01

 

(0.20)

 

0.28

 

(0.09)

 

0.23

 

Leasing

 

0.03

 

―

 

0.03

 

0.08

 

―

 

0.08

 

Consumer

 

0.91

 

0.43

 

0.89

 

0.52

 

1.99

 

0.58

 

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

 

0.10

%

(0.02)

%

0.07

%

0.17

%

0.04

%

0.14

%

 

NCOs for the quarter ended June 30, 2022 amounted to $6.1 million, an unfavorable variance by $7.4 million when compared to the same period in 2021. The BPPR segment increased by $6.8 million mainly driven by higher commercial and consumer NCOs by $6.5 million and $5.4 million, respectively, in part offset by a decrease of $5.4 million in the mortgage NCOs. The commercial NCOs reflects an unfavorable variance of $6.5 million, as the prior period was a net recovery of $9.9 million. The consumer NCOs increase was mainly related to post-pandemic normalization, as NCOs continue at historical low levels. The PB segment NCOs remained essentially flat. 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 $1.6 billion at June 30, 2022, decreasing by $8 million, from December 31, 2021. A total of $724 million of these TDRs are related to guaranteed loans, which are in accruing status. TDRs in the BPPR segment amounted to $1.6 billion, a decrease of $8 million, mainly related to decreases of $7 million and $3 million in the consumer and mortgage TDRs, respectively. The Popular U.S. segment TDRs remained flat at $15 million from December 31, 2021. TDRs in accruing status increased by $17 million from December 31, 2021, while non-accruing TDRs decreased by $25 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.

 

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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.

 

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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

 

Internal Control Over Financial Reporting

There have been no changes in the Corporation’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 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 Form10-K and under “Part II–Item1A- Risk Factors” of any subsequent Quarterly Report on Form10-Q.These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. Also refer to the discussion in “Part I- Item 2– Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report for additional information that may supplement or update the discussion of the risk factors below and in our 2021 Form10-K and any subsequent Quarterly Reports on Form10-Q. The risks described in our 2021 Form 10-K and in our Quarterly Reports on Form 10-Q are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, liquidity, results of operations and capital position. There have been no material changes to the risk factors previously disclosed under “Part I- Item 1- A- Risk Factors” in our 2021 Form 10-K, except for the risks included below which supplement the risk factors described in our 2021 Form 10-K.

Risk Factors

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Complying with economic and trade sanctions programs and anti-money laundering laws and regulations can increase our operational and compliance costs and risks. If we, and our subsidiaries, affiliates or third-party service providers, are found to have failed to comply with applicable economic and trade sanctions programs and anti-money laundering laws and regulations, we could be exposed to fines, sanctions and penalties, and other regulatory actions, as well as governmental investigations.

 

As a federally regulated financial institution, we must comply with regulations and economic and trade sanctions and embargo programs administered by the Office of Foreign Assets Control (“OFAC”) of the U.S. Treasury, as well as anti-money laundering laws and regulations, including those under the Bank Secrecy Act.

 

Economic and trade sanctions regulations and programs administered by OFAC prohibit U.S.-based entities from entering into or facilitating unlicensed transactions with, for the benefit of, or in some cases involving the property and property interests of, persons, governments or countries designated by the U.S. government under one or more sanctions regimes, and also prohibit transactions that provide a benefit that is received in a country designated under one or more sanctions regimes. We are also subject to a variety of reporting and other requirements under the Bank Secrecy Act, including the requirement to file suspicious activity and currency transaction reports, that are designed to assist in the detection and prevention of money laundering, terrorist financing and other criminal activities. In addition, as a financial institution we are required to, among other things, identify our customers, adopt formal and comprehensive anti-money laundering programs, scrutinize or altogether prohibit certain transactions of special concern, and be prepared to respond to inquiries from U.S. law enforcement agencies concerning our customers and their transactions. Failure by the Corporation, its subsidiaries, affiliates or third-party service providers to comply with these laws and regulations could have serious legal and reputational consequences for the Corporation, including the possibility of regulatory enforcement or other legal action, including significant civil and criminal penalties. We can also incur higher costs and face greater compliance risks in structuring and operating our businesses to comply with these requirements. The markets in which we operate heighten these costs and risks.

 

We have established risk-based policies and procedures designed to assist us and our personnel in complying with these applicable laws and regulations. With respect to OFAC regulations and economic and trade sanction programs, these policies and procedures employ software to screen transactions for evidence of sanctioned-country and person’s involvement. Consistent with a risk-based approach and the difficulties in identifying and where applicable, blocking and rejecting transactions of our customers or our customers’ customers that may involve a sanctioned person, government or country, there can be no assurance that our policies and procedures will prevent us from violating applicable laws and regulations in transactions in which we engage, and such violations could adversely affect our reputation, business, financial condition and results of operations.

 

From time to time we have identified and voluntarily self-disclosed to OFAC transactions that were not timely identified, blocked or rejected by our policies, controls and procedures for screening transactions that might violate the regulations and economic and trade sanctions programs administered by OFAC. For example, during the second quarter of 2022, BPPR entered into a settlement agreement with OFAC with respect to certain transactions processed on behalf of two employees of the Government of Venezuela, in apparent violation of U.S. sanctions against Venezuela. Popular agreed to pay approximately $256,000 to settle the apparent violations, which had been self-disclosed to OFAC. There can be no assurances that any failure to comply with U.S. sanctions and embargoes, or with anti-money laundering laws and regulations, will not result in material fines, sanctions or other penalties being imposed on us.

 

Furthermore, if the policies, controls, and procedures of one of the Corporation’s third-party service providers do not prevent it from violating applicable laws and regulations in transactions in which it engages, such violations could adversely affect its ability to provide services to us, and, in the case of Evertec, could adversely affect the value of our investment in Evertec.

 

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

 

Information security risks for large financial institutions such as Popular have increased significantly in recent years in part because of the proliferation of new technologies, such as Internet and mobile banking to conduct instant financial transactions anywhere globally, growing geo-political threats, such as the ongoing Russian conflict in Ukraine, and the increased sophistication and

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activities of organized crime, hackers, terrorists, nation-states, hacktivists and other parties. In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to transmit and store sensitive data. We employ a layered defensive approach that employs people, processes and technology to manage and maintain cybersecurity controls through a variety of preventative and detective tools that monitor, block, and provide alerts regarding suspicious activity and identify suspected advanced persistent threats. Notwithstanding our defensive measures and the significant resources we devote to protect the security of our systems, there is no assurance that all of our security measures will be effective at all times, especially as the threats from cyber-attacks is continuous and severe. The risk of a security breach due to a cyber attack could increase in the future as we continue to expand our mobile banking and other internet-based product offerings, Popular’s use of the cloud for system development and hosting and internal use of internet-based products and applications.

 

We continue to detect and identify attacks that are becoming more sophisticated and increasing in volume, as well as attackers that respond rapidly to changes in defensive countermeasures. The most significant cyber-attack risks that we may face are e-fraud, denial-of-service (DDoS), ransomware, computer intrusion and the exploitation of software zero-day vulnerabilities that might result in disruption of services and in the exposure or loss of customer or proprietary data. Loss from e-fraud occurs when cybercriminals compromise our systems or the systems of our customers and extract funds from customer’s credit cards or bank accounts, including through brute force, password spraying and credential stuffing attacks directed at gaining unauthorized access to individual accounts. Denial-of-service attacks intentionally disrupt the ability of legitimate users, including customers and employees, to access networks, websites and online resources. Computer intrusion attempts either direct or through email, text or voice messages, including using brand impersonation (regularly referred to as phishing, vishing and smishing), might result in the compromise of sensitive customer data, such as account numbers, credit cards and social security numbers, and could present significant reputational, legal and regulatory costs to Popular if successful.

 

We have been the target of phishing, smishing and vishing attacks in the past, targeting both our customers and employees through brand, email, text and voicemail impersonation, that have compromised the email accounts of certain of our customers and employees or have resulted in our customer’s being deceived into revealing their information to attackers. We continually monitor and address those vulnerabilities and continue to enhance our security measures to detect and prevent such incidents, while enhancing employee and customer trainings and awareness campaigns. There can be no assurances, however, that there will not be further compromises of sensitive customer information in the future. Our customer-facing platforms are also routinely attacked by threat actors aiming to gain unauthorized access to our clients’ accounts. Popular has recently implemented certain defensive measures in response to brute force attacks on one of our platforms and, while our investigation of these brute force attacks remains ongoing, we have to date not experienced material losses in connection with these attacks. Cyber-security risks have also been recently exacerbated by the discovery of zero-day vulnerabilities in widely distributed third party software, such as the vulnerability identified in December 2021 in the Apache log4j, which could affect Popular’s or any of its service provider’s systems.

 

The increased use of remote access and third-party video conferencing solutions during the COVID-19 pandemic, to enable work-from-home arrangements for employees and facilitating the use of digital channels by our customers, has increased our exposure to cyber attacks. In addition, a third party could misappropriate confidential information obtained by intercepting signals or communications from mobile devices used by Popular’s customers or employees. Recent events, including the Russian conflict in Ukraine, have also illustrated increased geo-political factors and the risks related to supply-chain compromises and de-stabilizing activities linked to nation-state sponsored activity as an increasing trend to monitor actively. Risks and exposures related to cyber security attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, including the rise in the use of cyber-attacks as geopolitical weapons, as well as the expanding use of digital channels for banking, such as mobile banking and other technology-based products and services used by us and our customers. Although we are regularly targeted by unauthorized threat-actor activity, we have not, to date, experienced any material losses as a result of any cyber-attacks.

 

A successful compromise or circumvention of the security of our systems could have serious negative consequences for us, including significant disruption of our operations and those of our clients, customers and counterparties, misappropriation of confidential information of us or that of our clients, customers, counterparties or employees, or damage to computers or systems used by us or by our clients, customers and counterparties, and could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, customer dissatisfaction, significant litigation exposure and harm to our reputation, all of which could have a material adverse effect on us. For example, if personal, non-public, confidential or proprietary information in our possession were to be mishandled, misused or stolen, we could suffer significant

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regulatory consequences, reputational damage and financial loss. The extent of a particular cyber attack and the steps that we may need to take to investigate the attack may not be immediately clear, and it may take a significant amount of time before such an investigation can be completed. While such an investigation is ongoing, Popular may not necessarily know the full extent of the harm caused by the cyber attack, and that damage may continue to spread. These factors may inhibit our ability to provide rapid, full and reliable information about the cyber attack to our clients, customers, counterparties and regulators, as well as the public. Furthermore, it may not be clear how best to contain and remediate the potential harm caused by the cyber attack, and certain errors or actions could be repeated or compounded before they are discovered and remediated. Any or all of these factors could further increase the impact of the incident and thereby the costs and consequences of a cyber attack. For a discussion of the guidance that federal banking regulators have released regarding cybersecurity and cyber risk management standards, see “Regulation and Supervision” in Part I, Item 1 — Business, included in the Form 10-K for the year ended December 31, 2021. Such mishandling or misuse could include, for example, if such information were erroneously provided to parties who are not permitted to have the information, either by fault of our systems, employees, or counterparties, or where such information is intercepted or otherwise inappropriately taken by third parties.

 

We also rely on third parties for the performance of a significant portion of our information technology functions and the provision of information security, technology and business process services. As a result, a successful compromise or circumvention of the security of the systems of these third-party service providers could have serious negative consequences for us, including misappropriation of confidential information of us or that of our clients, customers, counterparties or employees, or other negative implications identified above with respect to a cyber-attack on our systems, which could have a material adverse effect on us. The most important of these third-party service providers for us is Evertec, and certain risks particular to Evertec are discussed under “Risks Relating to our Relationship with Evertec”. During 2021, we determined that, as a result of the widely reported breach of Accellion, Inc.’s File Transfer Appliance tool, which was being used at the time of such breach by a U.S.-based third-party advisory services vendor of Popular, personal information of certain Popular customers was compromised. As a result, Popular notified, as required or otherwise deemed appropriate, customers identified as affected by the incident. Although we are not aware of fraudulent activity in connection with this incident, Popular’s networks and systems were not impacted, and our third-party service provider agreed to cover external remediation costs associated with the incident. A compromise of the personal information of our customers maintained by third party vendors could result in significant regulatory consequences, reputational damage and financial loss to us. The success of our business depends in part on the continuing ability of these (and other) third parties to perform these functions and services in a timely and satisfactory manner, which performance could be disrupted or otherwise adversely affected due to failures or other information security events originating at the third parties or at the third parties’ suppliers or vendors (so-called “fourth party risk”). We may not be able to effectively monitor or mitigate fourth-party risk, in particular as it relates to the use of common suppliers or vendors by the third parties that perform functions and services for us.

 

As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our layers of defense or to investigate and remediate any information security vulnerabilities or incidents. System enhancements and updates may also create risks associated with implementing new systems and integrating them with existing ones, including risks associated with supply chain compromises and the software development lifecycle of the systems used by us and our service providers. Due to the complexity and interconnectedness of information technology systems, the process of enhancing our layers of defense can itself create a risk of systems disruptions and security issues. In addition, addressing certain information security vulnerabilities, such as hardware-based vulnerabilities, may affect the performance of our information technology systems. The ability of our hardware and software providers to deliver patches and updates to mitigate vulnerabilities in a timely manner can introduce additional risks, particularly when a vulnerability is being actively exploited by threat actors. Moreover, our ability to timely mitigate vulnerabilities and manage such risks, given the rise in number of required patches and third-party software “zero-day vulnerabilities”, may impact our day-to-day operations, the availability of our systems and delay the deployment of technology enhancements and innovation.

 

If Popular’s operational systems, or those of external parties on which Popular’s businesses depend, are unable to meet the requirements of our businesses and operations or bank regulatory standards, or if they fail or have other significant shortcomings, Popular could be materially and adversely affected.

 

We are dependent on Evertec for certain of our core financial transaction processing and information technology and security services, which exposes us to a number of operational risks that could have a material adverse effect on us.

 

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In connection with the sale of a 51% ownership interest in Evertec in the third quarter of 2010, we entered into a long-term Amended and Restated Master Services Agreement (the “Original MSA”) with Evertec, pursuant to which we agreed to receive from Evertec, on an exclusive basis, certain core banking and financial transaction processing and information technology and security services.

 

As previously disclosed in our Current Report on Form 8-K filed with the SEC on July 1, 2022, on July 1, 2022 (the “Evertec Closing”) we closed the transactions contemplated by the Asset Purchase Agreement dated February 24, 2022 by and among Evertec, Evertec Group, LLC, BPPR and Popular, pursuant to which we purchased from Evertec certain information technology and related assets used by Evertec to service certain of BPPR’s key channels (the “Acquired Assets”) and assumed certain liabilities relating thereto (the “Evertec Transaction”). On the Evertec Closing, the parties to the Evertec Transaction also amended and restated certain commercial agreements, including the Original MSA (the “Second A&R MSA”), pursuant to which Evertec will continue to provide various necessary financial transaction processing, security and technology services to Popular, BPPR and their respective subsidiaries, which services were previously provided under the Original MSA. The term of the Second A&R MSA will expire on September 30, 2028, a three-year extension of the term of the Original MSA. We also amended and restated the agreement pursuant to which BPPR sponsors Evertec as an independent sales organization with respect to certain credit card associations, which contains certain exclusivity and non-solicitation restrictions with respect to merchant services (the “ISO Agreement”), as well as the agreement pursuant to which BPPR has committed to support the ATH brand and network (the “ATH Agreement”). Although the Evertec Transaction narrowed the scope of services which we are dependent on Evertec to obtain and released us from exclusivity restrictions that limited our ability to engage other third-party providers of financial technology services, we continue to be dependent on Evertec for the provision of essential services to our business, including our core banking business, and there can be no assurances that the quality of the services will be appropriate or that Evertec will be able to continue to provide us with the necessary financial transaction processing, security and technology services. As a result, our relationship with Evertec exposes us to operational, cybersecurity and business risks that could have a material adverse effect on us.

 

As a result of our agreements with Evertec, we are particularly exposed to the operational risks of Evertec, including those relating to a breakdown or failure of Evertec’s systems or internal controls environment, including as a result of security breaches or attacks, employee error or malfeasance, system breakdowns, vulnerabilities, obsolescence or otherwise. Over the term of the Original MSA, we experienced various interruptions and delays in key services provided by Evertec, as well as cyber breaches, as a result of system breakdowns, misconfigurations and instances of application obsolescence, which has led in the past to exposure of BPPR customer information. There can be no assurances that there will not be further compromises of sensitive customer information in the future because of the aforementioned causes. The continuance or increase in service delays or interruptions, vulnerabilities in Evertec’s information systems, or cyberattacks to, or breaches to the confidentiality of the information that resides in such systems, could harm our business by disrupting our delivery of services, expose us to regulatory, legal and compliance risk and damage our reputation, which could have a material adverse impact on our financial condition and results of operations. Evertec’s inability to timely address evolving cybersecurity threats may further exacerbate these risks. For further information regarding our cybersecurity risks, refer to the “We are subject to a variety of cybersecurity risks that, if realized, could adversely affect how we conduct our business” risk factor. Our ability to recover from Evertec for breach of the Second A&R MSA, including the failure to meet the service levels or comply with other obligations regarding information security provided for therein, may not fully compensate us for the damages we may suffer as a result of such breach.

 

Popular faces significant and increasing competition in the rapidly evolving financial services industry. Considering our continued dependence on Evertec, if Evertec is unable to meet constant technological changes and react quickly to meet new industry standards, we may be unable to enhance our current services and introduce new products and services in a timely and cost-effective manner, placing us at a competitive disadvantage and significantly affecting our business, financial condition and results of operations.

 

We operate in a highly competitive environment in which we must evolve and adapt to the significant changes as a result of technological advances. For example, technological advances and the growth of e-commerce have made it possible for non-depository institutions to offer products and services that traditionally were banking products. We compete on the basis of the quality and variety of products and services offered, innovation, price, ease of use, reputation and transaction execution. To compete effectively, we need to constantly enhance and modify our products and services and introduce new products and services to attract and retain clients or to match products and services offered by our competitors, including technology companies and other nonbank firms that are engaged in providing similar products and services. Although the Evertec Transaction eliminated certain provisions of the Original MSA that required us to use Evertec exclusively to develop and implement new or enhanced products and services, and

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is expected to improve Popular’s ability to manage and control the development of the customer channels supported by the Acquired Assets, Popular expects that it will continue to depend on Evertec’s technology services to operate and control current products and services and to implement future products and services, making our success dependent on Evertec’s ability to timely complete and introduce these enhancements and new products and services in a cost-effective manner. Our ability to enhance our customer channels is also dependent on Evertec timely delivering core application programming interfaces (the “Core APIs”) that meet BPPR’s requirements, which Evertec has committed to develop under the Second A&R MSA. The Core APIs are necessary for BPPR to connect future enhancements to the Acquired Assets to existing Evertec core applications.

 

Some of our competitors rely on financial services technology and outsourcing companies that are much larger than Evertec, serve a greater number of clients than Evertec, and may have better technological capabilities and product offerings than Evertec. Furthermore, financial services technology companies typically make capital investments to develop and modify their product and service offerings to facilitate their customers’ compliance with the extensive and evolving regulatory and industry requirements, and in most cases such costs are borne by the technology provider. Because of our contractual relationship with Evertec, and because Popular is the sole customer of certain of Evertec’s services and products, we have in the past borne the full cost of such developments and modifications and may be required to do so in the future, subject to the terms of the Second A&R MSA.

 

Moreover, the terms, speed, scalability and functionality of certain of Evertec’s technology services are not competitive when compared to offerings from its competitors. Evertec’s failure to sufficiently invest in and upscale its technology and services infrastructure to meet the rapidly changing technology demands of our industry may result in us being unable to meet customer expectations and attract or retain customers. Any such impact could, in turn, reduce Popular’s revenues, place us in a competitive disadvantage and significantly affect our business, financial condition and results of operations. While the closing of the Evertec Transaction narrowed the scope of services which we are dependent on Evertec to obtain and released us from exclusivity restrictions that limited our ability to engage other third-party providers of financial technology services, it also resulted in extensions of certain existing commercial agreements with Evertec and, as a result, have prolonged the duration of our exposure to the risks presented by Evertec’s technological capabilities and its failures to enhance its products and services and otherwise meet evolving demands.

 

The transition to new financial services technology providers, and the replacement of services currently provided to us by Evertec, will be lengthy and complex.

 

Switching from one vendor of core bank processing and related technology and security services to a new vendor is a complex process that carries business and financial risks. The implementation cycle for such a transition can be lengthy and require significant financial and management resources from us. Such a transition can also expose us, and our clients, to increased costs (including conversion costs), business disruption, as well as operational and cybersecurity risks. Upon the transition of all or a portion of existing services provided by Evertec to a new financial services technology provider, either (i) at the end of the term of the Second A&R MSA and related agreements or (ii) earlier upon the termination of any service for convenience under the Second A&R MSA, these transition risks could result in an adverse effect on our business, financial condition and results of operations. Although Evertec has agreed to provide certain transition assistance to us in connection with the termination of the Second A&R MSA, we are ultimately dependent on their ability to provide those services in a responsive and competent manner. Furthermore, we may require transition assistance from Evertec beyond the term of the Second A&R MSA, delaying and lengthening any transition process away from Evertec while increasing related costs.

 

Under the Second A&R MSA, we are able to terminate services for convenience with 180 day prior notice. We expect to exercise during the term of the Second A&R MSA the right to terminate certain services for convenience and to transition such services to other service providers prior to the expiration of the Second A&R MSA, subject to complying with the revenue minimums contemplated in the Second A&R MSA and certain other conditions. In practice, in order to switch to a new provider for a particular service, we will have to commence procuring and working on a transition process for such service significantly in advance of its termination and, in any case, much earlier than the automatic renewal notice date or the expiration date of the Second A&R MSA, and such process may extend beyond the current term of the Second A&R MSA. Furthermore, if we were unsuccessful or decided not to complete the transition after expending significant funds and management resources, it could also result in an adverse effect on our business, financial condition and results of operations.

The value of our remaining ownership interest in Evertec could be adversely affected if our relationship with Evertec were to deteriorate materially. The Evertec Transaction also resulted in a material reduction in the value of our ownership

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interest in Evertec, eliminated our rights to nominate directors to Evertec’s board of directors and will result in the elimination of the income we report from this investment.

Prior to the closing of the Evertec Transaction, we held a 16.19% ownership interest in Evertec. We continue to have a 10.6% ownership interest in Evertec and account for this investment under the equity method. As a result, we include our investment in Evertec in other assets and our proportionate share of income or loss is included in other operating income in our consolidated statements of operations. For 2021, our share of Evertec’s changes in equity recognized in income was $26 million. The carrying value of our investment in Evertec was, as of December 31, 2021, approximately $110 million. Meanwhile, the services Evertec delivers to us represent a significant portion of Evertec’s revenues (approximately 41% for 2021), even after giving effect to the Evertec Transaction. As a result, if we were not to renew the Second A&R MSA and our other current agreements with Evertec, or otherwise terminate them before the end of their terms, Evertec’s financial position and results of operations could be materially adversely affected and the value of our remaining ownership interest in Evertec may be materially reduced. Furthermore, revenue from Evertec’s merchant acquiring business, which constitutes approximately 24% of Evertec’s revenues, depends, in part, on Evertec’s alliance with BPPR. If such relationship were to suffer, or be terminated, Evertec’s business may be adversely affected.

 

Future sales of our Evertec common stock, or the perception that these sales could occur, could also adversely affect the market price of Evertec common stock and thus the value we may be able to realize on the sale of our remaining holdings. In particular, in connection with the Evertec Transaction, we have entered into a Registration Rights and Sell-Down Agreement at the closing of the Evertec Transaction, pursuant to which we are required to use commercially reasonable efforts to sell to third parties a sufficient number of our shares of Evertec common stock so as to reduce our ownership of shares of Evertec common stock to no more than 4.99% of the total number of shares of Evertec common stock outstanding on or before September 29, 2022. In addition, the Registration Rights and Sell-Down Agreement provides that any shares of Evertec common stock we own in excess of 4.5% at the end of such ninety-day period will be converted into shares of Evertec non-voting preferred stock that convert back into common stock when transferred in a widespread public distribution or in certain other qualifying transfers.

 

The market price of Evertec common stock—and thus, the value we may be able to realize on the sale of our remaining holdings—could be negatively affected by the perception that further sales by us could occur as contemplated by the Registration Rights and Sell-Down Agreement, among other factors. Furthermore, the termination at the closing of the Evertec Transaction of the existing Stockholder Agreement between Popular and Evertec, which resulted in the elimination of Popular’s rights to nominate two directors to Evertec’s board of directors, among other rights, and Popular’s commitment under the Registration Rights and Sell-Down Agreement to reduce, within ninety days of the closing of the Evertec Transaction, its ownership of shares of Evertec common stock to no more than 4.99% of the total number of shares of Evertec common stock outstanding, is expected to eliminate Popular’s earnings from its equity investment in Evertec and subject the valuation of any remaining stake in Evertec to mark-to-market accounting and consequent exposure to market risk.

 

 

We are subject to additional risks relating to the Evertec Transaction.

There are numerous additional risks and uncertainties associated with the Evertec Transaction, including:

unforeseen events, including the COVID-19 pandemic, may materially diminish the expected benefits of the Evertec Transaction;

we will be required to devote significant attention and resources to post closing implementation efforts, which will involve a significant degree of technological complexity and reliance on Evertec and other third parties, including with respect to the set-up of developer tools required to manage the Acquired Assets;

we may be unable to retain the employees and third-party contractors hired or engaged by us in connection with the Evertec Transaction and who are necessary to operate and integrate the Acquired Assets;

we may be subject to incremental operational and security risks arising from the transfer of the Acquired Assets to BPPR, including those risks arising from, among other things, the activities required to execute network segmentation, the possibility of misconfiguration of access or security services during the transition period and during the implementation of new processes or security controls, the possibility of mismanagement of security services during the transition phase, and the need to develop a robust internal control framework;

the anticipated benefits of the Evertec Transaction could be limited if Evertec fails to deliver to BPPR, in a timely manner and in a manner that meets BPPR’s requirements, the Core APIs that Evertec has committed to develop in order for BPPR to connect future enhancements to the Acquired Assets to existing Evertec core applications;

168

 

we may be exposed to heightened business risks as a result of the extension until 2035 of BPPR’s exclusivity with Evertec in connection with its merchant acquiring business, as well as the extension until 2030 of BPPR’s commitment with respect to the ATH Network, in light of the pace of technology changes and competition in the payments industry;

Evertec’s strategy and investments after the closing of the Evertec Transaction may be refocused away from Popular towards other strategic initiatives;

and

we may not be able to execute the contemplated sell down of Evertec shares or otherwise receive any required regulatory approvals to effect a return to shareholders, via common stock repurchases, of any after-tax gains resulting from such sale.

 

Any of the foregoing risks and uncertainties could have a material adverse effect on our earnings, cash flows, financial condition, and/or stock price.

 

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

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

Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (2)

April 1 - April 30

-

$

-

-

$100,000,000

May 1 - May 31

17,042

 

79.62

-

100,000,000

June 1 - June 30

-

 

-

-

100,000,000

Total

17,042

$

79.62

-

$100,000,000

(1) Includes 17,042 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) 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 of $400 million with respect to its common stock, which was completed on July 12, 2022. $100 million remains available for repurchase pursuant to the capital plan. Refer to Note 17 to the Consolidated Financial Statements for additional information.

 

Item 3. Defaults Upon Senior Securities

None.

 

 

Item 4. Mine Safety Disclosures

Not applicable.

 

 

Item 5. Other Information

None.

 

169

 

 

Item 6. Exhibits

 

Exhibit Index

 

Exhibit No

Exhibit Description

10.1

Second Amended and Restated Master Service Agreement, dated as of July 1, 2022, among Popular, Inc., Banco Popular de Puerto Rico, and Evertec Group, LLC and its Subsidiaries (Incorporated by reference to Exhibit 99.1 on Form 8-K filed on July 1, 2022.)

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 June 30, 2022, formatted in Inline XBRL (included within the Exhibit 101 attachments)(1)

 

 

(1) Included herewith

170

 

SIGNATURES

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

 

 

POPULAR, INC.

 

(Registrant)

 

 

Date: August 9, 2022

By: /s/ Carlos J. Vázquez

 

Carlos J. Vázquez

 

Executive Vice President &

 

Chief Financial Officer

 

 

Date: August 9, 2022

By: /s/ Jorge J. García

 

Jorge J. García

 

Senior Vice President & Corporate Comptroller

171

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